Q1 2025 Werner Enterprises Inc Earnings Call
Good afternoon.
The new and welcome to the Warner Enterprises first quarter 2025 earnings Conference call. All lines are in a listen only mode until after the presentation.
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Speaker Change: I would now like to turn the conference over to Chris Neil S V P of pricing and strategic planning. Please go ahead good afternoon, everyone.
Speaker Change: Earlier today, we issued our earnings release with our first quarter results the release and a supplemental presentation are available in the investors section of our website at Warner Dot Com.
Speaker Change: This 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.
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 here, Derek Leathers, Chairman and CEO, and Chris <unk> Executive Vice President Treasurer and CFO.
Derek: Now I'll turn the call over to Derek.
Derek: Thank you, Chris and good afternoon, everyone. We appreciate you joining us today.
Speaker Change: Let me start by saying clearly our first quarter results did not meet our expectations. We faced several challenges during the quarter some industry wide some specific to Warner, but we're acting decisively to address them.
Speaker Change: At the same time, the underlying progress, we're making in growing dedicated advancing our technology transformation and more aggressively tightening our cost structure puts us in a stronger position as the environment stabilizes.
Speaker Change: Today I'll address our Q1 performance provide our perspective on the fluid operating environment walk through the actions we are pursuing and why we are confident in the long term trajectory of the business.
Speaker Change: Let's turn to slide five and discuss our first quarter results during the quarter revenues were 7% lower versus the prior year adjusted.
Speaker Change: Adjusted EPS was negative 12 cents.
Speaker Change: Adjusted operating margin was negative 3%.
Speaker Change: And adjusted TTS operating margin was <unk>, 4% net of fuel surcharges.
Speaker Change: Our performance was negatively impacted by four factors first.
Speaker Change: We experienced elevated insurance costs and claims this accounted for nine of the adjusted EPS impact with one verdict late in the quarter, representing eight cents related to a 2019 incidents, which we are appealing.
Speaker Change: Adverse nuclear verdicts remain an industry wide issue, we along with our peers continue to advocate for reform with state and Federal government officials, we will continue to do our part to ensure that a more pragmatic approach to verdicts on these lawsuits will prevail.
Speaker Change: Second was extreme weather, which was more pronounced in the areas in which we operate this represented approximately a <unk> <unk> impact to our first quarter EPS.
Speaker Change: Third our it spend was more elevated to progress our technology strategy and transformation.
Speaker Change: And fourth we're isolated operating inefficiencies and lower utilization stemming from select customer decisions and stop and go activity from tariff induced uncertainty.
Speaker Change: The net effect of these headwinds was adjusted EPS being down 25 cents year over year.
Speaker Change: While our results do not reflect our expectations. There are areas, where we continue to see momentum and strength that will position us well as we progress through the rest of the year.
Speaker Change: In dedicated we were awarded several fleet contracts from new and existing customers during the quarter representing over 200 trucks that are scheduled to be implemented in late Q2 and early Q3.
Speaker Change: Awards signed this quarter were the highest since the second quarter of 2022.
Speaker Change: Our dedicated expertise as a competitive advantage that has and will drive growth over the long run our customer retention remained strong and interest in our dedicated solutions for new customers and attractive verticals is on the rise our.
Speaker Change: Our dedicated business excels when reliability matters, most amongst large enterprise shippers, we expect the supply chain uncertainty in 2025 will continue to play well to our strengths.
Speaker Change: And one way truckload revenue per total mile was up for the third consecutive quarter. Despite weather disruptions increased deadhead and network inefficiencies.
Speaker Change: Over half of one way bid season is complete business retention has been good so far we secured several one way awards with some of our largest customers contractual rate adjustments have been mixed although are generally up low to mid single digit percent on average.
Speaker Change: While our one way fleet of smaller versus prior years, we've continued to invest strategically we remain committed to serving specific specialized segments within one way, including Mexico Cross border expedited and highly engineered lines, our scale, including one of the largest trailer fleets provides flexibility and a simplified approach for large enterprise.
Speaker Change: Dippers, which is critical during these uncertain times.
Speaker Change: Logistics adjusted operating income continues to be positive while revenue was down 3% and gross margin was down 5% year over year operating expenses, excluding purchase springs were down 11%.
Speaker Change: Sequentially, we saw softer volume in truckload logistics, driven by small and midsized customers.
Speaker Change: Gross margin was squeezed the first half of the quarter, but improved in March.
Speaker Change: Moving to slide six while macro volatility remains our plan and ability to generate earnings power and drive value remains unchanged, we remain focused around three priorities.
Speaker Change: First is driving growth in core business, which includes expanding TTS in logistics operating income margins, increasing one way rates and growing our dedicated fleet given our pipeline that remains strong we've been awarded numerous new dedicated fleets and we're seeing positive results on several large one way bids with strategic customers. We are realizing rate increase.
Speaker Change: On one way bids and within logistics, we're growing power link in intermodal.
Speaker Change: This is driving operational excellence is a core competency, which we will deliver by maintaining a resolute focus on safety, providing industry, leading reliability solutions and service to our customers continuing to advance our technology roadmap and continuing to control cost our commitment to excellence was recently recognized as the truckload carriers.
Speaker Change: So Jason made Warner a 2025 TCA elite fleet.
Speaker Change: This designation highlights our commitment to providing the top tier workplace for professional drivers.
Speaker Change: We are progressing our technology strategy and the transition to our edge Tms platform today, all logistics loads, except final mile are running through H T. M S.
Speaker Change: We are making progress in TTS with more than half of one way truckload volume in a quarter of dedicated volume an edge. We remain focused on transitioning the remaining customers in volume to edge building out execution capabilities and realizing the anticipated synergies of greater scale.
Speaker Change: On the cost containment front over the last two years, we've taken out 100 million in cost and continue to execute against our cost savings goal for 2025, which we are increasing from 25 million to $40 million.
Speaker Change: Chris will cover our actions here and how we are controlling what we can without sacrificing future opportunities there.
Speaker Change: Final priority is driving capital efficiency. This includes maintaining strong operating cash flow remaining disciplined and thoughtful in how we allocate capital and maximizing the equipment fleet sales.
Speaker Change: Capital proceeds exceeded capital expenditures for the quarter as we sold more used equipment and we purchase we are seeing increased values unused equipment is pricing on new equipment is fluid and recently being influenced by tariffs.
Speaker Change: We will continue to invest in trucks trailers terminal technology and talent.
Speaker Change: Maintaining optionality when it comes to evaluating the impact from tariffs on our equipment cost.
Speaker Change: We reduced debt since year end, our liquidity is at a new high point as we closed late in the quarter on our new and incremental 300 million credit facility.
Speaker Change: As a result, we are well positioned to be opportunistic relative to share repurchase and M&A.
Speaker Change: Regarding tariffs, our conversations with suppliers and customers reflect the money outlook the environment is fast moving and ever changing.
Speaker Change: We think about the impact of tariffs on our business in three categories.
Speaker Change: And used equipment gains exposure to Mexico freight and the broader impact on retail and consumer demand.
Speaker Change: Relative to Capex and used equipment gains our average tractor age of 2.2 years provides flexibility on equipment purchases and sales.
Speaker Change: We worked with several Oems with varying levels of supply chain exposure to Mexico, and Canada and are in close contact as they assess potential tariff impacts on their products as.
Speaker Change: As information becomes clearer we are considering several strategies to mitigate the impact of higher prices.
Speaker Change: This includes delaying new tractor purchases and sales, which is feasible given our low age fleet and or shifting purchases between Oems to those less impacted by tariffs.
Speaker Change: In the event the tariff stick, we expect low single digit percent increases to the cost of equipment and parts, but with favorable offsets with growing demand and improved resale values of used equipment, which we are seeing now is in early development in April relative to cross border freight approximately 10% of total revenues or further cross border Mexico shipments. This includes both.
Speaker Change: U S Y at all as well as revenues generated within Mexico.
Speaker Change: Most of our cross border business is executed in one way trucking and logistics.
Speaker Change: Shipments consists primarily of manufacturing industrial and food and beverage products, even though there may be some short term impacts from tariffs supply chains that have been expanding in the region will not change overnight.
Speaker Change: With over 25 years of experience in cross border operations, we've developed strong partnerships with customers and partner carriers as one of the largest transportation providers in the U S. With a strong presence in Mexico, we're firm believers that our expertise in this region as a competitive advantage over the long term.
Speaker Change: We plan to continue to operate and grow this business and lastly relative to the broader impact on consumer sentiment and spending through all the noise and challenges over the last few years. The consumers remained engaged and resilience. We are seeing stable volumes across our discount retail customer base, 62% of our revenues in 2024 from the retail vertical.
Speaker Change: Our more concentrated exposure to non discretionary retail from our relationships with discount and large value retailers is a differentiator and has held up well in past economic slowdowns.
Speaker Change: As the current difficult environment lingers, we anticipate ongoing capacity attrition.
Speaker Change: Long haul truckload employment is below the prior peak in 2019, and additional exits could be accelerated providing a more favorable backdrop for larger carriers like Werner and we stand at the ready.
Speaker Change: In summary, while elevated insurance and claims expense and challenging weather negatively impacted our results this quarter and tariff uncertainty looms, we continue to execute our long term strategy, while taking near term decisive action to position Werner for success.
Speaker Change: Our 13000 hardworking talented team members are committed to move this company forward and while our hard work is not yet showing up in the bottom line. We have clear line of sight to structural improvements that are being made to position. This company for stronger earnings power with that I'll turn it over to Chris to discuss our first quarter results in more detail.
Chris Neil: Thank you Derek let's continue on slide eight.
Chris Neil: Our performance comparisons here are year over year, unless otherwise noted.
Chris Neil: Adjusted operating loss was $1 8 million and adjusted operating margin was negative <unk>, 3%.
Chris Neil: Adjusted EPS of negative <unk> 12 cents was down 25.
Derek Leathers: As Derek noted this includes a nine cent headwind during the quarter from increased insurance costs and another approximately four cents due to the impact of adverse weather, resulting in lower one way miles per truck.
Derek Leathers: Elevator technology spend is also contributing to year over year, a reflection of further progress in our technology strategy and transformation.
Derek Leathers: Turning to slide nine.
Derek Leathers: Truckload transportation services total revenue for the quarter was $502 million down 9% revenues net of fuel surcharges declined 7% to $444 million.
Derek Leathers: TTS adjusted operating income was $2 million adjusted operating margin net appeal was <unk>, 4%, a decrease of 430 basis points of which 160 basis points was due to higher insurance and claims referenced earlier.
Derek Leathers: During the quarter consolidated gains on sale of property and equipment totaled $2 8 million.
Derek Leathers: Net of fuel surcharges insurance and gains TTS operating expenses declined 5%.
Derek Leathers: Let's turn to slide 10 to review our fleet metrics.
TTS average trucks declined to 7415 during the quarter.
Derek Leathers: We ended the first quarter with TTS fleet down 5% year over year, but only down 10 trucks or <unk>, 1% sequentially.
Derek Leathers: TTS revenue per truck per week net of fuel decreased one 4%, primarily due to lower one way miles per truck negatively impacted by adverse weather conditions.
Derek Leathers: But then T T S for the first quarter dedicated revenue net of fuel was $279 million down 7%.
Derek Leathers: Dedicated represented 64% of TTS trucking revenues consistent with a year ago.
Derek Leathers: Dedicated average trucks decreased seven 1% year over year, but it was only down sequentially by one 1% to 4783 trucks at quarter end. The dedicated fleet was down only five tracks, where a 10th of a percent from year end 2024.
Derek Leathers: This is well above our more seasonal trend that averages at 30 truck reduction during the first quarter at quarter end dedicated represented 65% of the TTS fleet.
Derek Leathers: Dedicated revenue per truck per week decreased slightly down <unk>, 3%, but has increased for 27 of the last 29 quarters and was impacted by one fewer business day versus the prior year quarter.
Derek Leathers: And our one way business for the first quarter trucking revenue net appeal was $154 million a decrease of 9%.
Derek Leathers: Average truck count of 2000, and 632 declined five 5% year over year and sequentially by 1%.
Derek Leathers: Revenue per truck per week decreased three 2%, mostly due to three 5% lower miles per truck per week.
Derek Leathers: Revenue per total mile increased <unk>, 3%, representing the third consecutive quarter of improvement.
Derek Leathers: One way freight conditions were more stable early in the quarter, but weakened in March as trade policy resulted in a more uncertain and cautious environment.
Derek Leathers: Weaker one way volumes have lingered in April.
Derek Leathers: Total miles decreased 9% versus prior year with five 5% fewer average trucks.
Derek Leathers: Increased miles and power link mitigated some of the decline in one way truckload miles ultimately, resulting in combined the miles that were down just under 6%.
Derek Leathers: Now turning to logistics on slide 11.
Derek Leathers: In the first quarter logistics revenue was $196 million, representing 27% of total first quarter revenues.
Derek Leathers: Revenues were down 3% year over year and 8% sequentially.
Derek Leathers: <unk> and truckload logistics declined, 5% and shipments decreased 4% and narrowing year over year trend compared to the past several quarters.
Derek Leathers: Intermodal revenues, which make up approximately 14% of logistics revenue increased 14% year over year to 216% more shipments partially offset by a 1% decrease in revenue per shipment.
Derek Leathers: Final mile revenues decreased 12% year over year and 11% sequentially.
Derek Leathers: Logistics adjusted operating margin of <unk>, 3% improved 90 basis points year over year, driven by double digit percent Opex improvement.
Derek Leathers: Moving to slide 12, and our cost savings program.
Derek Leathers: As macro uncertainty remains as we have less control over weather disruptions and as litigation and nuclear verdicts remain an industry challenge. We are committed to controlling what we can to expand margins and earnings.
Speaker Change: As Derek mentioned two years ago, we set out to achieve a more cost efficient operating model identifying and executing on $100 million savings, helping to partially offset softness in rate and volume as well as select in flu.
Speaker Change: This scenario factors as we enter 2025, we announced an additional $25 million cost savings program.
Speaker Change: We are increasing our 2025 cost savings target of $40 million in the first quarter, we achieved $8 million in savings towards that goal. We are underway with more aggressive restructuring efforts to drive out additional costs.
Speaker Change: Savings are aimed at more accelerated pace of realizing synergies from our technology investments further optimizing head count and pursuing savings in procurement spend facilities and real estate, all without sacrificing our readiness and ability to grow as the backdrop improves the next phase of structural changes should result in enhanced operating leverage as demand returns.
Speaker Change: Let's review, our cash flow and liquidity on slide 13.
Speaker Change: Operating cash flow was $29 million for the quarter or 4% of total revenue.
Speaker Change: As expected net Capex continues to trend down yes, we maintain a modern fleet and continue to reinvest strategically first quarter net capex was a cash flow positive $8 million as we sold more used equipment that we purchased.
Speaker Change: Free cash flow was $37 million or 5% of total revenues.
Speaker Change: Total liquidity at quarter end was $777 million up nearly 70% from yearend and including $52 million of cash on hand during the quarter. We closed on a new 300 million committed receivables securitization facility. This facility is priced at a rate below our revolving credit facility and will result in interest expense savings going.
Speaker Change: Forward at quarter end, we had $679 million of availability on our revolver and $46 million on the receivables facility.
Speaker Change: Moving to slide 14.
Speaker Change: We ended the quarter with $640 million of debt down $10 million sequentially.
Speaker Change: Our net debt to EBITDA as of March 31st was one seven times, we have a strong balance sheet access to capital relatively low leverage and no near term maturities in our debt structure.
Speaker Change: Let's turn to slide 15.
Speaker Change: While capex in the quarter was wide strategic reinvestment in the business is a top priority.
Speaker Change: Track record shows consistency and reinvesting in the business, maintaining a wall miles modern fleet and extending our solutions and capabilities.
Speaker Change: Over the long term, we will remain balanced, including returning capital to shareholders, maintaining appropriate leverage and being disciplined and opportunistic with share repurchase and M&A.
Speaker Change: We have $3 9 million shares remaining under our board approved share repurchase authorization.
Speaker Change: Let's review our guidance for the year on slide 16.
Speaker Change: We are maintaining our full year free guidance of up 1% to 5%.
Speaker Change: Fleet growth. This year is expected to be driven more by dedicated versus one way. The TTS fleet overall is nearly flat year to date, but we have visibility to dedicated wins implementing late in second quarter and early third quarter with some added startup cost along the way gross in our one way fleet is more uncertain given the combination of downside risk from west coast volumes in upside with <unk>.
Speaker Change: Kris driver recruitment.
Speaker Change: Our full year net capex guidance range is between 185 and $235 million lower than historical ranges as our portfolio evolves to be more asset light.
Speaker Change: Year to date net capex as net cash flow positive, we will have more normalized net spend in the second quarter.
Speaker Change: While we are not changing our full year guidance range at this point tariffs on OEM purchases will have an impact on our purchase decisions for the rest of the year, we have some ability to pull back on capex spend to later in the year if appropriate although we could also accelerate capex that presented with attractive OEM price concessions in the near term.
Speaker Change: Dedicated revenue per truck per week decreased <unk>, 3% year over year, but it is expected to remain within our full year guidance range of zero to 3%.
Speaker Change: One way truckload revenue per total mile increased 3% despite elevated dead head of more than 100 basis points offsetting two cents of rate per mile year over year benefit.
Speaker Change: Network inefficiencies occurred due to higher freight volatility and usual caused by tariff related uncertainty.
Speaker Change: We are updating our rate per total mile guide to flat to up 3% in the second quarter compared to the prior year period.
Speaker Change: Our effective tax rate was 23, 7% in the first quarter, our 2025 guidance range between 25, and 26% is unchanged. We are maintaining the full year guide and expect elevated effective tax rate in future quarters.
Speaker Change: The average age of our truck and trailer fleet at the end of the first quarter was 2.2 and $5 four years, respectively regarding several modeling assumptions equipment gains were $2 8 million in the first quarter, which was consistent with our expectations. We are maintaining our expectation for full year equipment gains in the range of $8 million to $18 million.
Speaker Change: Recently for April we are seeing select equipment values and gains that are at two year highs as a result of tariff uncertainty.
Speaker Change: How positive its too early to predict any lasting impact on the rest of the year.
Speaker Change: We expect net interest expense this year will be flat to down year over year absent any outsized capital allocation, but higher than first half than lower than second half.
Derek Leathers: With that I'll turn it back to Derek.
Derek Leathers: Thank you Chris.
Derek Leathers: Tariff impact remains fluid and adverse insurance settlements continue to pressure results disruptive weather was a headwind during the quarter technology spend is elevated and used equipment values remained low versus prior years, but are improving there recently.
Derek Leathers: In parallel to these trends, we've been making structural improvements and strategic investments to bolster long term growth and profitability for Warner.
Derek Leathers: While we wait for demand to normalize we are aggressively managing costs.
Derek Leathers: While remains constant during these uncertain times as our competitive advantage. We are a large scale award winning reliable partner with diverse and agile solutions to support customers' transportation and logistics needs with a modern fleet and continue to invest in our equipment leading into safety D. O T preventable accidents per million miles near 20 year lows over the last two.
Derek Leathers: <unk>.
Derek Leathers: We've been making considerable operational improvements and building a leaner, but more powerful organization.
Derek Leathers: Our cycle tested team and our historical results demonstrate our ability to generate earnings power as the market improves with that let's open it up for questions.
Derek Leathers: Okay.
Speaker Change: Now begin the question and answer session to ask a question you May Press Star then one on a touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Speaker Change: To allow for as many callers as possible to ask questions. We ask that you limit yourself to one question and one follow up this call will end at five P. M. C. S. T. Following the company's closing remarks.
Speaker Change: And your first question today will come from Jason Seidl with TD Cowen. Please go ahead.
Jason Seidl: Thank you operator, Derek and team afternoon here could you walk us through sort of dedicated margins in and how you view them versus OTR and stroke, what we should think about the most recent dedicated wins in terms of the long term impacts the margins in that division.
Speaker Change: Okay.
Jason: Sure Jason I'll start.
Speaker Change: So I.
Speaker Change: I guess I'll start by.
Speaker Change: Maybe attacking one of them is numbers that we constantly hear about which is dedicated to being some sort of a drag as this market progresses further from here.
Speaker Change: We've studied this pretty closely and if you look back over the last 10 years about eight out of 10 years dedicated does outperforms, our one way margins, we don't disclose margins individually for a variety of reasons, but I can tell you that it stands up very well in both good markets and in bad.
Speaker Change: As it relates to recent wins clearly, it's a competitive environment right now.
Speaker Change: And so those wins are.
Speaker Change:
Speaker Change: Operating margin they are contributing to operating margin those were not implemented yet.
Speaker Change: Those will improve the health of the overall network.
Speaker Change: Those are implementing in Q2 and currently scheduled to be completely launched early started in Q2, but somewhere late enough that we felt it prudent to indicate there could be some drift into early Q3.
Speaker Change: The pipeline in dedicated is particularly strong at the moment. So that is exciting the win rate will be continue to be pressured based on the competitive environment, we're in but.
Speaker Change: But we like the momentum.
Speaker Change: Trucks closed year to date.
Speaker Change: <unk> sort of new business truck closes.
Speaker Change: Through 2024 and for the entirety of the year.
Speaker Change: That trend has continued in conversations with customers. So as we advance into the year. So overall from a positioning perspective, I like where we're sitting there.
Speaker Change: I like the ads in that part of the network.
Speaker Change: It positions us well as we build from here.
Speaker Change: And Derrick Jason you didn't yeah go ahead.
Speaker Change: Sorry, Jason I think you were also asking just about the T T S Hawaii and some color.
Speaker Change: On the operating margins.
Speaker Change: So you know we've talked about in the past of you know getting back to long term double digit margins.
Speaker Change: 2015 to 2022 six of those eight years, we are in the double digit margin territory 2023 was high single digits. So we have not changed our view in terms of double digit Oi margins Bang our long term target, obviously, we're a ways off from that.
Speaker Change: We've had multiple years being impacted of the the decline in the one way rate per mile softer dedicated demand softer used equipment values in some inflationary pressures and those continue to be the levers that we're focused on and that will get us back to more of that long term range.
Speaker Change: With each of those levers, we're seeing improvement now in all areas, albeit slow if you. We just rolled back to first half of last year and those areas one way ray dedicated demand.
Speaker Change: Equipment market.
Speaker Change: Those who are working against US. It was then in the third quarter of last year that we saw for the first time in seven quarters favorable year over year improvement in the one way right now we're saying this momentum that Derrek just mentioned in dedicated also.
Speaker Change: Also recently seeing some improvement in equipment gains. So we're still focused on the long term still focused on those being the levers that will get us there and starting to see some gradual improvement.
Speaker Change: And so my follow up guys I know Europe, you don't disclose the actual margins, but if we look at <unk> would you say the margin discrepancy between dedicated and one way expanded.
Speaker Change: I would say the extent, yes, that's fair to say and it's because of the duress of the one way portion of the portfolio. One way has been the most competitive section of the portfolio. It remains so today and so when you think about performance across the quarter one.
Speaker Change: <unk> certainly was a drag on the quarter dedicated.
Speaker Change: Dedicated has had pressure, but still is outperforming by a larger mark today than it would have been <unk>.
Speaker Change: Even in some recent quarters.
Speaker Change: All of the both both of those groups obviously are impacted by some of the comments we've made through the the prepared remarks relative to.
Speaker Change: Whether in particular.
Speaker Change: And then obviously the insurance and claims as an outlier that we hope to put in the rearview mirror.
Speaker Change: Well as we go forward.
Speaker Change: Understood I really appreciate all that color.
Jason: Thank you Jason.
Speaker Change: And your next question today will come from Ari Rosa with Citigroup. Please go ahead.
Ari Rosa: Hey, good afternoon.
Speaker Change: Wanted to understand just kind of continuing on that point about putting the insurance issue in the rearview mirror it seems like there's really.
Speaker Change: Not anything structurally changing.
Speaker Change: What causes that to change or what causes that insurance concerned to mitigate outside of legislation kind of resolving that and kind of taking away. This prospect of nuclear verdicts.
Okay.
Speaker Change: Yeah, I'll start and then I'll have Chris fill in some some detail, but we think is pertinent.
Speaker Change: So biggest big pictures Youre right, we need tort reform and we need state by state legislation to continue to make its way through so there's there can be a fair and appropriate playing field in the case of litigation we've seen that recently in Georgia. There are several other states that are working on it as we speak we're going to continue to stay active in that space.
Speaker Change: And.
Speaker Change: And it really is both the sort of nuclear verdict and outsized settlement side, when you're trying to avoid said nuclear verdict.
Speaker Change: This particular quarter was marred by a case that is a great example of what can go wrong will sometimes we're talking about a case with video evidence body camera footage of a claimant.
Speaker Change: Clearly, stating that they were not injured that they did not need medical attention.
Speaker Change: Case that that was a low impact accident by all accounts.
Speaker Change: Where actual checks of the equipment was going on to see where the damage was.
Speaker Change: But to change of our change of judge in Q1 in a series of adverse verdicts within that court case led us to an outcome where that injury became a multimillion dollar jury decision I'd like to believe that we can get past those days and not see these sort of rainy day moments, but clearly insurance is an outsized on a P.
Speaker Change: Per unit basis per per accident basis, it's a headwind just given what's happened with the ongoing trend in that direction with outsized verdicts, we're going to continue to focus most importantly on the court issue, which is lowering our preventable accident rate lowering our total incident rate and working to develop better and better drivers as well as.
Speaker Change: Advent of technology, but that will only get you. So far so I can't promise or guarantee or predict the future. What I can tell you is that we we do believe we're taking the right steps and preparing our drivers to be the best they can be on the road.
Speaker Change: These outcomes are multi unexpected.
Speaker Change: And in savoury.
Speaker Change: And maybe just to give you a bit more color and perspective, yeah. It was $44 million for the quarter.
Speaker Change: North of our eight quarter average, obviously two consecutive quarters of being above 40 million not our expectation. Although we would still look at Q4 and Q1 as being outliers just for different reasons fourth quarter was a year end reserve re measurement Q1, having this isolated.
Speaker Change: Our verdict with some unique circumstances that Derek just walked through so I would still point to the the quarter average whether you want to look at the last eight quarters or the last 12 quarters either way you know it it continues to be in a range of about 35% to $36 million reflective of a cost per claim issue not a frequency of claim issue we continue to be.
Speaker Change: Pleased with our D O T preventable accident per million miles, which over the last two years was at a 20 year low and.
Speaker Change: And really don't feel like that has yet to reflect.
And the trend of that particular line item.
Speaker Change: Okay understood that's helpful and.
Speaker Change: Then just for my follow up it seems like every call we're talking about the kind of supply demand issue the overcapacity problem.
Speaker Change: You mentioned that driver counts have come down, but maybe you could just give your perspective on kind of where the market is what gets you to find the correct could this be kind of E D.
Speaker Change: Catalysts that maybe gets.
Speaker Change: It gets the market to finally collected and get something of that type of capacity out or do you really see it as more of a demand issue.
Speaker Change: We transitioned from <unk>.
Speaker Change: On the issue of oversupply to an issue of insufficient.
Speaker Change: Insufficient demand with the tariffs.
Speaker Change: Yeah, all right I think it's a great question, let me back up and just start by saying as we entered the year, we obviously had.
Speaker Change: Some optimism relative to where the market was going we saw that optimism starting to play out in January leading to February and into March.
Speaker Change: In February were muted so the demand was there, but the weather was not in our favor.
Speaker Change: And I would remind everyone that all of them were a national carrier our footprint is very heavy Midwest South southeast.
Speaker Change: And the storm systems that we endure through the quarter were predominantly in those areas.
Speaker Change: As we got into March we saw something different which was although demand indicators forward looking indicators were strong.
Speaker Change: The tariff uncertainty in some of the network disruptions that came with that became more pronounced and so it was less about total demand, but more about the significant network disruptions that come with people holding freight for a day or two then shipping larger than normal quantities and the inverse of that.
Speaker Change: People rushing to get freight across the border before a potential tariff impact our exposure both west coast as well as the Mexico border both are about 10% each.
Speaker Change: And so that impact.
Speaker Change: Was felt in our network it was more disruptive on the north South moves because you can make more shorter term decisions than they were.
Speaker Change: But as we look forward now.
Speaker Change: I do believe this is a catalyst relative to Washington, some folks out more aggressively that are unable to compete at these levels that could and should lead to.
Speaker Change: A more rapid cleansing of the capacity rolls BLS employment data is already now below 2019 levels pre COVID-19 levels. If you will.
Speaker Change: And so theres a lot of trends that look good there, we do have to caution and not we can't own the macro and with the issues going on with that same economic uncertainty. There is certainly some concerns in a lot of contingency planning on our part relative to kind of a broad base and bear case relative to demand.
Speaker Change: The last thing I would add to all of the above is the sort of air pocket, that's been largely talked about over the last several days.
Speaker Change: We all know there is a significant reduction of inbound freight added to the west coast and really east coast as well from it from from ports in Asia that air Pocket, we will have to be filled to some extent and I think it's only a matter of monitoring and staying close to consumer sentiment and consumer confidence overall.
Speaker Change: So now how much of that pocket gets filled on the back side inventory levels are in good shape or even in certain cases in our network and conversations with customers on the leaner and where they'd like to be so that freight has to get made up for at some point or resources from elsewhere. All of those are catalysts, where we think the large scale network capabilities that we have.
Speaker Change: Can be brought to bear in ways that are more interesting than sort of the aggregate of a bunch of small carriers that might be competing in certain lines.
Speaker Change: So we will we will prepare for that will be ready to respond.
Speaker Change: Regardless of which direction that demand side of the equation goes, but yes, I think capacity and that attrition can only accelerate from here based on the backdrop.
Derek Leathers: Got it okay. That's very helpful context, thanks for the thanks for the time Derik Congrats.
Ari Rosa: Thank you art.
Speaker Change: And your next question today will come from Scott Group with Wolfe Research. Please go ahead.
Speaker Change: Hey, Thanks afternoon, so Doug with respect to that sort of import cliff you just sort of talked about is there any way to sort of frame what percentage of your <unk>.
Speaker Change: Volume.
Speaker Change: At some point originates overseas I'm guessing there they like the direct port stuff is easy, but some of the more inland stuff that maybe starts overseas is harder, but if you have any sort of ballpark I think that'd be helpful and just and given that sort of volume.
Speaker Change: Eric Air Pocket Youre talking about like what's realistic in terms of improving in margin in Q2 can we get back to profitability I don't know any thoughts. Thanks.
Speaker Change: Hey, Scott This is Chris Yeah, I'll start on maybe both of those topics first on the West coast import exposure, it's roughly about 10% of our one way volume.
Speaker Change: Is exposed to the west coast.
Speaker Change: Yeah, and that Hasnt been steady as of late with some of our large customers, but obviously, it's something we're very focused on and.
Speaker Change: It could be in fact impactful broadly for North America freight.
Speaker Change:
Speaker Change: So, but right now you know that.
Speaker Change: That continues to be steady and our exposure there is somewhat limited.
Speaker Change: In terms of your other question on just I think you were asking how to think about.
Speaker Change: Second quarter.
Speaker Change: Maybe from a revenue perspective, you know the on the one way side more uncertainty there.
Speaker Change: For for topics that we're discussing here.
Speaker Change: On a rate per total mile basis that could be up or down on a sequential basis based on the year over year zero to 3% guide for the second quarter. However.
Speaker Change: We do have optimism with the dedicated.
Speaker Change: <unk> gross debt.
Speaker Change: We've talked about the wins there also optimism broadly in logistics quarter over quarter and seeing some favorable trends into the second quarter.
Speaker Change: We have a solid line of sight on awards in power link in intermodal.
Speaker Change: And both those businesses just continuing to have momentum and strength, but also in the truckload brokerage, which has had periods of being soft.
Speaker Change: Last year and also in January February, but where we came out of the quarter truckload brokerage is saying some some positive momentum and we have had a high point in March of certain award counts in volume.
Speaker Change: On April.
Speaker Change: April also appears to be strong Theres also some Q2 pop up in food and beverage within truckload brokerage space. So.
Speaker Change: Some puts and takes there from from a revenue perspective.
Speaker Change: And then from an Opex perspective, we will have some dedicated startup costs with implementing some of those fleet wins in the second quarter and early third quarter of course insurance is.
Speaker Change: An area that has some volatility, but we're seeing momentum in gains and on the equipment values. We also expect to have our accelerated pace of cost reductions in the quarter and some decelerated it spend in second quarter relative to the first quarter yes.
Speaker Change: Yes, Scott the only thing I would add is to the question about direct versus indirect as difficult as you've stated.
Speaker Change: We know that we if you look across our book of business.
Speaker Change: Our large retail customers and discount retailers in particular have anywhere from call it 10% to 30% exposure rate too.
Speaker Change: To China, but that does not include <unk>.
Speaker Change: Some of the secondary exposures they may have from vendors that they buy from.
Speaker Change: We were ultimately sourcing either pieces or parts or the actual finished goods from China as well.
Speaker Change: The positive side of that is that air pocket becomes more relevant for them when they've done once we get through this.
Speaker Change: And their need to restock and reload.
Speaker Change: And the other thing that I would remind everybody is within that spectrum and are in that basket of goods. We are heavily exposed in the non discretionary low cost end of the spectrum.
Speaker Change: Not reloading isn't really an option they have to have those goods on the shelf.
Speaker Change: And if it.
Speaker Change: Have committed with confidence that that is their go forward plan.
Speaker Change: Positioning us well as we can trying to be as close to the breaking news, which is difficult at times.
Speaker Change: But I still believe.
Speaker Change: Maybe with more conviction now than even previously that for instance, our Mexico exposure is a net positive over time, yes, it's going to have interrupted interruptions and.
Speaker Change: Hurdles to get over in the short term.
Speaker Change: But that is an ongoing reassuring near shoring kind of opportunity that customers are leaning into our recently completed a trip down there and heard loud and clear that they're not blinking on their plans.
Okay, and then maybe just bigger picture.
Speaker Change: Our model goes back to like the.
Speaker Change: Early nineties I don't think you've ever had an operating loss before and I'm just trying to I understand obviously the environment is challenging.
Speaker Change: So maybe one thing that has helped a little different this cycle you did more M&A how are those acquisitions performing and I don't know I mean to get out of this sort of whole like are there more drastic changes that we need to be making in order to get back to the margins, we want to get or is it just sort of.
Speaker Change: Waiting for a bit.
Speaker Change: At our cycle.
Speaker Change: No Scott I think your question is well stated.
Speaker Change: Several things right. So yes, we had.
Speaker Change: M&A take place at a time, where.
Speaker Change: Immediately preceding one of the largest freight recessions that we've seen so we haven't been able to capitalize to the extent that we had modeled and planned too on some of those assets. We still feel very good about customer receptivity customer acceptance and actually growth with core customers within each of those acquired businesses.
Speaker Change:
Speaker Change: But it is an opt.
Speaker Change: An opportunity that yet.
Speaker Change: Unlevered so to speak we haven't been able to see the operating leverage in that to the extent, we would like the quarter is in fact, an outlier. So your model is correct.
Speaker Change: And yes, it does take.
Speaker Change: It does require us to take more immediate and more dramatic action, which we referenced in the opening remarks. We are taking this seriously. This does not represent who we are and we're going to make both of appropriate near term moves, but always with an eye toward the reality of this too shall change.
Speaker Change: Said differently I don't want to wake up in a world where the large network of complex solutions sets that we provide to customers while post air pocket post tariff overhang et cetera isn't able to be deployed and so I've got to make sure that we've got the core competencies in place the capabilities and the people to do the job.
Speaker Change: But make no mistake, yes, we're going to dig deeper we've raised our cost cutting.
Speaker Change: Initiative, it is well known and.
Speaker Change: Internally that we're going to have to do things different we take it very seriously.
Speaker Change: Okay. Thank you guys appreciate it.
Speaker Change: And your next question today will come from Bascom majors with Susquehanna. Please go ahead.
Bascom Majors: Following up on the hill or conversation about pricing and discussions with customers and that sequentially potentially and what might being up or down can you talk a little bit about the dynamic in that discussion with 60% of your business coming from retail and that being an industry really in the crosshairs of the China uncertainty.
Bascom Majors: You know how has that impacted.
Bascom Majors: Maybe the content of the discussions but also the way bid season has played out versus normal and how much visibility do you have into pricing net net being neutral this year. Thank you.
Bascom Majors: Yes ill, let Chris get into some of the pricing details, but as it relates to the conversations I would point you to the reality that these these uncertainties are significant for our retail customers, but with those same uncertainties, what they look for in wherever they can find it is certainty and execution.
Bascom Majors: So that's the kind of the point, we're trying to make the conversations have actually been pretty solid relative to them knowing that what will be needed on the other side of this will be different than what they needed going in.
Bascom Majors: Large scale trailer pools multiple delivery modes.
Bascom Majors: The ability to move quantities afraid in shorter order things that large well capitalized carriers like Werner can do.
Bascom Majors: That has led to discussions around moving more from spot to contract. That's led to some of the ability to close out on long standing dedicated conversations that have been lingering for way too long.
Bascom Majors: That has led to our ability to talk about this business needs needing to be re investable for us to be able to sign up to support them.
Bascom Majors: As we get later into the summer and clearly a priority to the peak. So all of that set up from a conversation perspective is materially different than it was a year ago and I would say in a positive way, but we've got a lot of work to do we've got a lot of rates that yet.
Bascom Majors: We have to work through and Chris has some probably additional color and detail that you can share.
Chris Neil: Yes, <unk>, we have now reported three consecutive quarters of year over year improvement certainly this quarter at <unk>, 3% in one way.
Chris Neil: You know it was not a significant move it would've been better had we been able to maintain that had a little bit better I mean rate per loaded mile was up over a percent.
Chris Neil: So we are continuing to make progress through the bid season, we're over halfway complete with one way bid season with about well over 50% of our existing business will be repriced and and will become effective sometime in the first half.
Chris Neil: I would point out that our retention on existing business has been pretty good we've actually had less churn this year than last churn I think thats just reflective of.
Chris Neil: Environment, where our customers are leaning into stable asset backed logistics partners, who will maintain commitments and have the scale to deal with the volatility out there.
Chris Neil: No in general pricing results have been a little mixed depending on the customer depending on the lane, but on average they've been relatively consistent with our expectation that we described during our last call of increased low to single merger.
Chris Neil: Low single to mid single digit percent increases. So those things have played out as we expected. We did think the spot rates you know early earlier in the year coming off of.
Chris Neil: Some.
Chris Neil: Relatively positive indicators in January and early February.
We were expecting spot to improve a little bit in March and then with the volatility that we've got with the tariffs we just didn't see that.
Chris Neil: And that weakness in spot rates will certainly impact our our rate per total mile in the second quarter.
Chris Neil: And I don't mean that ominously I mean, it could be positive it could be negative just depending on how things go.
Chris Neil: But it will be impactful to some degree, but we feel good about where we're at with contractual rate increases.
Chris Neil: And from a planning perspective, as you talk through these retailers and cycle through bid expectations.
Chris Neil: Have the.
Chris Neil: Volume's underlying those bids and what youre bidding to change in any material way just any information you have to maybe planned capacity around the air pocket, that's coming would be helpful. Thank you.
Chris Neil: Yeah, Great question I would tell you that interestingly volumes have held up between bid expectation and actual better this year than we've seen in the last couple of years, whether that's better planning or better tack on their side or better execution on our side in terms of staying on top of it every single minute of every day, which is the fight we're in right.
Chris Neil: Now, but in either case.
Chris Neil: Bid outcomes or awards and bid the actuals are tracking much more close this year than they were a year ago. I think that's also an indication though of aligning yourself with quality carriers.
Chris Neil: Knowing that institutional change and.
Chris Neil: So we'll continue to track that underlying demand interestingly, despite all of the noise in the news and for the consumer to have to endure everyday has actually remained very strong with several of our largest customers, we expect and they expect that to continue.
Chris Neil: That is more reflective than anything of our heavy concentration with discount retail. So you have some migration downstream from customers that might have shopped elsewhere previously offsetting the overall impact on the end consumer but the consumer has continued as we all need to be more resilient than I think we would've expected given what with all of the noise that <unk> been.
Chris Neil: Drew.
Drew: Thank you Beth.
Chris Neil: Thank you.
Speaker Change: And your next question today will come from Chris Wetherbee with Wells Fargo. Please go ahead.
Chris Wetherbee: Hey, Thanks, Good afternoon, guys, maybe first wanted to drill down on the new dedicated wins, just maybe get a little bit of color there whether either from a magnitude of the size of the wins the amounts that kind of trucks that you might be adding there the types of verticals youre seeing we'd see dedicated come under a decent amount of pressure over the course of the last couple of quarters kind of curious.
Speaker Change: There's something changing there that was driving the wins on your side.
Speaker Change: Yes, I think Theres a few different things one we.
Speaker Change: Have aggressively pursued new talent in that arena.
Speaker Change: We've put new bodies to work that's part of it. We've also launched a pretty aggressive internal team that's cross functional across the organization to make sure that we kind of pick winners off the assembly line and take them off the conveyor belt, so to speak and really attack those that we think are.
Speaker Change: Best fits in our network more than perhaps we did previously or more effectively anyway than maybe we were previously.
Speaker Change: And to your point on verticals. It has been a conscious effort to expand outside of kind of our traditional sweet spot of discount retail and really aggressively get after some some new verticals.
Speaker Change: We've seen early success with with ongoing really positive I would say conversations.
With others in the similar verticals. So we're excited about it.
Speaker Change: It's tough to be overly optimistic or excited given obviously the Q Q1 results, but if you look at and I am talking financial results, but if you look at win rate you look at diversification of wins and most importantly, if you look at new blood.
Speaker Change: Our new customer logos on that list all of those things are cause for excitement.
Speaker Change: Okay. That's helpful. And then just a follow up to come back to kind of <unk> and forgive the short term question here, but just wanted to get a sense. Obviously this is a relatively unique quarter with <unk>. It sounds like there's some moving parts, but maybe revenue skus positive sequentially in <unk>, just trying to get a sense. It sounds like maybe some of the weather costs and insurance maybe normally.
Speaker Change: As to some extent in <unk> is that enough to get us to kind of from a breakeven perspective or into the positive side of the ledger on EPS and <unk>.
Chris: Yes, Chris we would certainly be working to get back to positive.
Speaker Change: If you look over the last four or five years.
Speaker Change: The Q1 to Q2 EPS has been up and down it's a range of about 45 between the high and low you know again some of those down some of those up sequentially.
Speaker Change: But these are uncertain times and I don't know that normal seasonality is fully going apply here. So we're focused on getting from negative back into positive territory that would require over 12 cents of a sequential adjusted EPS improvement.
Speaker Change: I think you heard it right from a revenue perspective.
Speaker Change: More optimism from a dedicated standpoint as well as logistics just more uncertainty on the one way rate per total mile and just overall one way on the top line.
Speaker Change: From an Opex perspective, we will have some some dedicated startup.
Speaker Change: But we are expecting some accelerated pace of cost reduction in the quarter, We mentioned our cost savings target of being raised to $40 million eight.
Speaker Change: $8 million of that was realized in the first quarter, so call it over $10 million.
Speaker Change: On average for the next three quarters to go.
Speaker Change: And if we can continue to find opportunity and even exceed the $40 million in the year. Then then we will do that obviously, we're not going to adversely affect our ability to grow and we're not going to place safety and service reliability at risk, but where we can leverage technology, where we can lean into operational excellence and innovation.
Speaker Change: And find more benefit there that's structural sustainable we'll we'll clearly do that.
Speaker Change: Got it thanks for the details thank you.
Chris: Thank you Chris.
Speaker Change: And your next question today will come from Daniel Umbro with Stephens. Please go ahead.
Daniel Umbro: Hey, good evening guys. Thanks for taking my questions.
Daniel Umbro: Maybe just one follow up making sure I understand the fleet growth comment the guide of 1% to 5% it sounds like that's all going to be in dedicated.
Speaker Change: So the comment earlier Derik you made on one way margin pressures, we usually expect one way fleet to keep producing through to Q1, Q2, Q3, Q sequentially I'm trying to understand how capex has reiterated given the returns in this environment and probably lighter than you were expecting them to be.
Speaker Change: Yes, I wouldn't necessarily plan on it reducing at least not materially.
Speaker Change: Our focus is clearly dedicated our focus will be to remain in the one way game.
There are certain week precursors to why we need to have a one way presence, it's both sort of a training ground and proving ground that training and the driver capability, but.
Speaker Change: But in the culture sense.
Speaker Change: For drivers before they're placed into dedicated but maybe more importantly, it's really the entre to get to know customers to get to build relationships and to be able to do business with them then expands across the portfolio and to everything from intermodal to final mile to two dedicated et cetera.
Speaker Change: Our focus on growth will be.
Speaker Change: Billing that we already closed needs that we've talked about on the call as well as the pipeline that's coming forth from other dedicated opportunities that we see.
Speaker Change: Whose fluid on the Capex side just to be clear.
Speaker Change: We are also navigating tariffs as it relates to original equipment values or from Oems and we will cost we will be cautious.
Speaker Change: To sign up for large increases or really increases at this time relative to equipment in our fleet is in a great position to be able to allow us to do so.
Speaker Change: Helpful. I appreciate it and then from a follow up just wanted to ask on the on the tech side.
Speaker Change: I believe you guys use necessary for your edge platform and you've talked about those investments for a while here I guess, maybe it's just hard to see in the consolidated result, but what kind of benefits and when would you expect start seeing the benefits from these investments financially and then broadly I guess just your thoughts on the industry. The growth of these better Tms offerings and systems out there.
Speaker Change: Is that part of what's making small carriers more efficient could that'd be keeping capacity in the market because they're just getting better and more efficient with routing I'm just trying to think about the longer term implications of these tech offerings do improve and get rolled out to the industry.
Speaker Change: Yes, I'll start with mastery in our hedge conversion.
Speaker Change: We're at the point right now in the edge conversion where the.
Speaker Change: The spend is kind of outsized.
Speaker Change: Compared to what we believe the long term run rate may look like.
Speaker Change: But it is necessary we are at the most vulnerable stage I call. It the Red zone, if you will use a football analogy.
Speaker Change: There are a lot of really good things are eminent to happen, but we can't afford a mistake and so.
Speaker Change: <unk>.
Speaker Change: But where we sit today is logistics as fully converted and we're starting to see the productivity gains and you can really see it in the opex savings and the and the ability to do more with less and logistics that is not true yet in one way or dedicated.
Speaker Change: We are significantly progressing in one way and dedicated but we're still operating out of multiple systems.
Speaker Change: We also had to bear the difficult choice knowing that we were converting to a totally new tech platform to not even not yet at this point fully integrate some of the acquired companies because we didn't want to integrate them twice and so there are a lot of synergies ahead of us as we get to the final innings. In this whole conversion is really scheduled to be complete.
Speaker Change: By this time roughly next year.
Speaker Change: The predominance of those productivity gains will start to be visible late Q3 into Q4. This year and so we're excited to get there right now what we have is sort of more of a headwind than a tailwind both in terms of spend but also in productivity and so we think this too shall pass.
Speaker Change: But I'm excited about those places where we can see what it looks like with full implementation and it's clearly flowing through productivity gains and efficient more efficient outputs, yes.
Speaker Change: Yes, and maybe just to give you a bit more color. There in terms of the synergies you know Derek mentioned the cost reduction in logistics, which outside of final mile is 100% on an edge Tms we mentioned that.
Speaker Change: Operating expenses are down 11%.
Speaker Change: Not disclose the other ratios like load.
Speaker Change: Per employee ratios, but those are also on the rise. So we're definitely saying on the expense side the productivity gains there from the technology, but also while it's early we're all seeing top topline synergies greater visibility to freight greater ability to optimize freight selection.
Speaker Change: That is showing up on the topline, but it's early it's small.
Speaker Change: As we go forward I think we've really hit a new gear here.
Speaker Change: In 2025 relative to the pace of this transformation.
Speaker Change: So that means a couple of things. It does mean some periods of some elevated cost we would quantify the first quarter impact on EPS of a year over year kind of general it spend to be about five.
Speaker Change: So there will be some pockets of some elevated costs I think as we go through the year, we would look for that to decelerate, but the synergies will also grow from here as we continue to stay focused on the finish line.
Speaker Change: And to address the second part of your question quickly Daniel Yes technology is an enabler, but I don't think thats the core enabler of what's happening with the small to mid sized carrier I think it's been a combination of bank linear leniency and the reality of how long it takes to kill a trucker you can run a truck.
Speaker Change: At below profitability for a very very long time, if youre willing to run it out and generate the cash with no ability to then reinvest towards or to renew.
We've seen that as of late even with multiple bankruptcies just in the last couple of weeks of 200 to 300 150 truck carriers and I think youre going to see a lot more of that in the news as we go forward from here.
Speaker Change: Thanks, so much for all the color best of luck.
Speaker Change: And your final question today will come from Richard <unk> with Deutsche Bank. Please go ahead.
Speaker Change: Oh, okay.
Speaker Change: In general.
Speaker Change: Yes, we can go ahead Richard.
Speaker Change: I appreciated your point on the dedicated run rate.
Speaker Change: With respect to if it goes down a little but all of that should be also be excited about margin potential.
Speaker Change: It's going to be margin accretive over time.
Speaker Change: Hello, This is Mike <unk>.
Speaker Change: Sorry, I appreciated your commentary around the supply dynamic.
Speaker Change: Just a big picture.
Speaker Change: Lastly, I lose his time with hiring truck.
Speaker Change: Truck drivers.
Speaker Change: Okay.
Speaker Change: As clinical support problems now.
Speaker Change: I'm curious if you had to look at that point do you think that that could be another enabler at supply out for longer.
Speaker Change: Yes. Thank you I mean on the on the margin enhancing and the answer there would be yes for a couple of reasons, but the most base swap basic level. Its just as we can continue to put more trucks as a percent of fleet into dedicated that business. He is in fact profitable today will continue to be profitable and we're able to spread fixed costs over more.
Speaker Change: Of.
Speaker Change: A larger truck count.
Speaker Change: We're also in that mix, adding trucks to existing fleets and Thats always.
Speaker Change: Very desirable whenever we can add trucks to existing fleets, we already have the infrastructure in place personnel and a large portion of the fixed cost accounted for so that's also exciting. So when we think about that 1% to 5% TTS truck growth. This year that that's why the heavy focus on greater density growth with existing and new VR.
Speaker Change: It goes with new logos.
Speaker Change: All gets us.
Speaker Change: Optimistic as we look forward as it relates to the movement on the English speaking.
Speaker Change: Requirement I would remind everybody it's always been a federal regulation, it's never been removed. It just simply had guidance enforcement guidance changed in the Obama era.
Speaker Change: Warner have chosen to continue to keep that as a requirement as we bring drivers into our fleet. We continue to test for English proficiency. So we're in great shape, no matter, where the enforcement may go from here.
Speaker Change: It is difficult to change enforcement overnight at sea.
Speaker Change: Roadside levels, it's harder than people may think.
Speaker Change: But I think if you tie it back to the core reason why that regulation existed which was safety then we certainly support that.
Speaker Change: The principle behind the original regulation was that drivers need to be able to communicate to first responders at the scene of an accident they need to be able to communicate whether others are in the cab and what cargo they may be all in and they need to be able to interact with reed roadside instructions. So for all of those reasons. We are a proponent of the <unk>.
Speaker Change: Concept that it is a different standard and driving a private vehicle and it should be held as one no different and pilots are required to be able to be proficient in English worldwide.
Speaker Change: So.
Speaker Change: The question Mark though comes at what will change Tomorrow, and honestly I think it would be inappropriate for me to guess.
Speaker Change: Thank you, we'll see enforcement levels different around the country, but I think any enforcement leads to decisions that customers are going to have to make whether you have three load stop somewhere in the country, where you've got 30, you still have freight not moving if a driver was to be put out of service and I think leaning and once again to well capitalized well developed with great training program.
Speaker Change: Carriers is a place that customers can look to for that support.
Speaker Change: Therefore, we think that is.
Speaker Change: Net tailwind as we go forward from here.
Speaker Change: Also from a quick follow up do you think.
Speaker Change: A lot of little speaking truck drivers.
Speaker Change: Perhaps apparel.
Speaker Change: Yes, I do believe there is.
Speaker Change: Decent percentage of the industry that cannot communicate in English.
Speaker Change: It's very difficult for me to try to give you a number I have done some soul searching and conversations around the industry and I think most people come back with 10% to 15%.
Speaker Change: That doesn't mean, 10% to 15% of capacity leaves tomorrow because of all of the enforcement issues I've already described but I think that is a safe.
Speaker Change: Kind of range or bookend of what that population may look like it's predominantly Latin American, but not exclusively by any stretch.
Speaker Change: And there are and depending on pockets of the country. There are certain regions, where it's that isn't even the predominant primary language.
Speaker Change: We again are well positioned for this and so it's not a great concern of ours relative to our freight moving down the road, but I do think it could have some ripple effects. It's just too early to know how great.
Speaker Change: Okay.
Speaker Change: Kind of an impact it ultimately will be.
Speaker Change: Thank you so much for all that.
Richard: Thank you Richard.
Operator: I'll now turn the call back over to Mr. Derek Leathers, who will provide closing comments. Please go ahead sir.
Speaker Change: Thank you Nick we want to thank you for taking the time to be with US today. The freight recession is still looming in the uncertainty of tariffs and their impact across the economy remain however.
Speaker Change: However, we're not deterred and our focus on continuous improvement remains we're focusing on structurally improving warning from the long haul and we have contingency plans for a variety of tariff and economic outcomes moving forward and we will be aggressively looking to take out cost in the meantime, we have a resilient portfolio and a significant competitive advantage to our cause.
Help solve our customers' transportation and logistics needs and again I'd just like to close by thanking our customers to whom we are committed to serve as a trusted solution provider as well as our 13000 associates for their dedication as we keep America moving thanks again for your time today everyone.
Speaker Change: Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.