Earnings Call Transcript - WERN Q2 2022

Operator, Operator

Good afternoon, and welcome to the Werner Enterprises Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to John Steele, Werner's CFO. Please go ahead.

John Steele, CFO

Earlier this afternoon, we issued our earnings release with our second quarter results. The release, along with the slide 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 beginning later this evening. Before we begin, please direct your attention to 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. Additionally, 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. Now, I will turn the conference over to Derek Leathers, our Chairman, President and CEO.

Derek Leathers, Chairman, President and CEO

Thank you, John, and good afternoon. During the second quarter, I am pleased to report that for the eighth consecutive quarter, we achieved record quarterly adjusted EPS. We had strong performance from both Dedicated and Logistics and effectively steered our way through a moderating freight market in One-Way Truckload. These record earnings were achieved despite unusually high insurance and claims expense in the quarter that increased over $20 million year-over-year, or $0.24 per share. The majority of the increase related to recent unexpected and unfortunate legal developments for two prior year accidents that have been settled. Over the prior eight quarters, our insurance and claims expense averaged $25 million per quarter. This quarter came in at $41 million or $16 million more than the prior eight-quarter average. Our truck safety record continues to improve, and year-to-date DOT reportable accidents per million miles were the lowest of the last five years, except for the first year of COVID when there were significantly fewer motor vehicles on the road. I would like to take this opportunity to sincerely thank the entire Werner team for continuing to deliver on our promises with superior safety and service to our customers. During the second quarter, we added 175 trucks in our Truckload Transportation Services segment, ending the quarter with 8,400. Consistent with our plans, most of these additions were in Dedicated. Our fleet mix at quarter-end remains 63% Dedicated and 37% One-way Truckload. Overall, our consumer-oriented freight base is performing well. Nearly three quarters of our freight revenues are in retail and food and beverage, and we have a heavier weighting with customers who ship recurring and repeatable consumer staple products. We expect freight volumes related to shipments of consumer staples to remain strong. Three of our top five customers are discount retailers who thrive in economic markets when consumers place a high priority on value. Our two other top five customers are industry-leading home improvement and beverage companies. For the second quarter, revenues increased 29% to $836 million. Adjusted operating income declined 2% to $77.6 million and adjusted EPS increased 1% to $0.87 per share. If you normalize our second quarter insurance and claims expense of $41 million to our last eight-quarter average of $25 million, adjusted EPS in the second quarter was negatively impacted by $0.19 a share. Dedicated, our largest business unit ended the quarter with 5,320 trucks and achieved 6% truck growth year-over-year. Dedicated continues to experience strong demand from the majority of its long-term customers. New Dedicated business opportunities continue to remain strong as shippers search for capacity solutions, high service and better visibility to transportation costs in a volatile freight environment. The driver market has shown some signs of easing, but remains very competitive in a tight labor market. At quarter-end, One-Way Truckload had 3,080 trucks, including the addition of 475 trucks year-over-year, which is primarily due to the July 2021 ECM acquisition. Within One-Way, we specialize in Mexico cross-border, short-haul regional, team expedited and engineered fleets. From April to June, One-Way freight volumes moderated from strong to seasonally normal. Werner Logistics continued to expand its three business units of Truckload Logistics, Intermodal and Final Mile, with another strong quarter of revenue, margin and operating income growth. Continuing an ongoing trend, it remains difficult to receive the new trucks and trailers that we want to be able to refresh our fleet. We have frequent discussions with their OEMs to coordinate our new truck deliveries based on the very difficult challenges they are dealing with for semiconductor chips, component parts, labor and other issues. The extremely strong pricing in the used truck market began to ease towards the end of the quarter. Our equipment gains in the second quarter were $7.2 million higher year-over-year, and flat compared to the first quarter. Now, I'd like to turn the call over to John to discuss our financial results in more detail. John?

John Steele, CFO

Thank you, Derek. Beginning on Slide 7, second quarter revenues increased $186 million. We increased revenues due to 8% growth in TTS trucks and Dedicated fleet expansion, freight rate increases, higher fuel surcharges and Logistics revenue growth. Revenue per truck per week increased 5.4%. Adjusted operating income declined $1.5 million. By segment, a $9.1 million increase in Logistics was offset by an $8.2 million decrease in TTS, which included $15.6 million of higher-than-normal insurance in the TTS segment. Here on Slide 8 are the results for TTS. TTS revenues increased 25% due to 8% more trucks, 14% higher rates and $61 million of increased fuel surcharges, partially offset by 7% lower miles per truck. The miles per truck change was due to a 6% lower length of haul due to ECM and growth in Dedicated and fewer team drivers. The TTS adjusted operating ratio net of fuel was 86.6%, and would have been 310 basis points lower, excluding the $15.6 million TTS segment impact of unusually high insurance and claims in second quarter 2022 compared to our last eight-quarter average. Now let's move ahead to TTS fleet metrics for Dedicated and One-Way Truckload on Slide 9. Dedicated revenues, net of fuel, increased 14%. Average trucks increased 5%. Revenue per truck per week increased 9.1%. One-Way Truckload revenues, net of fuel, increased 13%. Average trucks increased 14%, entirely due to the ECM acquisition, which we lapped in third quarter. Revenue per truck per week declined nearly 1%, due to a 13.7% increase in rate per mile, offset by a similar decline in miles per truck. As the One-Way freight market moderated in second quarter compared to first quarter, we improved our miles per truck by 1% sequentially from first quarter, with better network fluidity. Driver pay per company mile in the second quarter increased 15% year-over-year. Fuel prices increased during the quarter as the price per gallon rose $0.18 from March to April, $0.37 from April to May, and $0.33 from May to June. For the second quarter, the average fuel price per gallon was $2.21 higher year-over-year. Our fuel surcharge programs mitigate the higher cost of fuel for loaded miles, but fuel impacts our P&L for empty miles, out of route miles and truck idle time, and idle time is higher in the summer months. Fuel lowered our second quarter earnings by an estimated $0.09 a share compared to second quarter a year ago. The average age of our trucks and trailers increased year-over-year by three-tenths and six-tenths, respectively, due primarily to the delays in receiving new trucks and trailers. Operating an older fleet than we would like in an inflationary market has a direct impact on supplies and maintenance costs, which were up 27% year-over-year. In second quarter, total Logistics revenues in the quarter grew 44% to $204 million. Truckload Logistics revenues increased 36%, driven by a 17% increase in revenues per shipment and a 16% increase in shipments. Our Power-Only solution continued to gain traction and achieved 68% year-over-year revenue growth, with customers who value the ease of working with our large national trailer pool. Intermodal revenues grew 18%, supported by a 35% increase in revenues per shipment, offset by a 13% decrease in shipments. Werner Final Mile revenues increased $21 million, due to the November Final Mile acquisition of NEHDS and continued growth from our national final mile agent network. Werner Logistics produced adjusted operating income improvement of 9.1 million, or plus 231%, to 13.0 million for the quarter, due to strong revenue growth and 360 basis points of adjusted operating margin expansion. Over the past few years, we intentionally designed our revenue portfolio to consist primarily of consumer-oriented customers who have very high service requirements, with an emphasis on nondurable goods and essential consumable products that are purchased in good, as well as bad economic conditions. We reviewed this retailer data and combined it with the mostly recession-proof consumer staple spending characteristics with many of our food and beverage customers. We determined that during the period immediately preceding and following the 2008-'09 recession, 60% of our customers performed well, 20% performed in line with the market and 20% performed below the market.

Derek Leathers, Chairman, President and CEO

On Slide 12 is a summary of our cash flow from operations, net capital expenditures and free cash flow over the past five years. Expanded operating margins and less variable net CapEx resulted in higher free cash flow over the past five years compared to the previous five years. Year-to-date, net CapEx is $153 million. On Slide 13 is our capital allocation update. Our first priority for capital continues to be reinvesting in our fleet, which has become more challenging to achieve in the current build environment. Based on our expected OEM build schedules and current data, we are optimistic that we will see some improvement in new truck and trailer deliveries in the second half. During second quarter, we increased our share buybacks and purchased $66 million of our stock, or 2.5% of diluted shares. We remain committed to maintaining a strong and flexible financial position and ended the quarter with a net debt-to-EBITDA ratio of 0.6x. We remain open to considering bolt-on acquisitions in North America truckload and logistics that are both additive to our business and accretive to our earnings. For several years, I've shared with you details of our 5 Ts + S strategy to produce superior service for our customers. To significantly upgrade our trucks, trailers, terminals, talent and technology, we've invested nearly $2 billion in CapEx, and we raised the bar to attract and retain a more talented and highly performing Werner team. Over the past several months, our superior service has been validated by our customers. Four of our top five and seven of our top 15 customers named Werner for their Carrier of the Year award. Our future is in focus. Today, we are formally introducing Werner DRIVE to the investment community, which is the next evolution of the Werner business strategy. D is for Durable. It represents our strong financial position, our balanced revenue portfolio, our proactive asset management and our commitment to longer-term strategy centered on high-quality customers who sell resilient products that consumers need. R is for Results. We are committed to a relentless focus on exceptional service that drives long-term value for all stakeholders. We place a premium on sustainable pricing, operational execution and shareholder returns. Werner is, and will remain, well positioned to grow earnings and free cash flow while exceeding customer expectations. We leverage our portfolio of One-Way, Dedicated and Logistics solutions to meet customer needs as we face the challenges of an increasingly complex supply chain. Our ability to grow and reinvest with our customers will enable us to produce more stable returns through various economic conditions. We are committed to innovation to make a better Werner. This starts with investing in our API-driven IT infrastructure. We are advancing Werner EDGE in all areas of our business to continually improve outcomes for our customers, associates, carriers and suppliers. And we are maintaining a modern fleet, while exploring and integrating emerging technologies. Werner's core values of safety and service are supported by an inclusive culture where all individuals are respected for who they are. We give our time and talent to build stronger communities. We support innovations by cultivating new ideas and bringing them to action. We empower our leadership to influence others to be their best. And the foundation of our core values is to operate with the highest integrity, and always be honest and accountable. We are dedicated to being a sustainable company for our people, planet and profitability. We will improve our environmental impact through the exploration of alternative fuels and equipment, executing an aggressive carbon reduction plan and exploring partnerships through WernerBlue. The charts on the right show that Dedicated has grown to 59% of TTS revenues, up from 46% in 2015. In Dedicated, we provide trucks, trailers and drivers for a specific customer, typically for a retail distribution center or a beverage facility. Dedicated customers typically have extremely high service and safety requirements, and our Dedicated contracts are typically three to five years. 58% of our Dedicated revenues come from discount retailers or food and beverage companies. Historically, these customers performed better than the competition in slow growth or recessionary economies. Dedicated business is more stable and predictable. Because of the high service requirements and relatively consistent freight volumes, our Dedicated revenue per truck has less variability, and this metric has increased seven of the last eight years. Regardless of where the freight market goes from here, the size, strength and customer base of our Dedicated fleet is durable and resilient and places us in a strong competitive position. On Slide 12 is a summary of our cash flow from operations, net capital expenditures and free cash flow over the past five years. We're excited about our capabilities and how our team has responded to intense competition. We are seizing opportunities available to us as we continue to take care of our customers. The market appears solid for dedicated services, and we expect this segment to continue to prosper. We also expect growth in logistics as we meet customer needs across the supply chain with innovative solutions.

John Steele, CFO

The bottom line takeaway is that pipeline is strong, those customers are excited. The Carrier of the Year awards continue to roll in, and we have the financial wherewithal to be able to invest in that fleet, and it's sticky long-term business. We renew those fleets time and time again, north of 95%. They start off with three to five-year type contract settings, and we almost inevitably grow organically within that fleet once we get there, at either other locations, or more trucks within the same location.

Derek Leathers, Chairman, President and CEO

We are launching a formal search process for our next CFO. I sincerely appreciate John's full support of the transition process. To ensure a smooth and seamless transition, John will remain with Werner as long as needed through the full transition of responsibilities to his successor. With that, I would now like to turn the call over to our operator to begin the Q&A.

Operator, Operator

We will now begin the question-and-answer session. To allow for as many callers as possible to ask questions, we ask that callers limit their questions to one question and one follow up. This call will end at 5 PM Central Daylight Time following the company's closing remarks. Our first question is from Jack Atkins with Stephens. Please go ahead.

Jack Atkins, Analyst

Okay, great. Good afternoon. And first, John, let me just say congratulations on your retirement, and congratulations on a hugely successful career at Werner.

John Steele, CFO

Thank you, Jack.

Jack Atkins, Analyst

So I guess for my first question, I'd love to maybe talk about Dedicated for a moment, if we could. Obviously, the guidance for the full year in terms of Dedicated revenue per truck per week was increased. Could you maybe talk about the drivers behind the higher outlook for the full year in general and sort of the momentum in the second half of the year, and also the pipeline in Dedicated and how you see that shaping up for the rest of the year?

Derek Leathers, Chairman, President and CEO

Sure, Jack. I'll take that. Relative to the guidance, it's really tied closely to the pipeline. The reality of Dedicated right now is the pipeline remains very strong. We have significant interest from customers, both organic growth within existing fleets looking to grow and/or expand in new locations, as well as new blood customers that are interested in the products and services that Werner provides. What that allows us to do is, even in these economic conditions, to continue to be selective on what gets through the pipeline and what we ultimately implement. And that gives us the confidence as we think about revenue per truck per week looking forward.

Jack Atkins, Analyst

Okay, that's very helpful. Thank you for that. And I guess, Derek, maybe taking a step back, I appreciate the comments in terms of how you expect the rest of the year to sort of shake out. I guess maybe kind of thinking about this, now that we've had several months to think about the market in general since the last time you guys reported numbers, is there a way to maybe kind of get your perspective on the cycle from here as you see it?

Derek Leathers, Chairman, President and CEO

Yes, great question. Look, nobody has the perfect crystal ball obviously. And this cycle has certainly been different than any preceding cycle just based on the pandemic. But if you think about where we were for two years and how hyperinflated many of the metrics were, whether it be spot market pricing, overbooked natures of people's networks, and just general volatility in what was being purchased and the quantities that were being consumed. And you look forward, or you look maybe more recently over the last few months, it is returning to a more normalized setting. Our network is still booked daily. We're still coming in and what would be by any normal seasonally adjusted outlook in a good position. And we think that probably holds up. One of the realities is looking at FMCSA's net registrations, we talked about it going negative in May for every week; but if you look at it quarterly, it's been negative really each quarter this year, but that growth has grown significantly as of late. Since first week of May until the current week, it's a net negative of 31,000-plus trucks.

Jack Atkins, Analyst

Okay. Well, really appreciate the detailed thoughts there. Thank you, Derek. Thank you, John. Take care, guys.

Derek Leathers, Chairman, President and CEO

Thank you.

Christian Wetherbee, Analyst

Great. Thanks. Good afternoon. And yes, congrats, John. It's been a pleasure working with you. Good luck on everything going forward, and congrats on a great career.

John Steele, CFO

Thank you, Chris.

Christian Wetherbee, Analyst

So I wanted to kind of pick up on where you left off and sort of the supply dynamic within the industry. I think that's kind of an interesting point. So, Derek, you talked a little bit about capacity coming out. I wanted to get a sense of maybe if you could look at the Dedicated market a little bit more specifically and kind of give us some thoughts around what you think capacity looks like within Dedicated.

Derek Leathers, Chairman, President and CEO

Yes. Dedicated is truly unique. We talk about it all the time, but I still don't think it's fully understood. It's a market within a market. And so, if you want to have 99% on time, you want to have driver standards and expectations that are significantly more rigid than those of the One-Way market, there's a handful, maybe two handfuls of competitors out there that really perform in that space. And so the capacity there is determined by just a few players. Even within that, we've all kind of over time for whatever reason migrated to certain verticals and certain industries and certain strengths within our own fleets and our own networks. So arguably, they're not all even competitors within Dedicated. We just simply put, look at our pipeline, look at the interest level, look at the winning customers we're working with that are growing and still predict further growth regardless of economic cycle, and feel real good about where we're sitting from a demand perspective.

Christian Wetherbee, Analyst

Okay. I appreciate that color. That's very helpful. And then I guess I just wanted to make sure I understood maybe your thoughts on seasonality.

Derek Leathers, Chairman, President and CEO

Yes. The second half is challenging, and we've shown our commitment to being open and honest during these calls. However, the peak season is not as clear this year as it has been in previous years. It will happen. Christmas is approaching, and there will still be projects and peak work to complete. But the clarity by which we know at this point what that project volume looks like isn't what it has been over the last several years. So I'm hesitant to give you too much of a perfect outlook because we're still working on it. Now we're in conversations. We're having dialogues with customers. They're still trying to sort through what kind of inventory levels they're at, what do they think is the right buys to make between here and the end of the year, and what it means to us?

Christian Wetherbee, Analyst

Okay, that's very helpful. Thanks for the time. I appreciate it.

Derek Leathers, Chairman, President and CEO

Thank you.

Scott Group, Analyst

Hi. Thanks, and congrats, John. You're the best, so you'll be missed. Regarding the margin question, should we just add back 20 million for the insurance and start from there, or is there any ongoing impact from this insurance?

Derek Leathers, Chairman, President and CEO

Yes. A better way to consider it is probably by looking at the eight-quarter average we discussed. Last year's second quarter was slightly below that average, resulting in a gap of 20 million year-over-year, but it's 16 million when compared to the eight-quarter average.

Scott Group, Analyst

And then I guess with that, any thoughts on the gains?

Derek Leathers, Chairman, President and CEO

Yes, I'm sorry. I forgot the second part of the question. That's on me. Yes, gains are moderating. They moderated through the second quarter. They have somewhat stabilized as of current, so the last several weeks seem to have found a new normal. It's still very elevated by historical standards, but nowhere near what it was maybe to start off the year.

Scott Group, Analyst

Okay. Thank you, guys. I appreciate it.

Derek Leathers, Chairman, President and CEO

Thank you, Scott.

Ravi Shanker, Analyst

Thanks. John, I'll echo the comments and amazing working with you. I'm going to miss you at Laguna, but we will connect in the future.

Derek Leathers, Chairman, President and CEO

Sure, Ravi. I'll begin with that, and John can add in whenever he likes. The fact is, Dedicated services create a more enduring relationship. It's that straightforward. You become an integral part of the customer's operations. In some cases with our Dedicated fleets, the trucks and trailers are almost branded in the customer's colors. These agreements typically last three to five years. The renewal rate for these contracts is significantly higher compared to the renewal rates for One-Way contracts when it comes to extending for another term. The expectation within those fleets of service is significantly higher than in One-Way. And the other sign of the level of stickiness is, if you look at revenue per truck per week, it's increased seven out of the last eight years in Dedicated, which just illuminates how much less volatile it really is.

Ravi Shanker, Analyst

Great. And maybe for a follow up, Derek, you're obviously an incredibly respected executive in the industry and kind of your thoughts on the industry carry a lot of weight. So, would love your thoughts on AB5 now that it's the law of the land in California, and potentially 12 other states, may be going Federal at some point. What kind of impact do you think this is going to have on the trucking industry in 2023?

Derek Leathers, Chairman, President and CEO

Yes. I think it's going to be impactful, I really do. We're still sorting through. So I'll start with Werner first, virtually no impact. That's the answer relative to Werner at this point. We have an extremely small owner-operated footprint nationally, and we have zero in California. But as we know, there's some fast-following states, somewhere in the neighborhood of 12 to 15 different states are already talking about following along the lines of the AB5-type thought process. I think it's sad for the folks, the men and women out there, that have dreamed for years of being an owner-operator and owning their own business and have went through a lot of trouble to do that. I think it's kind of the unintended consequence of legislation sometimes when people come out with ideas that they think are helping, and actually hurt. You can see that in the reactions of groups like OOIDA, and at the protest level at the ports. I think it's going to be disruptive out there and will have a negative impact on capacity.

Ravi Shanker, Analyst

Do you have any clarity on enforcement at this time?

Derek Leathers, Chairman, President and CEO

Yes, the only clarity I have so far is that it's very unclear. I know that's not very helpful, but enforcement is something I have discussed with our executive team. Logically speaking, it was intended to assist a particular group, but I believe it has been misguided in both its application and design. And now, if you were to go to enforce it, you're going to be enforcing it upon the very group that allegedly this law was written to help, which I think puts enforcement officials in a very tough position. So I suspect enforcement will be fairly loose for some period of time, but you can't pass a law and put this much emphasis on it and then just ignore it once it's on the books.

Ravi Shanker, Analyst

Great. Thank you, Derek. Thanks, John.

Derek Leathers, Chairman, President and CEO

Thank you.

Jeff Kauffman, Analyst

Thank you very much. And John, it's been a terrific almost 30 years. Looking forward to hearing about your new ventures in whatever you do next. So thank you. I'm going to go in a different direction, Derek. You had a slide up on ESG, which I thought was terrific. And I love the addition of Michelle Livingstone to your Board. She is fantastic.

Derek Leathers, Chairman, President and CEO

Sure, Jeff. Great question. I'll start with probably the most important thing, which is we are passionately committed to doing everything in our power to lower our carbon footprint as we go forward. I want Werner to lead in this space. I want to make sure that it's clear that we're committed to both the E, S and G as it relates to ESG. And we're going to take the steps necessary to do that. But along the way, what we're not going to do is to put the portfolio at risk or make financial decisions that are done for optics purposes only. And so what that results in is a lot of testing. We've got a lot of lines in the water. Everything from the electric truck tests we've talked about a few different times to some recently completed work with hydrogen. We're going to continue to have a dual-fuel opportunity coming later in the year as well as some additional electric trucks. ESG was incorporated into the DRIVE strategy as a constant reminder to everybody internally and externally that it's not going away, and we will lean into it. As far as the autonomous and some of the specific learnings and strategies, I hope you can understand that we're going to keep some of that a little close to the vest for now as we continue to vet through how we think it plays out. I think you're right. On the autonomous side, we're still a few years away from even marginal impacts around the edges. But my view on it is, today is the day, and every day as we go forward, is when we need to be preparing for the inevitable reality that things are going to change.

Jeff Kauffman, Analyst

Okay. That's my one. Thank you.

Derek Leathers, Chairman, President and CEO

Thank you.

Ken Hoexter, Analyst

Good evening. John, I really appreciate all the support over the past 20 years; it's been wonderful working with you, and I wish you the best. Derek, regarding the revenue per truck per week change on the Dedicated side, could you discuss the costs? Is this about balancing margins as you move forward? Are you still surpassing inflation and managing to expand margins? Please share your thoughts on revenue in relation to the costs.

Derek Leathers, Chairman, President and CEO

Sure, Ken. Dedicated is performing very well. At the same time, in a tight driver market, when you think about the roles I described previously as being more rigid, more requirements and more driver involvement than One-Way, that job is even tougher to fill often than One-Way jobs. The pay has to keep pace with what we're asking of the driver, and so we're going to have to offset that with increased yield. Mix is a big part, I mentioned it once. I want to re-mention it again that you can mix that fleet differently quarter-to-quarter based on what new Dedicated opportunities are in the pipeline and see some revenue per truck per week increases or slow that growth, and yet still be modeling at the exact same OR and still performing at the same OR, or improving it. It's a combination of all these factors. Running a trucking company involves managing trucks, tires, trailers, labor, and fuel before addressing anything else. It's crucial to have these elements in order, as they are all affected by different levels of inflation. We need to find ways to counteract this, and our customers recognize the value we provide and are willing to pay for it. They're willing to invest in it with us because they need that truck to continue to be 99.6, 99.5, whatever the number may be. And that is literally where those 5,000-plus trucks operate day-in and day-out.

Ken Hoexter, Analyst

And if I can just follow up on that, right? Did you talk about any start-up costs coming on for the expansion or growth that you're focused on in Dedicated?

Derek Leathers, Chairman, President and CEO

Well, the mix matters. And we've certainly had conversations with some of our Dedicated fleets that happen to haul a mixed set of goods. So in other words, fleets that haul both food and beverage but also consumer staples and that mix is shifting more to food and beverage versus consumer staples, but the fleet size may not change at all and frankly may grow as a result of that mix shift, if that's what you mean. Overall, when we analyze our Dedicated fleets, what we don't foresee in the near future is taking on a large and complex startup project. Instead, we prefer the simpler projects, which involve several smaller fleets either expanding their current operations or opening new business locations that we are familiar with and manage regularly. While there will always be implementation costs, we mitigate many of these with implementation fees, although some costs will be absorbed. Looking ahead to the next few quarters, we believe that these costs are manageable based on our projections.

Ken Hoexter, Analyst

Great. Derek, thank you very much. And John, again, good luck. Thanks.

Derek Leathers, Chairman, President and CEO

Thank you.

Ari Rosa, Analyst

Great. Hi. Good afternoon, everyone, and congratulations again, John. Derek, could you share your thoughts on the strong demand for Dedicated services that several carriers have mentioned? What do you think is driving this demand, and has it increased compared to previous cycles?

Derek Leathers, Chairman, President and CEO

Yes. So I think the message has been consistent, at least here for many quarters. And I do hear similar messages being echoed around the industry. The reality is, yes, I think it is something that has runway. The entire supply chain, if you think about what's happening across America in the economy, and especially in the spaces we play, retail in particular, e-commerce is a growing reality. Forward deployment is a growing reality. Needing to serve at much higher levels of service is a growing reality. All of those things feed Dedicated. People talk all the time right now about spot market, and clearly spot market has declined significantly this year. None of that freight finds itself into a Dedicated fleet. It wasn't in there before, it's not in there later, that's not really how that works. What's been modeled for Dedicated is customers that are looking either at their own networks or competitors' networks, and seeing them outperform and realizing that supply chain can be turned into a very significant competitive advantage. Part of doing that is aligning yourself with somebody that's strategic and has the capabilities to pull it off. We see tons of runway, again, with our existing customers, but then replicating that across other customers that are taking that next evolutionary step.

Ari Rosa, Analyst

Got it. That's really helpful. And then just for my follow up, it actually really helps your response to that last question because I think it leads into my follow up. But I wanted to ask about the sustainability of results at Logistics. Obviously, it was a really strong quarter. But do you think that can continue into the second half of the year and into 2023?

Derek Leathers, Chairman, President and CEO

Yes. I think the revenue growth obviously will moderate some. We're not at all signing up for 44% indefinitely. We know that that's going to moderate. But we're winning business in Logistics. We're getting better at what we do in Logistics. Our cost to serve is coming down as we get the enhancements from some of the productivity tools that we've been building out. Power-Only is a real thing. I know it's been asked in prior calls about whether that's only real because of the tight capacity market that we are in. We don't believe so. We believe the opposite is somewhat true, that it was availed to customers because of the tight market, and they were willing to implement changes in their network that may be in a loose market, they wouldn't have attempted. Once they had a taste and realized how much more efficient that yard can operate with large trailer pools, and both a blue and non-blue component via Power-Only, they've realized the value in it. And so, there's more and more excitement as we talk to customers about Power-Only, even in a market like the one that we're in today that's evolving a little bit from where it was.

Ari Rosa, Analyst

Okay, great. Thanks for the time.

Derek Leathers, Chairman, President and CEO

Thank you.

Jason Seidl, Analyst

Thank you, operator. Again, John, best wishes in retirement, and it's been a pleasure over the past 25 years. Derek, I wanted to just talk a little bit about the percentage of your businesses now on the Dedicated side of things. You're almost at 60%, used to be under 50%. Is there a way to think about sort of the right number?

Derek Leathers, Chairman, President and CEO

Yes, it's a work in progress. We look at it all the time and model different scenarios. We certainly don't think it's maxed out at this point. There was a concern I had once upon a time relative to Dedicated potentially getting too large for One-Way to be able to provide the support that it provides. That support comes in a variety of ways. So for certain quarters, you could see some movement in the One-Way number, that even that is dependent on future dedicated pipeline needs. But what we found is Dedicated got up to 60% of the truck fleet, and then ultimately now 63% is we can self-serve within Dedicated some of the surge needs and surge commitments. And that's given us greater confidence in our ability, especially as we generate multi-Dedicated geographic footprint. So the bottom line takeaway, like what matters to an investor in my view, is that pipeline is strong, those customers are excited. The Carrier of the Year awards continue to roll in, and we have the financial wherewithal to be able to invest in that fleet and it's sticky long-term business.

Jason Seidl, Analyst

That's great color. And one more here I'll squeeze in. If you guys do get the trucks that you want this year with the increased CapEx, how should we think about CapEx for '23?

Derek Leathers, Chairman, President and CEO

Well, I'd like to get through the back half, to be frank, before we start giving guidance on '23, but we do know not just this fleet, but other fleets, have aged. We don't like that aging. It's not something we did intentionally. Our fleet is still very new by comparative standards, but I'd like to see that fleet a little younger than it is. We have provided guidance and maintained that guidance for several years, specifically 11% to 13% of revenues. There may be times when we are closer to the higher end of that range because we aim to refresh the fleet and restore it to its optimal condition.

Jason Seidl, Analyst

That actually helps a lot. I appreciate the time as always, gentlemen. And again, John, best of luck.

Derek Leathers, Chairman, President and CEO

Thank you.

Michael Triano, Analyst

Hi, guys. It's Mike Triano on for Tom. Derek, you mentioned your view on peak season as mix. So just wondering if that's based on what you're hearing from customers? And if anything has changed in terms of how they're thinking about inventory replenishment and their outlook on the consumer?

Derek Leathers, Chairman, President and CEO

Yes, it's a little bit of all of the above. It isn't that we don't believe that peak is coming, and that we're not going to have a peak season this year. It's that we have in our network a combination of everything from customers that are in need of inventory ordering now, having normal firm conversations with us about what our role will be in that process, to customers who have on paper the right inventory level or even too much inventory level, but some of it's the wrong inventory and then working through, getting that corrected and pushed out of the network so that they can be replenished with the stuff they need for this fall. The beauty of the holiday peak season is that it's holiday stuff that needs to be sold. So regardless of your current inventory levels, if it's not the right inventory and if it's not holiday inventory, that stuff still needs to come. The last piece that's probably makes it a little more complex is not knowing what role China will or will not be able to play in some of their networks. We know there's ongoing disruptions in COVID spikes and zero COVID policy that's playing a role. So I think everybody is just kind of in a wait-and-see mode a little bit, more than normal. So our tone is less bullish than maybe prior Q2 calls, but it's mostly just our effort to be transparent and cautionary about it.

Michael Triano, Analyst

All right. I'll leave it to one; and John, congratulations. We wish you all the best in retirement.

John Steele, CFO

Thank you, Mike.

Operator, Operator

This concludes our question-and-answer session. I'll now turn the call over to Mr. Derek Leathers who will provide closing comments. Please go ahead.

Derek Leathers, Chairman, President and CEO

Yes. Thank you. I just want to first thank everybody for joining us today. I know there's a lot of calls at the moment going on at the same time. And although the quarter had some noise in it, I believe the takeaway is that the story is intact. We're excited about the durability of the portfolio, its defensive nature, the diversity that it represents across multiple different product offerings. The pipeline is strong in our core offering of Dedicated, and we look forward to being able to execute on that strategy as we go forward. We're going to focus on execution moving forward. And, although I've told the team we're going to hold our heads high relative to the quarter, we're going to hold our expectations higher. And lastly, although I appreciate many of you congratulating John for his retirement, I just want to clarify. It's his intention to retire, as we have now started a nationwide executive search for John's replacement. And John has been more than gracious, after 33 years at the organization, to further commit to stay with us through this transition. So he will be a partner in this process, and I'm excited for the opportunity both for John and for Werner to be able to find the right person to be able to replace him. So with that, those are my closing remarks. I want to thank you once again.

Operator, Operator

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