Good afternoon, and welcome to the Werner Enterprises Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I’ll now turn the call over to Chris Neil, Senior Vice President of Pricing and Strategic Planning. Please go ahead.

Good afternoon, everyone. Earlier today, we issued our earnings release with our second quarter results. The release and a supplemental presentation are available in the Investors section of our website at werner.com. Today’s webcast is being recorded and will be available for replay later today. Please see the disclosure statement on Slide 2 of the presentation as well as the disclaimers in our earnings release related to forward-looking statements. Today’s remarks contain forward-looking statements that may involve risks, uncertainties and other factors that could cause actual results to differ materially. The company reports results using non-GAAP measures, which we believe provide additional information for investors to help facilitate the comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation. On today’s call with me are Derek Leathers, Chairman, President and CEO; and Chris Wikoff, Executive Vice President, Treasurer and CFO. Derek will begin with a high-level overview of our performance during the second quarter and an update on execution against our DRIVE strategy, specifically with a focus on innovation. Chris will then provide a deeper dive into our results. We will then open it up for questions followed by closing thoughts from Derek. Now, I’ll turn the call over to Derek.

Thank you, Chris, and good afternoon. Before we get into an overview of our second quarter results, I’d like to thank the 14,000-plus talented Werner team members for staying true to our core values, safely providing superior service to our customers and delivering on our unrelenting DRIVE strategy. We are proud to be the carrier of choice among our deep portfolio of valued customers who are allowing us to solve and service their most complex freight challenges every day. With that, let’s turn to our second quarter results on Slide 6. On our previous two earnings calls, we shared our expectation that freight conditions in the first half of 2023 would be challenging and competitive as retail inventory destocking runs its course, the Fed continues with monetary tightening and excess capacity dissipates. Following a moderating freight environment in February and March, freight was progressively weaker in April and May. However, there was a slight improvement in mid-June, which we’ve seen continue throughout July. In the second quarter, revenues decreased 3% year-over-year to $811 million. Net of fuel surcharges, our second quarter revenue grew by 2%. Adjusted EPS was $0.52. Adjusted operating income was $51 million or an operating margin of 6.3%. Adjusted TTS operating margin was 9.7%. Despite the challenging operating environment, our TTS segment achieved an adjusted operating margin of 12.9% on a trailing 12-month basis, within our long-term guidance range of 12% to 17%. Our primary focus is on operational execution by leaning into the strength of our dedicated fleet, which has performed as expected through superior customer service and fleet efficiency. This focus continues to result in strong customer retention and year-over-year growth in revenue and revenue per truck per week. As anticipated, One-Way Truckload was challenged by overall market conditions with less freight available, elevated spot…

Thank you, Derek, and hello, everyone. It’s great to speak with you all today, and I’m thrilled to be here. With 100 days in at Werner, I’ve had a tremendous opportunity to engage broadly with the business and operations, seeing firsthand our operational expertise and momentum for innovation and growth. This is a unique environment with the passion for excellence in winning, and I look forward to the work that we can accomplish together here at Werner. Let’s continue on Slide 10. Second quarter total revenue was $811 million, which was down 3% versus prior year. Net of fuel surcharges, Q2 revenues grew by over 2%. TTS revenues net of fuel were nearly flat despite a softer freight market, while Logistics revenue grew for the 11th straight quarter, reporting double-digit growth. Adjusted operating income was $51 million, and adjusted operating margin was 6.3%, a decrease of 34% and 300 basis points, respectively, versus prior year. Adjusted EPS of $0.52 was down $0.35 year-over-year due to the macro environment, lower equipment gains, higher interest expense and ongoing inflationary headwinds. Turning to Slide 11 and our Truckload Transportation Services results. As a reminder, we report our TTS adjusted operating results net of fuel. TTS total revenue for the second quarter was $570 million and down 7%, yet demonstrated resiliency and durability with revenues net of fuel surcharges nearly flat at $493 million. Given the macro environment, we are pleased with the top-line performance in TTS. Second quarter TTS adjusted operating income was $48 million, and adjusted operating margin was 9.7%, a year-over-year decrease of 28% and 370 basis points, respectively, due in part to lower equipment gains against a strong prior year comp. In the second quarter, gains on sale of revenue equipment totaled $11.4 million, a decline of $7.3 million or…

Thank you, Chris. The freight market has been challenging in the first half of 2023. During July, we have seen modest signs of improvement in truckload. Dedicated demand remains steady, and we anticipate a pipeline of opportunities that we can capitalize on. One-Way pricing will remain disciplined as spot mix gradually moderates, particularly as we flex into more dedicated growth. Despite a very competitive marketplace, we expect continued solid volume in logistics with continued margin pressure given a prolonged competitive rate environment. As we look to the second half of the year, the collective voice of our larger retail customers continues to reflect that destocking is largely complete. And reports indicate that inventories have returned to pre-COVID levels on an inflation-adjusted basis. We remain cautious about consumer behavior given mixed data points and themes impacting spending, particularly for goods versus services. Headwinds remain in terms of further Fed tightening with inflation still well north of the Fed target and potentially ongoing restrictive lending. Further, we expect there will be an accelerated pace of freight capacity exiting the market. Relative freight capacity, FMCSA carrier data reports DOT net truck deactivations for 44 consecutive weeks and now exceeds 110,000 net deactivations over that period. At this point, we believe smaller carriers have been supported by cash reserves generated from the peak 2022 freight market, federal stimulus and lower fuel costs. Accelerated truck capacity attrition seems more imminent as cash reserves reach a point of depletion. And we believe even in a gradually improving freight environment that it is unlikely for those carriers to reenter the market given much higher financing costs and other factors. We are well positioned to benefit from the reduced supply, more normalized demand and upward momentum to lock in more contractual freight at improving rates. For the used…

[Operator Instructions] Our first question is from Ravi Shanker with Morgan Stanley. Please go ahead.

Thanks. Good afternoon gentlemen. Thanks for the color here. Would love your views on what your customers are telling you. You kind of hinted about inventory levels kind of coming back to normal here. Kind of how do you think the cycle plays out over the back half of the year and going into 2024, please?

Yes, Ravi, thank you for the question. I guess I’ll start with, obviously, it’s a bit like the weather. It’s localized in nature, meaning each customer is in a little bit of a different setting. But the majority of our customers, as we’ve recently had significant dialogue with them on the subject, have indicated that destocking is largely behind them. So that’s encouraging. They’re also encouraged from some of the macro backdrop data that we all see. Labor is holding up well. Jobs reports are arguably better than what was originally expected. Inflation seems to be waning a little. And if nothing else, we’re starting to enter at least easier comps as it relates to that, and people are normalizing their perception of it. We work a lot with winning customers in sort of discount retail space. Those folks seem to be faring better than most. So as we put all that together and think about the back half, I’d say we’re cautiously optimistic, as are they. But clearly, you’ve still got that tightening ahead of us. You’ve got some pretty stringent kind of lending backdrop. So it’s difficult to say, but it appears to me that we’re seeing the early innings of what could set up more like a normalized Q4 with some difficult headwinds still ahead of us in Q3.

Got it. That’s super helpful. And maybe kind of switching gears for a follow-up to the cost side. Obviously, you had a few challenges this time last year, which gives you a little bit of an easier comp. And you guys have made some good progress there. Can you talk about kind of some of the line items you’re looking at, particularly insurance? I think there have been some significant changes in the insurance market in recent months. How do we think about cost inflation as a potential offset to any pickup in the cycle?

Yes, Ravi, thanks for the question. This is Chris. In terms – specifically on the insurance and claims, we did see some year-over-year benefit there and flat quarter-over-quarter, although admittedly, Q2 of prior year was a peak for insurance and claims. So that’s somewhat contributing just in terms of the comp of some of the moderation year-over-year in the quarter. But this is still an expense category that just continues to be challenging for the industry. Our frequency of claims is down, remains down. Our safety metrics continue to be positive. And unfortunately, the insurance and claims just broadly for the industry can be difficult given the cost per claim rise and broad issue. But we are seeing some other moderation in supplies and maintenance. That was up 4% year-over-year, but it’s down 5% quarter-over-quarter. That’s a particular category that we’ve been very focused on. A couple of metrics there in terms of our trucks that are over 400,000 miles, we’ve continued to see that drop dramatically. It peaked last September. It was still elevated coming into this year. By the time we hit March, it was lower than any month last year. And then we hit June and hit a low point, almost a two-year low point in terms of our trucks that are over 400,000 miles and out of warranty. So that has a knock-on impact to the supplies and maintenance. The other thing that we are seeing some benefit from is getting some traction and seeing the benefit from an extended period here of building in-house capability for our repairs and maintenance throughout our terminal network. So, we’ve been spending several months in building that capability, hiring mechanics and developing the means to route trucks to those terminals for in-house repairs and maintenance. And now we’re actually…

Very helpful, Chris. Thank you.

The next question is from Bascome Majors with Susquehanna. Please go ahead.

Good evening. As you think about growing the dedicated business over time, can you talk about how some of the in-sourcing or private fleet efforts from your largest customer is impacting that and the strategy you have to both offset and overcome that either with other business or other customers or just strategically to stay engaged there? Thank you.

Sure, Bascome. I’ll take that one. I’ll start with the obvious. They are our largest customer. And as such, both parties have some – we have a vested interest in making sure that the solutions we put in place are sustainable for both of us. Their growth has been impressive, will remain impressive. And as I think about them moving forward, it’s certainly something that excites us. We can’t exclusively be that growth partner or that growth avenue for them because, as you know, we’re going to stay disciplined to the diversity within our portfolio. We’re going to stay disciplined to our approach, both geographic diversity as well as vertical diversity, but probably most importantly, what our representation with any one customer is. With all that said, it’s a mutually executed strategy. We work with them very closely. We’re actually growing with them. Here recently, we have opportunities to continue to do so where it makes sense for us. But we’re well aware that they have a strategy to have a private fleet in addition to that. We have many other customers who have private fleets, and yet we operate Dedicated side by side. I often believe that it makes for better customers because they are exposed to the weather out there, so to speak. They understand better and become better buyers of freight. And they’re more educated in their acquisition of capacity. That – all of those things lead me to believe we’re in good shape there. We’re going to continue to have open dialogue. But what it’s really going to do is force us to continue on a plan that we set forth some time ago anyway, which is making sure we’re diversifying across multiple verticals, multiple geographies and expanding the quality service and product that we have to offer to more new customers as well as what we’ve been good at for a long, long time, which is growing deeper and broader with existing.

Thank you for that expansive answer. I just wanted to touch on one point you made in the middle of it. Did you say that despite them growing their fleet, you’re still growing trucks with this customer? Just wanted to make sure that I heard that.

Yes. I’m saying as we – as they are growing their fleet, we still have opportunity to pick up new opportunities with this customer, yes.

Thank you for the time.

The next question is from Elliot Alper with TD Cowen. Please go ahead.

Great. Thank you. Maybe on the Logistics side, you talked about stabilization in the outlook but called out some margin pressure in the back half of the year or in 3Q. Can you maybe parse that out between Truckload, Final Mile and Intermodal?

Yes. I mean look, I’m going to focus on Truckload with my answer. As it relates to the reality, that is the largest portion of that Logistics portfolio. And what we’re really saying there is, look, we’re very proud of not only holding serve on our organic Brokerage business and really sort of outperforming the market in terms of the amount of revenue we’ve held on to and volume, probably more importantly. But with the Reed acquisition and their ability to not just be at scale from the time of acquisition but having grown further since that time, we’re pretty bullish on our capabilities in that space. We also love where we’re at as it relates to the conversion within our EDGE platform and our ability to operate more efficiently over time as we grow into that business. All of that obviously is offset by the reality that as this market does turn, there’s going to be pressure in the non-asset space. You’re going to see buy side pressure that isn’t always synced with the ability to gain that same relief from a sell-side perspective. And so there’s going to be some puts and takes as we work our way through all of that. What we’re especially pleased about within Logistics though is the resiliency of the Power Only product. That product, in particular, which is really an integrated product within our One-Way network, is holding up remarkably well. We have – we’re very optimistic on our ability to continue to grow that, give our customers a seamless experience but be able to give ourselves a little bit as less asset-intensive exposure and while providing ongoing freight via Werner Bridge and more of a digital format to our customer partners and really lowering their operating costs at the same time. So pretty exciting time as I think about that business over the next, call it, two to three year outlook.

Right. I appreciate it. Thank you.

Thank you.

The next question is from Jack Atkins with Stephens. Please go ahead.

Okay, great. Good afternoon guys. Thanks for taking my questions. So I don’t know, if Derek, if you want to take this or if this one is better for Chris. But I guess as you sort of think about the trajectory here as we head into the back half of the year, in the context of the longer-term 12% to 17% TTS margin range, I understand this has been a much more challenging freight recession than I think anybody could have anticipated. But do you still feel like that the bottom end of that range is achievable for this year? And if so, sort of what sort of fourth quarter do you need to see to be able to get there?

Yes, Jack, thanks for the question. Clearly, that’s going to be challenged. There is a lot of headwinds that we’ve got to continue to work through as it relates to declining used truck values and volumes. We’ve got to continue to deal with the reality that although we’re over three quarters of the way through our bid season, we have some of those bids that are still being implemented in Q3. Hence, the updated guidance on price. Interest rates and where they may go on the portion of our debt that’s variable. I mean there’s a lot of things to think through. But we’re making progress on the cost side. We’re holding serve relative to revenues and volumes, and we’re proud of our positioning there. The pipeline in Dedicated looks good. The opportunities in – for second half implementations in Dedicated that are sort of one and yet to be implemented is encouraging. And frankly, some of the efficiencies that we’re finding on the One-Way side, seeing productivity go positive year-over-year for the first time in multiple quarters is encouraging. We believe we have more work to do to gain even further efficiencies and optimization in the network. Bottom line this year, challenging. I don’t believe it’s worthy of us changing our long-term guidance. We may fall out of it for a quarter or two. But over the course of the long term, we still feel very comfortable. That’s where we belong. That’s where we’ll live, and we’ll continue to drive forward from there.

Okay. No, I appreciate that, Derek. And thank you for the context there. I guess for my second question, I’d love to get you to talk a little bit more about Werner Bridge and kind of going back to the both the prepared comments into the last question but – or last questioner. But as you sort of think about Werner Bridge longer term within the context of your technology journey, is this something that can really integrate what you’re doing within TTS broadly, within also Logistics? I mean is this – help us kind of think about what this means for more of an integrated kind of go-to-market strategy within your business longer term?

Sure, Jack. I’ll do my best to do exactly that. I think I got to back you up before we get to Werner Bridge and talk more broadly about sort of the EDGE TMS strategy overall with the – with MasterMind as kind of the backbone of that strategy. That’s really the platform, if you will, that allows us over the next couple of years to continue to land all of the portfolio on one core platform with full integration, visibility and thus flexibility in how we execute on our customers’ needs. Werner Bridge is a component within that that’s allowing us to make a large step forward in this sort of digital brokerage space. That puts us in a position, especially at that small to midsize customer level, to be able to operate highly efficiently with human engagement still where required, with the kind of customer service and support that our customers have come to expect. And an analogy would be somewhat like pure brokerage versus Power Only brokerage, at least in my mind. Werner Bridge is going to bring all of the qualities and attributes and flexibility and variability that Brokerage brings. But Power Only brings all of that plus that asset-backed nature and that fully integrated effect within the network. Werner Bridge is similar in that sense. We want to be able to give people that much more high-level visibility, efficiency, the ability to track, reload, use predictive AI to be able to maximize their utilization and minimize inefficiencies in the network but tie it to the Werner brand and tie it to what that means, which is still human engagement where human engagement is necessary and required and the ability to kind of lift up that customer and their expectations out of that pure digital brokerage marketplace that is purely – that is more transactional and less customer-centric. That’s not who we are. That’s not how we do business. So this is going to be a journey. We’re on that path today. It’s not happening overnight or in the next quarter or two, but it’s a journey over the next, call it, 18 months that we’re really excited about.

Okay. That’s great. Thank you for the time.

The next question is from Jeff Kauffman with Vertical Research Partners. Please go ahead.

Thank you very much. I was just looking at the big change in length of haul in the One-Way Truckload, about 690 miles – 692 last year, dropping to 604 this year. I was just wondering if you could talk a little bit about the dynamics in the marketplace that caused that differential. I imagine with the port situation backed up, that was part of it. But I’m just curious if there was something similar in Dedicated. And can you give us an idea of how much that big drop in length of haul might have affected the revenue per total mile?

Yes, I’ll take that one, Jeff. This is Chris Neil. We’ve been having length of haul contraction over the last several quarters, as really the industry has, due to just a number of different things with the regionalization of rate, our Dedicated – I think your question is TTS related. So our Dedicated fleet continues to grow as a percentage of TTS. Dedicated length of haul on average is much shorter than what we do on the One-Way side. And then we’ve got a couple of acquisitions over the last two years, specifically with regard to ECM that had a more regional footprint than what our One-Way Trucking organic fleet had. And so all those things acting together have resulted in a little bit lower length of haul. You will notice that on One-Way Trucking this quarter, we were finally able to overcome a year-over-year negative miles per truck trend that had occurred over multiple quarters leading up to this quarter. It didn’t increase significantly, but we did end the sequential declines or the sequential year-over-year declines in One-Way Trucking. And we do think that we’re headed toward better utility for a number of different reasons in the future here. We’ve built that One-Way Trucking segment on cross-border Mexico. We’re focused on engineered business, and we’re focused on expedited business. And we’ve made progress on all three of those fronts, which have enabled us to, I think, kind of turn the corner as it relates to length of haul.

Well, I appreciate that clarity, but this is just One-Way Truckload. 692 down to 604, that’s almost a 13% reduction in length of haul. So you’re showing a change in revenue per total, call it, 5.2% to the downside, excluding fuel. I was wondering how much this change in length of haul accounted for out of that 5.2% reduction. That’s what I’m going at here.

Yes. Well, clearly, as length of haul shortens and as we look to engineer more of the fleet, which has been a heavy, heavy focus during this downturn, is to try to further tighten the belt on the engineered lanes and get less and less random in the application of our assets. You’re going to see a rate per mile offset to the positive because the shorter length of haul is going to have someone to carry a higher rate. That’s why, ultimately, we often will look back and talk in terms of revenue per truck per week or actually, on the One-Way side, it’s more of a revenue per day metric that we’re constantly trying to analyze and make sure we’re utilizing those assets efficiently. Frankly, right now, as we went to the bid season, we talked a lot in the prepared remarks about pricing discipline. We stayed very disciplined with our pricing, which translated, frankly, to a larger portion of our fleet being in that spot market. We were prepared and willing to do that compared to contractually binding the fleet at rates that we felt were not sustainable and not indicative of the reinvestment necessary to serve that business. And so the shakeout in those One-Way bids was – call it, the turnover in the bid was a little higher than what we’ve experienced for the last several bid cycles, not unexpected in a down market. But whenever you hold a discipline in price, you see more mix change in your award. You might hold revenues but have a 60% different mix. And it’s about what you then accept and integrate into this new engineered environment that makes the difference. And we think we’ve come out of that in the right place with the right amount of business contracted and with more spot exposure than we’d like, but that’s sort of low for a less duration than it would have been had we chased rate through the bid process.

Okay, Derek. Thank you.

Thank you, Jeff.

The next question is from Eric Morgan with Barclays. Please go ahead.

Hey, good afternoon. Thanks for taking my question. I wanted to ask on Dedicated pricing, specifically your guidance for 0% to 3% for the year. I know you’re up 3% in the first half. So the midpoint obviously implies flat for the back half. So just wondering if you could discuss some of the puts and takes there and the outlook. And what are the chances that could dip negative and maybe even bleed into early 2024 at that kind of rate?

Yes. I mean we – Dedicated has been a strong, resilient business for us for a while. And as we indicated, Dedicated rate per truck per week has increased eight of the last nine years, I think. So through multiple cycles, we proved that we are able to maintain that on a positive year-over-year basis. And I think we’re in a good position to do that again this year, being up 3% through the first half, as you mentioned. We do have some comps with the second half that might result in a lower year-over-year improvement as we head into the second half. But at the same time, that’s something that we’re able to improve both in terms of efficiency and utility as well as top line. We do have some contractual business or some contractual escalators with Dedicated that will result in a year-over-year increase, a slight one, but will help mitigate some inflation. And so between the productivity gains that we think we’re continuing to eke out in Dedicated, we do have a 95-plus percent retention ratio that enables us to continue to work with customers, really become integrated in their business and improve how the business operates. And we work very closely with customers to do that. So part of the gain in revenue per truck is in utility. Part of it’s in efficiency, and then part of it is on top line. We’ve got a lot of really strong customer relationships. And I think in many cases, they understand the inflationary environment that we’re in. They understand the importance of keeping their fleet staffed with professional drivers and in many cases, are helping offset some inflationary impacts just with continued partnership as we go through this really tough environment. And we stuck with these customers last year and prior year during the pandemic. And I think we’re seeing the benefits of that now with good partnerships as we enter through the rest of – the next half of the year in a tough environment.

Appreciate that. And maybe just a quick follow-up on Logistics. Any thoughts sequentially on operating income or margins there would be helpful. Are we kind of in a reasonable run rate here in the mid-single digits on op income?

Yes. I think op income in Logistics is going to be determined by the ability to continue to eke out on the cost side of the equation, some productivity gains, some advancements in some of the tech that we’re able to start to utilize on a more fully burdened basis in the quarter, offset by the reality that it is our belief that the sort of worst in the spot market is behind us. The bottom has been found as it relates to pricing. And as that pricing starts to bounce and you start to enter into buy side pressure in Logistics, that represents a headwind as you then work that through the sell side back to – and through the customer. So I think where we’re at today is a focus on gaining quality customers into the portfolio, holding serve, if not growing share, maintaining a disciplined focus on finding future efficiencies and cost savings but recognizing that business, in particular, unlike Dedicated that’s multiyear, very sticky, very strategic in nature, that has a more transactional feel to it at times. And so there could be or likely would be ongoing pressure in Dedicated, if that were – I mean, in Logistics, I apologize. And if that happened, that simply bodes well for the asset side of the business because it means we’re right and that capacity has, in fact, started to dissipate at a more rapid rate, that we have, in fact, found bottom, and we’re seeing sustainable improvements in the spot market. And so there will be puts and takes across the various operating segments.

Thanks. Appreciate it.

Thank you.

The next question is from Amit Mehrotra with Deutsche Bank. Please go ahead.

Thanks. Hi, Derek. Hi Chris. Welcome, Chris Wikoff. Derek, earnings, if I look at trucking earnings – or sorry, TTS earnings, they’re now below pre-COVID levels. If we just look at 2Q this year versus 2Q 2019, I think, about 10% below. We all know it’s a tough market. I guess the real question is, what does the recovery path look from here? You’re a cycle guy. You’ve been doing this for a really long time. What does the normal trajectory look like from where we are today? And just given the idiosyncratic or kind of exceptional time that COVID brought in terms of freight, is it just simply going to take several years to get back to where you guys were a couple of years ago? And it’s – I guess it’s exacerbated by the majority of the assets. It was in Dedicated business, which obviously is inherently less volatile. So I’m just trying to understand. We’re back to pre-COVID or below pre-COVID. What does the recovery trajectory look from here in your opinion?

Sure, Amit. I appreciate the question. Other than the part where I think you implied I was old, but thank you. Look, this cycle is certainly different. You’re right. We’ve all seen several cycles, but this is different. I don’t think we’ve ever seen a cycle where the high was as high as it was, where freight was as robust as it was in 2020 – in 2021 and 2022. The fall was further to go. Really the closest comparison I would give would be the 2008, 2009 financial crisis. So the idea that the pressures have been greater than what they were pre-COVID isn’t surprising to me given how much the – or how the consumer behaved during those COVID years. I would also point out that there is a step-level change in the insurance line from pre-COVID until today, not just at Werner, but across the entire industry. That’s certainly eaten into some of those pre-COVID margin levels as you think about it. But how do I see it playing out from here? The best analogy I could use is I think this – to me, there are multiple indications and metrics that we watch closely that would indicate that we have, in fact, seen kind of the bottoming from a spot and rate and market condition perspective. What I don’t expect is a sudden and dramatic rebound from here. I think it’s going to be a slow climb. We’ve never seen carriers come into a market as tough as this one, with an abundance of cash that was accumulated during COVID that allowed them to survive leaner for longer like we have this time. But now that is largely exhausted. We’ve done a lot of internal analytics on what we think the average carrier had coming into…

Yes. And just a quick follow-up, if I may. Do we take another leg down in the OR in 3Q? It looks like based on your guidance, revenue in both Dedicated and One-Way should be flat to up slightly. But obviously, you got a little bit fewer gains sequentially. Are we at the point now where OR is kind of holding the line here? Or do we take another tiny leg down and then recover from there?

Well, the used market is a big gray area right now. The gain on – the gains line is going to play a role in that answer. We know it’s decreasing. We know volumes will be lower and margin per unit will be lower. We also know we’re gaining momentum on the cost side of the equation. And as I’ve previously mentioned, we have this opportunity with what is currently a negative, which is an outsized portion of the fleet in the spot market to be able to improve upon that sort of with some immediacy as we – if we see rate improvement in the quarter. At this point – and if you really look back historically at Werner Q2 to Q3, flattish is kind of the best word to describe it. I think that’s a fair way to think about this year as well. But this year has got some unknowns in it that we’ve got to grind through. I can tell you that the team is focused on doing exactly that. And we are not going to be looking to grow that One-Way fleet, certainly in this environment. And if we have the opportunity through some implementations to do more fleet migration from One-Way to Dedicated, that will also take the pressure off of that OR.

Yes, makes sense. Thanks. Thanks a lot. See you in a couple weeks. Appreciate it.

All right, thank you.

The last question today comes from Brian Ossenbeck with JPMorgan. Please go ahead.

Hey, good evening. Thanks for taking the question. Maybe, Derek, just to go back and drill down on that point, you’re talking about the latency of the inherent upside with the extra spot, which I think you mentioned is about 15% of One-Way or mid-teens, rather. Do you have some shorter-duration contracts in there as well that could help? So maybe just help us think about the speed with which you can turn that around and maybe sort of the benefit you’d expect if and when that spot market does start to inflect.

Yes. So in One-Way, we’re about mid-teens on the spot side, and that is essentially immediately fluid capacity that can move either up and to the right within spot to better opportunities and/or support customers’ needs as their cautious optimism comes through in fruition with actual volumes. So we’re in those dialogues all of the time. We’ve seen some movement even within July thus far. That’s positive and encouraging. As it relates to some remaining contractual renewals, obviously, the environment and our discipline is only further entrenched as we get into the back half of the year based on trends we’re seeing with capacity. So that allows for some optimism there. Those are countered, of course, with the reality that some of the first half bids are being implemented as we speak and actually taking effect in the quarter. So yes, we are cautiously optimistic we can make some moves up. The biggest one – the biggest two would be movement within or at – we’re moving out of spot with that mid-teen percentage and playing a more active role, and even a muted but relatively normalized peak season would play a fairly pivotal role given that 15% of that fleet is operating at significantly lower rates than where they would traditionally have come in to the fall operating at. And we’re seeing activity in that as well. So that’s a lot of things to incur – that look encouraging, but I don’t – I want to make sure that we’re clear. There’s still a tough fight ahead of us that we’re still in this for a quarter or two, and we’re going to put up that good fight.

Understood. Thanks Derek. And just on the self-help side, to follow-up. Chris, maybe you can talk a little bit more about the cost savings program, where you are currently in terms of a run rate. How much of these are structural versus what might be more volume variable? And actually, I think maybe you even raised the number to $40 million from $34 million. So if you can address those. Thanks.

Yes. Hey Brian, yes, happy to do that. Yes, from the last earnings call and quarter, we have raised it. The targeted and identified in-year savings for 2023 is over $40 million, and the realization rate has also progressed about the target and the realization. Over 40% is realized through the first half. Multipronged in terms of what makes up that $40 million. It’s a combination of driver and non-driver salary and wage changes, whether that be through head count or through just structural changes, particularly for new drivers coming in. There’s savings from having reduced turnover in the driver pool, lower spend on recruiting and just overall impact by having less turnover. It’s expensive to train and onboard a driver and get them into place only to see turnover. So the more that we’re focused on reduced turnover, there’s significant savings there as well as just having a strong driver pool and spending less on recruitment. Then investing in fuel efficiency, whether that be through a certain equipment that we believe has a big opportunity to improve margins going forward as we invest in certain equipment that helps with fuel efficiency, auxiliary power units and other things that we’ve looked at and just other initiatives that we – as we track the data, we’re seeing increases in miles per gallon. And then in supplies and maintenance, which is a topic that I mentioned earlier. So it’s really multipronged. It’s across the organization. Its very process oriented. And we feel good about where we’re at and where we’re going.

Okay. Thank you, Chris.

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, sir.

Thank you. I would just like to thank everyone for joining us on our second quarter earnings call. And while Q2 represented a further extension of an already challenging freight environment, capacity rightsizing is gaining momentum across the industry. The consumer is holding up strong. Inventory destocking is largely complete, and the labor market has held up well nationally. We’ve remained and will remain disciplined on price across our organization while staying focused on growth in Dedicated and Logistics. And our tech investments are maturing, as is our disciplined approach to lowering our cost to execute. We remain committed to operational excellence, and I thank the entire Werner team for their passion to deliver it every day. And then speaking of the Werner team, I just want to take one last moment here and comment on a situation yesterday. It was our driver, a million-mile professional driver that’s been with us for a long time that was part of the situation in Ohio, where two fugitives abducted a truck with our driver in it and held him hostage for a multi-hour standoff with police. They kept him in the truck in a high-speed police chase. And he was, thankfully through the efforts of the men and women of the police force in Ohio, able to exit that very vulnerable situation safely. Our thoughts and unfettered support are with him and his family. But also, I just would like to add for all truck drivers out there because this is a tough industry; these folks are the backbone of this country. And I think we have quickly moved on from COVID and often forgot about the efforts and the work that they do to make America what it is every day to keep this economy moving. And so I want to thank all of them for those efforts. And I want to thank the men and women of the – in blue in the state of Ohio for having eliminated that threat and safely returned our driver to both us, but more importantly, to his family. Thank you.

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