Operator: Please also note today's event is being recorded. At this time I'd like to turn the floor over to Chris Neil, SVP of Pricing and Strategic Planning. Please go ahead.
Chris Neil: Good afternoon, everyone. Earlier today, we issued our earnings release with our Q3 results. The release and a supplemental presentation are available in the investor section of our website at werner.com. Today's webcast is being recorded and will be available for replay later today.
Chris Neil: Please see the disclosure statement on slide two of the presentation, as well as the disclaimers in our earnings release related to forward-looking statements. Today's remarks contain forward-looking statements that may involve risks, uncertainties, and other factors that could cause actual results to differ materially. The company reports results using non-GAAP measures, which we believe provides additional information for investors to help facilitate the comparison of past and present performance. A reconciliation of the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation.
Chris Neil: On today's call with me are Derek Leathers, Chairman and CEO, and Chris Wikoff, Executive Vice President, CFO, and Treasurer. I will now turn the call over to Derek.
Derek Leathers: Thank you, Chris, and good afternoon, everyone. We appreciate you joining us today. Before we jump into the details of the quarter, I want to start by thanking our team of committed drivers, mechanics, and office personnel. In an environment marked by rapid macro shifts and operational headwinds, our team's unwavering commitment to safety and service kept our network performing at a high level and enabled us to continue delivering for our customers.
Derek Leathers: Our business generated strong top-line momentum with Q3 revenues of $951 million, representing 23% year-over-year growth. Non-GAAP adjusted diluted EPS was $0.16, significantly improved from last year. We deliver these results despite significant near-term cost pressures. We face sharply rising fuel prices, escalating driver onboarding and retention costs, and elevated reserve development. Cumulatively, these items negatively impacted our results by approximately $0.18 per share compared to Q2.
Derek Leathers: There are three key messages we want you to take away from our results today. First, our strategy is delivering results. Our One-Way network restructuring and Dedicated fleet expansion are translating into improved asset productivity, network yield, and structural cost efficiency. This progress is reflected in our revenue growth and our near doubling of adjusted operating income for the quarter. Year-to-date, our adjusted operating income dollars are 2.4 times prior year. Second, we believe we are still in the early innings of a multi-year upcycle. Structural supply contractions continue across the industry. Customer demand remains stable, and our pricing discipline remains firm, with rates continuing to move upward toward more sustainable reinvestable levels. Given the opportunities we see ahead, we made a deliberate decision to accelerate investments in driver hiring and retention.
Derek Leathers: We made a significant investment in incremental recruiting, driver training, and onboarding costs to seat trucks and support customer demand. We begin to see the results as our TTS fleet increased from beginning to the end of the quarter. Finally, the third takeaway is that the near-term costs impacting our results this quarter do not change the trajectory of the underlying business. None of these items change the structural strength of our business or the progress we are making. In fact, they highlight the resilience of our model and ability to absorb near-term cost friction to better position our fleet, capture strong demand, secure market share, and support future growth. Our focus remains on strengthening the core pillars of Werner's business, which we believe positions us to create value for shareholders. Turning to slide 5, let's discuss our Q3 highlights in more detail.
Derek Leathers: Looking at Dedicated, this business continues to be at the core of our portfolio, delivering strong demand and solid performance. Excluding fuel surcharges, total Dedicated revenues increased 52% year over year, while revenue per truck per week grew nearly 6%. Customer retention remains exceptionally strong at over 95%, and accelerated driver recruitment helped us expand the fleet by 130 net additional trucks sequentially. Bid activity remains at record levels as shippers move to secure reliable, high-service capacity in a tightening market. It's been 8 months since our acquisition of FirstFleet, and the business continues to perform ahead of acquisition targets, delivering high customer retention, stable revenues, and expanding synergy capture. Continuity with drivers, associates, and customers continues to be outstanding. Given FirstFleet's strong service and customer relationships, we've achieved a 98% renewal rate on over 85% of the portfolio that has come up for renewal so far.
Derek Leathers: Turning to One-Way Truckload, our strategic turnaround continues to gain traction. We are continuing to prioritize yield and productivity over sheer volume, and that is translating into meaningful results. In the Q3, revenue per truck per week surged by 34% year over year, driven by ongoing improvements in miles per truck and revenue per total mile. These intentional actions led to adjusted operating margin expansion of more than 800 basis points year over year. With a stable fleet, our focus has shifted to building fleet capacity while maintaining the relentless operational discipline that generated these margins. In Logistics, performance rebounded sharply as purchase transportation costs stabilized and higher contract rates gained broader traction across our customer base. Brokerage gross margins expanded by $3.4 million and over 600 basis points sequentially, successfully restoring the segment to positive adjusted operating income.
Derek Leathers: We are also delivering accelerated momentum in our high-value cross-border Mexico and PowerLink offerings. These premium services deliver expanded contribution margins while reinforcing the distinct competitive advantage of a large asset-backed logistics provider, a value proposition that has become increasingly critical for shippers in the wake of the Montgomery ruling. Before Chris discusses our financial results in more detail, let's move to slide 7 to summarize our near-term market outlook. In our view, we remain in the early innings of capacity reductions as a result of enforcement efforts. Greater agency collaboration and data sharing, combined with increased use of technology, will further accelerate capacity attrition from here. Furthermore, the combination of escalating insurance premiums, aggressive carrier vetting, heightened litigation risk, high fuel prices, and stringent regulatory requirements effectively creates high barriers to entry.
Derek Leathers: Because it's becoming more challenging for new capacity to enter the market, disciplined operators face less threat from non-compliant capacity. This structural floor creates a stronger, more sustainable market backdrop, paving the way for further rate increases, reduced volatility, and healthier operating margins. While there was some easing in spot rates in July and August, tender rejections remained elevated, and we've seen improvement in spot rates more recently. This, combined with our expectation of further capacity attrition and higher volumes during peak season, points to ongoing rate lifts through the remainder of the year. We expect peak revenue to outperform the last couple of years. While high fuel costs and interest rates are pressing consumers to seek value, our strong footprint in discount grocery and non-discretionary retail positions us well. With retailers carrying leaner inventories, we believe demand could play a larger role as the freight market recovery progresses.
Derek Leathers: Lastly, the used equipment market strengthened early in the quarter before leveling off later as fuel prices spiked. As a result, we realized higher gains on a sequential basis. OEM manufacturing constraints, a higher average truck age across the industry, and the approaching 2027 EPA emission standards are supportive of demand for high-quality used assets. With that, I'll turn it over to Chris to discuss our Q3 results in more detail.
Chris Wikoff: Thank you, Derek, and good afternoon, everyone. We'll continue on slide 9. All performance comparisons here are year-over-year, unless otherwise noted. Q3 revenues totaled $951 million, up 23%, including the addition of FirstFleet, higher fuel surcharge revenue, rate lift, plus continued asset productivity gains. Top-line momentum was partially offset by a smaller One-Way Truckload fleet and lower Logistics revenue. Adjusted operating income was $21 million, up 92%, and adjusted operating margin was 2.2%, an increase of 80 basis points. TTS adjusted operating margin increased over 200 basis points, while Logistics was down year-over-year, but returned to positive territory compared to the Q2. Consolidated gains on the sale of property equipment totaled $8 million, up from $4.5 million in the prior year period. Adjusted EPS of $0.16 was up $0.19.
Chris Wikoff: Working against our results in the quarter were fuel and costs associated with our decision to accelerate investment in driver recruitment and retention in support of fleet growth, which was more noticeable in Dedicated late in the quarter. In addition, we had negative insurance reserve development on select FirstFleet claims. To provide more color on each of these headwinds, on fuel, rapidly rising diesel prices created temporary margin headwind during the quarter. While our fuel surcharge programs recover costs over time, sharp price spikes create a short-term lag effect. Furthermore, regional price disparities versus the DOE national average and specific contractual nuances can temporarily blunt surcharge effectiveness. Throughout Q3, we worked directly with specific customers to improve certain fuel recovery programs. Regarding insurance and claims, our core commitment to safety continues to yield clear operational results.
Chris Wikoff: Year to date, our DOT preventable accidents per million miles are down over 40%, marking our lowest level in more than 20 years. This performance reflects our ongoing investments in modern equipment, real-time safety technology, and enhanced driver training. While our underlying consolidated insurance and claims expense remained favorable in Q3, total costs were impacted by unfavorable development. Finally, regarding driver investment, we made deliberate strategic investments to accelerate fleet growth. The early return on these investments is clear. Our Dedicated end-of-period fleet expanded by 130 trucks sequentially, with much of that capacity coming online late in the quarter. We fully expect to build on this foundation with further fleet growth ahead while focusing on margin expansion. In combination, the fuel volatility, driver investments, and claim development created an $0.18 sequential drag on adjusted EPS.
Chris Wikoff: As we look to Q4, headwinds like fuel will largely abate while driver recruiting investments will continue at a measured pace to position our fleet for sustained growth in 2027. Turning to slide 10. Truckload Transportation Services total revenue for the quarter was $714 million, up 37%. Revenues net of fuel surcharges increased 28% year-over-year at $589 million. TTS adjusted operating income was $24.3 million, which was nearly three times the prior year. Adjusted operating margin net of fuel was 4.1%, an increase of 220 basis points. The year-over-year improvement was driven from accretive results from the addition of FirstFleet, profitability improvement in One-Way Truckload, and higher gains on the sale of equipment, mitigated by a higher net fuel expense, driver investments, and certain high-cost claim development. Our fleet metrics are on slide 11. TTS average trucks totaled 8,668 for the quarter, a 16% increase.
Chris Wikoff: The TTS fleet ended the quarter at 8,740 trucks, up 45 trucks sequentially. Truck additions in Dedicated were partially offset by fewer One-Way trucks. Within TTS, in our Dedicated business, for Q3, trucking revenue net of fuel was $444 million, up 52%. Dedicated represented 77% of TTS trucking revenues, up from 65% a year ago. At quarter end, the Dedicated fleet was up 2,240 trucks from where we started the year, a 46% increase from year end. Dedicated average trucks increased 44% year-over-year. Dedicated represented 81% of the TTS trucks at quarter end. Our Dedicated fleet grew through both existing customer expansion and new fleets, highlighted by over 130 truck implementations this quarter. With greater demand for Dedicated solutions comes better options and opportunity to improve yield.
Chris Wikoff: Dedicated revenue per truck per week rose nearly 6% this quarter, though impacted by the addition of FirstFleet in the mix. On a standalone basis, Werner's legacy Dedicated fleet delivered a 7% increase due to better productivity and higher contract rate renewals. Turning to our FirstFleet acquisition, we have realized nearly $6 million in savings during the first 8 months since closing, driving over 160 basis points of margin improvement to date. Furthermore, we have executed initiatives representing over $11 million in annualized cost savings, of which over $8 million will be realized this year. We remain on track to achieve our total synergy target of $18 million. In our One-Way business, we continue to see tangible results from our prior strategic restructuring. Trucking revenue net of fuel decreased by 15% to $136 million.
Chris Wikoff: One-Way adjusted operating income margin in Q3 improved more than 800 basis points year-over-year. Strategic focus and higher productivity made our One-Way operations significantly more profitable, both sequentially and year-over-year. Revenue per truck per week increased 34% from a 22% increase in miles per truck and 10% higher revenues per total mile. With over 85% of the One-Way portfolio repriced through the first three quarters at higher rates and an ongoing constructive backdrop, we expect further benefit in subsequent quarters. From a fleet size perspective, Q3 represented our second full quarter following the conclusion of our One-Way restructuring efforts. Average trucks declined 37% year-over-year to 1,673 trucks, but total miles only fell 22%. Moving to slide 12, we outline our roadmap back to mid-cycle double-digit adjusted operating margins in TTS.
Chris Wikoff: Our Q3 adjusted operating margin of 4.1% reflects over 200 basis points of operational headwinds previously mentioned. Our rate and production execution is gaining substantial traction. From a revenue per truck per week perspective, our 34% surge in One-Way led to an overall increase in TTS revenue per truck per week of 11% year-over-year, marking our strongest rate expansion in recent history and keeping revenue per truck per week above $5,000 for the second straight quarter. Looking ahead, our return to 10% plus margins is anchored by both market tailwinds and aggressive self-help. On the market side, we expect yield expansion across One-Way and Dedicated, alongside higher volume-driven contribution margins. On used equipment gains, we are aggressively refreshing the fleet as we close the year and move into 2027.
Chris Wikoff: This positions us to sell more units at a time when used equipment demand is expected to accelerate given 2027 EPA emission changes. On the cost discipline front, we are laser-focused on growing the fleet to spread fixed costs across higher volume while also returning to measurable annual cost-saving targets, with tech-enabled efficiencies driving an increasingly large slice of those savings in 2027. Our technology roadmap is focused on driving enterprise efficiency and disciplined innovation across our four core operational pillars: customer experience, driver enablement, carrier ecosystems, and fleet management. As we transition from the heavy build phase of our multi-year technology investments toward full application, we are entering a pivotal stage of operating leverage where every dollar of technology investment delivers a tangible return on capital.
Chris Wikoff: With our core foundations, modern TMS platforms, and integrated systems now firmly in place, our focus shifts towards realizing the synergy benefits and compounding ROI of these initiatives. Looking ahead to 2027, this transition will allow us to operate leaner, smarter, and faster, unlocking accelerated tech-enabled cost savings and driving scalable value across our unified enterprise footprint. When paired with sustained benefits from our One-Way restructuring and $18 million in FirstFleet synergies, our execution path is clear. We have more work to do, but our foundation is solid, our strategy is delivering, and our commitment to reaching mid-cycle double-digit margins is unwavering. Let's turn to slide 13 for an update on our Logistics segment. In Q3, Logistics revenue was $216 million, representing 23% of total Q3 revenues. Revenues decreased 7% year-over-year but increased 2% sequentially.
Chris Wikoff: Truckload Logistics, which represented 70% of total Logistics revenues, were effectively flat sequentially but decreased 13% year-over-year on 40% fewer shipments, partially offset by 44% higher revenue per load. Mix change between Truckload Brokerage and PowerLink was a driving factor on year-over-year revenue. More widespread implementation of higher contract rates and improved mix expanded Logistics gross margin by over 200 basis points sequentially, hitting a year-to-date high. Revenue in Intermodal and Final Mile had another strong quarter of growth. Intermodal revenues, accounting for roughly 17% of the segment, rose by 7%, driven by steady growth in load volume with a focus towards yield. Revenue per load increased 6%. Final Mile revenues, which comprise the remaining 13% of the segment, increased 18% year-over-year and 8% sequentially, setting a record high. Adjusted operating margin for the Logistics segment was 0.4%, 170 basis points higher sequentially.
Chris Wikoff: Let's review our cash flow and liquidity on slide 14. In Q3, we continued to generate strong operating cash flow of $21 million, which is net of an $18 million settlement for the Abarca class action lawsuit previously disclosed and accrued for in Q3 of last year. Our Q3 net CapEx was $37 million or 4% of revenue. On a year-to-date basis, net CapEx is nearly $29 million or 1% of revenues, and free cash flow is $160 million or 6% of year-to-date revenues. Total liquidity at quarter end was $654 million, including $39 million of cash on hand and $615 million of combined availability under our credit facilities. On 5 October, we entered into a new $1.1 billion unsecured credit facility replacing our previous facility.
Chris Wikoff: The new agreement is a five-year maturity with reduced borrowing costs compared to the former facility, enhanced financial flexibility, and additional capacity to support strategic investment. We ended the quarter with $847 million in debt, an increase of $95 million year-to-date, including the incremental debt related to our FirstFleet acquisition. Covenant-defined pro forma net leverage at the end of the quarter was 1.9 times, including pro forma synergies and trailing 12 months of FirstFleet results. We continue to have a strong balance sheet, access to low-cost capital, and no near-term maturities in our credit facilities. Let's turn to slide 15. Our approach to capital allocation remains balanced, disciplined, and focused on driving long-term shareholder value. First, we are accelerating strategic reinvestment in our fleet, maintaining a low-age, modern fleet of safe trucks and trailers that lowers maintenance costs, improves driver retention, and maximizes operational efficiency.
Chris Wikoff: Second, following our acquisition of FirstFleet earlier this year, our immediate priority is executing seamless integration, expanding margins, and realizing our targeted synergy goal. Looking ahead, we will continue returning capital to shareholders while maintaining a strong, flexible balance sheet. While integration is our core focus, we remain open to high-caliber acquisitions that offer a clear strategic, cultural, and financial fit, delivering accretive growth for Werner. Let's review our guidance for the year on slide 16. On fleet growth, we are tightening our full-year TTS average truck count guidance from 16% to 18% to 16% to 17%. We saw consistent fleet expansion as Q3 progressed, and our average trucks increased nearly 16% year over year. Today, our active fleet is larger than at the end of September.
Chris Wikoff: This steady trajectory reflects the success of our strategic investments in driver pay and retention programs, giving us confidence in our competitive differentiation even in a tight labor market. Dedicated revenue per truck per week increased 5.6% year over year and is up 4% year to date compared to the prior year period. We are increasing the bottom of the range to an updated full year guidance range of up 4% to 5%. We have been successful securing mid-single-digit increases in contract renewals for both our legacy Dedicated fleet and our FirstFleet business. Beyond pricing, asset productivity continues to climb as we leverage stronger freight density and operational scale across our expanded footprint. In the third quarter, One-Way Truckload revenue per loaded mile rose 10.2%, while revenue per total mile grew 9.7%, finishing just below the range due to a minor uptick in deadhead.
Chris Wikoff: For the fourth quarter, we expect revenue per total mile to increase 10% to 13% year over year, driven by ongoing implementation of higher contract rates plus peak season volumes and associated premiums. Moving to net capital expenditures, we are lowering and narrowing our full year guidance range to $190 to $205 million, down from our prior range of $215 to $250 million. This reduction is primarily driven by the timing of OEM deliveries rather than a pullback in commitment. We remain fully dedicated to refreshing our fleet and reducing average tractor age. For our effective income tax rate, year to date, GAAP ETR stood at 17%, driven by discrete favorable items in the third quarter. For the full year 2026, we are updating our target GAAP effective tax rate guidance to a range of 24.5% to 25.5%.
Chris Wikoff: Regarding other modeling assumptions, we expect net interest expense this year will be between $40 million and $45 million. Over the midterm, we anticipate increasing demand for quality used equipment and expect increasing resale values, given OEM production constraints and the evolving regulatory backdrop that will be an incentive towards high-quality used assets. Our gains through the first three quarters of the year are $13.3 million. We are updating our anticipated gains on sale of used equipment and revenue-generating assets for the year from a range of $10 to $14 million to $14 to $16 million. With that, I'll turn it back to Derek.
Derek Leathers: Thank you, Chris. In Q3, we continued to see clear improvement in top-line revenue from the actions we've taken. The acquisition of FirstFleet has proven to be accretive. One-Way Truckload and Dedicated revenue metrics have been exceptional based on strong demand, solid execution, and customer support. While fuel will remain a headwind as long as prices remain elevated, it should be less impactful, assuming less price volatility and due to the actions we've taken. Given that the elevated insurance costs in the quarter pertain to the negative development on select claims, we expect these elevated costs to be contained to the quarter. Investments in driver sourcing and retention are likely to remain elevated, at least in the near term, but are necessary to continue executing on our strategy as we strengthen our long-term growth and margin trajectory. With that, let's open it up for questions.
Operator: At this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Again, that is star and then one to join the question queue. Our first question today comes from Scott Group from Wolfe Research. Please go ahead with your question.
Scott Group: Hey, thanks. Afternoon. Derek, any color you can give us on how to think about the margin trajectory from Q3 to Q4 as we get through some of these elevated costs in the quarter? When you guys talk about a double-digit margin in trucking, is that realistic to get there in 2027, or is that more likely we need a couple of years of price and it's more likely a 2028 outcome? How are you thinking about that?
Derek Leathers: Yes, Scott, thanks for the question. I think maybe the best thing to do is to step back and review where we've been and where we're going. Q3, I think, demonstrated the business generating strong top-line momentum. One-Way and Dedicated revenue per truck per week both showed significant year-over-year increases. Logistics gross margins improved from Q2, and we're continuing to make progress on FirstFleet. But the margins in the quarter were more muted than you would think given some of the metrics that we produced with the underlying results. That was driven heavily by the headwinds that we talked a lot about in the opening remarks. We believe that most of the Q3 headwinds are temporary, although some will continue into Q4. I think it's important to break it down a bit.
Derek Leathers: I will start with the driver piece first, and then I will have Chris unpack how that bridges into margin progression from Q3 to Q4. On the driver cost, I think what is important is that a lot of it is front-loaded investments. It is not structural labor inflation. This is stuff in Q3 that was an intentional decision on our part to accelerate our driver acquisition efforts. We ramped up advertising, recruiting pipelines. We implemented some sign-on and transition incentives. All of that was to onboard and increase throughput to the seated trucks for the committed freight that we already have. You can see that in the end of Q3 truck count. Dedicated added 130 net trucks sequentially, net of some businesses that we exited, and much of that was seated late in the quarter.
Derek Leathers: Much of the driver sourcing and retention investments in Q3 will continue into Q4, but we do not expect that spending to fall off of a cliff overnight. Instead, we plan for it to be elevated at a measured pace during Q4, as we think about moving forward and continue seating equipment to capture that demand going into 2027. But it is not permanent structural costs. This was sort of a revamp of how we think about bringing people in the door and accelerating in advance of peak to make sure we are fully prepared for our customers. It is, though, a headwind in the near term.
Chris Wikoff: Yeah, and Scott, just to give you a bit of color on how to think about the sequential earnings progression from Q3 to Q4, and then we can talk a little bit about your question on the realistic path on double digit. In terms of the sequential earnings progression for Q4, we expect modest sequential improvement compared to the $0.16 of adjusted EPS that we saw in Q3. Give me a chance to break it down maybe into three parts for you. The first two being favorability quarter over quarter, and then a third part that really represents some potential offsets. First is some favorable headwind abatement and cost relief relative to Q3. So going back to the $0.18 of the Q2 to Q3 EPS drag, call it a third or about $0.06 per share was driver investment.
Chris Wikoff: As Derek mentioned, this investment will continue to drive fleet growth. The remaining two-thirds, or about $0.12 per share, was largely fuel, along with some reserve development. We believe the majority of that will dissipate in Q4, although we do not anticipate eliminating all of the fuel-related headwinds, just given where DOE is at and near another high point for the year. So that is number one. Number two, we are seeing favorable momentum given peak and pricing. Our favorable trends in One-Way Truckload rate per total mile, Dedicated revenue per truck, that will continue quarter over quarter, implied by our guidance, and we are also in peak season. Frankly, our active fleet is larger now than the Q3 average.
Chris Wikoff: Taken together, the combination of the headwind abatement, some of the operating momentum, that will help to recover the sequential earnings decline that we experienced from Q2 to Q3, but there are some potential offsets in Q4. Those offsets can look like sequentially lower gains, plus some higher interest expense and some tax normalization. When you think about the gains guidance that we provided, that implies a material step down Q3 to Q4. When you think about CapEx and the significant equipment investment that we are planning for Q4, that can also drive some higher borrowings and interest expense, and we had an unusually low Q3 in terms of tax normalization.
Scott Group: Okay. Super helpful. Derek, if I can just ask one more just bigger picture question. We have gone from 3,000 One-Way trucks to 1,500, and we have gone from 4,000 or 5,000 Dedicated to 7,000, give or take now. Have we swung too far to Dedicated to really sort of see the benefits of an upcycle, or do you think is it just unfair to judge on the first year of an inflection where One-Way naturally gets more and Dedicated shows up in a lag? How do you think about that?
Derek Leathers: Yeah. I would start by agreeing that it is too early to judge. I think, first off, it is important to understand the restructuring we went through was significant. It was significant in its size and scale. It resulted in a realignment of our network that was probably the most large-scale realignment I have been a part of in my career. As part of that realignment, there was fleet shrinkage that was not necessarily desirable as it relates to some driver losses and other things that came with it, but the fleet and network is now aligned where we want it. Now it is about building back from there. We have got the layout the way we want it. It shows up when you think about 22% increase in miles per truck per week. I mean, that is a phenomenal stat.
Derek Leathers: But it only works when we finally focus the network exactly and precisely where we needed it and wanted it to be, and then augmented it with Brokerage, Logistics, Intermodal, and other offerings. That was a little more painful than we probably thought when we entered the tunnel. The fleet shrinkage was a little greater than we would have expected. But now the baseline is set, and now it is incumbent on us to build it back from there, especially going into a multi-year upcycle, which I do believe this will be. We are not abandoning Dedicated as the core of the portfolio, but we will be nimble and opportunistic relative to One-Way as it relates to some near-term growth, in that space, to be able to leverage the upcycle to the best of our advantage. That is why it is important to spend the money early.
Derek Leathers: I don't love some of the headwinds that we endured in Q3, but when you can't manage the business for a 90-day period sometimes, you got to make a strategic decision. We've spent some money. We've redesigned the front door. We're keeping the standards high, which led to the 20-year low in DOT preventable accidents. That ultimately translates over time to a better, more controlled risk line. We're going to continue to do that. But yes, you're right, Scott. We do see some opportunity for expansion in One-Way, and at the very same time, the Dedicated pipeline is very robust. We had implementations throughout Q3. We've got implementations in Q4, which is a real rarity. That doesn't happen very often in Dedicated because the risks associated with a Q4 implementation.
Derek Leathers: Nonetheless, we have some coming, so we got to seat those trucks and the One-Way trucks. It's an uphill battle, but we're better positioned than most with our own driver school network, as well as our affiliation with Tier 1 schools across the country. We'll keep fighting the good fight, but I do think it's too early to judge what that mix looks like just yet. The One-Way side did shrink further than we would have probably liked. But when you change geographies, you don't always get the drivers to change with it. The table is set now for growth as we go forward.
Scott Group: Thank you, guys.
Operator: Our next question comes from Chris Wetherbee from Wells Fargo. Please go ahead with your question.
Chris Wetherbee: Yeah. Hey, thanks. Good afternoon, guys. Maybe picking up on some of the driver costs and the upfront sort of payment here, can we talk a little bit about sort of the pricing opportunity, maybe Dedicated specifically to get a sense of how quickly you think you can kind of recoup that? I know there is going to be some ongoing sort of costs, but I guess as we think about that dynamic, I guess kind of piggybacking on the last question about margin recovery, how does the pricing environment help you get there, and how quickly can that work?
Derek Leathers: Yeah, great question. The driver investment stuff in Q3 was front-end loaded, and I would call it corporate loaded. Not in the corporate cap on the P&L. I am just saying it was brand, it was exposure, and it was more holistic than just Dedicated versus One-Way. It is just changing the dynamic and the narrative relative to the driver population. As it relates to driver pay and driver increased cost in Dedicated, those are funded through our customer relationships. As we go forward and as we have to make targeted pay changes, those are always funded and discussed with our customers, and it is a joint decision. Good news, bad news. Bad news on the front end is that you have to do a lot of sort of generalized spending to kind of move the needle on things to really prime the pump for that application count.
Derek Leathers: That did exactly that. The bad news on that front is that not just us, but nationwide, I was talking to some folks today that work, some third parties that handle driver advertising and connectivity with fleets, and rejection rates on driver applications is up 170% year to date from January till now. That is because, yes, there is lots of application, but some of it is noise, and you have got to really sift through that pile. We are going to have to continue to work through that. But Dedicated raises for drivers are supported by our customers and funded, and then margin conversations are separate from that. On the One-Way side, the market is obviously in a good position to do cost plus relative to driver wages.
Derek Leathers: But in the short term, this advertising, beefing up recruiting, spending money on some of these fleet transition bonuses and other things is more short term in nature, but will continue into Q4 and probably into Q1, to be frank.
Chris Wetherbee: Okay. That is helpful. Maybe just sort of filling out the conversation around the Dedicated pipeline, obviously it seems like there is a lot of demand incoming for you as well as other folks who play in this business. Can you give us a sense of maybe what that means as an early look for 2027, I guess? How do we maybe size up the opportunity for growth in Dedicated business in 2027 versus maybe some of the other big growth years we have seen in the past?
Derek Leathers: Yeah, I think 2027 will be interesting. The market is set up very well right now to go out and to achieve the rate increases that we need to continue that march back to double-digit profitability. As Chris indicated earlier, there is like 200 basis points of headwinds. The 90, call it 95, was really a 93 nine or whatever in the quarter, if not for some of those temporary headwinds. So we got to work through that. We got to have conversations with our customers. On the Dedicated growth side, the difficult thing is we have done some yielding this year. We are going to have to continue to either get rates where they belong or yield further. So it is about net truck additions.
Derek Leathers: I do not know that 2027 is going to be a year where you are going to see record-breaking net truck additions, because the yield that is still out there that needs to be addressed is something that we are going to have very frank conversations with folks. It is our job to go and get these margins where they belong quickly. The majority of customers understand the marketplace and understand what has happened with capacity. Then, like anything, there are always a few outliers, so there will be some churn within that Dedicated fleet. But net growth is the expectation, and that is what we are gearing up for, both in Dedicated and in One-Way as well.
Chris Wetherbee: Okay. Appreciate the color. Thank you.
Operator: Our next question comes from Jordan Alliger from Goldman Sachs. Please go ahead with your question.
Jordan Alliger: Yeah. Hi. Afternoon. Just curious on the traditional One-Way Truckload business. You mentioned, I think you mentioned an expectation of a return to normal seasonality as we go through the balance of this year, which I think would lead to pretty strong finish in terms of year-over-year spot rates. Realizing we are not in 2027 yet, but can you maybe give some of your thoughts on how contracts could look in year 2 of this cycle? Presumably, it will be more than 1 year of an elevated period. So I am just curious your thoughts for next year.
Chris Neil: Hey, Jordan, this is Chris. Thanks for the question. Yeah, I think as it relates to One-Way pricing early in the bid season here. But following several years of One-Way rates that have been down while core operating expenses have continued to climb, we certainly expect another season of increasing rates. We need to improve margins in One-Way back to reinvestable and sustainable levels. I think through the results that we spoke about earlier through revenue per truck in One-Way, that is up 34%, miles up 22%. That is on a length of haul that is up 116 miles. So we have got this restructured network, and now we are in position to have a stabilized fleet and one that grows.
Chris Neil: Similar to this year, just in terms of cadence, we would expect about 60% of our One-Way business to be repriced in the H1 of next year, and a little less than that would be effective in the Q1. A little more than that would be effective in the Q2. When we consider pricing, of course, there is a number of things that we consider. This is a very customer specific and business specific
Chris Neil: action. Those things, whether it be existing rate structures, the complexity of the business, the productivity that we are focused on, all those things are very important and considered. As pricing levels escalated throughout 2026, some of those bids that we priced early in 2026 did not go up at the same amount as those that were priced later in the year. It is too early to give any overall expectation for 2027, at least in my view. I think we expect those early opportunities would probably need to be up double digits, on average. Again, every customer is specific, and we will look at them each individually. As rates escalated throughout the year, I think that is probably our starting point here early in the 2027 bid season.
Jordan Alliger: Yeah. Just as a quick follow-up. Obviously, as you have rationalized the fleet, in part, truck productivity has been pretty strong miles per tractor per week. Can you maybe talk to the normalization process around that? I assume that would be after, once we get into Q4. How could we think about that on a go-forward basis?
Derek Leathers: Yeah, this is Derek. I would just say this. Look, the focus as we go on a go-forward basis is certainly going to be more weighted toward rate than it will be productivity. We are not giving up on productivity. There are still opportunities for us to continue to eliminate downtime, increase use of our in-house network shops for better velocity, increase use of our automated appointment settings and other things to eliminate or to reduce the time to repair. We are going to continue to focus on all of the above. The bigger lever by far as we go into 2027 is on rate. Chris just laid out, I think, a pretty comprehensive answer to why it needs to continue to go up, what the expectation would be as we get into the early bid season. I think it will be consistent with what we will see in the market.
Derek Leathers: Frankly, we will continue to monitor the capacity exits because this is still, everything we are talking about today is based on an assumption of relatively flattish GDP, or what we have seen as of late GDP, 1% to 2% type moves. It is really supply driven. If we start to see any kind of rebound or further resiliency out of the consumer and demand picks up, I think there is upside from there. The baseline expectation as we go into the year and early bid season is that double-digit range with rate being the focus, both through price, as well as yield. We will have to do some of both, and we will keep an eye on that as we get closer to the end of the year and start kicking off what has already kicked off early 2027 bid season.
Chris Wikoff: Jordan, I would just highlight, from a One-Way Truckload revenue per total mile standpoint, we have had two back-to-back quarters of around 10%. I think we would probably consider that top of class relative to our peers, as well as the Dedicated revenue per truck being up about 6% on a year-over-year basis. Some of that is watered down with just FirstFleet being in the mix. So, we are very pleased with the top-line momentum and our ability to replicate that into the next year.
Jordan Alliger: Thank you.
Operator: Our next question comes from Ravi Shanker from Morgan Stanley. Please go ahead with your question.
Ravi Shanker: Hi, great. It is Ravi. Can you guys remind me about your fuel surcharge lag? I am a little bit surprised that it is as much of an issue. I have always believed it was closer to 1 week for the truckers, maybe it is slower for you guys. So what is that looking like, and why is that so much of a problem right now?
Derek Leathers: Yeah, Ravi. The fuel is a really complicated subject. But yes, the lag is about 1 week. You are right. The problem you get into in a quarter is not necessarily the raw fuel price, it is what the movement has been and is it consistently up. If it is consistently working its way up throughout the quarter, that lag continues to hit you every time it moves again. That lag effect and impact continues to grow. Our fuel surcharges are such that in some isolated cases, we also had to go back and revamp them, relative to the difference between national DOE and where maybe the predominance of the miles were ran. We had to go out intra-quarter, work with customers and structurally change some of those fuel reimbursement programs.
Derek Leathers: Lastly, and maybe the harder to explain quickly part is the gap between wholesale and retail and what that spread normally looks like under 90% of the times. In Q3, that spread shrank to historically low levels. That has an impact for us in terms of how we purchase fuel, and what our net cost of fuel is. When that spread in a normalized environment is between $1 and $1.10, when you start to see spreads at certain times during the quarter as low as high $0.40 to low $0.50, there is a negative impact on all the programs in their design. All of the above is being analyzed right now, we are reimagining with certain customers what that fuel surcharge needs to look like.
Derek Leathers: There has been general supportive dialogues and in some of those isolated cases I mentioned previously, they have almost all been largely addressed. So, got some work to do. It is still going to be an issue if we continue to see fuel increasing, but the largest portion of that impact is only related to the volatility of the quarter and the fact it was up and to the right consistently week over week. As we see stabilized fuel prices, even at a high level, the surcharges start to do their job much better.
Ravi Shanker: Got it. That is helpful. Maybe as a follow-up, you guys have always been one of the leaders with driving school investments. Can you just remind us what kind of advantages that is paying off right now and if you are looking to maybe up those investments?
Derek Leathers: Yeah. The driving schools, for us Roadmaster is a significant part of what has enabled us to do what we did in Q3 and enabled us to be able to seat drivers where we need them at the quality we need them. That is the key thing here. The standards at our Roadmaster schools are very high. We and other schools across the country have seen enrollments down 20% to 30% on average throughout the year. That is an ongoing battle to get people interested in professional driving as an occupation. The wages are certainly attractive enough, and it is about making the job increasingly attractive and changing the narrative on what used to be a go out over the road 2 to 3 weeks at a time.
Derek Leathers: Where in Werner, with our heavy concentration of Dedicated as well as our engineered routes, we are getting 70%-plus of the fleet to and through the home multiple times a week. We have got to continue to grow that type of lifestyle. But those schools have performed well. We also work with a group of Tier 1 schools across the country. I am really proud to report that as these ongoing school audits have been taking place nationwide, and only increasing in their frequency and their severity, both our Roadmaster schools have all passed those audits with flying colors, as well as our Tier 1 partners. We are working with the right people, trying to do it the right way. But that limits the pool of drivers that you can pull from. We think it pays dividends in, for instance, Q3, 20 year low in DOT preventable accidents per mile.
Derek Leathers: That is something that we are proud of. We have got to bend the curve on the insurance line, and the only way to do it is with high-quality drivers, high-quality training, and then giving them the support that they need.
Chris Wikoff: Hey, Ravi, just to give you a little bit more-
Derek Leathers: Sorry, go ahead.
Chris Wikoff: Just to give you a little bit more color, Ravi, on the, call it a third of that $0.18 of headwinds that was driver investments. The lion's share of that does show up in TTS. But some of the elevated expense in Roadmaster for added instructors, added advertising and marketing to bring in students, that shows up in corporate and in other. So that's where some elevated expense resides, just as you're looking at the financials. There's also some M&A one-time add backs in corporate as well.
Ravi Shanker: That's helpful. Thanks, Chris.
Operator: Our next question comes from Brian Ossenbeck from JPMorgan. Please go ahead with your question.
Brian Ossenbeck: Hey, afternoon. Thanks for taking the questions. You talked a lot about the engineered fleets. Derek, maybe you can give an update on Mexico cross-border and some of the expedited teams. I imagine those are still probably pretty good demand drivers, but I'm not entirely sure how the staffing in those lanes and for those applications have gone in this current driver market.
Derek Leathers: Yeah, Brian, great question. We are bullish on Mexico cross-border. It is already hitting a new record for direct foreign investment, and we are only sitting here in October. But it set an annualized new record. We see more and more shovels in the ground, plants being built, and expansion of plant and equipment down there. At the same time, in Q3, as part of all of this ongoing enforcement, et cetera, you get caught in the wash at times. So there has been some disruptions with that business. Not with our drivers and our freight, but just overall inspection and overall oversight at that southern border increased quite a bit in Q3. And that is a net positive for us because we are operating legal US drivers, not B-1 visa drivers. We are not using non-domiciled CDL drivers to deliver that freight, et cetera.
Derek Leathers: But it still impacts us because we are caught in the same lines and some of the same hold-ups that took place. As we look forward and they clean that up, and they are continuing to do so, we view that very positively for our Mexico cross-border business. And the strength that we have built over 27 years down there only gets stronger from here. Engineered lanes and the expedited business overall domestically, another thing we are leaning into. That is what is driving a lot of the miles productivity increases you are seeing, both with traditional sort of team-like capacity, as well as engineered lanes, where drivers are essentially getting home nightly. We are slip seating trucks and being able to put that truck to better use. It dampens the truck count number a little bit when you are finding more and more opportunities to engineer further lanes or to team drivers up.
Derek Leathers: But it is the best way to sweat the asset, do it safely, and make sure we deliver the kind of service levels that some of these service-sensitive customers are looking for. That freight also, I like a lot because it is much more difficult to poach and to transition into intermodal or other activities. Because it is fast transit, high service expectation. And as they clean up enforcement around the country, and they have got a long way to go, you start to take out some of the folks that have been kind of coloring outside the lines for way too long on some of those transit times and solos operating as teams, et cetera. That business is now we are seeing a strong flight to quality there, and so we are excited about the future.
Brian Ossenbeck: Just a quick follow-up, Derek, on the flight to quality. I guess we have been a little surprised we have not heard as many shippers going to asset-based carriers in this whole, I guess, post-Montgomery tight capacity world. I imagine it takes time and it is a long decision for some, maybe shorter for others. But just want to get your perspective on how those conversations are going, and if you think that will, if it is slower now, if you think that is going to start to pick up, both, I guess, on One-Way and on Dedicated. Thanks.
Derek Leathers: Yeah, Brian, I think those conversations are going well. I think shippers acknowledge the need and the issue in front of them. They've been fairly open about that in the conversations we've had. We recently hosted our annual customer forum, where we bring in over $1 billion of freight all under one roof for a day, and I had long conversations with many of them. It's difficult. They're not going to come out and say, "Yes, I'm moving to quality," because it implies they were working with less than quality prior. I don't think we're ever going to hear those words. It's also difficult because when they were working with less than quality carriers, they were doing so at a significant discount to market. The move is expensive just to get to a market-based rate structure, but they understand the need to do so.
Derek Leathers: They've got conflicting pressures in their buildings. They're all under pressure with higher input costs. We recognize and respect that. They're looking for anywhere they can to bend the curve on cost overall, but transport isn't going to be one of those places as we look forward. Our job is to try to make their transport network as efficient as it can possibly be, find additional backhaul opportunities and other ways to save on total costs. But rates are going to be reset, need to be reset, and the gap between what they may have been paying and what they're going to need to pay going forward is directly proportionate to the quality of the carriers that they were working with previously. Those are just some thoughts and gives you some color on sort of the toughness of some of the dialogues that are happening.
Brian Ossenbeck: Very helpful. Thanks, Derek. Appreciate it.
Operator: Our next question comes from Richa Harnain from Deutsche Bank. Please go ahead with your question.
Richa Harnain: Hey, thanks for the time. On the outsized driver recruitment investment related costs, I guess how much is related to startup costs for the fleets you are standing up versus maybe cost to support pre-existing contracts and versus the front-end loaded investments Derek, you talked about in earnest. Just curious if you could provide a further breakdown. I do not think we answered the question on double-digit margin potential at some point in 2027. I hear you all on that. A lot of it depends on rate, but part of the bridge you showed in your slides was self-help related. Do you think that is still in the cards, or does it still feel too early in light of the driver-related costs and some of the lingering issues you spoke about?
Derek Leathers: Yeah, Richa, I will start with the first part of the question. I will have Chris walk through the bridge a little bit further. As it relates to the driver-related costs, clearly some of it was accelerated or had more urgency around it because of some of the Q3 implementations you talked about. One thing about Dedicated is if you are taking over a private fleet, there is a deadline, and you must meet it because otherwise freight does not move. We had to ramp up and do some things creatively to make sure that those deadlines were met. That is also why you see a little bit of van-to-Dedicated movement in the quarter to make sure that we are able to meet the original deadline. In many cases, that van driver may end up going back to van once we have that Dedicated seat filled.
Derek Leathers: There is a little bit of that. In general, as I said earlier, it is more broad-based than that. It is a larger scale undertaking to continue to work and massage the narrative relative to Werner as a destination career for professional quality drivers. That comes in a lot of forms, advertising, additional recruiters, additional instructors at the schools that Chris mentioned. In some cases, some sign-on bonuses and/or guaranteed pay as they transition in. The biggest thing I would just point out is that whatever that cost is, you do not reap the benefit of it. If you are talking about a driver coming into the industry, it is 8 to 10 weeks out from the time you spend the money before you actually see that driver productively out there delivering a load.
Derek Leathers: The majority of the quarter is chewed up, and you have the cost and not the resulting revenues. Even on an experienced driver, which we hire quite a few of every week coming into the fleet, you still have a delay as we put them through certification and training and oversight and make sure they are ready to take the road. As we work them in and they become accustomed to being a driver at Werner, that productivity takes some early weeks impacts before you get up and running at full speed. All of the above causes a lag effect between the investment and some of the payoff. The investment is going to continue, but at least as we go into Q4, some of the payoff starts to come through as well.
Derek Leathers: And we saw that in end of period truck count versus average truck count because most of those got seated late in the quarter.
Chris Wikoff: Hey, Richa. Just to also speak to the pathway to double digits. Yeah, we have talked about it. There is a slide on it. Just to break down some of those parts. You mentioned rate. Rate certainly can help. We are pleased with the rate, whether it be on One-Way Dedicated revenue per truck per week, the 34% increase on One-Way revenue per truck per week that we are seeing this year. Confidence to go after it next year. The difference being, there is less right now that is flowing through to the bottom line, given the headwinds in fuel and the intentional driver investments. So rate will help. There is also a volume at higher contribution margin. That is what the driver investment is all about. A small percent increase in the fleet growth can translate to a much more meaningful increase in operating income and earnings.
Chris Wikoff: That is why we are behind the driver investment for a period of time. So it is not just volume, it is volume with significantly higher contribution margin as we go forward. There are also the gains. While that is somewhat of a market-driven factor, there are things that we can be doing to influence that and that we are doing by reinvesting in the fleet. Making sure that we have low age, low mile used equipment, quality used equipment to sell at a time when the demand and the resale value is going to be ticking up. We just have continued to trend at 40, 50 basis points. More recently, 80 basis points in the Q3 as a percent of revenue on gains. But in stronger years, that has been 150 basis points or even 200 basis points. So that will help.
Chris Wikoff: And then a number of things that we can do around, frankly, cost discipline and greater operational efficiency. We have talked a lot about the FirstFleet synergies. We are very much on track, but that presents additional upside next year. We have had many years investing in the technology and building the technology. We are now transitioning into the phase of reaping the benefits of that technology that will translate to cost savings more noticeably in 2027. So there is a lot there. I understand there is no one silver bullet, but because there is a lot there, and they are all things that we can help to influence and maximize, that is what continues to give us confidence. We have seen margin expansion this year on a year-to-date basis and year-over-year. It is not as much as we would like.
Chris Wikoff: But there are some headwinds there, and all those factors will just enable us to capture more of that margin expansion as we move forward.
Richa Harnain: Okay, and then if I can ask just one big picture one. I guess one of the appealing features of a Dedicated business model is you don't necessarily get the entirety of the uplift from the cycle shift, but you do get more multi-year capture of rate, which is obviously attractive in this improving environment. Just talk about that a little bit. Are contracts extending beyond normal? Anything there with respect to nuance this cycle versus maybe prior ones?
Derek Leathers: Yeah. As we've indicated a couple of times, it's early in the cycle, but yeah, our ability to be engaging with customers and creative in new ways relative to Dedicated contracts is certainly in front of us. They still generally are going to average 3- to 5-year contracts with inflationary kickers included in most cases. And so we'll look at those individually. There are cases and times where we may be the one that doesn't want to go longer than that based on what we believe will happen over the course of that time with the market, or as a way to get in and establish with a customer and not let that be a friction point that stops us from starting. Once we start with customers, we've had a great success at keeping them for a long, long time once they get exposed to the product.
Derek Leathers: Not a great one-size-fits-all answer, Richa, honestly. But it is something that is certainly part of the dialogue right now.
Richa Harnain: All right. Thank you.
Operator: Our next question comes from Ken Hoexter from Bank of America. Please go ahead with your question.
Ken Hoexter: Hey, great. Good afternoon, and thanks for getting me in here. I guess, Derek or Chris, you mentioned earlier 800 basis points of improvement in margin in One-Way. I think you had mentioned maybe it was from loss-making when you started to getting in the money now. I guess, can you compare where it stands now, One-Way versus Dedicated? Have they moved in alignment? Is there still a difference? I guess in the past, TTS as a whole has hit the low 80s with a much higher One-Way exposure. I guess that was when you were almost 40% One-Way. Now, how should we think about the potential? Does that limit the margin potential or just the speed to that target? Just trying to understand the difference of the scale of Dedicated versus One-Way. Thanks.
Derek Leathers: Yeah, I will start. I am sure Chris will have some color he may want to add. Clearly, we have talked about this for several quarters or actually the last couple of years, but One-Way has been in a very difficult spot in this environment. They are the most direct competitor or the direct impacted by some of the less than compliant carriers that were out there and some of the things that we saw take place with the proliferation of CDLs and other factors. That 800 basis points did take it from a loss to a gain, and we are going to continue to drive it from there. It is nimble, and the ability to inflect and improve those operating margins is something that we will continue to lean into.
Derek Leathers: You are correct, Ken, that by it being a smaller basis of the total pie, that is one of the reasons why we want to ramp up and get those trucks seated and get that back to the level that we think it belongs. But part of that restructuring was making difficult decisions that needed to be made. We made them. We are paying a short-term price for it. But long term, I think it puts us on a really, really solid footing for the future. We will grow it from there. Dedicated has the ability to take rate. Our customers are understanding the tightness of the market, and the pipeline is strong because of the One-Way turmoil that is out there and expected to last for the foreseeable future.
Derek Leathers: We have got to be prudent about how we price that Dedicated, make sure it is truly long-term Dedicated versus sort of a capacity fleet that is masquerading as Dedicated for the short term. Otherwise, place that business where it belongs in One-Way. There is a lot of moving parts there, but the One-Way margin improvement is something that can happen very, very quickly and is happening quickly. It is the starting point that was the problem, and now we have dug out of that hole, and now we have got to march forward from here.
Chris Wikoff: Yeah. The only thing I would add to it, Ken, is just to reinforce the One-Way restructuring. We are now more in the markets that we want to be in. Density matters. We are more in the freight that we want to be in terms of expedited and team-oriented freight. Through that restructuring, we took out fixed costs. Just really echoing what Derek just said around the driver investment and how bullish we are around it. The earnings impact from a small growth in the fleet can be significant given the base that we are at and just how solid that One-Way portfolio is going forward. While the driver investments that we have made to this point show up more in Dedicated with the late in the quarter 130 truck growth. That is not to say that will not also benefit One-Way.
Chris Wikoff: We are moving some of those hires into One-Way, and that is an area that will continue to grow and has meaningful contribution margin as we grow the fleet.
Ken Hoexter: helpful. If I can just do a follow-up, Derek, I am kind of surprised CapEx was so low given the emission standards changes. It sounds like you said just some OEMs pushing the timing off. Does that leave you exposed to higher costs to get new tractors? Maybe you can just talk a bit about that because I know you mentioned the gains should be different, but maybe talk about your fleet and the 2027 EPA emission standards change and what this means for Werner.
Derek Leathers: Yeah. Thanks for asking that, Ken. I am really glad to be able to answer it. Let me start with this. It does not reflect a change whatsoever in our approach to freshening our fleet. It does not reflect a change in all of a sudden accepting a bunch of 2027 engines at a higher price. It is simply a timing issue. Basically timing, it is well documented. There is already starting to be supply chain issues throughout the manufacturing OEM world, and we are going to be impacted by some timing of deliveries with 2026 engines that will be delivered early Q1. We just felt it important to update the group that the CapEx spend will shift slightly. We are talking a matter of weeks, if not days, in some cases. It makes it look like a much more dramatic shift, but there is really nothing. There is no there.
Derek Leathers: We are still marching forward with the same CapEx or the same equipment plan. It is just timing changes the CapEx layout, or payout, I should say. That is all that is. Nothing more to read into.
Chris Wikoff: Ken, those prices are locked in. When we place those orders, based on attractive pricing because of some of the OE timing delays, that does not change our attractive pricing.
Derek Leathers: It also is the same thing that is impacting the pretty dramatic drawdown of gains on sale from Q3 to Q4 in our guide. That is because I have to have a tractor to sell a tractor. With these delays, there is an impact in Q4 that will dampen EPS in Q4 just because of not having the available inventories to be able to move.
Ken Hoexter: Really clear. Appreciate it. Thanks.
Operator: Our final question for this afternoon comes from Tom Wadewitz from UBS. Please go ahead with your question.
Tom Wadewitz: Yeah, good afternoon. I will just give you both elements of it at once. Derek, wanted to get your quick thoughts on regulatory initiatives, how much of that has played out. I know it is hard to quantify, but I think there is some sense that maybe a lot of the impact has played out, but that seems like the transport companies do not believe that. I guess the way we think about those initiatives and maybe tighter driver market, it seems to me that you are not the only one sharpening the pencil, spending the money to ramp up the recruiting capacity that other high-quality, big truckload companies and intermodal companies, and you name it, are doing the same thing.
Tom Wadewitz: I just wonder how much is it a challenge that you are competing for a similar pool of drivers that want to work at a big carrier and it is hard to avoid taking pay up and seeing further pressure, as not only Werner, but Knight and Schneider and J.B. Hunt work harder on recruiting. Thanks.
Derek Leathers: Yeah, Tom, thank you. On the enforcement issue, I am certainly not in a camp that it is largely played out. Early on, there was conversations that we had on these calls about 15% of the capacity was in one of the various categories of out of alignment with current regulations. We have seen 3%, 4% of capacity come out. I think that rough math is about the same as some of the baseball analogies that even FMCSA has talked about entering the fourth inning on their efforts. There is a long way to go from here. The net has gotten wider. It includes schools, driver training. It includes CDL issuances. States are coming out and taking assertive actions relative to how they think about CDL issuances going forward. Further punishments or reactions are being put forth daily on those that act or color outside the lines, as I referenced earlier.
Derek Leathers: The B-1 visa cabotage issue is gaining steam and only really just getting started, and we are seeing impacts of that across the southern border. I think you are going to continue to see that. The other thing that gives me confidence is these are all executive branch actions. No new laws, no new legislation, and no real way to kind of derail the train. These are all safety-focused, and the results are showing through. 2025 was the first year in several years where accident rates nationwide went down. 2026, by the time those numbers are tallied, I think will reflect something similar. We have to return to quality in this industry, and that is both incumbent on the government as well as individual companies. The second part, yes, you are right. We are all competing for high-quality drivers. That competition will be fierce.
Derek Leathers: It is about what the infrastructure looks like at an individual carrier to be able to attract, train, and retain those drivers. I like our positioning in all three of those categories. We have seen pretty significant improvement in retention throughout 2026, and we have goals to improve it even further as we go forward. Most of the increase in driver costs, as we have said several times, is really on the driver investment side, the recruiting, advertising, et cetera, front-end cost. Our drivers are making pretty darn good money. We have drivers across our fleet and Dedicated nationwide, that are making at or near or approaching six-figure incomes and many that are north of that. So we feel pretty good about our ability and our pay packages.
Derek Leathers: It is about getting people in and getting them exposed to the culture and what is Werner and FirstFleet and then driving those values home from there. It will be competitive, but I like our positioning.
Tom Wadewitz: Great. Thank you.
Operator: With that, we will be concluding today's question and answer session. I would like to turn the floor back over to Derek Leathers for any closing comments.
Derek Leathers: Thank you, Jamie. Thank you for all sticking with us. We went a little over today. I want to leave you with three core takeaways from our earlier discussion. The first one is that our foundation for the future is rebuilt. The success of our One-Way network restructuring and growth in Dedicated reflects the values our customers place on the safety and service we provide. It is now time for us to leverage that redesign as we add rate, capacity, and capabilities across the more disciplined network design going forward. Second, as I stated earlier, we are in the early innings of a multi-year upcycle with ongoing structural supply contractions across the industry and resilient consumer demand. We made deliberate, proactive investments to seat trucks and expand our driver base to capture market share.
Derek Leathers: This share growth is driven by both a flight to quality and an ongoing industry attrition in a post-Montgomery world. Finally, the near-term cost pressures do not alter our trajectory. They reflect temporary friction, and although some will extend into Q4, they are not structural headwinds. Our underlying business is well-positioned for continued growth. As always, none of this progress would be possible without the continued trust of our customers, as well as the relentless dedication, resilience, and commitment to safety from our professional drivers, mechanics, and associates. With that, I want to thank you for your time today and your continued interest in Werner.
Operator: With that, we will conclude today's presentation. We do thank you for joining. You may now disconnect your lines.
