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Date

Tuesday, July 29, 2025, at 5 p.m. ET

Call participants

  • Chairman, President, and Chief Executive Officer — Derek J. Leathers
  • Executive Vice President, Chief Financial Officer, and Corporate Secretary — Christopher J. Wikoff

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Risks

  • Adjusted Truckload Transportation Services (TTS) operating margin fell by 220 basis points to 2.8% net of fuel surcharges in Q2 2025, with 150 basis points of the decrease attributed to higher insurance and claims expense, excluding the Texas Supreme Court reversal.
  • Dedicated start-up costs totaled $1 million in Q2, with additional start-up cost headwinds expected to continue into Q3.
  • "Higher insurance costs versus the prior year period, on an adjusted basis excluding the Texas Supreme Court reversal, were nearly a 200 basis point drag on operating income in Q2 2025."
  • Final mile revenues decreased 10% year over year in Q2 2025.

Takeaways

  • Adjusted operating margin— Adjusted operating margin was 2.2% for Q2 2025, with TTS adjusted operating margin at 2.8% net of fuel surcharges.
  • Consolidated gains on sale of property and equipment— $5.9 million, more than doubling both sequentially and year over year in Q2 2025, due to elevated used equipment values despite fewer units sold.
  • Cost savings target— 2025 savings goal raised to over $45 million from the prior $40 million estimate, with $20 million achieved in the first half of 2025 and high assurance on reaching the remaining $25 million in the second half of 2025.
  • Operating cash flow— $46 million, representing 6% of total revenue for Q2 2025, with free cash flow year to date at $17.3 million or 1.2% of total revenues for the first half of 2025.
  • Share repurchases— $55 million utilized to repurchase more than 2.1 million shares at an average price of $26.05 in Q2 2025, with 1.8 million shares remaining under authorization.
  • Net debt to adjusted EBITDA— 1.7 times net debt to adjusted EBITDA as of June 30, with total liquidity of $695 million, including $51 million cash and $644 million of revolver and receivable facility availability as of Q2 2025.
  • TTS segment performance— Revenue of $518 million (down 4%) for Q2 2025, revenue net of fuel of $462 million (down 1%), and dedicated revenue net of fuel of $287 million (down 0.7%).
  • Dedicated truck growth— Dedicated average trucks declined 0.9% year over year in Q2 2025 but grew 1.6% sequentially to 4,855 in Q2; dedicated revenue per truck per week grew 0.2% and increased in 28 of the last 30 quarters.
  • One-way truckload trends— Revenue net of fuel decreased 3% to $164 million in Q2; revenue per loaded mile rose 3.7% year over year; revenue per total mile up 2.7%; truck count decreased 3.5% year over year but grew slightly sequentially.
  • Logistics segment— Revenue of $221 million (30% of total), up 6% year over year and 13% sequentially in Q2 2025; logistics adjusted operating margin improved 190 basis points to 2.7% amid double-digit reduction in operating expenses.
  • Guidance updates— TTS fleet growth guidance for full-year 2025 narrowed to up 1%-4% from up 1%-5%; net CapEx guidance cut to $145 million-$185 million from $185 million-$235 million for full year 2025; equipment gain full-year guidance increased to $12 million-$18 million from $8 million-$18 million.
  • Technology integration impact— Werner's edge TMS platform adoption has yielded a 20% productivity improvement in brokerage loads per full-time employee over several quarters, expanded no-touch automated load bookings, and back-office efficiencies in carrier payment automation.

Summary

Werner Enterprises(WERN 0.11%) reported the first year-over-year increase in revenue net of fuel in six quarters in Q2 2025, as core operational and technology investments began to yield productivity and cost benefits. The Texas Supreme Court’s reversal of a $90 million accident verdict eliminated a $45.7 million net liability, benefiting GAAP operating income, directly impacting GAAP operating income and insurance expense for the period. Logistics revenue grew 6% year over year in Q2 2025, underpinned by truckload brokerage, the PowerLink offering, and intermodal volume expansion, while dedicated new business wins and ongoing fleet start-ups positioned the company for higher future contribution margins. Strategic capital allocation in Q2 included $55 million in share repurchases and a substantial reduction in full-year net CapEx guidance, supported by a modernized fleet and disciplined asset management. Management cited ongoing capacity attrition in the trucking industry, with continued focus on securing new business awards and leveraging diversified service offerings to drive growth amid freight market uncertainty.

  • Chairman Leathers said, "revenue per total mile increased sequentially and was up year over year for the fourth consecutive quarter as recent contractual rate changes became effective and deadhead improved sequentially."
  • Chris Wikoff highlighted, "Logistics adjusted operating margin of 2.7% improved 190 basis points driven by volume growth and double-digit percent reduction in operating expenses."
  • "Bankruptcies are up ... with the rise in resale values, lenders just have more options ... [driving] out some additional capacity," Wikoff explained regarding industry supply headwinds and used equipment markets.
  • Management maintained their full-year revenue per truck per week guidance of 0%-3% for dedicated and flat to up 3% for one-way truckload, with one-way revenue per total mile at the upper end of guidance for the quarter.
  • The average truck and trailer fleet age at quarter end was 2.4 and 5.5 years, respectively, reflecting flexible capital planning in light of regulatory and trade policy uncertainty.
  • Management expects startup cost and efficiency headwinds from new dedicated fleet launches to persist into Q3 before margin benefits materialize as fleets mature.

Industry glossary

  • Edge TMS: Proprietary transportation management system integrating operational, automation, and analytics capabilities for Werner's network and brokerage services.
  • PowerLink: Werner's trailer-only or power-only offering, enabling flexible equipment sourcing for shippers and carriers.
  • Deadhead: Miles traveled by a truck without freight, typically representing an efficiency and cost management metric.
  • Dedicated: Contracted trucking services where vehicles and drivers are assigned to specific customers for the duration of the agreement, providing capacity and service stability.
  • TTS (Truckload Transportation Services): Segment comprising Werner's over-the-road truckload freight business, including dedicated and one-way van operations.

Full Conference Call Transcript

Derek Leathers: Thank you, Chris, and good afternoon, everyone. We appreciate you joining us today. We generated solid results during the second quarter and are encouraged by the sequential improvement in financial performance relative to Q1. The freight market faces ongoing uncertainty related to shifting global trade policy and regulatory issues. We remain focused on providing superior and diversified solutions to our customers by investing in our future through technology and structurally improving our business with a commitment to delivering value. The key priorities we have been focusing on have started to bear fruit, as evidenced by numerous positive operating metrics in the quarter, including year-over-year growth in revenue, net of fuel surcharge for the first time in six quarters.

A return to profitability driven by decisive action and execution. And sequential growth in various forms including revenue, TTS fleet, one-way revenue per total mile, gains from sale of used equipment, TTS operating income, and logistics gross margin. As a reminder, on slide five, there are three priorities underpin our DRIVE strategy, which we execute day in and day out. First, driving growth in core business. In DTS, our fleet is up year to date. Our dedicated solution is winning in the marketplace. One-way rates are increasing. And we realize year-over-year growth in overall combined miles across our one-way tractor assets and PowerLink trailer-only offering. Within logistics, we are back to mid-single-digit growth driven by truckload brokerage and intermodal volumes.

Our customers are voting with their freight as we notched several new business awards with strategic customers across our portfolio. Second, driving operational excellence is a core competency. Our focus on creating and fostering a culture around safety never changes. Our DOT preventable accident per million miles continues to trend favorably as we hire quality professional drivers and invest in new technology-laden equipment. We are pleased the Texas Supreme Court has ruled on the accident that occurred in 2014, reversing the $90 million jury verdict from 2018. The court's decision provided much-needed clarity in the state of Texas. Legal reforms are still needed in many states across the country.

We will continue to work at the state level and with others in and outside our industry for fairness and reasonableness regarding these types of claims and lawsuits. This marks the end of a decade-long and difficult chapter. While we are grateful for the clarity this decision brings, we will not lose sight of the tragic loss for the Blake family. Our focus on safety improvement is shown through our investments in technology, an increasing part of our operational strategy, and we are progressing on this front as well. Volume on our HDMS platform is growing. Nearly two-thirds of one-way trucking volume is now on edge and over half of the dedicated volume.

Logistics has largely been on edge TMS for several quarters leading to a 20% productivity improvement in brokerage loads per full-time employee. We are seeing more top and bottom line tech-enabled synergies such as growing no-touch fully automated load bookings, and back-office efficiencies, like carrier payment automation. We are driving efficiency by scaling the use of conversational AI call and notifications for reminders and communication with new hires, associates, and brokerage carriers. Our professional drivers have greater technology tools, improving their situational awareness while on the road and providing mobile ease of access to important information when off the road.

I'm proud of the efforts of our technology team and the willingness of our associates to lead into change and transformation. These changes are benefiting all of our stakeholders, including our customers, while further securing our IT infrastructure and cloud environments. And finally, our reliability and commitment to excellence was recently recognized as Werner was named the 2025 top 3PL in cold storage provider for food logistics for the ninth consecutive year. Our final priority is driving capital efficiency. We are generating positive cash flow. In supporting this, we are maximizing value on the sale of used equipment, tightening our full-year guide on equipment gains to the upper end of the prior range.

Regarding CapEx, we will continue to invest in the five T's: trucks, trailers, terminals, technology, and talent. This year, however, we decided to moderate our equipment spend. With a modern and low-age fleet, we have assets in place to support growth through the rest of this year. With a strong balance sheet, inclusive of low leverage, we are focused on disciplined return-oriented investments. This quarter, we flexed our share repurchase authorization and bought back $55 million of shares at an exceptional value. When it comes to evaluating the impact of tariffs on our equipment cost, our strong balance sheet yields optionality. Now let's turn to slide six and discuss our second quarter results.

During the quarter, revenues decreased 1% versus the prior year. Revenues net of fuel increased 1%. Adjusted EPS was $0.11. Adjusted operating margin was 2.2%. And adjusted TTS operating margin was 2.8% net of fuel surcharges. Results in the quarter benefited from a growing fleet size due to dedicated start-ups and pop-up truck opportunities in one way. One-way revenue per total mile growth, cost containment discipline and action, higher volumes in truckload logistics, particularly in brokerage, at stable gross margins, and increased gains on equipment both sequentially and year over year. In Dedicated, retention remains strong and shipper conversations are constructive as customers look for reliable and flexible transportation partners who offer creative solutions, high service, and scale.

The implementation of new dedicated fleet sign last quarter is progressing well, and continuing to ramp into Q3 as we hire drivers and build fleets to targeted levels. Additional fleets were awarded in the quarter, and the opportunity pipeline remains strong. Our dedicated expertise is a competitive advantage that has and will continue to drive growth over the long run. In one-way truckload, revenue per total mile increased sequentially and was up year over year for the fourth consecutive quarter as recent contractual rate changes became effective and deadhead improved sequentially. Our one-way fleet size increased sequentially driven apart from engineered pop-up solutions in response to customer requests.

This demonstrates our flexibility and adaptability in meeting customers' needs in an improving market, all while implementing new fleets and dedicated and supporting brokerage growth logistics. We are pleased with our Q2 trends in logistics, showing double-digit growth sequentially, and mid-single-digit growth year over year. We expect continued growth driven by a track record and reputation with large shippers needing additional capacity. In addition to sequential and year-over-year top-line growth, expenses were down and operating margin improved. Turning to Slide seven, our comprehensive logistics portfolio is a key component of our diversified solution-focused strategy. Werner's mix of large complex shippers requires a combination of multimodal solutions that are coordinated, reliable, and cost-effective.

Our solution-oriented logistic service provides expertise that benefits larger customers while also expanding our reach to small and midsize shippers. Truckload brokerage complements our truckload division, offering customers additional capacity and flexibility through creative and competitive solutions. We offer tailored solutions that are mode agnostic, combining the strengths of all Werner services to solve customer challenges. Our large trailer pools provide capacity, simplify shipper operations, improve efficiency, and minimize the need for costly labor to live load and unload trailers. Brokerage also enables new customers to be introduced to Werner in a low-risk setting, often leading to expanded business relationships in one-way truckload or dedicated. Our intermodal business is a high-service product that provides a lower-cost option to customers.

We have partnerships with all of the major railroads for nationwide rail access and capacity. Through a combination of private containers and rail-owned equipment, we provide high service levels across the United States and Mexico cross-border. Finally, our dedicated final mile division moves big and bulky goods nationwide directly to homes and B2B in verticals such as furniture, appliances, auto parts, and healthcare. Our technological advancements are fueling logistics growth, including running on our edge TMS platform and other tools like Werner Bridge, which makes us a preferred user-friendly choice for third-party carriers, and more automation in load booking, and back-office processes, keeping us agile and cost-effective.

Moving on to slide eight to summarize our market outlook for the remainder of the year. Although there could be fits and starts, we expect stable truckload fundamentals throughout the rest of the year. Supply and demand in our industries continue to work towards equilibrium in recent years. As the current challenging environment lingers, we anticipate ongoing capacity attrition. Long-haul truckload employment is below the prior peak in 2019, and additional exits could accelerate. With greater ELP and B1 enforcement, class eight truck orders on the decline, and lenders driving out capacity through growing repossessions given resale values are on the rise. Consumers have remained resilient as they search for value and trade down resulting in relatively stable nondiscretionary spending.

The one big beautiful bill could stimulate consumer demand and industrial investment over time, both of which would benefit freight volumes. Tariff and interest rate impacts remain uncertain for both shippers and consumers. Retail inventories have mostly normalized. While some inventory was pulled forward from the tariff pause, non-discretionary goods have had more consistent replenishment cycles. Volumes from our value and discount retailers were steady in Q2 and into July. Spot rates have weakened since the July fourth holiday, and we expect spot rates to follow normal seasonal patterns for the remainder of the year. Used truck and trailer values have accelerated since March, benefiting from tariff and other macro uncertainty.

With that, I'll turn it over to Chris to discuss our second quarter results in more detail.

Chris Wikoff: Thank you, Derek. Let's continue on Slide ten. All performance comparisons here are year over year unless otherwise noted. Second quarter revenues totaled $753 million, down 1%. Adjusted operating income was $16.6 million and adjusted operating margin was 2.2%. Adjusted EPS at $0.11 was down $0.06. We are pleased with the improved adjusted results in the core business, also benefited from a handful of non-GAAP adjustments during the quarter. First, the Texas Supreme Court's ruling in Werner's favor reversing and dismissing the landmark $90 million truck accident verdict from 2018. This ruling led to the reversal of a $45.7 million net liability including interest and benefiting GAAP operating income.

Our consolidated insurance and claims expense for the quarter excluding this benefit, was $38.9 million. In addition, our acquisition of Baywood Trucking in October 2022 included an earn-out provision based on a range of outcomes. During the quarter, we settled on a final payout resulting in the reversal of $7.9 million from previously accrued amounts. Although the accrued earn-out has been included in GAAP results since the date of the acquisition, the reversal was classified as a non-GAAP adjustment in the quarter due to the large one-time nature of the reversal. This benefit was included in other expense. Last, severance expense of $1.3 million from recent cost actions was also treated as a non-GAAP adjustment.

Severance is included in the salaries, wages, and benefits. Turning to Slide eleven. Truckload Transportation Services total revenue for the quarter was $518 million, down 4%. Revenues net of fuel surcharges decreased 1% to $462 million. TTS adjusted operating income was $12.8 million. Adjusted operating margin net of fuel was 2.8%, a decrease of 220 basis points of which 150 basis points of the decrease is attributed to higher insurance and claims expense excluding the $45.7 million reversal. During the quarter, consolidated gains on sale of property and equipment totaled $5.9 million. Let's turn to Slide twelve to review our fleet metrics. TTS average trucks were 7,489 during the quarter.

The TTS fleet ended the quarter up 1% year over year and up over 100 trucks or 1.4% sequentially. TTS revenue per truck per week net of fuel increased 0.3% primarily due to higher one-way revenue per total mile mitigated by lower one-way miles. Within TTS, dedicated revenue net of fuel was $287 million, down 0.7%. Dedicated represented 64% of TTS trucking revenues, up from 63% a year ago. Dedicated average trucks decreased 0.9% year over year but increased sequentially by 1.6% to 4,855 trucks. At quarter end, the dedicated fleet was up 50 trucks or 1% from year end and represented 65% of the TTS fleet.

Dedicated revenue per truck per week grew 0.2% and has increased 28 of the last 30 quarters. It often takes 90 days or more before new fleets meet targeted utility as drivers are hired and integrated into the fleet, equipment is positioned, and routes are optimized. Lower utility in the start-up fleets negatively impacted revenue per truck per week by 60 basis points in the quarter. Higher insurance costs versus the prior year period on an adjusted basis excluding the Texas Supreme Court reversal, was nearly a 200 basis point drag on operating income. Start-up costs for new dedicated fleets was a headwind as well, totaling $1 million. We expect some additional startup costs to linger into the third quarter.

Excluding the elevated insurance and claims costs, dedicated operating income margin improved 50 basis points. In our one-way business for the second quarter, trucking revenue net of fuel was $164 million, a decrease of 3%. Average truck count of 2,634 declined 3.5% year over year, but grew slightly on a sequential basis. Revenue per truck per week increased 0.4% due to 2.7% higher rates mitigated by a 2.3% lower miles per truck per week. Revenue per loaded mile increased 3.7% year over year. Deadhead improved sequentially but was still elevated year over year resulting in a 2.7% increase in revenue per total mile. One-way freight conditions were steady throughout the quarter.

We experienced tighter conditions around road check week in May and stable volumes throughout June, which have largely continued into the early stages of the third quarter. We were able to flex the fleet and provide one-way capacity for select customers who had temporary needs. This work is ongoing. The total one-way miles decreased 6% versus prior year with 3.5% fewer average trucks. However, increased miles in PowerLink offset the decline in one-way truckload miles. Ultimately resulting in combined miles that increased 1%. Now turning to logistics on slide thirteen. In the second quarter, logistics revenue was $221 million representing 30% of total second quarter revenues. Revenues increased 6% year over year and 13% sequentially.

Revenue in Truckload Logistics increased 9% and shipments increased 7% with gross margin expansion. Revenue from our PowerLink offering was up 17% while traditional brokerage recorded mid-single-digit revenue growth. Higher volume was the driving factor with modest rate improvement. Intermodal revenues, which make up approximately 13% of logistics revenue, increased 3% due to 7% more shipments partially offset by a 4% decrease in revenue per shipment. Q2 was our highest operating income quarter in two years for Intermodal. Final mile revenues decreased 10% year over year, but increased 7% sequentially. Logistics adjusted operating margin of 2.7% improved 190 basis points driven by volume growth and double-digit percent reduction in operating expenses. Moving to slide fourteen and our cost savings program.

As we execute our cost savings strategy, we are slightly increasing our 2025 savings target to greater than $45 million from our prior $40 million estimate. In the first half of the year, we achieved $20 million savings towards that goal. Actions to achieve the full $45 million have largely already been taken given high assurance of achieving the remaining $25 million in the second half of the year. Majority of our cost savings actions are structural and should result in enhanced operating leverage as demand returns. Let's review our cash flow and liquidity on slide fifteen. Our operating cash flow was $46 million for the quarter or 6% of total revenue.

Net CapEx was $66 million or nearly 9% of revenue. Year to date, net CapEx is 4% of revenue. Free cash flow year to date is $17.3 million or 1.2% of total revenues. We ended the quarter with $725 million of debt. Our net debt to adjusted EBITDA as of June 30 was 1.7 times. We have a strong balance sheet, access to capital, relatively low leverage, and no near-term maturities in our debt structure. Total liquidity at quarter end was $695 million including $51 million of cash on hand and $644 million of combined availability on a revolver receivable securitization facility, which we closed in the first quarter. Let's turn to Slide sixteen.

While we have been focused on cost discipline, strategic reinvestment in the business to support future growth remains a top priority ranging from trucks to technology. When it comes to broad capital allocation decisions, we will remain balanced over the long term. Strategically reinvesting in the business, returning capital to shareholders, maintaining appropriate leverage, and remaining disciplined and opportunistic with share repurchase and M&A. During the second quarter, we deployed $55 million of capital to repurchase more than 2.1 million shares at an average price of $26.05 including fees. Providing accretive value to shareholders in the future as earnings improve. We have 1.8 million shares remaining under our board-approved share repurchase authorization.

Let's review our guidance for the year on slide seventeen. We are narrowing our full-year fleet guidance range from up 1% to 5% to up 1% to 4%. The TTS fleet is up 1.1% year to date. Implementations of new fleets and dedicated remain ongoing. And over the course of the year, as new dedicated fleets are seated, growth is expected to be driven more by dedicated versus one way. We are adjusting our full-year net CapEx guidance from a range of $185 million to $235 million to a range of $145 million to $185 million.

Given our strong balance sheet and proactive fleet management, we entered the year with a higher than normal inventory of new trucks ready to support growth. CapEx for this year is below our historical range given lower in-year needs and a deliberate shift to a more asset-light mix. Dedicated revenue per truck per week increased 0.2% year over year, but is down 0.1% for the first six months of the year versus prior year. New fleet start-ups were a limiting factor this quarter in revenue per truck. Excluding inefficiencies from start-ups, this metric would have been up by 80 basis points instead of 20 basis points.

We expect this metric to remain within our full-year guidance range of 0% to 3%. One-way truckload revenue per total mile increased 2.7% near the upper end of our flat to up 3% guidance range for the second quarter. We are reissuing the same revenue per total mile guide of flat to up 3% for the third quarter compared to the prior year period. Our effective tax rate was 26.2% in the second quarter. Our 2025 guidance range of 25% to 26% remains unchanged, and we expect a lower effective tax rate in future quarters. The average age of our truck and trailer fleet at the end of the second quarter was 2.4 and 5.5 years, respectively.

Regarding other modeling assumptions, after decreasing on a year-over-year basis for nine straight quarters, equipment gains more than doubled sequentially and year over year to $5.9 million in the second quarter. Despite the number of units sold being less than half compared to the prior year. Used tractor values have been elevated largely due to trade policy. We are adjusting our full-year guidance range for equipment gains from a range of $8 million to $18 million to a range of $12 million to $18 million. In the first half of the year, net interest expense increased $600,000 year over year. We expect the inverse in the second half and for net interest expense to be down year over year.

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

Derek Leathers: Thank you, Chris. In summary, our strategy is working as proven by our second quarter growth. That said, more work remains and we'll continue to take near-term decisive action to position Werner Enterprises, Inc. for success. We are a large-scale award-winning reliable partner with diverse and agile solutions to support customers' transportation and logistics needs. We've been making considerable operational improvements and building a leaner but more powerful organization. Our nearly thirteen thousand hardworking talented team members are committed to moving this company forward. And while our hard work has started to pay off, we have a line of sight to accelerate in earnings power.

As the trucking environment shows signs of improving, we've got tailwinds forming at a macro level and specific to Werner. Our fleet is new and modern due to the investments made in the last few years. We're progressing through our transformational technology journey, and our balance sheet is strong. Enabling flexibility in our capital allocation strategy. As the economy grows and transportation helps deliver that growth, we expect our earnings to improve, leverage to decrease, and our investments to begin showcasing their value. With that, let's open it up for questions.

Operator: We will now begin the question and answer session. Before pressing the keys. To withdraw your question, please press star then two. Please go ahead. Our first question today is from Eric Morgan with Barclays.

Eric Morgan: Hey, good afternoon. Thanks for taking my question. Derek, I guess I just wanted to ask for some thoughts on the cycle. You know, you're calling for stable fundamentals and normal spot rate cadence. In the back half. And, you know, you listed some favorable trends for capacity. It sounds like maybe demand kind of stable, some tariff uncertainty. So guess just wondering, you know, when you think about the shape of the upcycle when it eventually arrives, can we get something resembling kind of a normal upcycle if we don't really get much demand help.

Like, if supply just we see more of the same trends on capacity, and no real, you know, demand helped to note is the shape of the upcycle look like and what does that mean for your TTS margins?

Derek Leathers: Yes, Eric. Thanks for that question. Obviously, the cycle has been longer and more painful than any prior cycle than any of us have been through, so I'm a little hesitant to try to predict the future here. But as we think about where we're at and you look at sort of the ongoing attrition, you look at, you know, BLS data now back to pre-COVID or even below pre-COVID levels, you look at ongoing attrition both in downsizing the fleets, but also just bankrupting hundred truck carrier going to under or closing their doors down in the southeast. I think we're gonna continue to see that given the tough rate environment that everybody's living in.

We've said all along, we think it's gonna be supply-driven upcycle, if you will, more than demand. But with that said, if I if I take a step back and look at the consumer and think about the tariff noise and everything else they've been kind of dealt and they've been dealing with and yet their ongoing resiliency if I compare that to our book of business, which is heavily discretionary or non-discretionary, I should say, non-discretionary goods, and discount retail We think the backdrop sets up pretty well for where that consumer will migrate to if they are looking to be a little more cautious over the in the coming quarters.

As well as those consumers that are already in that bucket, kind of hanging in there staying resilient and really living in that more nondiscretionary kind of ordering pattern. With all that, you know, we have ongoing customers conversations. We just came through our annual customer forum where we bring in well over a billion dollars of revenue under one roof for a multi-day event. Gives me the opportunity to spend time and talk to them about their outlooks, And I think with the tariff noise settling with some of the white noise in general kind of calming down a lot of their outlooks are positive. And so, you know, I we're not banking on big demand improvement.

But we do think the supply story will continue to play out. Demand, you know, assumptions are basically for stability And then peak season, still peak season. So we've seen over the last couple of years kind of a return to normal seasonality. We think that is really the expectation at this point going into the latter half of the year. If all of that plays out, I think it does set the stage for an upcycle that starts to kinda look like prior normal upcycles, not COVID.

Last thing I would just say is if you think about it from an OEM perspective and how curtailed orders have been and well below replacement levels, and now actions being taken at the OEM level that are hard to bounce back from as that demand comes back. I think we've got a little bit of a capacity lid over the over several quarters, if not really throughout 2026. Just as they rebuild their capacity. And that also helps extend that upcycle and kind of more than anything probably causes a better inflection of the slope.

Eric Morgan: Appreciate that. And I was also just hoping you could elaborate a bit on the temporary elevated demand from certain customers. I think I think you called it Is that you say that's a thing of or a sign of things to come, like, later and when you traditionally see peak or was that you know, a function of some of the surge in imports and, you know, something that we shouldn't really expect to see in back half?

Derek Leathers: Yes. I mean, I think it's a little bit of both to be frank. But I think the biggest sign that represents to me is and we see this often at this point in the inflection where there's a flight to quality.

And so when a customer has whether it's driven by a surge of imports, it's driven by a sudden, you know, increase in demand or any other reason, any other external factor the question is where do they go for that support and where we find them going to for that support when you're closer to the sort of inflection point and you're kind of at that equilibrium level, is to quality diverse portfolio companies that are well capitalized and able to respond. And so we think that's really the indication. Most of that activity place in our one-way network, where we were able to step up and engineer solutions on a short-term basis.

But that short term can often extend into a long-term extended relationship. So right now, many of those sort of short-term activities continue as we sit here today. Some will wind down throughout Q3. Others may extend well into Q4. It's really too early to tell. I'm most excited about the fact that these are great examples where customers vote with their freight. They look for quality. And they tend to aggregate their attention around the that quality provider. And we're happy to serve them in that in that capacity. Thanks a lot.

Eric Morgan: Thank you.

Operator: The next question is from Brian Ossenbeck with JPMorgan. Please go ahead.

Brian Ossenbeck: So Eric, just wanted to just wanted to ask you a little bit more on the capacity side. Now that we're, I guess, a month or so into EOP, What do you call it? Greater enforcement, but at least the standardization and focus on it. And non-domicile drivers focus there on as well. So I know you've made some comments on that in the past, and you got a cross-border business who might see some of these impacts, maybe not on your fleet, but others. You can give a little bit of color what you're seeing and how you expect this to progress throughout the rest of the year.

Derek Leathers: Yeah, Brian. I'll give it my best shot. Starting with this, you're right. We don't expect any impact on our fleet. We've always kept our English language proficiency test in place throughout the time that it wasn't being enforced. We continue to do that as we bring drivers into our fleet. We think it's important from a safety perspective, and so it's something we've we've never taken our eye off the ball. On the enforcement side, you know, a month, month and a half in government time is, like, a minute and a half and everybody else life. Meaning, they just go slower than we'd like to see. We have seen enforcement starting to ramp up.

It's kind of a state by state thing, and it's certainly being enforced differently but in different states. You know, I think as we sit here today, we've seen over fifteen hundred out of service violations where not just that EOP was an issue, but it was actually resulted in an out of service violation. That number does continue to ramp, but obviously at a slower rate than we would have expected. Or that maybe we would have wished for. I think enforcement will only continue to gain traction from here. It's just too early to tell what level across all states Ultimately, we will see it enforced by.

I'd also call everyone's attention to the reality that the enforcement data is only one part of the equation. Because what we do know relative to scales, inspections, and general enforcement over the road and trucking is as enforcement elevates, people deviate or they move or out of the altogether or they simply avoid enforce enforcement points. So those bad actors that may be out there that may not be in compliance, may in fact be exiting. They may in fact be returning to other occupations. It's hard to know any numbers around that, but I think over time, we'll be able to get a better view on that.

Brian Ossenbeck: Understood. Thanks for all the clarification there, Derek. Just in terms of the broader market, obviously, we've seen a lot of choppiness and uncertainty, and it's probably set to continue for at least a little while longer. What are you hearing from some of your customers is you have some comment there in peak season, but just broadly speaking, bigger shift to dedicated, pulling away from dedicated.

I know there's probably a mix of different outcomes and opinions you're hearing, but are you are you seeing any shift between moving back into dedicated, moving more into one way, moving more to brokerage, like, what's the general sense in terms of how they're going about procuring or at least thinking about getting more capacity into the end of this year and into next. Thanks.

Derek Leathers: Brian. It's a great question. Again, and when we're at this sort of inflection point or close to it, know, what we hear a lot of is, you know, again, that flight to quality. So part of that flight to quality is, you know, one way to dedicate it, but we don't want to bring dedicated into our into our business that isn't truly dedicated. So if it's just a capacity solution, you know, that's really to come out end of dedicated and we try to we're pretty averse to that.

We'll support that same customer with a one way solution, an engineered solution, but that won't reside within our dedicated numbers because we want pure play dedicated in those numbers. But we see some of that. We I would tell you, we see probably more of a as of late as customers looking for that sort of portfolio approach. So coming out of our recent forum or conversations I've had with customers is sort of a higher level of excitement, and they can come to somebody like Werner and they can work with us on their one way needs They can, in that same relationship, work across truckload brokerage and specifically PowerLink, power which is our power only solution.

They often have intermodal needs and we're able to step up and meet those needs and give them some diversity in their solution set. So across all of that, I think that's really kind of a movement that we're seeing. As it relates to their overall dedicated needs, one thing I'd say I would say is a bit of a theme is a lot less enthusiasm for private fleet growth than what we saw during sort of the COVID years. Think a lot of that was a defensive play on their part because absent other capacity solutions, They went out and kinda try to address it themselves.

I think now that they've been in this trucking business for a while, they also realize that even when they have the pick of freight and they can work it through them with their own network, it's a little harder than they might have, forecasted. So not a lot of conversations going on about them growing their private fleet in any significant way. And in some cases, even shrinking or exiting. So that sets up well for our dedicated pipeline. So I covered a lot of ground there, but hopefully that answers the bulk of your question.

Brian Ossenbeck: Yeah. And I appreciate the perspective, Derek. Thank you.

Derek Leathers: Thank you, Brian.

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

Ravi Shanker: Great. Thanks for the offering, guys. So I guess congratulations reversals. I know it's something that's been that you guys have been pushing for a while. Do you think that this is the start, the light at the end at the beginning of the tunnel, if you will, for kind of court reform and kind of maybe insurance numbers coming back in check for the industry?

Derek Leathers: Yeah, Ravi. Yeah. I'd love to believe that it's a start of a tidal wave of similar decisions, but I think that would be a bit optimistic at this point. What we do believe is it was the right decision. We do believe that supreme court of Texas affirmed irrefutably the fact of the case as we had stated them all along which is, you know, we were hit head on in our own lane of travel by a vehicle that lost control across the median. And traveled across lanes of traffic prior to even impacting us in our own lane of travel. We think it's a great win for us financially.

We also think it's great for our drivers to kind of affirmatively be supported by the supreme court. We think we got a lot of work to do still as an industry and as a company on tort reform. We gotta do that at a state by state level. It's difficult work. But work that needs to be done. All we're looking for is an even and equitable playing field We're not looking for any special advantages or anything else. We've always stood by the reality that if we have a mistake, we're gonna stand up to it, learn from it, try to improve, and try to do what's right.

But with that said, egregious verdicts like this do nothing, but leak into cost inflation, ultimately into real inflation at the consumer level, and it's not ultimately good for the US consumer. There's some you know, remedies out there as you indicated from the tort side. I think playing a more active role relative to states where judges are elected versus appointed and making sure that we're not asleep at the wheel on that is important. Ultimately, the most important thing is lowering our accident rate. We're committed to doing that. We've been on a on a trend here for multi year trend of continuing to push lower and lower our DOT reportables, which are sort of the larger accidents.

And that's what really, really matters. And then on the injury side, doing the same thing, really leaning in on better and better, injury prevention, better driver training, better post injury hair to try to get drivers back in the seat and back in driving again quicker so that they can, you know, get on back get back with their lives. So it's an all of the above strategy. Ideally, both the industry will have some success at moving things from a state level into federal court because we believe that's where they ultimately belong. But that's gonna be a long fight, but one worth fighting.

And as it relates to the insurance line, you know, the problem there with any kind of prediction is that you're you're one moment away from another day in court where you've gotta kind of fight for what's right and you don't really know the outcome. So, yes, we are expecting over time to flatten that curve. We're making progress on doing so, but we still know, don't love the elevated reality of where insurance sits as a percent of revenue today.

Ravi Shanker: Understood. That's that's really helpful. Maybe as a follow-up, you did note your high consumer nondiscretionary exposure. But I think there has been some view that in this cycle, it's nondiscretionary companies say that, and UPS sort of hinted that in their call this morning. Do you feel like you guys have been a little more pressure macro wise from a demand perspective? And does that potentially give you a little more upside when the upcycle comes?

Derek Leathers: Look. I think the consumer has been more frugal perhaps than they have in prior cycles. And what I mean by that, especially since you mentioned CPG companies, I'll stay away from names. But we know that private label, white label type products have become more in vogue. And people are willing not just to trade down in what store they shop at, but trade down the product mix within that store. But in the both of those types of cases, the places that we work and who we haul for, they play in those in those arenas. And so, we have not seen that kind of duress within our customer mix.

As a matter of fact, you know, several of our customers as indicated by some of these pop up kind of opportunities and project opportunities that we commented on. Are actually seeing some increased volumes that needed a special solution to be able to solve for. Now that doesn't mean I can predict that's what it looks like two quarters out or even, you know, into the fall, but right now, it appears as though that discount retail, nondiscretionary arena is holding up pretty well overall. And we're heavily exposed in that part. And we do a really good job and a very unique job for those customers. So that would be the other part of it.

I would just remind everybody of is that the work we do for them is not as much just that commoditized you call, we haul type end of the spectrum. It's more dedicated, it's more engineered, it's a lot of cross border. And as they benefit, through this upside, you know, and as they attract customers, what we've seen in prior cycles is they tend to hold on to them pretty well. Customers are exposed to product mix that maybe they didn't realize was as strong as it was And that's where we see them usually take a step up in store growth, and same store sales and we're along for the ride with them supporting them in every way.

Ravi Shanker: Very good. Thank you.

Derek Leathers: Thank you, Ravi. Excuse me. The next question is from Ken Hoexter with Bank of America.

Operator: Please go ahead.

Ken Hoexter: Hey. Great. Good afternoon, Derek and Chris. Just utilization seems to be improving, deadhead improved sequentially. Is that better asset focus on your part? Is that selling more equipment and a sign of excess capacity coming out I guess just maybe positioning that into your thoughts on what's normal for TTS margin gain from 2Q to 3Q?

Derek Leathers: Yeah. Great question, Ken. And it's interesting because so I'll start with this. The utilization gains we've been making especially across the one way network is really engineered in nature. It's it's it's it's structural strategic changes that we're making to be able to sweat the assets more and we're pretty excited about it, especially because right now, those increased miles don't really give you much leverage to the upside until you start to see rate move. But when it does, it's it's a real earning opportunity with those excess miles. Actually, in Q2, what's interesting is they were down slightly but that's more reflective of some of the outsized dedicated wins that we had.

And our need to move some of those high quality one way driver in some of those engineered solutions over to dedicated reseat those trucks in one way and so we had a bit of a utilization impact from our own success, if you will, in dedicated So that passes here shortly, like, as we as we continue to see dedicated growth, but maybe not quite as lumpy as what it's been in Q2 and then that's coming into Q3. We'll have an opportunity to kind of get our arms back around that network on the one way side and we think there's gains to be made from a from a productivity perspective.

But if you only have to go back a couple of years to see a miles per truck gain from a couple of years ago that's double digit higher today, than where we used to reside. And that's part of what led to in a very tough market with rates that are still pressured, the highest revenue per truck per week we've seen. In one way in our history. Now what we need to do is continue to focus on the cost side of the equation, which we've been diligent about. And very methodical about. And we're gonna continue to do that.

So that then translates as rates start to improve to expanded margins, which is the first step for that march back to double digit operating margins in TTS.

Chris Wikoff: And I'm sorry. Your thoughts on what that means for kind of normal seasonality for third quarter operating margin in GTS? Is that a Chris question? I don't know if Derek, you wanna take it?

Chris Wikoff: Yeah. Sure. Ken, I can give you some insight on that. You know, overall, it's been a good start to Q3. Revenue is positive. The outlook is positive, and I think points to sequential improvement in revenue in part from dedicated within TTS. Where we'll continue to ramp up with new fleets. And continue to benefit from the streak of wins that we signed last quarter. I know your question was specifically on TTS. But, you know, broadly, Q2 to Q3, you know, we're also seeing very positive momentum in logistics, and we expect that to continue. So know, from a TTS perspective, you know, we expect you know, some ongoing improvement in operating income.

And we can as Derek mentioned, we continue to be confident in the pathway back to double digit margins.

Ken Hoexter: Okay. But there's no I guess you're not talking a historical average or anything moving from a two q. I don't know if there's a hundred and thirty basis point or any kind of a normal improvement from two q that Sorry. Just to keep reiterating on it. Just to Yeah. The

Derek Leathers: I think the difficult thing there is, Ken, is we could look at the averages, but they wouldn't tell much of a story because about half the time from Q2 to Q3, operating income increases and about half the time it decreases. So it's really dependent on the year you're in. Think Chris' comments give you a decent direction that we think we're gonna see some incremental gains from Q2 to Q3. You know, we're not talking about monumental gains.

It's gonna we're gonna have continue to plug away and work at the work we're doing today to see some small incremental gains as we continue to climb this mountain because the starting point unfortunately for us is at the base of the mountain, which is where we found ourself entering into Q2, and we're gonna start that slow climb out.

Ken Hoexter: Totally understand. Can I just squeeze one more in on the age of the fleet? You went up to 2.4 years, Derek. Is that anything on moderating, you mentioned moderating equipment spend, is that a trade off of buying back the stock versus deliberate move to age the fleet? I just wanna understand if there was a signal there.

Derek Leathers: Yeah. Definitely wasn't a trade off in order to buy back stock. Our balance sheet strong enough, we could have done both. It's more reflective of the ongoing uncertainty around tariffs and a little bit of the uncertainty that was wrapped up in some of the EPA things that are still going on right now in DC. We feel like we're in a good really good position. It's a little bit also, just to be frank, a reflection of as our fleet gets more and more engineered, as our fleet gets sixty five percent of the trucks in dedicated thirty five percent in one way, Challenging kind of some assumptions as to what is the right fleet age.

So I'm not saying long term we've determined two four is perfect, but two four doesn't worry me a whole lot compared to our more recent range that was a little lower than that. And we think we're better positioned and still have the optionality if we can get some things done with some of our OEM partners you that fleet age could go slightly up or slightly down from here. As we look forward through the remainder of the year. But we're gonna be we're gonna be flexible, but opportunistic as it relates to the fleet age.

But we feel very good about the utilization in our terminals to do on-site maintenance versus over the road and the ability to expand that even further, as well as the ability to allocate these trucks in the right fleets dependent on their age to be able to still do the work perfectly fine with no impact on service or the driver.

Ken Hoexter: Yeah. Great insight. Appreciate your thoughts. Thanks. Bye.

Operator: The next question is from Tom Wadewitz with UBS. Please go ahead.

Tom Wadewitz: Yes, good afternoon. How Derek, how do I think about or Chris, I guess, you're kind of underlying inflation and kind of how much rate you need Because it does seem like you're getting some traction in revenue per tractor ex fuel and, you know, traction in rate on one way and then you know, a variety of factors and dedicated that's moving in a favorable way. But it's like, you know, two or three percent gain and, say, revenue per truck per week is not enough to get you there. I guess, would you think that it's you know, is inflation gonna come down as you look maybe out beyond a couple quarters?

You think we've been more optimistic about that, or do you say, look. I what we've got today continues and we just really to make margin progress, we really need, like, five, six, seven percent rate. I don't know if you have any thoughts on that. Broader equation. I know you've had some number of questions related, but I don't know. How much how much rate do you need, or is inflation likely to come down if you look out, you know, into twenty six or out a couple quarters?

Chris Wikoff: Hey, Tom. This is Chris. So, yeah, we certainly need rate recovery in one way. I mean, as you know, we've had multiple years of significant, you know, rate reduction. I think we've held in well relative to the overall industry, but, you know, broadly, it's been a couple of years of rate reduction while other expense line items have been on inflationary trend as you said. So we certainly need more in the range of mid single digit improvement in rate, but it's not only about particularly one way rates. Really, to get back to the low double digit TTS kind of mid cycle adjusted OI margins that we've talked about. Its rate, but also continued growth in dedicated.

In addition to ongoing cost discipline, leveraging our technology investments, and a sustained recovery in the used equipment market. You know, those are really the levers that we've talked about. We continue to pressure test within our own walls here of, you know, those levers and it continues to give us confidence that, you know, those in combination is the path way back to low double digits, you know, ten to twelve percent or more. The good news is in the second quarter, all of those areas and levers are progressing positively for the first time in two years. So we have a ways to go.

But we're encouraged with the recent momentum and we remain confident in our gradual progression.

Tom Wadewitz: Okay. The thank you. And on the VAST, it's a lot better year over year. Cost takeout supportive for that operating income. Is that kind of the right run rate assuming, you know, you don't have big shifts in truckload market backdrop that you're kinda know, six million a quarter operating income in VAS? Or how do you think about the run rate there? Because it's a pretty big improvement and it sounds like if it's cost driven that maybe you can kinda keep that going for the next, you know, next three quarters before you lap it. Just seeing more thoughts on the, you know, kind of VAS software income that showed good improvement.

Derek Leathers: Yes, Tom. First off, I'll congratulate you for wearing your throwback jacket today by calling it VAS. It's we're logistics now. But Yeah. Sorry. Sorry about that. I don't know. We our model has been in use for a long time. Sorry. But yeah. So the structural improvements made there are reflective of some of these tech investments we've been talking about. We're very excited about the ongoing integration that is now basically complete between Reed with TMS and Warner Logistics. That team's really found its stride structurally.

We believe that, yes, on the horizon, we need to all realize that at some point with this inflection comes buy rate pressure and that pressure will be managed as well here as anywhere. At the same time, that will come with our ability to reset sell rates with our customers. But there's always a timing issue. So absent of that timing issue, as you stated in your question, yeah, we do believe that we have a structurally different logistics group now. They're operating at a high level of performance. We're proud of the Q2 performance. And as we look forward, we've got momentum into Q3. That continues to give us optimism.

So I don't know if that fully answers, but I'm not gonna guide you to an actual number, obviously, but we that now I'm doing it. Warner Logistics is on the right path and it's it's really the output of what's been a very arduous integration effort as well as the output of the of the one place where we have know, Warner Edge fully integrated and fully committed minus the small final mile piece of the business.

Tom Wadewitz: Okay. Well, it's good to see the improvement in logistics. So thank you.

Derek Leathers: Thank you.

Operator: The next question is from Scott Group with Wolfe Research. Please go ahead.

Scott Group: Hey, thanks. Afternoon. Just to follow-up on one of the earlier questions about Q3, right, it's and if I just look Q1 to Q2, trucking margins got about two points better. Is that sort of like the magnitude of improvement we can continue to inspect expect sequentially, or is it a gains on sale got better, Q1 was really bad, and so maybe that's too much improvement to expect on a on a quarter to quarter basis. Any thoughts?

Derek Leathers: Yeah. I'm not gonna guide to a number, Scott, but I will obviously restate what you just stated, which is Q1 was that bad and so some of the improvement is just based on the starting point. We need to be we need to recognize that. Gains in on a per unit basis have been much improved and really at two year highs. It does come down to what's the u number of units that we're gonna be able to move and what's what's what's those game that game line gonna look like. You know, I would just think about it as you know, it's up and down the p and l.

It's the ongoing it's the increase in the cost takeout, it's the execution that we've been talking about, relative to one way and one way improvements. All of that in the soup and we're gonna see sort of small incremental gains from Q2 to Q3 would be our expectation. Now we've gotta go and execute on that. But things that make that optimism kind of resonate with me is you know, the pipeline looks strong, both dedicated and one way. The stuff in what we refer to as BI business implementation is strong, especially for this time of year. So that's already secured and going through the final implementation stages and launch.

With the dedicated side, that does include headwinds still that come with launching a new dedicated fleet. But the bigger part of those headwinds is behind us We still have some to come with some of the implementations still yet to be finalized. So it's hard to you know, we don't guide quarterly. We don't guide annually. So I wanna stick to that for now. But hopefully, that gives you some color or some way to think about it.

Chris Wikoff: And Scott, maybe just to add to that. You know, the cost savings program, we've been very focused on that. You know, part of that goal is holding the line as much as we can particularly on the fixed cost and even some of the variable as we continue to see more volume, particularly on the dedicated side where as we're adding trucks to existing fleets, that comes with a higher contribution margin And as we're turning on and it takes a while to ramp up these new fleets, we did experience some startup cost as well as some headwind just in kind of the efficiency on a revenue per truck per week basis in dedicated.

Some of that will continue into Q3. But when we get past kind of the maturity stage of these new fleets, the contribution margin really starts to take effect and we see the benefit not only the technology that Derek mentioned, but also just becoming a more agile and lean organization.

Scott Group: That's helpful. And then maybe just a big picture question, you know, it's a big day in the broad transport landscape with the UPNS merger. I'm just curious, Derek, if you've had a chance to think about what this means for your business. Is this good for intermodal? I don't know. Channel partners, but rails, and does this had any impact in any way, do you think, on your trucking business and with the TransCon merger just big picture thoughts.

Derek Leathers: Yes, Scott. I'll be a bit careful here about getting too much into the weeds with their respective companies, but I will just tell you this. From our viewpoint today, as we are digesting and continuing to do so, the good news for us is our two partners right now, predominant partners in the west and the east are UP and NS respectively. We've seen outsized growth in intermodal although from a smaller base than some of the major players but continue to grow and make headroads. We think this does create a more competitive product.

As it relates to threatening the truckload business that we currently are in, If you look at our length of haul and if you look at what our one way business looks like, and how it's sort of divided between engineered lanes, cross border Mexico, and expedited freight, those are in each way for different reasons much tougher to tackle and much tougher to convert. I'm not even enough not to believe that there won't be some freight out there that's convertible. And that's why we have an intermodal product, and that's why we've had some good success converting it ourselves.

So all things being equal, if there was going to be a merger west and east as from our point of view, we like this particular option. We think it bodes well for Werner. And we think our sixty five percent dedicated exposure as an example is completely insulated from any kind of rail merger. And then within our one way, the predominance of what we do is nowhere near in the cross hairs of what the kind of work that would be rail convertible. Doesn't mean there isn't opportunities around the edges. And we're constantly already working with our customers on some of those opportunities because if it's gonna go intermodal, I'd rather go intermodal here than somewhere else.

Scott Group: Very helpful. Thank you.

Derek Leathers: Thank you, Scott.

Operator: The next question is from Richa Harnain with Deutsche Bank. Please go ahead.

Richa Harnain: Hey, good afternoon, gentlemen. Thank you. So Chris, you and I have talked a lot about oh, can you hear me?

Chris Wikoff: Yes. We can. Good afternoon, both you.

Richa Harnain: Oh, hi. So yeah. Chris, you and I have talked a lot about how, like, the gains on sale, just the trend that's out there right now as maybe a double positive, and that, obviously, it provides a nice uplift to earnings, but it also means that the secondary market improving and maybe the banks therefore have more options than they possess assets from carriers that are delinquent. It would be more inclined to do that. Because they can go on and sell those fleets.

So maybe you can talk about kind of the other side of the coin, which is not just, you know, what's impacting your financials, but just how this is impacting the supply side of the equation and if we should expect, you know, into 2026, these gains on sales to be a continued feature of earnings or if you could give us any guidance as far as, like, the longevity of this trend? Thanks.

Chris Wikoff: Yeah. Sure. Hey, Richa. From a supply side standpoint, yeah, your point is a hundred percent valid. You know, bankruptcies are up. And lenders with the rise in resale values, lenders just have more options besides what they've been doing more so over call at the last eighteen months or so of just being more accommodative as smaller fleets continue to be under pressure. So lenders having options can drive out some additional capacity in addition to other things like the ELP and the B1 enforcement and other things that would drive out capacity. From a gain standpoint overall for us, second quarter, great to see nearly six million over two times prior year.

Really the best gains on used equipment that we've had in six quarters. And resale values really being at the core of that. Actually, our unit sales were down a little bit, you know, in terms of the actual units that we're selling from one quarter to the next. It can vary. And so a lot of that well, primarily all of that driven from just higher resale values that are at more than two year highs. In terms of its sustainability, obviously, it depends on the supply of used equipment, tariffs, and OEM demand. So I think it's a bit early to, for us to go out on a limb and say how sustainable this is.

But, you know, we have, as a result of Q2, we've moved our guide on gains for the full year to the upper end of where we originally started that guide. First of the year. We are expecting Q3 to be a bit lower than Q2, but overall for the year, it still looks like we're heading in the right direction.

Richa Harnain: Okay. Thanks. And if I can ask one more clarific know, you talked about the impact from some of these dedicated and the start up costs on revenue per truck per week. Can you talk about the impact on margins? I'm just trying to understand maybe what's a clean margin as we sort of work through these startup costs, what you're delivering today versus what the potential is on the current book of business?

Derek Leathers: Yeah. Rich, I'll start and then Chris might follow-up with some additional color. But when you start up dedicated accounts and especially I think with unique here that we need to explain is these are dedicated accounts in new verticals that we have strategically decided to pursue. They have additional complexities to them, but we think there's also the appropriate upside over time. As such, as you start them, you have an impact on utilization in that fleet until drivers start to find their rhythm and understand the routes.

You have impact as it relates to the training and development and sort of r and d that goes into making sure you perform at the level and expectations of the customers. And so there's a lot of just headwind noise both from a margin perspective as well as just overall time, you know, mind share that it takes to pull one of these off. When you're in new verticals, you absolutely wanna pull it off and you wanna pull it off at the highest level, which we are doing because that then, of course, is the gift keeps on giving and you continue to grow deeper into them. So these have some unique characteristics.

We are largely through the headwinds on the ones we've implemented thus far. We do have additional headwinds coming as we look forward with further implementation. But along with those implementations comes fleet add backs into existing dedicated accounts, which is much more streamlined, much simpler and higher contribution margin. And so all of that all of the above make allows us to sort of affirm some of the fleet growth guidance we and affirm the reality that it will be largely in dedicated as we go into the back half of the year.

Chris Wikoff: And, Richard, just to give you a little bit of size and scope on the startup cost for the new fleets, we're estimating around a million dollars of expense in the quarter related to repositioning and travel and hiring. So just true incremental expense In addition to that million dollars, we're also estimating that there was a headwind on revenue per truck per week. You know, we reported that being up about twenty basis points. We think it would be closer to about eighty basis points, so sixty basis points higher once those fleets get into what we would consider to be settle in and get mature and more efficient.

And it start hitting our expectations on revenue per truck per week that overall if we fast forward to that point, that we would have seen more of an eighty basis point increase. That translates also to about another million dollars or over a million dollars of revenue, Netafuel and TTS. The sum of those, so the pure incremental cost as well as just some of the revenue inefficiency, I would say would our estimate would be around forty basis points of headwind to TTS adjusted OI margin.

Richa Harnain: Appreciate that. Thank you.

Derek Leathers: Thank you, Richa.

Operator: And the final question today is from Chris Wetherbee with Wells Fargo. Please go ahead.

Chris Wetherbee: Thanks guys. Thanks for squeezing me in here at the end. I guess wanted to hit on the tractor age and just get a sense of how you think about what sort of optimal is. I guess it sounds like maybe the opportunity to age this up a little bit. Not sure if I'm reading that correctly. Just wanna get a sense of how you think about optimal tractor age and what you have from an equipment perspective right now.

Derek Leathers: Yeah. Chris, this is Derek. I think if the background was different, if the if we were in a different part of the cycle, Optimal might take on a slightly different form, if I'm being frank. But we've I'll answer it differently and say we feel good about the tractor age where we're at today. We feel good about our ability to allocate those assets appropriately because of the type of work and the line of work that they're in. And their ability to get to and through a terminal for us to be able to support them.

So we don't believe that we have any kind of equipment, you know, debt, if you will, that just sort of pending in the background that we're gonna have to make up for and make some sudden shift. At the same time, regardless of what optimal may or may not be, we don't feel good about, you know, pricing fluctuations or changes that were anticipated or overpaying for a piece of equipment, or worse buying into equipment that may or may not in fact be the standard post regulatory changes that are still ongoing in DC right now relative to the EPA.

So it's a little so I do believe we're making the optimal decision right now to sit back, be patient, purchase appropriately, keep the fleet appropriately young, to be able to do the work we do for our customers every day without any impact on service. As well as put our drivers in a piece of equipment they can be proud of. So we like our positioning. I'd say get, you know, plus or minus two tenths is a range that I think we can live within from where we're at today. And we'll we'll we'll continue to be nimble and agile as some of this tariff noise and other things play itself out.

Chris Wetherbee: Okay. That's helpful. And then just one follow-up Chris, I just wanted to make sure I was following kinda what you were saying about the impact of the start ups on the operating income margin. I think in two Q, can you just give us a sense of what that is, maybe what the clean run rate is in your opinion we enter the third quarter?

Chris Wikoff: Yeah. Sure. The run rate on TTS adjusted OI, Chris. Overall? Yes, please. Yes. So net of fuel adjusted OI was 2.8% And what we just went through of the approximately what we would estimate of a million dollars in startup cost and then some of the additional headwind on a revenue side of an additional million dollars you know, that would get to about forty basis points. The net fuel impact was also more meaningful in the quarter. We would estimate that was about seventy basis points of TTS adjusted OI impact.

Just so, you know, that net impact on fuel just being the simple math of our fuel revenue fuel surcharges minus the fuel expense and comparing that year over year. So, you know, that was an additional seventy basis points. All of that in total would get us closer to four percent, about three point nine percent If you were to put all of that math together in terms of, you know, what would have been more normalized.

Chris Wetherbee: Okay. That's very helpful. Thank you. Appreciate it.

Chris Wikoff: Thanks, Chris.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Derek Leathers, who will provide closing comments.

Derek Leathers: Thank you, Gary. I just want to thank everybody for taking the time to be with us today. While the macro environment has some uncertainty related to the tariffs, the health of the consumer and ongoing capacity attrition, we remain committed to our self-help path towards increased profitability and controlling the controllables. The structural improvements to our cost structure combined with increased focus on operational productivity measures put us in a solid footing to leverage the upside as the market comes further into balance. We have a resilient and diverse portfolio to support our customer's transportation and logistics needs and our pipeline of recent wins demonstrates the value they see in Werner.

I'll close by thanking our customers and our nearly thirteen thousand associates for their dedication as we keep America moving. Thanks for your time today, everyone.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.