Good afternoon and welcome to the Werner Enterprises First Quarter 2021 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] Please note this event is being recorded. Earlier this afternoon, the company issued an earnings release for its first quarter 2021 results and posted a slide presentation. These materials are available in the Investors section of the company's 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 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 table attached to the earnings release and in the appendix of the slide presentation. I'd now like to turn the conference over to Mr. Derek Leathers, Vice Chairman, President and CEO. Please go ahead.

Thank you and good afternoon. With me on the call today is our CFO, John Steele. I'm pleased to report that Werner produced record earnings in the first quarter, achieved by outstanding operational execution, while we maintain a laser focus on the health and safety of our associates. I sincerely appreciate the significant contributions of our entire Werner team to meet and exceed the needs of our customers. Today, I'll start by sharing our perspective on the current market dynamics, followed by an overview of our first quarter financial results. Then I'll discuss the latest developments from our 5T's plus S strategy, and wrap up with an update on our 2021 guidance metrics and assumptions. We continue to expect strong truckload freight demand through this year and into 2022. Retail inventories need replenishing as their strong sales combined with multiple supply-chain challenges produced a 30-year low retail inventory to sales ratio in January. $5.7 trillion in cumulative COVID stimulus relief payments over the last year has helped triple the amount of U.S. household personal savings to nearly $4 trillion. At the same time, as the freight demand pump has been primed, the supply of truckload capacity is constrained due to a tight driver market. Werner is well positioned to thrive in this business environment, as a result of our retail-oriented freight base, driver preferred dedicated fleets, industry-leading cross-border Mexico business and engineered lanes in our One-Way segment. These offerings are further supported by comprehensive capacity solutions in our Werner Logistics segment. Slide 4 provides an update of our key market size and fleet size metrics, as well as our revenues by segment, industry vertical and customer. Over 3/4 of our revenues are generated by Truckload Transportation Services, with the remainder primarily coming from Werner Logistics. By Design, Werner has a…

Thank you, Derek, and good afternoon. Beginning on Slide 7, total first quarter revenues increased $23 million to $616 million or plus 4%. Our TTS revenues per truck per week increased 1.3% due to a high-single-digit percentage improvement in revenues per total mile offset by a high-single-digit percentage decline in miles per truck, which was caused by the adverse winter weather, 17% fewer driver teams and an increased mix of Dedicated. COVID and social distancing protocols reduce the number of our driver teams. We expect improvement in our team count going forward as the number of vaccinated Americans increases, and Logistics continue to strengthen growing revenues by 23%. Adjusted operating income grew 68% due to our strong performance in TTS and improving Logistics results. Adjusted earnings per share were $0.68 or 72% increase year-over-year. Beginning on Slide 8, let's review results for our Truckload Transportation Services segment. In first quarter, TTS revenues were flat due to higher revenues per mile, lower miles per truck, and 1% fewer trucks. Adjusted operating income was $58.9 million or 67% increase due to a 570 basis point expansion of our adjusted operating margin net of fuel. Our adjusted operating ratio net of fuel continues to show strong improvement with an 85.8% OR. Turning to TTS fleet metrics on Slide 9. For Dedicated, we grew revenues net of fuel by 10% to $254 million. Dedicated average trucks increased 7.5% and revenues per truck per week increased 2.1%. Year-over-year strong rent growth was partially offset by lower miles per truck due to winter weather challenges. Our Dedicated customer bid pipeline remains strong. One-Way Truckload revenues net of fuel decreased 12% to $157 million. Average trucks decreased 12.7% due to trucks that moved into Dedicated and the challenging driver market. Revenues per truck per week increased 1.0%…

Thank you, John. Moving to Slide 14, here's our 5 T's plus S strategy. Over the past 5 years, we implemented structural and sustainable upgrades to our TTS segment with a modern, safer and more efficient fleet, rising our hiring and retention standards for high quality safe professional drivers and further strengthening our service product to our customers. As an ongoing testament to our intense focus on service, last week, we were named 2021 Carrier of the Year by Walmart. We are extremely proud of the entire Werner team for earning this prestigious award. Our first 2 T's trucks and trailers continue to have young average fleet ages of 2 and 4 years, respectively. All Werner trucks are equipped with advanced collision mitigation safety systems, industry leading emissions and fuel mileage technology, automated manual transmissions, forward facing cameras and an untethered, tablet-based telematics solution. The driver market is very competitive and dynamic. We continue to enjoy a strategic advantage with our driver training school network of 14 locations that will increase to 18 by third quarter. Our strength in terminal network is an integral part of our ability to attract and retain the best drivers and minimize fleet downtime for maintenance issues. Our cloud first, cloud now strategy is well underway and progressing at pace. During first quarter, we successfully converted our HRMS and non-driver payroll systems to the cloud solution work day. We completed the rollout of our new telematics solution Edge Connect to the entire truck fleet. We migrated over 60% of our EDI transactional volume to a new cloud-based provider and are completing the EDI transition in second quarter. Last quarter, we communicated our 4-year plan to replace our existing TMS with an integrated cloud-based leader Mastery Logistics Systems to improve functionality and visibility. As we make…

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Chris Wetherbee with Citigroup. Please go ahead.

Hey, hey, thanks, and good afternoon, guys. So…

Hey, Chris.

Hey, maybe we can start just on rate. And I understand that the market is volatile. So, I guess, it makes sense to move towards quarterly guidance. And obviously, 13% to 16% is quite robust, I guess. Could you maybe though, frame up sort of how you might think that the - sort of this cadence could play out as the year goes on? Do you feel like 2Q is actually sort of the top of the sort of rate growth dynamic, and it'll stay strong, but maybe a little bit of the lower growth rate as we move forward? Or are there other nuances that we might expect, particularly as we start to head towards the peak season, because it doesn't look like this, sort of capacity is going to let up anytime soon?

Sure, Chris, I'll take that and thanks for the question. So the thinking we had was, right now we've got obviously good visibility. We know how tight this market is. We know where we're at in the current bid season and the progress we're making. As you look out in the third and fourth, I see nothing that changes my view on capacity, nothing that changes my confidence and how tight this market would be. You do have, however, tougher comps. And rather than blending some kind of 3 quarters worth of data, and losing sight of what's happening in the market today and being clear on what kind of success we're having, it made more sense in this kind of unique point that we're in today to be specific about what's happening on the contract side, where we see strength in the spot rate continuing through the end of the year. And as I'm looking forward, I guess my main message would be, I have a strong degree of confidence that rates are going to continue to stay elevated, that spot market will far outpace contract rates for the foreseeable future through the end of the year, and frankly, into 2022. But we felt it was better to give a specific guidance about Q2 specifically, when it came to rates.

Okay, okay, that's helpful. I appreciate that color. And then, maybe if we could talk a little bit about the fleet, I think I asked this question most quarters, but just so as you think about the mix of Dedicated versus the One-Way Truckload, and obviously you're expecting to grow as the year goes on, but you're down a little bit from I think where you finished the fourth quarter. So can you just give us a sense of - now, obviously, it seems like the growth is going to come on the dedicated side. But maybe when you think about the One-Way Truckload, do you think you actually can grow that? Or can you stabilize that fleet size and maybe that stays flat, while you add to the Dedicated?

Yeah, I think the way to think about it would be - I'll start on the One-Way side, right, we want to stabilize that. And we've seen signs of stabilization. It's a very tight driver market out there. I think everybody's well aware of that. We are making moves as appropriate to build jobs that drivers want in that One-Way group, and really package an engineered freight through the first half of the bid season that we feel can both retain drivers at a higher level as well as attract drivers into the mix. It would be my expectation that from now moving into the year that we would see some growth on the One-Way side. But the predominance of the growth is still expected to be in Dedicated. Frankly, that's driven as much as anything by just how strong that pipeline is. And what that return profile is of Dedicated through the cycle. So we'll still see growth on Dedicated. That'll be the majority that will get us across the threshold of 1% to 3% fleet growth, but some of it sequentially will come in One-Way as the expectation as we go forward.

Our next question will come from Jack Atkins with Stephens. Please go ahead.

Great. Good evening and thanks for taking my questions. So, I guess, we could maybe start and I'd love to John or Derek, whoever wants to take this, get your thought on customer inventories. I know you guys do a lot of work around this particular subject. And I think it's a critical topic as we sort of think through the end of the year and into next year. I guess, how much further do you think your customers have to go? And how long do you think it's going to take them to get back to where they want to be from an inventory perspective? It seems like there is - we're still at very low levels on an absolute basis.

Yeah, I know I sound like a broken record on this Jack. But for the last few quarters, and what we see going forward, we think inventory levels will be challenged. If you look at our overall economy, inventories are low in lots of areas, retail, lumber, steel, housing, chips, new trucks. This V-shaped recovery that we've got going on is really challenging suppliers to be able to restock, especially at the very strong sales levels that the large retail customers who are part of our customer base are achieving. So we expect it to be a few more quarters. And it's really difficult to predict when it's going to end. We think that restocking is going to take a while with all the different things that happened this quarter, that made restocking even more challenging, with the weather, the port delays, the Suez Canal issue. I mean, there's been just a lot of issues thrown at retailers, making it challenging to rebuild their inventory levels. 9 of 10, in their most recent quarter had a higher same-store sales growth than they did inventory for store growth. So the challenge continues for them.

Jack, all I would add - all I would add to that, Jack, is that, best case scenario, they begin to make any traction at all. It probably lands them right in the middle of peak, if they're able to make traction between now and peak. And with the amount of stimulus money coming in and $4 trillion in savings sitting out in dry powder, we just don't see a way you call back anytime this year and it's probably pushed into sometime in 2022.

Okay, all right. That makes a lot of sense. And I appreciate that insight. I guess my second question, I would love to get your thoughts on your cross-border business. You guys have a really unique asset in terms of your cross-border Mexico, U.S. franchise. That's becoming more and more a topic for folks just given all the news from a rail perspective and the interest in KSU? How are you guys thinking about investing in your cross-border business? Can you just remind folks, what that represents today in terms of either fleet or revenue? And where do you see that going over the next couple of years?

Yes, so I'll start with this. In the quarter, our cross-border business actually was under some pressure. The reality is we do a lot of southbound business with truck OEMs and other auto or auto-related type businesses. Those have all been under duress, as it relates to some of the shortages that people are well aware of. And so, you feed your northbound business, which is really where the money is made through southbound activity. And so, we're real proud of the first quarter results and the record earnings and some of the things we've talked about, given that, that particular franchise was under what I believe to be kind of temporary duress. And so, there's upside from here. We're excited about what that looks like. As it relates to the merger and other thing, I think it really speaks to the reality that Mexico/U.S. trade isn't going away. There is a certain component of that that will naturally move rail. Intermodal will certainly play a role in that and we do some of that business today ourselves. But truck is going to still play its position. And so, we're going to continue to invest in that business. We understand it well. Even with the volume pressures that we had in the quarter, the profitability and earnings of that segment continues to be at or above our network averages. So we like the business. We're going to continue to stay with it. And I think it's one place that has some unlocked potential right now, as we look forward over the next several quarters if we can get some of these shortages behind us.

Our next question will come from Jon Chappell with Evercore ISI. Please go ahead.

Thank you. Good afternoon. Derek, just to start with logistics, the comment I have from the call on February, so less of a headline in first half 2021, more of a recovery story in second half. They had a pretty big first quarter, at least as it relates to revenue and operating margin. So did Logistics business get a lot better a lot sooner than you thought? Or was this kind of the natural progression that you envisioned? And there's even a bigger step up that you envision for the second half of the year?

Yeah, great question. A couple of things, one, I think it's important to recognize the work they put in to turn that thing around and get it go in the right direction. We've seen, I would say, a lot of smaller levers pulled. There's no silver bullet in it. But we've seen some of the productivity gains we were hoping to get and some more focus on the cost line. If you look at productivity in that division, it certainly played a role as it relates to load per seat, et cetera. We move to a more transactional model, which we expected to do. The market certainly is one that allowed us to do that more aggressively. We worked with our contractual customers, would have loved to have retained all of them, if we could have. But in some cases, that wasn't the case. And so, underlying those strong first quarter results is a reality that we're lapping as we get through the second quarter some larger scale businesses that we had to walk away from and then replace that with much smaller volumes across many multitude of shippers, but more in a transactional space, and it's paying dividends. So, yeah, I'm happy that we're seeing progress. We've got a lot more to go. I'm not at all pleased with where we stand today. But I don't know that I'll ever be completely satisfied. But the trajectory is certainly one that's good. And I think there is upside from here, as we look out through the remainder of the year.

That's great. And then, for my follow-up on the Dedicated side, I mean, clearly, the quality of life is a little bit better than the One-Way. But you mentioned that the driver issue is kind of across the entire business. I know you're opening more schools in the second half of the year. Are you turning away any new potential business from the Dedicated side just because you don't have the drivers to service that right now? Or maybe even another way to ask it is are you not pursuing as much new business as you think that you can attain with your network because of the labor shortage.

Yeah, so few comments on that. First off, those schools are predominantly going to open in the first half of the year. So we'll have some relief coming sooner than later. That will be helpful. Dedicated is more attractive. And although the driver shortage affects us across the business, that's clearly more acute on the One-Way side. So Dedicated gives a shelter through cycles from an economic perspective that also gives shelter through tight driver markets. And we do have benefits that come along with running that business as far as the pipeline is concerned. I think the way I would think about it is we know that we can be more selective. And so, we're not at a point where from our lens I would call it turning away business. But we are certainly being very selective with the type of business that we're looking for, the geographic location of that business, the industry or vertical that they may represent. What are their surge patterns versus existing surges in the geographic area, so that you're fitting these pieces of a puzzle together to make Dedicated be able to operate very well as it just did once again, in a strong market where others may choose to chase spot or chase One-Way. We can put these kind of numbers up with the predominance of our fleet being in Dedicated by taking a more strategic view. One of the things throughout this quarter that was a major emphasis for us, is not just the rate, it's how do you engineer more freight in your One-Way market? How do you engineer more Dedicated fleets that fit a purpose and fit a part of the overall Dedicated strategy versus just landing a fleet, because it's there to be taken on? And then, how do you make sure you price it and build driver salaries and lifestyles around it, so that you know, you can fill those seats. And at this point, we're able to fill those seats. We're able to get drivers to go into those fleets. And we don't get to that final round, because these things have 6-month tails on them usually. By the time you're in that month 4 or 5, you've pretty much figured out where you're going to get the drivers, how you're going to get them, and what that pay is going to look like if you're doing it right.

Our next question will come from Brandon Oglenski with Barclays. Please go ahead.

Hey, good evening, everyone. Thanks for taking my question. So, Derek, can you just speak to the outlook on your long-term profitability targets? And maybe what you can do to reduce volatility, because I think the issue what investors have with trucking equities right now is how to mark the peak and trough in the cycle. And whether the stocks are fairly valued or not, because I think through that perspective, there could be a lot of upside there.

Yeah, I mean, so when we reissued our new TTS guidance of 13% to 16%. through the cycle, we talked about the - I'm sorry, 10% to 16% through the cycle, we talked about the reality that we think we can squeeze some of that volatility out. We talked about how we'd be at the upper- and the lower-end of the range at times. Right now, we're clearly in a market that we need to be driven by a laser-focus to be at the upper end of the range, and frankly, beyond it. And that's what all of our efforts are going toward right now. As we do that, and as I talked about this engineered approach in the first quarter, a heavy amount of that work is really actually focusing on how do we tighten up that bottom end of that range, how do we make sure through analytics to think about the freight we put in at the time when we have choices, to know that that freight provides density and lifestyle, and choices for our drivers, so that our costs and pressures from a driver hiring and pay perspective, perhaps weather that storm better than others, and really try to limit the risk to that downside number. I think, it bears pointing out, however, that that downside number, that 10% number is the same number that the majority of the industry is strives to get to in the best of times. And we are basically putting a line in the sand and saying we think that's as bad as it could get, and actively working to make sure it never comes into play.

Yeah, I appreciate that. I guess, what's your broader view on industry supply later this year, especially as vaccinations go through the population, is there potentially a lot more folks wanting to get back on the road, then?

I don't think so. So if you think about the American truck driver, they didn't wither at all, during the early stages of COVID, there was no vaccine, little understanding, a lot of fear, and they got in the truck, put the key in the ignition and drove. So they're not the crowd that is waiting for a vaccine to somehow then have the courage to reenter the workforce, that crowd stayed out there and work. What did happen, however, is COVID limited through social distancing, and throughput at schools and all of a variety of other factors, new entrants into the market. What did happen is we had an aging demographic that we're not replacing on a 1-to-1 basis now, because of a year of sort of lost sleep of throughput. And as you look forward, any lifts you might get from vaccines also goes into lift from economic activity from retail sales, it lifts up the overall consumer, we're 53% retail, so we benefit from that lift, and it puts further pressure on demand. You've got infrastructure out there ahead of us that is certainly some version of which I believe will pass, which will be a pull from capacity as it relates to drivers pursuing jobs that are liking, and perhaps lifestyle wise in certain areas viewed more preferentially. The Drug & Alcohol Clearinghouse is continuing to gain steam with very little return to work taking place within it. And frankly, just work life balance is a reality not just in trucking, but across the entire workforce of the United States. And so, 1 of the reasons that we think about Dedicated, we think about engineered, we think about a lot of the things we're doing is really taken a multi-year out view on building jobs that are sustainable, where with an eye toward retention at all costs, because ultimately that's how we provide our customers the capacity they need. But I don't think they recovery is coming from a capacity perspective, I talked about that last call, nothing has changed my view, it's a matter of fact, I feel probably more strongly about that today. The last one, I'd mentioned is the known and very public reality now of what's going on from an OEM production capability perspective. And, yes, the order boards are full. And, yes, the backlog is long. But if they don't translate into bills, and bills don't get seated, it doesn't mean capacity comes online. And I don't think that you're going to see, because any capacity relief coming in 2021.

Our next question will come from Scott Group with Wolfe Research, LLC. Please go ahead.

Hey, thanks, good afternoon, guys.

Good afternoon, Scott.

Derek, John, how should we think about utilization in the One-Way fleet going forward, now that we're through winter, do we get back to positive year-over-year utilization?

The challenge on One-Way utilization is team count, we talked about how we're down 17% on teams, and most of that occurs in One-Way. And so as we get vaccinated throughout the country, and it's easier to put teams back together again, I think, we got a better opportunity for that the second half, and then probably in the second quarter. From a freight standpoint, however, I do think that that will help. So I expect to see improvement as we get farther and farther through the year on miles per truck, I wouldn't predict right now that'll be positive, but I do think that it'll be less negative and closer to flat as we get to third quarter.

The other thing, I would tell you relative utilization, Scott, is in the first quarter, if you think about our network, everybody's strengths are geographically slightly different. But we are very dense from, call it, Dallas to the East Coast, and then down through to Florida, and then up the Lower East Coast as well. And we just, frankly, got hit pretty hard by the storm. And that storm was more widespread longer lasting with more significant road closures and impacts than anything we've seen in a couple of decades. So I wouldn't read - I wouldn't over read into the utilization decline in the first quarter, it hurt us in Dedicated and hurt us in One-Way. But that storm-related impact here at Werner was larger than some and perhaps maybe not as large as others, I don't know all of their networks as well. But all that John said, it's true, and on the team count, we took a stance, you've had a chance during things like a pandemic to really let your culture lead. And our culture has always been built around safety first. And our drivers if they were at all uncomfortable, there was no pushback on our part. We want to retain them for the long haul, not just for a pandemic period. And if they've split into silos and wanted to go and not be comfortable in that environment. We were more than happy to support that. We are seeing a return as John indicated to folks going back to teaming, and we're going to encourage that as we go forward.

Okay. Thanks. And then, Derek, as you're about to take over as sole chairman of the board, what changes, if any, do you think we should expect in terms of balance sheet and leverage more aggressive buybacks, M&A, any meaningful changes you think we should anticipate?

Yeah, I mean, what I would say first is, look, we've been making changes for the last several years. And I think they've been consistent, and progressing quarter-over-quarter for now, really, the better part of the last call it for almost 5 years, those changes and those - that aggressiveness will continue. We're going to continue to expect excellence from ourselves at all times. I've already indicated that there's a comfort level relative to the leverage that is perhaps higher than where it's been historically. But at the same time, if you're thinking Werner is going to wake up and be 3 times EBITDA, probably not in terms of the debt that we'd be comfortable with. We indicated and talked about the things that we think about it relative to the reality of ongoing free cash flow generation. And yes, we're going to look at dividends. And we're going to look at buybacks, and we're going to look at M&A. And so those things are on the table and they're real, and we're going to take an analytical critical, either each of those, and be opportunistic when the opportunity to present themselves. But the biggest takeaway would be staying true to our roots, evolving our culture, while holding on to something that for 65 years has worked pretty darn well. But at the same time, the world around us is changing and will change with it.

Our next question will come from Ken Hoexter with Bank of America Merrill Lynch. Please go ahead.

Hey, Derek and John, nice job on the quarter. Good afternoon.

Thank you.

Can you talk a little bit about the Dedicated contracts a little bit further, I know, maybe just delve into the percentage you can touch this year, obviously, multi-year contracts, Derek, you threw in here, that's why you thought that 3% to 5% rate increase is a good starting point? Maybe just talk about the cadence of the renewals. And does that mean you get any chance to work? Is there any chance to get any better given the current rate structure and environment?

Our Dedicated unit first half is performing very well, and its margin enhancing to the overall business. And I want to be clear, it is not a drag in order to perform as a drag in the quarter. In a tight market that, again, I know the spot market can become so intriguing to some. But in our business through the cycle, we think we can continue to enhance margins, 3% to 5% is revenue per truck per week number. It's impacted to both utilization and rate. As it relates to the contracts themselves, they're generally 3-to-5-year type contracts with 1-year activity that takes place from a rate perspective, some are fixed, or indexed, I should say, the majority are negotiated, those negotiations are ongoing. And, obviously, in the current driver market rent today, there's more eligible and available for conversations than there are that aren't. And so the majority of those contracts, and those customers either have had or will be having conversation shortly, because we have to continue to enhance driver pay, we also have to continued enhance returns, so we can continue to invest and grow with that customer. So far, it's been good. I didn't give you a percentage. But if I was to throw 1 out there, I mean, 75% of those at some point this year, whether it's driver pay specific or overall rate increase, would be touched in the majority of that's already happened as the year progresses, that number likely will be higher than that simply, because of the pressures out there with attracting and retaining quality drivers.

Thanks for that, Derek, and then maybe just a little bit more on your thought on, I guess, 2 parts wage increases as we move through the year. You noted a 7% increase you put out there? Are you seeing maybe accelerated pressure from that? I guess, I asked that because your games on sale, you noted at $10.5 million this quarter? I think you said $7 million to $10 million, so that means a deceleration. Does that mean we're at the peak in terms of that pressure? Or just want maybe some insight on that? Thanks.

I'll take it in reverse order. I think it's a great question. The deceleration of gains is volume related. So I just want to be clear about that. We are really focused on trying to manage through and be in constant communication with our OEM partners. And so given what we were able to secure in the first quarter as it relates to equipment, and given where the market was that we sold higher volume in the first quarter. The second quarter will probably be a little more prudent about those sales numbers and a little more cautious or conservative, perhaps, is way to think about it, because we need to make sure we've got incoming trucks and trucks are arriving on time, on schedule. And so it's almost exclusively driven by volume as the only reason that's going down. And that's driven much more by production disruptions or the concern potentially for production disruptions than it is any other factor. So that's not a slowing issue or any kind of peak indicator in my mind. As it relates to wages, we do have a benefit, I mean, 64% of our fleets in Dedicated, those are much higher paying jobs in general. They're also happened to have better lifestyles as it relates to time at home. We're managing those pressures and working with customers where we have in need their support, we're getting their support to offset those. But by and large that provides a degree of insulation from this market. That wouldn't be there if they were all in the One-Way side. On the One-Way side, we enhanced wages going into the year. We've held the line on turnover that new entrant into the market is artificially constrained for in the short-term with lower throughput through schools and lower new CDL issuances throughout 2020. And we will in all likelihood apply more wage increases, but they will be very geographically focused even in the One-Way market, very little, very small portion of our fleet is over the road go anywhere type trucks, they're regional, they're designed engineered lanes, they're local in some cases. And so, we will hand and then pays are reflective of the type of work. So as needed, we'll make additional adjustments. We do not think that's going to have any opportunity to outpace where rates are going. And in fact, that's part of the confidence of our ability to enhance margins as we go forward. First quarter is always the worst operating quarter of the year, for us and many others, and yet this first quarter was the best 1 we've ever posted. So we've got room to run, and we're going to try to execute as we go forward to the best of our abilities.

Our next question will come from Amit Mehrotra with Deutsche Bank. Please go ahead.

Thanks, operator. Hi, Derek. Hi, John. Hope you guys are well. I guess, on the utilization question for One-Way, I wanted to ask how you think comp wages and benefits costs are going to kind of trend. I think in a trend with utilization plus a little bit more given the raises that you implemented at the beginning of the year, it's obviously a very big part of the cost structure. I just want to make sure we're thinking about in the context of limited utilization?

Yeah, I'll start, and let John jump in. But I would say this to start, they're not going to track exactly with utilization gains, simply because in the first quarter, we had the double whammy of the miles not being there, but are standing by our drivers. So we spent a considerable amount of money paying drivers for not moving in the first quarter, that pay would be the same pay, they would have received, had they been moving. But the ones taking the decision to shut them down or hold them up, we made the decision to go ahead and pay for that downtime. I think it's the right decision. It's no fault of their own that those storms hit. But as we now gain those miles back those paid, that those payments are already in the number. Now, we will have wage pressure I talked about that. We think it will be less than then some of the commentary we've heard thus far. We think that really has a lot to do with the starting point on where turnover is and where fleet morale is. We're going to pay our guys fairly, though, I'm telling you that. And so as we have those needs, we'll address them. But I think that's a kind of misunderstood thing about the quarter would be how much driver pay was actually dispersed for no miles being ran, and the opportunity to now fill that gap with miles. And the same pay that was already taking place anyway.

Got it. Okay. That's helpful. And then, I just wanted to also revert back to the question, I guess, you're going to be obviously appointed Chairman at the end of next month, so congratulations for that. I think you guys made this acquisition or equity stake in 2 simple, which obviously, I don't think was financially motivated rather just from a development of new product perspective. But, obviously, Derek, the Werner profitability trajectory has dramatically improved under your leadership and the senior managers' leadership. It doesn't seem like you guys are getting as much credit as you should for the improvement. I was just wondering, if that given your elevation to Chairman of the company, whether that changes the M&A strategy, I mean, Werner has been incredibly conservative from an M&A perspective. Does it at all kind of incentivize you want - strategically want you to pivot into a little bit more of an M&A that gets you away from this truckload and diversify a little bit away from, so you don't have to deal with this peak debate that continuously happens?

Yeah, well, I don't know, if you could ever find a formula to not deal with the peak debate, I'd be happy to be, I'd be all ears, because it doesn't seem to matter that our portfolio is arguably the most defensible portfolio in trucking, and yet it doesn't underperform during very strong robust markets. And so it wasn't an anchor during good times, it's clearly been demonstrated to be a support structure as markets turn. As it relates to me as Chairman, first off, I appreciate your comments, I think I'd be remiss if I didn't point out that, see all his guidance, his leadership, as part of the last several years have been integral to this. But he and I both agree that is it's time for Werner to take that next step to evolve and continue to push boundaries on what is possible to have the energy and the focus and the technology to do it, to invest in the business consistently like we have been doing and have really focused on free cash flow, which then provides opportunities for things like M&A, share repurchase and dividends. Those are all on the table. I want to be clear, we will continue to look at all of those, we've talked about all of those for some time. But, yes, there's probably a shift in our tolerance to be aggressive. There's a shift in our tolerance to look to return value to shareholders in all forms. And that is something that I think over time you'll see play out.

Our next question will come from Brian Ossenbeck with JPMorgan. Please go ahead.

Hey, good afternoon, guys. Thanks for taking the question. Derek, maybe we can just get you to expand a little bit more on M&A. Clearly, you've invested a lot in the business through the 5 T's, you've made some of those equity investments or partnerships that we've been seeing in the news and some of that you've been getting some benefit from things like Mastery. What is kind of the medium- to long-term? Are you looking for things to develop externally? And then put your chips down in a bigger way? When you feel like there's a bigger need? Or do you think that you can just get to where you want to go through partnerships alone? So how do you think, I guess, about the partner versus acquire even in some cases, the build versus buy, when it comes to technology?

Thank you for the question. So build versus buyouts, there at the end of there, we believe there's a lot more that we can buy versus build as it relates to technology, focus our efforts on integrating the connective tissue that makes those systems work well together. There will always be proprietary things that we think our secret sauce to our business, that creates an opportunity for us to differentiate and we'll build those things. But we're certainly open-minded to go out and partner with folks if we think that's the right approach. And we've demonstrated that, as you mentioned, with both Mastery and TuSimple. We think we can add value to the development of those products and make those products not only more robust, but actually better fit our needs through that process, that's something that we're excited about. As it relates to M&A, we've looked at these deals for a long time; the appetite is probably more there than maybe it has traditionally been. And frankly, the need is probably there more than it has been traditionally. This is a driver market like Werner never seen, I've been doing this now for 30 years. If you're going to try to do something on the asset side, the idea of adding geographic capabilities, adding drivers into the mix that we think fit culturally or otherwise would be attracted to us. On the non-asset side, clearly, there's folks out there that are winning in their space that are generally maybe early in their development that we think we can add a catalyst to, and both to our own business, but to the underlying model that they're building and working on. And if the opportunity presents itself and the price is right, that's something we're going to look at more seriously. So yeah, there's a shift, subtle as it may be, as it relates to that. But at the same time, we're not going to be a serial acquirer, and we're not going to be going out to buy things just to buy it. I'm not looking to stake my 30-year reputation on making some move overnight, just for the point of doing it. But I think, you've seen a commitment from myself, and this entire leadership team to make whatever moves are necessary to continue to enhance value for our shareholders, and that's one of those that's on the table.

All right. Great. Thanks for all the context there. Just a real quick follow-up on the Class 8 orders, it sounded like with the gains, I'm assuming, you're getting the trucks that you need to at least here for the first quarter. But it sounded like there's still some uncertainty whether or not you're going to face some delays throughout the year. So maybe you can just give us an update in terms of what you're hearing from the OEMs, and kind of what you expect to see in the rest of the year, when you look at the fleet that you have on order so far.

Thank you for the question. I'm going to be a little careful here and let the OEMs focus on speaking for themselves, as it relates to their specifics. But in general, this market and where we're at in the market and with our focus on service, I simply don't - regardless of what I'm hearing, I don't want to put our customers or our customers freight at risk through a lack of supply of new equipment. And as a result, we're going to be very careful and conservative as it relates with what we saw in Q2. At the same time, we're clearly projecting a large sales numbers. So it's not like we're going to shut down the process. Right now, we feel like we're in great shape. Our OEMs have been great partners. They've stepped up. We've worked with them and the communication has been outstanding. We'll continue to be laser-focused on that communication and on their deliverables. But, yeah, I think it would be a shortsighted move on our part or on my part to chase quarterly gains at the expense of long-term customer opportunities. And so, that's really the primary driver of that. And as it relates to gains, I just want to say this while I have the opportunity, I know tomorrow people will be quick to point out that somehow gains don't count as or take some stance as to what our gains are part of cooperations. But I haven't changed my view on this, and I never will. How you buy a truck? The negotiated price that you - and time and effort you put into specing that truck, how you maintain it during its entire life. And how you sell it is about as core to running a quality trucking company as anything I can think of. So I view it as absolutely a core part of our business and critical to our success. We'll be opportunistic about when we sell, when we buy and what we buy. But it's always going to be with an eye towards a longer-term strategy, not just the quarter.

Our next question will come from Bascome Majors with Susquehanna. Please go ahead.

Yes, thanks for taking my questions here. Your largest customer was recently talking pretty publicly about expanding their private fleet on their earnings call and in the press. And you know they've done this before, but can you give us a fresh look on whether or not these efforts will or won't impact your broader growth and dedicated truck count over the next, call it, 1, 2, 3 years? And you may be more broadly above and beyond that, anything you need to add on the Dedicated pipeline and sales cycle, just putting that in historical context today versus where that's been historically?

Yeah, great question. So for starters, our largest customer is highly successful and runs a very good business, and has continued to win through the cycle. And that's got a lot to do with why we have such a strategic relationship with them. I'm always excited if a customer wants to take on some transportation on their own, to help offset the needs that they're going to have, as they grow and does several very valuable things. It instructs them on just how difficult this business is to do. It allows them to learn and appreciate the challenges that their freight may present. And it makes them, frankly, much better customers over time. So, no, I don't think it's a drag on our opportunities. As we look forward, we actually participate in those discussions with them on a regular basis, help and even support some of the launch of that fleet in various locations. And yet, there's plenty of opportunity for us to continue to perform at the level we're performing and grow our business with them. So it's not something that I would be concerned about, as I think about what Werner's Dedicated footprint looks like. And frankly, we have a huge pipeline currently of opportunities that are predominantly outside of that very customer. And it's a broad mix and it's part of that puzzle I referenced earlier in the call where we're out right now being very selective and thoughtful about the type of business, the geography it exists in, and the cyclicality of it as it relates to intra-year cyclicality, when do they surge and what do they need during that time, and fitting more pieces of this puzzle together, that I think is going to pay dividends as we go forward. So that's my best answer to that.

Thank you for the thoughtful answer.

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

Thank you, Matt. I'd like to thank everyone for joining us today for our first quarter earnings call. It's an exciting time at Werner's. We continue our journey towards sustainable best-in-class earnings through the cycle. Our consistent operational execution of our 5T's plus S strategy has resulted in structural and durable improvements across the business. Consistent free cash flow generation and ongoing margin expansion are the outputs of the strategy. But it's the passionate driver, office and maintenance associates that provide the creativity and energy that makes it all possible. Our commitment to continuous improvement and safety and on-time service and sustainability is unwavering, as is our focus on achieving Diversity, Equity and Inclusion throughout the organization. This commitment is backed by our balanced portfolio. And it positions us well to succeed and create long-term sustainable shareholder value. In 2 weeks, C.L. Werner our Founder and Chairman, first driver, and my dear friend will be retiring from our Board of Directors. He's had an incredible career and built a lasting legacy over 65 years in this industry. His foresight, wisdom, entrepreneurial talent and drive as cemented him as a legend in the trucking industry. Starting as one man with one truck and growing to nearly 8,000 trucks and 13,000 associates is something to be proud of. But more important than that, he did it the right way, focusing on premium service and safety, taking care of his customers, drivers and associates above all else, and trusting that the profits will follow. We all owe C.L. a debt of gratitude for what he created. And I'm humbled, honored and excited to help move Werner forward from here. This story isn't complete, but it's been a great read so far. And on behalf of all of us here at Werner, we firmly believe the best is yet to come. Thank you, C.L. from all the Werner team, our Board, our shareholders and our customers.

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