Q3 2023 Werner Enterprises Inc Earnings Call
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I will now turn the call over to Chris Neil Senior Vice President of pricing and strategic planning.
Good afternoon, everyone.
Earlier today, we issued our earnings released with our third quarter results release in a supplemental presentation are available in the investors section of our website at <unk> Dot com.
Today's webcast is being recorded and won't be available for replay later today.
Please see the disclosure statement on slide two of the presentation as well as the disclaimers and 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.
Reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation.
On today's call with mere Derek Leathers, Chairman, President and C E O and Christianlike Us executive Vice President Treasurer and CFO.
Now I'll turn the call over to Derek.
Chris and good afternoon, everyone.
2023 is presented us with a challenging operating environment. The third quarter was no different in our financial results did not meet our expectations. Despite.
Despite the difficult order I'd like to start by thinking or 14000, plus talented Warner team members for all that you do each day to uphold the winter brand and reputation by staying true to our core values, making safety, our top priority and providing superior service to our highly valued customers.
During the third quarter, we were recognized for several awards to demonstrate our commitment to our associates.
Week named Warner is one of America's greatest workplaces for 2000 twenty-three. In addition to being named one of America's greatest workplaces for diversity and for parents and families. These.
These achievements highlight are focused on building a strong culture for all our team members. We are committed to remaining of the company that enables and encourages our associates to thrive in their careers.
We were also pleased to be recognized for environmental stewardship by earning the smart way high performer award for the seventh consecutive year.
This recognition is based on companies, who lead the transportation industry and producing more efficient and sustainable supply chain solutions.
In addition to our focus on our associates in the environment safety remains our top priority in the third quarter, we're proud to celebrate Tim Dean or second professional driver to achieve 5 million accident free miles a very significant accomplishment over 35 years driving for Warner.
Tim represents what we desire for all our professional drivers and unwavering commitment to safety and service one mile at a time and.
And lastly, we were recognized for our superior quality and service in the industry, including the 2023 Quest for quality Award.
These awards demonstrate our ongoing commitment to excellence and the execution of our drive strategy.
As illustrated on slide five we remained laser focused on being a brand known for safety reliability service and durable results.
Our financial strength scale capabilities and diversified portfolio combined with our ongoing commitment to innovative technology and sustainability will continue to drive long term value in further position Warner as a top North America carrier and logistics company of choice.
Let's move on to slide six and highlight are third quarter results.
During the quarter revenues decreased 1% year over year to $818 million net of fuel surcharges, our third quarter revenue grew 3% versus the prior year adjusted.
Suggested EPS was 42 cents adjusted operating income was $42 million or an operating margin of 5.1% adjusted.
Adjusted TTS operating margin was 8.5%.
Our primary focus and as complex operating environment is controlling what we can this.
This includes and operational execution by leading into the strength of our dedicated fleet through superior customer service and fleet efficiency.
This focus continues to results of strong customer retention, a stable fleet and competitive margins.
As we anticipated heading into the quarter, one way truckload remained challenged by elevated spot exposure and ongoing pricing pressure, we remain focused on utilization of one way assets and optimizing the fleet, while maintaining longterm pricing discipline.
Despite a shorter average length of hall, we realized 3.3% year over year growth an average total miles per truck per week to the second consecutive quarter of improvement.
Within logistics Q3 volume and revenue continued to form while delivering double digit revenue growth and strong volume growth.
We continued to execute our cost savings program and have seen sequential and year over year progress in certain expense categories. In addition, we have a line of sight to the non-recurring year to date spends it is supporting our long term technology strategy and we remain optimistic about the benefits of earnings once complete.
That said, we continue to face macro headwinds with lower equipment gains higher interest expense and inflationary pressures.
In short for a condition is the third quarter were challenging and along with the second quarter I would describe this is the most difficult period of my career from a market perspective.
These challenges are results continue to reflect a business model that is durable diversified resilient, even in a lower for longer than tough operating environment.
Are elevated rigor on cost saving initiatives focus on innovation and reinvestment in the business positions as well to benefit of scraped conditions improve.
Let's move on to slide seven <unk>.
Last quarter I provided a more indepth update on our winter edge and cloud first cloud now multiyear technology strategy.
This strategy combines a blend of best in class third party market solutions with proprietary technology talent and innovation to generate sustainable and operational benefits. It works in tandem with our tech driven feature in data rich solutions and digital marketplaces, such as the launch of Warner Bridge earlier this year.
Our technology and innovation journey is progressing with 100% of our logistics segment absent our winter fundamental business expected to be fully transition to our edge Tms platform by end of this year as.
As we look ahead to 2024, we're preparing for the transition of our TTS business. This marks a major step in our strategic roadmap.
Executing our vision requires considerable investment of time energy and capital.
As shown in the right hand side of the slide the impact from ongoing development and duplicative platform expenses is estimated to be 30 to 40 basis points on a yearly basis for 2023.
By channeling off right to Warner Edge, we've received numerous advantages a better customer experience lower cost of execution and improved optimization from better visibility.
This results in a more mode agnostic approach and greater revenue and earnings potential as returns on these investments are realized in future years.
Before turning over to Chris to discuss our financial results in more detail, let's move to slide eight to highlight our current view of the marketplace.
The free market has remained challenging in third quarter and into October.
Dedicated demand remains steady and we have a pipeline of opportunities that we can capitalize on.
The one way operating environment continues to be challenging given lower rates with new contract right implementations largely behind us higher than normal bid chern and rapidly rising fuel prices in the quarter.
Despite a very competitive marketplace, we expect solid volume and logistics, but margins will continue to be impacted due to downward pricing pressure and costs related to new business implementations.
As we look to peak season to close out the year are larger retail customers continue to signal more normalised inventory levels and improved mix of skews better align with a postpay endemic consumer.
That said, we remain cautious about consumer behavior, given mixed data points and themes impacting spending, particularly for goods versus services in recent global dentures.
As a result, we expect a more muted peak season.
Looking out his capacity continues to exit the market with 57 consecutive weeks of DDT net truck. The Activations, we are well positioned to benefit from a more balanced supply and demand freight market going forward with upward momentum to lock in more contractual free at improving rates with that let me turn it over to Chris to go through the third quarter results in more detail.
Thank you to Eric and good afternoon, let's continue on site 10.
Third quarter total revenue was $818 million, which was down 1% versus prior year.
Net of fuel surcharges Q3 revenues grew by 3%.
TTS revenues net appeal were down low single digits. Despite a softer frape market, while logistics revenues grew for the 12th straight quarter reporting double digit growth adjusts.
Adjusted operating income was $42 million and it just operating margin was 5.1% a decrease of 47% in 450 basis points, respectively versus prior year.
Adjusted EPS of 42 cents was down 48 cents here every year.
To the macroeconomic environment lower equipment gains higher interest expense and ongoing inflationary headwinds.
Our cost savings program is serving to mitigate some of the impact on operating margins towards the end of the third quarter. We have now identified in year run rate savings of over 43 million. Although there is more work to do we are pleased with our progress to date and as of the end of the third quarter, we have realized over 70% of targeted savings.
Turning to fight 11 in our truckload transportation services results.
TTS total revenue for the third quarter was $572 million down 8%.
Revenues net of fuel surcharges fell 4% to $489 million.
Given the macro environment TTS topline performed well.
Third quarter TTS adjusted operating income was $42 million and adjusted operating margin was 8.5% a year over year decrease at 45% or 640 basis points due in part to rapidly accelerating diesel fuel prices compressed pricing in one way and lower equipment gains against a strong prior to your car.
And the third quarter games on sale of revenue equipment total is $8 $8 million, a decline of $11.3 million or 56% versus prior year.
While we sold almost one and a half times as many tractors and over three times more trailers compared to prior year period average price and gains were significantly lower.
Here to date, we have achieved $39 million of equipment gains and are on track to achieve our full year guidance.
TTS suggested operating expenses net of fuel surcharges and equipment gains declined 0.9% compared to our TTS rate per mile which decreased 2.9%.
We saw improvements in the quarter in various expense categories supplies and maintenance expenses trending well and was down 11% versus the prior year and 6% sequentially. As we are recognizing the benefits of shifting more of our repair and maintenance capabilities in house, while also benefiting from a newer younger age fleet titi.
TTS insurance and claims we're down 9% versus the prior year, we continue to focus on safety and I'm proud to report a 19 year record low in D. O T preventable accidents in the third quarter or strong safety record wed to a low single digit premium increase on our excess insurance coverage, which was effective at the beginning of August.
Although the rising cost per claim plus record verdicts and settlements remains an industry headwind. We are encouraged by a recent trend draw.
Driver pay and benefits continue to moderate and we are down over 1% year over year.
We are committed to controlling costs and performing within our annual TTS operating margin range of 12% to 17% over the long term.
Given a unique and very challenging operating environment that includes ongoing pricing pressure, primarily within one way and lower equipment gains we fell below the annual range. This quarter on a trailing 12 month basis. Despite near term Choppiness, we remain confident in our ability to achieve long term TTS operating margins within the stated range.
Turning decide 12 to review our fleet metrics.
TTS average truck count was 8226 during the quarter were down just over 3% versus prior year. We ended the quarter with the TTS fleet down, 1.4% sequentially and down 4.8% year over year within TTS dedicated revenue was $306 million down 2% dedicated represented <unk>.
64% of segment revenue net of fuel compared to 62% prior year.
Our TTS segment revenue per truck per week net of fuel has grown year over year 18 in the last 23 quarters and wild down to less than 1% year over year. In Q3. This compares to industry benchmark showing significantly larger declines.
The dedicated average truck count during the quarter decreased 2% to 5254 trucks at corner and dedicated represented 64% of the TTS fleet.
Dedicated revenue per truck per week decreased 0.4% year over year negatively impacted by one fewer business day in the quarter year to date dedicated revenue per truck per week increased 1.8% year over year and is on track to increased nine out of the last 10 years.
Overall dedicated is performing well and remains solid dedicated has steadily grown over the last 10 years across all economic conditions with an annual customer retention rate of over 95% are.
Pipeline of opportunities remains healthy given our unique scale reliability strong relationships across our portfolio of large enterprise customers.
As customers continued to monitor the macro environment, we are seeing some delays and expanding existing dedicated fleets. However is derick mentioned the dialogue with our customers about future opportunities remains positive.
Why do I trucking revenue during the quarter was $176 million, a decrease of 7% versus prior year.
One way average truck count during the quarter was down 6% to 2972 trucks.
One way revenue per truck per week was down 1.6% year over year due to a mid single digit rate per total mild decline offset by a significant increase in miles per truck.
One way third quarter total miles per truck per week increased 3% year over year.
This marks a second consecutive quarter of improvement driven by further engineering of our fleet and proved to terminal velocity and less equipment downtime. These results were especially encouraging given the decline an average length of hall.
Turning now to our growing logistics segment on slide 13.
And the third quarter logistics segment revenue was up 23% year over year at $230 million and now represents 28% of total Warner revenues.
Truckload brokerage revenues drove the largest portion of the year over year growth, increasing over 48% driven by the <unk> acquisition and strong performance from our organic business. This month marks the one year anniversary at the rate acquisition and we are pleased with the performance is read as saying volume growth compared to its pre acquisition levels.
Our organic truckload logistics segment has also performed well excluding read volumes and truckload logistics increased 9% sequentially and 8% year over year, we continue to grow our domestic in Mexico Cross border power only solution as both our customers and alliance carrier see tremendous value in the winter network and growing trailer pool.
Power only represented a growing portion of the truckload logistics revenue during the quarter.
Final mile continued to show strong growth reporting a 16% year over year revenue increased during the quarter. Despite a softer market for discretionary spending on big and bulky products and.
And as expected intermodal revenues, which make up approximately 11% of segment revenue declined year year from both lower volumes and revenue per load.
Third quarter logistics adjusted operating income was 3.2 million and adjusted operating margin was 1.4% down 160 basis points year over year, driven by right and gross margin compression new business implementations and expense headwinds.
Chris Neil: Please signal a conference specialist by pressing the star key followed by zero After today's presentation, there will be an opportunity to ask questions To ask a question, you may press star then one on your telephone keypad To withdraw your question, please press star then two Please note, this event is being recorded I'll now open the call over to Chris Neil Senior Vice President of Pricing and Strategic Planning Good afternoon everyone Earlier today we issued our earnings release with our third quarter results the release and the 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-GAT 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 GAT measures is included in the tables attached to the earnings release and in the appendix of the slide presentation On today's call with me are Derek Leathers, Chairman, President, and CEO and Chris Wyckoff, Executive Vice President, Treasurer, and CFO Now I'll turn the call over to Derek Thank you Chris and good afternoon and everyone 2023 has presented us with a challenging operating environment The third quarter was no different and our financial results did not meet our expectations Despite the difficult quarter, I'd like to start by thanking our 14,000 plus talented Warner team members for all that you do each day to uphold the Warner brand and reputation By staying true to our core values, making safety our top priority and providing superior service to our highly valued customers During the third quarter, we were recognized for several awards that demonstrate our commitment to our associates Newsweek named Warner is one of the America's greatest workplaces for 2023 In addition to being named one of America's greatest workplaces for diversity and for parents and families These achievements highlight our focus on building a strong culture for all our team members We are committed to remaining a company that enables and encourages our associates to thrive in their careers We were also pleased to be recognized for our environmental stewardship by earning the Smartway High Performer Award for the 7th consecutive year This recognition is based on companies who lead the transportation industry and producing more fishing and sustainable supply chain solutions In addition to our focus on our associates and the environment, safety remains our top priority In the third quarter, we were proud to celebrate Tim Dean, our second professional driver to achieve 5 million accident-free miles A very significant accomplishment over his 35 years driving for Warner Tim represents what we desire for all our professional drivers and unwavering commitment to safety and service one mile at a time And lastly, we were recognized for our superior quality and service in the industry including the 2023 Quest for Quality Award These awards demonstrate our ongoing commitment to excellence and the execution of our drive strategy As illustrated on slide 5, we remain laser focused on being a brand known for safety reliability service and durable results Our financial strength, scale, capabilities, and diversified portfolio combined with our ongoing commitment to innovative technology and sustainability will continue to drive long-term value in further position, Warner as a top North America carrier logistics company of choice. Let's move on to slide six and highlight our third quarter results.
While we remain excited about the mid term and long term benefits of our logistics business. We expect near term margins will remain challenged.
Let's look at our cash flow liquidity and capital metrics on slides 14 and 15.
We ended September with $43 million in cash and cash equivalents operating cash flow remains strong it's $74 million for the quarter or 9% of total revenue year to date operating cash flow is $356 million and 14% of revenue an increase of 75 basis points here to date year over year net.
Net capex in the third quarter was $120 million or 15% of revenue and year to date was $374 million or 15% of revenue, reflecting lower year over year gains and a greater pace of reinvestment in the business as we continue to refresh the fleet.
With the increase investment we are seeing a lower average age of our trucks and trailers benefiting maintenance expense, while also preparing for future emission changes, having the most modern and safest equipment benefits are professional drivers customers and positions as well as the market strengthens.
Free cash flow as a negative 46 million for the third quarter largely due to our fleet investments here today free cash flow is negative $18 million or negative 1% of total revenues.
And it reflects an elevated level of net capex. We continue to expect the net capex for second half of 23 to be lower than the first half of twenty-three with further easing in the first half of 2024.
Our total liquidity at quarter end was strong at $452 million, including cash and availability on a revolver.
On slide 15.
We ended the quarter with $690 million in debt 50 million higher than the end of second quarter and down 4 million compared to the start of 2023 our.
That structure is primarily longterm and provides ample credit capacity for growth and accretive investments with over 87% of our outstanding debt not maturing until the second half of 2027.
During the third quarter, we increased our fixed rate that from 35% to 54%.
We've remained pleased with our low leverage and healthy balance sheet, including our long term in a low cost access to capital and our overall capital structure.
Moving onto side 16 to review our capital allocation priorities.
We will continue to prioritise strategic reinvestment in the business for fueling growth and competitive advantage, including modernizing the fleet. While also investing in safety technology and innovation. In addition, we will maintain our long standing commitment to return value to our shareholders through our quarterly dividend plus periodic evaluation of share repurchases to be.
Balanced with availability of excess cash and impact of leverage.
Opportunities to grow organically remained clear and compelling in particular within dedicated and our asset light businesses accretive acquisitions also remain an avenue for growth where opportunities irrelevant sides and synergies align with our culture and prioritize competitive advantages we are continuing to integrate the four acquisitions that we have executed today.
And lastly, we are committed to preserving a strong and flexible financial position with access to liquidity, while maintaining low and modest net leverage before turning it back to Derek for closing remarks, but to turn to slide 17 for an update on our full year guidance.
We are lowering our truck fleet guidance range for full year 2023 to a range of down 5% to down 3% from down 4% to down two per cent.
We are narrowing our net capex guidance for the year from a range of $400 million to $450 million to $425 million to $450 million. We anticipate that this may exceed our longterm net capex range of 11% to 13% of revenue as we've invested heavily to refresh the fleet ahead of him and upcycle increasing asset reliability.
Chris Neil: During the quarter, revenues decreased 1% year over year to 818 million. Net-a-fuel search arches are third quarter revenue grew 3% versus the prior year. Adjusted EPS was 42 cents, adjusted operating income was 42 million or an operating margin of 5.1%. Adjusted TTS operating margin was 8.5%. Our primary focus in this complex operating environment is controlling what we can. This includes operational execution by leaning into the strength of our dedicated fleet, who superior customer service and fleet efficiency.
Lowering operating costs and getting ahead of upcoming regulatory changes.
Dedicated revenue per truck per week is expected to remain within our full year guidance of zero to three per cent.
One way truckload revenue per total mile for third quarter decreased 4.8% and is down 4.4% year to date within our guidance range.
Chris Neil: This focus continues to result in strong customer retention, a stable fleet in competitive margins. As we anticipated heading into the quarter, one-way truck load remained challenged by elevated spot exposure and ongoing pricing pressure. We remained focused on utilization of one-way assets and optimizing the fleet while maintaining long-term pricing discipline. Despite a shorter average length of haul, we realized 3.3% year over year growth and average total miles per truck per week, the second consecutive quarter of improvement.
Our guidance range for the fourth quarter is down 9% to down 70 per cent due primarily to difficult P. Comparable we expect one way revenue for total mile to be flat to down low single digit sequentially from Q3 to queue for.
For these truck market, we expect continued declining demand with moderating pricing and equipment gains as we closed out the year, we reached $39 million in equipment gains year to date and we are tightening how are expected range for the full year, two between 42 and $47 million.
Chris Neil: Within logistics, Q3 volume and revenue continue to form well, delivering double-digit revenue growth and strong volume growth. We continued to execute our cost savings program and have seen sequential and year over year progress in certain expense categories. In addition, we have a line of sight to the non-recurring year-to-date spend that is supporting our long-term technology strategy and we remain optimistic about the benefit to earnings once complete. That said, we continue to face macro headwinds with lower equipment gains, higher interest expense and inflationary pressures.
We expect net interest expense this year will be $20 million to $25 million higher than last year because of the continued pace of fed tightening in more debt versus prior year, our tax rate in third quarter was 23% and it's 24.3% year to date, we are maintaining the full year range of 24% to 25%.
The average age of our truck and trailer fleet in third quarter was 2.0, and 5.1 years compared to 2.3 and five years, respectively. At the end of 2022, I'll now turn it back to Derek.
Derek Leathers: In short, break conditions than third quarter were challenging and along with the second quarter, I would describe this as the most difficult period of my career from a market perspective. Despite these challenges, our results continue to reflect a business model that is durable, diversified, and resilient, even in a lower for longer and tough operating environment. Our elevated record on cost-saving initiatives focused on innovation and reinvestment in the business, positions in this well to benefit as freight conditions improve.
Thank you Chris.
Again, as we've noted throughout our comments today, the freight backdrop as challenging in a recent results are now consistent with our long term expectations that said both strong revenue retention in progress on diverse for our in our portfolio deeper in boot dedicated and logistics positions as well for the future. Our approach has created competitive images that will continue to fuel our growth durability.
Derek Leathers: Let's move on to slide seven. Last quarter, I provided a more in-depth update on our runner edge in cloud-first, cloud-now, multi-year technology strategy. This strategy combines a blend of best-in-class third-party market solutions with proprietary technology, talent and innovation to generate sustainable and operational benefits. It works in tandem with our tech-driven feature and data-rich solutions and digital freight marketplaces such as the launch of Warner Bridge earlier this year. Our technology and innovation journey is progressing.
<unk> Andrew remains where.
We are uniquely positioned to service the most complex great needs of large enterprise customers, including over half of the largest <unk> retailers. In addition to growing and other verticals with customers who are winning in their space.
We have the benefit of broad solution sell into large enterprises across to our highly integrated dedicated offerings are nationwide funnel miles solution, plus cross border and logistics, while also grown share with small and medium sized customers within brokerage our comprehensive footprint in terminal network across the country puts Warner within 150 mile reach of 90% of the U S population.
Derek Leathers: With a hundred percent of our logistics segment, absent our runner-frontal mile business expected to be fully transitioned to our HTMS platform by end of this year. As we look ahead to 2024, we are preparing for the transition of our TTS business. This marks a major step in our strategic roadmap. Executing our vision requires considerable investment in time, energy and capital. As shown on the right-hand side of the slide, the OR impact from ongoing development and duplicative platform expenses is estimated to be 30 to 40 basis points on a yearly basis for 2023.
<unk> and his nearshoring increases we have the largest Mexico cross border franchising truckload and deep experience operating in this complex market.
We have a long history of leading an innovation and we are primed to benefit from more recent investments in technology aimed at greater operational effectiveness in enhancing the experience would both of our customers and associates, we continue to attract and retain top talent, including highly qualified professional drivers that embracing carry out our commitment to superior safety Award winning server.
Derek Leathers: By channeling all freight through Werner Edge, we foresee numerous advantages, a better customer experience, lower cost of execution, and improved optimization from better visibility. This results in a more mode, agnostic approach, and greater revenue and earnings potential, as returns on these investments are realized in future years.
<unk> and in turn allows us to retain our strong portfolio and customers.
I'm proud of our team and the exciting future for Warner and at this point I'll turn the call back over to our operator to begin Q&A.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
Derek Leathers: Before turning over to Chris to discuss our financial results in more detail, let's move to slide eight to highlight our current view of the marketplace. The freight market has remained challenging in third quarter and into October. Dedicated demand remains steady, and we have a pipeline of opportunities that we can capitalize on. The one way operating environment continues to be challenging, given lower rates with new contract rate implementations largely behind us, higher than normal bid churn and rapidly rising fuel prices in the quarter.
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Derek Leathers: Despite a very competitive marketplace, we expect valid volume and logistics, but margins will continue to be impacted due to downward pricing pressure and cost related to new business implementations. As we look to peak season to close up a year, our larger retail customers continue to signal more normalized inventory levels and improved mix of fuse that better line with a post pandemic consumer. That said, we remain cautious about consumer behavior given mixed data points and themes impacting spending, particularly for goods versus services and recent global tensions.
Our first question is from Christian Wetherbee with Citigroup. Please go ahead.
Hey, Thanks, operator, and this is <unk>.
Rob on for Chris.
Jack with.
With the update and kind of guidance can can you give us a sense of you know how you're thinking about.
The fleet allocation of the spot market just in light of where we are could you give us an update kind of where we are today.
Derek Leathers: As a result, we expect a more muted peak season looking out as capacity continues to exit the market with 57 consecutive weeks of DOT net truck deactivations. We are well positioned to benefit from a more balanced supply and demand freight market going forward with upward momentum to lock in more contractual freight and improving rates.
You're thinking about you know potentially great pricing as we go into next year.
Yeah sure.
Thanks for the question right now on one way truckload.
We are you in that part of our business worried about 15% call it roughly of our fleet in the spot market.
Chris Wyckoff: With that, let me turn it over to Chris to go through the third quarter results in more detail.
Clearly that's more than we'd like to see in that market.
Chris Wyckoff: Thank you, Derek, and good afternoon. Let's continue on slide 10. Third quarter total revenue was 818 million, which was down 1% versus prior year. Net-a-fuel surcharges, Q3 revenues, grew by 3%. TTS revenues net-a-fuel were down low single digits despite a softer freight market, while logistics revenues grew for the 12th straight quarter reporting double-digit growth. Adjusted operating income was 42 million, and adjusted operating margin was 5.1%. A decrease of 47% and 450 basis points respectively versus prior year.
As in recent weeks, we've seen some capabilities of kind of lowering that number as we get deeper into peak one of the opportunities in front of us is to get.
Some of those units out of the out of the spot market and into you whether it be contract freight that we have opportunities to grow with or.
Peak opportunities and as we think about peak this year, what we're seeing broadly is.
Volumes similar to a year ago.
But obviously the the price relative to those opportunities is significantly lost somewhere it would have been last year I still believe there is an opportunity for volumes to potentially even finished up year over year relative to peek, but without that same.
Chris Wyckoff: Adjusted EPS of 42 cents was down 48 cents year by year due to the macroeconomic, environment, lower equipment gains, higher interest expense, and ongoing inflationary headwinds. Our cost savings program is serving to mitigate some of the impact on operating margins. Through the end of the third quarter, we have now identified in-year run rate savings of over 43 million. Although there is more work to do, we are pleased with our progress to date, and as of the end of the third quarter, we have realized over 70% of targeted savings.
Incremental pricing opportunity.
Regardless of that is you take trucks out of pecan or out of spotted into that environment the opportunity for <unk>.
Significant shift in pricing on those trucks is still available and so that's encouraging and as we look into next year I think it really comes down to how the consumer holds holds in and whether they can in fact stay strong crew peeking into the start of the year.
Chris Wyckoff: Turning the flight 11 and our truck load transportation services results. TTS total revenue for the third quarter was 572 million, down 8%. Revenue's net of fuel surcharges fell 4% to 489 million. Given the macro environment, TTS top line performed well. Third quarter, TTS adjusted operating income was 42 million, and adjusted operating margin was 8.5%. A year of year decrease of 45% or 640%. Basis Points, doing part to rapidly accelerating diesel fuel prices, compress pricing in one way and lower equipment gains against a strong prior year comm.
Coupled with the ongoing the Activations in general trucking nutrition that we do see taking place at a more rapid pace that will really kind of set the stage for what.
First half of next year looks like.
I'm sorry, my follow up is what what's the current spread for your spot relating trucks relative to your contractual rights as we think about some of the business shifting around.
Yeah, right now right now the spread net of fuels in the.
Call it 40% to 60% range, depending on the week.
But it it it's been you know at that similar level now for awhile, I mean spot spot rates really haven't changed much in the last.
Chris Wyckoff: In the third quarter, gains on sale of revenue equipment totaled $8.8 million, a decline of $11.3 million, or 56% versus prior year. While we sold almost one and a half times as many tractors and over three times more trailers, compared to prior year period, average price and gains were significantly lower. Year to date, we have achieved $39 million of equipment gains and are on track to achieve our full year guidance. TTS suggested operating expenses net a fuel surcharge in equipment gains declined 0.9% compared to our TTS rate per mile which decreased 2.9%.
Couple of quarters, they've been fairly fairly steady obviously, we have seen a little degradation in one way trucking rate for total mile but that spread is seem to hold in at.
At about those levels and the last four or five months.
I appreciate the time, yes.
Thank you.
The next question is from Tom Water-witch with UBS. Please go ahead.
Thanks. This is my Toronto on for Tom.
So you mentioned the total <unk> three per mile was down only three per cent in three Q, which in this type of market points to all the good work that you've done to build the dedicated business and also build more resiliency in one way, but the T. T. S. A war in the low nineties is similar to some peers, who are being more pressure on price.
Chris Wyckoff: We saw improvements in the quarter in various expense categories. Supplies and maintenance expenses trending well and was down 11% versus the prior year. And 6% sequentially as we are recognizing the benefits of shifting more of our repair and maintenance capabilities in house, while also benefiting from a newer, younger age fleet. TTS insurance and claims were down 9% versus the prior year. We continue to focus on safety and are proud to report a 19 year record low in DOT preventable accidents in the third quarter.
Highlighted the $43 million, a cost savings, but even with that you're you're still in the low nineties. So I'm. Just wondering if there are more cost efficiencies to be realized that can help you get the more in line with your performance on price. Thanks.
Chris Wyckoff: Our strong safety record wed to a low single digit premium increase on our excess insurance coverage which was effective at the beginning of August. Although the rise in cost per claim plus record verdicts and settlement remains an industry headwind, we are encouraged by our recent trend. Driver pay and benefits continue to moderate and we are down over 1% year by year. We are committed to controlling costs and performing within our annual TTS operating margin range of 12 to 17% over the long term.
Hey, Mike This is Chris Thanks for the question Yeah.
Yeah.
We still feel good about the 12% to 17% target range for TTS over the long term as you know this has been a uniquely challenging cycle.
Inflation being up rates being down imbalance in terms of supply and demand.
I think it's important to note that within TTS, 64% of that is dedicated and while we don't disclose those margins dedicated continues to have double digit margins steady durable and so the volatility there is really within our one way business, where we do have that elevated spot is dara.
Chris Wyckoff: Given the unique and very challenging operating environment that includes ongoing pricing pressure primarily within one way and lower equipment gains, we fell below the annual range this quarter on a trailing 12 month basis. Despite near term choppiness, we remain confident in our ability to achieve long term TTS operating margins within the stated range.
Just mentioned.
And continued pricing pressure, so where we can continue to grow dedicated add premium contract pricing more stability, while also growing certain sleeves within the one way business, including the cross border, where there's good growth and opportunity there from.
Chris Wyckoff: Turning to slide 12 to review our fleet metrics. TTS average truck count with 8,226 during the quarter were down just over 3% versus prior year. We ended the quarter with the TTS fleet down 1.4% sequentially and down 4.8% year-of-year. Within TTS, dedicated revenue was 306 million down 2%. Dedicated represented 64% of segment revenue net a fuel compared to 62% prior year. Our TTS segment revenue per truck per week net a fuel has grown year-of-year 18 of the last 23 quarters and while down less than 1% year-of-year in Q3, this compares to industry benchmark showing significantly larger declines.
From a top line perspective, and overall mix within TTS that can position as well also remembered that.
Given the one way business there can be a meaningful difference as we move out a spot move those rates into contract rates and then potentially moved those into a further dedicated premium rate. So with an improved a market that can have a a significant help to the overall operating margins and then you mentioned the cost improvements yeah.
We've made some good strides there and supplies and maintenance and even insurance and some other categories that pro program continues to progress and by continuing to focus on cost improvements as we're starting to see here that certainly will help going forward to the TTS margin.
Chris Wyckoff: The dedicated average truck count during the quarter decreased 2% to 5,254 trucks at quarter end dedicated represented 64% of the TTS fleet. Dedicated revenue per truck per week decreased 0.4% year-of-year negatively impacted by one fewer business day in the quarter. Year-to-date dedicated revenue per truck per week increased 1.8% year-of-year and is on track to increase 9 out of the last 10 years. Overall, dedicated is performing well and remains solid. Dedicated has steadily grown over the last 10 years across all economic conditions with an annual customer attention rate of over 95%.
Would you would you point to any particular cause bucket within that 43 million. When you say look we can we can help you could probably do do a little bit more whether it's on the on the supply the maintenance cider around you know the kind of a drive of recruitment and pay so I'd.
Well, yeah actually all of those that you mentioned are part of that program, but we're excited about the.
Recent improvement year over year that we've seen in supplies and maintenance we've talked a lot about that on other calls of several quarters to bring more of that in house as well as just having a younger more modern fleet that obviously has a lower operating costs for.
Chris Wyckoff: Our pipeline of opportunities remains healthy, given our unique scale, reliability, strong relationships across our portfolio of large enterprise customers. As customers continue to monitor the macro environment, we are seeing some delays in expanding existing dedicated fleets. However, as Derek mentioned, the dialogue with our customers about future opportunities remains positive. One way trucking revenue during the quarter was 176 million, a decrease of 7% versus prior year. One way average truck count during the quarter was down 6% to 2,972 trucks.
For Q3 supplies and maintenance was down double digits year over year also insurance was down 9% a year over year in in the quarter and insurance.
Four Q3 was the first quarter since Q1 of 2022 that was less than 4% of revenue <unk>.
Driver pay and benefits was down 2% year over year some of that due to the fleet as well as some pay changes. So it's it's multi pronged in terms of how we are building that bucket and going after cost improvement.
Chris Wyckoff: One way revenue per truck per week was down 1.6% year-by-year, due to a mid-single digit rate per total mile decline offset by a significant increase in miles per truck. One way third quarter total miles per truck per week increased 3% year-by-year. This marks a second consecutive quarter of improvement driven by further engineering of our fleet, improved terminal velocity and the less equipment downtown. These results were especially encouraging given the decline in average length of haul.
To answer.
Directly about ongoing improvements in some of those areas were certainly pass the middle innings, and some of the initiatives realm.
Relative to supplies and maintenance, but there is still room to to.
Grow.
As Chris mentioned.
We have the ability to still bring further density into our shops, we're excited about that where it's an ongoing effort were clearly.
Chris Wyckoff: Turning now to our growing logistics segment on slide 13. In the third quarter, logistics segment revenue was up 23% year-by-year at 230 million and now represents 28% of total Warner revenues. Truckload brokerage revenues drove the largest portion of the year-by-year growth increasing over 48% driven by the read acquisition and strong performance from our organic business. This month marks the one-year anniversary of the read acquisition and we are pleased with the performance as read is saying volume growth compared to its pre-acquisition levels.
Reaping the benefit although it sue inexpensive way to get there the elevated capex as it relates to the trucks out of warranty and trucks over 400 pounds of my own to put some color on that is just as an example, a year ago. This time, we would have had over 500 trucks greater than 400 pounds of models in the fleet and today was we sit here we have less than 50.
So we're still continuing to work.
More aggressively on announced maintenance.
Chris Wyckoff: Our organic truckload logistics segment has also performed well excluding read volumes in truckload logistics increased 9% sequentially and 8% year-by-year. We continue to grow our domestic and Mexico cross-border power only solution as both our customers and alliance carriers see tremendous value in the Warner network and growing trailer pool. Power only represented a growing portion of the truckload logistics revenue during the quarter. Final mile continued to show strong growth reporting a 16% year-by-year revenue increase during the quarter despite a softer market for discretionary spending on big and bulky products.
Idea of that maintenance, but also the fresher fleet gives us a pretty good head start on that.
<unk> you as we continue to work on our acquisitions into an integrated on to one platform. There's some real visibility advantages an opportunity for us to take some additional cost out <unk>.
Unfortunately, the reality of the acquisition time in was that it was at the same time, we were building up the largest tech journey really in our history, we knew that going into it we knew it'd be more painful and as a result, but we still believed that the underlying asset was worth.
Making the decision to move forward and to fill the portfolio out to better prepare for the future.
Chris Wyckoff: And as expected intermodal revenues which make up approximately 11% of segment revenue declined year-by-year from both lower volumes and revenue per load. Third quarter logistics adjusted operating income was 3.2 million and adjusted operating margin was 1.4%. Down 160 basis points year-by-year driven by rate and gross margin compression, new business implementations and expense headwinds. While we remain excited about the midterm and long-term benefits of our logistics business we expect near-term margins will remain challenged.
Thanks, I appreciate all thoughts.
The next question is from Jack Atkins was Stevens. Please go ahead.
Okay, great. Thank you for the time guys really really appreciate it I I guess there for my first one if I could maybe pick up.
Where you left off there at the end in terms of just the the costs associated with the the tech investments you've been making I'm sure that's burning the P and all of this year.
Yeah is there a way that maybe help us think about you know the the the level of expense you've been occurring merit I guess it'd be soon as we sort of think forward.
Chris Wyckoff: Let's look at our cash flow liquidity and capital metrics on slides 14 and 15. We ended September with 43 million in cash and cash equivalents operating cash flow remained strong at 74 million for the quarter or 9% of total revenue. Year-to-date operating cash flow is 356 million and 14% of revenue an increase of 75 basis points year-by-year. NetCAPX in the third quarter was 120 million or 15% of revenue and year-to-date was 374 million or 15% of revenue reflecting lower year-by-year gains and a greater pace of reinvestment in the business as we continue to refresh, with the increase investment we are seeing a lower average age of our trucks and trailers benefiting maintenance expense while also preparing for future emission changes.
Once you know once you begin to see the benefits from that you know.
How are the tech investment, you're making now setting up for the long term.
Hey, Thanks for the question.
First off it's difficult I want to be clear about that we've done a lot of work and we talked about even admit prepared remarks, the 30 to 40 basis points of of Oh, our impact year to date on the related to this texture Tech journey, what makes it difficult as I don't want to imply that.
That.
All of that is non-recurring because there will be other types of cost that may replace it in some cases, so licenses and services. The systems is a service fees and other things, but perhaps the biggest cost of all and that's the one that's the most difficult to really quantify is the amount of man hours in time and effort that is put in to making sure we get this right.
Chris Wyckoff: Having the most modern and safest equipment benefits our professional drivers, customers and positions as well as the market strengthens. We continue to expect the net cap ex for second half of 23 to be lower than the first half of 23 with further easing in the first half of 2024. Our total liquidity at quarter end was strong at 452 million including cash and availability on our revolver. On slide 15 we ended the quarter with 690 million in debt, 50 million higher than the end of second quarter and down 4 million compared to the start of 2023.
So just.
Significant amounts of meetings and productivity that gets impacted as we lay this journey out and folks that are working through this journey that is part of it. There's a period of time and most of that period of time has been the last couple of quarters and to be Frank for the next couple as well where folks are actually working harder and working longer.
<unk> Oh as they work out of old systems and into the new platform and.
And we know that that's that journey continues for awhile as we look forward as far as what we see on the on the hour quarters and why is the juice worth the squeezed I think having a cloud first cloud announced strategy, having a heart attack.
Chris Wyckoff: Our debt structure is primarily long term and provides ample credit capacity for growth and accretive investments with over 87% of our outstanding debt not maturing until the second half of 2027. During the third quarter we increased our fixed rate debt from 35% to 54%. We remain pleased with our low leverage and healthy balance sheet including our long term and low cost access to capital and our overall capital structure.
Architecture, modernize the ability to make changes and adapt to a changing marketplace more nimbly very.
Very difficult to even put a value on we will make us more nimble more able to serve but more importantly, probably than all of the above is the ability for the first time in our history as we've grown this portfolio out and expanded.
<unk> logistics and even within one way increase the level of engineering that we do have and all of that for eight and one system with one once visibility.
Chris Wyckoff: Moving on to slide 16 to review our capital allocation priorities. We will continue to prioritize strategic reinvestment in the business for fueling growth and competitive advantage including modernizing the fleet while also investing in safety, technology and innovation. In addition, we will maintain our long-standing commitment to return value to our shareholders through our quarterly dividend plus periodic evaluation of sharey purchases to be balanced with availability of excess cash and impact leverage. Opportunities to grow organically remain clear and compelling in particular within dedicated and our asset light businesses.
Will be leaps and bounds ahead of where we're operating today.
We're very encouraged by that you couple that with.
Warner Bridge, and the digital <unk> platform within brokerage, which will which were not holding out there is the the core if you will of what we do because.
Logistics, we have a tremendous amount of contract work and work that involves other value added services along the way.
Coupled with our standard brokerage product, but within Warner bridge that capability as it builds out and gets implemented we're seeing receptivity both from the customer and carrier community in a in a fairly quick ramp to the capabilities that that's bringing us. So yes. It is going to be you and call. It a year still out in front of us to even.
Chris Wyckoff: Accretive acquisitions also remain an avenue for growth where opportunities irrelevant sides and synergies align with our culture and prioritize competitive advantages. We are continuing to integrate the four acquisitions that we have executed today. And lastly, we are committed to preserving a strong and flexible financial position with access to liquidity while maintaining low and modest net leverage.
Perhaps as long as 18 months as we go down this journey, but the but the output of it.
Chris Wyckoff: Before turning it back to Derek for closing remarks, let's turn to slide 17 for an update on our full-year guidance. We are lowering our truck fleet guidance range for full-year 2023 to a range of down 5% to down 3%, from down 4% to down 2%. We are narrowing our net capex guidance for the year from a range of 400 to 450 million to 425 to 450 million. We anticipate that this may exceed our long-term net capex range of 11 to 13% of revenue as we have invested heavily to refresh the fleet ahead of an up cycle.
Is something that's very attractive and I'll point to spit.
Specific case with.
Over the last year that most implemented most integrated portion of this journey is aren't truckloads logistics group and if you look at the performance within that group from a from a revenue for market share perspective, taking share growing at a time when very few if any others are.
Doing so yes with some additional.
Cost associated with it because of this the tech investment, but over the long term, we like the positioning of that part of the portfolio a great deal but.
Chris Wyckoff: Increasing asset reliability, lowering, operating costs, and getting ahead of upcoming regulatory changes. Dedicated revenue per truck per week is expected to remain within our full-year guidance of 0 to 3%. One-way truck load revenue per total mile for a third quarter decreased 4.8% and is down 4.4% year-to-date within our guidance range. Our guidance range for the fourth quarter is down 9% to down 7%, due primarily to difficult peak comparable. We expect one-way revenue per total mile to be flat to down low single digits sequentially from Q3 to Q4.
But given this larger scale and relevance in the marketplace. So it's.
It's going to be tough work were signed up for it and the team hears committed to Siena fruit.
Okay now that that that makes sense there can I guess just as a follow up.
With you know when we think about the dedicated market you know some of your competitors have been speaking to an increasingly competitive dedicated market here over the last.
Quarter or two.
Can you talk too if if you're in may be seeing increased pricing pressures show up in bids over the last few months I mean, I know, it's a challenging market broadly, but you know it does feel like we're seeing some competitors maybe looking to deploy additional assets into your sandbox and just would be curious if you could talk to that for a moment and and and.
Chris Wyckoff: For the use truck market we expect continued declining demand with moderating pricing and equipment gains as we close out the year. We reach 39 million in equipment gains year to date, and we are tightening our expected range for the full year to between 42 and 47 million. We expect net interest expense this year will be 20 to 25 million higher than last year because of the continued pace of Fed tightening and more debt versus prior year.
How you're addressing that.
Yeah, So first off I'll say.
There is clearly increased level of interest and dedicated both from the shipper anterior community I think that's not surprising given the absolute draconian pricing exists within the spot market today.
Chris Wyckoff: Our tax rate in third quarter was 23% and is 24.3% year to date. We are maintaining the full year range of 24 to 25%. The average age of our truck and trailer fleet in third quarter was 2.0 and 5.1 years compared to 2.3 and 5 years respectively at the end of 2022.
Most of what we do and dedicated can't really be replaced by Spock capacity. It really doesn't play a role.
But it does cause carriers to gain interest and opportunities to pursue dedicated whether or not they may have the capabilities to actually perform.
So it's willing coming up on us to make sure our performances at the highest possible level of the business that we do is true dedicated.
Derek Leathers: I will now turn it back to Derek. Thank you, Chris. Again, as we have noted throughout our comments today, the freight backdrop is challenging and our recent results are not consistent with our long-term expectations. That said, both strong revenue retention and progress on diversifying our portfolio deeper and both dedicated and logistics positions us well for the future. Our approach has created competitive advantages that will continue to fuel our growth, durability and earnings.
That the stickiness and defensiveness is that businesses is inherently built in because of the complexity of the type of work, we do and I can tell you that.
Despite being.
Disappointed in our overall results for the quarter I'm extremely.
Proud of the work that we're doing and dedicated and the underlying financial results of it as well so it stood up as well as we would have expected in a market that was under this much duress.
Derek Leathers: We are uniquely positioned to service the most complex freight needs of large enterprise customers, including over half of the largest US retailers, in addition to growing in other verticals with customers who are winning in their space. We have the benefit of broad solution selling to large enterprises across our highly integrated dedicated offering, our nationwide final mile solution plus cross-border and logistics, while also growing share with small and medium-sized customers within brokerage.
And I think the prospects warrant looking forward are certainly strong, but we're going to we're going to maintain pricing discipline and you're going to see that and you have seen that and the fact that although it's a larger percentage of the fleet.
It is not growing at the pace. It once was because we're going to stick to.
Making sure it's the right type of dedicated this defensive in nature, that's hard to serve and it's priced appropriately with all that said the pipeline looks pretty good right now we still like the out quarters as we look forward and our ability to continue to lean into dedicated.
Derek Leathers: Our comprehensive footprint and terminal network across the country puts Warner within 150 mile reach of 90 percent of the US population. And as near-shoreing increases, we have the largest Mexico cross-border franchise in Trupload and deep experience operating in this complex market. We have a long history of leading in innovation and we are primed to benefit from more recent investments in technology, aimed at greater operational effectiveness and enhancing the experience of both our customers and associates.
Okay. Thanks again for the time here.
Thank you.
The next question is from Eric Morgan with Barclays. Please go ahead.
Hey, good afternoon. Thanks for taking my question I wanted to ask on supply Derek you've offered some helpful perspective over the last few quarters.
Derek Leathers: We continue to attract and retain top talent, including highly qualified professional drivers that embrace and carry out our commitment to superior safety, award-winning service, and in turn allows us to retain our strong portfolio of winning customers.
I'm just industry capacity.
I know recently, you've been talking about elevated cash balance with smaller carriers kind of extending cycle.
And I think the interior now you said, you're seeing a more rapid pace of attrition, but maybe you could just talk a bit more about what you're seeing right now and if there are any other factor is you just kind of identified that are having an outsize impact that might have you're rethinking how long this downcycled persist.
Derek Leathers: I'm proud of our team and the exciting future for Warner.
Unknown Attendee: And at this point, I'll turn the call back over to our operator to begin Q&A.
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Sure.
So let's start with we've talked a lot about the activation and that's not the <unk> will be all but it's certainly a relevant gauge on the dashboard. We've seen 57 weeks now and over 150000 trucks, but during the early portion of those weeks you were seeing quite a bit of movement in the BLS data were owner operators and.
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Unknown Attendee: This call will end at 5pm central time following the company's closing remarks. At this time, we will pause momentarily to assemble our roster.
Others may have been showing up at a decent percentage as employee drivers at some other fleet.
Only in recent months, we were really call it a quarter to half of your starting to seep BLS data also negative at the same time you are seeing that the activation go negative and the new couple that with now named brand bankruptcies not the obvious yellow that everybody's talked about but but 200 truck 400, shrunk 500 from carriers kind of on a weekly basis starting to hit the radar.
Christian Weatherby: Our first question is from Christian Weatherby with City Group. Please go ahead. Hey, thanks, operator. This is Rob on for Chris. Derek with the updated kind of guidance. Can you give us a sense of, you know, how you're thinking about the fleet's allocation to the spot market, just in light of where we are? Could you give us an update kind of where we are today and how you're thinking about, you know, potentially repricing as we go into next year?
Of not being able to survive this pricing environment I think if you put all that together and you continue to you kind of look forward it along that trend line.
This is coming closer to balanced than people realize.
I'm not here to try to predict, especially coming off a quarter like this the exact date or time that that will take place, but we're we're clearly more encouraged and then lastly, because it's very relevant to the conversation I think you have to take a deeper look at inventories and what we're seeing boasted within our own customer base has some pretty strong statements around their comfort.
Christian Weatherby: Yeah, sure, Rob. Thanks for the question. Right now on one way truck load, we are, you know, in that part of our business, we're at about 15% call it roughly of our fleet in the spot market. Clearly, that's more than we'd like to see in that market. And as in recent weeks, we've seen some capabilities of kind of lowering that number as we get deeper in the peak, one of the opportunities in front of us is to get some of those units out of the out of the spot market and into, you know, whether it be contract.
With their current inventories, but even on the broader inventory levels across the industry you are starting to see more and more folks stepping forward and feeling as though that destocking is largely behind them. So you put all that together and that gives us a sense of encouragement of course, the headwind against it is overall consumer confidence in just the strength of the consumer and so we're going to.
Christian Weatherby: Fright that we have opportunities to grow with or peak opportunities. And as we think about peak this year, what we're seeing broadly is volumes similar to a year ago, but obviously the price relative to those opportunities is significantly less than where it would have been last year. I still believe there's an opportunity for volumes to potentially even finish up year over year relative to peak, but without that same incremental pricing opportunity. Regardless of that, as you take trucks out of peak and are out of spotted into that environment, the opportunity for significant shift in pricing on those trucks is still available. And so that's encouraging.
Just have to see how those lines kind of play out over the next couple of months and quarters, but I do believe we're certainly much closer to the end and we ordered the beginning of this cycle term.
Appreciate that and maybe just a quick follow up on pricing in one way I know I'm, a little better than the so the mid plan three Q for you to come in a little bit lower could you just give us a little bit more context on what the changing their M. Specifically any impact the length of hall is happening.
Cause I know that's been moving moving town, but.
Yeah in terms of of one way pricing I mean, you look back over the year, we've been down 3.2% in Q1 down 5.2, and Q2 and now here in Q3 reporting for eight down so in a year to date basis, it's down for 4%.
Christian Weatherby: And as we look into next year, I think it really comes down to how the consumer holds holds in and whether they can, in fact, stay strong through peak and into the start of the year, coupled with the ongoing net deactivations and general trucking nutrition that we do see taking place at a more rapid pace, that'll really kind of set the stage for what, you know, the first half of next year looks like. Thanks, sir.
We are relatively pleased with that given what's out there.
And the space, but nonetheless, it's it's down in our environment, where there are significant inflationary cost pressures. So that's obviously, putting a squeeze on the margin side.
Christian Weatherby: And my follow up is what's the current spread for your spot related trucks relative to your contractual rates as we think about some of the business shifting around. Yeah, right now, right now the spread net fuels in the, you know, call it 40 to 60 cent range, just depending on the week. But it's been, you know, at that similar level now for a while, I mean spot, spot rates really haven't changed much in the last couple of quarters.
As we look forward into Q4, and our guidance that's now down 90 down seven.
The reason for the change really has more to do with the prior year increase from Q3 to queue for then and anything's happening really right now heading from Q3 to Q4 so.
So we expect our one way trucking right to be flattish to may be slightly down sequentially.
A couple of reasons for that you look at you know we've had continued implementation of lower contractual right renewals on bids on rates that were effective throughout Q3, we're done with good season, and I think most of the implementations are behind us, but there were some that were implemented in the quarter.
Christian Weatherby: They've been fairly, fairly steady. Obviously we've seen a little degradation in one way trucking rate for total mile, but that spread is seemed to hold in at about those levels in the last four or five months. Appreciate that. Thank you.
In terms of the spot exposure, we've talked about that spot rates typically increase in queue for but they've been.
Tom Waterwoods: The next question is from Tom Waterwoods with UBS. Please go ahead. Thanks.
Michael Triano: This is my triano on for Tom. So you mentioned the total TTS rate per mile was down only 3% and 3Q, which in this type of market point to all the good work that you've done to build the dedicated business and also build more resiliency in one way. But the TTS the one low 90s is similar to some peers who are seeing more pressure on price. If highlighted the 43 million of cost savings, but even with that, you're still in the low 90s.
Frustratingly low and I don't know that we expect a whole lot of lift there, although it could improve a little bit with some peak activity and then the tailwind for us heading into Q4 would be some peak activity. We are expecting some we've already had some and that will continue just not near the rate that it's been in the past so.
Really as we look forward, we're looking at a flat to slightly down sequential number but on a year over year basis. It looks a little worse, just given the increase we had and and 22 with a little more robust peak pricing.
Michael Triano: So I'm just wondering if there are more cost efficiencies to be realized that can help you get the OR more in line with your performance on price. Thanks. Hey Mike, this is Chris, thanks for the question. Yeah, we still feel good about the 12 to 17% target range for TTS over the long term. As you know, this has been a uniquely challenging cycle, inflation being up, rates being down, imbalance in terms of supply and demand.
Terms of the length of hall that is down significantly year over year.
There's just a couple of things there are with regard to to mix, we had more churn this year in the bid.
Throughout the bid season than what we typically do in that just resulted in a little bit lower length of hall.
I don't know that it's impacted pricing a whole lot may be a little bit but.
But it's more to do with just just the mix with the bid season.
Michael Triano: I think it's important to note that within TTS, 64% of that is dedicated. And while we don't disclose those margins, you know, dedicated continues to have, you know, double-digit margins, steady, durable. And so the volatility there is really within our one way business where we do have that elevated spot as Derek just mentioned and continued pricing pressure. So where we can continue to grow dedicated at premium contract pricing, more stability, while also growing, you know, certain sleeves within the one way business, including the cross border where there's good growth and opportunity there from a top line perspective and overall mix within TTS.
We have seen that start to increase a little bit here in the last month or so and would expect that there would be a little bit of an increase as we finish out the year, but nothing really significant to note on that front.
I appreciate all the color.
The next question is from Elliott Alper with T. D. Cowan. Please go ahead.
Great. Thank you. This is all it on for Jason. So you discuss some margin pressure in queue for logistics I guess, so 1.4, just marching in Q3, I guess can receive logistics lose money in queue for I I know there are a lot of moving pieces within that maybe you could touch on maybe the magnitude of the truckload brokerage margin so you called out or.
Michael Triano: Yes, that can position us. Well, also remember that, you know, given the one way business, there can be a meaningful difference as we move out of spot, move those rates into contract rates and then potentially move those into a further dedicated premium rate. So with an improved market, that can have a significant help to the overall operating margins. And then you mentioned, you know, the cost improvements. Yeah, we've made some good strides there and supplies and maintenance and even insurance and some other categories that program continues to progress.
Well thanks.
Yeah, So and logistics the margin pressure concern and the reason for signaling is just as this were to start to turn it or if we saw suddenly some increased activity from a from a peak perspective.
We could see by Ray pressure in the carrier community that would perhaps outpace.
The ability to pass that through based on our mix.
At this point, we also had been burdened with and that's the upside of or the downside of growth I guess, but as we've grown logistics and taking share and seen some of the the volume increases that we talked about earlier on the call. It comes with a little bit of settling of each of those accounts. So that as you onboard significant amounts of new busy.
Michael Triano: And by continuing to focus on cost improvements, as we're starting to see here, that certainly will help going forward to the TTS margin. Would you would you point to any particular cost bucket within that 43 million, where you say, look, we can be able to probably do a little bit more, whether it's on the on the supplies and maintenance side or on, you know, the driver recruitment and pay side. Well, yeah, actually all of those that you mentioned are part of that program, but we're excited about the recent improvement year of year that we've seen in supplies and maintenance.
<unk> takes a while to get the carrier roster kind of finalize to get the right carriers on the lanes in the right way with the most efficient purchasing and so that would be the counter to that that as we get better at that as we get some seasoning and some settling in the carrier base the opportunity to actually go the other direction. So.
Trying to be evasive, but I think it would be inappropriate for me to even try to tell you whether I think it gets better or worse in queue for I do think what you will see is a significant.
Michael Triano: We've talked a lot about that on other calls of several quarters to bring more of that in house as well. It's just having a younger, more modern fleet that obviously has a lower operating cost for Q3 supplies and maintenance was down double digits year-to-year. Also, insurance was down 9% year-to-year in the quarter and insurance for Q3 was the first quarter since Q1 of 2022 that was less than 4% of revenue. Driver pay and benefits was down 2% year-to-year, some of that due to the fleet as well as some pay changes.
Focus as we go into a queue for an into Q1 on execution.
Fusion operational excellence and less on growth.
From a volume perspective, and logistics is we get this this this new business digested.
Chris Yeah, maybe just to add to that.
We are we're happy with the volume.
It's been a year since we've had to read acquisition, we're continuing to.
Grow wallet share hand sign on.
Michael Triano: So it's multi-pronged in terms of how we're building that bucket and going after cost improvement. And to answer directly about ongoing improvements in some of those areas, we're certainly, you know, past the middle innings in some of the initiatives relative to supplies and maintenance, but there is still room to grow. As Chris mentioned, you know, we have the ability to still bring further density into our shops. We're excited about that. We're, it's an ongoing effort.
High quality contract customers, but we are mindful in this market of reviewing the portfolio, making sure that we're not taking on transactional business, that's underperforming maintaining high contract volume.
And we will continue to be <unk> reviewing the portfolio, while also balancing that with with winning new business and contracts that can last with us for the future.
We're also from a margin improvement standpoint, we're looking forward to having read fully integrated.
From a technology and operational perspective by the end of this year, which will enable us to realize some further synergies in cost savings going into next year and then beyond that there's also opportunities from from a technology perspective growing the small and medium sized business as well as a tech enabled a savings.
Michael Triano: We're clearly reaping the benefit, although it's an expensive way to get there of the elevated cap X as it relates to trucks out of warranty and trucks over 400,000 miles. To put some color on that is just as an example a year ago this time, we would add over 500 trucks, greater than 400,000 miles in the fleet. And today, as we sit here, we have less than 50. So we're still continuing to work more aggressively on in house maintenance, quality of that maintenance, but also the pressure fleet gives us a pretty good head start on that.
Within logistics, so a number of things that we're excited about but also mindful of and and looking for ways that we can improve the margin they're going forward.
Thanks, and then maybe you to follow up as he moved her bid season.
Michael Triano: You know, as we continue to work our acquisitions into an integrate onto one platform, there's some real visibility advantages and an opportunity for us to take some additional cost out, you know, unfortunately the reality of the acquisition timing was that it was at the same time we were building out the largest tech journey really in our history. We knew that going into it, we knew it would be more painful as a result, but we still believed that the underlying asset was worth making a decision to move forward and to fill the portfolio out to better prepare us for the future.
Are there any early reads on maybe what your customers are telling you and how they're planning for 2024.
It's really early to mid season right now I mean literally we're only starting to see the first couple come across that I think that that is a.
It really depends on the positioning of the customer themselves. We were fortunate to work with some of the best especially on the retail side some of the best retailers out there in the retail space. Several of them are actually optimistic about the fact that they've been able to recalibrate for this new consumer behavior.
Michael Triano: Thanks, appreciate all the thoughts.
Feel like the days ahead of them look a lot brighter than the ones that are in the recent rear view mirror.
Jack Atkins: The next question is from Jack Atkins with Stevens. Please go ahead. Okay, great. Thank you for the time, guys. Really, really appreciate it. I guess for my first one, if I could maybe pick up on where you left off there at the end, in terms of just the cost associated with the tech investments you've been making. I'm sure that's burning the P&L this year. Is there a way to maybe help us think about, you know, the level of expense you've been incurring there?
So volumes being.
Reopening.
Opening new stores and our ability to expand with them what that all means in price will just really determined will be independent and some on the one we saw it in particular on where we're at from a supply.
Capacity supply perspective.
So it's early we know that.
Well, we're going to be working with them on as the reality of sustainable pricing Ruby talk to a talking to them openly and honestly about what's happening at these pricing levels that have been out there because the data is right. There in front of him and this attrition is real we're going to talk to them about making sure that we're we price we can stand behind it.
Jack Atkins: And I guess as we sort of think forward, once, you know, once you begin to see the benefits from that, you know, how are the tech investments you're making now, setting order up for the long term.
Derek Leathers: Yeah, Jack, thanks for the question. First off, it's difficult. I want to be clear about that. We've done a lot of work and we talked about even in the prepared remarks, the 30 to 40 basis points of, of our impact year to date on related to this texture, tech journey. What makes it difficult is I don't want to imply that it, you know, that all of that is non-recurring because there will be other types of costs that may replace it in some cases.
And not be back in 60 days, 90 days or or multiple times a year.
Those conversations in some cases will go very well and with others I'm sure it will be more difficult.
One way truckload is down you saw in the quarter and we're prepared and actually planning to take it down further as we continue to lean further into dedicated so that provides opportunity for us to be a little more <unk> in a little more disciplined in our price.
Derek Leathers: So licenses and services, assistance as a service fees and other things. But perhaps the biggest cost of all and it's the one that's the most difficult to really quantify is the amount of man hours and time and effort that is put in to making sure we get this right. So just significant amounts of meetings and productivity that gets impacted as we lay this journey out and folks that are working through this journey that, as part of it, there's a period in time and most of that period in time has been, you know, the last couple of quarters and to be frank for the next couple as well, where folks are actually working harder and working longer as they work out of old systems and into the new platform.
Approach to this bid season coming up.
Thank you both.
The next question is from Scott Group with Wolf Research. Please go ahead.
Hey, Thanks afternoon, So maybe Chris your your comment about trucking truckload rates flat to down a bit sequentially from Q3 to Q4 should we assume that we should apply that similar logic to truckload of Lar or trucking earnings Q3 to queue for a flat to down slightly.
Well.
Scott there several puts and takes.
As we head from the quarter I mean, certainly.
Derek Leathers: And we know that that's that journey continues for for a while as we look forward as far as what we see on the on the out quarters and why is the juice for squeeze. I think having a cloud first cloud now strategy having our tech architecture modernize the ability to make changes and adapt to a changing marketplace more nimble is very difficult even put a value on it will make us more nimble more able to serve.
If the one way trucking rate is down a bit I mean, we're talking flat to slightly down is sequentially, where we're headed.
Nonetheless.
That would be offset with.
Some potential peak activity that would be better.
Certainly didn't have a lot of peak activity in Q3, it's just a little bit of a tail end of the quarter, but we have had some peak activity in October and would expect that to.
Derek Leathers: But more importantly, probably then all of the above is the ability for the first time in our history as we've grown this portfolio out and expanded dedicated logistics and even within one way increased the level of engineering that we do having all that freight in one system with one one's visibility will be leaps and bounds ahead of where we're operating today. We're very encouraged by that you couple that with you know Warner bridge and the digital platform platform within brokerage which will which we're not holding out there as the core if you will of what we do because in truck logistics, you know, we have a tremendous amount of contract work and work that involves other value out of type services along the way.
To continue with some of the peak awards, we've got although estimating volumes has been challenging this year I think for us and our customers.
And then the other thing to mention is just the continued headwind as it relates to gains.
We had I think a 9 million dollar gain we posted in Q3 and and you can tell by our annual guidance of $42 million to $47 million for the year that that implies a lower number in Q4, so definitely some puts and takes along with our cost savings program, which will continue to hopefully show some benefits there so.
So hard to say, we're certainly going to work as hard as we can to to show some improvement but continues to be a challenging environment and.
Derek Leathers: That with that a couple with our standard brokerage product but within Warner bridge that capability is it builds out and gets implemented we're seeing receptivity both from the customer and carrier community and a fairly quick ramp to the capabilities that that's bringing us so. Yes, it's going to be you'll call it a year still out in front of us to even perhaps as long as 18 months as we go down this journey, but the output of it is something that's very attractive.
Hopefully the the Tailwinds will outpace the headwinds.
Yes, Scott I'll, just add to that and just reinforce that we would expect to continue to see some year over year improvement in those select expense categories that we mentioned and you know really where you started that question was.
Really focused on the one way business dedicated Wilder.
While the fleet should be flat to up and revenue per truck per week generally holding steady you know that will have some some offset to mitigate some of that mid single digit decline in the one way right.
Derek Leathers: And I'll point to a specific case now over the last year the most implemented most integrated portion of this journey is our prep logistics group and if you look at the performance within that group from a from a revenue or market share perspective taking share growing at a time when very few of any others are doing so yes with some additional cost associated with it because of this tech investment. But over the long term we like the position of that part of the portfolio and great deal but given its larger scale and relevance in the marketplace so it's going to be tough work we're signed up for it and the team here's committed to see it through.
And then maybe just bigger picture I know, maybe this is already addressed a little bit, but all cycle, we talked about the stability of dedicated and we've increased the dedicated mix a lot I think we're just all surprised by the magnitude of the the.
The margin pressure just given that.
Can you, maybe just give a little bit more color.
Overall trucking margins are down five six points like Howard dedicated margins doing year over year how is.
One way margins doing year over year or the acquisitions you've done. This is the first cycle nearly done a lot of acquisitions is that.
Derek Leathers: Okay, now that makes sense, Derek, and I guess just as a follow-up, when we think about the dedicated market, some of your competitors have been speaking to an increasingly competitive dedicated market here over the last quarter or two, can you talk to, if you're maybe seeing increased pricing pressure show up in bids over the last few months, I know it's a challenging market broadly, but it does feel like we're seeing some competitors maybe looking to deploy additional assets within your sandbox and just would be curious if you could talk to that for a moment and how you're addressing that. Yes, so first off, I'll say there's clearly increased level of interest in dedicated both from the Shipper and Terrier community.
Helping or hurting the year over year of war performance right now.
Any more color would be helpful. I think yes.
Scott Great question, and keep it fairly high level, but.
I'll start with this dedicated has actually performed very well through the cycle and that's exactly how we expected it to with a couple of.
Exceptions around the margin so.
Animals are those exceptions, we've seen fleet shrinkage across dedicated so within contractual terms three trucks five trunks per.
Per fleet kind of shrinkage.
And that's certainly hurt our defensibility, a little bit because of those trucks have to find the home. We've stayed disciplined to reference back to an earlier question on the call about increased competitiveness and dedicated on bids. This year, we've kept our disciplined and as a result, some of those trucks ended up all the way back in one way when we would have preferred that the.
Derek Leathers: I think that's not surprising, giving the absolute perconian pricing that exists within the spot market today. Most of what we do in dedicated can't really be replaced by spot capacity, it really doesn't play a role, but it does cause carriers to gain interest and opportunities or to pursue dedicated weather or not, they may have the capabilities to actually perform. So it's really incumbent upon us to make sure our performance is at the highest possible level, the business that we do is true dedicated that the stickiness and defensiveness of that business is inherently built in because of the complexity of the type of work we do.
Found a homeless and dedicated but overall dedicated returns margins et cetera have been.
Sort of as expected in this type of economic backdrop, performing pretty pretty well.
One way has been worse than expected that's just the simple reality.
This one way market is more difficult, it's been lower for longer or spot exposure has been higher than anticipated.
Derek Leathers: And I can tell you that despite being disappointed in our overall results for the quarter, I'm extremely proud of the work that we're doing and dedicated it and the underlying financial results of it as well. So it stood up as well as we would have expected in a market that was under this much duress, and I think the prospects for it looking forward are certainly strong. But we're going to maintain pricing discipline and you're going to see that and you have seen that in the fact that although it's a larger percentage of the fleet, it's not growing at the pace it once was because we're going to stick to making sure it's the right type of dedicated that's defensive in nature that's hard to serve and it's priced appropriately. With all that said, the pipeline looks pretty good right now, we still like the out quarters as we look forward and our ability to continue to lean into dedicated.
Therefore, there has been.
The predominance of the drug <unk>.
Coupled with that that yes in the acquisition space those were predominantly one way plays but to fill regional gaps within our network.
On the market facing portion of those decisions, it's been very solid that our customers have embraced that we feel like it is absolutely.
Filled out the network in ways that are going to be strategic and important and we stand behind bought by those decisions, but their results had been difficult to it from a year over year perspective, because they are operating predominantly would actually exclusively and that one way space.
And then lastly, and logistics, we've talked a lot about there's times, where we believe that gaining share and gaining momentum in this space makes the most sense and doing so in executing with with a unified platform that we've been working soda aggressively on.
Jack Atkins: Okay, thanks again for the time, Derek. Thank you.
Has been paying dividends, but we have digested quite a bit of of new business and logistics and there is nothing like a dedicated implementation cost I'm not trying to make that case, it's much shorter in duration, but there is a.
Eric Morgan: The next question is from Eric Morgan with Barclays, please go ahead. Hey, good afternoon. Thanks for taking my question. I wanted to ask on supply. Derek, you've offered some helpful perspective over the last few quarters. I'm just in the street capacity. I know recently you've been talking about elevated cash balances, smaller carriers, kind of extending the cycle. And I think in Q&A you said you're seeing a more rapid pace of attrition, but maybe you could just talk a bit more about what you're seeing right now. And if there are any other factors, you've kind of identified that are having an outside impact that might have you rethinking, you know, how long this down cycle could persist.
A bit of a digestion that you do is you would get the carriers and the roster settled.
So those are some of the puts and takes and that's why I didn't shy early on in my remarks.
I've stated it Sir.
Certainly doesn't meet our expectations internally either but.
But but but what does is like the way the portfolio as now structured I know that we're in the later innings of the cycle and as we come out of it were even further entrenched.
With a with a stronger performing dedicated unit than before.
And a growing and much more relevant logistics business.
Derek Leathers: Sure, so let's start with, you know, we've talked a lot about the activations and that's not the end of the all, but it's certainly a relevant gauge on the dashboard. We've seen 57 weeks now and over 150,000 trucks. But during the early portion of those weeks, you were seeing quite a bit of movement in the BLS state of where owner operators and others may have been showing up at a decent percentage as employee drivers at some other fleet.
Okay. Thank you for the 10 guys.
Thank you.
And our final question today is from Ken Hoaxer with Bank of America. Please go ahead.
Hey, great good evening and Derek Thank you for squeezing me in and Chris So.
Just Ah I guess, you did you are seeing delays and expanding existing dedicated fleets, but the dialogues are not positive maybe expand on your thoughts, they're a little bit and then the.
Derek Leathers: Only in recent months are really called a quarter and a half if you start to see BLS data also negative at the same time you're seeing that the activations go negative and then you couple that with now named brand bankruptcies, not the obvious yellow that everybody's talked about, but but 200 truck 400 truck 500 truck carriers kind of on a weekly basis starting hit the radar of not being able to survive this pricing environment. I think if you put all that together and you continue to and you kind of look forward it with along that trend line this is coming closer to balance than people realize I'm not you know here to try to predict especially coming off a quarter like this the exact date or time that that will take place, but we're clearly more encouraged and then lastly because it's very relevant to the conversation I think you have to take a deeper look at inventories and what we're seeing both it within our own customer base is some pretty strong statements around their comfort level with their current inventories but even on the broader inventory levels across the industry.
The pace that your largest customer is now in sourcing its fleet has that accelerated given the downturn have they pause maybe just talk about that that process and the impact on dedicate.
Sure.
So within dedicated.
As they were working through their destocking as well as kind of right stocking would be probably even a bigger part component of it in my view getting the right skews for the post pandemic consumer getting getting the types of goods.
That they are more interested in buying and this inflationary environment and getting all of that right on the shelf.
That took a while and when I am most encouraged by as in conversations with our major customers, which I've had many of in recent weeks they feel as though that workers behind them once that workers behind them, you'll get back to replenishment levels, you start to see reordering and you start to see confidence that they've got to skew mixed right I still think there's going to be conservatism in that reordering.
Because everybody's waiting to see kind of how well the consumer holds up especially through to speak season.
Derek Leathers: You're starting to see more and more folks stepping forward and feeling as though that destocking is largely behind them so you put all that together and that gives us a sense of encouragement of course the headwind against it is overall consumer confidence and just the strength of the consumer and so we're going to just have to see how those lines kind of play out over the next couple of months and quarters, but I do believe we're certainly much closer to the end than we are to the beginning of this cycle term.
But they feel that they've kind of solved the mix issue.
That's what gives us confidence specifically relative to our largest customers you know I'm not going to speak to their strategy or what they will choose to do but I can tell you. We're in detailed conversations I can tell you we're up sequentially from Q2, Q3 with them and dedicated and that we'd have conversations on the table right.
Derek Leathers: Appreciate that and maybe just a quick follow up on pricing in one way I know you did a little better than the midpoint in 3Q 4Q coming a little bit lower can you just give us a little bit more context on what's changing there and specifically any impact that length of hall is having because I know that's been moving moving down a bit. Yeah in terms of one way pricing I mean you look back over the year we've been down 3.2% in Q1 down 5.2 and Q2 and now here in Q3 reporting 4.8 down so on a year-to-date basis it's down 4.4% we are relatively pleased with that given what's out there you know in the space but nonetheless it's down in an environment where there are significant inflationary cost pressures.
Now for further expansion.
So is their business grows even as they grow their fleet, there's opportunity for us to grow with them and that's going to be an ongoing discussion that will last that will never really and I'm excited about some of their expansion plans because it fits our network really well and it fits our capability said even better.
So we will work with them and we're excited to have that partnership and it has gained considerable white noise I know in these in these conversations but inside the building our confidence level is high relative to that relationship.
Alpha setup I appreciate your thoughts are thank you.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Derek Leathers for any closing remarks.
Yeah. Thanks, I wanted to thank everybody for joining us today and while the quarter representative further extension of what was already a challenging afraid environment. We do believe that capacity rightsizing is gaining momentum and I would like to reiterate that I also and more importantly, thank inventory levels are in line and inventory mix is getting closer to occur.
Derek Leathers: So that's obviously putting a squeeze on the margin side you know as we look forward into Q4 and our guidance that's now down 9 to down 7. The reason for the change really is more to do with the prior year increase from Q3 to Q4 than anything is happening really right now heading from Q3 to Q4. So we expect our one way trucking rate to be flatish to maybe slightly down sequentially.
<unk> than it's been in many quarters.
Our customers continue to make those adjustments were encouraged by the progress. We're encouraged by the conversations we've had with him we are going to remain disciplined on price across our organization, while staying focused on the key components of our business dedicated logistics and the engineered components of cross border inside of her one way or <unk>.
Derek Leathers: A couple reasons for that you look at you know we've had continued implementation of lower contractual rate renewals on bids on rates that were effective throughout Q3. We're done with bid season and I think most of the implementations are behind us but there were some that were implemented in the quarter. In terms of the spot exposure we've talked about that spot rates you know typically increase in Q4 but they've been frustratingly low and I don't know that we expect a whole lot of lift there although it could improve a little bit with some peak activity.
Investments are maturing.
As as our disciplined approach to lowering our costs to execute there's certainly work ahead of US we're committed to the work and I. Thank you for spending time with us today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Derek Leathers: And then the tailwind for us heading into Q4 would be some peak activity we are expecting some we've already had some and that'll continue just not near the rate that it's been in the past. So you know really as we look forward we're looking at a flat to slightly down sequential number but on a year-over-year basis it looks a little worse just given the increase we had in 22 with a little more robust peak price.
[music].
Mmm.
[music].
Derek Leathers: In terms of the length of haul, that is down significantly year-over-year. There's just a couple things there with regard to mix. We had more churn this year in the bid, throughout the bid season than what we typically do, and that just resulted in a little bit lower length of haul. I don't know that it's impacted pricing a whole lot, maybe a little bit, but it's more to do with just the mix with the bid season.
Mmm.
[music].
Derek Leathers: We have seen that start to increase a little bit here in the last month or so, and would expect that there would be a little bit of an increase as we finish out the year, but nothing really significant to note on that front. Appreciate it.
Elliot Alper: The next question is from Elliot Alper with TD Cowan. Please go ahead. Great. Thank you. This is Elliot Alper Jason. So you discussed the margin pressure in Q4 logistics. I guess so if 1.4 adjusted margin in Q3, I guess could we see logistics lose money in Q4? I know there are a lot of moving pieces within that. Maybe you could touch on maybe the magnitude of the truck load brokerage margins that you called that earlier as well.
Elliot Alper: Thanks. Yes, so in logistics the margin pressure concern and the reason for signaling is just as this were to start to turn her if we saw suddenly some increased activity from a peak perspective, we could see by rate pressure in the carrier community that would perhaps outpace the ability to pass that through based on our mix. At this point, we also have been burdened with and it's the upside or the downside of growth, I guess, but as we've grown logistics and taken share and seen some of the volume increases that we talked about earlier on the call, it comes with a little bit of settling of each of those accounts so that as you onboard significant amounts of new business, it takes a while to get the carrier roster kind of finalized to get the right carriers on the lanes and the right way with the most efficient purchasing. That would be the counter to that that as we get better at that as we get some seasoning and some settling in the carrier base, the opportunity to actually go the other direction.
Elliot Alper: So I'm not trying to be evasive, but I think it'd be inappropriate for me to even try to tell you whether I think it gets better or worse in Q4. I do think what you will see is a significant focus as we go into Q4 and into Q1 on execution, operational excellence and less on growth. From a volume perspective in logistics as we get this new business digested. Yeah, maybe just to add to that, we're happy with the volume.
Elliot Alper: It's been a year since we've had the read acquisition, we're continuing to grow, wallet, share and sign on high quality contract, customers. But we are mindful in this market of reviewing the portfolio, making sure that we're not taking on transactional business that's underperforming, maintaining high contract volume. And we'll continue to be reviewing the portfolio while also balancing that with winning new business and contracts that can last for the future. We're also from a margin improvement standpoint.
Elliot Alper: We're looking forward to having read fully integrated from a technology and operational perspective by the end of this year, which will enable us to realize some further synergies and cost savings going into next year. And then beyond that, there's also opportunities from a technology perspective growing the small and medium sized business as well as tech enabled savings within logistics. So a number of things that we're excited about but also mindful of and looking for ways that we can improve the margin they're going forward.
Elliot Alper: Thanks. And then maybe to follow up as you move through bid season, are there any early read on maybe what your customers are telling you and how they're planning for 2024? It's really early in bid season right now. I mean, literally we're only starting to see the first couple come across. I think that is a really depends on the positioning of the customer themselves. We're fortunate to work with some of the best, especially on the retail outside some of the best retailers out there in the retail space.
Elliot Alper: Several of them are actually optimistic about the fact that they've been able to recalibrate for this new consumer behavior and they feel like the days ahead of them look a lot better than the ones that have in the recent review mirror. So volumes being up, reopening or opening new stores and our ability to expand with them. What that all means in price will just really determine will be dependent on some on the one way side in particular.
Elliot Alper: Where we're at from a supply capacity supply perspective. So it's early, we know that, you know, what we're going to be working with them on is the reality of sustainable pricing. We're going to be talking to them, talking to them openly and honestly about what's happening at these pricing levels that have been out there because the data is right there in front of them and in this attrition is real. So we're going to talk to them about making sure that what where we price we can stand behind it and and and not be back in 60 days, 90 days or multiple times a year.
Elliot Alper: Those conversations in some cases will go very well with others. I'm sure it'll be more difficult. One way truck load is down. You saw in the quarter and we're prepared and actually planning to take it down further as we continue to lean further into dedicated. So that provides opportunity for us to be a little more picking a little more disciplined in our price approach to this bid season coming up.
Scott Group: Thank you both.
Scott Group: Thank you. The next question is from Scott Group with Wolf Research. Please go ahead. Hey, thanks afternoon. So maybe Chris, your comment about trucking truck load rates flat to down a bit sequentially from Q3 to Q4. Should we assume that we should, you know, apply that similar logic to truck load OR or trucking earnings Q3 to Q4 flat to down slightly? Well, Scott, there's several puts and takes, you know, as we head from the quarter.
Scott Group: I mean, certainly, if the one way trucking rate is down a bit, I mean, you're talking flat to slightly down is sequentially where we're headed. Nonetheless, you know, that would be offset with some potential peak activity that would be better. We certainly didn't have a lot of peak activity in Q3, just a little bit of tail end of the quarter, but we have had some peak activity in October and would expect that to continue with some of the peak awards we've got, although estimating volumes has been challenging this year, I think for us and our customers.
Scott Group: And then, you know, the other thing to mention is just the continued headwind as relates to gains. We had, I think, a $9 million gain we posted in Q3 and you can tell by our annual guidance of 42 to 47 million for the year that that implies a lower number in Q4. So definitely some puts and takes along with our cost savings program, which will continue to, you know, hopefully show some benefits there.
Scott Group: So hard to say. We're certainly going to work as hard as we can to show some improvement, but continues to be a challenging environment and, you know, hopefully the tailwinds will outpace that. Yeah, and Scott, I'll just add to that and just reinforce that, you know, we would expect to continue to see some year of year improvement in those select expense categories that we mentioned. And, you know, really, where you started that question was really focused on the one way business, you know, dedicated, you know, while the fleet, you know, should be flat to up and revenue per truck per week, you know, generally, you know, holding steady.
Scott Group: You know, that will, you know, have some some offset to mitigate some of that. Mid single digit decline in the one way rate. And then maybe just bigger picture, I know it says maybe this has already addressed a little bit, but all cycle we talked about the stability of dedicated and we've increased the dedicated mix a lot. I think we're just all surprised by the magnitude of the the margin pressure, I'm just giving that.
Scott Group: Can you maybe just give a little bit more colors of overall trucking margins are down five, six points like how are dedicated margins doing year over year? How is one way margins doing year over year or the acquisitions, you've done this the first cycle really done a lot of acquisitions is that helping or hurting the year over a year or a war performance. Just any more color would be helpful. Thank you.
Scott Group: Yes, it's got a great question and I'll keep it fairly high level, but I'll start with this dedicated has actually performed very well through the cycle and that's exactly how we expected it to with a couple of exceptions around the margin. So examples of those exceptions, we've seen fleet shrinkage across dedicated so within contractual terms, you know, three trucks, five trucks, perfectly kind of shrinkage. And that certainly hurt our defensibility a little bit because those trucks have to find a home.
Scott Group: We've stayed disciplined to reference back to an earlier question on the call about increased competitiveness and dedicated on bids this year, we've we've kept our discipline. And as a result, some of those trucks ended up all the way back in one way when we would have preferred that they had found a home with and dedicated, but overall dedicated returns margins, et cetera, have been sort of as expected in this type of economic backdrop performing pretty pretty well.
Scott Group: One way has been worse than expected. That's just the simple reality. This one way market is more difficult. It's been lower for longer. Our spot exposures been higher than anticipated. And therefore, it has been the predominance of the drag. You couple with that, that yes, in the acquisition space, those were predominantly one way plays, but to fill regional gaps within our network. And on the market facing portion of those decisions, it's been very solid.
Scott Group: Our customers have embraced it. We feel like it is absolutely filled out the network in ways that are going to be strategic and important. And then we stand by by those decisions, but there results have been difficult from a year over your perspective, because they're operating predominantly actually exclusively in that one way space. And then lastly, in logistics, we've talked a lot about there's times to what where we believe that that gaining share and gaining momentum in a space makes the most sense and doing so and executing with it with a unified platform that we've been working so aggressively on has been paying dividends.
Scott Group: But we have digested quite a bit of new business in logistics. And there is nothing like a dedicated implementation cost. I'm not trying to make that case. It's much shorter in duration, but there is a bit of a digestion that you do as you get the carriers in the roster settled. So those are some of the puts and takes and that's why I didn't shy early on in my remarks. I stated it certainly doesn't mean our expectations internally either, but what does is like the way the portfolios now structured, I know that we're in the later endings of this cycle. And as we come out of it, we're even further entrenched with a stronger performing dedicated unit than before and a growing and much more relevant logistics. Thank you for the time, guys.
Kenneth Hoexter: Thank you. And our final question today is from Ken Hoexter with Bank of America. Please go ahead. Hey, great good evening, and Derek, thank you for squeezing me in. And Chris, so just I guess you noted you're seeing delays in expanding existing dedicated fleets, but the dialogues are now positive. Maybe expand on your thoughts there a little bit. And then the pace that that your largest customer is now outsourcing its fleet, you know, has has that accelerated? Given the downturn, have they paused? Maybe to talk about that that process and the impact on dedicated.
Kenneth Hoexter: Sure. So within dedicated as you as they were working through their destocking, as well as, you know, kind of right stocking would be probably even a bigger component of it, in my view, getting the right skews for the post pandemic consumer, getting getting the types of goods that they were more interested in buying in this inflationary environment and getting all of that right and on the shelf. That took a while. And what I'm most encouraged by is in conversations with our major customers, which I've had many of in recent weeks, they feel as though that work is behind them.
Kenneth Hoexter: Once that work is behind them, you get back to replenishment levels, you start to see reordering and you start to see confidence that they've got to skew mix right. I still think there's going to be conservatism in that reordering because everybody's waiting to see kind of how well the consumer holds up, especially through the speak season, but they feel that they've kind of solved the mixed issue. That's what gives us confidence, specifically relative to our largest customer.
Kenneth Hoexter: I'm not going to speak to their strategy or what they will choose to do, but I can tell you we're in detailed conversations. I can tell you we're up sequentially from Q2 to Q3 with them indedicated and that we have, you know, conversations on the table right now for further expansion. So as their business grows, even as they grow their fleet, there's opportunity for us to grow with them and that's going to be an ongoing discussion that will last, you know, that will never really end.
Kenneth Hoexter: I'm excited about some of their expansion plans because it fits our network really well and it fits our capability set even better. So we'll work with them and we're excited to have that partnership and it's gained considerable white noise I know in these conversations, but inside the building, our confidence level is high relative to that relationship. I'll set up, appreciate your thoughts there. Thank you.
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Derek Leathers: I would like to turn the conference back over to Derek Leathers for any closing remarks. Thanks. I wanted to thank everybody for joining us today and while the quarter representative further extension of what was already a challenging freight environment, we do believe that capacity right sizing is gaining momentum and I'd like to reiterate that. I also, and more importantly, thank inventory levels are in line and inventory mix is getting closer to correct than it's been in many quarters.
Derek Leathers: Our customers continue to make those adjustments. We're encouraged by their progress. We're encouraged by the conversations we've had with them. We're going to remain disciplined on price across our organization while staying focused on the key components of our business dedicated logistics and the engineered components across border and inside of our one way. Our check investments are maturing as is our disciplined approach to lowering our cost to execute. There's certainly work ahead of us.
Derek Leathers: We're committed to the work and I thank you for spending time with us today.
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