Brian Ossenbeck: Maybe just wanted to follow up on that conversation there. In terms of the 11% utilization or production growth that you see for Werner here. Is that something else you think other fleets, larger fleets, maybe mid-sized ones are also doing? And therefore, there’s a bit of a belt tightening on the large fleet side and so they’re able to keep more capacity in the market. And then on the other side, we’ve speculated on this for a while now, but what do you think is really keeping some of these smaller carriers from going under at least maybe if that would accelerate from here, what do you think would finally move that? Or do we just have to be patient on that front?
Derek Leathers: Yes. Thanks, Brian. Starting with the utilization question. Although other fleets have shown utilization improvement year-over-year, I haven’t seen anybody that’s hit double digits, to my knowledge. I think it’s something that we’re laser-focused on. We’re executing at levels that I’m extremely proud of with our team and the work they’re putting in to do that. I think it’s sort of the early innings of some of the tech coming to bear that and some new tools that we’re deploying as well as, as I stated earlier, just a simple focus on what we do really well and doing that with our assets and then providing a solution to customers via Power Only to do some of the remainder or at still a very high level based on the technology that we’ve deployed to make that happen.
So it’s hard to come by. It’s not easy to achieve, especially with the freight market like the one we’re in. But I think all of us are getting more creative with how we can try to sweat the assets further. But again, that 11% is a number that we’re extremely proud of. As it relates to the attrition question, it’s tough to predict. We are seeing ongoing attrition. You’re now starting to see, in recent weeks, bankruptcies that are more notable, size of fleets that are more impactful, but it’s going to have to continue to take place. And unfortunately, or fortunately, I guess, depending on how you look at it, customers seem all too willing to continue to push people over that cliff. We’re going to maintain our discipline and stay on firm ground but there will be others that are continuing to sign up for rates that I don’t believe are tenable and will find themselves on the wrong side of the ledger shortly.
So it’s got to play out. We’ve got to be patient. In the meantime, we can’t sit around worrying about it all day. What we have to do instead is redouble our efforts on best-in-class execution.
Brian Ossenbeck: All right. Thanks for that Derek. And then maybe just sticking in the short-term, can you talk more about what you’re seeing in April so far, how that compares to seasonality? What visibility you have into the second quarter just for, probably in the TTS side, in terms of the demand there. And I guess, ultimately, if you still have an expectation for the spot market to recover here? Is that the demand visibility, is that helping drive some of that?
Derek Leathers: Yes. So in April and in Q2, in general and I’ll keep this fairly high level, but it’s a bit of A Tale of Two Cities. We know that some of the fleet attrition we’ve seen in Dedicated will continue to play out in Q2 and Q3. At the same time, we do have a pretty strong pipeline of new opportunities and some new implementations that are already on the books. The net of those, those that we believe you’ll see some fleet shrinkage as we have remained or kept that pricing discipline that I’ve referenced several times. We’re simply not able to sign up for a dedicated contract right now that is not reinvestable or not in our margin profile and we believe that would be shortsighted to do so. One-Way by contrast has seen limited but still have appeared spring activity, some project activity and increased opportunity for pricing.
That’s encouraging. It’s early, early, early. And so I’m not taking that to the bank just yet. But indications and how we think about network bookings and pre-bookings and overall demand seem encouraging. And then just the build I talked about from January to February to March in terms of profitability as all indicators are that we’re on a path for that to continue as we go forward. And so we’ll have to see how it plays out, but early signs are encouraging.
Operator: The next question is from Ken Hoexter with Bank of America. Please go ahead.
Ken Hoexter: So Derek, maybe just help on the Dedicated a little bit more. You talked about increasing competition. I just want to understand, is that because of the loss of dollar stores, or are there plans to shrink some of the stores. I know maybe not your direct one, but I know there were some out there talking about bringing some of that planned expansion back in or closing some stores? And is that just an absolute shift to now the cross-border opportunity with that fleet. So is that a maybe more a permanent shift in that fleet? Maybe talk a little bit about that Dedicated market?
Derek Leathers: Yes, Ken. I mean I’ll start with this. Every one of our discount retailers year-over-year is up in truck count within Dedicated. So I just want to put to rest this idea that there’s some big carnage going on within Dedicated, especially this hyper focus on the dollar stores and different announcements of different types. We are up across the board in our discount retail segment, and that includes beyond the dollar stores. So we feel like that product is one that still has great value. It’s one that’s certainly appreciated and it’s one that we believe we have a competitive advantage on that differentiates us from our competitors. Dedicated in general is very price competitive right now. So that pipeline I’ve referenced multiple times is full and it looks encouraging, but we would be remiss if we don’t just accept that the win rate is going to be at least in the current market at historically low levels because of that pricing discipline that we’re going to continue to execute against.
And so where those lines cross is tough to predict right now. It’s probably harder in Dedicated than anywhere because you’re talking about signing up for what you hope to be, not just that initial multiyear term, but in most cases in Dedicated, it becomes a relationship that last decades. And so we want to get it right going in. We want to do it with the right thoughtfulness. And then, the last thing I’ll mention because we’ve talked about some fleet attrition is, there were certain disadvantages with incumbency in Dedicated. And the biggest one of all is that you know what the actual work is, whereas competitors bidding on that same work, bid based on an RFP and a profile that’s been provided that often sounds a little more amenable to your skill set than what it actually is going to be once you enter.
And so we’ve got a lot of new entrants into Dedicated that may or may not have full exposure and understanding of what they’re signing up for, and we’re seeing that in the pricing. So our job is to know when to walk away and push away from the table and make sure that we’re still staying focused on the price, which is long-term shareholder value and making sure we’re building a company that’s built to last. And I’m excited about what this looks like as it plays out and this turn takes place. But in the short-term, there is no refuting the fact that there is pain afoot, and we’re going to keep fighting through it.
Chris Wikoff: Ken, I would just add. Yes, we do still have high customer retention. And with our, on average, a large fleet size on a customer-by-customer basis, 1, 2, 3 losses can be more material and they can take a bit more time, particularly in this market to replace it. But we feel good about growing Dedicated beyond some of the near-term backfilling of these fleets. Dedicated is a large addressable market. There’s new verticals, there’s private fleets that we can be well positioned to win in a tighter market. So we are positioning for the long-term. And with these isolated fleet losses that we’ve been referring to, a little bit less than 2/3rds of them really relates to managing the yield in this competitive environment and making sure that we’re getting into margin and pricing that’s reinvestable long-term.
And then a little bit more than a third is really related to customers that are changing their approach to supply chain dynamics and parameters and the like. So there remains a very strong pipeline for us to draw from. We’ve continued to price numerous opportunities. So it’s competitive, but we’ll continue to be in the mix and be aggressive and focus on pricing discipline for the long-term.
Ken Hoexter: I appreciate that. And if I could just get a follow-on kind of on that you mentioned a competitive bid season and noted that some brokerage. I guess, maybe either brokerage carriers or particularly guys out there who are getting more aggressive on pricing? Is there anything or industry or, I guess, industry leader that you would call out or want to talk to? And then it seems like if you kept your revenue per ton mile down 3% to down 6% and first quarter was down 5%. Does that mean maybe the midpoint kind of looking for a little bit of sequential improvement or stabilization in that rate? Or is that just hey, that was the rate, we’re sticking with it. I just want to understand if there was a message you wanted in there.
Derek Leathers: Well, a couple of things. First, I’m not going to call out any industry leaders on their behavior or strategy. I do think when you get deep into a cycle, which one thing you find is customers, even those looking to take another bite at the apple are aligning themselves more with assets than non-asset. It’s just a logical thing to do at this point in the cycle. And so our ability to have those assets matter a little bit more now than they might have a quarter or 2 ago is upon us. And we’re starting to see that with certain bid results. But the white noise that’s created by broker potentially underpinning rates are getting even more aggressive knowing it’s harder to win right now, can be problematic, and we see that as well.
And it’s a matter of whether you’re aligned with the right customer base. And in most cases, we are. And in some cases, we’re finding that perhaps we are not. Our job those to, again, go back to the playbook and make sure we execute the plays as drawn and stay committed to what we know works to and through a cycle and feel good about what we’re doing there, despite the Q1 results. It’s a longer-term view. It’s a longer-term strategy than just a quarter. So we’ll stick to our knitting and move forward. And as this plays out, I think we’re going to have the right formula for success.
Chris Wikoff: Yes. And Ken, just to follow up on the last part of your question there on rate per mile. I believe you’re referring to the One-Way Truckload rate per mile and the first half year-over-year guidance of being down 6% to down 3%. You’re correct. I think you referenced being down 5% through the first quarter on a year-over-year basis. So still within that range, although trending to the lower end, we’re about 30% through the bid season. There’s been some mixed results to this point, including some low single-digit reductions but also some that are flat, and more recently, some that are increasing renewals. So we have a bit more to go in the heavy part of the bid season here, but we’ll continue to maintain that pricing discipline and do what we can to stay in the range there.
Operator: The next question is from Tom Wadewitz with UBS.
Mike Triano: It’s Mike Triano on for Tom. So obviously, a tough operating environment, but your free cash flow was up 9% year-over-year with the step down in CapEx. Werner is one of the largest and best-run trucking companies out there. But to what extent is the cash flow resiliency that you’ve had a representative of the broader trucking market? And do you think this is a reason why capacity has been so stubborn to exit the market?
Christ Wikoff: Well, just in terms of maybe the first part of your question on our cash flow and trend. Over the past couple of years, our free cash flow has been more in the 2% to 4% of revenue. In building the plan this year, being mindful of the operating environment, margins and reinvesting in the fleet, lower CapEx. We were gearing towards a free cash flow that on a percent of revenue basis was just going to have higher free cash flow conversion. We still feel good about that outcome for the year, given all those factors and managing a CapEx level that still appropriately invest in the fleet. So we think that that, even in this environment, is going to continue to be a positive perspective on free cash flow conversion going forward.
Derek Leathers: And the second part of that, I’ll jump in. As it relates to, are others able to do that, certainly well ran large capitalized fleets, I think, are probably putting a lot of diligence towards this. I’m not so sure your small to midsized trucker thinks about free cash flow much until it runs out. I think the difference is, it takes a long time to kill a trucker. And they are out there operating equipment that they’re running to the end of life, but no ability to reinvest or re-up or even refresh that particular piece of equipment. There’s regulatory hurdles and other things about to come at them in waves that I think will make that reinvestment even more difficult. And they were flushed with cash coming out of the COVID years, and that’s largely burnt off, if not completely burnt off at this point.
So I think it’s happening, it’s going to continue to happen. But no, I do not believe they’re managing free cash flow the way people like Werner Enterprises are. But nonetheless, it’s just taken a long time for them to kind of burn through the remaining life on that asset and ultimately exit.
Operator: And the last question today is from Bascome Majors with Susquehanna. Please go ahead.
Bascome Majors: I don’t want to get too short-term here, but I do think it would be helpful to level set expectations and bring together some of the seasonality commentary you said earlier in the call. So if I look at 1Q to 2Q, and you strip out the outliers, operating income and earnings, they typically grow anywhere from 20% to call it, 50%. Is that the kind of range that feels reasonable with the puts and the takes that you’ve already talked about, or is it just too early to do that kind of normal historical relationship given the uncertainty out there? Thank you.
Christ Wikoff: Bascome, I appreciate your question. We don’t give EPS guidance, but just to give some color, I guess, in terms of the business outlook. As we look forward, kind of midterm, we would expect demand to remain steady. The rate pressure is going to be ongoing across the portfolio. No real signs of more meaningful attrition in that excess capacity, which is obviously driving this whole rate environment. It’s going to keep the environment competitive. We have more to go in kind of the heavy part of the bid season, and we’ll be backfilling some of the Dedicated losses, fleet losses into the second quarter although, again, there’s a strong pipeline of opportunities that we can draw from. We expect the revenue per truck per week on TTS to continue to be growing on a year-over-year basis.
That year-over-year difference might moderate a bit as we go through the year, but we would continue to expect some year-over-year favorability there. The used equipment market is important. And as I said earlier, I think that will improve modestly throughout the year. And we’re going to continue to advance our structural changes, the cost savings, which are on track and growing. We’ll continue to progress those. We’ll continue to lean into safety and looking for that to show a more favorable trend and some of those low $30 million per quarter numbers that we are seeing in the second half of last year. We’ll continue to lean into our operational excellence and really get more of that production improvement on the One-Way side. So we can’t control the macro.
