Good afternoon, and welcome to the Werner Enterprises Fourth Quarter and Full-Year 2018 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Earlier today, the company issued an earnings press release for its fourth quarter and full-year 2018 results, as well as posted a slide presentation to accompany today’s discussion. These materials are available on the Investor Relations section of the company’s website at werner.com. This webcast is being recorded and will be available for replay beginning later in the evening, along with the supporting slides. Before we begin, please direct your attention to the disclosure statement on Slide 2 of the presentation, as well as the disclaimers included in the press 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. This disclaimer is a brief summary of the company’s statutory forward-looking statements disclaimer, which is included in the company’s filings with the SEC. Additionally, the company reports results using non-GAAP measures, which it believes provide additional information for investors to help facilitate the comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached in the earnings release and at the appendix in the slide presentation. And please note that, today’s event is being recorded. And I would now like to turn the conference over to Mr. Derek Leathers, President and CEO of Werner Enterprises. Please go ahead with your presentation.

Thank you, and good afternoon, everyone. We’re excited to welcome you to the Werner Enterprises inaugural earnings conference call. We prepared an earnings presentation to accompany today’s discussion, and hope the additional insight into our results will add context to what we believe is an optimistic future here at Werner. On our call today, I’m joined by our CFO, John Steele. Since this is our first earnings call, I’ll start by providing a brief overview of Werner and our current positioning, followed by a summary financial highlights for the quarter and full-year. John will then provide additional insights into our financials. I’ll finish by reviewing our business and capital allocation strategies and 2019 financial guidance. John and I will then address your questions. Now, turning to Slide 4. We included some background information on Werner for those who may be new to our story, and I’ll highlight a few key items. For 2018, over three quarters of revenue was generated in our primary segment, Truckload Transportation Services, with the remainder coming from Werner Logistics, which we continue to grow. Looking at revenue by vertical, just over half is in the retail category, which reflects the continuing strength of North American consumers. 18% of our revenues were in food and beverage and 18% were in manufacturing and industrial, with the remaining 12% in logistics and other category. We have a diversified customer base with less than half of revenue coming from our top 10 customers and 74% spread across our top 50. We remain committed to supporting our core customers and their growth, while mitigating outsized exposure to any single customer, vertical or seasonal revenue stream. Next, let’s move to Slide 5 for a brief overview of our financial performance. In the fourth quarter, revenues grew 14% to $646 million. On…

Thank you, Derek, and good afternoon, everyone. It’s great to be here with you today. Beginning on Slide 7, we provide some additional financial performance drivers in the quarter versus the prior year period. A few noteworthy items in the TTS segment. Our revenue per truck per week increased 6.9%, net of fuel and we increased the average number of trucks by 4.7%. In our Logistics segment, revenues grew 22%. Moving to adjusted EPS. The 79% year-over-year increase consisted of TTS growth that contributed $0.24 and logistics growth that contributed $0.05, as well as the benefit of a lower tax rate, fewer shares outstanding and our other business units. Turning to Slide 8, let’s look at full-year 2018 versus 2017. In TTS, revenue per truck per week increased 8.4%, net of fuel, led by double-digit rate improvement, and we increased the average number of trucks by 4.3%. Logistics segment revenue grew 24%. Adjusted operating income grew 59% and TTS operating margin expanded 290 basis points. At the same time, we continue to invest in our professional drivers by increasing average driver pay per company mile by over 10%. Looking at adjusted EPS. The increase included TTS growth that contributed $0.78 and logistics growth that added $0.12, plus the benefit of a lower tax rate, fewer shares outstanding and our other business units. Beginning on Slide 9, let’s look specifically at results for our Truckload Transportation Services segment. In the fourth quarter, TTS revenue grew 13% versus the prior year quarter to $495 million, primarily driven by an increase in revenue per truck per week of 6.9%, led by strength of our one-way truckload revenue per total mile increase of 10.5%. Adjusted operating income rose 53% to $68 million, which was driven by an increase in adjusted operating margin of 360…

Thank you, John. Before getting into our strategy and outlook, beginning on Slide 13, I wanted to provide some important background on our execution over the last several years, which I believe has positioned Werner as a best-in-class carrier that will be in high demand regardless of where we are in the cycle. Beginning in June 2015, we shifted the direction of the company by announcing our 5 T strategy, followed by our Founder, C.L. Werner, resuming his role as CEO. At that time, my role as President and Chief Operating Officer, expanded to include developing the pathway to realizing the 5 T’s objectives. And in May 2016, I became CEO. Over the next three years, we made the necessary capital investments and implemented substantial changes to our organization to position Werner for future success. These efforts included: streamlining our organization by reducing the number of VP positions by 15%; establishing our balanced revenue portfolio initiative to move towards a goal of roughly one-third one-way truckload, one-third dedicated, and one-third logistics; aggressively raising hiring criteria for drivers, despite a tight labor market; vertically integrating the largest driver school network in the industry; launching our averages for other people initiatives; and increasing customer service to best-in-class levels; aligning the interest of the executive management team with our shareholders by implementing the comprehensive metrics-driven pay-for-performance program; expanding our nationwide terminal network and reengineering existing terminals for greater efficiency and better driver amenities; and finally, shifting our asset mix to less cyclical, more consistent revenue streams, resulting in dedicated now representing 58% of our truck fleet. Moving to Slide 14, let me review our strategy. Since the initial roll out of our 5 T’s strategy, Werner has regained its rightful place as a top tier provider in the transportation and logistics industry. We…

Thank you. And we will now begin the question-and-answer session. [Operator Instructions] This call will end at 5:00 PM Central Daylight Time, following the company’s closing remarks. And our first questioner today will be Brad Delco with Stephens. Please go ahead with your question.

Hey, guys. Good afternoon, Derek and John.

Hi, Brad.

Hi, Brad.

First of all, congrats on the quarter. Glad you guys are doing this call and appreciate all the color you provided us and then good guidance as well. I wanted to ask you about that rate guidance. I guess, we should assume that your dedicated rates will be pretty – continue to move up consistently, and so wouldn’t necessarily be a significant drag to that 4% to 8% range. But how should we think about your inflationary cost pressures? What buckets should we be paying attention to? And I guess, that question really is asking about the driver environment, too?

Okay, Brad. This is Derek. Good question. And so from my perspective, first on the inflationary side. As we’ve outlined in the bullish and sort of more bearish case scenario, if we get strong GDP growth, there may be wage inflation, but we like our position and where we’re starting the year. Our driver wages are very competitive today. Our driver turnover is at near 20-year lows. And our ability to mitigate and manage through wage pressures, we feel is at least as good as what others will be faced with. We’ve got a lot of programs in place and partition pay packages across our network, that allows us to kind of apply the medicine where the pain is in the event that we have tightening labor markets in a specific region of the country. To the portion of the question about dedicated, the reality is, dedicated is proven, I think, through this cycle. Their ability to take rate and be paid at – commiserate with the services we provide and it wasn’t a drag through 2018, certainly was a contributor to our record results. And we feel comfortable that our customers and the relationships we’ve built and the stickiness of the business we’re in and it’s hard to deliver freight characteristics are such that they’re going to pay for the value that we’re delivering. So I don’t view dedicated as a drag and our rate guidance is inclusive of how we think about our rates overall. Clearly, in dedicated, you can mitigate some rate concerns through operational collaboration with the customer. But I can assure you that our growth in dedicated is not designed to be a drag in our overall returns.

And just to clarify, Brad, this is John. The guidance is one-way truckload revenue per mile increases year-over-year of 4% to 8%.

Yes, I appreciate that, John. And then as a follow-up, if you don’t mind. I guess, in a 4% to 8% rate environment, I don’t imagine you would expect margins to decline. I doubt you’d have given your guidance to that, but could you envision a scenario where you get 4% to 8% increases in one-way truckload rates and margins would decline on a year-over-year basis?

Brad, we did not include earnings guidance as part of this call, it’s difficult in trucking with all the variables of the freight market, the rate market, the driver pay market, the safety performance, the used truck market and other factors to predict how earnings will play out. So we wanted to set some guidepost for you with the six different guidance metrics that we provided to give you some help in doing your modeling. But it’s hard to answer that question, because we don’t really know where some of the cost factors will play out. I mean, it’s our expectation to continue to improve Werner’s earnings performance going forward, and that’s our goal.

I would just add that, our focus this year is clearly going to be on the cost side of the equation. 2018 was a year buoyed by strong rate improvement. And as we think about 2019 knowing that the rate environment will not be the same as 2018, but we still believe has upside. Nevertheless, we have to have a laser focus on controllable cost and operational excellence, and that’s what our focus will be on everyday.

No, I appreciate that guys. I had – I felt like I had to try, but I appreciate the color. And again, thanks for doing the call.

Thanks, Brad.

Thank you.

And the next questioner today will be Amit Mehrotra with Deutsche Bank. Please go ahead.

Thanks. Congrats on the good results and thanks again for the call as well. John, I’m sure you’re going to miss those marathon callback sessions. I – you talked about wage inflation with respect to driver pay in the bear and I guess, bear case. I was hoping you could help us bridge that to the actual comp wages and benefits line on the income statement just given the mix impact on that line from maybe more dedicated mix. So any thoughts there on how do you think that line item should trend in 2019 either maybe on absolute dollar basis or in a total mile basis, anyway you want to think? Can you help us think about that?

Okay. I’ll just summarize, salary wages and benefits were up $19.6 million, roughly $12 million, or two-thirds of that – not quite two-thirds was due to driver pay. The other items that increase to our non-driver paid is a fleet growth, merit increases in performance pay and then logistics paid is the growth in logistics also had a less significant impact on increasing salary wages. For dedicated, being nearly as 60% of our fleet. It’s a one customer discussion, when we are working with our customers to obtain driver pay increases for our drivers in a difficult driver market. So it’s not as complex a process as one-way truckload, where it’s multiple customers that are involved. So our customers in dedicated have supported us with driver pay increases – with rate increases that would allow for driver pay increases in the past, and we expect with proper justification they will do that going forward.

The only thing I would add is that the other thing that will have some benefit from 2019 is, as we grew our logistics business north of 20%, you have to lead often in logistics with labor. There’s a training curve, learning curve and development curve that takes place. Our tech and our tech investments are now catching up to that. And our ability to have to gain productivity out of new hires is better as we look forward than it was as we look to the rear. So I do believe, that part of the component that John spoke about looks better as I look forward than what we’ve seen in 2018.

Okay, that’s helpful. And then just as a follow-up. I guess, on the higher truck count, the 3% to 5% in dedicated, I guess, that will obviously continue to pressure overall length of haul and as a result overall utilization. You obviously have utilization down 2.8%, almost 3% in 2019. Is that how we should think about 2019? Is that even – can we see even more pressure in 2019, given the growth in the dedicated truck count?

Well, that’s a good question. But the reality of part of why we’ve broken out and chosen to, not only be more transparent with some of the operating metrics, but also give you where we’re looking three years comparable on our – on the metrics we’re providing, is we think the more appropriate metrics, is not a combined length of haul or a combined productivity. But rather, how is one-way truckload operating? What is happening from production? What is happening with length of haul? And obviously what is – how does that translate to revenue for truck per week and revenue per truck per month. On the dedicated side, fleets come in all shapes and sizes. So we can have low productivity, high-yield fleets. We can have high productivity fleets that are priced appropriately for the miles that are inclusive. And so we really believe in dedicated, it really comes down to kind of revenue per truck per week or in our case, internally revenue per truck per day type metrics, that define success. So we would prefer, I would prefer that people have less focus on what is a combined or blended fleet average, because it’s less meaningful than less of an indicator to ultimate results than the new kind of broken out more transparent metrics that we’re providing.

And clearly, Amit, there’s significantly different lengths of haul miles per truck, rate per mile characteristics between dedicated and one-way based on the increased transparency we provided with the one-way truckload metrics.

Great. Okay, I’ll hop back in the queue. Thanks a lot, guys. I appreciate it.

And the next questioner today will be Ben Hartford with Baird. Please go ahead.

Yes. Hey, thanks. Good afternoon, and thanks for having the call. Derek, so as we look at TTS margins all in at a 11.4%, you’ve talked about an 11% all in full cycle margin, so well done getting to this level. As we think about the business and the mix shift that you talked about the path forward, how should we think about the margin profile in the business from these levels having tripped at 11%? Is this – is there still more work to be done? And the opportunity for margin improvement is still there? Kind of irrespective of the rate environment, should we think about that 11% all in as a full cycle leverage? Could you provide a little bit of perspective on that? Thanks.

Sure. Thanks for calling in, Ben. It’s good to talk to you. First off, we had said short-term goals out of the last couple of years to get to that 11% operating margin. And we knew, it would be – we had a lot of work to do to get there. You’re correct, we’ve arrived and we’ve achieved that margin as we sit here today. Certainly, our goal is not to rest on our laurels or accept that as status quo. I think, as we think about margins going forward, the way we think about it is use the word through the cycle. And obviously, sometimes in trucking, cycles can get very tough. And so, our commitment is that, it’s a 11% or better on average through the cycle. But clearly, our aim is to expand on margins as we go forward and do better than that and periods throughout the cycle. But there – I can’t predict the future. I can’t predict what the U.S. economy looks like two years out. And so I’m not willing to commit to a margin by year. Looking forward, our expectations are rising, our execution is improving, that I will commit to.

And let me add, Ben, that to clarify, these are margins inclusive of fuel. So some of our competitors – and we’ve also disclosed the impact of net of fuel margins. That would be another 200 to potentially 300 basis points higher, if you did it on a net of fuel basis.

That’s helpful. Thanks. I got a quick follow-up. On the logistics side, obviously, facing some tough comps, but great growth. Here, specifically, Derek, the line that you included in here about shippers tending to consolidate business with larger asset-backed logistics providers. I guess, first, can you provide us some sense as to what volume or revenue growth in logistics should look like in 2019 against these comps? And then two, when that business does win business in 2018, in particular, kind of going forward, who do you think you’re winning that business from and could the pace of that perhaps accelerate for any given reason?

Okay. So there’s a lot there, but a good question. First off, as we think about logistics growth, clearly, we’ve indicated that it will have an outsized revenue growth compared to the overall TTS segment. Our focus is there, the market is right, and there’s opportunities in front of us. We’re going to continue to pursue those aggressively. As you think about inside of our logistics business, roughly two-thirds of that business is in our brokerage unit. Our brokerage unit is winning business across the multitude of different avenues. To include this, some of it’s coming from small brokers or traditional brokers we’re able to compete, and with our investment in technology, automating more processes, using more machine learning in AI to be able to execute that business more efficiently. That allows us to compete head-to-head with the biggest of the big out there. And so, as you – in the latter part, was – is there anything that you should think about as it relates to accelerating that growth or increasing those trends. And the only one I would point to that I feel excited about, but we’ve got work to do is, we’ve built this business predominantly with smaller to midsized shippers and in many cases, new to Werner customers. Now that this business has scaled, now that it’s relevant and now that the business execution is at that top tier level, we are now gaining entry into more of our traditional book of business and starting to grow with people that we have longstanding relationships with. So the opportunity for that to sort of gain momentum over time or at least to start adding new revenues in larger quantities and then perhaps more lumpy as you think about the revenue coming in the door is in front of us. And we’ve seen recent examples of that, that have been internalized and executed on very well.

Thank you for the time.

And the next questioner today will be Tom Wadewitz with UBS. Please go ahead.

Yes. Good afternoon, and thank you also for doing the call and for all the good information that you’ve provided. Wanted to see – Derek, if you could offer some thoughts on capacity in the market. I think that we see some data points of private fleet expansion. I think, I’d be curious your thoughts from the brokerage side, if you think small fleets are expanding. So maybe just kind of an overall look on capacity? And then also, I think, if you can weave in something on used trucks, because you think if at some point, the used truck prices might be slowing or falling off, if the new tractors really replacement tractors. So sorry, that’s a little longwinded, but some thoughts on capacity?

Yes, no problem, Tom. I’d be happy, too. First on the capacity side. So we’ve been consistent throughout 2018 with our messaging that, truck orders are not the same as truck builds. And the truck builds are not – that replacement level truck builds were higher than previously anticipated. Our reasoning for that is, I’ll go back to the third quarter data, because we don’t have everybody released yet for the fourth quarter. From the third quarter, publicly traded group ran 8.8% less miles across their fleets than they did a year prior, despite having relatively flat capacity levels. And the point is, as we continue to see more congestion, more of an impact from electronic logs and other factors out there that make short like shortening length of hauls, you need more trucks to deliver the same amount of freight. Now do I believe some truck capacity came into the market, I do. The question is, how much was needed to simply do replacement tonnage levels due to the inefficiencies I just described, and I think that eats up a chunk of it. As we said in January, freight is as strong as we indicated, not as strong as 2018, but stronger than the majority of the preceding five years and has remained so. It’s also been more orderly. So I feel capacity is tighter than people think. Our conversations with our customers continue to be positive and we continue to have conversations about securing more capacity not about an abundance of overcapacity. As you cycle that through the used truck market, that one is really a market within a market. And we’ve spent a lot of time and effort to refresh our fleet and to put ourselves in a position for lower-cost of total ownership through selling our fleet to the younger age, our trucks at a younger age through a more retail network. o frankly, I feel as though, although, there may be some softening in the back-half and there’s no indication of that currently, by the way, even then when we’re selling automated manual transmissions with collision mitigation technology with low miles and warranty still available, we feel good about our positioning via our retail network to outperform the market.

Okay. Yes, that’s great. That’s helpful. And maybe just a quick – I don’t know if it’s a clarification or more detail. The 4% to 8% view on pricing, so that’s a full-year number. How does that translate to kind of what you get in the bid season? Is that kind of low single-digit, mid single-digit? How do you think about that part of what you – kind of what you get coming out of the 2019 bid season?

Well, the unfortunate reality of our Q4 call is that, it happens early enough in Q1 that we’re not really into the throes of bid season just yet. I can tell you that recent experiences have been very positive and conversations continue to be at or above those ranges that are – that we’re currently talking about. We do expect that as you get further into the year, the potential exists. And it’s mostly with an eye toward macro economic uncertainty than it is to anything structural or secular within our building that I can’t predict exactly what that look like hence the broader range. But earlier in the year, you’ll have some lapping effects and some comp effects that will be more positive. We indicated that it would mitigate or rate increases year-over-year may mitigate as the year – as you get further into it. But early signs are positive, early renewals are at or above those ranges provided. And so to your comment about low single digits, that is not something we’re seeing currently.

Okay, great. Thank you for the time.

Thanks, Tom.

And the next questioner today will be Todd Fowler with KeyBanc Capital Markets. Please go ahead.

Great. Thanks and good afternoon. Derek, on the March towards getting to a third dedicated, the third one-way truckload and a third logistics. Can you talk about how the one-way truckload fleet fits in that strategy? Is that to continue to kind of shrink that fleet over time, or is it to hold it steady, while the other businesses grow? And if you could provide just some maybe some thoughts on 2018 – or excuse me, on 2019, understanding a lot of the growth that’s getting on the dedicated side. What should we expect with one-way truckload?

Yes. So first off, what we wanted to do with one-way truckload just to – from a history purposes is, we needed to right-size it, we needed to focus on our strengths. And so our strengths are cross-border Mexico and expedited just in time type delivery cycles. They both have longer length of haul profiles. They’re harder to do businesses and service expectations are at the very, very top of the portfolio. We wanted to emphasize that and right-size that fleet to be able to serve that specific portion of our business. We’ve done that. As we look forward and you think about a one-third, a one-third, a one-third, it really comes down to growing the pie overall. What we want to do is, continue to pursue a revenue growth path that allows the opportunity for both of us to better serve our customers, grow opportunities for our associates and provide more high-quality driving jobs for our drivers. So that is really where our focus will be. We have some work to do in logistics to continue to outgrow logistics, as comparison to the other two-thirds and we’re doing that. Our commitments are wavering to continue to accelerate that growth and to – and try to sort of round out the portfolio, if you will. Over time, future asset adds in TTS are going to be determined by returns. And so, although, we say in the first-half of the year, dedicated is where those trucks will grow, that is because of ongoing either closed or near closed opportunities that we need to build for and prepare, and that’s where those fleets – those trucks will end up. But over the cycle, we will compete for trucks. Our people internally understand this very well. As opportunities come and CapEx budgets are decided upon, those trucks will be opened for acquisition by both parts. And it will really come down to what’s the return profile, does it play to a strength and do we believe we can be best-in-class in that space? If we can, we will pursue it. If we can’t, we’re going to fall back to focusing on what we do better than what we believe best-in-class.

Okay, that helps. And then just for a follow-up. I think that we’ve seen points in prior cycles where demand for dedicated increases when we get to points where capacity is really tight and then you shift to dedicated – the market in general shifts to dedicated and then when things loosen up some of those dedicated accounts kind of walk away from the commitments that they’ve made. What would your view be on the dedicated market now? And maybe why that may or may not happen, if we see some loosening in the market going forward?

So my biggest view is really – first of all, your assessment is correct, but it’s only if you allow it to happen to you. It – and it doesn’t start once you have the account, it’s how much you let in the door. And so over the last year, although, dedicated is growing, our win rate in dedicated arguably was at historically low levels, because we were that specific about what we wanted to let into the fleet and into our portfolio. What I – what you’re really referring to is designated fleets, which were masquerading as dedicated, and we work very diligently in this cycle to not let that happen. So the fleets that we’ve added in the year, as well as the fleets that we’ve removed had fell on one side or other of that fence. So what we were pursuing was take-or-pay variable pricing fleets that had fixed and variable rate structures, where we were in it together with our customer to provide best-in-class service. What we try to avoid is fixed rate fleets or designated fleets or things that do go away, as capacity starts to exceed demand. And so I think our positioning for the cycle is better than it’s ever been. And that’s why throughout our opening remarks, we continuously spoke to that fact. So will there be pressure? There could be. But pressure starts in spot, goes to one-way, ends up in dedicated, and if you have designated, they will find it. And so we like our positioning across our portfolio and how we’ve structured our defensibility for any cycle chains that may be forthcoming.

Okay. Very helpful. Thanks for the time, and nice quarter tonight.

Thanks, Todd.

Thanks, John.

And our next questioner today will be Scott Group with Wolfe research. Please go ahead.

Hey, thanks. Good afternoon, guys

Hi, Scott. How are you?

Good. Thanks for the call. So wanted to just follow-up on that last point, Derek, as we think about the increasingly mix of dedicated. Is there anyway you can help us think about the variability of dedicated versus over-the-road margins through a cycle like sort of the typical peak-to-trough range? I’m guessing it’s a lot smaller for dedicated, but is there anyway you can put some numbers around that, so we can…?

Sure, Scott. It’s a great question and it’s part of what we spent so much time on in 2018 to position ourselves in advance of a cycle that we believe is still, call it, too early and perhaps too aggressively. But to answer your question in dedicated, peak-to-trough is going to be 200 to 300 basis points, and we believe we can live within that range and often even operate tighter than that. It has to do with characteristics, the defensibility of it. Frankly, the hard to deliver expectations of those customers and the fact that what we – the space that we operate is in more the economic or recession-proof area of the retail sector. Obviously, in one-way, traditional variability has been more in the 500 to 600 basis points range. However, with our increased focus and now over 50% of our one-way assets being sort of set aside or focused on cross-border Mexico and expedited services, those have generally operated better and have less range. So as we look forward, we think the traditional 500 to 600 basis points range for one-way probably until proven otherwise, should still apply. But it’s certainly our expectation that, that will not be the case with our current structure on the one-way side.

Okay, very helpful. And then one just sort of maybe smaller question. The over-the-road length of haul is going higher. What’s driving that? And do you think that’s sustainable?

I think it is sustainable, and what’s driving it is our – is our focus on cross-border Mexico and team expedited service. So again, when you think about our over-the-road length of haul, part of why we want to break our metrics out and be more transparent and show what we do in our one-way network is, because of the sort of white noise that can otherwise be created and thinking that all over-the-road truckers are created equal. We have different niches, different strengths, and we’re playing to ours. Cross-border Mexico length of haul has been consistently long for as long as I’ve been doing business, and I’ve been doing business in Mexico for 30 years. Team expedited is similar in its nature. Team expedited is also more defensible against intermodal conversion, because it’s by its very nature service sensitive and more importantly, transit sensitive. So that’s where we want to put our focus and our efforts, that’s what we’ve done and we’re going to continue to build upon it. So yes, I think it is sustainable.

Okay. Thank you, guys. I appreciate it.

And the next questioner today is David Ross with Stifel. Please go ahead.

Yes. Good afternoon, gentlemen.

Hi, Dave.

So I guess, just if you can comment on the year-to-date, the first five, six weeks started off here in 2019 business levels, conversations with customers about their outlook for the year. How does that compare to where you would have thought it would have been, say, in December?

Well, I would say from my point of view, I mean, we certainly expected that January wasn’t going to look like December. And so we came into it with eyes wide open and understanding seasonality and the expectation that it would be different. I would tell you that in January, if you take the five weeks and you slice it a little more finite, the opening couple of weeks of the year were perhaps a little slower than I might have expected, but then quickly rebounded and have consistently remained stronger than all but 2018. We think that’s the normal, not the first two weeks. And the first two weeks, I think, were driven by a variety of things, but one of which was to the extent there was some around the margin pull forward and other items that took place relative to people supply chain management, we may have suffered from some of that. The other thing was, both Christmas and New Year this year hit at very inopportune times just in terms of the cadence and within the week. And what it created was larger bridges from the actual holiday to the following weekend with more drivers off. That quickly has bounced back, our network is back in balance. And as we’ve said, it’s been consistently stronger than every year but last year. And last year was truly an anomaly in January, especially.

And then, Derek, you talked about one of the focuses in the last few years to get the margins right and to get the company position where you wanted to be was on service. Could you add a little bit more color around the service improvements that you made? How you measure them? How you got them?

Absolutely, that’s a great question. I’m glad you asked. So yes, the whole part of this process really starts with you have to have a product that people want to buy and it has to be in high demand. In order for that to be real, it has to be high-quality. So we had to make a deep down commitment to improve our service levels and we did so throughout the organization. We’ve always measured it, we’ve always had metrics, but the focus and the expectation of acceptable wasn’t where it needed to be. So over the last two years and specifically even in 2018, we’ve increased our service levels across each one of our major operating units. And in each case, I believe they are now at best-in-class levels and we can compete with anybody on service head-to-head. It makes it easier for our customers to use us. It makes them easier to vote for Werner and it’s something we’re very proud of. I mean, as a side note, I was looking at this yesterday. But over the last 18 months, we’ve won 52 different awards, spread across customer awards, employment awards and governmental recognition. That is far greater than what we would have seen in the five preceding years combined. So people are noticing. We still have work to do. We’re going to stay committed on this, and we’re going to continue to drive forward. But I will tell you this and it is a last thought, nothing beats having high-quality drivers that choose to stay in your fleet, gain tenure and get better at what they do. And so I just want to plug our drivers one last time that 20-year low turnover that we’ve been talking about for multiple quarters in a row, it’s really coming home to roost in the form of high-quality service. Of course, we wrap it with technology and systems and tracking and tracing. But at the end of the day, the professional men and women out there delivering the service are doing so at levels we haven’t seen in a long, long time, and that’s something I’m very proud of.

That’s great. Thank you.

And the last questioner for today will be Bascome Majors with SIG. Please go ahead with your question.

Yes. Thanks for squeezing me in here. I mean, I mean, your outlook you put out here today is sounds pretty constructive and certainly, constructive in some corners of the marketplace. And you’ve talked about returning capital and attractive free cash flow and lower CapEx. I was curious, what tolerance do you have for leverage if the opportunity presents itself to be more aggressive and opportunistic on the buyback? And maybe a little bit on how you think about the buyback conceptually, is it quantitative? Is it P-based, like how do you asses valuing your own shares? Thank you.

So let’s start with the first part of the question about tolerance for debt or leverage on the balance sheet. We are very committed and very proud of the strong balance sheet we have today. We also like the flexibility in the capacity that we have on that balance sheet to be able to be opportunistic should the right situation arrive. We are open-minded to leverage and will remain that way, but it’s got to make sense. And so as we think forward and look at the opportunities in front of us, even in – throughout a cycle, our current leverage ratios are low. There’s opportunity obviously for them to expanded and still be concisely conservative in nature, and we will utilize our balance sheet as we see fit based on what we think is the best opportunity to create shareholder value. The second part of your question, buybacks. So you saw that we participated in some buybacks throughout the year. Buybacks are simply one of the things on the menu as we think about returning cash to shareholders, we think about dividends and buybacks. Obviously, M&A and special dividends is something that we’ve employed in the past as well. We will continue to be open to those options. We’ll continue to look at each of those and evaluate what we think makes sense given the current market conditions, our current balance sheet strength and what we think makes the most sense at the time. Beyond that, I can’t give you a lot more color, because it will be a decision that we will work on and debate internally and give serious consideration to over time.

Thank you, Derek.

And this will conclude our question-and-answer session. I would now like to turn the conference back over to Mr. Derek Leathers, who will provide closing comments. Please go ahead, sir.

Thank you. So first off, I want to thank you all for calling in today. It’s a historic day for us to have our first earnings call and something that we’re proud to be doing and proud to be a part of with all of you. We’ve spent the last three years, if you go to Slide 21, strategically investing in and transforming our company to perform across a variety of economic cycles. Our heavy investments are behind us and the resulting benefits to our free cash flow are ahead. The high customer service levels that Werner provides are expected to strengthen with our new fleet, increasing experienced team of associates and the commitment to industry-leading technology. As we look ahead, our long-term margin and return expectations are higher than what they’ve been in the past. And finally, we’re better positioned today than we have been in our recent past. We’re committed to delivering shareholder value cross the cycle. As I tell our drivers all the time, there’s never been a better time to drive blue. In closing, our decision to begin hosting quarterly earnings calls underscores our commitment to increasing our transparency and it’s concerted effort to enhance our investor relations efforts. I want to thank everyone for participating in our first earnings call and for your interest in Werner Enterprises. If you have any follow-up questions, please don’t hesitate to reach out to us.

And today’s conference has now concluded. Thank you for attending today’s presentation, and you may now disconnect your lines.