Good afternoon, and welcome to Werner Enterprises Third Quarter 2025 Earnings Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Chris Neil, SVP of Pricing and Strategic Planning. Please go ahead, sir.

Good afternoon, everyone. Earlier today we issued our earnings release with our third quarter results. The release and supplemental presentation are available in the Investors section of our website at werner.com. Today's webcast is being recorded and will be available for replay later today. Please see the disclosure statement on Slide 2 of the presentation as well as the disclaimers in our earnings release related to forward-looking statements. Today's remarks contain forward-looking statements that may involve risks, uncertainties, and other factors that could cause actual results to differ materially. The company reports results using non-GAAP measures, which we believe provides additional information for investors to help facilitate 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. On today's call with me are Derek Leathers, Chairman and CEO; and Chris Wikoff, Executive Vice President, Treasurer, and CFO. I will now turn the call over to Derek.

Thank you, Chris, and good afternoon, everyone. Today I will speak to what we are seeing in the market, how that is translating into our performance, and what we are doing from a strategic standpoint to further position Werner for long-term growth. While the second quarter was more favorable, the third quarter presented some challenges, namely in our One-Way business. However, there are several positive developments that we can highlight from the quarter. In Logistics, we continued a double-digit growth trajectory with lower operating costs year-over-year, despite some anticipated change in mix. In One-Way trucking, revenue per total mile increased, the fifth consecutive quarter of year-over-year improvement. And in Dedicated, revenue grew sequentially and year-over-year as momentum continued from recent business awards and startups. We are building a foothold in new verticals like tech and aftermarket automotive parts. Our new customers are seeing the value of our strength and scale in Dedicated in these new applications, but there is a short-term upfront investment as we pursue these opportunities. In terms of the challenges in the quarter, in Logistics we experienced margin pressure from mix changes and in One-Way we saw decreased miles per truck, although we view this as temporary as One-Way production has been recovering throughout October. Startup costs in Dedicated were more elevated compared to the second quarter and more than we anticipated. Overall, as market dynamics remain unpredictable, we are keeping focus where it matters most, on delivering superior value to our customers and positioning Werner for long-term success. We remain confident in our business fundamentals and progress that we are achieving toward our long-term goals and strategic objectives. Moving to Slide 5. Our focus remains on three overarching priorities: driving growth in core business; driving operational excellence as a core competency; and driving capital efficiencies. Here's where we are on these priorities. First, driving growth in core business. Our Dedicated fleet is growing, and conversations with customers regarding the cost advantages of for-hire Dedicated fleets are resonating. We've been awarded several new fleets, and the pipeline remains strong with momentum growing in new and attractive end markets of choice. Service levels are high and have been recognized recently by several strategic shippers naming Werner Dedicated Carrier of the Year. All Logistics divisions produced top line growth the past two consecutive quarters, with intermodal achieving its highest quarterly revenue in 11 quarters. We continue to offer compelling solutions to our customers who are finding value and entrusting us to solve their supply chain challenges. Second, driving operational excellence is a core competency. This priority is anchored by a culture of safety, service, reducing our cost-to-serve profile, and transforming how we do business. We continue to trend favorably on our DOT preventable accidents per million miles, which declined low-double-digit percent from Q3 of last year and year-to-date is below our 5-, 10-, and 15-year averages. Our 2025 cost savings plan is progressing as planned, and by the end of the third quarter, we achieved 80% of our $45 million in cost-saving target for 2025, and we remain on track to reach the full goal by year end. We are also progressing well on our technology transformation, positively impacting both efficiency and our safety performance. We've often said this is a multiyear journey, but we are in the later innings. As this takes hold, the benefits will be more evident. Our tech transformation, to say it plainly, is extensive. The scope across our business is expansive. This is not just another tech upgrade. Rather, over the past four years, we've completely rebuilt our technology stack from the ground up, replacing every single component, creating a modern, scalable, secure, cloud-based platform. While others bolt on AI to their legacy systems, we built an integrated foundation that connects every part of our business from pricing and planning to safety, billing, recruiting, and more. Our Cloud First, Cloud Now strategy is paying off. It allows us to take full advantage of our new tech stack, automating processes and layering new AI agents quickly and effectively. For example, our largest expense in one back-office department has been lowered by 40% over the last two years through modernization and AI automation while maintaining full service levels. We see the benefits of this in four areas: safety, data, analytics, and operational efficiency. And even more importantly, an enhanced experience for our customers, drivers, and third-party carriers. For example, technology benefits safety and our driver experience through enhanced in-cab situational awareness and visibility, such as through real-time anticipated weather and routing technology and installing sideview cameras that communicate seamlessly with other systems. The technology data and cloud storage of video also provides opportunities for enhanced training and driver development. Our third-party carriers benefit from optimized load matching based on our carrier preferences and enhanced communication. Operationally, we benefit from greater efficiencies across our business. Orchestrated intelligence is changing how we operate every day, consolidating systems, automating steps, and using AI to streamline end-to-end workflows. We see this efficiency growing across the shipment lifecycle from pricing and load booking to route planning and invoicing. As a result, dwell time is down, planning efficiency is up, and thousands of customer and driver interactions are now handled each week by conversational AI. And most importantly, our customers benefit, as we continue to roll out the EDGE TMS platform and ecosystem across our business. Our goal is for our customers to have increasingly more information, visibility, and transparency. We've seen the financial benefits of our tech transformation reflected in Logistics, with multiple quarters of meaningful OpEx reduction year-over-year while growing volume and top line. We're already seeing progress across our TTS segment. Given the size and complexity of managing assets and drivers at scale, the lift is larger, but so is the impact. Our final priority is driving capital efficiency. Despite the challenging operating environment, we continue to generate solid operating cash flow, maximize value on the sale of used equipment, and invest for growth. Let's turn to Slide 6 and discuss our third quarter results. During the quarter revenues increased 3% versus the prior year. Revenues, net of fuel, increased 4%. Adjusted EPS was negative $0.03. Adjusted operating margin was 1.4%. And adjusted TTS operating margin was 1.9%, net of fuel surcharge. We previously disclosed a legal settlement agreement entered into in October for $18 million related to class action litigation that had lasted more than a decade involving claims related to driver pay. We also incurred legal fees of $3.4 million in the quarter related to this litigation. These costs represent a $0.26 negative impact to GAAP EPS, but are removed as part of adjusted EPS. In Dedicated, we're continuing to see steady momentum in adding new business while maintaining solid retention. Shipper conversations continue to be constructive as customers remain focused on reliable and flexible transportation partners who offer creative solutions with high service and scale. In One-Way, truckload revenue per total mile increased sequentially and was up modestly again year-over-year. Contractual rate changes that became effective were mitigated by spot rates that declined in July and August before increasing in the latter part of the quarter. One-Way production was lower year-over-year driven by three factors: fleet composition, onboarding of new drivers, and some network softness. We rebalanced driver capacity to launch new Dedicated and specialized freight, which temporarily created inefficiencies in the One-Way network. Overall, we're now on the other side of those transitions with a more focused One-Way fleet, sustained Dedicated growth, and the flexibility of our PowerLink solution to capture higher margin peak freight as the One-Way fleet moderates into Q4. In Logistics, revenue increased sequentially and year-over-year. However, gross margin was pressured as the conclusion of higher-margin project work was replaced with contractual business. This mix change resulted in startup costs and contributed to an increase in purchase transportation. Before Chris discusses our financial results in more detail, let's move to Slide 7 to summarize our current near-term market outlook. Demand in Q3 was below normal seasonality for most of the quarter. However, we did see improvement in One-Way trucking demand through September and so far in October. While concerns about consumer health persist, consumers remain resilient with rising retail sales and moderate inflation relief. These are supportive signs for retail. However, beneath the surface, there are other concerns. Consumer confidence is lower, real growth is modest, and many consumers are in preservation mode rather than expansion mode. As a result, we like our mix of retail being more concentrated in discount and value retailers. Retail inventories appear to have mostly normalized. While some inventory was pulled forward ahead of Q3, nondiscretionary goods have had more consistent replenishment cycles. Spot rates trended higher starting in September and into October and are expected to follow normal seasonal patterns for the remainder of the year, with upside potential supported by ongoing capacity attrition. Customers have provided additional insights into their peak season volume estimates. Shipment forecasts vary by customer, but in total, peak volume and pricing are estimated to be similar to last year, with more balance across the network. Capacity continues to exit, and recent supply-demand tightening would suggest the pace is increasing, given developments surrounding nondomiciled CDLs, B-1 visas, and English language proficiency. As challenging operating conditions continue, we are also seeing an uptick in bankruptcies as a further limiter. We are well positioned on these issues and will benefit as the market comes more into balance. Given the dynamic tariff backdrop, uncertainty related to the cost of Class 8 trucks remains. We expect used truck values are likely to remain stable in the near term, particularly for assets with lower miles and remaining warranty. Class 8 net truck builds are now well below replacement levels and not only signal that a potential truckload capacity tightening could be ahead, but also that more carriers could be looking to refresh their fleet in the used equipment market. With that, I'll turn it over to Chris to discuss our third quarter results in more detail.

Thank you, Derek. We'll continue on Slide 9. All performance comparisons here are year-over-year, unless otherwise noted. Third quarter revenues totaled $771 million, up 3%. Adjusted operating income was $10.9 million and adjusted operating margin was 1.4%. Adjusted EPS was negative $0.03. Discrete tax items negatively impacted adjusted EPS by $0.08 in the quarter. Consolidated gains on sale of property and equipment totaled $4.5 million. Turning to Slide 10. Truckload Transportation Services total revenue for the quarter was $520 million, down 1%. Revenues, net of fuel surcharges, were flat year-over-year at $460 million. TTS adjusted operating income was $8.9 million. Adjusted operating margin, net of fuel, was 1.9%, a decrease of 340 basis points. 200 basis points of the decrease is attributed to higher insurance and claims expenses and 50 basis points are associated with Dedicated startup costs. Insurance costs were lower than the previous two quarters but significantly higher year-over-year as costs during the prior year quarter were below $30 million, a low point going back to the first quarter of 2022. Investments in new Dedicated fleet startups exceeded $2 million in the quarter, a $0.03 impact on EPS. Startup costs in the third quarter were higher compared to the second quarter. Timing of these costs was difficult to predict or to pass on, given the new verticals, freight and customers represented by the majority of the wins earlier in the year. We are now seeing the startup expense dropping off. So far in October, these related costs are down 75% from the third quarter run rate. Let's turn to Slide 11 to review our fleet metrics. TTS average trucks were 7,503 during the quarter. The TTS fleet ended the quarter flat year-over-year and down 100 trucks, or 1.3% sequentially. TTS revenue per truck per week, net of fuel, decreased 0.7%, primarily due to lower miles per truck, partially offset by higher revenue per total mile. Within TTS, Dedicated revenue, net of fuel, was $292 million, up 2.5%. Dedicated represented 65% of TTS trucking revenues, up from 63% a year ago. Dedicated average trucks increased 1.2% year-over-year and 0.2% sequentially to 4,865 trucks. At quarter end, the Dedicated fleet was up 125 trucks, or 2.6% from where we started the year and represented 67% of the TTS fleet. Dedicated revenue per truck per week grew 1.3% and has increased 29 of the last 31 quarters. Lower production in the startup fleets negatively impacted this metric by 140 basis points in the quarter. It often takes 90 days or more before new fleets meet targeted production as drivers are sourced and integrated into the fleet, equipment is positioned, and routes are optimized. In our One-Way business, for the third quarter, trucking revenue, net of fuel, was $160 million, a decrease of 3%. Average truck count of 2,638 increased 1.3% year-over-year and was up slightly on a sequential basis. However, end-of-period One-Way trucks declined 2.4% as the fleet size decreased throughout the quarter. Revenue per truck per week decreased 4.3% due to 4.7% lower miles per truck, only partially offset with higher revenues per total mile, up 0.4%. Miles per truck declined more than expected in the third quarter. Over the past two years, we've realized significant gains in One-Way production and modest year-over-year decreases in the first half of this year. As Derek mentioned, the Q3 change in trend reflects shifts in fleet profile and new driver onboarding and, to a lesser degree, some early quarter network softness. While seeding Dedicated growth had tangential impacts on One-Way production, we are in a more favorable position now and production has already improved through October, returning to nearly flat versus last year. Revenue per loaded mile increased 0.8% year-over-year. Deadhead was slightly higher, increasing 32 basis points year-over-year and 15 basis points sequentially, resulting in a 0.4% increase in revenue per total mile. Although total One-Way miles decreased 3% versus the prior year, combined One-Way and PowerLink miles rose over 4%, enabling us to serve customers efficiently with fewer assets. Logistics results are shown on Slide 12. In the third quarter, Logistics revenue was $233 million, representing 30% of total third quarter revenues. Revenues increased 12% year-over-year and 5% sequentially. Truckload Logistics revenues increased 13% and shipments increased 12% with gross margin expansion. Our PowerLink offering led the growth, up 26%, while traditional brokerage recorded mid-single-digit revenue growth. Higher volume was the driving factor with modest rate improvement. That being said, Logistics volume in October softened and margins have been pressured as purchase transportation costs have increased. Intermodal revenues, which make up approximately 15% of the Logistics segment, increased 23%, almost entirely from higher volume. Final mile revenues decreased 1% year-over-year but increased 4% sequentially. Logistics' adjusted operating margin of 1.8% improved 140 basis points, driven by volume growth and lower operating expenses. The operating margin expansion is net of added pressure on Logistics gross margins as some higher-priced project business was replaced with contractual business. Our ability to scale in Logistics at lower cost is driven in part by our technology investments and our EDGE TMS platform. Moving to Slide 13 and our cost savings program. Through the third quarter, we have achieved $36 million in savings towards our $45 million goal. Actions to achieve the full $45 million have already been taken, giving high assurance of achieving the remaining $9 million in the fourth quarter. 2025 marks the third consecutive year of cost saving achievement in the range of $40 million to $50 million per year. We will continue this discipline into 2026. Leveraging our technology investments will help, along with additional initiatives aimed at improving profitability in One-Way and extending our operating efficiency in Logistics. We look forward to discussing our 2026 cost savings program with you next quarter. Let's review our cash flow and liquidity on Slide 14. Operating cash flow was $44 million for the quarter or 5.7% of total revenue. Net CapEx was $35 million, or 4.6% of revenue. Year-to-date, net CapEx is 4.2% of revenue. Free cash flow year-to-date is $26.2 million, or 1.2% of total revenues. We ended the quarter with $725 million of debt unchanged sequentially. Our net debt to adjusted EBITDA as of September 30 was 1.9x. We have a strong balance sheet, access to capital, relatively low leverage, and no near-term maturities in our debt structure which provides ample financial flexibility to invest in growth and value-enhancing opportunities. Total liquidity at quarter end was $695 million, including $51 million of cash on hand and $644 million of combined availability under our credit facilities. Let's turn to Slide 15. When it comes to broad capital allocation decisions, we will remain balanced over the long term, strategically investing in the business, returning capital to shareholders, maintaining appropriate leverage, and remaining disciplined and opportunistic with share repurchase and M&A. In August, our Board authorized a $5 million share repurchase program, replacing the prior program. We did not repurchase any shares in the quarter. Let's review our guidance for the year on Slide 16. We are adjusting our full year fleet guidance range from up 1% to 4% to down 2% to flat. The TTS fleet is down 0.1% year-to-date. Implementations of new fleets in Dedicated remain ongoing, but the One-Way fleet decreased during the quarter and is expected to further decline through year-end. We are tightening our full year net CapEx guidance from a range of $145 million to $185 million to a range of $155 million to $175 million, with the midpoint unchanged. Dedicated revenue per truck per week increased 1.3% year-over-year and is up 0.4% for the first nine months of the year. We are tightening the full year guidance range to flat to up 1.5%. One-Way Truckload revenue per total mile increased 0.4%. For the fourth quarter, we expect revenue per total mile to be down 1% to up 1% compared to the prior year period, mostly due to mix plus structural changes anticipated in One-Way aimed at profitability improvement in 2026 and greater operating leverage and readiness as capacity tightens and the macro improves. Our effective tax rate in the third quarter was higher than usual due to discrete income tax items, specifically a $4.7 million return-to-provision adjustment, which unfavorably impacted adjusted EPS by $0.08. We expect our fourth quarter effective tax rate to be between 26% to 27%. The average age of our truck and trailer fleet at the end of the third quarter was 2.5 and 5.5 years, respectively. Regarding other modeling assumptions, gains of $4.5 million was down from $5.9 million in the second quarter as expected on nearly 20% fewer tractor sales and over 40% fewer trailers. Despite the sequential pullback, unit gains were almost double compared to a year prior. We expect resale values to remain generally stable given OEM production constraints and the evolving regulatory backdrop that will be an incentive towards high-quality used assets. We are narrowing our full year guidance range for equipment gains from a range of $12 million to $18 million to a range of $14 million to $16 million. With that, I'll turn it back to Derek.

Thank you, Chris. In summary, while we experienced significant challenges in One-Way this quarter, results across the rest of our business are steadily improving. What remains constant during these uncertain times is our competitive advantage. We are a large-scale, award-winning, reliable partner with diverse and agile solutions to support customers' transportation and logistics needs. As this challenging operating environment continues, we are taking actions to position the business for long-term growth. 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. With that, let's open it up for questions.

And your first question today will come from Jordan Alliger with Goldman Sachs.

So questions. Given some of your comments in the fourth quarter so far on spot picking up, maybe demand a little better, productivity, some of the startup costs dropping off, is there a way you could maybe frame up how to think about hopefully improvement in TTS operating ratio? As we move from Q3 to Q4, would that be the expectation?

Jordan, I'll take that one. This is Chris. Yes, maybe at a high level just to give you some inputs going Q3 to Q4. Q4, we would expect it to be, call it, seasonally softer, down sequentially with revenue softness in Logistics. I think there will be some operating income upside with some of the items that you mentioned, startup expenses dropping off, some One-Way production rebounding, and our cost discipline holding. There's some offsets with some further Logistics gross margin pressure and lighter gains.

Your next question today will come from Bruce Chan with Stifel.

This is Matt Milask on for Bruce. To start, I believe you said that the pace of capacity reduction related to regulatory enforcement appears to be accelerating. One of your competitors pointed to potentially larger impact there than what ELDs had several years back. We're curious if you could comment on the magnitude of reduction you might ultimately expect here, maybe what the timing might be, and any color or early signs that you're seeing across the business or within the customer conversations that you've had around this.

Thanks, Matt. Thanks for the question. So yes, on the pace, we'll start with the one that started first, which was really the English language proficiency side of it. We've seen ongoing increases in the pace and aggressiveness of the English language proficiency enforcement. Right now if you were to look at current trends, it would project out to be about 30,000 annually that would be placed out of service. But each month, that trend has increased in momentum. And I think as more states realize this is serious and it is a safety concern and enforcement increases, that number could certainly move north. But as of late, that focus has really been shifted or added to by the focus on the nondomiciled CDL front. There's lots of estimates out there, but a fairly conservative one appears to be 200,000 nondomiciled CDLs. And as we see enforcement starting to ramp up on that issue, it shows through as it relates to regional tightness and regional movements in the spot market. So I don't think anybody is here today saying the spot market has fundamentally moved up into the right nationally, but it's very clear that it's moved and followed trends in markets where enforcement has been ramped up. As recently as a few hours ago, I saw there was a press conference where in Indiana, they had a focused enforcement activity that took another 100-plus drivers off the road, of which I think upper 40s were Class 8 CDL holders. That type of enforcement and momentum we expect to continue. I would argue that, in total, when you take the B-1 visa cabotage issue, the ELP issue, and the nondomiciled CDL issue, I would concur that this is larger than what we saw with the introduction of ELDs. The last enforcement around the corner that we believe the administration is aware of is actually relative to ELDs, and that's some of the ELD fraud that may be occurring out there on the nation's road. It's way too premature for me to try to put a number on how vast that may be. But I'm encouraged by all of the enforcement opportunities to improve safety on our nation's roadways, and I applaud the administration for taking those matters very seriously.

And your next question today will come from Jason Seidl with TD Cowen.

That's some good color that you just gave. If I could just tack on to that and then ask you questions about where you think the rates are going for bid season. But what do you think the overlap is between nondomiciled and ELP? That's something that we haven't been able to get a handle on even as we ask people. And I guess as we look for the bid season, what are your early thoughts on bid season for '26? Can it look better than this past year, the low-single digits? Or do you think not with the demand environment that we're in now?

Yes, regarding the overlap question, I see it as one of the most challenging aspects to understand. However, I'm not certain it’s of great importance. If there is significant enforcement on the nondomiciled CDL issue, even if it merely results in nonrenewals of such licenses, it could quickly affect a large number of drivers. A crucial factor that often gets overlooked is understanding the total population of drivers. Within our own performance at Werner, we have identified a lot of pressure in the One-Way over-the-road network. This pressure stems from various factors, such as B-1 visa cabotage opportunities, ELP, lack of enforcement of existing laws, and the rise in nondomiciled CDLs over the past four to five years. This is a considerable part of the driver population we’re discussing. I’m not sure if it aligns exactly with some of the estimates I've seen, but even halving those estimates to about 150,000 overlapping drivers indicates a significant shift in market dynamics. Therefore, I believe this enforcement puts us in a better position for the upcoming bid season compared to last year. However, it requires ongoing weekly and monthly monitoring of attrition, bankruptcy trends, lender leniency, used truck values, and the overall pressure on truckers to secure increased rates. All these factors will impact our performance in the bid season, where we aim to improve upon the results from this year. This year's bid season marked the first time we have witnessed increases in our rate per mile consistently over five quarters. Following bids, we experienced more stability in the results, but we need much more progress. Additionally, enforcement is not just the responsibility of law enforcement; there is growing awareness among insurance providers about the risks these issues may pose. As insurers begin to reevaluate how they underwrite certain carriers, this emerging challenge has not been as prominent in the past. Overall, we remain confident in our position and fleet and advocate for enhanced enforcement across these issues.

And your next question today will come from Tom Wadewitz with UBS.

Wanted to ask you on the, I guess, the popular topic on the call here. So you mentioned, Derek, that the numerator and denominator are important in figuring out this potential regulatory impact on supply in the market. What do you think the denominator is? Do you think it's like third-party for-hire truckload that you would say, hey, it's like 1 million drivers? Is it 2 million? How do you allocate the exit in terms of estimating a percent impact, whatever you think that numerator is?

Yes, Tom, thank you for the question. When considering Class 8 over-the-road one-way drivers, particularly those not in private fleets, I believe the number is around 1 million. If we revisit the earlier discussion about the conservative estimate concerning the triple impact of cabotage, while I am not against B-1, as we don’t utilize them in our fleet, it’s legal to use them if compliant. However, cabotage is not permitted under the ELP program and non-domiciled CDL regulations, which leads to an estimate of around 150,000 to 200,000, assuming a very conservative approach.

How much price do you think is needed to return to a more favorable margin trajectory? It seems that the cost pressures on insurance are relentless.

Well, I'll start on the insurance side and maybe Chris will jump in, and we can give you some more color. But I would tell you that I believe, obviously, as recently as this first quarter this year, we had one that came out of nowhere based on some unique situations down in Louisiana. But we have started to find a normalized run rate, if you will, of insurance that I think is somewhere in that, call it, $35 million to $38 million range. It may ebb and flow slightly from there. What I'm proud of is that we continue to post near-record lows in accidents per million miles, DOT preventables, work comp injuries, et cetera. But it's the same story you guys have heard way too many times, which is it's the outsized one-off nuclear verdicts and/or settlements that throw a lot of noise into the number. We believe we're properly accrued and that we've really done a very diligent job relative to reserves as we look forward. And we're attacking the most important thing, which is frequency and bringing it down month-over-month, quarter-over-quarter, anywhere and everywhere we can. So on the insurance front, that would be my answer. On the rates, obviously, you asked the question what do we need. We need a lot. I mean, so does the entire industry. Not a very technical answer, but we're going to get everything we can. I think shippers are starting to become aware more and more of how their freight may or may not be moving the way they thought it was and by whom it may be getting moved compared to what they thought it was. And we need to make sure that we get this industry back to reinvestable levels, at a high-quality level, with vetted, qualified, competent drivers behind the wheel. And that is certainly the work that we'll be doing as we go forward with our shippers.

And your next question today will come from Ravi Shanker with Morgan Stanley.

This is Nancy Hipp on for Ravi. It would be helpful to hear a couple more details on peak season and your thoughts towards the end of the year, especially with your nondiscretionary-focused consumer base with this recent extended government shutdown.

Nancy, thank you. So peak season, if I start at 40,000 feet, I think the best way to think about it from our view is that it's going to look similar to a year ago. Now there's some puts and takes in that, that make it maybe a little cloudier. A year ago, inside of some of those peak numbers were some projects related to hurricanes and storms and natural disasters that at this point don't appear to be the case for this Q4. Overall, discount retail holding up pretty well, and what we're seeing in terms of opportunity sets look comparable. We've made some conscious decisions as we talk about One-Way being under duress to reallocate assets relative to where we're participating in peak, where we think it fits our network better. It may or may not demand the same premium, but if it doesn't have the same cost associated with it, that's still a win. So we need that to play out and see what those volumes come in at. But in general, we're working with customers that are doing better than most. They are in the end of retail or on the retail spectrum where people are migrating to, not migrating away from, and their projections and same-store sales are holding up pretty well. So what we know is that's on the books today looks pretty good and similar to a year ago. What we don't know is whether there's upside from there given some of the enforcement issues and other freight and mini bids that it could cause. We're not in a position to talk with a lot of optimism about that today because I think this enforcement trend needs to continue to gain traction before we would see that.

And your next question today will come from Scott Group with Wolfe Research.

You've mentioned regional tightness in several areas, which we're hearing from many sources. I'm curious, as some areas are tightening, are there others that are becoming less tight? Is it possible that people are moving from states where regulations are enforced to those where they aren't? If so, could the overall impact mean that while some regions are tight, the total effect isn't as significant as we might assume?

Yes, Scott, I understand your question. Thank you for that. However, I don't think that's the case. We firmly believe there is some avoidance happening. I want to clarify that there are some out-of-route miles being driven to evade areas with enforcement. We do think that is occurring. However, in the areas where we're experiencing tightness, we often have the capacity to follow up and gather more details about market conditions—whether through our used truck sales network, local personnel, or terminals in the vicinity. What we are hearing is that 20 drivers did not show up for work today and won't be returning due to concerns about enforcement, or that a fleet associated with those drivers has let go of 30 drivers or shut down operations. We've observed some fleet cancellations from those purchasing trucks from us, who may have had such drivers in their fleet and had to cancel because they are now left with unsold trucks. So, I don't believe you can simply avoid the issue, especially since they are mainly engaged in over-the-road operations and predominantly transporting national freight, which is typically one-way. You can't really navigate around this problem, particularly now that more states are ramping up their enforcement measures. While we may consider 48 states, there are only a few major highways in America where this freight travels. If enforcement is present in one or two states along that route, it tightens up pretty quickly.

I wasn't clear on how to approach Q4. Do you think we'll see some improvement in the truckload operating ratio from Q3 to Q4? I know someone else already asked, but I didn't fully understand the response.

Scott, this is Chris. Just to reiterate what we mentioned earlier, some of the current softness primarily stems from Logistics within TTS. On a sequential basis, revenue is relatively stable to slightly up. However, breaking it down, there’s potential for growth in the Dedicated fleet, which is positively impacting revenue per truck, but the One-Way fleet has seen a slight decline. Regarding expenses, there is potential for improvement in TTS as the Dedicated startup costs are decreasing rapidly. We pointed out some of this earlier, and we expect those expenses to be fully resolved by early November. We anticipate some modest gains. Resale values should remain steady, although this will depend on the number of units we are selling. Those are the key factors to consider from a TTS viewpoint.

And your next question today will come from Eric Morgan with Barclays.

I wanted to ask on utilization. I think you mentioned some specific shifts or factors that drove the step lower in the quarter that was unrelated to the softness that you saw. So maybe you could just elaborate on that. And then I think you said it's improving in October. So should we just expect that to step back up in Q4? And is that market-driven or something that you're taking action on?

Yes. I would tell you that it wouldn't be the right read-through relative to the productivity in the Q3 to associate it to some sort of significant volume gap or volume issue, per se. These were really issues that stemmed from a variety of factors, one being that as we were seeding these Dedicated trucks and going through these new vertical startups, we had mix issues in the fleet in One-Way as a result. I would remind everyone that One-Way is really, in many cases, the source of Dedicated drivers. That's where those drivers come from. Our team mix was lower in Q3 than it will be as we look into Q4 as a result of teams that are breaking up to go become a Dedicated driver. That's certainly part of it. There's some friction involved in the production numbers when you're moving trucks and moving drivers out of one area into another as part of some more significant startups. So that was certainly part of it. And then we had some mix issues in the quarter that were unique to Q3 from a year-over-year perspective relative to projects a year ago that were different in their makeup and mix in Q3 and much smaller in their representation. So all of that went into the soup. When we look at Q4, and we look at October specifically, that's why we felt it important to call it out in the prepared remarks. We've made significant progress in stabilizing that production issue and really setting ourselves up for a strong peak as it relates to production and the ability to serve our customers.

And maybe just to circle back on your view on the spot market. You said rates have been improving in September and October. And then I think in the prepared remarks, you called out the upside potential from these regulatory changes we've been talking about. I think the numbers you threw out there could be pretty meaningful. So your formal outlook, I think, is just for normal seasonality, I believe. And then the One-Way revenue per mile guidance is flat at the midpoint despite the contract renewal. So I guess, any way to quantify what that upside looks like into year-end and, I don't know, early '26?

Eric, this is Chris. Regarding the One-Way Trucking rate per mile, we were flat at the midpoint, having experienced five consecutive quarters of increases. As for the spot market, it was weaker earlier in the quarter but has improved in September and now into October. We anticipated normal seasonality but with the possibility of some upside due to the enforcement changes we've discussed. For the projection and guidance on the One-Way rate per mile, a few factors will influence that. Our contractual rates are mostly set since bid season has concluded. We've mentioned before that our results were mixed, with low to mid-single-digit increases, meaning those rates are established. The peak season will certainly impact our Q4. Last year, we saw a significant increase from Q3 to Q4 mainly due to peak season. If we can achieve a similar peak season in terms of volume and rate this year, the trajectory may be the same. Additionally, with a smaller fleet, we hope to be more selective with the available freight options.

Yes. The only thing I would add is, as Chris indicated, our spot exposure intentionally right now is a little greater than what has been historically. That number is still moving, but it's still below contract in many cases. So we need it to continue to move. It does generally move in Q4. And if enforcement ramps up, it moves even faster. So a little bit of a hedge perhaps by going to the negative 1 to positive 1, but we're trying to provide clear data that we know as we sit here today and leave ourselves an opportunity to improve upon it. And then lastly, I mentioned it earlier in the comments, so I'll just reiterate it again. As it relates to the peak season, the volumes and premiums, we think the outcomes will be similar, but we've made decisions to attack peak season this year where we have better density, where we have better ability to serve and less costs to go along with it. And so, therefore, you're not necessarily extracting the same level of premium, but your gross margin, if you will, should look similar and with an opportunity for upside. So that's exactly how we're trying to think about it. But it does mute a little bit of premiums if you just did, for instance, an all-West Coast strategy.

And your next question today will come from Reed Seay with Stephens Inc.

I'm going to circle back to the capacity side. Not to harp on it too much, but I think one of the things that we've been looking into and other people have been concerned about is that you've had a lot of people come off the roads that could get on the roads with the news of the new enforcement that is expected to drive improvement in rates. So something like this would obviously impact the actual impact of rates. Is this something you're keeping an eye on? And how do you think about that as a potential governor to this upcycle?

Yes, Reed, that's a great question and it is something we're considering. We have some visibility, particularly in our brokerage and PowerLink solutions. I've recently spoken with our teams about whether they are observing changes or differences in new applicants wanting to work with us. Their response seems to indicate yes, which isn't surprising. I believe we might see some individuals returning to the market, but I expect the scale of that will be relatively small compared to the more significant issue related to CDL issuances and the percentages we discussed earlier. There are a couple of ways to approach this. One way is to take half of some estimates, leading us to the 150,000 level. Another approach would be to consider the full estimate, assuming many people will return. Regardless of how you look at it, it seems that if the enforcement appetite remains strong, we would all agree that capacity will exit this market, and it will be more significant than what we've observed so far. Logistics implementation is nearly complete, practically fully operational at this point. Moving forward, we are focusing on improving efficiency with each iteration, which yields additional productivity gains. This automation is being integrated throughout our Logistics group to streamline processes. You can observe the positive impact in our operating expenses as a percentage of revenue, showing significant improvements. We anticipate further growth as we navigate through current short-term pressures and enhance our volume capacity. We believe we can handle more volume without needing to increase operating expenses proportionately. On the truckload side, we are experiencing a different phase. Each week, we’re transitioning more of our volume to the new system. However, until we fully switch over, it creates some short-term challenges. To counteract these difficulties, we are leveraging AI in various areas, including recruitment, billing, and collections, to automate processes and operate more efficiently. This approach enables our experienced team members to utilize their expertise while expanding their influence over the automated processes and reducing manual tasks.

Reed, I would just add a little bit to that. Obviously, we're committed to the technology investments and furthering the journey, getting across the finish line, but also committed to seeing more of those synergies and benefits, particularly as we go into the next year, as it relates to margin expansion and part of our cost savings program. Obviously, we're not guiding on a cost savings program for next year. We'll do that at the next quarter, but we will be looking to more of that program to come from tech enablement type of savings, just given where we are being in these later innings. Still some more to go. But as we move forward into next year and throughout the year to be seeing more of that operational gain from the investment to this point.

And your next question today will come from Brian Ossenbeck with JP Morgan.

Derek, maybe just an industry-wide question for you. With the insurance costs, how they are and the claims trending in the direction they are, unfortunately, what do you think is needed to really get some progress on that, not just for Werner, but for the entire industry? Are we seeing any improvements on reform, anything you're excited about or states that are moving forward? Because ultimately, I'm just not sure if the shipper is going to pay for the higher insurance claim if they think that's more of a trucking industry problem and not theirs.

I believe we need a comprehensive strategy as an industry. This includes engaging shippers, insurers, and all stakeholders to push for tort reform, which varies state by state and often takes years to achieve even a single bill's passage. We've had several recent successes across various states, but this effort must persist. We should actively participate in states with elected judges who exhibit significant bias against companies or favor plaintiffs. Our goal is to ensure a fair legal environment where all pertinent case facts are considered. It's unacceptable that nearly half of the Continental United States imposes gag rules regarding whether claimants were wearing seatbelts. Jurors need to know if a claimant chose not to wear a seatbelt and sustained injuries as a result, as it affects their decision-making. We must advocate at the judicial level and push for federal legislation that transfers accident-related cases from state courts to federal jurisdiction. This will establish consistent rules and professional standards. While this doesn't guarantee favorable outcomes every time, it prevents situations where accidents can escalate due to flawed facts or rulings, turning defense outcomes into substantial plaintiff victories. This process will be challenging and lengthy, and I’m passionate about continuing the fight alongside others in our industry.

And your final question today will come from Chris Wetherbee with Wells Fargo.

Derek, in your prepared comments, you mentioned One-Way trucking demand through September improving and then so far in October. So I guess I just wanted to come all the way back to that. It sounds like what we've heard from some other folks was maybe a little bit different than that over the course of the last few days. So I want to maybe see if you could expand a little bit on what you're seeing, particularly in the month of October.

Chris, I would start by just reminding you that the makeup of our customer base is heavily retail. Obviously when you start getting into September and October, our exposure to the effect of what is happening in preparation for peak and during peak is probably a little different than some of our competitors. So not discounting any comments they may have had, but yes, we have seen some uptick in September and that strength has continued through October thus far. I would tell you that that's seasonally normal for us. So it's not like we're trying to call that out as some out of the norm anomaly of some sort. That's what we would expect, and that is what we're seeing, and we felt it worth mentioning. That's also why the confidence in both secured peak opportunities as well as those in discussion give us the confidence to speak to similar volumes, similar impact as a year ago, which was a more normalized peak following a couple of years in a row of very subseasonal peak.

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

Thank you. I just want to thank everybody for being with us today. We've talked a lot about the macro environment remaining uncertain. But as we enter in this year's peak season, the health of the consumer and our retail alignment sets us up well to put the Werner capabilities on full display. Enforcement on a multitude of fronts is leading to ongoing capacity attrition, and the tariff-related noise seems to be settling in. The ongoing structural improvements to our costs, combined with the recent increases in productivity, put us on improved footing to leverage the upside as the market comes further into balance. This prolonged freight recession has, like any challenge, strengthened us even further for the long haul. Again, I'd like to thank you for spending your time with us today and your continued interest in Werner.

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