Werner Enterprises, Inc. Price & Performance (WERN)

I'll now turn the call over to Derek. Thank you, Chris, and good afternoon, everyone. We appreciate you joining us today. Is a saying that everyone has a plan until they get punched in the mouth. 2024, it's pretty clear that the whole industry took it on the chin. As everyone continued to fight through what many have stated is the worst freight we're recession in their careers. The challenging operating environment of 2023 persisted into and throughout 2024. As supply and demand imbalances resulted in a second consecutive year of depressed rate levels. This was coupled with ongoing inflationary cost pressures and lower resale values of full used equipment. While capacity has continued to exit the market, the pace has been slow. However, positive signs began to emerge throughout the year. Which we believe point to the early stages of an improving environment. One way rates turned favorable in the second half and West Coast imports remain strong. Peak season was better than expected with higher rates and double the peak volume versus last year. Post peak season, we have seen additional green shoots that fuel optimism such as Spot rates are off the bottom and at a two year high.

Customer sentiment remains positive while consumers remain resilient. And while There are previously negotiated rates with our customers that remain effective throughout the first quarter we are also seeing clear opportunities in early wins to positively influence rate. As a result, as 2025 gets underway, we anticipate a challenging but [indiscernible] During this downturn, we have focused on controlling what we can by investing in ourselves and making strategic decisions that position us to excel in the future. Our portfolio of solutions is more diversified now than at any time in our history. We have invested in maintaining a modern fleet. Made operational improvements for the leaner, more nimble organization through discipline around cost, operational innovation and M and A integration. [indiscernible] advanced our technology roadmap leading to improved decision making, better visibility and operational efficiencies. Improved one way miles per truck, which increased 8% year over year. Grown our ParaLink product within logistics adding more scale and flexibility. And invested in our driver school network to ensure a dependable pipe Thanks to the discipline, grit and commitment of Werner's nearly 13,000 talented team members, Warner has never been better positioned for long term value creation as the market improves.

Let's turn to Slide five and highlight our fourth quarter results. During the quarter, revenues were 8% lower versus the prior year. Adjusted EPS was $0.08 Adjusted operating margin was 1.6%. And adjusted TTS operating margin was 3.1% Werner of fuel surcharges. During the quarter, we had higher than normal insurance expense that included 19,000,000 from unfavorable development on prior period claims. This resulted in a $0.22 negative impact to adjusted EPS. In contrast, our focus on safety continues to drive a near twenty year record low in DOT preventable accidents per million miles. Safety is a high priority and a core value for Werner, which is demonstrated through our continued safety investments and initiatives such as investing in equipment with the latest collision mitigation systems, leveraging new side view camera technology, implementing in cab and desktop technologies aimed at improving weather alerts rerouting and other situational awareness for our professional drivers and fleet manager when it matters most. And collaborating with our vendors and other market participants to bring tort reform and future safety innovations to bear. Despite the uptick in insurance and claims expense in the quarter and an ongoing difficult environment, we are seeing positive signs across our business.

Dedicated continued to demonstrate its resiliency and durability during the quarter as revenue per truck per week increased year over year. Average fleet size grew sequentially our customer retention rate remained strong at over 90%. Our dedicated offering excels when reliability matters the most among large enterprise ship And our commitment to quality and service was recognized as we received numerous Carrier of the Year awards in 2024 from dedicated customers. While one way truckload remains more pressured relative to dedicated, we continue to focus on operational excellence and are pleased to report another quarter of improved production. For the second quarter in a row, revenue per total mile was positive year over year. Our pricing discipline combined with better freight options and execution led to revenue per truck per week that increased 5.1% in the quarter and 6.4% for the year. Our logistics division reported adjusted operating income that improved sequentially represented the best quarter of the year. Gross margins were steady while volumes improved sequentially in Truckload Logistics and Intermodal. Our logistics business continues to represent a key component of our strategy as it complements one way trucking provides a greater portfolio of solutions to our larger customers and expands our reach to small and midsize customers.

Moving to Slide six, our plan to generate earnings power and drive value creation remains unchanged. And is centered around three priorities: First is driving growth in core business, which comprises expanding TTS and logistics operating income margins, increasing one way rates, growing our dedicated fleet given a pipeline that remains strong. On TTS margins, while we cannot predict the timing of a return to our long term range, we are encouraged by the modest incremental expansion we've seen over the past few quarters. Was particularly true in the fourth quarter absent the impact of insurance reserve adjustments. Second is driving operational excellence as a core competency. Which we will deliver on by maintaining resolute focus on safety. Continuing to advance our technology roadmap through the transition of our One Way business to our Edge TMS platform. Providing industry leading reliability solutions and service to our customers and continuing to control cost. Our focus to improve efficiency along with rate improvement, steady volume and a focus on growth with existing and new I'm proud of Team Blue for their continued focus on operational excellence. Our safety metrics are near record lows, More volume is transitioned to our future tech platform, where we Werner seeing momentum in top and bottom line synergies, our customers are recognizing our superior reliability at high scale and we are controlling costs where we can.

The final priority is driving capital efficiency. This includes maintaining strong operating cash flow through working capital [indiscernible] Remaining disciplined and thoughtful on how we allocate capital and maximizing equipment fleet sales. We have proven our ability to generate earnings power as demand accelerates. 2025 will be a year of growth and improvement from 2024. We will provide you with updates on our progress against our 2025 priorities as the year progresses. Moving to Slide seven to highlight our current view of the market. We expect truckload fundamentals to gradually improve throughout 2025. We are not placing bets on a specific pace and timing of a market turn, but we are confident that rates will continue to trend in a positive direction. Carriers continue to exit while at the same time demand continues to improve. We expect that the consumer to show ongoing resiliency resulting in nondiscretionary spending holding up, while discretionary spending picks up Retail inventory levels have mostly normalized and as a result should no longer be a headwind to freight volumes. The pace at which inventories are replenished on a go forward basis will likely be impacted by factors such as trends in consumer demand, and how the new administration ultimately decides to implement its policy initiatives.

Spot rates that have already moved to higher levels are expected to improve throughout the year as supply and demand continues to rebalance. As a result of an improving operating environment along with upcoming second half of twenty twenty five as carriers look to upgrade their fleets and prepare for the upcoming mandates. Potential tariff policy continues to be a moving target. Implementation of tariffs on goods imported from China, Mexico and Canada is expected to impact supply chains. Although it is difficult to comment specifically on depth and duration as information is changing real time. Regardless of the tariff impacts, we are prepared for supply chain disruptions. And to meet our customer needs with agile solutions. With that, I'll turn it over to Chris to discuss our fourth quarter results in more detail. Thank you, Derek. Let's continue on Slide nine. Fourth quarter revenues totaled $75,000,000 or down 8% versus prior year. Adjusted operating income was $12,200,000 and adjusted operating margin was 1.6%, a decrease of sixty nine percent and three twenty basis points respectively.

Adjusted EPS of $0.08 was down $0.31 As Derek noted, this includes a $0.22 headwind during the quarter from increased insurance costs due to unfavorable development on prior period larger dollar claims. The remainder of the change stems from a softer used equipment market and lower gains higher interest expense and lower operating margin in logistics. Turning to Slide 10, Truckload Transportation Services total revenue for the quarter was $527,000,000 down 9% Revenues net of fuel surcharges declined 5% to $470,000,000 14600000.061% lower versus prior year, Adjusted operating margin net of fuel was 3.1%, a decrease of four forty basis points of which over 400 basis points was due to higher insurance and claims referenced earlier. To intentional steps taken throughout the year, TTS adjusted operating income margins, net of fuel improved sequentially the last two quarters been extended in the fourth quarter if not for the impact of higher insurance and claims. During the quarter, consolidated gains on sale of property and equipment totaled $6,500,000 which included a $5,100,000 gain on sale of real estate. Total gains including real estate were up $3,400,000 compared to last year.

Net of fuel surcharges, insurance and gains, TTS operating expenses declined 5% year over year.

We are focused on producing higher operating margins and over time returning to double digit TTS operating margins, the building blocks to bridge the gap remain unchanged.

They include first rate improvement in One Way, second incremental growth for existing fleets in Dedicated a higher contribution margin as we return to normalized volume, Third, normalization in the used equipment market and fourth, structural improvements through technology and our cost saving initiatives. Our focus and intentionality to influence rate lift is showing as one way rate improved over 300 basis points year over year and sequentially during the quarter. Rate improvement will be the greatest lift to TTS margin going forward. The pipeline of dedicated opportunities remains strong with a good mix of new customers. While still competitive, customers are more engaging on real bids seeking capacity rather than simply pricing the market. We've seen an early increase in select pop up and immediate needs could materialize into more widespread volume normalization. Let's turn to Slide 11 to review our fleet metrics.

TTS average trucks grew to 7,495 the quarter, We ended fourth quarter with the TTS fleet up five trucks sequentially and down 7% year over year. TTS revenue per truck per week net of fuel increased 2.5% year over year during the quarter and has increased year over year for 23 of the last twenty eight quarters. Within TTS for the fourth quarter, dedicated revenue net of fuel was $289,000,000 down 7% year over year. Dedicated represented 63% of TTS trucking revenues consistent with the year ago, Dedicated average trucks increased sequentially by 0.6% to 4,836 trucks, a decrease year over year of 7.7%. At quarter end, Dedicated represented 65% of the TTS fleet.

Dedicated revenue per truck per week increased 1.1% growing 27% over the last twenty eight quarters. In our One Way business for the fourth quarter, trucking revenue net of fuel was $170,000,000 a decrease of 5% versus prior year. Average truck count increased sequentially by 2% to 2,659 trucks but declined 9.2% year over year Revenue per truck per week was up 5.1% year over year.

One way freight conditions in the quarter were seasonally better than expected and peak revenue outpaced prior year. After multiple quarters of double digit or high single digit year over year gains in one way miles per truck the positive trend continued but at a more modest increase of 2%. Total miles decreased 8% versus prior year with 9% fewer average trucks. Our PowerLink offering within logistics continues to grow. Increased miles in PowerLink offset the majority of the decline in one way truck [indiscernible] ultimately resulting in combined miles that were down less than 2% year over year. As a carrier of scale and reach, our ability to produce similar miles with a smaller fleet is unique. In a tighter market with better rates, the combination of one way production gains plus PowerLink volume growth translates to improved ROI and provides more optionality for our customers. Now turning to logistics on Slide 12. In the fourth quarter, logistics revenue was $213,000,000 representing 28% of total fourth quarter revenues.

Revenues were down 6% year over year, but grew 3% sequentially.

Revenue in Truckload Logistics declined 6% and shipments decreased 2%. However, shipments increased 2% sequentially as volumes from the existing customer base were generally steady. Intermodal revenues, which make up approximately 13% of logistics revenue, increased 2% year over year due to 13% more shipments partially offset by a 10% decrease in revenue per shipment.

Final mile revenues decreased 12% year over year and 1% sequentially. Our fourth quarter was our best top and bottom line performance of the year for logistics, adjusted operating margin of 1.1% was down 20 basis points year over year but up 70 basis points sequentially driven by further cost control actions during the quarter including headcount reductions. Moving to Slide 13 to discuss our cost savings program. In 2024, we achieved over $50,000,000 of in year savings as an offset to rate and inflationary pressures and low equipment gains. This combined with our 2023 savings netted close to $100,000,000 in total cost takeouts over the two year period. The majority of which were structural and sustainable. We are laser focused on a 2025 program totaling $25,000,000 in incremental end year savings.

Approximately 35% of the 2025 program is carryover [indiscernible] to get to a full year run rate on initiatives that we actioned last year. The remainder is new initiatives for '25 that are again largely structural and sustainable. Let's review our cash flow on Slide 14. We ended the year with $41,000,000 in cash and cash equivalents, Operating cash flow was $71,000,000 for the quarter $330,000,000 for the full year.

As expected, net CapEx continues to trend down. We maintain a modern fleet and continue to reinvest strategically. Fourth quarter CapEx was $29,000,000 and full year was $235,000,000 less than 8% of revenue compared to over 12% prior year. Net CapEx for the year was down $174,000,000 or 43%. As a result, free cash flow for the full year was $95,000,000 3% of total revenues, up $29,000,000 or 44% and up 110 basis points as a percent of revenue. Total liquidity at quarter end was $460,000,000 including cash and availability on our revolver. Moving to Slide 15.

We entered the quarter with $650,000,000 in debt down $40,000,000 sequentially and up less than 1% from a year earlier. Net debt increased $22,000,000 or 4% year over year. We continue to have a strong balance sheet access to capital relatively low leverage and no near term maturities in our debt structure. On Slide 16, let's recap our strategic priorities relative to capital allocation. We continue to prioritize strategic reinvestment in the business while also being balanced over the long term reducing debt and funding M and A. For the full year, dollars $235,000,000 was reinvested in our fleet, terminals, technology and school network net of used equipment sales. Dollars 35,000,000 was returned to shareholders through our quarterly dividend. And $67,000,000 was deployed towards share repurchase. We have 3,900,000.0 shares remaining under our Board approved authorization. While it's been two years since our last acquisition, and despite a challenging market, our acquisitions are showing value. For example, in 2024, ECM professional drivers moved nearly 30,000 loads for legacy Werner Werner. With ECM, we have greater density and capabilities in the Northeast, which enables us to better serve new and longstanding shippers of Werner. These Northeast fleets continue to get accolades and high marks from our customers.

Baylor Trucking, our other truckload carriers in The U. S. Certified for good distribution practice or GDP. These elite certifications allow BAYOR to participate with international customers seeking secure supply chain transportation for first to final mile. GDP certification specifically states that a company meets critical standards for storing and transporting pharmaceutical products. And as a result, we stand taller in a vertical of choice where capability matters with highly selective shippers. In Final Mile, we were recognized during the year with another Carrier of the Year Award a carryover to what we've experienced in Dedicated. These are just a few examples of the value we are seeing from our acquisitions. And there is more upside as we look forward to a better market. On Slide 17, are introducing our 2025 guidance. Our truck fleet guidance for full year with more weighted to the second half. Our full year net CapEx guidance range is between $185,000,000 and $235,000,000 lower than historical ranges as our portfolio evolves to be more asset light. Our track record shows consistency in reinvesting the business in maintaining a low mile modern fleet and extending our solutions and capabilities all of which remains in focus. Dedicated revenue per truck per week full year guidance range is flat to positive 3%.

One way truckload revenue per total mile guidance for the first half of the year is positive 1% to 4%.

Our effective tax rate was 7% in the fourth quarter, net of 2020 return to provision adjustments and other discrete items, The effective tax rate for the full year was 21%. Our 2025 guidance range is between 2526%. Compared to two point one and four point nine years at the end of twenty twenty three. Regarding several modeling assumptions, we expect net interest expense this year will be flat year over year but higher in first half than lower by a similar amount in second half. We anticipate stable used equipment demand and pricing through first half of twenty twenty five. Then moderate improvement in the back half. We expect to sell fewer tractors and trailers during the year. Excluding real estate gains, gains on the sale of used equipment is expected to be in a range of $8,000,000 to $18,000,000 Relative to the first quarter, while freight volume and market conditions are stronger than expected at this point in the quarter, we expect year over year headwinds from interest expense, lower gains on used equipment and one less business day. As a result, the encouraging market momentum have less of a positive impact to our bottom line in the first quarter compared to later in the year.

With that, I'll turn it back to Derek.

Thank you, Chris. As we kick off 2025, our continuous improvement mindset remains at the forefront. The work we've completed over the last several years to further strengthen and expand our core offering combined with improvements in our cost base positions Werner well to capitalize with agility and speed on growth opportunities as the market inflects. Worst is behind us and incremental improvements are seen across the industry. But other challenges remain. As a result, we remain focused on controlling the controllables. In closing, we are a cycle tested team and our historical results demonstrate our ability to generate earnings power as the market improves and demand accelerates. With that, let us open it up for questions.

We will now begin the question and answer session. Our first question today comes from Bruce Chan with Stifel. Please go ahead.

Hey, good afternoon team. This is Andrew Cox on for Bruce.

Just wanted to start with, I guess, some questions about Mexico. It's been a wild week or a few days there with tariff threats and then pulled. I just wanted to understand if what kind of action you guys are seeing, what kind of conversations you're having your customers? What are they saying? And in regard to the changes, in regard to the postponement and their expectations for [indiscernible] Yes, thanks for the question.

We are in conversation.

Obviously, Mexico is an important part of our portfolio. We've had multiple talks with our shippers in country. I think the consensus going into some of the tariff rhetoric was that it would play out similarly to how it has so far, meaning there would be some strong rhetoric early, hopefully some action on the other side and that would lead to an opportunity for a postponement or perhaps even an avoidance altogether. What we haven't seen is a lot of fundamental change in shipping patterns or people trying to do any kind of dramatic tariff avoidance type techniques. And rather it's been a little bit more of a sort of common steady approach from a shipper perspective. What we what I like the most is that our portfolio is set up well in Mexico, not Not only are we a large scale provider of cross border services, but with our ability to utilize our cross dock in Laredo, our power only solutions off the border and then be on being able to move things both temperature controlled van and intermodal We've got optionality for our customers. We're going to stay in touch with them obviously. I think we both know this could change anytime, any day.

Any hour relative to the tariff situation. But regardless of whatever path it takes, I think our position and our optionality and our relationship with our customers puts us in a really good spot.

And if I could follow-up, just looking back through the the previous 10 ks, you have Mexico, you've disaggregated revenues there with Mexico at $159,000,000 last year. I just wanted to understand Does that properly reflect the cross border cross border opportunity at Warner or can you help us give us some posts on what the cross border opportunity is relative to the size of the business? Thank you. [indiscernible] pieces and parts of our Mexico business that rolls up and reports through its appropriate [indiscernible] Logistics As An Example. So, No, That Does Not Represent The Totality Of Business That We Do With Mexico. What we've talked about on previous calls is that if you think about Mexico and it's some of its parts, it's a around or a little north of 10% of revenues. And that's really probably a better way of thinking about it. Obviously, we have to be very specific in clear relative to the K and what business is being reported specific to intra Mexico and Mexico etcetera. But in total, our exposure, which is really the point of the question, to and from Mexico is roughly Okay. Thank you, Derek. That's great color. Thank you.

The next question is from Daniel Imbro with Stephens. Please go ahead. This is Joe Enderlin on for Daniel. Thanks for taking the question. Wanted to ask about Dedicated. Is that gradually becoming more attractive with shippers looking to lock in rates. Could you kind of go through how you're balancing becoming more selective with fleet growth to insulate rate, how you're balancing that with adding business? Just what metrics you ultimately looking at to make those decisions?

Yes, Joe, this is Derek. Obviously, when we look at Dedicated right now, I mean, I'll start at the the macro. The pipeline for opportunities is very robust. It's as strong as it's been in some time.

But it has also become more attractive from the provider side. And so there's more competition And then 2024 in particular, there was a lot of a lot of exercises, a lot of bids that were out there, but we are selective as you indicated in your question. What we're really looking for is true dedicated, the stuff that really can't be replicated by one way, it doesn't go away Werner capacity becomes looser, it's It's the stuff that leads to north of 90% retention rates. Which we've had for really our entire history in Dedicated. And so right now as capacity is tightening and as folks are looking for safe havens, Dedicated will become more popular. We've seen the pipeline get much more active and our job is really to make sure that we're sorting through it and we're finding the true dedicated opportunities that stickier, harder to serve, more defensive that will be with us not just for the cycle, but hopefully for ten, twenty years into the future, which is the case with most of our fleets. And so it's an exciting time, but it's one where we have to be careful and cautious. You mentioned rate versus growth.

Obviously, we have to improve the performance not just in Dedicated, but across the portfolio. And rate is the single biggest lever to do so. So that is at the forefront. But growth solves a lot of problems as well Werner done appropriately. And so on the truck side, our growth will be dedicated focused and it will be priced appropriately to be able to make sense of that growth. In one way, it's going to be more of a rate, a new [indiscernible] And then logistics is open for business and continues to be the fastest growing portion of the portfolio. So there's lots of opportunities for us to to support our customers as capacity does continue to tighten. I like our positioning and Dedicated will remain still the sort of stable middle of the portfolio that kind of drives the bus.

Got it. That's helpful. Thank you. Just one on as a follow-up, one on pricing. It sounds like that continues to trend favorably. Could you just give some color on the pace of rate increases so far, how that's trending relative to expectations? Yes, Joe, this is Chris. I can take that one.

After two consecutive years of lower rates and margin compression, compression, it's clearly necessary that significant rate increases are needed especially in the one way area that's been more compressed and challenged than dedicated. So as you know, we've been and we'll continue to be disciplined with our approach. And we've already started to see improvement in one way rates. We reported year over year increase here of just over 3%. That's the second consecutive quarter that we've had a year over year increase. So that's encouraging to us. And it's important to recognize also also last year we were able to improve miles per truck as well. And so that rate per mile improvement along with the miles improvement led to over a five higher one way trucking rate or revenue per truck per week for the quarter. And we expect as rate improves with the miles that we've been able to to improve or the production that we've been able to improve along with that rate that that will be significant in helping us return one way to better levels of profitability next year. In terms of one way bid season, it's still in the very early innings We've really only had a few large bids that have closed and finalized.

So really nothing yet that we would generate any significant consensus on, but early results are consistent. [indiscernible] With our expectation here of low single digit to mid single digit type rate increases, Also important, customer sentiment really is improving we feel like we're having more conversations about capability and capacity solutions and customers are just generally more receptive right now to rate adjustments knowing that we've been in elongated downturn here for really close to three years now.

Got it. That's all for us. Thanks guys. The next question is from Ken Hoexter with Bank of America. Please go ahead.

Hey, great. Good afternoon, Derek. I think that's the fastest I've ever heard you and Chris talk. Chris, thanks for the views on the first quarter and the seasonal softness, you're thinking and then maybe the catch up thereafter. The events you mentioned. But trying to understand the dedicated comments there and on the last question, The end of period tractors pulled back sequentially. Yet you mentioned a 90% renewal rate. So Is there another like trend going on in terms of the tractors? Is it timing just given the peak season maybe thoughts on that? And then you noted spot rates should improve. Derek, maybe your thoughts here just we've seen actually they ran up at the start of the year, but they've really gotten soft a little lately.

I think we pulled back a couple of months worth of the run up. And I'm just wondering with all of that due to kind of pre shipping, port strike, pre shipping tariffs, and now it's cooling off and we're kind of stabilizing at this low level? Or are you seeing that improvement you're talking about? Thanks. Sorry for the long question.

Well, speaking of speaking fast, Ken, that might be the longest question I've ever had on a call. So I'll attempt to dissect it. On the dedicated, yes, I wouldn't read too much in the end of period truck count. We have there's timing that takes place all of the time when you especially when you're going through Q4 where we might add in trucks during the quarter that are known to be sort of temporary and pop up in nature to support a fleet. So there's not a lot of read through there. The only read through on dedicated I would take away would be that the pipeline is very robust. We're starting to see more consistent and more widespread add backs starting to take place. That's something we've talked about for several quarters that when things get tight, some of the best dedicated growth you can get is just add incremental trucks to existing fleets. The margin contribution on those trucks is better than the core fleet because your fixed costs are largely already in place. So that's exciting and something that we look for more of as we go forward. We're probably a little more positive on spot than where you are, at least based on your question.

Clearly, there were some external drivers to some of that lift, but I would just remind folks that in times where capacity is more loose, you can have those same external drivers with no impact spot because we're not close enough to equilibrium for it to have an impact. And we saw that for two years straight. And whereas now Werner you see any kind of taking the armor relative to some ex external impact, it has an immediate show through or read through with spot market. We've also developed tools that we're pretty excited about and some tech capabilities that allow us to sort of extract out of the spot market premium. That's something we have seen continue to grow and not the softening or fallback that you've referred to. So that's exciting as we look forward as well. All this sort of operational focus and execution, I think puts us in a good position as the market continues to turn. There's very little debate when we're out with customers right now that about their about the market not being more in equilibrium and not starting to see whether it's tender reject rates that are up. And have remained up and now really kind of up at really a multiyear high right now.

So it's starting to sink in that it is a different day and a new moment. And you balance that with the simple reality that there's been inflation up and down the P and L for not just us, but everybody in the industry. Without the corresponding rate relief. And so we're going to push hard and we're going to plow forward and we're going to ask for it to be paid what we need. And there'll be good conversations that end in a positive place There'll be other ones where we're going to have to make some decisions. But don't know if I answer all of it because there was a lot of parts to it, but did my best there, Ken.

No, that was great. You hit on the spot. That's definitely what I I wanted to see. The Mexico exposure, just a quick follow-up for Chris. When you mentioned that on the last answer, was that cross border or just intra Mexico, the 5% that you break out? I'm not following that part, but what I would just say, I'll just reiterate what I said earlier, which is Mexico exposure is north of 10% of our entire revenue base. That's the best way to think about it because there's pieces and parts that roll up through logistics, through brokerage, through intermodal, all over the the various segments. And we don't and so the way to think about our exposure would be north of 10%.

Right. But is that intra Mexico or does it go cross border? Right. I mean tariffs, I mean, aren't going to affect intra Mexico traffic, right?

Yes. No, that's not. Intra Mexico is is included in that number, but no, that's not we do not have $300,000,000 plus infra Mexico.

And that's across all modes, Ken. So that's intermodal brokerage the trailer through service, all modes relative to Mexico. [indiscernible] The next question is from Scott Group with Wolfe Research. Please go ahead.

Hey, thanks. Afternoon, guys. So Outside of like major like tort reform, is there a fix on this in issue And then outside of that, just like how should we think about the margin trajectory from Q4 to Q1? What's What's a realistic amount of margin improvement we could get [indiscernible] Yes, Scott, I'll start and then turn it over to Chris for some more color. But Tort reform certainly is one of the initiatives. But honestly, it's a state by state battlefield right now and we're seeing ongoing progress being made at state levels where we're getting some rationality into the room relative to how liability should be treated, so that someday we don't wake up $35 a dozen eggs, which is realistically where this heads if we don't address it in some way. What we are also going to do obviously is couple that with an ongoing investment in technology. The tech continues to improve. We can get better not just in the trucks, but in the cars. So that leads to a lot of progress and what we believe to be ongoing improvements that will take place in frequency and frequency data. And so that's a piece of the puzzle as well.

It is not an easy one to solve. And what I will tell you, which we've talked about previously is, it really does reside in a handful of claims. I mean, it's you can have a phenomenal year and even have on the handful of claims really good facts and it doesn't necessarily always lead to a good outcome. So all of that together makes it so difficult, difficult to predict. But I'll turn it over to Chris for some color on how to think about insurance. Maybe just a couple more specifics there, Scott.

I think that's what you were getting at. First, just to recap, on the insurance. It was a quarter where we reported $49,000,000 Clearly an outlier, have never seen that level in a single quarter. And it was the first in eight quarters where we reported over 40,000,000 As we mentioned in the prepared remarks, dollars 19,000,000 of that was negative development on the past claims. As the main driver. I think your question Scott was then kind of thinking about run rate. Is that right?

Yes.

So obviously, dollars 19,000,000 was more one time in nature in our view. We would not view $49,000,000 in a quarter as a run rate or even north of $40,000,000 This was an outlier as I mentioned. I would say in terms of a proxy looking at our quarter average over the last two years, of about $33,000,000 to $35,000,000 per quarter.

And important to note that our claims are trending down. So we've said many quarters several times our DOT preventables per million mile near twenty year lows So it's clearly a cost per claim issue across the industry, as Derek mentioned, not a frequency of claim issue for Werner specifically.

So I guess Werner you sort of add all the any thoughts on how to think about operating ratio For the trucking business and Q1 and the year? And then maybe if I could just maybe make a little bit bigger discussion [indiscernible] is probably very few quarters in our model where you've got price improvement and utilization improvement at the same time, like how sustainable is that? And how could that translate to margin improvement going forward? Yes, I'll start there. So you're right, it's very hard to come by where you get both price and utilization. Especially in a market that had not yet really turned or strengthened. So we're really proud of that result regardless of what the bottom line financials may have come out like from an operational execution perspective. I'm very proud of the work that the team did in Q4. The comps are going to get a lot tougher on the utilization front, but what really matters is just if we can hold serve with the dramatic production improvements we've made over the last call it, eighteen months and now have those materialize at a rate level that's more commiserate with the cost structure of running a trucking company in 2025, those miles become very, very valuable.

So those are sustainable structural changes we've made. Those that significant engineering of our fleet that we have done We believe we can hold those miles and now really focus on rate. It's the biggest lever that's in front of us. We've got to keep a laser focus on it. And the best setup to do that is with superior service and put yourself in a good position with your customers. And so that's why we called out during the prepared remarks, the multiple Carrier of the Year awards that we won in 2024 because we've been laser focused on trying to put the possible product on the table so that we can also then ask for the rate that's commensurate with that level of service. So a lot of work to be done, Scott, a lot of work to be done. We're in the early innings. But we're signed up to do that work and that does lead obviously as you indicated to our improvement it's not a return to the 12% to 17% in 2025. But I do believe the opportunity in Europe for us to have a market better year this year than we did in 2024 is upon us.

And maybe just to add Scott a couple of comments around TTS margin. So we had a couple of consecutive quarters of modest sequential increase The $19,000,000 that we talk about in terms the insurance reserve adjustment that was all in TTS. Without that, I mean that was basically a 400 basis point impact to TTS margin. So that would have put excluding that, it would have put the adjusted OI for T over 7% So that would have been our best quarter. It would have been three quarters of sequential improvement. And we've talked about the levers to get to double digit margins. That's not to say that we have a pathway necessarily in 2025, but we do expect '25 to be a period of margin expansion because of rate lift, because of production and other things we've talked about in terms of dedicated volume, the cost management, and normalization equipment gains.

Do you think you take a step back from that call it normalized 7% in Q1? To seasonally. Q1 is always seasonally going to be a tougher quarter, Scott. I mean, if you look traditionally from Q4 to Q1, there's a 35% to 40% drop in operating income and EPS. There's nothing to indicate right now. I mean, there's a little bit better market conditions and maybe as we're going through this turn, But that's kind of a normalized approach. But maybe a better way to think about it right now as it relates to Q1 and I'm not deviating from our EPS guidance. We don't want to give EPS guidance, but I do think with the noise in the quarter and Q4, it would be relevant to just point you to Q1 of Werner twenty three, remind you how much smaller the fleet is this year versus 'twenty three. Maybe as a reminder, there's one less business day this year than 2023. And with all of that said, I think that the Q1 of twenty Werner three number is a good zip code to think about relative [indiscernible] is really based on focused on the bid season, focused on the from I meant 24.

Thank you for clarifying that. Yes. All right. You, guys. Appreciate it. The next question is from Chris Wetherbee with Wells Fargo. Please go ahead. Hey, thanks. Good afternoon, guys.

I guess maybe on the fleet, just I appreciate the full year guide [indiscernible] dedicated is where you Werner to kind of focus. Obviously, there's growth on the way truckload side, seems like for obvious reasons in the fourth quarter because there was opportunity there. Guess maybe a little bit shorter term if we get maybe cut the year into halves or quarters however you want to think about it. Is there still more opportunity to lean in a little bit more on one way truckload now because this is where the activity is and the pipeline on dedicated is just a little slower moving. Just want to make sure I understand how to think about that as we kind of enter the beginning of 2025?

Yes. I think the best way to think about it is we're going to be nimble and agile based on the market. We have the opportunity obviously with our vertically integrated school network, with our robust pipeline of incoming drivers, to respond to market [indiscernible] to grow that one way truckload fleet, intentionally least until we get it much improved rate environment, but we will be tactically able to do so in certain pockets where it might make sense. Dedicated, you're right, has a longer tail, but we're a long way through some of these negotiations as well. So there's always something that's kind of more on short term horizon and then you've got things that will take two to three quarters to develop. So dedicated will be the focus, but in one way we've got both our assets and PowerLink. And PowerLink is really our our truckload power only solution via our logistics group.

We're excited about its progress. It continues to grow double digits year over year and has done so for several years. And so we have multiple ways to kind of respond to these sort of opportunities as you mentioned. So So at a big picture level, fairly limited truck growth in the front half, but capable of doing so as we land dedicated accounts. Focus on improving rate and focus on keeping our own the volume Okay.

That's super helpful. And then just maybe zooming out a little bit, in terms of the competitive picture of Dedicated. So how do we think about that in terms of players who maybe have gotten a bit more aggressive at the trough of the cycle. Five. Do you sort of feel like the competitive dynamics sort of eases up providing you more opportunity? Just kind of curious how you're thinking about that?

Well, I think demand will improve the competitive dynamics in dedicated specifically. There's just more opportunities regardless of some new entrants. The other thing that I'm excited about personally is a lot of those new entrants came in at the trough of the cycle. They got pretty aggressive with rate. They didn't perform particularly well. Those bids are coming up for renewal. And I think there's opportunity to take share and take and take accounts into the portfolio based on our track record and our capabilities. So lot of different moving parts there. The last one I'll mention is I think there's a lot of private fleet growth that took place during the COVID years that has been that hasn't played out the way the shipping community maybe thought it was going to for them. It was out of necessity when the market was particularly tight. Those trucks are now aging out and getting to a point where renewal and CapEx is going to be significant to renovate those fleets. And that presents yet another example [indiscernible] could be taken back as customers are faced with difficult capital decisions on whether they want to continue to do that long term.

The next question is from Brian Ossenbeck with JPMorgan. Please go ahead. Good evening. Thanks for taking the question. Maybe Chris, can you talk a little bit about the cost savings opportunity obviously to start off [indiscernible] pretty high in the last year and accelerated and you got some more going into into '25. So maybe just some of the the bigger initiatives you can get 65% new ones. And also just as you talk about balancing growth with that you feel like you're able to do both successfully at this point a couple of years into what's obviously a tough freight market? Hey, Brian. Well, you hit the nail on the head. I mean, it is finding the balance with continuing our just broad approach to having a cost focus So we've talked about just our generic approach of focusing on operational innovation, leveraging technology and looking for the expense synergies that come along with that, and then just being more centralized [indiscernible] standardize in everything we do, including from an M and A integration standpoint. And so that's our approach. And we've developed some muscle memory with that. We want to keep deploying that as just a it's also early stages of an improved environment.

And we're mindful of not only supporting growth, but also continuing to have high reliability high service for our customers. So [indiscernible] some of what went into a lower sized target for 2025, which is the goal of $25,000,000 Okay. And then just maybe a related question, last year you guys did a lot of work to increase the miles per tractor across the fleet. Is that another opportunity for this year? I know it's also market dependent. Could be kind of difficult especially with all the volatility we're seeing in the spot market elsewhere, but that another opportunity you guys if you like and you can lean into a little bit more year or is that mostly last year then? Thank you. Yes, Brian, this is Derek.

Going to continue to obviously further engineer and look to improve anywhere and everywhere we can. But I must tell you that I think the bulk of that step level change has taken place. That's the new baseline. And the real objective in a market as it starts to tighten is to be able to hold the line there and look for what I would call incremental improvements but not the high single digit type improvements that you saw in recent quarters from a year over year basis. So that's the best I can answer that. Focus won't be taken away, but you would be it would be inappropriate to expect that you'll see mid to upper single digit improvements in productivity. In '25 over '24 from a comp perspective.

The next question is from Ravi Shanker with Morgan Stanley. Please go ahead.

So to be super candid, I think the tone of your comments are a lot more bullish than your guidance. So I'm just trying to get a sense of what the message is here. Are you guys being conservative with this guide because you're not sure if this is a head fake or like is this a normal seasonality and you think you do something better than that if conditions continue? Or how do we think about the potential kind of range of outcomes here on either side of the guide? Ravi, I mean, I'll try to stay away from trying to give range of outcomes. But I think what you might be perceiving is the reality of operating a business in an environment where some of the largest trading partners that The United States have have been Tariffed on Monday, not tariffed on Tuesday, re threatened on Thursday, and then released from threat on Friday. So it's a very difficult environment to try to provide the clarity that folks like yourself need and deserve. We're going to do the best we can in that environment to try to give you a sense of where the market is, the conversations we're having with our customers And yes, there is some excitement with the tone of those conversations that is true.

But yet tomorrow or next week something could change. And we've already indicated that 10% of our business is exposure to Mexico. I think that is a positive. Even with the background noise because what is irrefutable is the direct foreign investment that's taking place in Mexico that this year as of in 2024 dramatically outpaced 2023, which was a record in 2023 that was only surpassed in 02/2006, if I recall correctly. And so there is significant investment taking place down there. And our capabilities are second to none. So there's a lot to be excited about. The market is tightening. There is a change in the tone with customers, but raising network rates and getting it to flow through to the bottom line is a multi quarter process. It takes time. Takes a lot of effort. And so we're going we're cautiously optimistic, I guess is the best way I can say it.

That's helpful. And thank you for sympathizing how hard it is to be a sales head analyst. And maybe as a follow-up, on the insurance side, is there anything you can do from a technology angle? You guys were early to implement tech in your trucks, or at least one of your five gs strategy. Anything more you can do there? And kind of how does what is happening influence your thought process on autonomous trucks in the next few years?

Yes, we're going to continue to lean in on tech And yes, we've always been a leader, but we do a lot of work both within our walls, but there is more and more benchmarking going on across fleets as well. It's the one place where we are fully allowed to collaborate and work together to try to find a way to make a safer road network out there. The biggest tech improvement in my opinion honestly is the ongoing improvements at the car level. As individuals in their cars, I've long ago given up on the idea that we can stop them from texting or get them to focus. But as they have technology in their cars that makes better drivers of them, it's certainly puts our truck our trucks in a better position vis a vis their performance on the road. But in addition to that, obviously, we've got collision mitigation across our truck. We're we talked about on this call for the first time, side view cameras, to give even more perspective while going down the road and more accident reconstruction capabilities to the fleet as we roll that out. It also improves our ability in close quarters and backing and but that's not where the dollars are.

The dollars are really in these small handful of very large claims where in some cases, I'll end up retiring or going to the grave with the same conviction that we were not at fault. But that doesn't mean that's how the outcome in a courtroom ends up. And so we're going to fight the good fight continue to invest in tech, continue to invest in training as well. Our drivers are experiencing an improved training program and every time we find opportunity to improve it Werner, we'll do so. But it's a tough battle. And hopefully along the way, we're going to get some sanity from a tort reform and state by state kind of legal reform level. And we are having some success on that front as well. The last question today is from Eric Morgan with Barclays.

Please go ahead.

Hey, good evening. Thanks for squeezing me in.

Guess I'll ask one on logistics. Can you maybe help us understand how you're thinking thinking about the cadence of gross margin if spot rates do start to move back up again this year. And then just on the operating margin, I think this time last year you've been thinking like mid single digits entering 2025 was in the cards. Would you roll that forward a year to now just given some of the the momentum that you discussed earlier?

Yes. So I'll start with the fact that there's some real positives going on in logistics relative to our operating expenses. We've been really digging in and aggressively looking for productivity gains. We gotten through the knothole of some of the major technology investments we've made and now are starting to see the outcome and the outputs of that technology. So our HDMS platform now logistics is 100% implemented on that platform and that's exciting. We indicated in the prepared remarks that there will be some spot pressure as as the market continues to tighten. Buy rates will come under some pressure and we've got to make sure and do our job on the sell side relative to our customers to try to mitigate that. The most likely outcome is we're going to continue to see productivity gains and lower expense and more efficiencies. At the same time, those will get offset in the short term by rising buy rates as the market further tightens. But by mid year, we should be able to see expansion across or the fruits of that labor, so to speak, where the productivity gains and efficiency gains far away any spot rate pressure plus at that point we've been able to reprice the sell rates with our customers.

So mid single digits is it in the car GS, is we get there, I want to get to consistent 3% to 4% type margins and then work our way to 5%, 6% over time.

Appreciate that. And maybe just quick follow-up on the dedicated discussion with respect to the guidance revenue per truck guess I'm just curious if how locked in that is at this point. And if because I know you've discussed dedicated participating in an an eventual upcycle. If that does kind of start to materialize is there a potential upside to that range or would that upside come more from, I guess, maybe getting to the higher end of the truck count?

Well, I would start with the fact that the dedicated margins have held up significantly better than the rest of the portfolio throughout this downturn. So the move that they need to make isn't as great to get back into the long term to play their position relative to the long term TTS range. Adding trucks back is the single biggest mover, probably more so even than rate because the incremental margin contribution is significant. Having a better spot market to work with relative to back dedicated backhaul is probably every bit as important as rate revenue per truck per week from a rate perspective. So it's going to take on all of the above strategy. And then lastly, as we add in new fleets, we are now finding ourselves in certain geographies with density that is such that those new fleets can come on board and not have the same burden of all of the same fixed costs that they would if they were standalone fleet kind of in a state where we didn't have density all around it. So there's a whole lot of pieces and parts, but yes, Dedicated will participate in the cycle. It did last time.

If you look don't want to confuse my years here, but I believe it was 2018 to 2019 where we had EPS growth despite Dedicated being a concern for folks that it was going to not be able to do so. Certainly during COVID, it didn't hold us back at all. When we saw the significant tightening in the marketplace. Dedicated performed very, very well. I think this will be another opportunity to show that that can be true and we're excited to do so.

This concludes our question and answer session. Would like to turn the conference back over to Derek Leathers for any closing remarks.

Yes. Thank you. I just want to take everybody or thank everybody for taking their time to be with us today. As I've indicated a few times on the call, I do believe the worst is behind us. We have tried to focus during this downturn to take the right actions to to drive change in this business, lower our cost structure, and position us to capitalize on an improving market. We have a history of being able to perform well when the market conditions normalize and we're excited to demonstrate those capabilities again. I'll close by thanking our customers. We're committed to them and we thank them for their business. We look forward to working with them during this changing marketplace and also our 13,000 associates for their dedication as we keep America moving. The conference is now concluded. Thank you for attending today's presentation.

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