Good afternoon, and welcome to the Werner Enterprises Fourth Quarter and Full Year 2020 Earnings Conference Call. (operator instructions omitted). Please note this event is being recorded. I would now like to turn the conference over to Derek Leathers, Vice Chairman, President and Chief Executive Officer. Please go ahead.

Thank you, and good afternoon, everyone. With me today is our CFO, John Steele. 2020 was a very challenging and disruptive year. I'm proud of our Werner team for their resilience, tenacity and perseverance throughout the year. Werner associates quickly reacted to changing freight and work conditions and delivered record results. The Werner team achieved record operating income and adjusted earnings per share in 2020. Our drivers and mechanics relentlessly kept America moving for Werner customers and end consumers despite the demanding operational protocols necessitated by the pandemic. Werner office associates continued to produce superior service to our customers, drivers and mechanics despite restrictive changes to their work environment. Our primary focus continues to be on delivering best-in-class service while protecting the health and personal safety of our associates, their families and our customers. We are confident that freight demand for our services will be strong in 2021. On the supply side, structural truck driver availability constraints and OEM production challenges are expected to continue to limit industry capacity growth for at least the next several quarters. On the demand side, our key customers are producing strong sales that are expected to continue as the economy recovers and additional COVID stimulus packages are implemented. Finally, customer inventories continue to be at historically low levels despite the inherent need for even more forward deployed inventory in a rapidly growing next-day service e-commerce market. We are well positioned to succeed in this business environment as we did in 2018 when freight was strong and capacity was tight. We are also positioned to succeed in the event the freight market begins to normalize at some point in the future. You can look to our industry-leading earnings growth in a down market of 2019 versus 2018 as a guide for how we would expect to perform. Werner is well positioned and committed to thrive in any trucking cycle. The durability of our diversified Dedicated, One-Way Truckload and Logistics revenue portfolio has demonstrated our resiliency. The custom refinement and strengthening of our 5 T strategy plus a laser focus on sustainability throughout allows us to focus on operational execution. Our unwavering commitment and enhanced processes designed to safely and consistently deliver our customers' freight on time, every time position our brand for margin expansion and revenue growth in that order. After a review of our fourth quarter and annual financial results, I'll provide you with the latest developments of our 5 T's + S strategy. Finally, I'll report our fourth quarter 2020 guidance and introduce our 2021 guidance metrics and assumptions. On Slide 4, here's an updated overview of our key market size and fleet size metrics as well as revenues by segment, industry vertical and customer. Over three quarters of our revenues are generated by truckload transportation services with the remainder primarily coming from Werner Logistics. Werner has a consumer-centric freight base with over 70% of revenues in retail or food and beverage. Remaining industry verticals are 20% for manufacturing and industrial and 9% from logistics and other customers. Nearly half our revenues came from our top 10 customers and almost 80% came from our top 50. In short, we have a long-standing relationship with growing and successful companies and are committed to our strategy of aligning with winning organizations. Revenues from our top 10 customers increased six percentage points to 49% in 2020 compared to the prior three-year average of 43%. Many of our larger and successful retail customers produced very strong sales growth in 2020 during COVID, which resulted in more freight shipments. Let's move to Slide 5 for an overview of our fourth quarter and full year financial performance. In the fourth quarter, revenues were flat at $620 million. Adjusted EPS grew 33% to $0.89 per share. Adjusted operating income increased 30% to $82.7 million, while our TTS adjusted operating margin net of fuel increased 420 basis points to 18.2%. For the year, revenues were 4% lower at $2.4 billion. Adjusted EPS increased 8% to $2.59 per share. Adjusted operating income increased 7% to $241.9 million. For the full year 2020, despite the unprecedented challenges created by COVID, we achieved an adjusted TTS operating margin net of fuel of 14%, exceeding the midpoint of the long-term annual goal range of 10% to 16%. For 2021, we expect our TTS operating margin net of fuel will improve and be in the upper end of that range. Dedicated freight demand and revenue per truck were both strong in the fourth quarter as our largest dedicated customers in discount retail, home improvement and beverage continue to produce robust sales. Our continued success in Dedicated has enabled us to grow it to nearly two-thirds of our TTS fleet. Dedicated is more difficult to service, produces strong financial performance and is less cyclical than One-Way Truckload. One-Way Truckload peak season freight demand in fourth quarter started sooner than normal in October and remained strong into December as customers continue to manage the challenges of strong sales combined with supplier and supply chain constraints caused by COVID. We ended the year with 7,830 total trucks in TTS, a decrease of 170 trucks year-over-year and an increase of 120 trucks sequentially from the third quarter. At year-end, 63% of our TTS truck fleet was in Dedicated and 37% in One-Way Truckload. At this point, I'll turn the call over to John to discuss our fourth quarter financial results in more detail. John?

Thank you, Derek, and good afternoon. Beginning on Slide 7. Total revenues for fourth quarter decreased slightly with fuel surcharges reduced by $20 million year-over-year due to lower fuel prices. Our TTS revenues per truck per week increased 5.3% due to improved revenues per total mile and slightly lower miles per truck, which was caused by the increased mix of shorter haul dedicated trucks. Our logistics revenues increased 8%, a significant improvement from the 16% decrease in second quarter and the 3% decrease in third quarter. Our cost management initiatives and programs continued to perform well in fourth quarter. We effectively managed our controllable costs with sustainable improvements through improved associate productivity, better leveraging our procurement spend and doing more with less. We aggressively managed expenses, and in 2020, we delivered nearly $23 million in annualized sustainable cost savings. In 2020, we achieved our lowest accidents per million mile rate in the last 28 years. While reduced traffic congestion due to COVID was a significant favorable factor, other contributors were the improved safety performance of our professional drivers, our high standards for driver hiring and retention, ongoing safety training and Werner's enhanced truck safety technology. Also, in 2020, we achieved the lowest work injury rate in the last 15 years. Adjusted operating income grew 30% primarily as a result of our strong operating execution in our TTS segment. Our Logistics segment had an 80 basis point reduction in operating margin as a result of much higher capacity costs in the second half of 2020. Our adjusted earnings per share were $0.89, which was a $0.22 improvement or a 33% increase over fourth quarter a year ago. On Slide 8 are our full year results. In 2020, revenues declined 4% primarily due to lower fuel surcharge revenues. We increased TTS revenues per truck per week by 3.7% with 2.7% fewer trucks. Our adjusted operating income grew 7% due to a 100 basis point increase in our adjusted operating margin. This margin expansion enabled us to achieve an 8% increase in adjusted EPS to $2.59 per share. Beginning on Slide 9, let's look specifically at results for our Truckload Transportation Services segment. In the fourth quarter, TTS revenues decreased $11.5 million or 2% due to lower fuel surcharges and were partially offset by 5.3% higher revenues per truck. Adjusted operating income was $79.9 million, an increase of 32% due to a 420 basis point expansion of our operating margin percentage net of fuel. Our adjusted operating ratio net of fuel continued its favorable decline to 81.8%. Turning to TTS fleet metrics on Slide 10. For Dedicated, we grew fourth quarter trucking revenues net of fuel by 9% to $258 million. Dedicated average trucks increased 4%, and revenues per truck per week increased 4.8%. Our Dedicated customer bid pipeline remains strong. One-Way Truckload fourth quarter trucking revenues net of fuel decreased 7% to $176 million. Average trucks decreased 13% due to the challenging driver market as well as trucks and drivers that moved from One-Way Truckload to Dedicated. Revenues per truck per week increased 7.2% due to the combined effect of a revenues per total mile increase of 6.9% and a miles per truck increase of 0.3%. Moving to Werner Logistics results on Slide 11. In the fourth quarter, Logistics revenues grew 8% to $130 million. Truckload logistics revenues increased 2% due to a 12% volume decline and a 16% increase in revenues per load. Intermodal revenues grew 23% due to a 21% volume increase and a 1% increase in revenues per load. Our Logistics gross margin percentage decreased 280 basis points year-over-year due to the much higher cost of truckload capacity for contractual brokerage. We made good progress improving contractual rates from third quarter to fourth quarter as our gross margin percentage improved sequentially by 170 basis points and our operating margin percentage improved sequentially by 270 basis points. In 2021, we expect further Logistics margin improvement. Last week, we announced the sale of our Global Logistics freight forwarding business, which had revenues of $53 million in 2020. The sale is expected to close later this month and will result in a gain of $0.01 per share in first quarter 2021. Going forward, we are focused on enhancing our North American logistics capabilities in truck brokerage, freight management, intermodal and final mile. On Slide 12 is a summary of our cash flow from operations, net capital expenditures and the resulting free cash flow over the past five years. Expanding operating margins and less variable net CapEx has enabled us to improve our free cash flow during the last four years, rising to a record $180 million in 2020. For 2021, we expect net CapEx to be comparable to the last two years in a range of $275 million to $300 million. This guidance range assumes we maintain our new truck and trailer fleet, modestly grow our truck fleet primarily in Dedicated, and we continue to invest in Werner EDGE by building out our technology platform with solutions that are more advanced, faster and with enhanced security. On Slide 13 is our disciplined strategy for capital allocation. First and foremost, we will continue to reinvest in our fleet with new feature-rich equipment with the latest sustainability features for safety, driver amenities and fuel efficiency. Over the last three years, $899 million was invested in the 5 T's + S or 64% of our total capital allocation. Our 2021 CapEx plan includes the near completion of two full-service terminals in Lake City, Florida and Lehigh Valley, Pennsylvania that will replace our existing lease facilities in those markets. Werner EDGE, our digital initiative, continues to develop as we strengthen our information technology with systems that are better, faster, less expensive and more secure. During fourth quarter, we repurchased 1.2 million shares or 1.7% of our shares outstanding for $48 million. Over the last three years, we repurchased 4.9 million shares, totaling $171 million or an average share price of just over $35 per share. Over that same three-year period, we paid dividends of $334 million. Our capital allocation plans may include continued share repurchases and increasing our quarterly dividend to enhance total shareholder return. At the same time, we remain committed to maintaining a strong and flexible financial position. Our long-term goal is to maintain a net debt to annual EBITDA ratio range of between 0.5 and 1.0 turn. During this period of COVID uncertainty in 2020, we intentionally maintained a lower net debt-to-annual-EBITDA ratio and ended the year at 0.3x. I'll now turn the final portion of our prepared remarks back to Derek. Derek?

Thank you, John. Moving to Slide 15. I will update you on our 5 T's + S strategy. Over the past five years, Werner implemented structural and sustainable upgrades to our TTS segment with a modern and more efficient fleet with the latest safety technology, raising our hiring and retention standards for high-quality, safe professional drivers and further strengthening our service product to our customers. Our first two Ts, newer trucks and trailers, have young average fleet ages of two and four years, respectively. All Werner trucks are equipped with advanced collision mitigation safety systems, automated manual transmissions, forward-facing cameras and an untethered tablet-based telematics solution for our professional drivers. The tight driver market remained very challenging in the fourth quarter. Since the onset of COVID last March, social distancing and other safety requirements, combined with state licensing cutbacks, have reduced the number of driver training school graduates nationally by an estimated 40%. Despite these challenges, Werner's industry-leading driver training school network continues to be a significant resource for highly trained new drivers. Driver recruiting, safety and equipment maintenance will be further enhanced by the opening of our two state-of-the-art terminals in the next few months. We are making major strides upgrading and modernizing our IT infrastructure and data security. In November, we announced our partnership and investment with Mastery Logistics Systems. Over the next four years, we will replace our existing transportation management systems with Mastery's cloud-based Mastermind TMS to improve functionality and visibility in one integrated trucking and logistics system. During our third quarter earnings presentation, we unveiled the addition of sustainability as a core component of our strategy. In November, we issued a comprehensive ESG presentation, building on a strong foundation to drive greater sustainability at Werner, which is available at werner.com. In that report, we announced three significant ESG milestone goals. On Slide 16, our three sustainability goals are shown with fourth quarter milestone updates for each. I'll provide more clarity for the updates. We will reduce our carbon emissions by 55% by 2035. We previously announced we are pilot program testing an electric-powered Peterbilt truck, and we will be testing a prototype hydrogen fuel cell truck with Cummins and Navistar. Last month, we announced an equity investment in TuSimple, an autonomous trucking technology company. Staying on the leading edge with emerging technologies helps us remain focused on improving our drivers' lives, keeping them safer, providing our drivers with best-in-class equipment and helping them achieve long-term careers in the trucking industry. We were adding three additional associate resource groups by the end of 2021. We are in the process of establishing the new ARG for associates who are military veterans or veteran spouses. And we formed a DEI council to oversee the development going forward. We said we would establish a formal diversity leadership position in the first quarter. In January, Kathy Peissig, an experienced and talented Werner leader, became our Associate Vice President for Diversity, Inclusion and Learning. Kathy has already developed a comprehensive and thorough diversity, equity and inclusion implementation plan for 2021. This plan will encourage diversity of thought and promote corporate engagement through events geared toward education and networking. In November, Carmen Tapio joined our Board of Directors. Carmen is President and CEO of North End Teleservices. Carmen's business leadership knowledge and experience as well as her extensive experience with diversity matters will provide valuable perspective and guidance for our company. During 2021, we will publish our inaugural corporate social responsibility report to demonstrate our ongoing commitment to sustainability. Moving to Slide 17. We have a comparison of the guidance metrics we provided last quarter against our actual results. Additionally, we are providing 2021 guidance metrics and assumptions. During the fourth quarter, we grew our truck fleet sequentially by 120 trucks with 230 truck growth in Dedicated and a 110 truck decline in One-Way Truckload. We ended the full year 2020 with 2% fewer TTS trucks than year-end 2019, in the middle of our guidance range. For 2021, we intend to modestly grow our truck fleet in the range of 1% to 3%. And consistent with our strategy, we expect most of this growth will be in Dedicated. Pricing in the used truck and trailer sales market continued to strengthen in fourth quarter amid higher demand, which resulted in sequentially improved equipment gains of $4 million, ahead of our fourth quarter guidance range of $2 million to $3 million. For 2021, we anticipate equipment gains in the range of $12 million to $15 million as we expect continued strength in the used markets, along with the benefit of our strategy to continue to increase our sales mix of retail versus wholesale. Net capital expenditures for fourth quarter were $79 million, slightly below our anticipated guidance range because we sold significantly more trucks in fourth quarter than originally anticipated. 2021 net CapEx are expected to be similar to the last two years in the range of $275 million to $300 million, as we maintain our current fleet age, open two terminals and expand our Werner EDGE digital initiative. We are introducing a new guidance metric for Dedicated. We expect Dedicated revenue per truck per week growth of 3% to 5% in 2021, consistent with our performance improvement for this metric the last 12 quarters. One-Way Truckload revenues per total mile for fourth quarter increased 6.9%, which exceeded our guidance range of 3% to 5% due to superior execution and a stronger-than-expected peak season. For the first half of 2021 compared to the first half of 2020, we expect One-Way Truckload revenues per total mile to increase in a range of 7% to 10%, assuming high single-digit to low double-digit rate increases during the 2021 contract bid season. Our effective tax rate in the fourth quarter was 25.4%, in line with our guidance range, and we expect our effective tax rate for 2021 to be in a range of 24.5% to 25.5%. The average age of our truck and trailer fleet held constant in fourth quarter, and we expect to keep our fleet new in 2021. In the first five weeks of 2021, freight demand trends in our One-Way Truckload unit have continued to be stronger than normal compared to typical January and early February. In January, we implemented driver pay increases in our One-Way Truckload fleet that exceeds $10 million annualized or plus 6%. We are implementing driver pay increases as needed in Dedicated and expect our total TTS driver pay increases will be at least $16 million to $18 million for the year. While we will continue to aggressively manage controllable costs, we also expect that as the vaccine is widely distributed and the economy strengthens, there will likely be some cost increases, notably in the areas of health care, travel, driver recruiting and insurance premiums. We believe there are several factors that will limit the growth in truckload supply for the foreseeable future. These factors include fewer new drivers entering the industry due to COVID safety issues that limit driver school training and state CDL licensing, fewer eligible drivers as the Drug & Alcohol Clearinghouse database continues to build, aging truck driver demographics and an extremely challenging truck liability insurance market. Werner remains well positioned with a superior team and an active talent pipeline that will continue to yield strong and sustainable results. We continue to believe the runway for freight demand looks very good for 2021. Inventory restocking will likely continue to occur for at least the next several quarters, and we also expect the economy to gradually strengthen as the national vaccine program expands. We expect strong contract pricing opportunities in this bid season. With that, at this time, I'd like to turn the call over to the operator to begin our Q&A.

(operator instructions omitted). As a reminder, please direct your attention to the disclosure statement on Slide 2 of the presentation as well as the disclaimers on Page 6 of the earnings release related to forward-looking statements. Today's remarks contain forward-looking statements, including those related to COVID-19 that may involve risks, uncertainties and other factors that could cause actual results to differ materially. Additionally, the company reports results using non-GAAP measures, which it believes provide additional information for investors to help facilitate the 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. Our first question comes from Todd Fowler with KeyBanc Capital.

This is Zach on for Todd. Just wanted to dive a little bit deeper into the One-Way guidance here for the first half. I guess what does it incorporate in terms of seasonality for the first half of the year? And then if you could just kind of touch on, what does it assume for maybe project freight in maybe the second quarter?

Yes. So this is Derek. Thanks for the question. On the seasonality, I'm not sure I understand exactly what you're asking, so I'll just speak to how seasonality has developed thus far. Right now, January and February, as we mentioned in our prepared remarks, have been seasonally stronger than normal. All the channel checks that we're having with customers and as we have dialogues about the progress of freight and current inventory levels would suggest that that will continue. We would expect, based on those conversations, current inventory levels and the overriding capacity constraints that are more structural and systemic than they are fleeting in their nature, that second quarter should be set up for project opportunities. Obviously, that's a long time from now, and we'll get better clarity as the quarter develops. But in a normal year, the second quarter, especially the end of the second quarter, does set itself up well for project freight, and we would be expecting at this point that to be the same this year.

Okay. Helpful. I understand with your prepared remarks indicating some greater seasonality there as more looking for into the second quarter. But I guess just in terms of fleet growth, I understand it's focused more towards Dedicated. What are your thoughts on the One-Way fleet as we move through 2021? Does that stay flat from current levels and more so focused on Dedicated? Or is it kind of a continued shift from One-Way into Dedicated?

So I think the way to think about it would be, right now, the Dedicated pipeline is very, very strong. And so just known business that's either in implementation or soon to be forthcoming means that, in this driver market, when it's difficult to obtain and bring onboard new drivers, we just know that the end effect is that we're going to see more growth in Dedicated as a percent of the total, but we do expect that total fleet growth has some opportunity to move north from where it is today. We price all of those Dedicated opportunities based on the premise that we have to be margin enhancing. And we're looking for sustainable structural alignment with winning customers. That is the case with these opportunities that we're looking at now, both those in implementation or soon to be in implementation. So it's not so much at this point that we're looking to limit One-Way Truck growth. It's more a matter of a tight driver market, a robust pipeline in Dedicated and strong margin opportunities to be able to sustain ourselves through the cycle, which is what we've been committing to the investor community for some time.

The next question is from Scott Group with Wolfe Research.

So I want to ask, Derek, about margins. Last quarter, you talked about margins getting as good as 16%. Any reason why we shouldn't be assuming 16% this year? And given that you just did, I think, 18% in the fourth quarter, is there upside potential to that 16% in your mind?

We're always going to work to exceed expectations wherever we can, Scott. It's a great question. Our guidance is our guidance, which is we think we're going to be on the high end of the range. I think that's something we're comfortable with at this point. We think the setup is as good or better right now than it was the last time we spoke. And so we feel better about the overall market dynamics, the capacity constraints that are out there and where we're at in the bid cycle and how those conversations are going. So the potential is there, yes, but I'd rather not stray from the structure of the guidance that we've previously given. But what I'll tell you, and I think the fourth quarter with the 81.8% that you referenced demonstrates that if the market is there, we're going to make sure and try to maximize margins for our shareholders while also taking care of our customers.

Okay. And then just second question. The guidance implies a little bit of a deceleration in Dedicated revenue per truck. Any thoughts there? And then just any color on the power-only business? We're hearing more and more about that from carriers. And just curious about that?

The Dedicated revenue per truck, we were, I think, 4.8% this most recent quarter. It does fluctuate some from quarter-to-quarter, but in the environment where we had some pretty solid increases in rates in 2020, we think that a 3% to 5% range is reasonable for 2021 based on the current market conditions. I'll let Derek answer the power-only question.

On the power-only question, Scott, I would say that it is a topic in this building. It's something we're working on as well. We do quite a bit more of it than perhaps we've communicated. We're going to continue to grow it from here. It's something that we think has a lot of upside for an asset-backed player like Werner. When you think about brokerage and being able to combine the best of assets and non-assets, power-only is a great place to do that. We have a glide path right now towards significant growth in that area; and in particular, we have a strong power-only operation in our cross-border mix. And so when you think about our business to and from Mexico, where we're a large player, we've got the large facility on the southern border. We've just built a new and even larger cross dock. We're doing a lot more power-only to and from the border, and we'll continue to grow that going forward.

The next question is from Amit Mehrotra with Deutsche Bank.

Congrats on the great results. First question: the 81.8% OR in the quarter was eye watering in terms of how strong it was. And obviously, over 60% of your fleet is Dedicated, and 7% yield growth is strong, but there's obviously something else there that's allowing you to report those types of margins. Can you just talk about the freight selection opportunity in the quarter? Was that what really allowed you to achieve those types of great margins in the quarter?

Yes, Amit, great question. The 81.8% is something we're really proud of. We're also proud of how clean it is. It's solid 81.8% across the board with a lot of blocking and tackling involved. Throughout up and down the P&L, it's execution at the level that we've talked about getting to for a long time. It's a lot of focus and work by the team. Also, it points to why only one metric, such as rate per total mile or any other single metric, is not always the secret sauce. We look at it more holistically and think about how the parts fit together. We've had a vision for a long time: with the right equipment, the right customer mix, the right quality drivers and the right internal teams dedicated to excellence, we can achieve these results without only focusing on raising rates at the expense of service. If you look at the quarter, it's not just the 81.8% that I'm proud of; it's that it's driven across multiple product offerings with Dedicated representing 63% of the truck count and still achieving that result. It shows the cycle-proof nature of the business. We think the cycle is not yet here and that there's a lot of runway given systemic capacity constraints. When that day comes, this portfolio is better built than it's ever been to execute strongly, and we're excited about it.

To play devil's advocate: maybe the fourth quarter represented a perfect storm of good things. You hadn't done big driver pay increases; I think those are coming this year or have already come at the start of the year, and demand inflected. So into 2021 you have $15 million to $20 million of headwind on driver pay, probably some headwind on claims expense as congestion rises, tailwinds on gains on sales, and the X factor is if freight selection opportunities stay as strong. With a 13% long-term target, do you think no one expects 81.8% again for the whole year, but you could split the difference between the long-term target and that and get to what you think you can do this year given these puts and takes?

It's early in the year and there are many unknowns, including COVID and vaccine rollout. But the strides we've made on injury rate and accident rate are systemic. They come from revamping driver training programs, from recruiting through assignment and the use of technology and simulators. The freight market remains a tailwind and looks to stay that way for several quarters as people restock inventories. On driver pay, I wouldn't expect a huge surprise because we were already paying competitive wages going into this cycle. As the market tightens, we continue to focus on improving drivers' lifestyles through equipment and pay. Our turnover results have improved, showing morale in the fleet is good. Yes, there are headwinds, but those will be offset by rate negotiations throughout the bid season. I like the setup for us to continue to improve across the P&L while being paid based on the service we're offering at market-competitive rates and treating drivers to a lifestyle that keeps them. There's always upside to guidance, but the first call out of the gate in January is not where I'd change guidance. Our goal is to achieve at the top level and fulfill the aggressive metrics we've given. We'll continue to focus on quality above all else across service, driver quality, alignment with winners, equipment quality and terminal expansion.

The next question is from Jack Atkins with Stephens.

Appreciate it. Taking a step back and thinking about the longer-term strategic partnerships and investments announced this quarter: Derek, can you talk about the partnership with Mastery? You gave a little color on that in your prepared comments. How should we think about the timeline before that starts to really bear fruit for Werner from a profitability perspective? And what exactly are you looking to get out of that partnership over the next couple years?

Thanks, Jack. The partnership with Mastery accelerates our cloud-first strategy. It's a way to integrate systems across logistics and our asset base and leverage industry expertise. We like that Mastery is a newer entrant unencumbered by legacy systems. In the meantime, we will continue to invest in IT internally to build our unique capabilities that led to industry-leading revenue per truck per week. We'll optimize back-end execution while buying core TMS and cloud capabilities that allow us to integrate more rapidly, be more mode-neutral over time and provide a more seamless solution for customers. These projects take time; certain aspects of the Mastery platform will be integrated and functioning within our operations this year. Current plans target some launches late in the second quarter with more meaningful back-half traction.

When thinking about asset-based carriers and their logistics operations, results varied this quarter. Some had aggressive top-line growth and healthy margins. You didn't see that same level. That presents an opportunity in 2021. When you think about Logistics, what prevented you from capitalizing on the strong spot market in the fourth quarter? How do you get that on track in 2021?

Logistics is an opportunity in 2021. It didn't perform as well as I'd like, and we have work to do. We made progress on legacy agreements and contracts; we had to clean up structural elements on the contract side. We also needed to staff up to manage volume, which was more difficult during COVID. We've got plans to address this in 2021, onboarding personnel to better manage the business. Technology improvements we're building internally and with Mastery will help. While I'm unhappy with fourth quarter logistics results, I'm pleased with sequential improvement from Q3 to Q4. Directionally, that gives a sense of where we're headed for Q1 and forward. I believe there's opportunity for margin expansion and volume growth; it will be a smaller headline story in Q1 and Q2 but we expect stronger performance in the back half.

The next question is from David Ross with Stifel.

You mentioned, keeping on the asset-light theme, that you want to grow brokerage, freight management, intermodal and final mile. Final mile is getting a lot of attention. Can you talk about Werner's capabilities there today and what you want them to be?

Our capabilities today include a national network, a strong big-and-heavy presence and two-man delivery operations. We've built out more of the one-man model regionally, which still needs expansion to achieve a national footprint. Volumes in final mile have continued to grow steadily, margins have performed well, and the tech is performing well. We are focused on North American logistics and believe the final mile footprint we have provides a foundation to build upon. The decision to divest the Global freight forwarding business was part of focusing on our core North American footprint. I want whatever we do to be done to win, with the return profile to justify it. I'm bullish on the final mile opportunity.

You said the margins are performing well, which is interesting because a competitor exited the business due to poor margins and others aren't reporting good margins. Is there anything unique you're doing on the cost side, using independent contractors or company drivers? Or is it more a pricing issue?

Several things matter, but importantly we took a conservative, methodical approach to building final mile. We haven't gone asset-heavy prematurely. We've spent a lot of time listening to customers and building the product they want — heavy on systems, communication, visibility and claims resolution processes. That takes longer and more R&D before revenue and profits, but by doing it that way, we build a product customers want. We have strong leaders and execution partners, and we are predominantly a non-asset play in that space. The methodical approach should pay dividends.

The next question is from Ken Hoexter with Bank of America Merrill Lynch.

Congrats on a solid quarter and good luck in the Lehigh Valley. Others are seeing rising CapEx, moving to lower fleet age. You're standing still in the market. Is that a sign the driver market is too tough to expand the fleet or that others focused on fleet renewal? How should we think about your CapEx targets?

Our CapEx target is driven by the fact we already have a young fleet and intend to keep it that way. Some companies have a sudden increase in CapEx to bring age down; we already have one of the newest fleets. Growth will come if it's long-term, margin-enhancing freight that meets our hurdle rate. We'll add trucks in those circumstances and leverage our driver school network. The growth target corresponds to the CapEx range and is consistent with the 11% to 13% of revenue target we've discussed for several years. The last two terminals finish setting that table for us.

On Dedicated, you talked about 3% to 5% revenue per truck growth while mentioning driver pay increases. Do you see margin pressure when stepping back and looking at your outlook because of increased driver pay?

We will have driver pay pressure; we discussed targeted increases around 6% for One-Way and total TTS increases of $16 million to $18 million. However, I don't see margin erosion as a result. We expect rates to outpace driver increases given the market. Dedicated driver pay is often already higher due to the work style and is commensurate with the work. If needed, we negotiate with customers to adjust economics, and we will raise pay to shore up fleets when appropriate. Overall, driver pay will be offset and is not an area where I expect margin erosion.

The next question is from Ravi Shanker with Morgan Stanley.

Can you give more color on the forwarding business sale and the logic behind it, apart from taking advantage of the market cycle? What does the portfolio look like—anything else you think could be monetized or is noncore?

The sale of the forwarding business was driven by a desire to focus on being best-in-class in everything we do and to concentrate on our core North American business. The forwarding business was profitable and growing, but we believed our time, energy and investment are better spent focusing on our core North American execution. We also found a buyer with synergies that still provides solutions to customers. We're not going through an inventory list looking for other divestitures. This sale gives us an opportunity to focus more on the rest of the portfolio.

John, you mentioned the two facilities that you're switching from leased to owned in the first quarter. Will that have an impact on numbers?

That's part of the costs we'll be dealing with in 2021, but I wouldn't consider it a major cost. Personnel costs are comparable. From a facility standpoint, we'll have state-of-the-art facilities that are top shelf for driver recruiting, equipment maintenance and design for the people who work there. We think it will ultimately be a benefit rather than a meaningful cost item. It might have a slight cost increase, but nothing significant.

Your balance sheet is in great shape. You're nearly net cash and generating strong OR with more of the cycle ahead. Is there a case to be made to be more aggressive with cash return and buybacks if the market is not giving full credit for your progress?

There's certainly a case to be made. We have an appetite for higher net debt-to-EBITDA than historically. In the fourth quarter, we repurchased shares and have been showing execution. We've generated four consecutive years of growing free cash flow and expect to continue. That leads to shareholder return opportunities: share repurchase, dividends and opportunistic M&A if the right accretive opportunity appears. All are on the table. We think the best is yet to come and are looking to accelerate.

The next question is from Tom Wadewitz with UBS.

This is Mike on for Tom. For the truck adds in 2021: with the strong Dedicated pipeline and tight driver market, is it fair to assume Dedicated could drift up a bit from the 63% by the end of the year?

Yes, I think that's fair. The Dedicated pipeline is strong and the driver market is tight. We have line of sight on how to fill and feed the pipeline for Dedicated deals meeting our hurdle rate and replacing fleets not meeting returns. The driver market is tough, but we're adding four schools to our network and have an advantaged situation with one of the largest school networks producing high-quality drivers. If the freight market continues, we'll all compete hard to bring on drivers, but we'll only bring drivers on if they meet high quality standards. So it's reasonable to expect Dedicated to be a slightly larger percentage than where it is today, which also makes us more resilient when the cycle turns, potentially in 2022.

For the truck adds cadence through the year, will they be back-half loaded, or come on gradually throughout the year?

At this point, it's safer to assume the adds are front-half loaded rather than back-half. The driver market is a battle; step one is retaining what we have and bringing on quality drivers. The goal is front-half loading, consistent with Dedicated implementations that are known and right in front of us.

The next question is from Jordan Alliger with Goldman Sachs.

Can you talk about miles per truck and productivity going forward? In the past you mentioned impacts from team driving. Do you expect that to stabilize and see improvement over coming quarters?

It's a bit tough to predict. As vaccine rollout continues and people feel more comfortable, that should benefit teams and leader programs and other team-driving formats. But as the vaccine rolls out and congestion increases, that can reduce miles per hour. It would be premature to say which effect will dominate. A reasonable view is utilization remaining fairly flat. The levers that matter now are rate, retention and driver hires. We must ensure we obtain rate commensurate with service, retain quality drivers and attract new drivers by being the employer of choice. The setup is good on those three fronts and now it's time to execute.

I'll now turn the call over to Mr. Derek Leathers, who will provide closing comments. Please go ahead.

Yes. Thank you. I just want to thank everybody for being with us today. You've trusted us and been with us over the journey of the last several years. I think you've seen our consistent execution against the focus we've had relative to quality above all else. It's translated to improved service, a stronger driver base with more tenure, higher morale and a better seated truck count than many in our industry. Our associates have been stellar throughout the year, and I want to thank them again. All of that led to the results we discussed. Those are results we expect here and know are attainable, but only with laser focus. It's a proud quarter for us. We're still evolving our portfolio, but the goals are to make us more cycle resistant than ever. We're better positioned for the ups and downs of trucking cycles. We've generated four consecutive years of growing free cash flow, and we expect to continue that trend. We'll continue to grow with winners, aligning with winning customers, management teams and models. This all led to record earnings in 2020 during the pandemic and record fourth quarter earnings. It led to record customer retention, and we're proud of how we supported our customers. We celebrated our 65th anniversary and our founder C.L. Werner. The story isn't over—it's just the next chapter, and we're excited about the acceleration ahead. Thank you for your time and for believing in Werner.

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