Q4 2024 Werner Enterprises Inc Earnings Call
Good afternoon, and welcome to the Warner Enterprise fourth quarter, 'twenty 'twenty four earnings conference call.
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Speaker Change: I would now like to turn the conference over to Chris Neal Senior Vice President of pricing and strategic planning. Please go ahead.
Speaker Change: Good afternoon, everyone earlier today, we issued our earnings release with our fourth quarter and full year 2024 results the 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.
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 a.
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.
Derek Leathers: On today's call with me are Derek Leathers, Chairman, and CEO, and Chris <unk> Executive Vice President Treasurer and CFO.
Derek Leathers: I'll now turn the call over to Derek.
Derek Leathers: Thank you, Chris and good afternoon, everyone. We appreciate you joining us today.
Derek Leathers: There's a saying that everyone has a plan until they get punched in the mouth.
Derek Leathers: In 2024, it's pretty clear that the whole industry took it on the chin as everyone continues to fight through what many have stated is the worst straight recession in their careers.
Derek Leathers: The challenging operating environment of 2023 persisted into and throughout 2024 as supply and demand imbalance has resulted in a second consecutive year of depressed rate levels.
Derek Leathers: This was coupled with ongoing inflationary cost pressures and lower resale values for used equipment. While capacity has continued exit the market the pace has been slow.
Derek Leathers: However, positive signs began to emerge throughout the year, which we believe point to the early stages of an improving environment.
Derek Leathers: One way rates turned favorable in the second half in West coast imports remained strong.
Derek Leathers: Peak season was better than expected with higher rates of double the peak volume versus last year.
Derek Leathers: Post peak season, we have seen additional green shoots that fuel optimism such as tender rejection rates it remained seasonally elevated.
Derek Leathers: What rates are off the bottom and at a two year high customer sentiment remains positive while consumers remained resilient and while they were previously negotiated rates with our customers that remain effective throughout the first quarter. We were also seeing clear opportunities and early wins to positively influence free.
Derek Leathers: As a result is 2025 gets underway, we anticipate a challenging but improving environment. During this downturn. We are focused on controlling what we can by investing in ourselves and making strategic decisions that position us to excel in the future.
Derek Leathers: Our portfolio of solutions is more diversified now than at any time in our history.
Derek Leathers: We have invested in maintaining our modern fleet made operational improvements go to a leaner more nimble organization through discipline around cost operational innovation and M&A integration.
Derek Leathers: Advanced our technology roadmap, leading to improved decision, making better visibility and operational efficiencies improved.
Derek Leathers: Improved one way miles per truck, which increased 8% year over year.
Derek Leathers: <unk> grown our apparel product within logistics, adding more scale and flexibility.
Derek Leathers: <unk> invested in our driver school network to ensure a dependable pipeline of high quality professional drivers.
Derek Leathers: Thanks to the disciplined grit and commitment of Warner's nearly 13000 talented team members.
Derek Leathers: Warner has never been better positioned for long term value creation as the market improves let's.
Derek Leathers: Let's turn to slide five and highlight our fourth quarter results during the quarter revenues were 8% lower versus the prior year. Adjusted EPS was eight cents adjusted operating margin was one 6% and adjusted TTS operating margin was three 1% net of fuel surcharges during.
Derek Leathers: During the quarter, we had higher than normal insurance expense that included 19 million from unfavorable development on prior period claims. This resulted in a 22 cent negative impact to adjusted EPS.
Derek Leathers: In contrast, our focus on safety continues to drive a near 20 year record low in D. O T preventable accidents per million miles safety as a high priority and a core value for Warner which is demonstrated through our continued safety investments in initiatives such as investing in equipment with the latest collision mitigation systems, leveraging new side view camera technology.
Derek Leathers: Implementing in cab and desktop technologies aimed at improving weather alerts rerouting, another situational awareness for our professional drivers and fleet managers when it matters, most and collaborating with our vendors and other market participants to bring tort reform and future safety innovations to bear.
Derek Leathers: Despite the uptick in insurance and claims expense in the quarter and an ongoing difficult operating environment, we are seeing positive signs across our business.
Derek Leathers: Dedicated continued to demonstrate its resiliency and durability during the quarter as revenue per truck per week increased year over year average fleet size grew sequentially and our customer retention rate remained strong at over 90% are dedicated operating excels from reliability matters. The most of them are large enterprise shippers and our commitment to quality and service was recognized.
Derek Leathers: As we received numerous carrier of the year awards in 2024 from dedicated customers.
Derek Leathers: Well, one way truckload remains more pressured relative to dedicated we continue to focus on operational excellence and are pleased to report another quarter of improved production for the second quarter in a row revenue per total mile was positive year over year.
Derek Leathers: Our pricing discipline combined with better freight options and execution led to revenue per truck per week that increased five 1% in the quarter and six 4% for the year.
Our logistics Division reported adjusted operating income that improved sequentially and represented the best quarter of the year gross margins were steady while volumes improved sequentially in truckload logistics and intermodal our logistics business continues to represent a key component of our strategy as it complements one way trucking provides a greater portfolio of solutions to our larger customers.
Derek Leathers: And expands our reach to small and midsized customers.
Derek Leathers: Moving to slide six our plan to generate earnings power and drive value creation remains unchanged and is centered around three priorities first is driving growth in core business, which comprises expanding TTS in logistics operating income margins, increasing one way rates growing our dedicated fleet given the pipeline that remains strong on TTS margins, while we cannot predict.
Derek Leathers: The timing of a return to our long term range. We are encouraged by the modest incremental expansion we've seen over the past few quarters. This was particularly true in the fourth quarter absent the impact of insurance reserve adjustments.
Derek Leathers: Second is driving operational excellence is a core competency, which we will deliver on by maintaining resolute focus on safety continuing to advance our technology roadmap through the transition of our one way business to our edge Tms platform.
Derek Leathers: Providing industry, leading reliability solutions and service to our customers and continuing to control costs.
Derek Leathers: Our focus to improve efficiency, along with rate improvement steady volume and a focus on growth with existing and new customers on a lower fixed cost base should reflect margin improvement in 2025.
Speaker Change: I'm proud of team Blue for their continued focus on operational excellence, our safety metrics are near record lows more volume as transition to our future Tech platform. While we are seeing momentum in top and bottom line synergies our customers are recognizing our superior reliability at high scale and we are controlling costs, where we can.
Speaker Change: The final priority is driving capital efficiency. This includes maintaining strong operating cash flow through working capital optimization remaining disciplined and thoughtful in how we allocate capital and maximizing equipment fleet sales, we have proven our ability to generate earnings power as demand accelerates 2025 will be a year of growth and improvement from.
Speaker Change: <unk> 'twenty 'twenty four.
Speaker Change: We will provide you with updates on our progress against our 2025 priorities as the year progresses.
Speaker Change: Moving to slide seven to highlight our current view of the market. We expect truckload fundamentals to gradually improve throughout 2025, we are not placing bets on a specific pace and timing of a market turn but we are confident that rates will continue to trend in a positive direction.
Speaker Change: Carriers continue to exit while at the same time demand continued to improve we expect that consumer the consumer to show ongoing resiliency, resulting in a non discretionary spending holding up while discretionary spending picks up.
Speaker Change: Retail inventory levels have mostly normalized and as a result should no longer be a headwind to freight volumes.
Speaker Change: The peso, which inventories were replenished on a go forward basis will likely be impacted by factors such as trends in consumer demand and how the new administration ultimately decides to implement its policy initiatives.
Speaker Change: What rates that have already moved higher levels are expected to improve throughout the year as supply and demand continues to rebalance.
Speaker Change: As a result of an improving operating environment, along with upcoming regulations, such as EPA twenty-seven, we expect used equipment demand and pricing to improve in the second half of 'twenty five as carriers look to upgrade their fleets and prepare for the upcoming mandates.
Potential tariff policy continues to be a moving target implementation of tariffs on goods imported from China, Mexico, and Canada is expected to impact supply chains, although it is difficult to comment specifically on depth and duration as information is changing real time.
Speaker Change: Regardless of the tariff impacts we were prepared for supply chain disruptions and to meet our customer needs with agile solutions with that I'll turn it over to Chris to discuss our fourth quarter results in more detail.
Thank you Derek let's continue on slide nine.
Chris Neal: Fourth quarter revenues totaled 755 million are down 8% versus prior year. Adjusted operating income was $12 2 million and adjusted operating margin was one 6% a decrease of 69% and 320 basis points respectively.
Derek Leathers: Adjusted EPS of a sense was down 31 cents as Derek noted. This includes a 22 cent headwind during the quarter from increased insurance costs due to unfavorable development on prior period larger dollar claims the remainder of the change damage from a softer used equipment market and lower gains higher interest expense and lower operating margin in logistics.
Chris Neal: <unk>.
Chris Neal: Turning to slide 10.
Chris Neal: Truckload transportation services total revenue for the quarter was $527 million down 9% revenues net of fuel surcharges declined 5% to 470 million teach.
TTS adjusted operating income was $14 6 million, 61% lower versus prior year.
Chris Neal: Adjusted operating margin net of fuel was three 1% a decrease of 440 basis points of which over 400 basis points was due to higher insurance and claims referenced earlier due.
Chris Neal: Due to intentional steps taken throughout the year T. T. S. Adjusted operating income margins net of fuel improved sequentially. The last two quarters and that streak would've been extended in the fourth quarter, if not for the impact of higher insurance and claims.
Chris Neal: During the quarter consolidated gains on sale of property and equipment totaled $6 5 million, which included a 5.1 million gain on sale of real estate total gains, including real estate were up $3.4 million compared to last year.
Chris Neal: Net of fuel surcharges insurance and gains TTS operating expenses declined 5% year over year.
Chris Neal: We are focused on producing higher operating margins and over time, returning to double digit T. T. S operating margins the building blocks to bridge. The gap remain unchanged. They include first rate improvement and one way second incremental growth for existing fleets and dedicated at a higher contribution margin and we as we returned to normalized volume.
Chris Neal: Third normalization in the used equipment market and fourth structural improvements through technology, and our cost saving initiatives.
Chris Neal: Our focus on intentionality to influence rate lift is showing as one way rate improved over 300 basis points year over year and sequentially during the quarter rate improvement will be the greatest web to T. T S margin going forward.
Chris Neal: The pipeline of dedicated opportunities remained strong with a good mix of new customers, while still competitive customers are more engaging on real bids seeking capacity rather than simply pricing. The market. We've seen an early increase in select pop up and immediate needs that could materialize into more widespread volume normalization.
Chris Neal: Let's turn to slide 11 to review our fleet metrics.
Chris Neal: E T. S average trucks grew to 7495 during the quarter, we ended fourth quarter with the T. T. S fleet up five trucks sequentially and down 7% year over year.
Chris Neal: TTS revenue per truck per week net of fuel increased 2.5% year over year during the quarter and has increased year over year for 23 of the last 28 quarters.
Chris Neal: Within T T S for the fourth quarter dedicated revenue net of fuel was $289 million down 7% year over year dedicated represented 63% of T. T. S trucking revenues consistent with a year ago.
Dedicated average trucks increased sequentially by 0.6% to 4836 trucks, a decrease year over year of seven 7% at quarter end dedicated represented 65% of the T. T S fleet.
Chris Neal: Dedicated revenue per truck per week increased one 1% growing 27 of the last 28 quarters.
Chris Neal: In our one way business for the fourth quarter trucking revenue net appeal was 170 million a decrease of 5% versus prior year average truck count increased sequentially by 2% to 2000, and 659 trucks, but declined nine 2% year over year revenue per truck per week was up five 1% year over year.
Chris Neal: One way freight conditions in the quarter were seasonally better than expected and peak revenue outpaced prior year after multiple quarters of double digit or high single digit year over year gains in one way miles per truck the positive trend continued but at a more modest increase of 2% total miles decreased 8% versus prior year with 9% fewer.
Chris Neal: Average trucks.
Chris Neal: Our power link offering within logistics continues to grow increase.
Chris Neal: Increased miles and power link offset the majority of the decline in one way truckload miles ultimately, resulting in combined miles that were down less than 2% year over year.
Chris Neal: As a carrier of scale and reach our ability to produce similar miles with a smaller fleet is unique in a tighter market with better rates. The combination of one way production gains plus power link volume growth translates to improved ROI and provides more optionality for our customers.
Chris Neal: Now turning to logistics on slide 12.
Chris Neal: In the fourth quarter logistics revenue was $213 million, representing 28% of total fourth quarter revenues.
Chris Neal: <unk> were down 6% year over year, but grew 3% sequentially.
Chris Neal: Revenue in truckload logistics declined 6% and shipments decreased 2%, however, shipments increased 2% sequentially as volumes from the existing customer base were generally steady.
Chris Neal: Intermodal revenues, which make up approximately 13% of logistics revenue increased 2% year over year due to 13% more shipments partially offset by a 10% decrease in revenue per shipment.
Chris Neal: Final mile revenues decreased 12% year over year and 1% sequentially.
Chris Neal: Our fourth quarter was our best top and bottom line performance of the year for logistics adjusted operating margin of 1.1% was down 20 basis points year over year, but up 70 basis points sequentially driven by further cost control actions during the quarter, including head count reductions.
Chris Neal: Moving to slide 13 to discuss our cost savings program.
Chris Neal: In 'twenty 'twenty four we achieved over $50 million in your savings as an offset to rate and inflationary pressures in low equipment gains. This combined with our 2023 savings netted close to $100 million in total cost take outs over the two year period, the majority of which were structural and sustainable.
Chris Neal: We are laser focused on a 2025 program totaling 25 million in incremental in your savings approximately 35% of the 2025 program is carryover from 'twenty 'twenty four to get to a full year run rate on initiatives that we action last year. The remainder is new initiatives for twenty-five that are again, largely structural and sustainable luxury.
Chris Neal: Our cash flow on slide 14.
Chris Neal: We ended the year with $41 million in cash and cash equivalents operating cash flow was 71 million for the quarter and $330 million for the full year as expected net capex continues to trend out yeah, we maintain a modern fleet and continue to reinvest strategically fourth quarter Capex was 29 million and full year was $235 million less.
Chris Neal: And 8% of revenue compared to over 12% prior year net capex for the year was down $174 million or 43% as a result free cash flow for the full year was 95 million or 3% of total revenues up $29 million or 44% and up 110 basis points as a percent of revenue.
Chris Neal: Total liquidity at quarter end was $460 million, including cash and availability on our revolver.
Chris Neal: Moving to slide 15.
Chris Neal: We ended the quarter with $650 million of debt down $40 million sequentially and up less than 1% from a year earlier.
Chris Neal: Net debt increased $22 million or 4% year over year, we continue to have a strong balance sheet access to capital relatively low leverage and no near term maturities in our debt structure.
Chris Neal: On slide 16, let's recap, our strategic priorities relative to capital allocation.
Chris Neal: We continue to prioritize strategic reinvestment in the business, while also being balanced over the long term between returning capital to shareholders, reducing debt and funding M&A.
Chris Neal: For the full year $235 million was reinvested in our fleet terminals technology in school network net of used equipment sales 35 million was returned to shareholders through our quarterly dividend and $67 million was deployed towards share repurchase we have $3 9 million shares remaining under our board approved authorization.
Chris Neal: While it's been two years since our last acquisition and despite a challenging market. Our acquisitions are showing value. For example in 2020 for ECM professional drivers moved nearly 30000 loads for legacy Werner customers with E. C. M. We have greater density and capabilities in the northeast, which enables us to better serve new and long standing shippers of Warner.
Chris Neal: These northeast fleets continue to get accolades and high marks from our customers.
Chris Neal: Baylor trucking or other truckload acquisition recently earned Tampa to certification and is one of eight carriers in the U S. Certified for good distribution practice or GDP. These elite certifications allow baler to participate with international customers seeking secure supply chain transportation for first to final mile GDP certification spin.
Chris Neal: Typically states that accompany meets critical standards for storing and transporting pharmaceutical products and as a result, we stand tower in a vertical choice where capability matters with highly selective shippers.
Chris Neal: In final mile. We were recognized during the year with another carrier of the year Award as a carryover to what we've experienced and dedicated these are just a few examples of the value. We are seeing from our acquisitions and there's more upside as we look forward to a better market.
Chris Neal: On slide 17, we are introducing our 2025 guidance.
Chris Neal: Our truck fleet guidance for full year is a range of up 1% to 5% with more weighted to the second half our full year net capex guidance ranges between 185 and $235 million lower than historical ranges as our portfolio evolves to be more asset light our track record shows consistency and reinvesting the business maintaining a low mile.
Chris Neal: Modern fleet and extending our solutions and capabilities all of which remains in focus.
Dedicated revenue per truck per week full year guidance range is flat to positive 3%.
Chris Neal: One way truckload revenue per total mile guidance for the first half of the year is positive 1% to 4%.
Chris Neal: Our effective tax rate was 7% in the fourth quarter net of 2023 return to provision adjustments and other discrete items the effective tax rate for the full year was 21% or 2025 guidance range is between 25 and 26%.
Chris Neal: The average age of our truck and trailer fleet at year end was 2.1 in 5.3 years, respectively compared to 2.1 and 4.9 years at the end of 2023.
Chris Neal: Regarding several modeling assumptions.
Chris Neal: We expect net interest expense this year will be flat year over year, but higher than first half than lower by a similar amount in second half, we anticipate stable used equipment demand in pricing through first half of 2025.
Chris Neal: Then moderate improvement in the back half, we expect to sell fewer tractors and trailers during the year, excluding real estate gains gains on the sale of used equipment is expected to be in a range of $8 million to $18 million.
Derek Leathers: Relative to the first quarter, while freight volume and market conditions are stronger than expected at this point in the quarter, we expect year over year headwinds from interest expense lower gains on used equipment and one less business day as a result, the encouraging market momentum we have less of a positive impact to our bottom line in the first quarter compared to later in the year with that I'll turn it back to Derek.
Derek Leathers: Thank you Chris.
Speaker Change: As we kick off 2025, our continuous improvement mindset remains at the forefront. The work we've completed over the last several years to further strengthen and expand our core offering combined with improvements in our cost base positions Warner well to capitalize with agility and speed on growth opportunities as the market and flex the worst is behind us and incremental improvements were seen across the.
Derek Leathers: Tree, but other challenges remain.
Speaker Change: As a result, we remain focused on controlling the controllable in.
In closing we are a cycle tested team and our historical results demonstrate our ability to generate earnings power as the market improves and demand accelerates 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 on your telephone keypad.
Speaker Change: If you were using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: Our first question today comes from Bruce Chan with Stifel. Please go ahead.
Speaker Change: Hey, good afternoon.
Speaker Change: Bruce.
Speaker Change: I just wanted to start with.
Speaker Change: Questions about Mexico, it's been a while.
Speaker Change: A few days here.
Speaker Change: Tariff threats and then pulled I just wanted to understand if you know what kind of actions you guys are seeing what kind of conversations youre, having with your customers what are they saying and.
Speaker Change: In regard to the changes and you're going to the component and their expectation for eventual what will happen eventually thank you.
Speaker Change: Oh, yeah. Thanks for the question.
Speaker Change: Yeah, we are in conversation, obviously, Mexico is an important part of our portfolio.
Speaker Change: We've had multiple talks with our shippers are in country.
Speaker Change: I think the consensus going into some of the tariff rhetoric was that it would play out similarly to how it has so far meaning.
Speaker Change: There would be some strong rhetoric early hopefully some action on the other side and that would lead to an opportunity for a postponement or or perhaps even an avoidance altogether. What we haven't seen there's a lot of fundamental change in shipping patterns or people trying to do any kind of dramatic tariff avoidance type two.
Speaker Change: <unk>.
Speaker Change: And rather it's been a little bit more of a sort of common steady approach from a shipper perspective.
Speaker Change: What we what I like the most is that our portfolio set up well in Mexico, not only not only are we are large scale provider of cross border services, but with our ability to utilize our cross docking Laredo, our power only solutions off the border and then being able to move things moved temperature controlled band in intermodal, we've got optionality for our customers.
Speaker Change: We're gonna stay in touch with them obviously.
Speaker Change: We both know this could change.
Speaker Change: Anytime any day and the hour relative to the tariff situation, but regardless whatever path. It takes I think our position and our optionality and our relationship with our customers puts us in a really good spot.
Speaker Change: Great. Thank you and if I could follow up just looking back through the previous 10-K, I think you have Mexico.
Speaker Change: Segregated revenues there with Mexico.
Speaker Change: $59 million last year I, just wanted to understand it does that properly.
Speaker Change: <unk> reflect the cross border cross border opportunity at Warner or can you help us give us some goalposts on what the cross border opportunity is relative to the size of the business. Thank you.
Speaker Change: Yeah, it's difficult to obviously, we have pieces in parts of our Mexico business that rolls up and reports through its appropriate divisions. So.
Speaker Change: We've got brokerage off the board and it is going to show up in truckload and logistics as an example, so no that does not represent the totality of the business that we do with Mexico, what we've talked about.
Speaker Change: On previous calls is that if you think about Mexico and its some of its parts.
Speaker Change: It's around or a little north of 10% of revenues.
Speaker Change: And that's really a probably a better way of thinking about it obviously, we have to be very specific and clear relative to the K and what businesses being reported specific to inter Mexico in Mexico.
Speaker Change: Et cetera, but.
Speaker Change: In total our exposure, which is really an appointed a question Oh to and from Mexico is roughly a little north of 10% of revenues.
Speaker Change: Okay. Thank you Derrick that's great color.
Speaker Change: Thank you.
Speaker Change: The next question is from Daniel <unk> with Stephens. Please go ahead.
Speaker Change: Hey, guys. This is Joe Andrew on for Daniel Thanks for taking the question.
Speaker Change: I wanted to ask about dedicated is that's gradually becoming more attractive with shippers looking to lock in rates.
Speaker Change: Could you kind of go through how you're balancing becoming more selective with fleet growth to inflate right, how youre balancing that with adding business. Just what metrics are you ultimately looking at to make those decisions.
Derek Leathers: Yeah, Joe this is derrick.
Derek Leathers: Obviously, when we look at dedicated right now I mean I'll start at the macro the pipeline for opportunities is very robust.
Derek Leathers: It's as strong as it's been in some time.
Derek Leathers: But it has also become more attractive from the provider side and so there's more competition.
Derek Leathers: And then 2024 in particular, there was a lot of a lot of exercises a lot of bids that are out there, but we are selective as you indicated in your question. We're not really looking for is true dedicated the stuff that really can't be replicated by one way. It doesn't go away when capacity becomes looser. It's it's the stuff that leads to north of 90% retention rates.
Derek Leathers: Which we've had for really our entire history in dedicated.
Derek Leathers: So right now as capacity is tightening and as folks are looking for safe havens dedicated will come more popular we've seen the pipeline get much more active.
Derek Leathers: And our job is really to make sure that we're sorting through it and we're finding the actual true dedicated opportunities that stickier harder to serve more defensive that will be with us not just for the cycle, but hopefully for 10 20 years into the future, which is the case with most of our fleets.
Derek Leathers: And so it's an exciting time, but it's one where we have to be careful and cautious you mentioned rate versus growth. Obviously, we have to improve the performance not just in dedicated but across the portfolio and rate is the single biggest lever to do so so that is at the forefront but growth solves a lot of problems as well a wind down appropriately and so on the truck side, our growth will be dedicated.
Derek Leathers: <unk>.
Speaker Change: Yes, and it will be priced appropriately to be able to make sense of that growth.
Speaker Change: One way, it's going to be more of a rate or initiative in rate approach as we go forward to move the revenue line.
Speaker Change: And then logistics is open for business and continues to be the fastest growing portion of the portfolio. So there's lots of opportunities for us to to to support our customers is as capacity does continue to tighten.
Speaker Change: I like our positioning and dedicated will remains still the the sort of stable middle of the portfolio.
Speaker Change: And what kind of drives the bus.
Speaker Change: Got it that's helpful. Thank you I'm just wondering as a follow up one on pricing it sounds like that continues to trend favorably.
Speaker Change: Could you just give some color on the pace of rate increases so far how that's trending relative to expectations.
Speaker Change: Yeah, Joe This is Chris I can take that one.
Speaker Change: After after two consecutive years of lower rates and margin compression is clearly necessary that significant rate increases are needed, especially in the one way area. That's been more compressed and challenged than dedicated so as you know we've been and will continue to be disciplined with our approach and.
Speaker Change: And we've already started to see improvement and one way rates.
Speaker Change: And we reported year over year increase here of just over 3% that's the second consecutive quarter.
Speaker Change: Now that we've had a year over year increase.
Speaker Change: That's encouraging to us.
Speaker Change: And it's important to recognize also last year, we were able to improve miles per truck as well and so that our rate per mile improvement along with the miles improvement led to over a 5% higher one way trucking rate or a revenue per truck per week for the quarter and we expect as rate improves with the miles that we've been able.
Two to improve the production that we've been able to improve.
Speaker Change: Along with that right that that will be significant in helping us return one way to better levels of profitability next year.
Speaker Change: In terms of one way bid season, it's still in the very early innings.
Speaker Change: We've really only had a few large bids that are that have closed and finalized so really nothing yet that we would gen.
Speaker Change: Generate any significant consensus on but early results are consistent with our.
Speaker Change: With our expectation here of low single digit to mid single digit type rate increases.
Speaker Change: Also important customer sentiment really is improving and we feel like we're having more conversations about capability and capacity solutions and customers are just generally more receptive right now to rate adjustments knowing that we've been in this elongated downturn here for really a close to three years out.
Speaker Change: Got it that's all for US thanks, guys.
Speaker Change: Thank you.
Ken: The next question is from Ken <unk> with Bank of America. Please go ahead.
Speaker Change: Hey, great. Good afternoon, Derik I think that is the fastest I've ever heard you and Chris talk.
Speaker Change: Chris Thanks for the the views on the first quarter on the seasonal softness.
Speaker Change: You're thinking that maybe the catch up thereafter, given the event you mentioned, but trying to understand the dedicated.
Speaker Change: Comments, there and on the last question the end of period tractors pulled back sequentially, yet you mentioned, a 90% renewal rate so.
Speaker Change: Is there another like trend going on in terms of the tractors is it timing.
Speaker Change: Given the peak season, maybe thoughts on that and then you noted spot rates should improve.
Derek Leathers: Derek maybe your thoughts here, just we've seen actually they they ran up kind of at the start of the year, but they've really gotten soft a little lately and.
Derek Leathers: We pulled back a couple of months worth of the run up and I'm, just wondering with all of that due to kind of pre shipping port strike pre shipping tariffs.
Derek Leathers: And now it's cooling often and we're kind of stabilizing at this low level or are you seeing that underlying improvement youre talking about thanks, sorry for the long question.
Speaker Change: Well speaking of speaking fast Ken that might be the longest question I've ever had on a call. So.
Speaker Change: I'll I'll attempt to dissect it on the dedicated yes, I wouldn't read too much in the end of period truck count.
Speaker Change: We have.
Speaker Change: Theres Theres timing that takes place all of the time when you, especially when you go into Q4, where we might add in trucks. During the quarter that are known to be sort of temporary and pop up in nature two to support our fleet. So theres not a lot of read through there the only read through on dedicated I would take away would be the pipeline is very robust and we're starting to see more consistent and more widespread ad.
Speaker Change: That's starting to take place that's something you've talked about for several quarters that when things get tight some of the best dedicated growth you can get is just adding incremental direct to existing fleets that.
Speaker Change: The margin contribution on those trucks is better than the core fleet because your fixed costs are largely already in place.
Speaker Change: So that's exciting and something that we look for more of as we go forward.
Speaker Change: We're probably a little more positive on spot than where you are at.
Speaker Change: At least based on your question clearly there were some external drivers to some of that lift, but I would just remind folks that in times, where capacity is more loose you can have those same external drivers with no impact on spot because we're not close enough to equilibrium for it to have an impact and we saw that for two years straight.
Speaker Change: And whereas now when you see any kind of all.
Speaker Change: Chink in the armor relative to some some external.
Speaker Change: Impact it has an immediate.
Speaker Change: Show through will read through with spot market.
Speaker Change: We've also developed some tools that we're pretty excited about some tech capabilities that allow us to sort of extract to out of the spot market.
Speaker Change: No.
Speaker Change: Premium that's something that we have seen continued to grow and not a softening or fall back that you've referred to.
Speaker Change: So that's exciting as we look forward as well all of this sort of operational focus and execution I think puts us in a good position as the market continues to turn there is very little debate when we're out with customers right now that about there about the market not being more in equilibrium and not starting to see whether its tender reject rates that are up and it remained up and now really kind.
Speaker Change: It's really a multi year high right now.
Speaker Change: So it's starting to sink in that it is a different day and a new moment.
Speaker Change: And you balance that with the simple reality that there's been inflation up and down the P&L for not just us, but everybody in the industry without the corresponding rate relief and so we're going to push hard and we're going to we're going to plow forward and doesn't ask for to be paid what we need.
Speaker Change: And there'll be there'll be good conversations it ended in a positive place there'll be other ones, where we're going to have to make some decisions but I.
Speaker Change: I don't know if I answer all of it because there was a lot of parts to it but.
Ken: I did my best there Ken.
Chris Neal: It was great you hit on the spot that is definitely what I I wanted to see that the Mexico exposure just a quick follow up for Chris.
Chris Neal: When you mentioned that on the last answer was that cross border or just the intra Mexico, the 5% that you break out.
Speaker Change: I'm not following that part, but what I would just say I'll just reiterate what I said earlier, which is Mexico exposure is north of 10% of our entire revenue base. That's the best way to think about it because there's pieces and parts that rollout through logistics through brokerage through intermodal all over them.
Chris Neal: The various segments.
Chris Neal: And we don't.
Chris Neal: So and so the way to think about our exposure would be north of 10%.
Chris Neal: Right, but is that intra Mexico, where does it go cross border right tariffs or can affect intra Mexico traffic right.
Chris Neal: We all know that's not intra Mexico is included in that number but but.
Speaker Change: No that's not we do not have a 300 million plus of intra Mexico.
Speaker Change: And that's across all modes, Ken So that's intermodal brokerage.
Speaker Change: Trade War through service.
Speaker Change: All modes relative to Mexico.
Appreciate the thoughts.
Speaker Change: Yeah.
Speaker Change: The next question is from Scott Group with Wolfe Research. Please go ahead.
Speaker Change: Hey, Thanks afternoon, guys. So.
Speaker Change: Outside of major like tort reform is there a fix on this insurance issue and then outside of that just like how do we how should we think about the margin trajectory from Q4 to Q1, what's.
Speaker Change: What's a realistic amount of margin improvement we could get this year.
Speaker Change: Yes, Scott I'll start and then turn it over to Chris for some more color but.
Speaker Change: <unk> certainly is one of the one of the initiatives, but honestly, it's a state by state battlefield right now and were seeing ongoing progress being made at state levels, where we're getting.
Speaker Change: Some rationality into the room relative to.
Speaker Change: How liability should be treated.
Speaker Change: Some of them someday, we don't wake up with $35, a dozen eggs, which is.
Speaker Change: Realistically, where this heads if we don't if we don't address it in some in some way.
Speaker Change: What we are also going to do obviously is coupled that with.
Speaker Change: And ongoing investment in technology, the Tac continues to improve and get better not just in the trucks within the cars. So that's that leads to a lot of progress in what we believe to be ongoing improvements that will take place in frequency and frequency data.
Speaker Change: And so that's a piece of the puzzle.
Speaker Change: Well.
Speaker Change: It is not an easy one to solve and what I would tell you, which we've talked about previously is it really does reside in a handful of claims I mean, it's you can have a phenomenal year and even have on the handful of claims really good facts and it doesn't necessarily always lead to a good outcome.
Chris Neal: All of that together makes it so difficult difficult to predict but I'll turn it over to Chris for some color on how to think about insurance, yes, maybe just a couple more specifics there Scott because I think that's what you were getting at you know first just a recap on the insurance it was a quarter, where we reported 49 million clearly an outlier have never seen.
Chris Neal: <unk>, you know that level in a single quarter and it was the first in eight quarters, where we reported over $40 million.
Chris Neal: As we mentioned in the prepared remarks $19 million of that was negative development on the past claims.
Scott: As as the main driver I think your question Scott was then.
Chris Neal: Kind of thinking about run rate is that right.
Scott: Yeah.
Scott: So.
Scott: Obviously 19 million was more onetime in nature in our view we.
Scott: We would not be a $49 million in a quarter as a run rate or even north of $40 million. This was an outlier as as I mentioned.
Scott: I would say in terms of a proxy you know looking at.
Scott: At our quarter average over the last two years of about 33% to $35 million per quarter and important to note that our claims are trending down. So we've said many quarters several times our D O T preventable per million mile near 20 year lows.
Scott:
Scott: So it's it's squarely at a cost per claim issue across the industry as Derek mentioned not a frequency of claim issue for Werner specifically.
Scott: So I guess when you sort of add all up I E.
Scott: Thoughts on how to think about operating ratio mm for the trucking business and.
Scott: Q1 in the year and then maybe if I could just maybe make it a little bit bigger discussion as well, there's probably very few quarters in our model, where you've got price improvement and utilization improvement at the same time like how sustainable is that and how could that.
Scott: Translate to margin improvement.
Scott: Going forward.
Scott: Yeah I'll start there.
Scott: So you're right it's very hard.
Scott: Hard to come by when you get both price and utilization, especially in a market that had not yet really turned or strengthened.
Scott: So we're really proud of that result, regardless of what the bottom line financials may have come out like from an operational execution perspective, I'm very proud of the work that the team did in Q4.
Scott: The comps are going to get a lot tougher on the utilization front, but what really matters is just if we can hold served with the dramatic product <unk>.
Scott: Production improvements we've made over the last call. It 18 months and now have those materialize at a rate level that is more commensurate with.
Scott: With the cost structure of running a trucking company in 2025 of.
Scott: Those miles become very very valuable. So those are sustainable structural changes we've made those significant engineering of our fleet that we have done.
Scott: We believe we can hold those miles and now really focus on right. It's the biggest lever that's in front of US we've got to keep a laser focus on it and the best setup to do that is with superior service.
Scott: And put yourself in a good position with your customers and so that's why we called out during the the prepared remarks, the multiple carrier of the year Awards that we won.
Scott: 24, because we've been laser focused on trying to put the best possible product on the table. So that we can also then ask for the.
Scott: The rate that's commensurate with that level of service. So a lot of work to be done Scott a lot of work to be done we're in the early innings.
Scott: But we're signed up to do that work and that does lead obviously as you indicated to our improvement.
Scott: It's not a return to the 12% to 17% in 2025, but I do believe the opportunity Europe for us to have a markedly better year. This year than we did in 'twenty four.
Scott: Is upon us and maybe just add Scott a couple of comments around TTS margins. So we had a couple of consecutive quarters of modest sequential increase.
Scott: The $19 million that we talk about in terms of the insurance reserve adjustment that was all in TTS.
Scott: Without that I mean that was basically a 400 basis point impact to TTS margin.
Scott: So it that would've put excluding that it would have put the adjusted Oi for TTS over 7%.
Scott: So that would have been our best quarter, what it would've been three quarters of sequential improvement.
Scott: And we've talked about.
Scott: The levers to get to.
Scott:
Scott: Double digit margin, that's not to say that we have a pathway necessarily in 'twenty five, but we do expect 25 to be a period of margin expansion because of rate lift because of production and other things we've talked about in terms of dedicated volume to cost management and normalization equipment gains.
Speaker Change: Do you think you can take a step back from that call. It normalized seven in Q1 seasonally.
Speaker Change: Q1 is always seasonally going to be a tougher quarter. Scott I mean, if you look traditionally from Q4 to Q1, there was a 35% to 40% drop in operating income and EPS.
Speaker Change: There's nothing to indicate right now I mean, there's some there's a little bit better market conditions maybe.
Because we're going through this turn.
Speaker Change: But that's that's kind of a normalized.
Speaker Change: Our approach, but maybe a better way to think about it right now as it relates to Q1 and I'm not deviating from our EPS guidance, we don't want to give EPS guidance, but I do think with the noise in the quarter in Q4, it would be relevant to just point you to Q1 of 'twenty three remind you how much more of the fleet is this year versus 23, maybe as a reminder, there's one less business.
Speaker Change: Dave this year than 'twenty, three and with all of that said I think that the Q1 of 'twenty three numbers a good ZIP code to think about relative to Q1 for earnings.
Speaker Change: But the March forward is really based on focused on the bid season focused on the execution keeping miles where they're at.
Demonstrating superior service and improving margins from here.
Speaker Change: I know investor, but just you said Q1 at 23 that was 60 do you mean Q1 of 'twenty four.
Speaker Change: I meant 24, thank you for clarifying that yes, alright.
Speaker Change: Alright. Thank you guys appreciate it.
Speaker Change: The next question is from Chris Wetherbee with Wells Fargo. Please go ahead.
Chris Wetherbee: Okay. Thanks, good afternoon guys.
Chris Wetherbee: I guess, maybe on the fleet just I appreciate the full year guidance and how you guys are thinking about that and it certainly sounded like dedicated is where you wanted to kind of focus obviously, there's growth on the one way truckload side seems like for obvious reasons in the fourth quarter, because there was opportunity there I guess, maybe a little bit shorter term, if we get maybe cut the year end, perhaps or quarters. However, you want to think about it.
Chris Wetherbee: Is there still more opportunity to lean in a little bit more on one way truckload now because this is where the activity is and the pipeline are dedicated is just a little bit slower moving just want to make sure I understand how to think about that as we enter the beginning of 'twenty five.
Chris Wetherbee: Yeah, I think the best way to think about it is we're going to be nimble and agile based on the market.
Chris Wetherbee: We have the opportunity obviously with our vertically integrated school network with our robust pipeline of incoming drivers.
Chris Wetherbee: To respond to market needs and that could include one way, but on a strategic level, we're not looking to grow that one way truckload fleet.
Chris Wetherbee: Intentionally at least until we get it much.
Chris Wetherbee: The improved rate environment.
Chris Wetherbee: But we will be tactically able to do so.
Chris Wetherbee: Certain pockets, where it might make sense.
Chris Wetherbee: Dedicated you're right has a longer tail, but we're a long way through some of these negotiations as well. So so it's there's always something thats kind of more on the more short term horizon and then you've got things that will take two to three quarters to develop.
Chris Wetherbee: So dedicated will be the focus but in one way we've got we've got both our assets and power leak and power link is really are our truckload power only solution via our logistics group. We're excited about its progress it continues to grow double digits year over year and it has done so for several years.
Chris Wetherbee: And so we have multiple ways to kind of respond to these sort of opportunities as you mentioned.
Chris Wetherbee: So the big picture level.
Chris Wetherbee: You barely limited truck growth.
Chris Wetherbee: In the front half, but capable of doing so as we land dedicated accounts.
Chris Wetherbee: Focus on improving rate.
Chris Wetherbee: Our focus on keeping around the volume production.
Speaker Change: Okay. That's super helpful. And then just maybe zooming out a little bit in terms of the competitive picture of dedicated so yeah. How do we think about that in terms of players who maybe had gotten a bit more aggressive at the trough of the cycle, Let's hope we're at the beginning of what could be some improvement here as we move into 2025 do you sort of feel like the competitive.
Speaker Change: Makes it eases up providing you more opportunity just kind of curious how youre thinking about that.
Speaker Change: Well I think demand will improve the competitive dynamics in dedicated specifically, there's just more opportunities regardless of some new entrants. The other thing that I am excited about personally is a lot of those new entrants came in at the trough of the cycle, they've got pretty aggressive with rate they didn't perform particularly well those bids are coming up for renewal and I think theres opportunity.
Speaker Change: <unk> to take share and take opportunity didn't take accounts.
Speaker Change: Into the portfolio based on our track record and our capabilities. So a lot of different moving parts. There. The last one I'll mention is I think theres a lot of private fleet growth that took place during the during the Covid years that it's been.
Speaker Change: That hasnt played out the way the shipping community may be thought it was going to for them. It was out of necessity. When the market was particularly tight those trucks are now aging out and getting to a point where renewal when capex is going to be significant to to renovate those fleets and that presents yet. Another example of dedicated.
Speaker Change: Mark the market share that could be taken back as customers are faced with difficult capital decisions on whether they want to continue to do that long term.
Speaker Change: The next question is from Brian <unk> with Jpmorgan. Please go ahead.
Brian <unk>: Hey, good evening, thanks for taking the question.
Brian <unk>: Maybe Chris could you talk a little bit about the cost savings opportunity. Obviously has started off at one level and at a pretty pretty high in the last the last year and accelerated and you got some more going into into 25. So maybe just some of the.
Brian <unk>: The bigger initiatives and get.
Brian <unk>: 65% new ones.
Brian <unk>: And also just as you talk about balancing growth with that.
Brian <unk>: Do you feel like Youre able to do both successfully at this point a couple of years into its obviously a tough freight market.
Brian <unk>: Hey, Brian.
Brian <unk>: Well you hit the nail on the head I mean it is.
Brian <unk>: Finding the balance with continuing or just broad approach to having a cost focus. So we've talked about just our generic approach of focusing on operational innovation leveraging technology and looking for the expense synergies that come along with that and then just being more centralized and <unk>.
Brian <unk>: Standardized and everything we do and including from an M&A integration standpoint, and so.
Brian <unk>: That's our approach and we've developed some muscle memory with that we want to keep deploying that as just a general discipline across our business that said it's also early.
Brian <unk>: Stages of an improved environment and we're mindful of not only supporting growth, but also continuing to have high reliability and high service for our customers. So.
Brian <unk>: That's some of what went into a lower sized target for 2025, which is the goal of $25 million.
Speaker Change: Okay, and then just maybe a related question last year you guys did a lot of work to increase the miles per tractor.
Across the fleet as it is another opportunity for this year I know, it's also market dependent and it can be difficult, especially with all the volatility we're seeing in the spot market and elsewhere, but is that another opportunity you guys. If you like and you can lean into a bit more this year or is that mostly a last year event.
Speaker Change: <unk>.
Derek Leathers: Brian This is Derek we are going to continue obviously.
Speaker Change: Further engineer and look to improve anywhere and everywhere, we can but I must tell you that I think the bulk of that step level change has taken place that's the new baseline and the real objective in a market as it as it starts to tighten as to be able to hold the line there and looked for what I would call incremental improvements but.
Speaker Change: Not the high single digit type improvements that you saw in recent quarters from a year over year basis.
Speaker Change: So that's the best I can answer that.
Speaker Change: Focus won't be taken away, but.
Speaker Change: You would be it.
Speaker Change: It would be inappropriate to expect that you'll see.
Speaker Change: Mid to upper single digit improvements in productivity and twenty-five over 24 from a comp perspective.
Speaker Change: The next question is from Ravi Shanker with Morgan Stanley. Please go ahead.
Ravi Shanker: Oh, Hey, thanks, good evening guys.
Speaker Change: So let me start with Ken that I think the.
Speaker Change: I don't know if your comments are a lot more bullish than your guidance.
Speaker Change: I'm, just trying to get a sense.
Speaker Change: Like what the message is you already are you guys being pretty conservative at this guy had because he is not sure. If this is a head fake or like is this a normal seasonality anything you do something better than that if conditions continue or how do you think about the potential.
Speaker Change: And a range of outcomes here on either side of the guidance.
Ravi Shanker: Ravi I mean, I'll just try to stay away from trying to give a range of outcomes, but.
Speaker Change: I think what you might be perceiving as the reality of operating in a business in an environment where.
Some of the largest trading partners that the United States have been.
Tariffs on Monday, not tariffs on Tuesday re threatened on Thursday, and then released from threat on Friday. So it's a very difficult environment to try to provide the clarity that folks like yourself need and deserve we're going to do the best we can in that environment to try to give you a sense of where the market is the conversations we're.
Speaker Change: Having with our customers and yes, there is.
Speaker Change: Some excitement with the.
Speaker Change: Tone of those conversations that is true.
Speaker Change: But yet tomorrow or next week something could change.
Speaker Change: And we've already indicated that 10% of our businesses exposure to Mexico, I think that is a positive even with the background noise. Because what is irrefutable is the direct foreign investment that's taking place in Mexico that this year as of yet.
Speaker Change: In 2024 dramatically outpaced 2023, which was a record and 23 that was only surpassed in 2006, if I recall correctly and so there is significant investment taking place down there.
Speaker Change: And our capabilities are second to none so theres a lot to be excited about the market is tightening and there is a change in.
Speaker Change: The tone with customers, but raising network rates and getting it to flow through to the bottom line is a multi quarter process. It takes time it takes a lot of effort.
Speaker Change: And so we're going we're cautiously optimistic I guess is the best way I can say it.
Speaker Change: That's helpful and thank you for Sympathising, but how hard it is to be a sell side analyst.
Speaker Change: And maybe as a follow up.
Speaker Change: On the insurance side is there anything you can do from a technology angle that you guys were early to implement taken your trucks all that needs one of your <unk> strategy.
Speaker Change: Anything more you can do there and kind of how does what is happening influence your thought process on autonomous trucks in the next few years.
Speaker Change: Yes, we're going to continue to lean in on Tech and yes, we've always been a leader, but we.
Speaker Change: We do a lot of work both in within our walls, but there is more and more benchmarking going on across fleets as well. It's the one place where we are fully allowed to collaborate and work together to try to find a way to make us safer.
Speaker Change: Road network out there the biggest tech improvement in my opinion. It honestly is the is the ongoing improvements at the car level as individuals in their cars.
Speaker Change: No I'll go given up on the idea that we can stop them from texting or get them to focus.
Speaker Change: But as they have technology in their cars that makes better drivers of them. It certainly puts our truck our trucks in a better position.
Vis vis their performance on.
Speaker Change: On the road, but.
Speaker Change: In addition to that obviously, we've got collision mitigation across our truck we talked about on this call for the first time side view cameras to give even more perspective, while going down the road and more accident reconstruction capabilities to the fleet as we roll that out.
Speaker Change: It also improves our ability in close quarters and backing in but that's not where the dollars are the dollars are really in these these.
Speaker Change: <unk> a handful of very large claims were.
Speaker Change: In some cases will all end up retiring or going to the right with the same conviction that we were not at fault.
Speaker Change: But that doesn't mean, that's how the outcome in a courtroom ends up and so we're going to fight. The good fight continue to invest in tech continue to invest in training as well our drivers are are we experiencing a.
Speaker Change: And improved training program and every time, we find an opportunity to improve it further we'll do so but it's a tough battle.
Speaker Change: And hopefully along the way, we're going to get some sanity.
Speaker Change: From a from a tort reform and state by state.
Speaker Change: Kind of legal reform level, and we are having some success on that front as well.
Speaker Change: The last question today is from Eric Morgan with Barclays. Please go ahead.
Okay.
Eric Morgan: Hey, good evening, Thanks for squeezing me in.
Speaker Change: I'll ask one on logistics can you maybe help us understand how you're thinking about the cadence of gross margin spot rates.
Eric Morgan: Do you start to.
Speaker Change: Move back up again this year and then just on the operating margin I think this time last year you had been thinking like mid single digits. Entering 2025 is in the cards would you roll that forward a year to now just given some of the momentum that you discussed earlier.
Speaker Change: Yes, so I'll start with the fact that there are some real positives going on logistics relative to our operating expenses, we've been really digging in and aggressively looking for productivity gains we've gotten through the knothole of some of the major technology investments, we've made and now we're starting to see the outcome.
And the outputs of that technologies are urged CMS platform now logistics is 100% implemented on that platform and that's exciting.
Speaker Change: We indicated in.
Speaker Change: The prepared remarks that there will be some spot pressure as the market continues to tighten by rates will come under some pressure and we've got to make sure and do our job on the sell side.
Speaker Change: Relative to our customers to try to mitigate that.
Speaker Change: The most likely outcome is we're going to continue to see productivity gains and lower operating expense and more efficiencies at the same time those will get offset in the short term by rising by rates as.
Speaker Change: As the market further tightens.
Speaker Change: By midyear, we should be able to see expansion across or the fruits of that labor so to speak.
Speaker Change: Where the productivity gains and efficiency gains.
Speaker Change: Far outweigh any spot rate pressure plus at that point, we've been able to reprice.
Speaker Change: So rates with our customers so.
Speaker Change: Mid single digits, you sit in the car GFS.
Speaker Change: As before.
Speaker Change: Before we get there I want to get to.
Speaker Change: Consistent 3% to 4% type margins and then work our way to five six over time.
Speaker Change: I appreciate that and maybe just a quick follow up on the dedicated discussion with respect to the guidance for revenue per truck.
Speaker Change: I guess I'm, just curious if how locked and that is at this point.
Speaker Change: And if because I know you've discussed dedicated participating in an eventual upcycle if that does kind of start to materialize is there potential upside to that range or would that upside come more from I guess, maybe getting to the higher end of the truck truck count.
Speaker Change: Well I would start with the fact that the dedicated.
Speaker Change: Margins have held up significantly better than the rest of the portfolio throughout this downturn. So the move that they need to make isn't as great.
Speaker Change: To get back into the long term due to to play their position relative to the long term TTS range.
Speaker Change: Adding trucks back is the single biggest mover probably more so even in rate because the incremental margin contribution.
Speaker Change: Significant having a better spot market to work with relative tobacco dedicated backhaul is probably every bit as important as rate our revenue per truck per week from a rate perspective. So it is going to take on all of the above strategy.
And then lastly, as we add in new fleets. We are now finding ourselves in certain geographies with density that is such that those new fleets can come on board and not have the same burden of all of the same fixed cost that they would if they were standalone fleet kind of in a state where we didn't have density all around it.
Speaker Change: So theres a whole lot of pieces and parts, but yes dedicated will participate in the up cycle. It did last time with you look.
Speaker Change: I don't want to confuse my years here, but I believe it was 18 to 19, where.
Speaker Change: We had EPS growth despite dedicated being a concern for folks that it was going to not be able to do so certainly during COVID-19. It didn't hold us back at all when we when we saw the significant tightening in the marketplace dedicated performed very very well known and I think this will be another opportunity to show that that can be true and we're excited to do so.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Derek Leathers for any closing remarks.
Derek Leathers: Yes. Thank you I just want to take everybody. Thank everybody for taking their time to be with us today.
Derek Leathers: As I've indicated a few times on the call I do believe the worst is behind us.
We have tried to focus during this downturn to take the right actions to.
Derek Leathers: To drive change in this business lower our cost structure and position us to capitalize on an improving market, we have a history of being able to perform well when the market conditions normalize and we're excited to demonstrate those capabilities again.
Derek Leathers: I'll close by thanking our customers.
Derek Leathers: We're committed to them and we.
Derek Leathers: We thank them for their business and we look forward to working with him. During this changing marketplace and also our 13000 associates for their dedication as we keep America moving thanks again for your time today and your continued interest and your support of Warner.
Derek Leathers: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Derek Leathers: [music].