Q1 2020 Earnings Call
Thank you and good afternoon. Everyone with me today is our CFO John Steele. Let me Begin by saying that our heartfelt thoughts go out to those directly impacted by This Global pandemic and off family members the medical professionals the First Responders and all other essential workers who are bravely in heroically combating this terrible virus under very difficult circumstances. I'd like a silly think the men and women of Warner who are religiously focused determined and a hundred percent committed to serve during this challenging time.
I've been in constant communication.
Our Associates since the pandemic began, which I know based on their comments they very much appreciate.
Our Frontline professional drivers and mechanics take tremendous pride in being an essential service provider and safely delivering America's frame on time and damage-free while protecting their safety and health at least challenging times are non-driver Associates continue to step up in numerous ways to remain productive and efficient while ensuring the needs of our customers and drivers are being met. We remain flexible and strategic as we constantly adjust and adapt to the changes affecting our business and Associates.
I want to review my first quarter Financial results all provide specific details about how Warner is assessing proactively adapting and adjusting our business strategy in the rapidly changing covid-19 off.
Turning to slide for we've included some background information for 2019 / 3/4 of revenues were generated in our primary segments truckload transportation services for TTS off with the remainder coming from one of logistics. 60% of our trucks are in dedicated with 40% in one way truck Club just over half. Our revenues are in retail and almost 60% of our retail revenues are with discount retailers that focus more on selling necessity based products 20% of our revenues were in manufacturing and Industrial 17% off food and beverage and the remaining 12% in the logistics and other category.
We have a diversified customer base with nearly sixty percent of revenues coming from outside our top 10 customers and about two-thirds spread across their top 50.
Next let's move to slide five for a brief overview of our financial performance in the first quarter revenues decreased 1% to $593 million adjusted EPS 24% lower at $0.40 per share adjusted operating income declined 24% to 37.3 million and our adjusted operating margin declined 290 basis points, 6.3%
Regarding UPS as a reminder in January twenty twenty one of our trucks was involved in a serious accident. We discussed this on our previous earnings call in February what our self insurers for like ten million of liability coverage for this policy. And as appropriate excess liability insurance coverage with insurance carrier's above this amount. We approved the ten million of our self-insurance for this Thursday in the first quarter 2020, which reduced our earnings per share of my $0.11. This expense is included in our gaap EPs and adjusted eps.
Our insurance and claims expense in first quarter 2020 was thirteen point four million dollars higher than first quarter 2019 due to the $10 claim and a very few other larger Club replaced an extremely high priority in on safety at winter and are numerous Safety First programs are making excellent progress the frequency of our claims the first quarter of 2020 compared to first quarter 2018 on a permanent basis declined 14%
A 6 we provided a covid-19 business update that is posted in the investors section of our website that presentation included a business update slide that summarized our first quarter 2026 and trends for one-way truckload dedicated and Logistics. We updated our first quarter 2020 Freight demand commentary for each business unit in today's earnings release and what we'd be happy to answer your questions or clarify first-quarter demand Trends during the Q&A.
We ended first quarter with 7835 tow trucks in t t s a decrease of 110 trucks your rear and a declined of 165 trucks sequentially months later in the Carlyle provide you updates for our 2020 guidance metrics. Also, we are not repurchasing shares until we have more clarity on the duration and effects of covid-19. We intend to continue age limit in which we have paid for 34 consecutive years this Capital outlay currently results in slightly more than six million dollars per quarter at this point. I'll turn the call over to John, our first quarter Financial results in more detail, John.
Thank you, Derek and good afternoon beginning on slide seven. We provide some additional financial performance drivers for first-quarter starting with our TCS segment revenues for trucks per week at 3.2% met a fuel due primarily to higher miles for truck and to a lesser extent higher revenues for total mile by continued lackluster. One wage pricing Market was more than offset by relative strengths and dedicated pricing and utilization year-over-year. We reduce the average number of trucks and ttf by 25 trucks wage, you know, Logistics segment revenues were 4% lower wage.
Do the current used truck market conditions in the first quarter. We reviewed and updated the estimated life of certain trucks currently expected to be sold in 2022 more rapidly to predict these trucks to their estimated residual values.
The effects of this change and accounting estimate increased first quarter 2020 depreciation expense by 5 million or five cents per share. These trucks will continue to depreciate at the same time for truck until the trucks are sold. This expense is included in gaap earnings per share and is adjusted as a non-gaap item due to the unusual and infrequent nature of this exchange. Our adjusted operating income declined 24% primarily due to 190 basis-point declined in our adjusted operating margin due to the more challenging Freight and pricing market conditions in the life insurance claim.
We were able to partially mitigate the challenging Freight and pricing market conditions by implementing numerous Cost Containment programs that are ongoing our adjusted earnings per share were forty cents or 24% lower than the $0.52 a share. We earn first quarter a year ago beginning on flight eight. Let's look specifically it results for our truck load transportation services segment in the first quarter CTS revenues increased two million to $465 million primarily driven by the 3.2% higher Revenue per truck per week.
BTS
Increase due in part to the impact of improved transit times after the pandemic declaration with fewer passenger vehicles on the road and less traffic congestion rtts fully achieved a 2.0% increase in average miles per hour comparing the first 71 days of twenty-twenty prior to the pandemic declaration to the first couple days after the pandemic the Declaration however, once drivers arrive at their origin pickup and delivery destinations processing and delay times or longer than normal due to a recent customer covid-19 security procedures.
Adjusted operating income was 35.3 Million declining 20% primarily due to the decrease in adjusted operating margin of 180 basis points. Our adjusted operating at a fuel surcharge was ninety 1.5%
returning to sleep metrics on slide nine for dedicated. We grew Trucking revenues net a fuel by 6% to 231 million dedicated average trucks grew 1% and revenues for truck per wage increase nearly 5%
One way truck load Trucking Revenue that a fuel decreased 1% to $178 million one way truck load average truck decreased 3% and riveted for truck per week. Increase one that one way truck load miles for truck increased by 1% while revenue for total mile declined 3.7%
moving to water Logistics results on flight 10 and the first quarter Logistics revenues declined 4% to $112 million primarily driven by a 9% decline in truckloads long distance revenues. We had fewer transactional opportunities from a slowing Freight economy and the competitive Logistics Market, however, due to an eight per-cent increase in contractual business off our truck mode Logistics load count increased 1% while our Revenue per load declined 10% of our gross margin percentage decline 280 basis points driven by the soft armor market and contractual brokerage had a higher cost of capacity in March 2020 due to higher replenishment activity while we achieved a 3% reduction in our other operating expenses gross profits declined by 20% and resulted in a 300 basis point decline in our operating margin percentage to 1.0%
But just takes operating income decreased 77% to 1.1 million. I now like to turn the final portion of our prepared remarks back to Derek Derek off.
Thank you. John moving to slide 12. I want to update you on our strategy second quarter and twenty20 results will likely be further impacted by the disruptive effect of covid-19 off. The degree of disruption is difficult to predict. However, we were preparing for various scenarios and expect an extremely challenging second quarter based on the anticipated double-digit percentage of decline in the second month. Our leadership team has been meeting daily to discuss and address issues relating to our customers Freight driver's safety Staffing Human Resources wage structure over the past few years. We created structural and sustainable improvements with our modern and more efficient Fleet high-quality professional drivers and strong management execution.
a few important highlights
Our truck and trailer Fleet ages remained new with an average of 2.0 years and 4.1 years respectively. We do not intend to let our truck and trailer age has increased significantly from here subject to the impact of p.m. And OEM supplier plant shutdowns that are currently impacting truck and trailer production.
The labor market is challenging with the rapid rise in the national unemployment rate the last few weeks and we remain committed to our rigorous hiring processes to attract and retain industry-leading driver Talent.
And our terminal Network, we implemented social distancing and other safety procedures to enable our mechanics to continue to maintain our trucks and trailers. We are utilizing enhanced technology tools and and trainer drivers and we continue to analyze and make thoughtful decisions with regards to ongoing terminal Capital expenditures Our IT team continues to upgrade and modernize our it infrastructure security. They also quickly enabled over half of our non-driver Associates to work from home and remain productive and efficient. We're extremely proud of their Corner drivers who continue to save America's great and keep America moving during these challenging times the contributions of Warner drivers to our citizens and our economy have never been more important than they have been the last seven weeks and they will continue to be going forward.
The ultimate goal of our strategy is to safely deliver a superior service to our customers on time. Every time that goal is not changed.
I'm sorry 13 is the summary of the significant steps. We've taken to prepare for and manage our business during covid-19. Trucking is an essential industry that delivers essential goods for consumers thoughts or non-driver Associates. Take this responsibility very seriously. I'm extremely proud of their achievements during a difficult time.
Over the last several weeks we thoughtfully instituted policies and procedures to reduce virus risk and enable our Associates to remain safe and stay healthy. We closely Monitor and disseminates J W, Joe and Company guideline updates to our entire team.
Well, the thinking there's no Playbook four times like these is true in some respect Warner does have a Playbook that we stay true to every step of the way by adapting to constantly changing scenarios off. Every winter decision has been Guided by three basic and important values be rational logical and above all compassion. We've been and will continue to be rational which means regular life and in close contact with and following recommended protocols provided by Leading scientific experts and we are implementing policies and processes that are Guided by the most current scientific analysis and wage.
We have been and will continue to be logical which means we made significant early Investments to support our Associates with sanitation products masks and gloves. We double down on those efforts to make sure are so she can stay safe and equipped moving forward. We logically carefully and aggressively and permanent social distance. He practices throughout our company.
We activate.
It's awful pandemic response plans and virtual Workforce capabilities. We continue to aggressively address non-essential discretionary cost across the board specifically. I took a voluntary 55% pay reduction EVPs took a 15% pay reduction and VP took 10% We have limited a hiring freeze for almost all non-driver open positions.
Throughout the company. We aggressively attacked and reduced discretionary controllable costs wherever possible and those efforts are continuing.
Above all our decisions are driven by compassion.
I personally keep our Associates informed about covid-19 developments to ongoing video updates by team has done a fantastic job making sure that up to the date written information is pushed out across our Network page. We've been keeping our Associates informed on all covid-19 topics as well as Warner's ongoing plans to keep America moving throughout this crisis.
Also driven by compassion. We introduced one or specific covid-19 associate relief plans to provide rapid and needed assistance to those Warner's Associates affected by the virus. This includes two weeks of paid sick leave for eligible Associates impacted by covid-19. It also includes a company pledge of 1 million dollars to the Warner associate covid-19 Relief Fund to provide financial support to impact it Associates and their families.
The further supplement the winter covid-19 really fun our founder seal Warner stepped up with his own compassion personally pledged an additional $250,000 to that release them as further demonstration of our commitment to the men and women of Warner Enterprises at this time hundreds of our Associates and their families directly affected by covid-19 already have received needed financial assistance from order through these programs.
Flight fourteen shows our Revenue mix and first quarter 2020 by industry vertical for our top 100 customers or 85% of our total revenues 62% of these revenues are for basic necessity consumable products that are more defensive in a covid-19 economy including discount retail Home Improvement retail food and beverage and consumer packaged Goods. We transport any essential products that are continually being restocked in today's economy.
It's like 15 is an analytical assessment We performed shortly after the Declaration to better understand our customer base using independent objective criteria developed by the major credit rating agencies to assess industry risk. We classified are hundred largest customers in the lower moderate and higher industry risk categories. This assessment is based on how significant the impact of covid-19 is estimated for their Industries our focus on the discount retail and food and beverage industry verticals results in us having a lower overall industry risk.
At the same time we updated our ongoing assessment of customer Financial Risk based on each customer size financial leverage liquidity profitability and other financial performance measures including data from an independent Financial Risk rating provider at the present time while our Financial Risk is clearly increased as dependent begin. We have a relatively lower level of Financial Risk with the predominant wage customer base.
over the last few years
Strategy has been to focus on the winners in each industry vertical which naturally aligns us with financially stronger companies. We will continue to Monitor and manage these customer industry risk and Financial Risk assessments going forward.
On slide sixteen is a summary of our balance sheet strength and liquidity at the end of the first quarter.
Our data is low in two hundred and fifty million and we paid off fifty million of debt in first quarter. Our net debt-to-ebitda Leverage is very low and point four times. We have available liquidity of 352,000 based on cash on hand and credit facilities. We have plenty of cushion are two dead Financial covenants. We are well-positioned with a strong balance sheet and ample liquidity.
Flight 17 is a summary of cash flow from operations net capital expenditures and the resulting free cash flow over the past five years.
We're maintaining our 2020 capex guidance range of 260 to 300 million. We've analyzed and it made several download revisions to certain capex projects for the year while we are decreasing the amount that purchases an estimated 46 million. This will be offset by an estimated lower used truck sales at lower expected prices there for our net can fix guidance range stays the same we continue to expect to generate significant free cash flow in 2020 of at least a hundred million dollars.
Looking to slide nineteen. We compared our prior annual guidance first quarter actual and current annual guidance metrics for 2020.
We do not plan to grow our truck Fleet until market conditions improve our Fleet count May decline more in second-quarter depending on the Freight Market depending on the pace and timing of recovery. We could begin to rebuild our truck out later this month.
We're withdrawing guidance for games on sales of equipment due to very low demand of the used truck and trailer Market. We intend to reinstate our guidance for this metric when we have a better market and better data.
As noted before we expect net capital expenditures to be in the range of 260 to 300 million. We continue to expect that one way truck load Revenue per total miles for the first half of 2020 will decrease in a range of -7 per cent to -5 per cent compared to the same six-month period in 2019. This assumes that the free market is very difficult in May and June.
We expect our effective tax rate will be in the range of 25 to 26% We expect the average age of our truck and trailer Fleet to be a slightly higher levels. This depends on the freight recovery and the timing of when I can get back to reopening their plants.
So far in the first four weeks of April great volumes and are one way truck load unit have held up fairly. Well with some gradual Freight softening which was expected given that some parts of this economy or shut down or have been significantly curtailed in dedicated. Our volumes have been mostly steady while a few dedicated customers are experiencing significant declines to De temporary plant or business shutdowns, but most are seeing solid volumes overall regardless of whether we get a u v or economic recovery our defensive Freight base should allow us to more effectively manage through what we anticipate will be an extremely challenging economic and Freight environment in second quarter of 2020 while we are well prepared and well positioned with our protective rain gear for the second quarter economic downpour. We will still dead we continue to refine our strategies to prepare for when the economic storm passes. We are ready for and look forward to the eventual economic recovery.
At this time, I'd like to turn the call.
over to the operator to begin our Q&A
We will now begin the question-and-answer session to ask a question. You may press * then one on your telephone keypad. If you're using a speakerphone, we ask that you please pick up your handset before pressing keys to withdraw your question, please press star then to to allow for as many callers to ask as possible to ask questions. We asked the colors limit their question to one question and one follow-up. This call will end at 5 p.m. Central Time following the company's closing remarks.
And our first question today will come from Ravi Shanker of Morgan Stanley, please go ahead.
Hey guys, this is Christine McGarvey on froggy Shanker. How are you guys doing?
Hi Christine, how are you? Good good. Thanks. I guess my first question would be maybe on the the pricing guidance and if you guys talk about what's giving you confidence in that range with you, you know when you say it just means that a tough right environment for May and June. Is that pretty much holding at these levels or any sequential Improvement any seasonality and then maybe early sauce person to the back half of 20.
Yeah, sure. I'll take that. This is Derek. So the the guidance would gave was for first half of 2020. And so we ended this first quarter at -3 seven. We left our guidance unchanged of -5 to -7. So we're essentially pricing in the potential for worsening Freight environment or a tough couple of months ahead of us. It certainly could be better than that and we've seen some indications as we've seen as everyone has seen with some return or potential opening in certain regions of the country club felt. It was best to be conservative and leave the guy who's unchanged and I would rather be in a position to potentially exceed that guidance if the market gives us that opportunity.
And as far as the back half of the Year Christine is just too difficult to be able to predict rate per mile guidance at this time. We struggles with giving second quarter Guidance just don't like it was appropriate to do that. Um, so we're not giving guidance for the second half at this point in time until we have more clarity on the market conditions.
Got it. Thanks, and maybe that's my follow-up on some of the supply-side rationalization, you know, imagine that might be accelerating the next couple of months, but can you talk about your thoughts on that and how some of the production shutdowns that you mentioned earlier, you know might play into that.
Sure, so good question, but I must admit it's a little echoey. And so I may not have caught all of it. Let's start with this on the OEM shutdowns and equipment maker shut down that's been an ongoing issue that we've been working through they're doing the best they can obviously under the circumstances trying to stay up and open there has been closures and therefore delays in in receipt of trucks off industry-wide the used truck Market remains very difficult. That's why we've you know, withdrawn our guidance relative to use drugs and I think the broader Market is one that setting up for Thursday, uh capacity rationalization for a variety of reasons. I mean, if you're a carrier out there that's predominately operating in the spot Market or even has extended exposure in the spot Market. That's not a place. That's that's you know, the friendly right now to be participating cost or not going down there going up for carriers because of all of the safety precautionary measures they're taking and you have a great pressure is is pretty extreme.
Especially in the in the spot or non-contract Market the contract Market is behaving a little more normally, but I think you'll see capacity working its way out.
Okay, and we're already seeing signs of that now and it'll be accelerated through this pandemic.
Great. Thank you so much. Thanks for taking the question.
Thank you Christine.
Our next question comes from Brian often Beck of JPMorgan, please go ahead.
Hey afternoon. Thanks for taking my questions guys. The first one made for Derrick just on the network in reconfiguring. It probably pretty consistently took early on the last couple of weeks. Um, just give us a sense as to where that stands right now when you think about both the one way just going into areas that you're just not getting the same sort of free coming back out the fact that John mentioned when you get to the the receiver of facilities, and then also on dedicated, you know to the extent you had to spin up for any customers and then spend down for others because I'm fairly well-balanced at this point. So it just some thoughts on on how that's progressed throughout the quarter and where you see that kind of going into April May and June.
Yes, so good question. And and I guess I would start by saying the thing. I'm probably the single most proud of during the quarter was the team's execution and communication job internally on optimizing the network in real time because as you've indicated what we saw throughout the quarter was especially later in the quarter was markets that were in high demand for inbound product pack. They were affected directly by the by the endemic where the very same markets were we're we're outbound shipments were were correspondingly lower because places were shut down or closed all together is because of the tremendous amount of strain on the network with repositioning assets and trying to make sure that we put those trucks back into head all markets with relief and other essential supplies as quickly as possible. And so all bets are off on our traditional Network design. We were able to seamlessly work through that it's painful but they they worked hard they put the time in and they did it very well that is settled some and recent weeks off.
The volumes have declined and that started to take a a post surge kind of feel if you will and once we got through the initial Rush of pandemic supplies the upside to Thursday. We the ups and downs market-by-market have also leveled out a little bit. And so we're a little bit better New Normal with a slightly lower volume set and now we're optimizing for that environment and trying to make sure everything from truck counter Personnel cost to any and all controllable costs or right sized appropriately for the for the market. We find ourself in on the dedicated side, you know, you suck spelled out exactly kind of what's happening. The predominance of those accounts have been stable and it performed exactly like we thought they would in a in a down Market or a or a market that was stressed like this one is off. There were other accounts mixed in there where volumes are either down considerably or shut off altogether because of the type of product that they have.
the those those
I've been balanced pretty effectively by surges across the other fleets. And so thus far are dedicated models held up real well, but there are certainly puts and takes within those results off and Brian one thing I would add to that on dedicated. If you see that chart on page fourteen our overall company set up with 62% of our top hundred customer business with those for what we call a central products customers willing and dedicated to even higher at 73% So dedicated is aligned with companies that are continuing to do well for most part in this pandemic economy.
Okay. Got it. Yeah, that's right is helpful a quick follow-up. If you can give us a sense with those customers and probably some others just how how bit season is progressing obviously off of other stuff going on just need to give some some color on just how busy season is is going if it's on pause if it's still moving forward in pieces and then to any extent you can offer some color on the brake line. Both of those would be helpful.
So we're about a third of the week through our busy season at this point and on the bits that are already completed those renewals of happened, you know along expectations Thursday. We talked about even on the last call which has been flattish type renewals by and large what we've now entered too in is a phase however where there has been some delayed implementation of beds and or completion or closing out of bids that's been specifically a parent on the dedicated side of the equation. What's what's encouraging is dead. Total benefit volume is up and been very strong and actually had one of the strongest quarters for dedicated opportunities and bids that we've seen in the last eight quarters, but the implementation of them and finalizing the results of those beds. It's certainly taking a slower path to the finish line and I think it's understandable customers are working through the risk-reward trade-off of making a change.
And introducing a new Fleet a new group of people drivers on-site Associates during a pandemic and so we're working through that with our customers. We're staying patient and trying to be supportive of them encouraging backdrop. And I think the the takeaway is the pipeline is as strong as it's been in a long time and specifically stronger than any quarter in the last eight.
I guess thank you very much for your helpful.
Thank you, Brian.
Our next question comes from Chris Weatherby of City, please go ahead.
Hey, thanks. Good afternoon, guys, I wanted to ask a little bit about the the fleet and expectations for maybe two q and three Q As you move forward here. Do you think you can kind of hold the line here? And then maybe I can you talk a little bit about how the mix might change between one way truck load and dedicated as we go forward through at least two q and then maybe three q and the back half if you have that disability.
Yeah, it's a
Question to answer just given where we're at in the return-to-work phase or phase one of this sort of pandemic response as I indicated on the prior question, you know, we have a tremendous amount of pick up that activity and dedicated and and in many cases bids that are already to the finish line or across it when they would Implement is it would be irresponsible of me to try to predict like to think you know that something might happen in Q2, but in all likelihood you're looking down the road further than that before we see actual implementations of some of those activities so given that it doesn't provide an opportunity to do a lot of flea baths in between one way and dedicated and that 60/40 mix roughly is about what I think you should expect as you think about Q2 when you think about overall truck count. It's really going to be a lot clearer, you know in the next three to four weeks because as we get a feel for whether we do have something in economics, you know, we start which would bode well for one way and volumes that we see in the one month.
Side as they start to replenish some of the some of the depleted stocks that are out there and on the dedicated side, it would bode well because we'd start to see actual implementations or at least moving forward on towards both cases, you know, if I'm giving you my best guess the second quarter is a too early timeline to really try to to to put any kind of Line in the Sand so for now it's it's for calling serve with the fleet we have and we're willing and able to shrink it a little further if we need you to put volume purposes and right size it as appropriate. We do that by managing the front door of the building not much, you know any any kind of aggressive downsizing but rather just controlled shrinkage through the quarter and the backpack will be determined by where volume goes from there. We'll I can tell you this Thursday including machine is ready applications are up quality is up if you have to sit through a lot more application count to get to those quality drivers and so we know that if we are in the situation wage
The freight is there and it's time to move we can make that move.
Okay. Okay, that's helpful. And then maybe that just leads into my next question which is about sort of a potential recovery and obviously demand is going to you know, we don't know exactly how that sort of shakes out with u shape or something like that in terms of the recovery, but from the capacities, what are the potentials that can keep this from being a tight Market? Cuz it feels like the setup is that we could be coming out of this into a you know, significantly better truck. It says front understand whether it be on the driver's side or if there's other stuff on the capacity with tractors themselves that we should be considering its potential offset for upside when we do come out of this.
Yes, so I think capacity rationalization is going to happen. It's happening already. We know in in surveying fleets across their brokerage unit that there are carriers parking trucks and or downsizing their Fleet am actively give them a rates of went market-wide, especially in the spot Market we know and can see and track what's going on with order rates at the truck oems. And then even if water rates wanted them bills are under pressure because of plant closures and other things so capacity will be leaving if you see a you recovery and you see economic, you know uptick that's going to lean into a tighter Market wage to answer your question about watch outs things. We're we're paying close attention to is what's the effect of all the stimulus money and the unemployment benefits that have been extended and enhanced. Is it more difficult to get people back into the workforce? Because the the the programs that are set out set up right now are pretty robust what happens with infrastructure and if you see infrastructure happen and and become the next phase of stimulus wage,
Obviously would support and hope it does that's going to be a direct demand for drivers and crazed create cross competition. The fact of the matter is we'll get through and have plans for those things, but
those are some of the offsets that could make it, you know tougher to to be able to react as that market tightens and and and be able to to you know, fully take advantage of a changing Market, but all all all signs at this point in my eyes at least point us, you know, we're on the bottom or dragging along the bottom and as we see economic upside from here the capacity left and move that Freight will be it was when this all started
Okay. All right. That's very helpful. I appreciate the time. Thank you, Chris.
Our next question comes from Ken huckster of Bank of America Merrill Lynch, please go ahead. Hey great. Good afternoon, Derek and John. I'm Derek. I was great inside onto the state of the month your thoughts on growth. Maybe I just want to hit on this a little bit further on the back side just won't understand your messaging. Are you trying to talk about you're pushing out that the cat box or is it outright reduction? I'm trying to understand your your message and timing and and plans that you have in your in your sustaining that capex for the year.
Yes, so let me start with what we did in maybe comment on as much the first thing we did with capex is take a very thoughtful logical approach to what was what could be cut from the capex plan to just rash of the year and make sure we did what was right relative to kind of the like to haves versus really need to have type items. We've done that and rationalized a lot of spend within that capex budget across the structure and Terminals and and and office and other requirements, but the big mover in capex is trucks and trailers and so at the end of the day we wouldn't be able to buy this the type of box for the the same volume of trucks and trailers. We started the year in all likelihood just given the the fits and starts with relative to the production schedules and some of the issues they're facing inside their plants. So we right choice is what we think is the right amount of trucks for the year that reduced and trailers as well which reduce capex over forty million dollars, but that's offset by the fact that will sell Less trucks as a result and the game.
On those trucks will be considerably less even with the 5 million dollar right down. The used truck Market is is you know a very tough one at the moment. And so those two kind of wash off or even slightly worse than watch. So the net stays within the range and we didn't want to change the range the actual spend inside that range might change some but we're going to continue to monitor them, you know options to conserve cash where it's appropriate.
All right, that's great. And then just on your your mix either going to the early slides or slide fourteen where you talk about the top eight hundred customers, you know, you talked about the essential customer. Are you seeing a pullback after the replenishment? How do your dollar stores which are are sizeable entity as well shipped into the e-commerce world that we're seeing expanding right now. What kind of I think as you know, as a general rule, I don't talk about specific customers, but I will say that the same folks that were successful during the early push and off and have good business models where customers go to four products. They count on are holding up. Well, even after that initial Rush they're going to be the same store as people continue to shop and if anything we've seen a prior cycles that when the economy gets tough people down side or you know, they they work down to the value chain in terms of where they make some of their purchases from and so they'll go down in the lower price points and a phone number.
Increase volume that some of those discount retailers. So we think that's going to hold up. Well so far, it's held up very well. We don't see
Signs of that weakening at this point and that's why we're relatively bullish on on how we will fare even in a difficult Market. We think the market is going to be tough. But we think our customer mix both the same strength of their product. They're models and their management combined with the inherent strength of their financials sets them up very well and that's why we included information that was pretty specific and I will tell you that all of that third-party validated information because our internal, you know approach and we do the exact same analysis was more optimistic than even what's on the slide and that's why we decided to take another step and take off or to try to be even further objective and even under that additional lens or additional filter the results as you saw the slide or are very positive.
Appreciate the thoughts great job in a talking apartment. Thanks, sir. Thank you. Appreciate it.
Our next question comes from Scott group of wolf research, please. Go ahead.
Hey, thanks afternoon guys, so it's got hurt you start on the on the right side. Maybe can you the 3.7% drop in in rate per mile? Can you maybe just talk through the progression of the quarter? And that's what you're seeing in April on that front and then dedicated rep for truck was was still it was again really strong. Do you think that stays strong stays positive in the second quarter?
Yes, so on the first question on the rain it was there really wasn't any progression. If you will it was a fairly consistent year-over-year laughing effect based on mix based on bits that were rebelling during the year last year that we knew we'd be now, but against a tougher, renewals to the extent those were happening. As I said earlier. We're generally flattish on all of the contractual type of wage in one way dedicated is held up better and continues to hold up better from a from a revenue per week perspective. We haven't seen anything in the cards that makes us change our view on that page when markets get this stuff. You see a lot of less experienced operators trying to enter or bid on dedicated or look for safe havens for their trucks. So we will have more white noise in the mid cycle for June quarter or two or maybe longer but customers that we work with those that have winning models want to work with winning suppliers and folks that can grow and and and live up to their expectations and wage.
Proven track records over long periods of time with those customers and so we stood with them during the pandemic we surged up with them when they needed it. We were in constant communication and these are times relationship suggested and I like the you know, so far those tests have been passed and we feel pretty good about it will stay close to it though. I can assure you. Okay, and on the dedicated race, you've got home I would add that. You know, we were up 4.9 and first quarter, I would expect some moderation in that increase in revenue for tract as we moved for Thursday. We absolutely expect it to remain positive. Thanks. And then so we've got demand and and rates, you know getting worse as the you know, second quarter versus first call, but hopefully we don't have the $0.10 drag from from the accident fuels falling. I know this is a tough question, but maybe any thoughts you can give on on truckload margins wage.
Chile better worse and second
Than first any initial, you know perspective.
Well, you know, we don't give guidance quarterly and and that includes both company-wide as well as down to a divisional level. Of course the second quarters, it's just too soon right now. We're we're really seeing the Slowdown of the initial surge of all of the pandemic, you know Essentials coupled with a slower but but in but improved volumes across some of the less essential but now reopening and or restocking where those two lines cross and how that plays out over the remainder of the quarter. It's just too early to call back. So I'd be doing a disservice to even attempt to answer it but I can tell you we will be doing in the second quarter is doubling down our efforts on controllable costs focusing on on everything we can do from the productivity perspective and realigning the network. Now that all of that, you know sudden surges in volume coupled with rapid decline.
In other regions is sort of behind us. And now we have at least a new normal. So even with volumes being lower we're seeing we're seeing better balance that our behavior of that work less distractions trying to respond to two major short-term projects and more of getting back to the blocking and tackling of trucking that's something we think we're pretty good at 5 we're going to stay focused on in the team is is laser focused on doing that in a lower-cost point in the second quarter knowing that rates will be under pressure.
Okay, that'll make sense. Thank you for the time guys.
Our next question comes from David Ross, please. Go ahead.
Thank you. Good afternoon.
Afternoon, David I'm talking about the driver's seems like you guys going out of your way to stay in front of the drivers communicate. Well with them take care of them, I would imagine turnover dropped in the quarter, but I did see that the independent contractors, you know, dropped off 18% year-over-year and wanted to know what's going on with the driver training schools. Given birth state mandates.
Yes, so several parts of that turnover has seen Improvement as the quarter progressed, especially on the voluntary quit side. Um, we've seen a fairly dramatic decrease in drivers leaving the organization. I think they do feel that we're here for them supporting them and staying in constant contact with them. I think the work we've done over the last several years with all of the driver facing meetings conversations sit-downs and and the direct line of communication that I set up with them three years ago thats remains open today and and I actively monitoring of a daily basis all that goes into it. And so we've seen a lot of positive movement on the owner operator side. It's a little different we support our owner-operators. We want to continue to to hold and value those friendships that we have but with everything that was going on out in California and other states, we made a conscious decision a little over two years ago to not actively be trying to age
And so it's really a matter of it decreases cuz we're not out recruiting or trying to bring.
On board large quantities of new owner operators were really trying to support and maintain those that we have and you see normal shrinkage over time, especially in that group as it relates to retirements because they're generally may have started their careers a company driver converted to became an owner operator later in their career and many of them have now approached the time by which they're looking to retire driver training schools different stores been under a lot of duress not just for us, but nationally at one point in the quarter, you know, there was over fifty percent of the driver training schools. Nationally that were shut down completely or under limited work orders. We've had to retool our schools. We have both a you know, location shut down all together as whether as well as retooling all of them for social distance see what that means in real life, you know enrollments had to be cut by half roughly in order to socially distance and still get training accomplished. We had to convert to Maury training and and leaned into the technology. We've been developing
For some time. I mean really just slows the throughput of the process of getting driver's through school onto a truck and ultimately qualified and out driving on their own the driving the driver training or new entrants into the market is definitely down industry-wide. It will stay down. I think for the foreseeable future and it's so that's why it's all the more important that we hold on to the Quality drivers that we already have in the fact we worked were working diligently to do that.
You think social distancing really makes sense in terms of taking drivers six feet apart really is going to help anything versus having them three feet apart and get more drivers to the issue. I'm not a doctor. But but if we're going to be committed to to following guidelines and if we're going to give a clearer of comfort to our drivers that that stuff matters to us we're going to we're going to walk walk would be talk. And so when we get guidelines and understand, we're in a different situation in Omaha, we have one of the the leading pandemic units in the entire United States is based in Omaha. I've got a direct line of communication with them and we took at least twice a week calls and get understanding and updates on the latest news and developments. We've designed our programs and had the opportunity to run it by people that that matter and do know these things and we're off on the side of precaution because we're committed to our safety of our drivers. They need that and want that from us and that's what I signed up for. So it will impact in the short-term as per how effective it is. I think history Will Rogers
Different story probably on all a lot of these actions we've taken and whether the economic price and even honestly the healthcare improve the health price of some of the actions that have been taken when you look at all of the empty hospitals were people deferring needed but still elective surgeries, but that that's for a different subject on a different time. I'm just here to talk about drugging. Thank you.
No problem.
Our next question comes from Jack Stevens, please. Go ahead.
Hey Derek. Hey, John. Thanks so much for taking my questions.
So they're doing great. Thank you. And hope you're doing well to really appreciate all the the color around what you're seeing in April and then also, you know sticking your neck out on the the little lot of companies are pulling their guide really appreciate that Insight. I guess, you know, if we sort of looked forward Beyond this and think out of the next couple of years and not over the next couple of months. Yeah, I think one thing is clear is we're going to see, you know, quite a bit of capacity attrition and you know Derek from your comment seems like you feel the same way. So I guess my bigger picture question for you. Do is like, you know, how are you sort of preparing the business today for what's coming in 21 and Beyond where it feels like there's going to be a lot of markets here for her to take and not you know, what what are the steps you can take now to sort of be in a position to really capitalize on that and grow on the other side of this.
Yeah, I think it's a great question. And I think one of the things as a backdrop to the capex guidance, we've given cuz I'm sure at times it may look as though we haven't met a big move there and part of the reasoning for that is that we are going to continue to invest in our company good times and bad. We're going to stay consistent with what matters and that's investing in the five T's as a religious preparing for 20 21. And what what does that mean? It means we're leaning into the technology spend that we've been talking about doing in the Investments. We're making we want to be able to be increasingly mode agnostic for our country. We want to bring both our own capacity as well as third-party capacity to bear and be better prepared than ever to do that when this capacity crunch who arrives we want to make sure the fleet's renewed. So we're not playing catch-up when walk through the other side of the pandemic we want to hold on to the Quality drivers we have and let that Fleet gain ten year, which is gaining as we speak. We're going to continue to focus on the safety program so that we come out of the other side. Yep.
And safer than ever before and if we do all of that and and still have that asset in the school network, which is an asset, even though it today's throughput represents, you know a higher cost structure for us. We will be positioned for that term. So I'm pretty excited about what what what the world looks like when the when the dust settles you see the capacity that falls out. You see the economy come back people call the one quality they know where to call and they know that we're going to be ready to haul that Freight. So it's a pretty typical children time. We're focused on obviously safety and health and and try to do our part as a corporate citizen, but we're very much preparing for what it looks like on the other end of this and I think will be ready and not able to respond.
Okay, that's that's great to hear and then I guess for my follow-up, you know, John, I know you do a great job keeping up with your customers inventory levels and sort of what they say about Thursday and I guess you know when we think about what's what's happened here over the last couple of months, you know, we had issues getting Imports in from from China and we had this huge Pantry. Stop acting phenomenon, you know, do do you think that inventories are fairly depleted and that, you know, once things kind of begin to to pick back up you could have maybe I'm more of a surge because because of an inventory stock. How are you guys thinking about that? And how are you thinking about where inventory level stand overall? Thanks again.
Call Jack the last report.
Inventory levels from our large retail customer base showed a decline and inventory for store relative the same store sales. So they were fairly lean the end of January going into this now with the pandemic completely impacted a lot of our large retail customers that are in the discount business and in my opinion significantly reduced inventory and that's based on the fact that they were actively asking for our help in the latter part of March to to build them back up that in moved from from the store to the pantry, you know, I think levels of of volume with those customers had settled back into more normal levels, but they're not significantly dropping. So the Retailer's that we serve I think inventories are still relatively lean now, there is an entirely different game.
Segments within retail that serves for example, the apparel Market that they've had their stores closed if the company doesn't have a significant online presence. My guess is their inventory levels are pretty high. So I think there's a big separation between the type of retailer and where their inventory levels currently sit and the only thing I'd add to that is we have had indications.
Weeks from some of those very discount some of the very people were talking about quality winning companies in the discount space that sell products that people need and want off that those some of the products coming out of China and finally started to see an uptick. They're actually arriving that assures were starting to see over the next few weeks some positivity as it relates to what those volume just look like it's too early to say it's here or that we've actually hauled it but we think that's a positive indicator at least to offset some other areas that may be more negative thoughts. The next few weeks as closures really start to set in further. So so it's a mix of you know, there's a lot of puts and takes it's it's probably the hardest quarter ever talk about because of that but there's a lot more cause for comfort as it relates to Winners winning right now than than than there has been in other quarters birth.
Maybe others could pretend to be successful or or or have indications of success this really kind of, you know calls the heard a little bit and and and we we think we're with the right Folk.
Our next question comes from Todd Tom Wade of UBS, please go ahead.
Yeah, good afternoon. I know that darken John you've had a number of questions on pricing who's isn't completely redundant but just in terms of shipper behavior, and also how you think about these markets being separated it, you know, a lot of pressure on the spot Market, uh, you know, you're pretty optimistic on ugh dedicated and then you're I guess you're talking about contract rate to come under pressure in the second quarter. Do you think those markets can kind of stayed separated and you can keep pricing on a dedicated or do you think that you kind of end up everything gets dragged down and and the pricing pressure did uh, you know broader that you have to deal with in second-half.
Well, I think a lot of that depends.
On when you start to see economic left and if if you know, you you believe the the return-to-work kind of strategies that are starting to take place and the economy sucks open up and you start seeing economic lift. There's no way spot Market capacity Works its way into a dedicated bit or suddenly starts Holland dedicated 99.1
over the course of the second quarter and that just doesn't happen one way is going to be under pressure during the quarter and that's why we've talked about it and that's what we've left our guidance and -5 to -7, even though we just came off of we were -3.7. So we understand that there's going to be some tough discussions to be had but again by and large through this pandemic as far you know, customers have treated quality customers are treated quality carriers as you would hope and expect that they would which is they place a value on it. And so if if if the move and rates is two months or three months in preparation in the spot Market is a bloodbath and continues to be one that's a pretty short time frame to go take advantage of a short-term buying opportunity at the expense of a relationship has been delivering the very product. You've been selling at high volumes throughout this entire pandemic, you know time frame, so we're not bullish food order. We would we wouldn't be saying -5 to -7
But we're also you know not thrown in the towel. I think a lot of our customers have really shown their colors and we've been really proud of those relationships. Of course, if you have a hundred of anything, you've got a few bad apples is true of customers just as much as it is of any other of of carriers or anybody else and so there's behavioral erratic there's erratic moments in behavior that we've worked through but at the end of it all our our portfolio structured well and we're responding and it's behaving as we expected it would behave the during during a crisis like this.
Yeah, I I perhaps I didn't word the question as precisely as I was just trying to I'm not saying spot rate pressure would necessarily go directly to Dedicated but no contract rates are down five to seven percent. Do you think uh, you know, I guess it sounds like you you think the larger players that are good at dedicated are just maintaining discipline and you don't think the newer players or the large players. We'll we'll kind of you know put pressure on dedicated pricing. Is that a fair way to understand what you're saying? That's one way but I wouldn't say it's quite that linear. I mean remember that earlier in the call. I commented that are dedicated pipeline is as strong as it's been in eight quarters. So the that means there could be dedicated exits off that are coupled with new dedicated entrants that take place over the back half of the year, and we've talked about a sixty-forty freight or truck mix between dedicated and one way. I don't foresee that mix changing a phone number.
So and and the way that doesn't change is because if rates go or if there's undisciplined pricing out there and a customer decides to chase it. I have to have a pipeline robot.
Just enough to be able to replace that business at rates that offer the the opportunity for we investable return where we're priced today is fair and market-based with the bow you that we provide those customers is known and and acknowledged and that's best seen by the number of carrier of the Year Awards. We've won over the last couple of years specifically in the dedicated space. But there will be put syntax. There will be fleets that will downsize and or go away replaced by other fleets that are either growing and or new to the business the mix between dedicated and one way. We'll stay with her around $64. But certainly the opportunity for dedicated to be a higher percentage is in front of us if if both the pipeline materializes and our our wage negotiations with our customers stayed true to form and stable. We we will we will potentially grow more in dedicated. We're not looking to grow the fleet at this point and won't revisit wage.
Until we see true signs of an economic return so will be disciplined in the meantime.
Okay, that's that's helpful. Maybe just one other kind of wrinkle on a prior question. When when the market does get stronger. Would you consider adjustment on the Strategic view of life and more makes the dedicated just to now I guess to kind of capture some of that lift and tightness in the market that for a. You put more trucks in one way or or it's just kind of continue to March towards more and more this week was dedicated. So we're going to be nimble and so when we look at trucks and capex and orders for the following year, we have healthy debates and competition inside the building as to where those drugs and people make their case. We also want to tend to be in front of the market shift i e if we think there's a particular part of the market that's going to be more robust over a cycle. Not over a month or quarter or even a year but over a cycle. We'll certainly adjust accordingly. But right now if you look at the the quality of the dedicated portfolio how it performed during both good wage.
At times over the last cycle. There's not a lot of Reason to Run scared from dedicated or try to put more eggs into one way basket because we think that's going to be way better later. We think they both can perform well in enough money on the one Wayside we're going to continue to focus on our strengths which is cross-border and team expedited when the market gets stronger and as you see near Shoring starting to take place and take hold that office supplies a multiplier to whatever market growth you see because it's augmented further by those that are near Shoring or investing closer to home those bode well for our Mexico franchise as Thursday and time of central service becomes increasingly critical and is 2 day becomes one day expectations across the customer base team expedited becomes Higher and Higher and demand. So we think we're building a portfolio that's in advance or in front of where the Market's headed not trying to play catch-up and that's why we like our positioning right now for as long as the crisis May last as well as when the when when the market turns off.
We have the ability to be.
Great. Thanks for time.
Our next question comes from Vasco majors of Susquehanna, please go ahead.
Thanks for thanks for taking my question Derek. You ended your prepared remarks by by saying when it raining when it rains we get wet, but it it sounds like you're staying pretty dry. So far am certainly in the quarter and with some of the directional commentary gave on April you clearly you expect the second quarter or the commentary is that it will be, you know, extremely challenging can can we just focus in on the pain points where that pain is going to come from because it certainly sounds like you're so far things have have trended exceptionally. Well, thank you.
Yeah, thanks for the question. So first off we want to be conservative at all times with our guidance and especially in a time of like like the one we're in Palm. So we felt it important to make sure that despite the results of the first quarter. Nobody is immune from this pandemic on a corporate level meaning we will we we know volumes will decline we've seen a tapering of those initial volumes. You can see the same data, you know, and I'm sure you guys all track it as well. And so we want to prepare for them. What we think would be the worst of it which is the second quarter. We've been doing that preparation for a long time and have daily multiple times a day Zoom meetings to make sure that we're ready to react off. I think the second quarter should be the worst of it and and then climb out from there and I think the risk is maybe to the upside meaning if we do see phase one bill well.
You start to see more re-openings and you see the stimulus money actually getting people's bank accounts versus being a headlight on the television and they're out there able to engage in stay active in the economy. There's a lot of reasons for Hope and optimism, but we're going to plan based on practicality and execution. And so that that's what that comment was intended to do. It was intended to no pun intended not in the mood a little around the fact that it it's going to be tough out there. But we take that head-on. We're taking tough decisions we've taken to pay cuts we talked about we Frozen higher in the front door. We're actively addressing performance issues throughout the organization and and we are we are going to make sure that address controllable cost and every corner of the building and I think well, I appreciate the comment. I think we have whether it better than most. I think we had a better starting point to go into it than many so that certainly helps but our work isn't done our team knows that we're going to keep focusing on on Thursday.
Thank you for that Derek.
Thank you basket.
Our next question comes from Jordan alliger of Goldman Sachs, please. Go ahead. Is this a quick question following up on your comments on Mexico? Can you talk a little bit about what you're saying with cross-border off today? And then you mentioned you're sure and I'm just sort of curious you envision that may be happening sooner or as that type of thing still take a fair bit of time two or three years from now. Is that more of the reasonable time frame?
Oh, I think it takes.
Yeah, I think it's not a quarter-to-quarter or even you know now to the end of the year, there's some reallocation of of supply lines that that customers can and are and we'll do and we think that will benefit us off but but the bigger strategic stuff is going to take time to develop but but it takes time for us to continue to build that Network out and be prepared for that growth as well. So that's okay by us. We may already we're prepared and we know where the quality player in that market and the largest volume player in the Mexico cross-border market and we expect that to continue. We're going to defend that position cuz we take wage but yeah, it'll take a little bit of time for that near Shoring to really I think take hold but I don't think anybody can refute that that philosophically people are really questioning and asking themselves big all your questions Beyond just where's the lowest cost of manufacturing and really thinking more about longer-term strategic place in terms of Shoring up their supply chains and all of which will benefit a quality troll.
And logistics company like water that has a dominant North American footprint.
And just in terms of current cross-border trade, I'm use that affected similarly to what you're seeing domestic us. Is it more or less hard to tell them I would say it's similar. There's certainly been some complexities over the last few weeks that are that are unique because of the essential business classification that have happened. There's a lot of missile gap between what's considered essential in the US versus essential in Mexico. And so now you have double jeopardy because either end of your supply chain could be potentially shut down versus just your you know, one company being shut down that's cause disruptions and that's certainly a cause of concern for us, but they're working through that and the administration's both countries seem to be actively trying to get that ironed out. But Mexico is is certainly I would say the bigger concern I have for Mexico is just how they as a country get through the pandemic and we're trying to stay close to that what happens to their overall economic output and there
What's going on with consumption in the country as a result of really a less mature Healthcare System and less mature economy overall as comparison month. And so we we we were aware that there's going to be some some Hills and Valleys along the way between now and the end of the year with our Mexico franchise. But again Thursday, we're we're going to get through whatever that is presented as well as anyone else just giving our experienced and breadth of services that we offer in cross-border.
Thank you.
Thank you, Jordan. This concludes our question-and-answer session. I'll now turn the conference over to mister. He will provide closing comments, please. Go ahead.
Yeah, thank you. I just want to close by thanking everybody for calling in today appreciate your questions and concerns about what the future holds for Warner to summarize. I just want to reiterate you know, I haven't changed we're going to continue to focus on working with winning customers that win and good times and bad. I think that's shown itself to be a sound approach during the first quarter and we feel it's equally sound as we get into in lower volume. Here in Q2 quality will shine and rise to the top and I think this is the time that that will be more apparent than ever relationships are going to continue to be tested but I feel very strongly that those relationships we built matter and we will mutually hold one another to account as we work through this to make sure that we make good long-term strategic decisions costs relative to covid-19. We will be increasing we've out the plans. We've laid out do cost money both on the direct salary continuation or paid sick leave off.
As well as the additional.
Golden Relief Fund that we've structured to set up before to provide additional relief to those that are even more impacted. Those are all part of the plan that we put forward to get through this. We think their their thoughts their logical they are passionate they're consistent with our values.
In closing this is a time that will that will Define us in a tough Market that has traditionally been a knocker concern about Warner in the package how we behaved in down Cycles? This is a down cycle. Like we could not have predicted and yet we're weathering it fairly. Well, we're proud of that and I'd like to close ultimately by thinking our drivers. They have answered the call to action. They've stood up and then counted they're delivering on time staying safe staying healthy and keeping America moving. They don't want to thank all of them for their efforts. Thanks for being with us today.
The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.