Q4 2023 Werner Enterprises Inc Earnings Call
Operator: Good afternoon, and welcome to the Werner Enterprises fourth quarter and full year 2023 earnings conference call. All participants will be in a listen-only mode.
Good afternoon, and welcome to the Wonder enterprises fourth quarter and full year 2023 earnings conference call.
All participants will be in a listen only mode.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then 1 on a touch-tone phone.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on a touchtone phone.
Operator: To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Chris Neal, SVP of Pricing and Strategic Planning. Please go ahead.
To withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Chris Neil S. P. P of pricing and strategic planning. Please go ahead.
Chris Neal: Good afternoon everyone. Earlier today, we issued our earnings release with our fourth quarter and full year 2023 results. The earnings release and a supplemental presentation are available in the investor section of our website at warner.com. Today's webcast is being recorded and will be available for replay later today.
Chris Neil: Good afternoon, everyone earlier today, we issued our earnings release with our fourth quarter and full year 2023 results release and a supplemental presentation are available in the investors section of our website at Warner Dot Com.
Speaker Change: Today's webcast is being recorded and will be available for replay later today.
Chris Neal: Please see the disclosure statement on slide two of the presentation, as well as the disclaimers in our earnings release related to forward-looking statements. Today's remarks contain forward-looking statements that may involve risks, uncertainties, and other factors that could cause actual results to differ materially. The company reports results using non-GAAP measures, which we believe provides additional information for investors to help facilitate the comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation.
Speaker Change: 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.
Speaker Change: Today's remarks contain forward looking statements that may involve risks uncertainties and other factors that could cause actual results to differ materially.
Speaker Change: 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.
Speaker Change: A 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.
Chris Neal: On today's call with me are Derek Leathers, Chairman and CEO, and Chris Wykoff, Executive Vice President, Treasurer, and CFO. Derek will provide an update on our 2023 accomplishments relative to our derived strategy, highlights of our fourth quarter results, and a market outlook. Chris will cover our financial results in more detail, including the 2023 achievement of our Cost Savings Program and provide 2024 guidance for key financial and operating metrics. I'll now turn the call over to Derek. Thank you, Chris, and good afternoon, everyone.
Speaker Change: On today's call with me are Derek Leathers, Chairman, and CEO, and Chris <unk> Executive Vice President Treasurer, and CFO Tara.
Speaker Change: Eric will provide an update on our 2023 accomplishments relative to our drive strategy highlights of our fourth quarter results and a market outlook, Chris will cover our financial results in more detail, including the 2023 achievement of our cost savings program and provide 2024 guidance for key financial and operating metrics.
I'll now turn the call over to Derek.
Derek J. Leathers: Thank you, Chris and good afternoon, everyone. We appreciate all of you joining the call today.
Derek J. Leathers: We appreciate all of you joining the call today. Clearly, 2023 was a prolonged and challenging operating environment. Our earnings were down and did not meet our expectations.
Derek J. Leathers: Clearly 2023 was a prolonged and challenging operating environment.
Derek J. Leathers: Our earnings were down and did not meet our expectations. However, we made structural improvements that will set us up for future success as normalization returns are.
Derek J. Leathers: However, we made structural improvements that will set us up for future success as normalization returns. Our dedicated business proved to be durable and resilient. Our one-way trucking business rate-per-mile decline was more favorable than industry benchmarks, and our logistics business generated full-year volume and revenue growth. Despite the backdrop, our leadership team and nearly 14,000 talented Werner team members stayed the course, executing on our strategy, upholding the Werner brand and reputation, making safety our top priority, and providing superior service to our highly valued customers. Let's turn to slide five to highlight some of our accomplishments in 2023 that created optimism for 2024 and beyond. Our drive strategy continues to help inform our decisions and lead to acceleration across our core business. In 2023, our dedicated business performed as expected, showing durability and resiliency and one of the most challenging operating environments that I've witnessed in my 30 plus years in the industry.
Speaker Change: Our dedicated business proved to be durable and resilient, our one way trucking business rate per mile decline was more favorable than industry benchmarks and our logistics business generated full year volume and revenue growth.
Speaker Change: Despite the backdrop of our leadership team and nearly 14000 talented Warner team members stayed the course executing on our strategy upholding the Warner brand and reputation, making safety, our top priority and providing superior service to our highly valued customers.
Speaker Change: Let's turn to slide five to highlight some of our accomplishments in 2023 that created optimism for 2024 and beyond.
Speaker Change: Our drive strategy continues to help inform our decisions and lead to acceleration across our core businesses.
Speaker Change: In 2023, our dedicated business performed as expected showing durability and resiliency in one of the most challenging operating environments that I've witnessed in my 30 plus years in the industry. We grew dedicated revenue per truck for the ninth year out of the last decade, and despite the market backdrop dedicated performed within our TTS operating margin target for the year.
Derek J. Leathers: We grew dedicated revenue per truck for the ninth year out of the last decade. And, despite the market backdrop, Dedicated performed within our TTS Operating Margin Target for the year, and we expect to see margin expansion when normalization returns. On our results, in addition to logistics growth and operational excellence within one way to mitigate rate per mile decline, we executed on structural cost changes, realizing 43 million dollars in savings. We also leaned into greater network optimization, engineering, and improved productivity, which helped to offset rate pressure, cost inflation, and declining resale values of equipment.
Speaker Change: Year, and we expect to see margin expansion when normalization returns.
Speaker Change: On our results and additional logistics growth and operational excellence within one way to mitigate rate per mile declined we executed on structural cost changes realizing $43 million of savings.
Speaker Change: We also leaned into greater network optimization engineering, and improved productivity, which helped to offset rate pressure cost inflation and declining resale values of equipment.
Derek J. Leathers: The operating cash flow margin remains solid and supported reinvestment in the business. We lowered the average age of our fleet, reduced debt, and returned capital to our shareholders through an 8% dividend increase in 2023. We make disciplined investments towards our continued pursuit and industry leadership of innovation. Our fleet remains modern, safe, reliable, and fuel-efficient.
Speaker Change: Separately operating cash flow margin remained solid and supported reinvestment in the business, we lowered the average age of our fleet reduce debt and return capital to our shareholders through an 8% dividend increase in 2023.
Speaker Change: We made disciplined investments towards our continued pursuit and industry leadership of innovation.
Speaker Change: Our fleet remains modern safe reliable and fuel efficient. We also made significant advancements in our technology stack by transitioning truckload brokerage, including Reed and intermodal business to our new cloud based edge Tms solution.
Derek J. Leathers: We also made significant advancements in our technology stack by transitioning truckload brokerage, including REIT, and intermodal business to our new cloud-based Edge TMS solution. In 2024, we are transitioning our one-way business to the Warner Edge platform. This continues to be a journey, but we remain excited about the long-term value. By channeling all freight through Werner Edge, we are committed to a better customer experience and lower cost of execution through improved visibility and optimization across all of Werner. Our core values guide our decisions and behavior every day as we keep America moving.
Speaker Change: In 2024, we are transitioning our one way business to the Warner edge platform.
Speaker Change: This continues to be a journey, but we remain excited about the long term value by channeling all freight Warner edge, we are committed to a better customer experience and lower cost of execution through improved visibility and optimization across the all of Warner.
Speaker Change: Our core values guide, our decisions and behavior everyday as we keep America moving with integrity is our foundation safety and service is ultimately what we're understands four built on the pillars of inclusion community innovation and leadership.
Derek J. Leathers: With integrity as our foundation, safety and service are ultimately what Werner stands for, built on the pillars of inclusion, community, innovation, and leadership. We are proud to be recognized in 2023 as one of America's greatest workplaces for diversity, parents, and families. We realized a 19-year low in our preventable accident rate due to the hard work of our drivers, mechanics, and safety associates working together. As always, safety remains our top priority and is demonstrated by our team members every day, one mile at a time.
Speaker Change: We were proud to be recognized in 2023 as one of America's greatest workplaces for diversity parents and families.
We realized a 19 year low and a preventable accident rate due to the hard work of our drivers mechanics and safety associates working together as always safety remains our top priority and as demonstrated by our team members every day one mile at a time.
Derek J. Leathers: Relative to ESG, notable milestones include naming a lead independent director for our Board of Directors, increasing our Blue Brigade volunteer hours to over 3,300 hours, and doubling driver training hours to bring awareness to human traffic. These and other accomplishments are described in more detail in our third Corporate Social Responsibility Report released in November. Before we move on, I want to acknowledge the appointment of Nathan Meisgeier as the next president of Werner Enterprises. On January 5th, the board unanimously approved, on my recommendation, the promotion of Nathan. I could not be more excited about this progression in our company's history. Nathan has been our Chief Legal Officer and a transformative executive leader for nearly two decades at Warner. While his background is impressive, including being a Harvard Law School graduate, what stands out to me the most is his integrity, servant leadership, vision, and embodiment of the Werner culture.
Speaker Change: Relative to ESG. Notable milestones include name in our lead independent director for our board of directors, increasing our Blue Brigade volunteer hours to over 3300 hours and doubling driver training hours to bring awareness to human trafficking.
Speaker Change: These and other accomplishments are described in more detail on our third corporate social responsibility report released in November.
Speaker Change: Before we move on I want to acknowledge the appointment of Nathan Meyers, Gary The next president of Warner Enterprises.
Speaker Change: On January 5th the board unanimously approved at my recommendation the promotion of Nathan I cannot be more excited about this progression in our company's history.
Speaker Change: Nathan has been our chief legal officer, and a transformative executive leader for nearly two decades at Warner.
Speaker Change: While his background is impressive including being a Harvard Law School graduate what stands out to me. The most is nathan's integrity servant leadership vision and embodiment of the Warner culture and to be clear I'm not going anywhere.
Derek J. Leathers: And to be clear, I'm not going anywhere. I'm excited about our future and partnering more with Nathan going forward. Now, let's move on to slide six and highlight our fourth-quarter results. During the quarter, revenues net of fuel surcharges decreased nearly 2% versus the prior year. Adjusted EPS was $0.39.
Speaker Change: I'm excited about our future and partnering more with Nathan going forward.
Speaker Change: Let's move on to slide six and highlight our fourth quarter results.
Speaker Change: During the quarter.
Speaker Change: Revenues net of fuel surcharges decreased nearly 2% versus the prior year.
Speaker Change: Adjusted EPS was 39 cents adjusts.
Derek J. Leathers: The adjusted operating margin was 4.8%. The adjusted TTS operating margin was 7.5% net of fuel surcharge. Dedicated remains solid and resilient, delivering another quarter of strong customer retention and revenue per truck growth, a stable fleet in the second half of the year, and double-digit adjusted operating margins for all of 2023. As we anticipated heading into the quarter, one-way truckload remained challenged by ongoing pricing pressure. We remain focused on long-term pricing discipline and continued our positive utilization trend. Miles per truck increased by nearly 9% in the quarter, the third consecutive quarter of improvement as we further improve the fleet.
Speaker Change: Adjusted operating margin was four 8% adjusted.
Speaker Change: Adjusted TTS operating margin was seven 5% net of fuel surcharges.
Speaker Change: Dedicated remains solid and resilient delivering another quarter of strong customer retention and revenue per truck growth.
Speaker Change: Stable fleet in the second half of the year and double digit adjusted operating margins for all of 2023.
Speaker Change: As we anticipated heading into the quarter, one way truckload remained challenged by ongoing pricing pressure, we remain focused on long term pricing discipline and continued our positive utilization trend miles per truck increased by nearly 9% in the quarter the third consecutive quarter of improvement as we further engineered the fleet.
Derek J. Leathers: Within logistics, fourth-quarter volume was strong, and revenue grew over 6% year-over-year, extending to 13 straight quarters of year-over-year growth. In short, freight conditions remained challenging in the fourth quarter with lower rates despite stable customer demand and slightly better than expected peak volume. In spite of this, our results continue to reflect a business model that is durable, diversified, and resilient. Moving to slide seven, to highlight our current view of the market. We expect a challenging freight market to continue through the first half of 2024. While data points suggest capacity should be reduced at an accelerated pace, the reality is that it continues to be modest, leaving excess supply. Inventory levels are normalized, and destocking appears largely complete, although we are not seeing broad restocking. The going forward trend in consumer demand will be the focal point for normal replenishment. And while consumer sentiment has improved, mixed data points and themes impacting near-term spending leave us remaining cautious. Spot freight rates remain low and are not expected to improve until the second quarter.
Speaker Change: Within logistics fourth quarter volume was strong and revenue grew over 6% year over year, extending the 13th straight quarters of year over year growth in.
Speaker Change: In short break conditions remained challenging in the fourth quarter with lower rates, despite stable customer demand and slightly better than expected peak volume and.
Speaker Change: Despite this our results continued to reflect a business model that is durable diversified and resilient.
Speaker Change: Moving to slide seven to highlight our current view of the market. We expect the challenging freight market to continue through the first half of 2024.
Speaker Change: Well data points suggest capacity should exit at an accelerated pace. The reality is that it continues to be modest leaving excess supply.
Speaker Change: Inventory levels are normalized and Destocking appears largely complete although we are not seeing broad restocking. The go forward trend in consumer demand will be the focal point to normal replenishment and.
Speaker Change: And while consumer sentiment has improved mixed data points and themes impacting near term spending lever.
Speaker Change: Leave us remaining cautious.
Speaker Change: Spot freight rates remain low and are not expected to improve until the second quarter, a more balanced supply and demand environment in the second half will benefit us as we lock in more contractual freight at improving rates.
Derek J. Leathers: A more balanced supply and demand environment in the second half will benefit us as we lock in more contractual freight at improving rates. The dedicated environment is steady, and we perform well in this space, but it is increasingly more competitive, normal customer turnover exists, but pipeline opportunities remain healthy, and we continue to achieve over 93% client retention.
Speaker Change: The dedicated environment is steady and we performed well in the space, but it is increasingly more competitive normal customer turnover exist, but pipeline opportunities remain healthy and we continue to achieve over 93% client retention rate.
Derek J. Leathers: The one-way operating environment continues to be challenging, with low rates and some customers seeking cost improvement while they can. We expect ongoing pricing pressure during the early part of the 2024 bid season, although it will moderate later in the year. Within logistics, the marketplace remains competitive, and margins will continue to be pressured.
Speaker Change: But one way operating environment continues to be challenging with low rates and some customers seeking cost improvement while they can we expect ongoing pricing pressure during the early part of 2020 for bid season, although moderating later in the year.
Speaker Change: Within logistics, the marketplace remains competitive and margins will continue to be pressured.
Derek J. Leathers: We are proud of the growth in logistics, our portfolio of customers, and our deep network of qualified carriers. With that, I will turn it over to Chris to go through our fourth quarter results in more detail. Thank you, Derek.
Speaker Change: Though we were proud of the growth in logistics, our portfolio of customers and our deep network of qualified carriers.
Speaker Change: With that let me turn it over to Chris to go through our fourth quarter results in more detail.
Chris Wykoff: Let's continue on slide nine. Fourth quarter total revenue was $822 million, down 5% versus the prior year. However, net of fuel surcharges, total revenue was down by 2%.
Chris Neil: Thank you Derek let's continue on slide nine.
Chris Neil: Fourth quarter total revenue was $822 million down 5% versus prior year and fuel surcharges total revenue was down by 2%.
Chris Wykoff: Adjusted Operating Income was $39.2 million, and Adjusted Operating Margin was 4.8%, a decrease of 56% and 560 basis points versus the prior year. Adjusted EPS of $0.39 was down $0.60 year-over-year, with over 90% of the variance driven by lower equipment gains and the macro freight environment weighing down rates per mile in one way and margin pressure in logistics. Turning to slide 10.
Chris Neil: Operating income was $39 2 million and adjusted operating margin was four 8% a decrease of 56% and 560 basis points versus prior year.
Chris Neil: Adjusted EPS of 39 was down 60 cents year over year with over 90% of the variance driven by lower equipment gains in the macro freight environment weighing down rate per mile in one way and margin pressure in logistics.
Chris Neil: Turning to slide 10.
Chris Wykoff: Truckload Transportation Service's total revenue for the fourth quarter was $580 million, down 9%. However, revenue net of fuel surcharges fell 6% to $495 million. TTS's Adjusted Operating Income was $37.2 million, and Adjusted Operating Margin was 7.5%, a year-over-year decrease of 55% or 830 basis points, driven by compressed pricing in one way and lower equipment gains. During the quarter, consolidated gains on sale of equipment totaled 3.1 million, a decline of 22.8 million or 88% versus the prior year. While we sold 11% fewer tractors and over 60% more trailers compared to the prior year period, average price and gains were significantly lower. Net-of-Fuel Surcharges and Equipment Gains, TTS-Adjusted Operating Expenses Declined Modestly, but were more than offset by TTS trucking revenue rate per mile decline during the quarter of 5% and the smaller fleet. One-way rate per total mile during the quarter decreased 8.6% year-over-year, combined with a smaller fleet but benefiting from nearly 9% improvement in miles per truck. This marks the third consecutive quarter of production improvement. The one-way rate per total mile was flat from Q3 to Q4.
Truckload transportation services total revenue for the fourth quarter was $580 million down 9% revenues net of fuel surcharges fell 6% to $495 million.
Chris Neil: TTS adjusted operating income was $37 2 million and adjusted operating margin was seven 5% a year over year decrease of 55% or 830 basis points, driven by compressed pricing in one way and lower equipment gains.
During the quarter consolidated gains on sale of equipment totaled $3 1 million, a decline of $22 8 million or 88% versus prior year.
Chris Neil: While we sold 11% fewer tractors and over 60% more trailers compared to prior year period average pricing gains were significantly lower.
Chris Neil: Net of fuel surcharges and equipment gains TTS adjusted operating expenses declined modestly but were more than offset by TTS trucking revenue rate per mile declined during the quarter of 5% and a smaller fleet size.
Chris Neil: One way rate per total mile during the quarter decreased eight 6% year over year combined with a smaller fleet, but benefiting from nearly 9% improvement in miles per truck. This marks the third consecutive quarter of production improvement.
Chris Neil: One way rate per total mile was flat from Q3 to Q4, we.
Chris Wykoff: We saw improvements in the quarter in various TTS expense categories offset by year-over-year inflation in other categories. For example... Insurance and claims were down 24% versus the prior year, and full year was down 7%. Operating supplies and maintenance expense continued a favorable trend and was down versus the prior year. Driver pay continues to moderate and was down slightly year-over-year, with now two consecutive quarters of a year-over-year decrease, excluding
Chris Neil: We saw improvements in the quarter and various T. T S expense categories offset with year over year inflation in other categories for example.
Chris Neil: Insurance and claims were down 24% versus the prior year and full year was down 7% operating supplies and maintenance expense continued a favorable trend and was down versus prior year driver pay continues to moderate and was down slightly year over year with now two consecutive quarters of year over year decrease excluding fringe benefits.
Chris Wykoff: Benefit expense in the quarter was up over $9 million versus the prior year, driven from favorable workers' comp reserve adjustments in the fourth quarter of 2022. In summary, given the unique and challenging operating environment, TTS operating margin for the year was below our long-range target of 12 to 17 percent, largely driven by one way. Dedicated remained steady and durable, generating double-digit operating margins. We are encouraged to see sequential improvement in core dedicated operating income, excluding fuel and equipment gains, for each of the last three quarters in 2023. We remain confident in returning to our target TTS operating margin towards the end of the year. Now, turning to slide 11 to review our fleet metrics. The TTS average truck count was 8,168 during the quarter, or down just over 6% versus the prior year.
Chris Neil: <unk> expense in the quarter was up over $9 million versus prior year, driven from favorable workers' comp reserve adjustments in the fourth quarter of 2022.
Chris Neil: In summary, given the unique and challenging operating environment TTS operating margin for the year was below our long range target of 12% to 17% largely driven by one way dedicated remained steady and durable generating double digit operating margins. We are encouraged to see sequential improvement in core dedicated operating income excluding fuel.
Chris Neil: And equipment gains for each of the last three quarters in 2023, we remain confident in returning to our target TTS operating margin towards the end of the year.
Chris Neil: Now turning to slide 11 to review our fleet metrics.
Chris Neil: TTS average truck count was 8168 during the quarter were down just over 6% versus prior year. We ended the quarter with the TTS fleet down, 1% sequentially and down 7% year over year, our TTS segment revenue per truck per week net of fuel grew during the quarter by <unk>, 2% and it's grown year over year 19 of the last.
Chris Wykoff: We ended the quarter with the TTS fleet down 1% sequentially and down 70% year-over-year. However, our TTS segment revenue per truck per week net of fuel grew during the quarter by 0.2% and has grown year-over-year in 19 of the last 24 quarters. These results further emphasize the resiliency of this business and our position in the market. Within TTS for the fourth quarter, dedicated revenue was $309 million, down 2%. Dedicated revenue represented 64% of segment revenue net of fuel compared to 62% at the end of 2022. Dedicated average truck count decreased 3% to 5,239 trucks.
Chris Neil: 24 quarters. These results further emphasize the resiliency of this business and our position in the marketplace.
Chris Neil: Within TTS for the fourth quarter dedicated revenue was $309 million down 2% dedicated represented 64% of segment revenue net of fuel compared to 62% at the end of 2022.
Chris Neil: Dedicated average truck count decreased 3% to 5239 trucks at quarter end dedicated represented 66% of the TTS fleet.
Chris Neil: Dedicated revenue per truck per week increased <unk>, 9% year over year during the quarter and one 5% for the year achieving growth for seven straight years and nine out of the last 10 years growing steady across all economic conditions.
Chris Wykoff: At quarter end, dedicated represented 66% of the TTS. Dedicated revenue per truck per week increased 0.9% year-over-year during the quarter and 1.5% for the year, achieving growth for 7 straight years and 9 out of the last 10 years, growing steadily across all economic conditions. In our one-way business, for the fourth quarter, trucking revenue was $178 million, a decrease of 12% versus the prior year. Average truck count was down 11% to 2,929 trucks.
Chris Neil: And our one way business for the fourth quarter trucking revenue was 178 million a decrease of 12% versus prior year average truck count was down 11% to 2929 trucks revenue per truck per week was down less than 1% year over year.
Chris Neil: Turning now to our logistics segment on slide 12.
Chris Neil: In the fourth quarter logistics segment revenue was up more than $13 million or 6%, representing 28% of total fourth quarter Warner revenues.
Chris Wykoff: Revenue per truck per week was down less than 1% year-over-year. Turning now to our logistics segment on slide 12. In the fourth quarter, logistics segment revenue was up more than $13 million, or 6%, representing 28% of total fourth quarter Werner revenue. Truckload Logistics continued to lead with double-digit year-over-year revenue and volume growth in the quarter. Shipments declined sequentially as we worked to improve revenue quality. However, our power-only solution represented a growing portion of the truckload logistics volume during the quarter. Intermodal revenues, which make up approximately 12 percent of segment revenue, declined year-over-year due to a decrease in both shipments and revenue per shipment.
Chris Neil: Logistics continued to lead with double digit year over year revenue and volume growth in the quarter shipments declined sequentially as we work to improve revenue quality.
Chris Neil: Power only solution represented a growing portion of the truckload logistics volume during the quarter.
Chris Neil: Intermodal revenues, which make up approximately 12% of segment revenue declined year over year due to a decrease in both shipments and revenue per shipment intermodal volumes have been up sequentially for three consecutive quarters.
Chris Neil: Final mile continued to show strong growth reporting a 6% year over year revenue increase during the quarter. Despite a softer market for discretionary spending on big and bulky products.
Chris Neil: Fourth quarter logistics, adjusted operating income was $3 million and adjusted operating margin was one 3% down 250 basis points year over year, and down 10 basis points sequentially driven by rate and gross margin compression.
Chris Wykoff: Intermodal volumes have been up sequentially for three consecutive quarters. Final Mile continued to show strong growth, reporting a 6% year-over-year revenue increase during the quarter, despite a softer market for discretionary spending on big and bulky products. Fourth quarter logistics adjusted operating income was $3 million, and adjusted operating margin was 1.3%, down 250 basis points year-over-year and down 10 basis points sequentially driven by rate and gross margin compression.
Chris Neil: We remain encouraged about the mid and long term benefits of our logistics business, given our strong customer portfolio and growing contract business, particularly in food and beverage are growing power only solution progress towards advancing our technology strategy and long term opportunity for growing final mile and intermodal we.
Chris Neil: We expect brokerage margins will remain challenged in the near term while expanding operating margin later in the year from cost savings and integration.
Chris Neil: On slide 13, we provide an update on our cost savings program in 2020 three we achieved $43 million in your savings as an offset to rate and inflationary pressures and lower equipment gains maggiore.
Chris Wykoff: We remain encouraged about the mid- and long-term benefits of our logistics business, given a strong customer portfolio and growing contract business, particularly in food and beverage, our growing power-only solution, progress towards advancing our technology strategy, and long-term opportunity for growing final mile and intermodal. We expect brokerage margins to remain challenged in the near term while expanding operating margin later in the year from cost savings and integration. On slide 13, we provide an update on our cost savings program. In 2023, we achieved $43 million of in-year savings as an offset to rate and inflationary pressures and low equipment costs. The majority of the 2023 savings were structural and sustainable.
Chris Neil: Majority of the 2023 savings for structural and sustainable.
Chris Neil: Cost savings will be key to expanding margin and earnings in 2024, given afraid market that will continue to be challenging in the near term combined with further year over year decline in equipment gains. We are laser focused on the 'twenty 'twenty four program totaling over $40 million and incremental in your savings less than 15% of the 24 program is carryover.
Chris Neil: From 2023 to get to a full year run rate on initiatives that we action during the year over 85% of the 24 program, our new initiatives that are again, arguably structural and sustainable.
Chris Neil: Let's look at our cash flow in slide 14.
Chris Neil: We ended the year with $62 million in cash and cash equivalents.
Chris Neil: Cash flow remained strong at $118 million for the quarter or 14% of total revenue full.
Chris Wykoff: Cost savings will be key to expanding margin and earnings in 2024, given a freight market that will continue to be challenging in the near term, combined with further year-over-year decline in equipment costs. We are laser focused on a 2024 program totaling over $40 million in incremental in-year savings. Less than 15% of the 24 program is carriedover from 2023 to get to a full year run rate on initiatives that we actioned during the year.
Chris Neil: Full year operating cash flow was also 14% of revenue and a company record at $474 million a year over year increase of 26 million or 6% and 80 basis points of margin improvement driven largely by DSO reduction during the year.
Net capex in the fourth quarter was $34 5 million and totaled $409 million for the year up 29% free cash flow was $84 million for the fourth quarter and 66 million for the year or 2% of total revenues down 50% versus prior year, and reflecting an elevated level of net capex.
Chris Wykoff: Over 85% of the 24 programs are new initiatives that are, again, largely structural and sustainable. Let's look at our cash flow on slide 14. We ended the year with $62 million in cash and cash equivalents.
Chris Neil: Our total liquidity at quarter end was strong at $526 million, including cash and availability on our revolver.
Chris Wykoff: Operating cash flow remains strong at $118 million for the quarter, or 14% of total revenue. Full year operating cash flow was also 14% of revenue, and a company record at $474 million, a year-over-year increase of $26 million, or $6, and 80 basis points of margin improvement, driven largely by DSO reduction during the year. Net capex in the fourth quarter was $34.5 million and totaled $409 million for the year, up
Chris Neil: As shown on slide 15, our net Capex for 2023 of $409 million was below our most recent guidance range certain deliveries expected in the fourth quarter removed first quarter of 2024 and is now reflected in this year's guidance.
Chris Neil: 2023 it wasn't elevated capex here, reflecting lower year over year gains in a greater pace of reinvestment in the business or.
Chris Neil: Our 'twenty 'twenty four Capex guidance is a range of 260 to 310 million. This is within historical ranges in dollar terms, although expected to be lower as a percent of revenue as growth in our asset light business continues to outpace truckload growth.
Chris Wykoff: Pre-cash flow was $84 million for the fourth quarter and $66 million for the year, or 2% of total revenues, down 50% versus the prior year and reflecting an elevated level of net capex. However, our total liquidity at quarter end was strong at $526 million, including cash and availability on our revolver. As shown in slide 15, our net capex for 2023 of $409 million was below our most recent guidance. Additionally, certain deliveries expected in the fourth quarter were moved to the first quarter of 2024 and are now reflected in this year's guidance. 2023 was an elevated CapEx year, reflecting lower year-over-year gains and a greater pace of reinvestment in the business. Our 2024 CapEx guidance is a range of $260 to $310 million. This is within historical ranges in dollar terms, although expected to be lower as a percent of revenue as growth in our asset-light business continues to outpace truckload growth. Moving to slide 16, we ended the quarter with $649 million in debt, down $45 million or 6% compared to a year earlier.
Chris Neil: Moving to slide 16, we ended the quarter with 649 million in debt down $45 million or 6% compared to a year earlier, our debt structure is primarily long term and provides ample credit capacity for growth with 86% not maturing until the end of 2027 as of year end, 57% of our debt is.
Chris Neil: Sixth we remain pleased with our low leverage healthy balance sheet and long term access to capital to fund growth and investments to expand earnings.
Chris Neil: On slide 17, let's recap our capital allocation priorities, we will continue to prioritize strategic reinvestment in the business remain disciplined in returning capital to shareholders and seek opportunities outside of Warner that will drive long term shareholder value a strong balance sheet and low leverage provides us with financial flexibility to achieve our capital deployment goals.
Chris Neil: Let's turn to slide 18 for an introduction to our 2020 for guidance.
Chris Neil: Truck fleet guidance for full year is a range of down 3% to flat year over year with the potential for growth in dedicated in the second half net.
Chris Wykoff: Our debt structure is primarily long-term and provides ample credit capacity for growth, with 86% not maturing until the end of 2027. As of year-end, 57% of our debt is effectively fixed. We remain pleased with our low leverage, healthy balance sheet, and long-term access to capital to fund growth and investments to expand earnings. On slide 17, let's recap our capital allocation priorities. We will continue to prioritize strategic reinvestment in the business, remain disciplined in returning capital to shareholders, and seek opportunities outside of Werner that will drive long-term shareholder value. A strong balance sheet and low leverage provide us with financial flexibility to achieve our capital deployment goals.
Chris Neil: Net capex guidance is a range of 260 to 310 million dedicated revenue per truck per week full year guidance range is flat to positive 3%.
Chris Neil: One way truckload revenue per total mile guidance for the first half of the year is down 6% to down 3% for.
Chris Neil: The used truck market, we expect continued low demand with moderating pricing and equipment gains through the first half of 2024, we reached $42 4 million in equipment gains for 'twenty, three and 'twenty 'twenty four gains are expected between 10 and $30 million.
Chris Neil: We expect net interest expense this year would be flat to $10 million higher than 2023, driven by repricing of our term loan that is maturing in the second quarter interest rate swaps that are expiring and uncertainty on the timing of fed easing offset with debt reduction during the year.
Chris Wykoff: Let's turn to slide 18 for an introduction to our 2024 guide. Our truck fleet guidance for full year is a range of down 3% to flat year-over-year, with the potential for growth and dedicated in the second half of the year. Net CapEx guidance is a range of $260 to $310 million. Dedicated revenue per truck per week full year guidance range is flat to positive 3%. One-way truckload revenue per total mile guidance for the first half of the year is down 6% to down 3%. For the used truck market, we expect continued low demand with moderating pricing and equipment gains through the first half of 2024. We reached $42.4 million in equipment gains for 2023, and 2024 gains are expected between $10 and $30 million. We expect net interest expense this year will be flat to $10 million higher than 2023, driven by repricing of our term loan that is maturing in the second quarter, interest rate swaps that are expiring, and uncertainty on the timing of Fed easing, offset by debt reduction during the year. Our effective tax rate for full year 2023 was 24%.
Chris Neil: Our effective tax rate for full year 2023 was 24%.
Chris Neil: <unk> range for 2024 is 24 and a half to 25, 5%.
Chris Neil: The average age of our truck and trailer fleet at year end 2023 was 2.1 and $4 nine years compared to 2.3 and five years, respectively. At the end of 2022.
Chris Neil: We anticipate staying near to in five years through 2024.
Chris Neil: I'll now turn it back to Derek.
Derek J. Leathers: Thank you Chris.
Derek J. Leathers: 2023 was a very challenging year for Warner, but we took measured steps to improve our operations lower the average age of virtually improve safety reduce costs and reduce debt.
Derek J. Leathers: As we strategize for 2024 and met with the senior leaders across the company. We identified three primary pillars to generate earnings power and drive value creation. This year.
Derek J. Leathers: First is driving growth in core businesses, which is comprised of returning our TTS adjusted operating income margin to within our long term range.
Derek J. Leathers: Growing dedicated fleet in total revenue on a year over year basis in the back half of the year.
Derek J. Leathers: Expanding one way utility are only in Mexico cross border and continuing to generate double digit revenue growth and logistics, while getting back to mid single digit operating margin percentage entering 2025.
Chris Wykoff: The guidance range for 2024 is 24.5% to 25.5%. The average age of our truck and trailer fleet at year-end 2023 was 2.1 and 4.9 years compared to 2.3 and 5 years, respectively, at the end of 2022. We anticipate staying near two and five years through.
Derek J. Leathers: Second is operational excellence is a core competency, which will deliver through maintaining resolute focus on safety our number one priority of Warner advancing our technology roadmap through the transition of our one way businesses to our cloud based edge Tms and executing on our 2020 for cost savings program Lastly.
Derek J. Leathers: Lastly is focusing on driving capital efficiency through process optimization.
Derek J. Leathers: Thank you, Chris. 2023 was a very challenging year for Werner, but we took measured steps to improve our operations, lower the average age of our fleet, improve safety, reduce costs, and reduce debt. As we strategized for 2024 and met with senior leaders across the company, we identified three primary pillars to generate earnings power and drive value creation this year. First, driving growth in core businesses, which is comprised of returning our TTS adjusted operating income margin to within our long-term range, growing dedicated fleet and total revenue on a year-over-year basis in the back half of the year, expanding one-way utility, power-only, and Mexico cross-border, and continuing to generate double-digit revenue growth in logistics while getting back to a mid-single-digit operating margin percentage entering 2025.
Derek J. Leathers: This include streamlining business processes, maintaining strong operating cash flow and optimizing working capital and expanding free cash flow generation and margin through disciplined capex and equipment fleet sales were 100% committed to executing on these objectives and believe with high conviction that they are the right actions to generate margin and earnings improvement during.
Derek J. Leathers: The year.
Derek J. Leathers: We have proven our ability to generate earnings powers demand accelerates. This roadmap of our commitment combined with the resiliency and dedication of all of our associates will confirm that history does indeed repeat itself. We look forward to providing you with updates on our progress against our 2024 pillars as the year progresses.
Speaker Change: With that let us open it up for questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one I know touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Derek J. Leathers: Second, operational excellence as a core competency, which we'll deliver through maintaining a resolute focus on safety, our number one priority at Warner, advancing our technology roadmap through the transition of our one-way businesses to our cloud-based Edge TMS and executing on our 2024 cost savings program. Lastly, it's focusing on driving capital efficiency to process optimization. This includes streamlining business processes, maintaining strong operating cash flow, and optimizing working capital, and expanding free cash flow generation and margin through disciplined capex and equipment fleet sales. We are 100% committed to executing on these objectives and believe with high conviction that they are the right actions to generate margin and earnings improvement during the year. We have proven our ability to generate earnings power as demand accelerates. This roadmap of our commitment, combined with the resiliency and dedication of all of our associates, will confirm that history does indeed repeat itself.
Speaker Change: To allow for as many callers as possible to ask questions. We ask you to limit yourself to one question and one follow up.
Speaker Change: This call will end at five P M central following the company's prepared remarks.
Speaker Change: The first question today comes from Bruce Chan with Stifel. Please go ahead.
Thank you operator, and good afternoon, everyone.
Let me just I want to start off by leaning into the cost savings that you gave us some good color on where those savings are filtering and problem is there any overlap between the savings and Warner Bridge or as you know bridge more of an opportunity to add revenue in a market recovery on just the cost base.
Speaker Change: Yeah, Bruce Thanks for the question I'll start on the Warner Bridge part and then Chris May have color he wants to add but Warner bridged our digital platform. We're very excited about what that future looks like but we've got a long ways to go as we can continue to develop that out.
Speaker Change: More specifically relative to the tech stack, it's really transition we've already made and worked hard out throughout 2023 relative to getting both Reed Warner logistics are Warner brokerage I should say as well as intermodal on the edge CMS platform, that's sort of a first major milestone and a longer journey.
Operator: We look forward to providing you with updates on our progress against our 2024 pillars as the year progresses. With that, let us open the floor to questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone.
Speaker Change: Ultimately includes this year focusing on getting one way largely on the platform by end of year as we start to do that we start to see opportunities for real savings with expanded visibility.
Operator: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. To allow for as many callers as possible to ask questions, we ask you to limit yourself to one question and one follow-up. This call will end at 5 p.m. Central, following the company's prepared remarks. The first question today comes from Bruce Chan with Stiefel. Please go ahead. Yeah, thank you, operator. And good afternoon, everyone.
Speaker Change: Collaboration to freight across the.
Speaker Change: The various sides of the organization, but those are not actually in those cost savings numbers at this point because it's early innings.
Speaker Change: What we're talking about here are tangible.
Speaker Change: Programs of Av.
Speaker Change: Diligent cost cutting up and down the P&L through the building in ways that I believe do not impact our ability to respond as the market turns that that's probably the most important thing.
Bruce Chan: Let me just start off by leaning into the cost savings a bit. You gave us some good color on where those savings are filtering in from. Is there any overlap between those savings and Werner Bridge?
Speaker Change: We're late enough in the cycle that we don't want to do is to cut for cutting sake.
Derek J. Leathers: Or is, you know, the bridge more of an opportunity to add revenue in a market recovery on your existing cost base? Yeah, Bruce, thanks for the question. I'll start on the Werner Bridge part, and then Chris may have color he wants to add, but, you know, Werner Bridged our digital platform.
Speaker Change: And then and then ended up bringing all of those cost write back onboard. That's why we think there are structural or sustainable it just puts us in a better position the cost.
Speaker Change: Culture here has been one that we've needed to address for some time, we've worked on it aggressively over the last year I think we're finally, finding a rhythm and stride toward <unk>.
Derek J. Leathers: We're very excited about what that future looks like, but we've got a long ways to go as we continue to develop that out. More specifically, relative to the tech stack, it's really the transition we've already made and worked hard at throughout 2023 relative to getting both Reed, Werner Logistics, or Werner Brokerage, I should say, as well as Intermodal on the Edge TMS platform. That's sort of the first major milestone in a longer journey that ultimately includes this year focusing on getting one way largely on the platform by the end of the year.
Speaker Change: Top to bottom ownership of better cost controls and I think you have a crisis like this over the last year's freight backdrop really puts us in a better position to even execute.
Speaker Change: Moving forward.
Speaker Change: Okay. That's super helpful. And then maybe just a follow up on some of your commentary around being late enough in the cycle. We've heard from a few carriers now that data and expectations are pointing towards the second half inflection.
Derek J. Leathers: As we start to do that, we start to see opportunities for real savings with expanded visibility and better collaboration on freight across the various sides of the organization, but those are not actually in those cost savings numbers at this point because it's the early innings. What we're talking about here are tangible programs of diligent cost cutting through the building in ways that I believe do not impact our ability to respond as the market turns. That's probably the most important thing.
Speaker Change: And your customers are looking at similar outlooks. So just.
Given that consideration can you maybe share how your early conversations have been going in terms of renewals, we're still tracking negative or are we starting to see some firming based on expectations for that recovery.
Speaker Change: Sure I mean I'd have to start by just pointing out that where we have less than then well we're still in the single digits on renewals, but are actually closed and kind of.
Speaker Change: At their at their end date.
Speaker Change: And so it's early early in the bid season clearly there are customers that are looking to try to take one last bite of the Apple theres clear pressure, especially on the one way side of the network.
Derek J. Leathers: You know, we're late enough in this cycle that what we don't want to do is to cut for cutting's sake and then end up bringing all of those costs right back on board. That's why we think they're structural; they're sustainable. It just puts us in a better position. The cost culture here has been one that we've needed to address for some time. We've worked on it aggressively over the last year, and I think we're finally finding a rhythm and stride toward, you know, top to bottom ownership of better cost controls. And I think, you know, a crisis like this over the last year's freight backdrop really puts us in a better position to even execute better moving forward. Okay, that's super helpful.
Speaker Change: But our stance is we've got to stay disciplined if you look across to especially this earning season.
Speaker Change: It's glaringly obvious that carriers cannot.
Speaker Change: Make a re investable returns at current rate levels, so they're gonna be frictional theyre going to be difficult. We've already indicated that we're willing to.
Speaker Change: Shrink the fleet size if need be.
Speaker Change: And we've shown that through 2023. The good news is we also have a lot of stability in the dedicated portion of the portfolio that continues to do that hard to serve them.
Speaker Change: Difficult to kind of dislocate us from the business type of work and.
Derek J. Leathers: And then maybe just to follow up on, you know, some of your commentary around being late enough in the cycle. You know, we've heard from a few carriers now that data and expectations are pointing towards a second half inflection. I imagine your customers are looking at similar outlooks. So, just, you know, given that consideration, can you maybe share how your early conversations have been going in terms of renewals? Are we still tracking negative? Or are we starting to see some, you know, firming based on expectations for that recovery? Sure.
Speaker Change: And that's going to stand up pretty well, we feel good with those relationships number one we said we're going to keep focusing on engineering the network better to gain productivity, we're going to focus on our Touchstones of Mexico Cross border. The engineered lanes that we've built out and just continue to do what we do really well and lean into that that puts us in a better position relative.
Speaker Change: The price as well.
Speaker Change: The next question comes from Jon Chappell with Evercore ISI. Please go ahead.
Derek J. Leathers: I mean, I'd have to start by just pointing out that we have less than, well, we're still in the single digits on renewals that are actually closed and kind of, you know, at their end date. And so it's early, early in the bid season. Clearly, there are customers that are looking to try to take one last fat bite at the apple.
Okay.
Jonathan B. Chappell: Thank you good afternoon.
Jonathan B. Chappell: Derek I just wanted to talk about the fleet for a second as we look at the guide zero to 3% decline in the truck Count is this just the continued glide down of one way until you see that inflection and they're still going to be growth in the dedicated fleet or are you actually pausing the dedicated fleet as well and we should think of both of them as being relatively static.
Derek J. Leathers: There's clear pressure, especially on the one-way side of the network, but our stance is we've got to stay disciplined. If you look across, especially this earnings season, it's glaringly obvious that carriers cannot make a reinvestable return at current rate levels. So they're going to be frictional. They're going to be difficult.
Jonathan B. Chappell: Slightly down again until you see a more favorable backdrop.
Derek J. Leathers: Well as we pointed out in the opening remarks dedicated performed very well during the course of the year. So we're not looking to there's no intentionality about trying to shrink the dedicated fleet, but the reality is there too.
Derek J. Leathers: We've already indicated that we're willing to shrink the fleet size if need be, and we've shown that through 2023. The good news is we also have a lot of stability in the dedicated portion of the portfolio that continues to do that hard-to-serve, difficult-to-kind-of-dislocate-us-from-the-business type of work, and that's going to stand up pretty well. We feel good about those relationships, and on the one-way side, we're going to keep focusing on engineering the network better to gain productivity. We're going to focus on our touchstones of Mexico cross-border, the engineered lanes that we've built out, and just continue to do what we do really well and lean into that.
Derek J. Leathers: What's the competitive landscape and so as we retain as we remained very price disciplined on dedicated and return focused it is our expectation that there could be some fleet churn in dedicated in the first half of the year, we already have a very robust pipeline in dedicated and where pricing a considerable amount of opportunities as we speak, but but but the net.
Derek J. Leathers: That is that we think that.
Derek J. Leathers: We'll be flat to maybe slightly up by the end of the first half with back half growth built in on the one way side. It's a different story, it's simply not re investable right now we're not going to grow trucks in one way until we see.
Derek J. Leathers: That puts us in a better position relative to price as well. The next question comes from John Chappell with Evercore ISI. Please go ahead.
Derek J. Leathers: More of an inflection.
Derek J. Leathers: And as a result.
Derek J. Leathers: Raul TTS fleet numbers will go down at least in the first half and that's what we've guided to.
Jonathan B. Chappell: Thank you. Good afternoon. Derek, I just want to talk about the fleet for a second as we look at the guide. Zero to three percent decline in the truck count. Is this just a continued glide down one way until you see that inflection, and there's still going to be growth in the dedicated fleet? Or are you actually pausing the dedicated fleet as well? We should think of both of them as being relatively stable to slightly down again until we see a more favorable backdrop.
Speaker Change: Okay. Yeah. Thank you that's clear.
Speaker Change: Noticeable insurance and claims down you'd mentioned, both in the fourth quarter and for the full year seem somewhat contrary to what we've heard across most of the industry is that just a function of you know maybe a distorted comp to 'twenty two and we should think about some level of a renewed inflation in that line item in the 'twenty four or is there.
Derek J. Leathers: Well, as we pointed out in the opening remarks, Dedicated performed very well during the course of the year, so we're not looking to – there's no intentionality about trying to shrink the Dedicated fleet, but the reality is, there, too, it's a competitive landscape. And so, as we remain very price-disciplined on Dedicated and return-focused, it's our expectation that there could be some fleet chur We already have a very robust pipeline in Dedicated, and we're pricing a considerable amount of opportunities as we speak. But the net of that is that we think it will be flat to maybe slightly up by the end of the first half, with back-half growth built in. On the one-way side, it's a different story.
Speaker Change: Something structurally different about the way and I know, you're obviously running a safer overall network, but something structural that would they would think that you know insurance and claims that Warner grows at a lower level or a lesser level than the rest of the peer group and 24.
Speaker Change: Hey, John.
John: Yeah, I mean fundamentally it does come down to safety and that's our number one priority, but to unpack that just a minute to address your question, Yes fourth quarter of last year was a peak year at $44 million in insurance and claims.
John: But it's not simply just a matter of it being a cop.
John: There have been others in the industry that had been reporting you know large reserve adjustments and charges and ours is elevated when you look back over the last couple of years, but really that inflection point up really occurred in the first half of them are really 'twenty 'twenty. Two we've I think we're early on but we've seen a re.
Derek J. Leathers: It's simply not reinvestable right now. We're not going to grow trucks in any way until we see more of an inflection. And as a result, overall TTS fleet numbers will go down, at least in the first half, and that's what we've guided. Okay, yeah, thank you. It's clear.
Chris Wykoff: Chris, the noticeable insurance and claims down you mentioned both in the fourth quarter and for the full year seems somewhat contrary to what we've heard across most of the industry. Is that just a function of, you know, maybe a distorted comp to 22, and we should think about some level of renewed inflation in that line item at 24? Or is there something structurally different about the way, and I know you're obviously running a safer overall network, but something structural that would think that, you know, insurance and claims that Werner grows at a lower level or a lesser level than the rest of the peer group in 24? Hey, John.
John: <unk> decline the it's not just in the quarter, which is down 23% really the second half of last year of 2023 was down 17%. So it's maybe early to say, but it's a good trend. It does coincide with our safety metrics that continue to.
John: Performed very well we are we have a declining accident rate we hit a 19 year record low. So we do think that those are connected.
Chris Wykoff: Yeah, I mean, fundamentally, it does come down to safety, and that's our number one priority. But to unpack that, just a minute to address your question, yes, the fourth quarter of last year was a peak year at $44 million in insurance and claims, but it's not simply just a matter of it being a comp. There have been others in the industry that have been reporting large reserve adjustments in charges, and ours has elevated when you look back over the last couple of years. But really, that inflection point occurred in the first half of 2022.
John: The next question comes from Brian Austin back with J P. Morgan. Please go ahead.
Brian Austin: Hi afternoon, thanks for taking.
Brian Austin: The questions here.
Brian Austin: So Derek maybe just wanted to get your thoughts just going back to the capacity if we hear you.
Brian Austin: Yourselves and other big fleets or presumably the low cost carriers in the market backing away.
Brian Austin: Is it just inevitable that the smaller fleets another capacity is going to exit as well is there something that maybe we're all missing in terms of just how.
Chris Wykoff: I think we're early on, but we've seen a recent decline. It's not just in the quarter, which is down 23%. Really, the second half of last year 2023 was down 17%.
Brian Austin: How the freights flowing there.
Brian Austin: They have more.
Brian Austin: Tract exposure than before the pay down equipment just wanted to see if you think that this is really sort of the beginning of the end of the capacity that's been here for some time.
Chris Wykoff: So it's maybe early to say, but it's a good trend. It does coincide with our safety metrics that continue to perform very well. We have a declining accident rate. We hit a 19-year record low.
Speaker Change: Yeah, Brian Great question, I promised myself I wouldn't try to predict a turn on this call. So I'm going to try to steer clear of that but.
Chris Wykoff: So we do think that those are connected. The next question comes from Brian Ossenbach with J.P. Morgan. Please go ahead. Hey, afternoon.
Brian Austin: We're at week 71, with net Activations being negative so more of a carrier's, leaving the industry then coming in over the last call. It four to five weeks, it's been very interesting because new activations of finally kind of really fallen off the cliff with met the activation as kind of continuing or I should say D. Activations continuing there.
Brian Ossenbeck: Thanks for taking the questions here. So, Derek, maybe I just wanted to get your thoughts just going back to capacity. If we hear yourselves and other big fleets who are presumably the low-cost carriers, you know, in the market backing away, is it just inevitable that the smaller fleets and other capacity are going to exit as well? Is there something that maybe we're all missing in terms of just how the freight's flowing? They have more contract exposure than before. They have paid down their equipment. I just wanted to see, you know, if you think that this is really sort of the beginning of the end of the capacity glut that's been here for... Yeah, Brian, great question. I promised myself I wasn't going to try to predict a turn on this call, so I'm going to try to steer clear of that.
Brian Austin: The trend that we've seen for now over a year straight. So we think momentum is gaining and.
Brian Austin: We're going to see more of that going forward.
Brian Austin: When it turns exactly I don't know what I do know is that large well capitalized well Rand fleets like Warner we're focused like never before on.
Brian Austin: Lowering our cost to execute making sure that we're grinding through the controllable while not spending too much time trying to speculate on the uncontrollable I'm excited about the teams focus right. Now is the fact that we've identified going into the year of $40 million of cost initiatives and we believe will have great success on getting those implemented.
Derek J. Leathers: But we're at week 71 with, you know, net deactivations being negative, so more carriers leaving the industry than coming in. Over the last, call it four to five weeks, it's been very interesting because new activations have finally kind of really fallen off the cliff, with net deactivations kind of continuing, or I should say deactivations continuing their trend that we've seen for now over a year straight. So we think momentum is gaining, and we're going to see more of that going forward. When it turns, exactly, I don't know.
Centered early and often as we kick off this year is exciting.
Brian Austin: Really excited about the structure of the fleet going into the year, meaning.
Brian Austin: Meaning that we've got the fleet age, where we want it to be the the mix is closer to where we wanted it to be than it has been in a long time, although we'd still lean more towards dedicated given you have.
Brian Austin: Some of these opportunities close logistics is continuing to grow both in volume and revenue and that's really an outlier across really the whole industry.
Brian Austin: And gaining share and we're finding that rhythm of all of this technology investment that we've been making.
Derek J. Leathers: What I do know is that large, well-capitalized, well-run fleets like Werner are focused, and like never before, on lowering their cost to execute, making sure that we're grinding through the controllable while not spending too much time trying to speculate on the uncontrollable. I'm excited about the team's focus right now; the fact that we've identified 40 million cost initiatives for the year, and we believe we'll have great success getting those implemented early and often as we kick off this year is exciting. I'm really excited about the structure of the fleet going into the year, meaning that we've got the fleet age where we want it to be.
Brian Austin: The best on that is still probably to be fair in the out years, but we're picking up incremental gains all the time and so I'm real excited as that plays out over the course of this year.
Speaker Change: Thanks for that so just to follow up on the cost savings that I mentioned earlier that you were confident that you're not cutting too much too late in the cycle, but I also just wanted to hear a little bit more do you think you can give us some details in terms of what goes with it.
Speaker Change: There's different buckets or how they've changed into this year and from the previous year.
Derek J. Leathers: The mix is closer to where we've wanted it to be than it has been in a long time, although we'd still lean more toward dedicated given some of these opportunities. The mix is continuing to grow both in volume and revenue, and that's really an outlier across the whole industry, and gaining share. We're finding that rhythm of all of this technology investment that we've been making. The best on that is still probably, to be fair, in the out years, but we're picking up incremental gains all the time. I'm really excited as that plays out over the course of this year. Thanks for that.
Speaker Change: A bit of carryover, but really just wanted to hear what was on the horizon and to understand that a little bit more.
Speaker Change: Yeah, Brian This is Chris.
Chris Neil: So it's another 40 million plus program as we said earlier, it's less than 15% that's carryover so by and large its new actions its new initiatives.
Chris Neil: A lot of it as you can see from the materials that we presented is in salaries wages. That's both in terms of our driver turnover and packs at various pay changes changes in benefits work comp insurance, so even within that category of salaries and wages, it's multi pronged.
Chris Wykoff: So just to follow up on the cost savings, I know you mentioned earlier that you were confident that you weren't cutting too much too late in the cycle, but I also just wanted to hear a little bit more to the extent that you could give us some details in terms of what those different buckets are, how they've changed this year and from the previous year. There's a little bit of carryover, but I really just wanted to hear what was on the horizon and understand that a little bit more. Thanks. Yeah, Brian, this is Chris.
Chris Neil: And then there's a number of other categories that we just summarized in some of the materials, but supplies and maintenance and in other categories. So largely new initiatives again, largely structural sustainable I'm, not cutting too deep, but really positioning us well.
Chris Wykoff: So it's another $40 million plus program. But as we said earlier, it's less than 15% that's carryover. So, by and large, it's new actions, it's new initiatives. A lot of it, as you can see from the materials that we presented, is in salaries and wages. That's both in terms of driver turnover impacts, various pay changes, changes in benefits, and work comp insurance. So even within that category of salaries and wages, it's multi-pronged. And then there's a number of other categories that we just summarized in some of the materials, but supplies and maintenance and other categories.
Chris Neil: To where we can in the current year, we can combat some of the inflationary headwinds some of the headwinds that we're going to have throughout the year and lower equipment gains and obviously the market not helping out with at least the first half of the year. So we feel like these are the right things to do to combat those aspects, but also sustainable and puts us in a very strong position to capitalize on it.
Chris Wykoff: So largely new initiatives, again, largely structural, sustainable, not cutting too deep, but really positioning us well to where we can, in the current year, we can combat some of the inflationary headwinds, some of the headwinds that we're going to have throughout the year in lower equipment gains, and obviously the market not helping us at least the first half of the year. So we feel like these are the right things to do to combat those aspects, but also sustainable and put us in a very strong position to capitalize on a better market, particularly beyond 2025. The next question comes from Ken Hoexter with Bank of America. Please go ahead. Hey, great. Good afternoon.
Chris Neil: A better market, particularly beyond 2024.
Chris Neil: The next question comes from Ken <unk> with Bank of America. Please go ahead.
Ken: Hey, great good afternoon.
Derek you noted our miles per truck growth at 9% at one way in the second quarter.
Ken: Is that due to company specific moved in reshaping the network I think you threw that out there when and in your prepared remarks or does that economic and I guess, if it's economic how should we think about the historical trend during that turnaround as it led by that improve miles per truck is it led by rate maybe what are the key things we should look for whereas as you talk about looking for that turn.
Speaker Change: Yeah, good afternoon, Ken.
Ken Hoexter: Derek, you noted miles per truck growth of 9% one way in the second quarter. Is that due to company specific moves in reshaping the network? I think you threw that out there in your prepared remarks, or is that economic? And I guess if it's economic, what should we think about the historical trend during a turnaround? Is it led by that improved miles per truck? Is it led by rate? Maybe what are the key things we should look for as you talk about looking for that turn? Yeah, good afternoon, Ken.
Speaker Change: Production gains that we're seeing in one way is very much. The result of a disciplined engineering within our fleet designing.
Speaker Change: As rates got as low as they've been pressed.
Speaker Change: It's really knowing what we can do and do efficiently doing more of that and walking away from business that we feel like no longer fits our network or doesn't allow us to build the kind of efficiencies. It takes to operate at these rate levels.
Speaker Change: And so I think it's largely structural and internal to us.
But.
Speaker Change: Clearly.
Speaker Change: The consumers held up probably a little better than most of us thought.
Derek J. Leathers: The production gains that we're seeing in one way are very much the result of disciplined engineering within our fleet design as rates got as low as they've been pressed. It's really knowing what we can do and do it efficiently; doing more of that, and walking away from business that we feel like no longer fits our network or doesn't allow us to build the kind of efficiencies it takes to operate at these rate levels. And so I think it's largely structural and internal to us. But, you know, clearly, consumers held up probably a little better than most of us thought, despite rising interest rates, inflation, and sort of other headwinds they've been faced with. But to answer your question, it's part of controlling the controllable that we're trying to work on all the time.
Speaker Change: Despite rising interest rates inflation and sort of other headwinds they've been faced with.
Speaker Change: But to answer your question is it's part of the control of the controlling the controllable that we're trying to work on all the time.
Speaker Change: And then leaning into and this is certainly a part of it.
Speaker Change: But we've talked several times about our Mexico Cross border franchise, and really trying to lean more heavily into that its a longer length of haul it's more efficient freight it's hard to do especially on the Mexico side of the border, but it's something we're very good at.
Speaker Change: And the trend you'd you'd look for or is that just to follow up on that is that fee.
Speaker Change: Is that what goes first is it utilization is it the price what what what turns first.
Speaker Change: Yeah, well I mean, I think in this case, the utilization gains arent necessarily a leading indicator of suddenly the market getting much better. It's just us getting better at where we allocate our trucks just to kind of reiterate that point.
Derek J. Leathers: And then leaning into, and this is certainly a part of it, but we've talked several times about our Mexico cross-border franchise and really trying to lean more heavily into that. It's a longer length of haul, it's more efficient freight, it's hard to do, especially on the Mexican side of the border, but it's something we're very good at. And the trend you'd look for is that, just to follow up on that, is that the... Is that what goes first? Is it utilization? Is it worth the price? What, what, what turns first?
Speaker Change: I think what I'm looking for or looking at as it relates to what goes first or what is moving is.
Speaker Change: Anecdotal things like yes, there were winter storms across the U S. Yes that played a role in what we saw with the spot market in other and other pricing opportunities in January. It also had a very negative impact on production for sure.
Speaker Change: But the reality is when the in the darkest days of this freight recession they were hurt.
Derek J. Leathers: Yeah, well, I think in this case, the utilization gains aren't necessarily a leading indicator of the market suddenly getting much better. It's just us getting better at where we allocate our trucks, just to kind of reiterate that point. I think what I'm looking for or looking at as it relates to what goes first or what is moving are, you know, anecdotal things like, yes, there were winter storms across the U.S. Yes, that played a role in what we saw with the spot market and other pricing opportunities in January. It also had a very negative impact on production, for sure.
Speaker Change: Hurricanes that hit with almost little to no impact on spot market pricing or project opportunities or anything else. The other thing I would look at is our comments that we talked about in the opening but fourth quarter peak volumes like project opportunity volumes, they were up over 20% year over year that's.
Speaker Change: That's encouraging now the problem is the market rate wasn't there to support those volumes being nearly as lucrative as they would've been in prior years, but in order to get back in that game and show customers, what we're capable of and our execution qualities.
Derek J. Leathers: But the reality is, you know, in the darkest days of this freight recession, there were hurricanes that hit with almost little to no impact on spot market pricing or project opportunities or anything else. The other thing I would look at is our comments that we talked about in the opening. But, you know, fourth quarter peak volumes, like project opportunity volumes, they were up over 20 percent year over year. That's encouraging.
Speaker Change: Moved a lot of peak freight this fall and so that was encouraging.
Speaker Change: It's very encouraging early conversations with customers in terms of the quality of the product that we're putting on the table because right now when prices such a predominant topic, it's really more important than ever to be able to differentiate the quality of your service the commitment that we're putting out there in the investment we're making back into the fleet, which we clearly showed in 2023.
Derek J. Leathers: Now, the problem is the market rate wasn't there to support those volumes being nearly as lucrative as they would have been in prior years. But in order to get back in that game and show customers what we're capable of and our execution qualities, you know, we moved a lot of peak freight this fall. And so that was encouraging.
Speaker Change: Our willingness to do with an outsized capex year now that fleets, where we want it we're ready to launch and as this inflection kind of continues to play out I like our positioning.
Speaker Change: The next question comes from Scott Group with Wolfe Research. Please go ahead.
Scott H. Group: Hey, Thanks afternoon.
Derek J. Leathers: I think it's very encouraging to have early conversations with customers in terms of the quality of the product that we're putting on the table. Because right now, when price is such a predominant topic, it's really more important than ever to be able to differentiate the quality of your service, the commitment that we're putting out there, and the investment we're making back into the fleet, which we clearly showed in 2023 a willingness to do with an outsized CapEx year. Now that the fleet's where we want it, we're ready to launch.
Scott H. Group: So you guys exited the year.
Scott H. Group: Truckload trucking at a seven 5% margin I think you said the goal is to get back to 12.
Scott H. Group: By the end of this year.
Scott H. Group: Just help us think about the cadence of that through the year or do we take a.
Scott H. Group: One more step back in Q1, and then build from there and what ultimately what needs to happen to.
Scott H. Group: Get that four to five points of margin improvement.
Scott H. Group: Yes, Scott this is Derek I mean, clearly Q4 to Q1 has historically over the last decade, then a step back quarter, just because of the reality of what happens in the first quarter is a combination of weather plus.
Derek J. Leathers: Lower shipping volumes coming out of the holiday season et cetera, I don't expect that to be any different this year.
Scott H. Group: And as this inflection kind of continues to play out, I like our position. The next question comes from Scott Group with Wolf Research. Please go ahead.
Derek J. Leathers: In terms of the fact that there will be those structural headwinds.
Derek J. Leathers: But in terms of getting back to that range. It's about it's several things and I don't want to get too granular here, but it's a back half.
Derek J. Leathers: Hey, thanks for the afternoon. So you guys exited the year trucking at a seven and a half percent margin. I think you said the goal is to get back to 12 by the end of this year. Just help us think about the cadence of that through the year.
Derek J. Leathers: Let's be clear, it's really an end of year goal to be even more clear.
Derek J. Leathers: It takes our ability to continue to move further down this engineered a path inside of one way to continue a further shift into that more stable durable dedicated business.
Scott H. Group: Do we take one more step back in Q1 and then build from there? And ultimately, what needs to happen to get that four or five points of margin improvement? Yes, Scott, this is Derek.
Derek J. Leathers: That has proven itself to be resilient in both good and bad markets and from a margin perspective.
Derek J. Leathers: I mean, clearly, Q4 to Q1 has historically, over the last decade, been a step-back quarter, just because of the reality of what happens in the first quarter, the combination of weather plus lower shipping volumes coming out of the holiday season, etc. I don't expect that to be any different this year, in terms of the fact that there will be those structural headwinds. But in terms of getting back to that range, it's about, it's several things, and I don't want to get too granular here, but it's a back half, let's be clear. It's really an end of year goal, to be even more clear.
Derek J. Leathers: And then executing on all of these identified cost savings that we've laid out.
Derek J. Leathers: And then the wildcard for things like <unk>.
Derek J. Leathers: Used equipment market you know how does that play out over the course of the year, that's going to be difficult, but we are our base case I think is conservative and one that we believe is achievable.
Derek J. Leathers: If we can be at the higher end of that range. Then obviously it accelerates our ability to get there. There's a lot of work ahead of us, but again I'll hit the theme one more time, but it's about controlling the controllable it's been way too long with everybody waiting for something external to change and it's about that.
Derek J. Leathers: And it takes our ability to continue to move further down this engineered path and, in one way, to continue a further shift into that more stable, durable, dedicated business that has proven itself to be resilient in both good and bad markets, and from a margin perspective. And then executing on all of these identified cost savings that we've laid out. And then the wildcards are things like, you know, the used equipment market, how does that play out over the course of the year? That's going to be difficult, but we're, our base case, I think, is conservative and one that we believe is achievable. If we can be at the higher end of that range, then obviously, it accelerates our ability to get there.
Derek J. Leathers: The moment is upon us now that we've got to change internally and we're laser focused on doing exactly that.
Derek J. Leathers: Uh huh.
Derek J. Leathers: And then.
Speaker Change: My next question.
Speaker Change: <unk> seen all of these all your fourth quarters, they've been tough for everybody and your point about we're at a place where.
Speaker Change: It's not re investable.
Speaker Change: One thing I'm just struggling with.
Speaker Change: We're still seeing pretty elevated truck orders truck builds.
Speaker Change: I'm struggling with why that's happening do you have a.
Speaker Change: Thought on that and where we go from here.
Speaker Change: Yeah, I mean, my predominant thought on that Scott would be I think a lot of folks. It's a matter of when you make your move I mean, if you think about our Racine analogy. It's when do you pit versus your competitors and we clearly pitted in 'twenty. Two 'twenty three we spent a lot of money and add a lot of orders and a lot of builds to get our fleet, where we wanted it there are several.
Derek J. Leathers: There's a lot of work ahead of us, but again, I'll hit the theme one more time, but it's about controlling the controllable. It's been way too long with everybody waiting for something external to change. And it's about, the moment is upon us now that we've got to change internally, and we're laser focused on doing exactly that. And then my next question, you know, we've all seen all these fourth quarters. They've been tough for everybody.
Scott H. Group: And your point about us being at a place where, you know, it's not reinvestable. One thing I'm just struggling with, like, we're still seeing pretty elevated truck orders, truck bills. Like, I'm struggling with why that's happening. Thoughts on that and where we go from here. Yeah, I mean, my predominant thought on that, Scott, would be I think a lot of folks, it's a matter of when you make your move. I mean, if you think about a racing analogy, it's when you pit versus your competitors. And we clearly pitted in 2023. We spent a lot of money and had a lot of orders and a lot of builds to get our fleet where we wanted it. There are several others that haven't made that list yet.
Speaker Change: Others that haven't made that Pip, yet and they're doing so I believe as we as 2024 plays out.
Speaker Change: It's a big thing that we like about our positioning currently because doing all of that fleet rotation is time consuming and it costs money it costs miles at cost.
Speaker Change: Driver downtime and so I like our positioning but I think that's what a lot of those orders are a very few carriers in America are happy with their fleet mix. It up right now coming out of the Covid years, and I think youre seeing pent up demand.
Speaker Change: Also there it will be interesting to see how that order board plays out relative to builds because orders are one thing that builds or something entirely different and I just think as the year plays out that number may come in the more clarity for everyone.
Derek J. Leathers: And they're doing so, I believe, as 2024 plays out. It's a big thing that we like about our positioning currently, because doing all of that fleet rotation is time-consuming, it costs money, it costs miles, it costs driver downtime. And so I like our positioning. But I think that's what a lot of those orders are.
Speaker Change: The next question comes from Allison <unk> with Wells Fargo. Please go ahead.
Allison: Hey, guys James Monaghan on trials and just wanted to ask.
Allison: Yes.
Allison: Yes, sorry about that just wanted to ask about the catalyst for the second half improvement that you have in there is there any sort of specific and then do you see or is it just sort of better balanced approving across the first half of the year and that improving the market outlook in the second.
Derek J. Leathers: Very few carriers in America are happy with their fleet makeup right now coming out of the COVID years, and I think you're seeing pent-up demand. I also think it'll be interesting to see how that order board plays out relative to builds.
Speaker Change: Yeah, I think I think it's really built on the ongoing attrition that we're seeing across the industry, but that's offset just last week were up to a 56000 registered carriers.
Derek J. Leathers: Because orders are one thing, but builds are something entirely different. And I just think as the year plays out, that number may come into more clarity for everyone. The next question comes from Allison Polanek with Wells Fargo. Please go ahead. Hey guys, James Monaghan has been on for hours, and just wanted to ask... Hey, yep, sorry about that.
Speaker Change: That have went out of business completely.
Speaker Change: That's a big number 700000 less CDL drivers that are like sort of in circulation from where we were when this whole ramp started theres just a lot more momentum behind where we're at from an equilibrium perspective as I mentioned the storms recently being an interesting indicator that yes. It was widespread yes. It was a severe storm I'm not trying to minimize that.
Allison Polanek: Just wanted to ask about the catalyst for the second half of improvement that you have in there. Is there any sort of specific event that you can see? Or is it just sort of a better balance improving across the first half of the year and that improving the market outlook in the second half? Yeah, I think it's really built on the ongoing attrition that we're seeing across the industry. I mean, I saw a stat just last week that we're up to 56,000 registered carriers that have gone out of business completely. You know, that's a big number, 700,000 fewer CDL drivers that are sort of in circulation from where we were when this whole ramp started. There's just a lot more momentum behind where we're at from an equilibrium perspective. I mentioned the storms recently being an interesting indicator that, yes, it was widespread. Yes, it was a severe storm.
Speaker Change: But kind of the immediate impact on what it did to the network shows that were closer to balance and we've been in a while so I don't think there is one catalyst and I certainly we're not banking on it be in the GDP driven rebound.
Speaker Change: Our base case assumption is very.
Speaker Change: Neutrals kind of GDP growth this year, but rather a supply side story as it continues to exit and obviously keeping very close eyes on replenishment of inventories.
Speaker Change: Because it's one thing to get to just a one for one replenishment level, but I don't think we've seen supply chain really since COVID-19 that are simultaneously been dealing with issues in the Suez canal issues in the Panama Canal, the ongoing and sort of ever present.
Derek J. Leathers: I'm not trying to minimize that, but the immediate impact on what it did to the network shows that we're closer to balance than we've been in a while. So I don't think there's one catalyst, and certainly we're not banking on it being the GDP-driven rebound. You know, our base case assumption is a very, you know, neutral kind of GDP growth this year, but rather a supply side story as it continues to exit. And obviously, keeping very close eyes on replenishment of inventories, because it's one thing to get to just a one for one replenishment level. But I don't think we've seen supply chains since COVID that have simultaneously been dealing with issues in the Suez Canal, issues in the Panama Canal, the ongoing and sort of ever-present questions around West Coast ports and productivity issues there.
Speaker Change: Questions around West coast ports and productivity issues, there and I think it's it's really causing some pause in.
Speaker Change: The retailers of America to decide whether they want to be just in case or just in time or maybe somewhere in the middle and if they go to the middle even theres going to need to be outsized replenishment as the year plays out and we believe that plays into this as well.
Speaker Change: Got it and just real quickly you highlighted.
Speaker Change: The improvement in revenue per tractor per week in dedicated and highlighted the fact that margins are in the double digits, there, but what you.
Speaker Change: Hi.
Speaker Change: Were you able to get price increases that sort of kept up with the cost inflation that you're seeing there and sort of have you been able to sort of get margin expansion there over time.
Speaker Change: Through cost savings or anything else.
Speaker Change: The prior year.
Speaker Change: Yeah, well I mean look we've been.
Derek J. Leathers: And I think it's really causing some pause for retailers in America to decide whether they want to be just in case, or just in time, or maybe somewhere in the middle. And if they go to the middle, even, there's going to need to be outsized replenishment as the year plays out. And we believe that plays into this as well.
Speaker Change: Consistent with our with our explanations around dedicated it is it is clearly.
Speaker Change: Held up and shown resiliency through this downturn, but that doesn't mean, there wasn't margin compression even a dedicated.
Speaker Change: But at a much lower level, we're able to get the support from our customers better there standby us more there because of the quality and the complexity of the work, we do but even there there's inflationary pressures. That's why it is cost cutting becomes so critically important we've got to offset some of the underlying inflationary pressures by taking cost out elsewhere. The bulk of obviously.
Allison Polanek: And real quickly, you highlighted the improvement in revenue pertracted per week and dedicated and highlighted the fact that margins are in the double digits there. But have you been able to get price increases that sort of kept up with the cost inflation that you're seeing there and sort of have you been able to sort of get margin expansion there over time through cost savings or anything else across this prior year? Yeah, I mean, look, we've been consistent with our explanations around dedicated, which has clearly held up and shown resiliency through this downturn, but that doesn't mean there wasn't margin compression even at dedicated, but at a much lower level. We're able to get more support from our customers there, stand by us more there because of the quality and the complexity of the work we do, but even there, there's inflationary That's why this cost cutting becomes so critically important. We've got to offset some of the underlying inflationary pressures by taking costs out elsewhere.
Speaker Change: The damage to the long term GTS margin range was driven by one way and we've seen enough results already this quarter for everyone to realize just how pressured that part of the portfolio was here and everywhere else.
Speaker Change: The next question comes from Ravi Shanker with Morgan Stanley. Please go ahead.
Ravi Shanker: Thanks, Good afternoon gentlemen.
Ravi Shanker: A follow up on that I think the tone of this call kind of the message is a little bit different and why did you clarify some of your peers who've been saying that you know there's absolutely no further room to give on pricing given the cost inflation and we have to take pricing up yet your pricing outlook is.
Ravi Shanker: I think it's somewhat more bearish than we were expecting and maybe some of your peers have been telegraphing.
Ravi Shanker: Is this a kind of a.
Derek J. Leathers: The bulk of, obviously, the damage to the long-term TTS margin range was driven by one way, and we've seen enough results already this quarter for everyone to realize just how pressured that part of the portfolio is here and everywhere else. The next question comes from Ravi Shanker with Morgan Stanley. Please go ahead.
The effective.
Ravi Shanker: Starting point on costs, where you guys may be lower and so you have more opportunity to cut or be kind of is this a strategy to potentially try and take share maybe.
Ravi Shanker: If you are if.
Ravi Shanker: If you have more room to be flexible on grades kind of just trying to square that difference in messaging maybe.
Ravi Shanker: Thanks, Sarah, and gentlemen. Maybe just to follow up on that, I think the tone of this call, the kind of message, is a little bit different than what you heard from some of your peers who have been saying that, you know, there's absolutely no further room to give on pricing given the cost inflation, and we have to take prices up. Yet your pricing outlook is somewhat more bearish than we were expecting, and maybe some of your peers have been telegraphing. Is this, A, kind of reflective of a starting point on costs for you guys that may be lower, and so you have more opportunity to cut, or, B, kind of, is this a strategy to potentially try and take share, maybe, kind of, if you're, you know, if you have more room to be flexible on rates, kind of just trying to square that difference in messaging, maybe? Well, I'll start with the obvious, Ravi, which is that I concur with everybody who's made this statement.
Speaker Change: Well I'll start with the obvious Robert which as I concur with everybody Who's made the statement there is no more room to give.
Speaker Change: But that doesn't mean that we don't have prior year comps to deal with and things that we've already digested are ingested into the network over the course of 2023, that's going to come to.
Speaker Change: To roost in the first half of 2024, so some of it has to do with prior year comps.
Speaker Change: Some of it has to do with making sort of intelligent decisions on places that we still want to have a foothold and we still want to kind of live to fight another day and some of it is just trying to.
Speaker Change: Predict when in fact does this inflection take place.
You know that we tend to be careful and thoughtful with what we say.
Speaker Change: And I believe that's a range that we're comfortable giving at this point if we can exceed that range I can assure you we will be doing everything we can.
Derek J. Leathers: There is no more room to give, but that doesn't mean that we don't have prior year comps to deal with and things that we've already digested or ingested into the network over the course of 2023 that are going to come to roost in the first half of 2024. So some of it has to do with prior year comps. Some of it has to do with making sort of intelligent decisions on places that we still want to have a foothold in, and we still want to kind of live to fight another day. And some of it is just trying to predict when, in fact, this inflection will take place. You know that we tend to be careful and thoughtful with what we say, and I believe that's a range that we're comfortable giving at this point.
Speaker Change: To do so and then the last piece, which you already mentioned inside of your question is we were a bit of a positive outlier on price in 2023 and that might cause more pressure on us as customers try to take a second bite of the Apple, but we're going to stay disciplined and focused as we go through this bid season, because frankly at some of the opportunities being put forth.
Speaker Change: It is not re investable, therefore, not worth doing.
Speaker Change: Very helpful. Thanks for the clarification, maybe as a follow up on the logistics side of the house.
Speaker Change: We have seen some interesting announcements, obviously, a very large broker shut down a few months ago are you seeing one of your peers are examining strategic options for their digital brokerage business.
Derek J. Leathers: If we can exceed that range, I can assure you we'll be doing everything we can to do so. And then the last piece, which you already mentioned in your question, is that we were a bit of a positive outlier on price in 2023, and that might cause more pressure on us as customers try to take a second bite of the apple, but we're going to stay disciplined and focused as we go through this midseason because, frankly, some of the opportunities being put forth are not reinvestible, and therefore not worth doing. Very helpful. Thanks for the clarification.
Speaker Change: Got a big player in the space is now talking about the business potentially being more cyclical than it has been before with operating leverage do you think the brokerage business has structurally changed to where it's kind of what did you used to be and kind of given the investments that you guys are making yourself.
Speaker Change: What's the outlook there kind of in both the short term the cycle comes back, but also kind of medium and long term.
Ravi Shanker: Maybe as a follow-up on the logistics side of the house, we've seen some interesting announcements. Obviously, a very large digital broker shut down a few months ago. You've seen one of your peers examine strategic options for their digital brokerage business. A kind of big player in the space is now talking about the business potentially being more cyclical than it has been before with operating leverage. Do you think the brokerage business has kind of structurally changed from kind of what it used to be? And kind of given the investment that you guys are making yourselves, what's the outlook there, kind of in both the short-term when the cycle comes back, but also in the medium and long-term? Sure, lots to unpack there. I'll give it a whirl.
Speaker Change: I'm sure lots of unpack there I'll give it a world.
Speaker Change: First and foremost I think the digital brokerage push if that's all you are in your kind of hit you and all your wagons to that horse.
Speaker Change: That's a difficult place to be because theres still a lot of need for.
Speaker Change: Institutional know how personal attention the ability to follow up and provide customer service and an opportunity to meet your customers or even exceed.
Speaker Change: What their expectations are and it's hard to do all of the above with just a digital platform only it's a part of our portfolio. It's not the primary focus of how we're going to attack this market.
Derek J. Leathers: I mean, first and foremost, I think the digital brokerage push, if that's all you are and you're kind of hitching all your wagons to that horse, that's a difficult place to be because there's still a lot of need for institutional know-how, personal attention, the ability to follow up and provide customer service, and the opportunity to meet your customers or even exceed what their expectations are. And it's hard to do all of the above with just a digital platform alone. It's a part of our portfolio. It's not the primary focus of how we're going to attack this market. I think what's really happened is when you think about power only and the brokerage role that power only plays, it is truly an efficiency gain for every customer that decides to purchase that product.
Speaker Change: What's really happened is when you think about power only in the brokerage world are only plays it is truly an efficiency gain for every customer that decides to purchase that product.
Speaker Change: Sort of a Rainbow fleet out there that may have been getting service previously, but with a lot of labor cost.
Speaker Change: Absorbed by the customer to have to deal with multiple different trailers in and all of the complexity that comes with that.
Speaker Change: And others that are that are executed very well on power only have proven that there's a better way and I would liken it to a to a lesser degree, but its similar to why do we like dedicated so much more than one way. It's more complex. It involves its more defensible well so as the power and new solutions that we're growing within our brokerage group.
Derek J. Leathers: Instead of a rainbow fleet out there that may have been getting service previously but with a lot of labor costs absorbed by the customer to have to deal with multiple different trailers and all of the complexity that comes with that, us and others that are executing very well on power only have proven that there's a better way. And I would like it to a lesser degree, but it's similar to why do we like dedicated so much in more than one way? It's more complex than that. It's more defensible.
Speaker Change: These are large scale network relationships with large scale blue chip customers that need us.
Speaker Change: As frictionless of support as they can possibly get in their brokerage environment and being able to offer both assets power only dedicated and if need be intermodal and final mile is a win for them. It makes their life easier and I think that's what's putting the squeeze on folks that maybe are only playing in one end of that of that arena.
Derek J. Leathers: Well, so are the power only solutions that we're growing within our brokerage group. These are large scale network relationships with large scale blue chip customers that need as frictionless of support as they can possibly get in their brokerage environment. And being able to offer both assets, power only, dedicated, and, if need be, intermodal and final mile is a win for them. It makes their life easier.
Speaker Change: And we're going to continue to apply that pressure every chance we get.
Basketball Majors: The next question comes from basketball majors with Susquehanna. Please go ahead.
Derek J. Leathers: And I think that's what's putting the squeeze on folks that maybe are only playing in one end of that arena. And we're going to continue to apply that pressure every chance we get. The next question comes from Bascom Majors with Susquehanna. Please go ahead.
Basketball Majors: Yeah.
Basketball Majors: Thank you for taking my question as we look into the opportunity to grow dedicated long term can you talk a little bit about how the competition and that has changed at all for this cycle and if you think your niche has evolved at any point is as more and more people have lean further into that from a large carrier base and further away.
Bascom Majors: Yeah, thank you for taking my question. As we look into the opportunity to grow dedicated long term, can you talk a little bit about how the competition and that have changed at all through this cycle? And if you think your niche has evolved at any point as more and more people have leaned further into that, from the large carrier base and further away from one way? Thank you.
Speaker Change: From one way thank you.
Speaker Change: Yes, thanks for basketball I appreciate the question.
Speaker Change: Clearly theres been new competition and dedicated a new competitors come in coming to sort of look for that safe Haven, but coming.
Speaker Change: We're pulling into the port and knowing how to maneuver and dock inside of it as two totally different things and so our ability and expertise over decades of work and dedicated has proven itself to not only attract new customers and new logos into the portfolio, but then retain them now.
Derek J. Leathers: Yeah, thanks, Bascom. I appreciate the question. Yeah, clearly, there's been new competition and dedicated and new competitors coming, coming to sort of look for that safe haven. But coming, you know, pulling into the port and knowing how to maneuver and dock inside it are two totally different things.
Speaker Change: Now, we're going to have more competitive white noise potentially on price from time to time in dedicated with with newer entrants into the market, but that's why we like to work with winning customers that are winning in their space and in their vertical because they view the supply chain is a competitive advantage and not as a cost center and they want to work with people that know what they're doing.
Derek J. Leathers: And so our ability and expertise over decades of work in Dedicated has proven itself to not only attract new customers and new logos into the portfolio, but it can retain them. Now, we're going to have more competitive white noise, potentially on price, from time to time in Dedicated with newer entrants into the market. But that's why we like to work with winning customers that are winning in their space and in their vertical because they view the supply chain as a competitive advantage, not as a cost center. And they want to work with people that know what they're doing. And we believe we're very good at it.
Speaker Change: We believe we're very good at it and we're going to continue to lean into it I'm excited about what that pipeline looks like right now and yet we're realistic we know the win rate within that pipeline will be lower at this point that we said that today and as we get into the first half of 'twenty four because of some of these competitive pressures, but that's simply a matter of put more than the top end of the funnel.
Speaker Change: To make sure we get what we need out of the bottom and it will be.
Derek J. Leathers: And we're going to continue to lean into it. I'm excited about what that pipeline looks like right now. And yet, we're realistic; we know the win rate within that pipeline will be lower at this point.
Speaker Change: We just got back from our <unk>.
Speaker Change: Annual sales meeting that I can assure you there was no lack of clarity on what we're looking for and how we're going to go about it and our teams out there working hard as we speak.
Speaker Change: Thanks for that Eric.
Eric: Thank you.
Chris Wetherbee: And as we get into the first half of 24, because of some of these competitive pressures, but that's simply a matter of putting more in the top end of the funnel to make sure we get what we need out of the bottom end. And we'll be We just got back from our annual sales meeting, and I can assure you there was no lack of clarity on what we're looking for and how we're going to go about it. And our teams out there are working hard as we speak. Thanks for that, Derek. Thank you. The next question comes from Chris Wetherbee with Citigroup. Please go ahead.
Eric: The next question comes from Chris Wetherbee with Citigroup. Please go ahead.
Chris Wetherbee: Hey, good afternoon I guess.
Chris Wetherbee: Just wanted to pick back up on sort of a dedicated versus one way truckload kind of relationship I guess, we've heard from other carriers that there was maybe even.
Chris Wetherbee: <unk> of breakeven or losing money on the truckload side and I guess as you think about your sort of mix of business.
Chris Wetherbee: I know that you've gotten that far to suggest that the one way truckload side is actually not making money in this environment, but kind of curious your thoughts on that well have that relative profitability and then.
Chris Wykoff: Hey, thanks. Good afternoon. I guess I just wanted to pick back up on sort of the dedicated versus one-way truckload kind of relationship. We heard from other carriers that there were maybe even some instances of breakeven or losing money on the truckload side. And I guess as you think about your sort of mix of business, I don't know that you've gone that far to suggest that the one-way truckload side is actually not making money in this environment, but I'm curious about your thoughts on that relative profitability. And then, what that implies about dedicated margins and the ability for them to turn up as we go through the next year. I guess we're trying to understand what the sort of margin opportunity looks like So just kind of curious how you think about that. And can it come back as quickly as maybe, you know, obviously truckload goes fairly quickly, but how do you think about the timing of that margin expansion as we go through the, Hey, Chris. This is Chris.
Chris Wetherbee: What that implies about dedicated margins and the ability for them to turn it off as we go through the next year I guess, we're trying to understand what sort of margin opportunity looks like on the dedicated side. If it didn't have one hundreds of basis points mean like several hundreds of basis points or something a little bit smaller than that so just kind of curious how you think about that it can it come back as quickly.
Chris Wetherbee: Maybe you know obviously truckload that's fairly quickly, but how do you think about the timing of that margin expansion as we go through the year.
Chris Wetherbee: Hey, Chris This is Chris.
Chris: Yeah, a couple of points there certainly dedicated as we've mentioned is has been steady has been durable continues to have double digit margins. There. So you know that puts you now can put the focus on one way certainly theres been more volatility. There you know we're still not getting specific to disclose you know operating income.
Chris: Between dedicated and one way within our TTS segment, but it certainly is more volatile than dedicated.
Chris Wykoff: Yeah, a couple of points there. You know, certainly, dedicated, as we've mentioned, has been steady, has been durable, and continues to have double-digit margins there. So, you know, that can put the focus on one way. Certainly, there's been more volatility there.
Chris: Low single digit Oh I percentages for.
Chris: For the full year and that is primarily driven by some softer demand there.
Chris: Market backdrop, as well as the lower <unk>.
Chris Wykoff: You know, we're still not getting specific to disclose operating income between dedicated and one way within our TTS segment, but it certainly is more volatile than dedicated. You know, low single-digit OI percentages for the full year, and that is primarily driven by some softer demand, the market backdrop, as well as the lower rate per mile, although, you know, we've been faring, we believe, better than, you know, broadly the industry there through pricing discipline and a lot of other aspects and actions, but that's really the major driver, along with lower equipment gains, which have been challenging and will And so those are the major drivers of TTS that's bringing down, you know, that margin. It's not necessarily in dedicated.
Chris: <unk> per mile. Although we've been Ferring, we believe you know.
Chris: Our better than you know broadly the industry, there through pricing discipline, and a lot of aspects and actions, but that's really.
Chris: The major driver along with lower equipment gains, which has been challenging and we will continue to buy and large throughout this year that is our view.
And so those are the major drivers to TTS, that's bringing down that margin, it's not necessarily in dedicated.
Chris: With some of the aspects that we talked about in terms of eight improved market in the second half.
Chris: Restocking.
Chris: Well as some of the structural changes continuing to utility trend in production trend that you've seen in one way and.
Chris: And with those cost savings that we've been talking about.
Chris: We are targeting to get back to at the end of the year are back to that TTS, our run rate target operating margin.
Chris Wykoff: With some of the aspects that we've talked about in terms of an improved market in the second half, restocking, as well as some of the structural changes, continuing the utility trend and production trend that you've seen in one way, and with those cost savings that we've been talking about, we are targeting to get back to, at the end of the year, that TTS run rate target operating margin. And I would add a couple of thoughts to that. One thing that's underappreciated about Dedicated is that throughout this downturn, although we had great fleet retention and have continued to even add new logos into the mix, the reason you haven't seen as much truck growth is that it's very common that across multiple fleets, really across the entire network, they may be down two trucks, three trucks, five trucks, just based on customer volumes. And that had mostly to do with inventory levels and the lack of replenishment.
Speaker Change: And that would add a couple of thoughts to that one thing that's underappreciated about dedicated is that throughout this downturn, although we had great fleet.
Speaker Change: Fleet retention.
Speaker Change: And have continued even add new logos into the mix. The reason you haven't seen as much in truck growth is it's very common that across multiple fleets really across the entire network. They may be down two trucks III trucks five trucks, just based on customer volumes and that had mostly to do with inventory levels and the lack of replenishment as we get to a more normalized.
Speaker Change: Run rate and we look forward the the upside leverage to adding three to four trucks to across.
Speaker Change: 100, plus dedicated fleets can become very.
Speaker Change: Compelling because your fixed costs are essentially still what they are you are not adding a lot of incremental other cost other than the variable cost of running that equipment.
Derek J. Leathers: As we get to a more normalized run rate and we look forward, the upside leverage of adding three to four trucks across 100-plus dedicated fleets can become very compelling because your fixed costs are essentially still what they are; you're not adding a lot of incremental costs other than the variable cost of running that equipment. And so that's exciting. And so dedicated has more upside potential than people realize as the market strengthens. And then, in one way, you know, I don't want to underestimate the fact that even with only 2,700 trucks, and over time, that number will be smaller, the percentage of those trucks that are available for hire and nimble and can be moved right now is high. Now, I don't necessarily love that because it means it's not tied up with long-term valued customers under the type of arrangements that we prefer. But the good news is they're available, and they're free agents that can be moved around as appropriate as this market turns, and they will be moved because we're not going to continue to run a network in one way at the return levels that we're seeing today.
Speaker Change: And so that's exciting and so dedicated has more upside potential than people realize as the market strengthens and then in one way I don't want to underestimate. The fact that even with only 2700 trucks and over time that number will be smaller the percentage of those trucks that are available for hire in nimble and can be moved right. Now is high I don't necessarily love that.
Speaker Change: Because it means it's not tied up with long term.
Speaker Change: Valued.
Speaker Change: Customers under under the type of arrangements that wed prefer but the good news is they're available and they're free agents that can be moved around as appropriate as this market turns and they will be moved because we're not going to continue to run a network in one way that the return levels that were that we're seeing today.
Speaker Change: And we owe it to our shareholders and others to make sure that isn't the case and so we will be able to respond as you mentioned to the one way market that more quickly turns we'll be nimble there.
Speaker Change: Okay I appreciate that and one quick follow up just on the gain side as you think about the first half of the year shouldnt be assuming essentially kind of not very flattish or euro gains in the first half with maybe more material uptick towards the end.
Chris Wetherbee: And we owe it to, you know, our shareholders and others to make sure that isn't the case. And so we'll be able to respond, as you mentioned, to the one-way market that more quickly turns. We'll be nimble there. Okay, I appreciate that.
Speaker Change: Well the as we said earlier that the range that we are guiding to is $10 million to $30 million for the entire year and that will be more challenging or challenged in the first half of the year versus second half of the year.
Chris Wykoff: And one quick follow-up just on the gain side. As you think about the first half of the year, shouldn't you be assuming essentially kind of, you know, very flattish or sort of zero gains in the first half with maybe more material uptake towards the end? Well, as we said earlier, the range that we are guiding to is $10 to $30 million for the entire year. That will be more challenging or difficult in the first half of the year versus the second. The last question today comes from Tom Wadewitz with UBS. Please go ahead.
Speaker Change: The last question today comes from Tom <unk> with UBS. Please go ahead.
Tom: Yeah good afternoon.
Tom: I wanted to see if you could offer some thoughts on just where you think the.
One way fleet Count goes it seems like that's been coming down a bit.
Tom: And you.
Thomas Wadewitz: Yeah, good afternoon. I wanted to see if you could offer some thoughts on just where you think the one way fleet count goes. It seems like, you know, that's been coming down a bit. And, you know, it sounds like you've got maybe more than normal trucks in the spot market in one way. Is that something you just kind of let that continue to a trickle down? And then, from a more strategic perspective, is there a reason to keep a couple thousand trucks in one way, or do you just keep, you know, shifting those into dedicated as you get dedicated growth? It's not, I don't know, I mean, it's hard to know what the theoretical framework is for what you really need in one way. So, yeah, just some thoughts on kind of the near term and medium term on the one way fleet. Yeah, Tom, this is Derek.
Tom: It sounds like you've got maybe more than normal trucks in the spot market and in one way.
Tom: Is that something you just kind of let that continue to trend down.
Tom: And then I guess from a more strategic perspective.
Tom: Is there a reason to keep a couple of thousand trucks in one way or do you just kind of keep.
Tom: Shifting those into dedicated as you get dedicated growth, it's not I don't know when it gets hard to know what the.
Tom: Theoretical framework is for what you really need and in one way.
Tom: So just some thoughts on kind of near term and medium term on a one way fleet.
Tom: Yes, Tom This is Derek a couple of things there one we do need a one way fleet for a variety of reasons that may not be as obvious.
Derek J. Leathers: A couple of things there. One, we do need a one-way fleet for a variety of reasons that may not be as obvious as only the returns. One, it's a great entry point to get involved and engaged with the customer and show them what Werner is all about, to get them familiar with the brand, the culture, the service levels, and the commitment to safety. It also houses the Mexico cross-border franchise, which has also performed well, and we've got to continue to focus on taking advantage of the near-shoring opportunities as they present themselves, and we're going to continue to be prepared to We've increased utility in the one-way fleet significantly, and that leads to being able to do more with less, and so we don't need the same number of trucks. And then power-only operates in many respects within the same freight environment as the one-way, and it's really sort of a seamless movement of freight, so that also dictates.
Derek J. Leathers: Only the returns.
Derek J. Leathers: One it's a great entry point to get to get involved and engaged with the customer and show them. What Warner is all about to get them familiar with the brand the culture of the service levels and the commitment to safety.
Derek J. Leathers: It also houses the Mexico Cross border franchise, which has also performed well and we've got to continue to focus on taking.
Derek J. Leathers: <unk> taken advantage of the near shoring opportunities as they present themselves and we're going to continue to be prepared to do that.
Derek J. Leathers: We've increased utility and the one way fleet Cigna.
Derek J. Leathers: Significantly and that leads to being able to do more with less and so we don't need the same number of trucks and then power only operates in many respects within the same freight environment as one way and it's really sort of a seamless movement of freight so that also dictates.
Derek J. Leathers: So if I zoom out to 40,000 feet, the goal is to continue to grow dedicated. One-way is a great... kind of launching pad for drivers to come into the network, to learn Werner, to learn the culture. It's a great way to get to know customers and show them who we are and what we are. And at this point where we're at in the cycle, also, I don't want that fleet to be so small as to not be able to participate in the opportunities that are going to be ahead of us as we see the inflection in pricing both in spot and contract. So I'm not here to give you a number.
Derek J. Leathers: So if I zoom out to 40000 feet. The goal is to continue to grow dedicated one way is a great.
Derek J. Leathers: Kind of launching pad for drivers to come into the network to learn Warner to learn the culture. So great way to get to know customers and show them, who we are and what we are and at this point, where we're at in the cycle also I don't want that fleet to be so small as to not be able to participate in the opportunities that are going to be ahead of us as we see the inflection in pricing both <unk>.
Derek J. Leathers: Spot and contract.
Speaker Change: I'm not here to give you a number I don't think.
Derek J. Leathers: I don't think at this point there's anything on our roadmap that would indicate we want to grow one way. But I do want to continue to free up one-way assets to be able to play whatever position comes available in the market as the market turns. I want to continue to have it be a landing pad for drivers that are coming into our culture and learning what Werner stands for. I want to continue to engineer further to try to push the envelope on production, but do so safely above all else.
Speaker Change: At this point Theres anything on our roadmap that would indicate we want to grow one way, but I do want to continue to free one way assets up to be able to play whatever position comes available in the market as the market turns I want to continue to have it be a landing pad for drivers that are coming into our culture and learning what Warner stands for I want to continue to engineer further to try to push.
Speaker Change: The envelope on production, but do so safely above all else and I want to make sure that as Mexico Cross border opportunities present themselves that we're able to respond and we are both in the asset and non asset side through the significant investments we've made on the southern border and our cross dock operations in Laredo and be able to grow and really <unk>.
Derek J. Leathers: And I want to make sure that as Mexico cross-border opportunities present themselves, that we're able to respond. And we are, both on the asset and non-asset side, through the significant investments we've made on the southern border and our cross-stock operations in Laredo, able to grow and really lean into this near-shoring as it matures, because we're in the very early innings of that right now. But it will continue to mature, and we think we're well-positioned for those opportunities. So if you look out a couple quarters, you might think you're closer to 3,000 trucks or 2,500 trucks in one way.
Going into this near shoring as it matures because we're in the very early innings of that right now, but it will continue to mature and we think we're well positioned for those opportunities.
Speaker Change: So if you look out a couple of quarters do you think you're closer to 3000 trucks or 2500 trucks in a in one way.
Derek J. Leathers: We won't be at 3,000 trucks in a couple of quarters in any way, I can assure you. Whether we're at 2,500 or not will be determined largely by the close rate and implementation dates of dedicated opportunities, because we're also not at a point right now until we get returns where they belong to grow the total fleet. So that will be the farm system for those dedicated opportunities, largely. And if anything, you'll see one-way assets decrease in size while dedicated grows.
Speaker Change: We won't be at 3000 trucks in a couple of quarters in one way I can assure you whether we're at 2500 or not will be determined largely by the close rate and implementation dates of dedicated opportunities. Because we're also not at a point right now until we get returns where they belong to grow total fleet.
Speaker Change: So that will be the farm system for those dedicated opportunities largely and if anything youll see one way assets decrease in size, while dedicated grows and historically, we've talked about kind of a 65 35, we're well past that and our mindset now and we believe there is no we have no inhibition about dedicated grow into.
Derek J. Leathers: And historically, we've talked about kind of a 65-35, but we're well past that in our mindset now. We believe there's no, we have no inhibition about dedicated growing to be 70% of the fleet in the intermediate term. I'll now turn the call over to Mr. Derek Leathers, who will provide closing comments. Please go ahead, sir.
Speaker Change: 70% of the fleet.
Speaker Change: In the intermediate term.
I will now turn the call over to Mr. Derek Leathers, who will provide closing comments. Please go ahead sir.
Derek J. Leathers: Thank you. I just want to thank everybody for joining us today on our fourth quarter call. I know the quarter represented a further extension of what's been a very challenging freight environment, but we do believe capacity rightsizing is gaining momentum, inventory levels are in line, and replenishment early innings have begun. We enter this year, and we're focused on operational discipline and controlling the controllable. We'll continue to identify and implement cost savings without sacrificing our ability to respond as the market improves. Dedicated remains the core of this portfolio, and logistics share gains allow us to be more creative than ever with how our customers' needs are going to be addressed. Power only, cross-border Mexico, and then further engineering of our one-way lanes show promising opportunities for both top and bottom line improvements as the year plays out.
Derek J. Leathers: Yeah. Thank you I just want to thank everybody for joining us today on our fourth quarter call.
Derek J. Leathers: I know the quarter represented a further extension of what's been a very challenging freight environment, but we do believe capacity right sizing is gaining momentum and inventory levels are in line and replenishment.
Derek J. Leathers: Early innings have begun.
We entered this year and we're focused on operational discipline in controlling the controllable, we will continue to and identify and implement cost savings without sacrificing our ability to respond as the market improves.
Derek J. Leathers: Dedicated remains the core of this portfolio and logistics share gains allow us to be more creative than ever with our customers' needs are going to be addressed.
Derek J. Leathers: Power only cross border, Mexico, and then further engineering of our one way lanes show promising opportunities for both top and bottom line improvements as the year plays out.
Operator: And finally, we're committed to being good stewards of capital as we go forward this year and, like the positioning of our fleet to kick off 2024. And with that, I just want to thank you all for joining our call today and spending your time with us. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Derek J. Leathers: And finally, we're committed to being good stewards of capital.
Derek J. Leathers: As we go forward this year and like the positioning of our fleet to kickoff 2024, and with that I just want to thank you all for joining our call today and spending your time with us.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].