Good afternoon, and welcome to the Werner Enterprises Third Quarter 2023 Earnings Conference Call. All participants will be in 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. I’ll now turn the call over to Chris Neil, Senior Vice President of Pricing and Strategic Planning.

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

Thank you, Chris, and good afternoon, everyone. 2023 has presented us with a challenging operating environment. The third quarter was no different, and our financial results did not meet our expectations. Despite the difficult quarter, I’d like to start by thanking our 14,000-plus talented Werner team members for all that you do each day to uphold the Werner brand and reputation by staying true to our core values, making safety our top priority and providing superior service to our highly valued customers. During the third quarter, we recognized for several awards that demonstrate our commitment to our associates, Newsweek named Werner as one of America’s Greatest Workplaces for 2023. In addition to being named one of America’s Greatest Workplaces for Diversity and for Parents and Families. These achievements highlight our focus on building a strong culture for all our team members. We are committed to remaining a company that enables and encourages our associates to thrive in their careers. We are also pleased to be recognized for our environmental stewardship by earning the SmartWay High Performer Award for the seventh consecutive year. This recognition is based on companies who lead the transportation industry in producing more efficient and sustainable supply chain solutions. In addition to our focus on our associates in the environment, safety remains our top priority. In the third quarter, we are proud to celebrate Tim Dean, our second professional driver to achieve 5 million accident-free miles, a very significant accomplishment over his 35 years driving for Werner. Tim represents what we desire for all our professional drivers and unwavering commitment to safety and service one mile at a time. And lastly, we were recognized for our superior quality and service in the industry, including the 2023 Quest for Quality Award. These awards demonstrate our ongoing commitment to…

Thank you, Derek, and good afternoon. Let’s continue on Slide 10. Third quarter total revenue was $818 million, which was down 1% versus prior year. Net of fuel surcharges Q3 revenues grew by 3%. TTS revenues net of fuel were down low-single digits despite a softer freight market, while Logistics revenues grew for the 12th straight quarter reporting double-digit growth. Adjusted operating income was $42 million and adjusted operating margin was 5.1% a decrease of 47% and 450 basis points respectively versus prior year. Adjusted EPS of $0.42 was down $0.48 year-over-year due to the macroeconomic environment, lower equipment gains, higher interest expense and ongoing inflationary headwinds. Our cost savings program is serving to mitigate some of the impact on operating margins. Through the end of the third quarter, we have now identified in year run rate savings of over $43 million. Although there is more work to do, we are pleased with our progress to date and as of the end of the third quarter, we have realized over 70% of targeted savings. Turning to Slide 11 and our Truckload Transportation Services results. TTS total revenue for the third quarter was $572 million, down 8%. Revenues net of fuel surcharges fell 4% to $489 million. Given the macro environment, TTS top line performed well. Third quarter TTS adjusted operating income was $42 million and adjusted operating margin was 8.5%, a year-over-year decrease of 45% or 640 basis points due in part to rapidly accelerating diesel fuel prices compressed pricing in one way and lower equipment gains against a strong prior year comp. In the third quarter, gains on sale of revenue equipment totaled $8.8 million, a decline of $11.3 million, or 56% versus prior year. While we sold almost 1.5 times as many tractors and over 3 times more…

Thank you, Chris. Again, as we’ve noted throughout our comments today, the freight backdrop is challenging and our recent results are not consistent with our long-term expectations. That said, both strong revenue retention and progress on diversifying our portfolio deeper in both dedicated and logistics positions us well for the future. Our approach has created competitive advantages that will continue to fuel our growth, durability and earnings. We are uniquely positioned to service the most complex freight needs of large enterprise customers, including over half of the largest U.S. retailers in addition to growing in other verticals with customers who are winning in their space. We have the benefit of broad solution selling to large enterprises across our highly integrated dedicated offering, our nationwide Final Mile solution plus cross-border and logistics, while also growing share with small and medium sized customers within brokerage. Our comprehensive footprint and terminal network across the country puts Werner within 150 miles reach of 90% of the U.S. population. And as nearshoring increases, we have the largest Mexico cross-border franchise and truckload and deep experience operating in this complex market. We have a long history of leading in innovation and we are primed to benefit from more recent investments in technology aimed at greater operational effectiveness and enhancing the experience of both our customers and associates. We continue to attract and retain top talent, including highly qualified professional drivers that embrace and carry out our commitment to superior safety, award winning service and in turn allows us to retain our strong portfolio of winning customers. I’m proud of our team and the exciting future for Werner. And at this point, I’ll turn the call back over to our operator to begin the Q&A.

[Operator Instructions] Our first question is from Christian Wetherbee with Citigroup. Please go ahead.

Thanks operator. This is Rob on for Chris. Derek with the updated kind of guidance, could you give us a sense of how you’re thinking about the fleet’s allocation to the spot market just in light of where we are? Could you give us an update kind of where we are today? And how you’re thinking about potentially repricing as we go into next year?

Yes, sure Rob. Thanks for the question. Right now on One-Way Truckload, we are – in that part of our business, we’re at about 15% call it roughly of our fleet in the spot market. Clearly that’s more than we’d like to see in that market. And as in recent weeks, we’ve seen some capabilities of kind of lowering that number. As we get deeper into peak one of the opportunities in front of us is to get some of those units out of the spot market and into whether it be contract freight that we have opportunities to grow with or peak opportunities. And as we think about peak this year, what we’re seeing broadly is volumes similar to a year ago. But obviously the price relative to those opportunities is significantly less than where it would have been last year. I still believe there’s an opportunity for volumes to potentially even finish up year-over-year relative to peak, but without that same incremental pricing opportunity. Regardless of that, as you take trucks out of peak or out of spot and into that environment, the opportunity for significant shift in pricing on those trucks is still available. And so that’s encouraging. And as we look into next year, I think it really comes down to how the consumer holds in and whether they can in fact stay strong through peak and into the start of the year coupled with the ongoing net deactivations and general trucking attrition that we do see taking place at a more rapid pace. That’ll really kind of set the stage for what the first half of next year looks like.

Thanks, Derek. And my follow-up is, what’s the current spread for your spot related trucks relative to your contractual rates as we think about some of the business shifting around?

Yes. Right now the spread net of fuel is in the – call it, $0.40 to $0.60 range just depending on the week. But it’s been at that similar level now for a while. I mean, spot rates really haven’t changed much in the last couple of quarters. They’ve been fairly steady. Obviously, we’ve seen a little degradation in One-Way Trucking rate per total mile, but that spread has seemed to hold in at about those levels in the last four or five months.

Appreciate the time, guys.

Thank you.

The next question is from Tom Wadewitz with UBS. Please go ahead.

Thanks. This is Mike Triano on for Tom. So you mentioned the total TTS rate per mile was down only 3% in 3Q, which in this type of market points to all the good work that you’ve done to build a dedicated business and also build more resiliency in One-Way. But the TTS award in the low 90s is similar to some peers who are seeing more pressure on price. You’ve highlighted the $43 million of cost savings, but even with that you’re still in the low 90s. So I’m just wondering if there are more cost efficiencies to be realized that can help you get the OR more in line with your performance on price. Thanks.

Hey, Mike, this is Chris. Thanks for the question. Yes, we still feel good about the 12% to 17% target range for TTS over the long-term. As you know, this has been a uniquely challenging cycle, inflation being up, rates being down, imbalanced in terms of supply and demand. I think it’s important to note that within TTS, 64% of that is dedicated. And while we don’t disclose those margins, dedicated continues to have double-digit margins, steady, durable. And so the volatility there is really within our One-Way business where we do have that elevated spot, as Derek just mentioned, and continued pricing pressure. So where we can continue to grow dedicated at premium contract pricing, more stability, while also growing certain sleeves within the One-Way business, including the cross-border, where there’s good growth and opportunity there from a top line perspective and overall mix within TTS that can position us well. Also remember that given the One-Way business, there can be a meaningful difference as we move out of spot, move those rates into contract rates and then potentially move those into a further dedicated premium rate. So with an improved market, that can have a significant help to the overall operating margins. And then you mentioned the cost improvements. Yes, we’ve made some good strides there in supplies and maintenance and even insurance and some other categories. That program continues to progress and by continuing to focus on cost improvements, as we’re starting to see here, that certainly will help going forward to the TTS margin.

Would you point to any particular cost bucket within that $43 million where you say, look, we could probably do a little bit more whether it’s on the supplies and maintenance side or on kind of the driver recruitment and pay side?

Well, yes, actually all those that you mentioned are part of that program. But we’re excited about the recent improvement year-over-year that we’ve seen in supplies and maintenance. We’ve talked a lot about that on other calls of several quarters to bring more of that in-house, as well as just having a younger, more modern fleet that obviously has a lower operating cost. For Q3 supplies and maintenance was down double-digits year-over-year. Also, insurance was down 9% year-over-year in the quarter. And insurance for Q3 was the first quarter since Q1 of 2022 that was less than 4% of revenue. Driver pay and benefits was down 2% year-over-year. Some of that due to the fleet as well as some pay changes. So it’s multipronged in terms of how we’re building that bucket and going after cost improvement.

And to answer directly about ongoing improvements in some of those areas, we’re certainly past the middle innings in some of the initiatives relative to supplies and maintenance. But there is still room to grow. As Chris mentioned, we have the ability to still bring further density into our shops. We’re excited about that. It’s an ongoing effort. We’re clearly reaping the benefit, although it’s an expensive way to get there, of the elevated CapEx as it relates to trucks out of warranty and trucks over 400,000 miles. To put some color on that. Just as an example, a year ago this time we would have had over 500 trucks greater than 400,000 miles in the fleet. And today, as we sit here, we have less than 50. So we’re still continuing to work more aggressively on in-house maintenance, quality of that maintenance, but also the fresher fleet gives us a pretty good head start on that. As we continue to work our acquisitions into and integrate onto one platform, there’s some real visibility advantages and opportunity for us to take some additional cost out. Unfortunately, the reality of the acquisition timing was that it was at the same time we were building out the largest tech journey really in our history. We knew that going into it. We knew it would be more painful as a result, but we still believe that the underlying asset was worth making a decision to move forward and to fill the portfolio out to better prepare us for the future.

Thanks. Appreciate all the thoughts.

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

Okay. Great. Thank you for the time guys. Really appreciate it. I guess, Derek, for my first one, if I could maybe pick up on where you left off there at the end. In terms of just the cost associated with the tech investments you’ve been making, I’m sure that’s burdening the P&L this year. Is there a way to maybe help us think about the level of expense you’ve been incurring there? And I guess, as we sort of think forward, once you begin to see the benefits from that, how are the tech investments you’re making now setting Werner up for the long-term?

Yes, hey Jack, thanks for the question. First off, it’s difficult. I want to be clear about that. We’ve done a lot of work, and we talked about it even in the prepared remarks, the 30 to 40 basis points of OR impact year-to-date on – related to this tech journey. What makes it difficult is I don’t want to imply that all of that is nonrecurring because there will be other types of costs that may replace it in some cases, so licenses and services, systems as a service fees and other things. But perhaps the biggest cost of all, and it’s the one that’s the most difficult to really quantify is the amount of man-hours and time and effort that is put into making sure we get this right. So just significant amounts of meetings and productivity that gets impacted as we lay this journey out and folks that are working through this journey that as part of it, there’s a period in time, and most of that period of time has been the last couple of quarters. And to be frank, for the next couple as well, where folks are actually working harder and working longer as they work out of old systems and into the new platform. And we know that, that journey continues for a while as we look forward. As far as what we see on the out quarters and why is the juice worth the squeeze, I think having a Cloud First, Cloud Now strategy, having our tech architecture modernize the ability to make changes and adapt to a changing marketplace more nimbly is it’s very difficult to even put a value on. It will make us more nimble, more able to serve. But more importantly, probably than all of the above is…

Okay. No, that makes sense, Derek. And I guess, just as a follow-up. Within – when we think about the dedicated market, some of your competitors have been speaking to an increasingly competitive dedicated market here over the last quarter or two. Can you talk to if you’re maybe seeing increased pricing pressures show up in bids over the last few months? I mean, I know it’s a challenging market broadly, but it does feel like we’re seeing some competitors may be looking to deploy additional assets into your sandbox. And just would be curious if you could talk to that for a moment and how you’re addressing that?

Yes. So first off, I’ll say, there’s clearly increased level of interest in Dedicated, both from the shipper and carrier community. I think that’s not surprising given the absolute draconian pricing that exists within the spot market today. Most of what we do in Dedicated can’t really be replaced by spot capacity, it really doesn’t play a role. But it does cause carriers to gain interest in opportunities or to pursue Dedicated, whether or not they may have the capabilities to actually perform. So it’s really incumbent upon us to make sure our performance is at the highest possible level. The business that we do is true Dedicated. The stickiness and defensiveness of that business is inherently built in because of the complexity of the type of work we do. And I can tell you that despite being disappointed in our overall results for the quarter, I’m extremely proud of the work that we’re doing in Dedicated and the underlying financial results of it as well. So it stood up as well as we would have expected in a market that was under this much to us. And I think the prospects for it to looking forward are certainly strong. But we’re going to maintain pricing discipline. And you’re going to see that, and you have seen that in the fact that although it’s a larger percentage of the fleet, it’s not growing at the pace it once was because we’re going to stick to making sure it’s the right type of Dedicated that’s defensive in nature, that’s hard to serve and it’s priced appropriately. With all that said, the pipeline looks pretty good right now. We still like the out quarters as we look forward and our ability to continue to lean into Dedicated.

Okay, thanks again for the time, Derek.

Thank you.

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 supply. Derek, you’ve offered some helpful perspective over the last few quarters on just industry capacity. I know recently, you’ve been talking about elevated cash balances, smaller carriers kind of extending the cycle. And I think in Q&A, you said you’re seeing a more rapid pace of attrition, but maybe you could just talk a bit more about what you’re seeing right now? And if there are any other factors you’ve kind of identified that are having an outsized impact that might have you rethinking how long this down cycle could persist?

Sure. So let’s start with – we’ve talked a lot about the activations, and that’s not the end all be all, but it’s certainly a relevant gauge on the dashboard. And we’ve seen 57 weeks now and over 150,000 trucks. But during the early portion of those weeks, you were seeing quite a bit of movement in the BLS data where owner operators and others may have been showing up at a decent percentage as employee drivers at some other fleet. Only in recent months or really, call it, 1.5 quarters when you start to see BLS also negative. At the same time, you’re seeing that the activations go negative and then you couple that with now named brand bankruptcies, not the obvious yellow that everybody’s talked about, but 200 truck, 400 trucks, 500 truck carriers kind of on a weekly basis starting to hit the radar of not being able to survive this pricing environment. I think if you put all that together and you continue to – and you kind of look forward along that trend line, this is coming closer to balance than people realize. I’m not here to try to predict, especially coming off a quarter like this, the exact date or time that, that will take place. But we’re clearly more encouraged. And then lastly, because it’s very relevant to the conversation. I think you have to take a deeper look at inventories. And what we’re seeing both within our own customer base, there’s some pretty strong statements around their comfort level with their current inventories. But even on the broader inventory levels across the industry, you’re starting to see more and more folks stepping forward and feeling as though that destocking is largely behind them. So you put all that together and that gives us a sense of encouragement. Of course, the headwind against it is overall consumer confidence and just the strength of the consumer. And so we’re going to just have to see how those lines kind of play out over the next couple of months and quarters. But I do believe we’re certainly much closer to the end than we are to the beginning of this cycle term.

Appreciate that. And maybe just a quick follow-up on pricing in One-Way, I know you did a little better than the mid-point in 3Q, 4Q coming a little bit lower. Could you just give us a little bit more context on what’s changing there and specifically any impact that length of hall is having? Because I know it’s been moving down a bit.

Yes. In terms of One-Way pricing, I mean you look back over the year, we’ve been down 3.2% in Q1, down 5.2% in Q2, and now here in Q3 reporting 4.8% down. So on a year-to-date basis, it’s down 4.4%. We are relatively pleased with that given what’s out there in the space, but nonetheless, it’s down in an environment where there are significant inflationary cost pressures. So that’s obviously putting a squeeze on the margin side. As we look forward into Q4 and our guidance, that’s now down 9% to down 7%. The reason for the change really is more to do with the prior year increase from Q3 to Q4 than anything’s happening really right now heading from Q3 to Q4. So we expect our One-Way Trucking rate to be flattish to maybe slightly down sequentially. A couple of reasons for that. You look at we’ve had continued implementation of lower contractual rate renewals on bids on rates that were effective throughout Q3. We’re done with bid season and I think most of the implementations are behind us. But there were some that were implemented in the quarter. In terms of spot exposure, we’ve talked about that spot rates typically increase in Q4, but they’ve been frustratingly low and I don’t know that we expect a whole lot of lift there, although it could improve a little bit with some peak activity. And then the tailwind for us heading into Q4 would be some peak activity. We are expecting some, we’ve already had some and that’ll continue, just not near the rate that it’s been in the past. So really as we look forward, we’re looking at a flat to slightly down sequential number but on a year-over-year basis it looks a little worse just given the increase we had in 2022 with a little more robust peak pricing. In terms of the length of haul that is down significantly year-over-year. There’s just a couple of things there with regard to mix. We had more churn this year and the bid – throughout the bid season than what we typically do and that just resulted in a little bit lower length of haul. I don’t know that it’s impacted pricing a whole lot, maybe a little bit, but it’s more to do with just the mix with the bid season. We have seen that start to increase a little bit here in the last month or so and would expect that there’d be a little bit of an increase as we finish out the year but nothing really significant to note on that front.

Appreciate all the color.

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

Great. Thank you. This is Elliot on for Jason. So you discussed the margin pressure in Q4 Logistics, I guess, so if 1.4% adjusted margin in Q3, I guess, could we see Logistics lose money in Q4? I know there are a lot of moving pieces within that. Maybe if you could touch on maybe the magnitude of the truckload brokerage margins that you called out earlier as well. Thanks.

Yes. So in Logistics, the margin pressure concern and the reason for signaling is just as this were to start to turn or if we saw suddenly some increased activity from a peak perspective. We could see buy rate pressure in the carrier community that would perhaps outpace the ability to pass that through based on our mix. At this point, we also have been burdened with and it’s the upside of or the downside of growth, I guess. But as we’ve grown Logistics and taken share and seen some of the volume increases that we talked about earlier on the call, it comes with a little bit of settling of each of those accounts so that as you onboard significant amounts of new business, it takes a while to get the carrier roster kind of finalized, to get the right carriers on the lanes in the right way with the most efficient purchasing. And so that would be the counter to that that as we get better at that, as we get some seasoning and some settling in the carrier base, the opportunity to actually go the other direction. So I’m not trying to be evasive, but I think it’d be inappropriate for me to even try to tell you whether I think it gets better or worse in Q4. I do think what you will see is a significant focus as we go into Q4 and into Q1 on execution, operational excellence, and less on growth from a volume perspective in Logistics as we get this new business digested. Chris?

Yes. Maybe just to add to that, we’re happy with the volume. It’s been a year since we’ve had the Reed acquisition. We’re continuing to grow wallet share and sign on high quality contract customers. But we are mindful in this market of reviewing the portfolio, making sure that we’re not taking on transactional business that’s underperforming, maintaining high contract volume, and we’ll continue to be reviewing the portfolio while also balancing that with winning new business and contracts that can last with us for the future. We’re also – from a margin improvement standpoint, we’re looking forward to having Reed fully integrated from a technology and operational perspective by the end of this year, which will enable us to realize some further synergies and cost savings going into next year. And then beyond that, there’s also opportunities from a technology perspective growing the small and medium sized business as well as tech-enabled savings within Logistics. So a number of things that we’re excited about but also mindful of and looking for ways that we can improve the margin there going forward.

Thanks. And then maybe to follow-up as you move through bid season, are there any early reads on maybe what your customers are telling you and how they’re planning for 2024?

It’s really early in bid season right now, I mean, literally, we’re only starting to see the first couple come across. I think that is – it really depends on the positioning of the customer themselves. We’re fortunate to work with some of the best, especially on the retail side, some of the best retailers out there in the retail space. Several of them are actually optimistic about the fact that they’ve been able to recalibrate for this new consumer behavior and they feel like the days ahead of them look a lot that brighter than the ones that in the recent rear view mirror. So volumes being up, reopening or opening new stores and our ability to expand with them. What that all means in price will just really determine will be dependent in some – on the One-Way side in particular on where we’re at from a supply – capacity supply perspective. So it’s early. We know that what we’re going to be working with them on is the reality of sustainable pricing. We’re going to be talking to them openly and honestly about what’s happening at these pricing levels that have been out there, because the data is right there in front of them and this attrition is real. We’re going to talk to them about making sure that where we price, we can stand behind it and not be back in 60 days, 90 days, or multiple times a year. Those conversations in some cases will go very well, and with others, I’m sure it’ll be more difficult. One-Way Truckload is down, you saw in the quarter, and we’re prepared and actually planning to take it down further as we continue to lean further into dedicated. So that provides opportunity for us to be a little more picky and a little more disciplined in our price approach to this bid season coming up.

Thank you, both.

Thank you.

The next question is from Scott Group with Wolfe Research. Please go ahead.

Hey, thanks. Afternoon. So maybe, Chris, your comment about trucking – truckload rates flat to down a bit sequentially from Q3 to Q4. Should we assume that we should apply that similar logic to truckload OR or trucking earnings Q3 to Q4 flat to down slightly.

Well, Scott, there’s several puts and takes as we head from the quarter. I mean, certainly if the One-Way Trucking rate is down a bit, I mean, we’re talking flat to slightly down is sequentially where we’re headed. Nonetheless, that would be offset with some potential peak activity that would be better. We certainly didn’t have a lot of peak activity in Q3, just a little bit of tail end of the quarter. But we have had some peak activity in October and would expect that to continue with some of the peak awards we’ve got, although, estimating volumes has been challenging this year, I think, for us and our customers. And then the other thing to mention is just the continued headwind as relates to gains. We had, I think, a $9 million gain we posted in Q3. And you can tell by our annual guidance of $42 million to $47 million for the year that implies a lower number in Q4. So definitely some puts and takes along with our cost savings program, which will continue to hopefully show some benefits there. So hard to say, we’re certainly going to work as hard as we can to show some improvement, but continues to be a challenging environment and hopefully the tailwinds will outpace the headwinds.

Yes. And Scott, I’ll just add to that and just reinforce that we would expect to continue to see some year-over-year improvement in those select expense categories that we mentioned. And really where you started that question was really focused on the one way business, dedicated. While the fleet should be flat to up and revenue per truck per week generally holding steady that will have some offset to mitigate some of that mid-single-digit decline in the one way rate.

– :

Yes, Scott, great question, and I’ll keep it fairly high level. But I’ll start with this. Dedicated has actually performed very well through the cycle, and that’s exactly how we expected it to, with a couple of exceptions around the margin. So examples of those exceptions, we’ve seen fleet shrinkage across dedicated. So within contractual terms, three trucks, five trucks per fleet kind of shrinkage. And that certainly hurt our defensibility a little bit, because those trucks have to find a home. We’ve stayed disciplined to reference back to an earlier question on the call about increased competitiveness in dedicated on bids this year. We’ve kept our discipline, and as a result, some of those trucks ended up all the way back in one way when we would have preferred that they had found a home within dedicated. But overall, dedicated returns, margins, et cetera, have been sort of as expected in this type of economic backdrop, performing pretty well. One way has been worse than expected. That’s just the simple reality. This one way market is more difficult. It’s been lower for longer. Our spot exposure has been higher than anticipated, and therefore, it has been the predominance of the drag. You couple with that, yes, in the acquisition space, those were predominantly one way plays, but to fill regional gaps within our network. And on the market facing portion of those decisions, it’s been very solid. Our customers have embraced it. We feel like it has absolutely filled out the network in ways that are going to be strategic and important, and we stand by those decisions. But their results have been difficult from a year-over-year perspective, because they’re operating predominantly, actually exclusively in that one way space. And then lastly, in logistics, we’ve talked a lot about, there’s times to where we believe that gaining share and gaining momentum in a space makes the most sense, and doing so and executing with a unified platform that we’ve been working so aggressively on has been paying dividends. But we have digested quite a bit of new business in logistics, and there is nothing like a dedicated implementation cost, I’m not trying to make that case. It’s much shorter in duration, but there is a bit of a digestion that you do as you get the carriers in the roster settled. So those are some of the puts and takes. And that’s why I didn’t shy early on in my remarks, I stated, it certainly doesn’t meet our expectations internally either. But what does is like the way the portfolio is now structured. I know that we’re in the later innings of this cycle and as we come out of it, we’re even further entrenched with a stronger performing dedicated unit than before and a growing and much more relevant logistics business.

Thank you for the time, guys.

Thank you.

And our final question today is from Ken Hoexter with Bank of America. Please go ahead.

Hey, great, good evening. And Derek, thank you for squeezing me in and Chris. So just – I guess, you noted you’re seeing delays in expanding existing dedicated fleets, but the dialogues are now positive. Maybe expand on your thoughts there a little bit. And then the pace that your largest customer is now in sourcing its fleet, has that accelerated given the downturn? Have they paused? Maybe just talk about that process and the impact on dedicated?

Sure. So within dedicated, as they were working through their destocking as well as kind of right stocking would be probably even a bigger component of it in my view, getting the right SKUs for the post pandemic consumer, getting the types of goods that they are more interested in buying in this inflationary environment and getting all of that right and on the shelf, that took a while. And what I’m most encouraged by is in conversations with our major customers, which I’ve had many of in recent weeks, they feel as though that work is behind them. Once that work is behind them, you get back to replenishment levels, you start to see reordering and you start to see confidence that they’ve got the SKU mix right. I still think there’s going to be conservatism in that reordering, because everybody’s waiting to see kind of how well the consumer holds up, especially through this peak season. But they feel that they’ve kind of solved the mix issue. That’s what gives us confidence specifically relative to our largest customer. I’m not going to speak to their strategy or what they will choose to do, but I can tell you we’re in detailed conversations. I can tell you we’re up sequentially from Q2 to Q3 with them in dedicated. And that we have conversations on the table right now for further expansion. So as their business grows, even as they grow their fleet, there’s opportunity for us to grow with them. And that’s going to be an ongoing discussion that will last – that will never really end. I’m excited about some of their expansion plans, because it fits our network really well and it fits our capability set even better. So we’ll work with them and we’re excited to have that partnership. And it’s gained considerable white noise, I know, in these conversations, but inside the building, our confidence level is high relative to that relationship.

Helpful setup. Appreciate your thoughts, Derek. Thank you.

Thank you.

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

Yes, thanks. I wanted to thank everybody for joining us today. And while the quarter represented a further extension of what was already a challenging freight environment, we do believe that capacity right sizing is gaining momentum. And I’d like to reiterate that I also, and more importantly, think inventory levels are in line and inventory mix is getting closer to correct than it’s been in many quarters. Our customers continue to make those adjustments. We’re encouraged by their progress and we’re encouraged by the conversations we’ve had with them. We’re going to remain disciplined on price across our organization, while staying focused on the key components of our business dedicated logistics and the engineered components of cross border inside of our one way. Our tech investments are maturing, as is our disciplined approach to lowering our cost to execute. There’s certainly work ahead of us. We’re committed to the work. And I thank you for spending time with us today.

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