Werner Enterprises, Inc.

Good afternoon and welcome to Werner Enterprises' third quarter 2025 earnings conference call. All lines are in a listen-only mode until after the presentation. 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 touchtone phone. To withdraw your question, please press star and then two. Please note that 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, sir.

Good afternoon, everyone. Earlier today, we issued our earnings release with our third quarter results. The release and 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. Today, I will speak to what we are seeing in the markets. how that is translating into our performance and what we are doing from a strategic standpoint to further position Werner for long-term growth. While the second quarter was more favorable, the third quarter presented some challenges, namely in our one-way business. However, there are several positive developments that we can highlight from the quarter. In logistics, we continued a double-digit growth trajectory with lower operating costs year over year, despite some anticipated change in mix. In one-way trucking, revenue per total mile increased. the fifth consecutive quarter of year over year improvement and in dedicated revenue grew sequentially and year over year as momentum continued from recent business awards and startups. We are building a foothold in new verticals like tech and aftermarket automotive parts. Our new customers are seeing the value of our strength and scale and dedicated in these new applications, but there is a short term upfront investment as we pursue these opportunities. In terms of the challenges in the quarter, In logistics, we experienced margin pressure from mixed changes, and in one-way, we saw decreased miles per truck, although we view this as temporary as one-way production has been recovering throughout October. Startup costs in dedicated were more elevated compared to the second quarter and more than we anticipated. Overall, as market dynamics remain unpredictable, we are keeping focus where it matters most, on delivering superior value to our customers and positioning Warner for long-term success. We remain confident in our business fundamentals and progress that we are achieving toward our long-term goals and strategic objectives. Moving to slide five, our focus remains on three overarching priorities, driving growth in core business, driving operational excellence as a core competency, and driving capital efficiencies. Here's where we are on these priorities. First, driving growth in core business. Our dedicated fleet is growing, and conversations with customers regarding the cost advantages of four higher dedicated fleets are resonating. We've been awarded several new fleets, and the pipeline remains strong, with momentum growing in new and attractive end markets of choice. Service levels are high and have been recognized recently by several strategic shippers, naming Warner Dedicated Carrier of the Year. All logistics divisions produced top-line growth the past two consecutive quarters, with Intermodal achieving its highest quarterly revenue in 11 quarters. We continue to offer compelling solutions to our customers who are finding value and entrusting us to solve their supply chain challenges. Second, driving operational excellence is a core competency. This priority is anchored by a culture of safety, service, reducing our cost to serve profile, and transforming how we do business. We continue to trend favorably on our DOT preventable accidents per million miles, which declined low double-digit percents from Q3 of last year, and year-to-date is below our 5, 10, and 15-year averages. Our 2025 cost savings plan is progressing as planned, and by the end of third quarter, we achieved 80% of our $45 million in cost-saving target for 2025 and remain on track to reach the full goal by year-end. We are also progressing well on our technology transformation, positively impacting both efficiency and our safety performance. We've often said this is a multi-year journey, but we are in the later innings. As this takes hold, the benefits will be more evident. Our tech transformation, to say it plainly, it's a lot. The scope across our business is expansive. This is not just another tech upgrade. Rather, over the past four years, we've completely rebuilt our technology stack from the ground up, replacing every single component, creating a modern, scalable, secure cloud-based platform. While others bolt on AI to their legacy systems, we built an integrated foundation that connects every part of our business, from pricing and planning to safety, billing, recruiting, and more. Our cloud-first, cloud-now strategy is paying off. It allows us to take full advantage of our new tech stack, automating processes and layering new AI agents quickly and effectively. For example, our largest expense in one back-office department has been lowered by 40% over the last two years through modernization and AI automation while maintaining full service levels. We see the benefits of this in four areas, safety, data, analytics, and operational efficiency, and even more important, an enhanced experience for our customers, drivers, and third-party carriers. For example, technology benefits safety and our driver experience through enhanced in-cab situational awareness and visibility, such as through real-time anticipated weather and routing technology and installing side view cameras that talk seamlessly with other systems. The technology, data, and cloud storage of video also provides opportunities for enhanced training and driver development. Our third-party carriers benefit from optimized load matching based on our carrier preferences and enhanced communication. Operationally, we benefit from greater efficiencies across our business. Orchestrated intelligence is changing how we operate every day, consolidating systems, automating steps, and using AI to streamline end-to-end workflows. We see this efficiency growing across the shipment lifecycle, from pricing and load booking to route planning and invoicing. As a result, dwell time is down, planning efficiency is up, and thousands of customer and driver interactions are now handled each week by conversational AI. And most importantly, our customers benefit as we continue to roll out the Edge TMS platform and ecosystem across our business. Our goal is for our customers to have increasingly more information, visibility, and transparency. We've seen the financial benefits of our tech transformation reflected in logistics, with multiple quarters of meaningful OpEx reduction year over year while growing volume and top line. We're already seeing progress across our TTS segment. Given the size and complexity of managing assets and drivers at scale, the lift is larger, but so is the impact. Our final priority is driving capital efficiency. Despite the challenging operating environment, we continue to generate solid operating cash flow. maximize value on the sale of used equipment, and invest for growth. Let's turn to slide six and discuss our third quarter results. During the quarter, revenues increased 3% versus the prior year. Revenues net of fuel increased 4%. Adjusted EPS was negative 3 cents. Adjusted operating margin was 1.4%. And adjusted TTS operating margin was 1.9% net of fuel surcharge. We previously disclosed the legal settlement agreement entered into in October for $18 million. related to class action litigation that had lasted more than a decade involving claims related to driver pay. We also incurred legal fees of 3.4 million in the quarter related to this litigation. These costs represent a 26 cent negative impact to gap EPS, but are removed as part of adjusted EPS. In dedicated, we're continuing to see steady momentum in adding new business while maintaining solid retention. Shipper conversations continue to be constructive as customers remain focused on reliable and flexible transportation partners who offer creative solutions with high service and scale. In one-way truckload, revenue per total mile increased sequentially and was up modestly again year over year. Contractual rate changes that became effective were mitigated by spot rates that declined in July and August before increasing in the latter part of the quarter. One-way production, was lower year over year, driven by three factors. Fleet composition, onboarding of new drivers, and some network softness. We rebalanced driver capacity to launch new dedicated and specialized freight, which temporarily created inefficiencies in the one-way network. Overall, we're now on the other side of those transitions with a more focused one-way fleet, sustained dedicated growth, and the flexibility of our power link solution to capture higher margin peak freight as the one-way fleet moderates into Q4. In logistics, revenue increased sequentially and year over year. However, gross margin was pressured as the conclusion of higher margin project work was replaced with contractual business. This mixed change resulted in startup costs and contributed to an increase in purchase transportation. Before Chris discusses our financial results in more detail, let's move to slide seven to summarize our current near-term market outlook. Demand in Q3 was below normal seasonality for most of the quarter. However, we did see improvement in one-way trucking demand through September and so far in October. While concerns about consumer health persist, consumers remain resilient with rising retail sales and moderate inflation relief. These are supportive signs for retail. However, beneath the surface, there are other concerns. Consumer confidence is lower, real growth is modest, and many consumers are in preservation mode rather than expansion mode. As a result, we like our mix of retail being more concentrated in discount and value retailers. Retail inventories appear to have mostly normalized. While some inventory was pulled forward ahead of Q3, non-discretionary goods have had more consistent replenishment cycles. Spot rates trended higher starting in September and into October and are expected to follow normal seasonal patterns for the remainder of the year, with upside potential supported by ongoing capacity attrition. Customers have provided additional insights into their peak season volume estimates. Shipment forecasts vary by customer, but in total, peak volume and pricing are estimated to be similar to last year, with more balance across the network. Capacity continues to exit, and recent supply-demand tightening would suggest the pace is increasing, given developments surrounding non-domiciled CDLs, B-1 visas, and English language proficiency. As challenging operating conditions continue, we are also seeing an uptick in bankruptcies as a further limiter. We are well positioned on these issues and will benefit as the market comes more into balance. Given the dynamic tariff backdrop, uncertainty related to the cost of Class 8 trucks remains. We expect used truck values are likely to remain stable in the near term, particularly for assets with lower miles and remaining warranty. Class 8 net truck builds are now well below replacement levels and not only signal that a potential truckload capacity tightening could be ahead, but also that more carriers could be looking to refresh their fleet in the used equipment market. With that, I'll turn it over to Chris to discuss our third quarter results in more detail.