WERNER ENTERPRISES INC Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Core Business Growth: Focus on driving growth in core business, with TTS fleet up year-to-date, Dedicated solution winning in the market, One-Way rates increasing, and combined miles up. Logistics showing double-digit sequential and mid-single-digit year-over-year growth.
• Operational Excellence: Emphasis on safety, with DOT preventable accident per million miles trending favorably. Texas Supreme Court ruling on 2014 accident provided clarity but legal reform needed. Technology investments driving growth, including EDGE TMS platform volume growth and productivity improvements in brokerage loads.
• Capital Efficiency: Generating positive cash flow, maximizing value on used equipment sales, moderating equipment spend, maintaining a strong balance sheet, and repurchasing $55 million of shares.

Segment Performance

• Truckload Transportation Services (TTS): Total revenue for the quarter was $518 million, down 4%. Revenues net of fuel surcharges decreased 1% to $462 million. TTS adjusted operating income was $12.8 million, with an adjusted operating margin net of fuel of 2.8%. The TTS fleet ended the quarter up 1% year-over-year and 1.4% sequentially. Dedicated revenue net of fuel was $287 million, down 0.7%, representing 64% of TTS trucking revenues. One-Way trucking revenue net of fuel was $164 million, down 3%, but revenue per truck per week net of fuel increased 0.3%.
• Logistics: Logistics revenue was $221 million, 30% of total second quarter revenues. Revenues increased 6% year-over-year and 13% sequentially. Truckload Logistics saw 9% revenue growth and 7% shipments growth with gross margin expansion. PowerLink offering was up 17%, intermodal revenues up 3% due to more shipments, and Final Mile revenues down 10% year-over-year but up 7% sequentially. Logistics adjusted operating margin was 2.7%, improving 190 basis points.

Guidance

• Fleet: Narrowed full year fleet guidance range from up 1%-5% to up 1%-4%.
• Net CapEx: Adjusted full year net CapEx guidance from $185M-$235M to $145M-$185M.
• Revenue per Truck per Week: Dedicated revenue per truck per week expected to remain within 0%-3% guidance range.
• Equipment Gains: Adjusted full year guidance range for equipment gains from $8M-$18M to $12M-$18M.
• Net Interest Expense: Expected to be down year-over-year in the second half.

Risks

• Freight Market: Ongoing uncertainty related to shifting global trade policy and regulatory issues.
• Legal/Insurance: Need for legal reform in many states regarding accident claims and lawsuits, elevated insurance and claims expense.
• Tariff/Macro: Impact of tariffs on equipment costs and overall macroeconomic uncertainties affecting demand.

Question and Answer

• **Q: Thoughts on the cycle and TTS margins?

A: Derek J. Leathers expects a supply-driven up cycle, focusing on cost discipline and operational improvements to drive TTS margins.

• **Q: Capacity side and ELP enforcement?

A: Derek J. Leathers states enforcement is ramping up with over 1,500 out-of-service violations, and bad actors may exit the market.

• **Q: Customer procurement trends?

A: Derek J. Leathers notes customers are showing a flight to quality, with less enthusiasm for private fleet growth and more interest in diversified solutions.

• **Q: Tort reform and insurance?

A: Derek J. Leathers says the Texas Supreme Court ruling is a win, but need for state-by-state tort reform, focusing on lowering accident rates.

• **Q: Tractor age and optimal?

A: Derek J. Leathers states optimal tractor age is around 2.4 years, flexible and nimble in equipment allocation