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Good afternoon, and welcome to Werner Enterprises Second Quarter 2026 Earnings Conference Call. All lines are in a listen-only mode until after the presentation. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch tone phone. To withdraw your question, please press star and then 2. Please note this event is being recorded. I would now like to turn the conference over to Chris C. Neil, SVP of Pricing and Strategic Planning. Please go ahead.
Good afternoon, everyone. Earlier today, we issued our earnings release with our second quarter results. The release and a supplemental presentation are available in the Investors section of our website at werner.com. Today's webcast is being recorded and will be available for replay later today. Please see the disclosure statement on Slide 2 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 comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation. On today's call with me are Derek J. Leathers, Chairman and CEO and Christopher D. Wikoff, Executive Vice President, CFO and Treasurer. I will now turn the call over to Derek.
Thank you, Christopher, and good afternoon, everyone. We appreciate you joining us today. In the second quarter, we delivered 24% revenue growth and 80 basis points of adjusted operating margin expansion. Throughout this prolonged downturn, we stayed focused on safety, streamlined our operations, invested in technology, and expanded our portfolio and end markets. These strong second quarter results show that our strategy is working, especially as the broader market starts moving in our direction. The structural capacity attrition we have been talking about for several quarters is playing out as predicted. This tightness is being driven by intensifying regulatory pressure, specifically around non-domiciled CDLs, English language proficiency, and cabotage enforcement. On top of that, there has also been a sharp reduction in ELD providers, with approximately one-third exiting or having their certifications revoked. This reduction in ELD options is dismantling shadow capacity and compounding structural supply contractions. Increased enforcement along with the recent Montgomery verdict has resulted in shippers and brokers taking an even more cautious view of who they do business with. That plays directly into Werner's strengths, given our strong track record and reputation, and validates our strategic direction. Our core technology initiatives continue to progress. One hundred percent of Werner's legacy freight is now being ingested into our single-edge TMS platform, creating better visibility for our associates, expanding solutions for our customers, and establishing the foundation for increased automation. We continue to see measurable benefits from AI and automation across shipment optimization, load planning, maintenance, safety, and driver recruiting. While many of these initiatives remain in the early stages, others are already delivering meaningful results in areas such as roadside breakdown support, carrier payments, and appointment scheduling. Our focus is now on scaling the most successful use cases across the enterprise to drive further operational efficiencies and structural cost savings through the remainder of this year and into 2027. In short, the structural improvements and portfolio management decisions we have made over the past few years are gaining momentum. Our ability to anticipate these supply shifts, execute our restructuring plan and add First Fleet to our dedicated business gives us clear line of sight to sustained earnings growth and validates our strategic direction. We are building a leaner, more resilient portfolio that is spring-loaded for this upcycle. And we are increasingly confident in our ability to maximize fleet utilization and deliver a more pronounced step up in our financial results as we move into the second half of the year. Turning to Slide 5, let's discuss our second quarter highlights in more detail. In one-way truckload, our recent restructuring efforts over the past two quarters are delivering tangible results. Revenue per truck per week growth is the strongest we have delivered in the last decade, driven by exceptional productivity improvement, coupled with a double-digit increase in revenue per total mile. Recently, we have been securing upper single- to double-digit contractual increases in one-way bids in addition to ongoing yield management within the portfolio where appropriate. As a result, adjusted one-way truckload operating income margins improved over 700 basis points year over year. More benefit will be realized in the second half from recent repriced business and increasing spot exposure. Our dedicated business remains a resilient cornerstone of Werner's portfolio. We have delivered customer retention of over 95% and been successful in securing rate increases on renewals. Dedicated bid activity has been increasing as the one-way market tightens, and more shippers search for long-term reliable capacity. Dedicated bid volume in the second quarter was the highest of any quarter since 2020. Revenue per truck per week reached the strongest year-over-year improvement since the third quarter of 2022. Overall, these results showcase the value customers place on the high service and reliability at scale that our dedicated solution provides. It has now been six months since we acquired First Fleet. I am pleased to report that the business is progressing very well. Continuity with drivers, associates, and customers has been outstanding, and synergy realization is ahead of schedule. Given First Fleet's strong service and customer relationships, we have achieved a 98% renewal rate on over 80% of the portfolio that is renewed so far. We expect similar results on the remaining fleets scheduled to renew in Q3 and Q4. And lastly, while the spike in spot rates during the second quarter put further margin pressure on our logistics business, we remain proactively engaged with customers and are focused on resetting to higher contract rates. As a result, we expect logistics margins to improve as the year progresses. As a large asset-backed brokerage company with high quality standards and a mature vetting process, we expect added momentum from shippers looking to consolidate around larger asset-backed brokers following the Montgomery ruling. Before Chris discusses our financial results in more detail, let's move to Slide 7 to summarize our current market outlook for the remainder of the year. First, while we are encouraged to see the supply-driven market recovery strengthening as discussed at the outset of the call, the reality is that carrier exits are still in the early innings. Enforcement efforts are continuing and, in our view, greater agency collaboration and exchange of data combined with utilization of technology will further accelerate enforcement from here. Long-haul truckload employment has dropped to below pre-COVID levels. Upward pressure on fuel, insurance, and equipment replacement costs will also force additional capacity off the road, reinforcing a highly favorable supply environment. Tender rejections remain elevated relative to recent years. This combined with an anticipation for further capacity attrition plus peak volumes points to ongoing rate lift through the remainder of the year. And with a predominantly supply-side driven turn to this point, any demand improvement would lead to even greater market momentum. Looking beyond some of the headline noise from such things as elevated fuel prices and interest rates, household balance sheets remain resilient but mixed. Budget pressures on lower-income consumers continues to drive value-seeking behavior, which bodes particularly well for our mix being more concentrated in discount and value retailers, grocery and non-discretionary freight. Lean retail inventories position demand to eventually play a larger role in the recovery. While trade policy may impact restocking timing, non-discretionary replenishment provides a buffer against near-term volatility. As expected and previously communicated, our gains on the sale of used equipment in Q2 were lower sequentially and year over year. However, we continue to expect used truck values to improve in the second half of the year. Increased supply from enforcement is likely offset by OEM manufacturing constraints, aging fleets and higher priced 2027 engines, supporting demand for high-quality used equipment. Regarding driver availability, competition for high-quality drivers has increased. However, Werner is well positioned given our vertically integrated Roadmaster school network. While not immune from the market environment, our dedicated exposure offers predictable roles with frequent home time that in turn attracts top-tier drivers. We are also using AI to increase recruiting capacity and allow our teams to focus on higher-value interactions with candidates and more effectively match candidates with regional demand. With that, I will turn it over to Christopher to discuss our second quarter results in more detail.
Thank you, Derek, and good afternoon, everyone. We will continue on Slide 9. All performance comparisons here are year over year unless otherwise noted. Second quarter revenues totaled $934 million, up 24%. Adjusted operating income was $27.6 million, up 67%, and adjusted operating margin was 3.0%, an increase of 80 basis points. Adjusted EPS of $0.22 was up $0.14. Consolidated gains on sale of property and equipment totaled $1.5 million, down from $5.9 million in the prior year period and $3.8 million in the first quarter. Lower gains negatively impacted adjusted EPS by $0.05. Our GAAP and non-GAAP results for the quarter include certain non-recurring items, the vast majority of which relate to M&A and restructuring. Forty-five percent of the pre-tax adjustments are related to the First Fleet acquisition and 43% related to costs in connection with our one-way restructuring. We do not expect further one-way restructuring expenses going forward. M&A costs will continue as a result of ongoing integration efforts, but to a lesser degree. Turning to Slide 10, Truckload Transportation Services total revenue for the quarter was $703 million, up 36%. Revenues net of fuel surcharges increased 26% year over year to $582 million. TTS adjusted operating income was $32.3 million. Adjusted operating margin net of fuel was 5.5%, an increase of 270 basis points in spite of significantly lower gains. Excluding gains in both periods, operating income margins improved 370 basis points. The year-over-year improvement was driven from accretive results from the addition of First Fleet, profitability improvement, and a 45% year-over-year decline in DOT-preventable accidents per million miles. As a result, insurance and claims expense was at its lowest level since the third quarter of 2020 excluding First Fleet and excluding the one-time benefit last year related to the reversal of a 2018 nuclear verdict. Our ongoing decline in preventable accidents is a direct result of deliberate actions and upgrades across our business. We have made ongoing investments in tech-enabled safety tools and equipment that give our drivers and our fleet safety leaders more actionable insights so they can identify and manage risk earlier. We have also enhanced our driver training, safety programs and onboarding experience that sets high standards from day one. By equipping our drivers with better equipment, tools and training, we are building a safer, more efficient fleet. Our fleet metrics are on Slide 11. TTS average trucks totaled 8.71 thousand for the quarter, a 16% increase. The TTS fleet ended the quarter at 8.7 thousand trucks, down 4% sequentially. Truck additions from First Fleet were offset by slightly lower legacy dedicated trucks and fewer one-way trucks. Within TTS, in our dedicated business for the second quarter, trucking revenue net of fuel was $434 million, up 51%. Dedicated represented 76% of TTS trucking revenue, up from 64% a year ago. At quarter end, the dedicated fleet was up 2.11 thousand trucks from where we started the year, a 44% increase from year-end with the addition of First Fleet. Dedicated average trucks increased 44% year-over-year and 10% sequentially. Dedicated represented 80% of the TTS trucks at quarter end. Dedicated customers are expanding existing fleets and we continue to have success with customers in new verticals. Dedicated revenue per truck per week rose 5.4% this quarter though impacted by the addition of First Fleet in the mix. On a standalone basis, Werner's legacy dedicated fleet delivered an 8% increase year over year, due to better productivity and higher contract rate renewals. In connection with First Fleet, we have realized over $3 million in savings year-to-date, resulting in over 100 basis points of margin improvement. We have implemented actions representing approximately $9 million in annual cost savings, of which over $7 million will be realized in 2026, exceeding our earlier target. We are on track toward our total synergy goal of $18 million. In our one-way business for the second quarter, our strategic restructuring plan is driving tangible results. Trucking revenue net of fuel decreased by 16% to $138 million. As Derek already mentioned, one-way adjusted operating income margin in the second quarter grew more than 700 basis points year over year as a result of the double-digit increases in several key metrics. Revenue per truck per week increased 27.7%, miles per truck increased 15.7%, and revenues per total mile increased 10.4%. With approximately 60% of the one-way portfolio repriced in the first half at higher rates, we expect further bottom-line benefit in subsequent quarters. From a fleet size perspective, Q2 represented our first full quarter following the conclusion of our one-way restructuring effort. Average trucks declined 34% year-over-year to 36 trucks. Sequentially, the average fleet reduced by 18% and was down 386 trucks. Increased driver hiring constraints has limited the speed and pace of driver rehiring after we repositioned assets as part of the restructuring efforts. More recently our pace of hiring is improving coupled with deliberate driver retention tools and initiatives. Overall, our one-way truckload operation is more profitable, more productive and more specialized in geographies of choice. One-way is now contributing nicely to TTS margin expansion. And given the surge in one-way revenue per truck per week of nearly 28%, TTS also experienced outsized revenue per truck per week growth increasing 9% year-over-year, the largest quarterly increase for TTS since the third quarter of 2018. Logistics results are shown on Slide 12. In the second quarter, logistics revenue was $212 million, representing 23% of total second quarter revenues. Revenues decreased 4% year-over-year, but increased 8% sequentially. Truckload logistics revenues, which represented 72% of total Logistics revenues, decreased 10% on 29% fewer shipments, partially offset by 26% higher revenue per load. Mix change between truckload brokerage and PowerLink was also a driving factor on year-over-year revenue. Brokerage volumes were lower due to actions to protect yield while downward pressure persisted in our PowerLink fleet. Higher purchased transportation costs reduced segment gross margin by 260 basis points. Truckload Brokerage bore the greatest margin pressure due to the pace of buy-side rate volatility. April and May were the most challenging, June gross margins improved and represented the highest margin of the quarter. While Truckload Logistics revenues declined and margins were pressured, revenues in Intermodal and Final Mile grew double digits. Intermodal revenues, accounting for roughly 16% of the logistics segment, rose by 18%, driven by a 17% increase in load volume and a 2% increase in revenue per load. Final Mile revenues, which comprise the remaining 12% of the segment, increased 14% year-over-year and 13% sequentially. Adjusted operating margin for the Logistics segment was negative 1.3%, a 400-basis-point decline driven primarily by the gross margin pressure in truckload brokerage. In the second quarter, we generated very strong operating cash flow, which enabled us to retire nearly half of the additional debt we took on in the first quarter as a result of the acquisition of First Fleet. Operating cash flow was $85 million, up 84% year over year and comparable to the first quarter of this year. Our second quarter net CapEx was net proceeds of nearly $10 million. As a result, second quarter free cash flow was $94 million, or 10% of total revenues. Similarly, on a year-to-date basis, net CapEx is net proceeds of nearly $8 million, and free cash flow is $176 million, or 10% of first half revenues. Net CapEx for the first half of 2026 was nearly $66 million lower year over year primarily due to several largely one-time factors including selling more equipment and buying less following our one-way restructuring, modest incremental use of operating leases and declining technology-related capital spending as we near completion of building the technology stack for our future. Total liquidity at quarter end was $657 million, including $57 million of cash on hand and $600 million of combined availability under our credit facilities. We ended the quarter with $841 million in debt consisting of $48 million in assumed low-cost capital lease from the First Fleet acquisition and $793 million on our credit facilities. Net debt decreased $86 million sequentially and is $111 million from a year earlier. Covenant-defined pro forma net leverage at the end of the quarter was 2x including pro forma synergies and trailing 12 months of First Fleet 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 14. When it comes to broad capital allocation decisions, we will remain balanced over the long term, strategically investing in the business, returning capital to shareholders and maintaining appropriate leverage. With the acquisition of First Fleet, our focus in 2026 will continue to be on integrating the business, gaining momentum on realizing $18 million of targeted synergies and enhancing value. On Slide 15, let's review our guidance for the year. We are updating our guidance to reflect the significant productivity improvement that we are realizing with our assets. At the same time, there are currently fewer quality drivers available across the industry. As we go into the second half, we will continue leaning into productivity enhancements, while also ensuring we maintain excellent driver experience. Dedicated revenue per truck per week increased 5.4% year over year and is up 3.1% year-to-date, compared to the prior year period. We are raising our full year guidance from a range of flat to up 3%, to up 3% to 5%. We have been successful securing low- to mid-single-digit increases in contract renewals for both our legacy dedicated fleet and the First Fleet business. While asset productivity has improved with greater density from the addition of First Fleet, one-way truckload revenue per total mile guidance for the third quarter is up 10% to 13% year over year. Second quarter was up 10.4%. We expect ongoing pricing improvement as more contract renewals become effective and as peak projects and freight surface later in the year. We are revising our full year average truck fleet guidance from a range of up 23% to 28%, to a range of up 16% to 18%. A portion of our previously anticipated growth in the second half is likely delayed beyond year end in part from further production gains across TTS coupled with a slower pace of driver hiring. Average TTS trucks ended the quarter up 3% sequentially and increased 16% year-over-year. We are raising our full year 2026 net CapEx guidance from $185 million to $225 million to $215 million to $250 million. The average age of our truck and trailer fleet at the end of the second quarter was 3.0 years and 6.3 years, respectively. The higher CapEx will accelerate fleet modernization and reduce average age of our tractor fleet. The increase also reflects a strategic pre-buy of certain 2027 model year tractors ahead of the 2027 emission standards. These investments are expected to improve reliability, lower repair and maintenance costs, enhance driver satisfaction and customer service, and support higher equipment gains in future years. Our effective tax rate in the second quarter was 27.3%, including certain discrete items. We are maintaining our full year 2026 guidance range of between 25.5% and 26.5%. Regarding other modeling assumptions, we expect net interest expense this year will be between $40 million and $45 million. We anticipate increasing demand for quality used equipment and expect increasing resale values through the end of 2026 given OEM production constraints and the evolving regulatory backdrop that will be an incentive towards high-quality used assets. We are narrowing our anticipated gains on sale of used equipment and revenue-generating assets for the year from a range of $8 million to $18 million to a range of $10 million to $14 million. Our gains for the first half of the year are $5.2 million. With that, I will turn it back to Derek.
Thank you, Christopher. In the second quarter, we saw clear improvement from the actions we have taken. Seeing early signs from the recovery beginning to translate into our results and we are certainly not taking our foot off the throttle when it comes to continuing to drive improved results for the remainder of the year and into next. With that, let's open it up for questions.
分析師問答
Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. Please limit yourself to one question and one follow-up. We will now pause momentarily to assemble the roster. The first question will come from Bascome Majors with Stephens. Please go ahead.
Hey, guys. This is Reed Seay on for Bascome Majors. You mentioned talking about getting— I think you said low- to mid-single-digit increases on your dedicated business. Did I hear that right? And why is that not moving higher as we move through the rest of the year? Thank you.
Reed, when we talked about low- to mid-single-digit increases, we were talking about one-way contract renewals, if that is what you are speaking to. Relative to what we are seeing from a price perspective, we did raise our guide on dedicated revenue per truck per week, which was previously flat to 3%, up to 3% to 5%. We are seeing progress in both dedicated and one-way. But I guess if you have a more specific question, I could certainly speak to it. In general, the market continues to strengthen and cooperation with customers relative to securing reliable sustainable capacity are ongoing. And then if we could just touch on the impact from the latest court ruling when C.H. Robinson was ruled an employer of a carrier that they employed. Can you talk about how you expect that to impact your logistics business and where that could go in terms of cost and how that could impact the market as a whole? I mean, I guess I will start by saying, given that they have ongoing litigation and have already talked about an appeal, I do not want to get into the weeds on their case as I am not an expert. I will tell you that the verdict that took place in that particular case simply shines yet another light on the risks that are out there. We, in advance of Montgomery, the original C.H. Robinson ruling, in advance of that case in the Supreme Court had doubled down on our efforts on our vetting processes, our carrier qualifications team and the use of a trilateral set of systems that we use to vet carriers to put ourselves in the best possible position. We are going to continue to lean into compliance everywhere we can and solid vetting from a customer perspective. I think the response has varied. Most customers do view this as a legitimate risk and a concern that is at the forefront. We have seen conversations convert quickly from price to quality and reliability. That bodes well both for our asset business as well as we continue to try to lead from the front on the logistics side relative to our vetting processes. So, it will be an ongoing dialogue. I think it is going to become interesting as this all continues to play out. Obviously, I have heartburn with the verdict itself given the margin level business that we are in both in logistics and in truckload, and the amounts continue to increase verdict after verdict. But right now, my focus is on this organization and making sure this organization is putting forth a high-quality product and doing everything we can to put safety at the forefront.
Thank you. The next question will come from Eric Morgan with Barclays. Please go ahead.
Hey, good afternoon. Thanks for taking the question. I wanted to ask one on supply. Derek, you noted we are several quarters into the regulatory enforcement actions. I think we are a year or so since we first started hearing about English language proficiency, but you said we are still in the early innings. So I know you ran through a few of the initiatives being pursued by the regulators. But I guess I was curious if you could provide some thoughts on what remaining innings might look like from here. And maybe how material is what is to come relative to what we have already seen? And, yeah, so I guess just what that means for pricing in the market.
Yeah, sure. I will take a swing at that. So we are about a one-year anniversary really since English language proficiency became front of mind, and in that year, the conversation started around English language proficiency. Predominantly, that has led to out-of-service violations and 27 thousand plus drivers now being put out of service for various violations of English language proficiency. But it quickly advanced to more technical approaches when you start now looking across the landscape of 550 fraudulent CDL schools being shut down at this point, nearly 10 thousand CDL schools being removed from the registry, 700-plus high-risk carrier investigations that have taken place over the last 12 months and then just overall more widespread enforcement and acknowledgment of how significant the problem is. What lies in front of us is the ability for FMCSA to have better interagency cooperation agreements in place with CBP and others, the ability to layer technology on top of what is largely up to now been a boots-on-the-ground approach and instead use technology, the new MODS system, which has had some interruptions in its launch but still is a huge step forward from what we had before from a carrier registration perspective, and just the fiscal reality that the government operates on an October budget. We know that there is some funding available as they renew that budget this October to bring more resources to bear. All of that collectively just paints the environment that is circling the wagon on bad actors out there. It needs to be done. The motoring public deserves that level of enforcement. We are going to continue to be a highly compliant carrier and do everything in our power to lower accident rates even after having just posted a really strong first half of the year from an accidents-per-million-miles perspective. But I think you are going to continue to see folks shut down. Just looking at the 700-plus high-risk investigations as an example, 400-plus voluntarily agreed to cease operations, 60 to 70 more were shut down actively by the government, 3.2 thousand visa revocations as they look now at the B1 visa issue and some of the cabotage stuff that is tied to that. And there is just ongoing efforts relative to auditing CDL issuance and making sure things are done in compliance with federal regulations. So it is going to be a build. It is going to continue to build from here. I think third-inning-ish right now is where we are at. And there is still going to be significantly more capacity removed from the road between now and the end of the year. And frankly, it will probably take into the early parts of next year.
Thank you. The next question will come from Tom Wadewitz with UBS.
Hey, guys. This is Mike Triano on for Tom. So you mentioned dedicated bid activity is at multi-year highs, but drivers seem to be kind of constraining and pushing out that growth to 2027. So just wondering if you are seeing the pipeline of trainees in your driver school network pick up at all since the beginning of the year. And then I guess related to that, how does potentially raising driver pay address this issue?
Yes. Thank you for the question. Yes, dedicated bid activity is very robust right now. We want to be careful and selective. We want to make sure it is truly dedicated, driver-involved, multi-stop kind of work that stands the test of time. It is not just a capacity play trying to look for shelter in a very turbulent one-way market. As we do that and work our way through that, we also have to work with our current customers relative to repricing where repricing is the right answer to make sure we can guarantee that ongoing supply of capacity that we are providing. So far, conversations have gone well. We have also raised our guide relative to revenue per truck per week. That is driven a lot by backhaul opportunities, the ability to eliminate more empty miles and some of the density that came with the First Fleet operation. On the driver question, clearly, driver hires are more difficult as we look forward. That market is tightening. Our schools are playing an active role in producing high-quality drivers into the network. When I say ours, I mean both our vertically integrated Roadmaster schools as well as our tier-one collection of schools that we work with around the country. We have also ramped up efforts relative to experienced hires and are seeing some benefits on that front relative to the lucrative type of jobs we already have within our walls. One of the advantages of being 80% dedicated is those do not just pay better, but they often have better lifestyles associated to them as well and repetitive routes that drivers really covet. And so we are making more inroads with some of the experienced driver population as part of the solution. And then where applicable, we are working with customers, and again, with 80% of dedicated we work directly with the customer in a one-to-one relationship, on targeted driver pay increases where that is the right answer. But lifestyle still matters. Quality of equipment still matters. And confidence in the job being one that gets them to and through home with high levels of frequency matters a great deal. So we have got the right kind of jobs to be positioning in the market today, and we are going to continue to lean into that.
Just a follow-up on the dedicated fleet growth. Is there any amount contemplated in the full year guide for second half just in terms of sequential growth from 2Q?
Overall, Mike, I would say for the TTS fleet guide there is some modest fleet growth that is in that number. Obviously, we have pared back the average year-over-year fleet from the previously 23% to 28% to the 16% to 18%. So there is still some lift to go in that number. Part of what is bringing that down is a combination of seeing some incremental production gains across the fleet from the one-way restructuring, but also in dedicated, which has favorable bottom-line implications—essentially providing the same level of reliability and service to dedicated customers with fewer assets, particularly with the added density from First Fleet. But also as you are alluding to, the slower pace of driver hiring has also brought that down. As a reminder, with the one-way restructuring, we had to reposition some assets into different geographies and therefore re-seat drivers all at a time when the labor market is tightening. And so that was a delay of growth, not lost opportunity. As we can make further headway with recruiting and retention efforts, which are getting more positive in the third quarter relative to the second quarter, that will lead to more fleet growth through the end of the year and into 2027.
Thank you. The next question will come from Bruce Chan with Stifel.
Hey, good afternoon. This is Matthew Milask on for Bruce. Thanks for taking the question. To start with respect to demand, curious how the freight trends progressed throughout the quarter—April through June—and whether it is strengthening, perhaps into July? Whether you see any customers pulling some freight forward due to tariffs or inventory rebuilding and to what extent customers are preparing for a more robust peak season this year relative to years past?
Yeah, Matthew. Throughout the quarter, we saw freight continuing to strengthen. Obviously, there are some events that took place in Q2 like Roadcheck and some other enforcement activities that caused even incrementally tighter markets for periods of time. But in general, everything has been continuing up and to the right relative to overall tightness. I would remind people that July is normally the second weakest month of the year after only February. And so some of the slight drawback you are seeing in some of the macro data at this point is not any concern from our long-term outlook. We still see internally both with our core customers as well as opportunities in the transactional market a lot of strength right now. It is still predominantly, we believe, supply-driven, meaning contraction of overall capacity, but customers' optimism as they look into the fall at this point is fairly positive. We work with a lot of discount and non-discretionary type retailers. That freight tends to turn quickly and get replenished quickly. Inventory levels across the retail space are in pretty good shape, meaning they are no longer bloated; they are either at or below expectations in most cases. So we know replenishment is going to continue. That also gives some insulation against some of the tariff noise that we faced in 2025 when tariffs were kind of on again, off again and people were trying to react and at times built excess inventories as a blanket or an insulation to that phenomenon. Now they do not have that luxury; they are going to have to replenish in order to keep store shelves stocked. And we are positioned well to be able to support them as they go through Peak season. Overall, peak is shaping up positively. Those dialogues will continue, obviously, over the next couple of months. And we expect a more normalized peak season this year than we have seen in years past through a combined impact of both the supply and then later in the year the influx of demand into the equation.
And then secondly, on the First Fleet integration, I know you mentioned that the process has gone very well, including some valuable density gains. Can you tell us where you are versus the original synergy targets? And whether there has been anything unexpected both to the upside or downside throughout the process related to costs or revenue retention?
Yeah. I will start, and I will turn it to Christopher for some detail. But just to tell you, when you do an acquisition, there is always some risk relative to culture, quality and just whether the team is what you think that you are getting along with the deal. All of those things have been very, very positive. It is a great organization led by great people that have similar commitments to safety and service above all else, similar to Werner. We have found the integration from a culture perspective going as well as anything we have done to this point. Both teams are committed. We talk the same language. We have similar profiles with our dedicated density, and so it has been a really positive impact to the joint organization. On the overall synergy targets we mentioned during the pre-read that we are ahead of schedule where we thought we would be at this point. I will turn it to Christopher; he can give you some details on where those are coming from and why we feel good about the synergy target.
Yes, Matthew, just as a reminder, we talked about the $18 million of synergy target over 18 months and that would equate to a 300-basis-point margin expansion for First Fleet which would bridge the gap between the First Fleet adjusted operating income margins compared to our organic dedicated fleet. So we are making very good progress in that regard. In the second quarter we increased First Fleet margins by over 100 basis points. We did that through $3 million of realized synergies. We have actioned synergies that we believe equate to $7 million to be realized in the current year, 2026, or $9 million on an annualized basis. So we have actioned effectively half of that $18 million target. Things are going very, very well. We have said before that this acquisition was accretive from day one, and in the second quarter, it was a top contributor to the EPS year-over-year growth as well as the TTS margin expansion alongside improved insurance and gains and alongside the benefits that we realized from the one-way restructuring.
Appreciate it. The next question will come from Ariel Rosa with Citigroup. Please go ahead.
Hey, good afternoon, gents. You mentioned there are fewer quality drivers out there. I'm curious about the dynamics between the driver pool for one-way and the driver pool in the dedicated market. Has the driver pool in dedicated actually shrunk? It seemed like others have suggested that a lot of the low-cost or low-quality capacity was more in the one-way market. Just talk about those dynamics, if you would. And then Derek, maybe your views on how the cycle plays out. I heard you say we are just in the third inning. But what are your thoughts on capacity coming back into the market or what it would take from a wage-increase standpoint to draw people into the industry such that we might start to worry a little bit about supply coming back?
Thanks for the question. To be clear, there is only one driver pool. Drivers are being recruited and pulled into different types of roles—one-way, dedicated, private fleets—and we are all fishing in the same ponds. The jobs drivers want are those dedicated jobs with higher quality of life, frequent home time, and compensation commensurate with premium expectations. So I like our positioning in a market that is becoming tighter on quality drivers. The reality though is that because it is a single pool, when the one-way market is hot and when spot rates are elevated, you do see the normal transition where some company drivers may go out and become owner-operators and chase spot rates for a while. There's going to be give and take on this. Our focus is continuing to build larger quantities of higher-quality, long-term career jobs. Our driver pay is actually in really good shape right now. We have a significant number of jobs in our network where drivers can earn six figures. We have jobs across our network where we need to make targeted pay adjustments; where that is the right answer, we will do it. But lifestyle, quality of equipment, and confidence in the job matter greatly. The driver schools play a major role in producing high-quality drivers, especially our Roadmaster network. We see better compliance, better retention, better maintenance and better service records with drivers that come out of our Roadmaster school or any of our tier-one schools that we partner with. We have a lot of solutions in place and are open-minded to pull various levers. As Christopher mentioned earlier, as we get into Q3, we have seen momentum from some initiatives that were previously put in place really starting to build, both on driver retention as well as driver hires.
Thanks for that color. Just a second question: I know someone asked about some of the nuclear verdict impact. I'm curious for the broader market where do insurance costs go? If the size of awards is becoming the new normal, how do you quantify and develop an actuarial model for those kinds of outsized verdicts, and how does the industry adapt?
We are working diligently year-over-year to continuously lower the frequency of accidents. If you look at major carriers, which tend to be the ones pursued in these cases, they are all at 20-25% or all-time low accident rates. The efforts are working; we are making America's roadways safer and we focus on that every day. But when you cover millions of miles a day over the nation's highways, there will be accidents that happen. The question is when we get more reasonableness in the room so that we do everything we can to prevent an accident and when accidents do happen we try to do the right thing, lean into it, and come to a reasonable outcome. I think this puts increasing pressure in places that people do not talk about as much. I think small brokers will be under significant pressure—I'm not sure how some of them survive the onslaught of this environment. I worry about the backbone of the industry, the one-truck, two-truck, five-truck carriers. I'm not sure how, over time, we try to vet and utilize that capacity when some of the new expectations require entire safety departments and safety directors. Those smaller operators often bring 20-30 years of driving history and are quality people. We all have to navigate this. Where does it go from here? I think it is yet another lid on capacity. It is a tough time to try to grow into a good market. I don't think you will see a lot of that. We have EPA emissions and engine changes around the corner that will keep a lid on capacity growth. I think there is a lot of margin improvement that needs to take place across the industry to make it reinvestable before we start talking about growing our way into added trucks. The driver market is very difficult right now and will stay that way for the foreseeable future as everybody continues to raise hiring and vetting standards. My hope is that we do not end up with good drivers being left out because of how stringent everyone is trying to become. We have to be careful and prudent, but also willing to give people opportunities to enter a career that can become very lucrative and not carry $200k of college debt.
The next question will come from Ravi Shanker with Jordan Stanley. Please go ahead.
Great. Thanks. Afternoon, guys. So Derek, two-part similar-theme question. First, do you think this cycle is going to be structurally different than usual for dedicated versus one-way given the extreme capacity reduction we are seeing? Do you expect shippers to pivot significantly towards dedicated as we get deeper into the up cycle?
Yeah. I think there are some subtle differences. Shippers are probably having some soul-searching conversations about their own risk tolerance given the size of some of these verdicts, and private fleet conversion is probably more enticing right now than it has ever been. I think in every tightening cycle shippers entertain a lot of capacity where they try to build a dedicated RFP but it is really one-way freight moving around in a quasi-repeatable manner. We will be careful and selective with those opportunities. Structurally, the cycle is different. We are early in this turn. The enforcement efforts are early innings, the engine issue is real with new engines right around the corner, and the driver market shows no signs of a sudden influx of new entrants. All of that makes this feel structurally different. The fact that the turn is supply-driven is certainly a different setup right out of the gate.
Got it. And on the brokerage side, are you seeing shippers move away from asset-light towards asset-heavy in a post-Montgomery world, and what does that mean for your mix of business and resources between logistics and the asset-heavy side?
Yes, the answer to that is a clear yes. Assets matter and will continue to matter. Having quality drivers in those trucks and quality assets on the road matters more than ever. We are going to continue to lean into our programs. I would remind everybody, we did a significant structural reset that we are now concluding. That reset came at certain costs, but it has long-term benefits. The cost in the short term was the fleet shrinking more than we would have liked based on the geographies of where that equipment and those drivers were located versus placing them into dense lanes with specific focus—cross-border Mexico, team expedited, and engineered lanes. The benefit is clear: increases in both rate per mile and utilization, which are sustainable moves. Now that the reset is complete, it is our job to build upon it. There will be growth, but if we can continue to grow miles on existing assets, it is more accretive to the bottom line and benefits drivers. It was difficult to get to this point, I'm happy it's behind us, and now we can look forward more optimistically with both a better market and a better network setup.
The next question will come from Scott Group with Wolfe Research. Please go ahead.
Hey, thanks. Good afternoon. I want to understand the lower fleet guide but the higher CapEx guide and especially the pre-buy— I thought EPA was getting pushed out a little. And then maybe just to marry into the earlier conversation about customers preferring assets and trying to grow the fleet, do you ever think about growing the owner-operator fleet as more of an asset-light way to grow the fleet going forward?
Yes. Not out of left field—it's something we are leaning into more closely. We think there are high-quality owner-operators that could benefit from being part of our network. We will be prudent about who they are and are primarily focused on fleets and fleet owners joining via our owner-operator program. Regarding higher CapEx, it ties back to the central theme: a tightening driver market and making sure our fleet is in the best possible position entering 2027. The fleet age moved up a bit with the First Fleet acquisition; we knew we would work through that. We decided to take some bigger bites quicker in the back half of the year to ensure the fleet is positioned well. That CapEx increase is predominantly replacement with a little bit of strategic pre-buy, nothing like the pre-buys of the past. OEM production will be at or near replacement levels and that will be it, so we're hedging a bit against new-engine timing. There's some relief more than delay on the new engine topic, but sooner or later it's still coming. The longer we can operate with known technologies at known pricing and freshen our fleet to attract drivers, the better. The CapEx move is relatively minor and still represents roughly 8% of revenues.
Scott, to add color: this accelerated and higher CapEx will also accelerate bringing the average age of our truck fleet down, targeting closer to the mid-2s by the end of the year and getting even further lower throughout 2027. Benefits include improved reliability, lower maintenance and repair expense, higher gains and improved driver retention. Although it is a lift from our initial guide, we still expect to be free cash flow positive for the full year. As a percentage of revenue, this will still be upper single digits, consistent with our recent trend and well below prior years. On the owner-operator question, the higher side of the 16% to 18% full-year fleet guide would include adding some of those owner-operators to the fleet. The higher side and beyond also could include potential dedicated fleet wins where there's an incumbent driver pool we can vet and onboard more quickly.
Very helpful. And then you don't like to get too specific around margin guides, but any directional color about how to think about trucking margin Q2 to Q3 and when logistics gets back to profitability?
Broadly, we would view earnings growth to be at an accelerated pace in the second half for both adjusted operating income and EPS. Revenue steady with modest incremental TTS fleet growth, more trucking revenue given rate lift and production gains. Truckload logistics revenue to be steady, with focus on yield and margin improvement and ongoing momentum in intermodal and final mile. From adjusted operating income standpoint, going from Q1 to Q2 we improved consolidated adjusted operating income margin by about 150 basis points. We would expect a similar trend continuing in Q3 and into Q4 moving toward mid-single digits given rate and production momentum in TTS, higher gains and logistics gross margin improvement. Interest expense likely lower in Q3 given lower debt and may elevate again in Q4 given higher CapEx weighted toward the end of the year.
I would add that logistics has outsized exposure in temperature-controlled freight in our brokerage unit. Q2 had a lot going on, both capacity-wise and weather-related heat events that increased cost. We saw gross margin improve every month of Q2, and we foresee getting that stabilized and moving forward.
To add, what we're seeing recently in July in truckload brokerage is gross margin per load reflective of where it was almost a year ago—about 300 to 400 basis points of lift versus Q2 in truckload brokerage. That could lead to roughly 150 to 200 basis points of margin lift as we get on the other side of this pressure.
The next question will come from Jordan Alliger with Goldman Sachs. Please go ahead.
Hi. A couple quick ones. On productivity—miles per truck—can you give thoughts on the shape of that? Is it a continuation of the year-over-year trend? Also, looking ahead, thoughts on dedicated versus a resumption in potential growth on one-way on an apples-to-apples basis?
On productivity, the utilization gains are directly related to the restructuring we've been through. The focus on cross-border Mexico, team expedited, and engineered lanes allows us to build the density required to put assets to work productively. It benefits drivers and customers and flows to the bottom line. We think we can sustain the gains we've made, although we are unlikely to see the same steep slope going forward given the order-of-magnitude year-over-year improvement. We believe there's still room to improve. On fleet growth, I would caution against being overly prescriptive for one-way versus dedicated this quarter. We're in the midst of conversations with customers and seeing large-scale rebids of routing guides. We will be open-minded. You'll see opportunities for marginal growth in both one-way and dedicated. We know multiple dedicated fleets are implementing in Q3, but some conversations are yet to be resolved. We've been honoring contractual terms and focusing on sweating assets, reengineering the network, working contract rate increases with customers, and yielding off the bottom where resolution couldn't be reached. Our spot rate exposure this quarter is no greater than the same quarter a year ago. We think there is opportunity to cement more arrangements that increase yield, which is why we've changed our guides both in dedicated and one-way relative to revenue per truck per week and rate per mile on the one-way side.
The final question will come from Christian Wetherbee with Wells Fargo. Please go ahead.
Hey. It's Rob on for Christian. Appreciate you squeezing us in. Could you give a sense in terms of the utilization improvements in the second quarter—it's rare to get double-digit utilization improvements—was this all tied to the restructuring, or would you attribute some of it to the broader market or some of the AI initiatives?
It is a mix, but the restructuring is the main driver. We focused on creating a sustainable one-way network at a time when one-way had become unsustainable in parts. That required repositioning and shrinking the fleet into a more dense, designed network. The work's behind us and that is the predominant driver of the improvement. An improving market allows better freight choice and nearer, better-priced freight to align with the new network, which helps our sales, account management and operations stay in lanes where we can be competitive long term. Tech plays a role too—our ability to analyze and optimize days in advance versus same day creates better outcomes. We're in the latter innings of some tech implementation but in the early innings of realizing the full benefits. We're excited about what the technology can do into 2027 and beyond.
Rob, to add, it is a change in freight mix that led to the productivity improvement—moving toward more team-oriented freight and a longer length of haul. We increased the average length of haul in one-way by over 100 miles or almost 18% year over year, which makes the rate improvement stronger when you factor it in.
Can you give a sense in terms of one-way margins where we are today relative to historical average cycle margins and where that compares to peak margins?
One-way is positive and profitable with significant year-over-year margin improvement. We noted over 700 basis points of margin expansion in one-way. For TTS, margin expansion year over year and EPS growth were led by three pillars: one-way margin expansion, the accretive addition of First Fleet, and lower insurance and claims. We expect these drivers—rate lift, production gains, higher-performing freight and geographies of choice—to continue contributing to margin expansion in the third quarter and the second half.
This concludes our question-and-answer session. I would like to turn the conference back over to Derek J. Leathers for any closing remarks.
Yes, I just want to say thanks for joining us today. While the freight market recovery continues, the supply environment is clearly tightening in the early stages. Continued capacity attrition and a greater focus by shippers on service, safety and financial stability all play to Werner's strengths. We are well positioned to serve our customers and convert an improving market into sustained earnings growth. Our second quarter results demonstrate that the actions we have taken to structurally improve Werner are translating into stronger performance. We are encouraged by the progress we made this quarter, but we know there is more opportunity ahead. We will remain focused and disciplined on delivering outstanding service and safety, realizing the full value of First Fleet and building on the momentum across our business. So to close, I just want to thank you for spending time with us today.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.