Werner Enterprises, Inc. (WERN) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Werner Enterprises Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chris Neil, SVP 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 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 and CEO; and Chris Wikoff, Executive Vice President, CFO and Treasurer. I will now turn the call over to Derek.

Thank you, Chris, and good afternoon, everyone. We appreciate you joining us today. In the second quarter, we delivered 24% revenue growth and 80 basis points of adjusted operating margin expansion. Throughout this prolonged downturn, we stayed focused on safety, streamlined our operations, invested in technology, and expanded our portfolio and end markets. These strong second quarter results show that our strategy is working, especially as the broader market starts moving in our direction. The structural capacity attrition we've been talking about for several quarters is playing out as predicted. This tightness is being driven by intensifying regulatory pressure, specifically around nondomiciled CDLs, English language proficiency, and cabotage enforcement. On top of that, there has also been a sharp reduction in ELD providers, with approximately 1-third exiting or having their certifications revoked. This reduction in ELD options is dismantling shadow capacity and compounding structural supply contractions. Increased enforcement, along with the recent Montgomery verdict, has resulted in shippers and brokers taking an even more cautious view of who they do business with. That plays directly into Werner's strengths given our strong track record and reputation and validates our strategic direction. Our core technology initiatives continue to progress. 100% of Werner's legacy freight is now being ingested into our single Werner EDGE TMS platform, creating better visibility for our associates, expanding solutions for our customers, and establishing the foundation for increased automation. We continue to see measurable benefits from AI and automated workflows across shipment optimization, load planning, maintenance, safety, and driver recruiting. While many of these initiatives remain in the early stages, others are already delivering meaningful results in areas such as road breakdown support, carrier payments, and appointment scheduling. Our focus is now on scaling the most successful use cases across the enterprise to drive further operational efficiencies and structural cost savings through the remainder of this year and into 2027. In short, the structural improvements and portfolio management decisions we've made over the past few years are gaining momentum. Our ability to anticipate these supply shifts, execute our restructuring plan, and add FirstFleet to our Dedicated business gives us clear line of sight to sustained earnings growth and validates our strategic direction. We are building a leaner, more resilient portfolio that is spring-loaded for this upcycle, and we are increasingly confident in our ability to maximize fleet utilization and deliver a more pronounced step-up in our financial results as we move into the second half of the year. Turning to Slide 5, let's discuss our second quarter highlights in more detail. In One-Way Truckload, our recent restructuring efforts over the past 2 quarters are delivering tangible results. Revenue per truck per week growth is the strongest we've delivered in the last decade, driven by exceptional productivity improvement, coupled with a double-digit increase in revenue per total mile. Recently, we have been securing upper-single- to double-digit contractual increases in One-Way bids, in addition to ongoing yield management within the portfolio where appropriate. As a result, adjusted One-Way Truckload OI margins improved over 700 basis points year-over-year. More benefit will be realized in the second half from recent repriced business and increasing spot exposure. Our Dedicated business remains a resilient cornerstone of Werner's portfolio. We've delivered customer retention of over 95% and been successful in securing rate increases on renewals. Dedicated bid activity has been increasing as the One-Way market tightens and more shippers search for long-term reliable capacity. Dedicated bid volume in the second quarter was the highest of any quarter since 2020. Revenue per truck per week reached the strongest year-over-year improvement since the third quarter of 2022. Overall, these results showcase the value customers place on the high service and reliability at scale that our Dedicated solution provides. It has now been 6 months since we acquired FirstFleet. I'm pleased to report that the business is progressing very well. Continuity with drivers, associates, and customers has been outstanding, and synergy realization is ahead of schedule. Given FirstFleet's strong service and customer relationships, we've achieved a 98% renewal rate on over 80% of the portfolio that is renewed so far. We expect similar results on the remaining fleets scheduled to renew in Q3 and Q4. And lastly, while the spike in spot rates during the second quarter put further margin pressure on our Logistics business, we remain proactively engaged with customers and are focused on resetting to higher contract rates. As a result, we expect Logistics margins to improve as the year progresses. As a large asset-backed brokerage company with high-quality standards and a mature vetting process, we expect added momentum from shippers looking to consolidate around larger asset-backed brokers following the Montgomery ruling. Before Chris discusses our financial results in more detail, let's move to Slide 7 to summarize our current market outlook for the remainder of the year. First, while we are encouraged to see the supply-driven market recovery strengthening, as discussed at the outset of the call, the reality is that carrier exits are still in the early innings. Enforcement efforts are continuing. And in our view, greater agency collaboration and exchange of data, combined with utilization of technology, will further accelerate enforcement from here. Long-haul truckload employment has dropped to below pre-COVID levels. Upward pressure on fuel, insurance, and equipment replacement costs will also force additional capacity off the road, reinforcing a highly favorable supply environment. Tender rejections remain elevated relative to recent years. This, combined with an anticipation for further capacity attrition plus peak volumes, points to ongoing rate lift through the remainder of the year. And with a predominantly supply-side-driven turn to this point, any demand improvement would lead to even greater market momentum. Looking beyond some of the headline noise from such things as elevated fuel prices and interest rates, household balance sheets remain resilient but mixed. Budget pressures on lower-income consumers continue to drive value-seeking behavior, which bodes particularly well for our mix being more concentrated in discount and value retailers, grocery, and nondiscretionary freight. Lean retail inventories position demand to eventually play a larger role in the recovery. While trade policy may impact restocking timing, nondiscretionary replenishment provides a buffer against near-term volatility. As expected and previously communicated, our gains on the sale of used equipment in Q2 were lower sequentially and year-over-year. However, we continue to expect used truck values to improve in the second half of the year. Increased supply from enforcement is likely offset by OEM manufacturing constraints, aging fleets, and higher-priced 2027 engines, supporting demand for high-quality used equipment. Regarding driver availability, competition for high-quality drivers has increased. However, Werner is well positioned given our vertically integrated Roadmaster school network. While not immune from the market environment, our Dedicated exposure offers predictable roles with frequent home time that, in turn, attracts top-tier drivers. We are also using AI to increase recruiting capacity and allow our teams to focus on higher-value interactions with candidates and more effectively match candidates with regional demand. With that, I'll turn it over to Chris to discuss our second quarter results in more detail.

Thank you, Derek, and good afternoon, everyone. We'll continue on slide 9. All performance comparisons here are year-over-year unless otherwise noted. Second quarter revenues totaled $934 million, up 24%. Adjusted operating income was $27.6 million, up 67%, and adjusted operating margin was 3.0%, an increase of 80 basis points. Adjusted EPS of $0.22 was up $0.14. Consolidated gains on sale of property and equipment totaled $1.5 million, down from $5.9 million in the prior-year period and $3.8 million in the first quarter. Lower gains negatively impacted adjusted EPS by $0.05. Our GAAP and non-GAAP results for the quarter include certain nonrecurring items, the vast majority of which relate to M&A and restructuring. 45% of the pretax adjustments are related to the FirstFleet acquisition, and 43% relate to costs in connection with our One-Way restructuring. We do not expect further One-Way restructuring expenses going forward. M&A costs will continue as a result of ongoing integration efforts, but to a lesser degree. Turning to Slide 10. Truckload Transportation Services total revenue for the quarter was $703 million, up 36%. Revenues net of fuel surcharges increased 26% year-over-year at $582 million. TTS adjusted operating income was $32.3 million. Adjusted operating margin net of fuel was 5.5%, an increase of 270 basis points in spite of significantly lower gains. Excluding gains in both periods, operating income margins improved 370 basis points. The year-over-year improvement was driven from accretive results from the addition of FirstFleet, profitability improvement in One-Way Truckload, and lower insurance and claims expense for our legacy business. After an impressive 45% year-over-year decline in the first quarter in DOT preventable accidents per million miles, we realized a similar year-over-year decline in the second quarter. As a result, insurance and claims expense was at its lowest level since the third quarter of 2024, excluding FirstFleet and excluding the one-time benefit last year related to the reversal of a 2018 nuclear verdict. Our ongoing decline in preventable accidents is a direct result of deliberate actions and upgrades across our business. We've made ongoing investments in tech-enabled safety, tools, and equipment that give our drivers and our fleet and safety leaders more actionable insights so they can identify and manage risk earlier. We've also enhanced our driver training, safety programs, and onboarding experience that sets high standards from day 1. By equipping our drivers with better equipment, tools, and training, we are building a safer, more efficient fleet. Our fleet metrics are on Slide 11. TTS average trucks totaled 8,712 for the quarter, a 16% increase. The TTS fleet ended the quarter at 8,695 trucks, down 4% sequentially. Truck additions from FirstFleet were offset by slightly lower legacy Dedicated trucks and fewer One-Way trucks. Within TTS, in our Dedicated business for the second quarter, trucking revenue net of fuel was $434 million, up 51%. Dedicated represented 76% of TTS trucking revenue, up from 64% a year ago. At quarter end, the Dedicated fleet was up 2,110 trucks from where we started the year, a 44% increase from year-end with the addition of FirstFleet. Dedicated average trucks increased 44% year-over-year and 10% sequentially. Dedicated represented 80% of the TTS trucks at quarter end. Dedicated customers are expanding existing fleets, and we continue to have success with customers in new verticals. Dedicated revenue per truck per week rose 5.4% this quarter, though impacted by the addition of FirstFleet in the mix. On a stand-alone basis, Werner's legacy Dedicated fleet delivered an 8% increase year-over-year due to better productivity and higher contract rate renewals. In connection with FirstFleet, we have realized over $3 million in savings year-to-date, resulting in over 100 basis points of margin improvement. We've implemented actions representing approximately $9 million in annual cost savings, of which over $7 million will be realized in 2026, exceeding our earlier target. We are on track toward our total synergy goal of $18 million. In our One-Way business for the second quarter, our strategic restructuring plan is driving tangible results. Trucking revenue net of fuel decreased by 16% to $138 million. As Derek already mentioned, One-Way adjusted operating income margin in the second quarter grew more than 700 basis points year-over-year as a result of the double-digit increases in several key metrics. Revenue per truck per week increased 27.7%. Miles per truck increased 15.7%, and revenues per total mile increased 10.4%. With approximately 60% of the One-Way portfolio repriced in the first half at higher rates, we expect further bottom line benefit in subsequent quarters. From a fleet size perspective, Q2 represented our first full quarter following the conclusion of our One-Way restructuring efforts. Average trucks declined 34% year-over-year to 1,736 trucks. Sequentially, the average fleet reduced by 18% and was down 386 trucks. Increased driver hiring constraints have limited the speed and pace of driver rehiring after we've repositioned assets as part of the restructuring efforts. More recently, our pace of hiring is improving, coupled with deliberate driver retention tools and initiatives. Overall, our One-Way Truckload operation is more profitable, more productive, and more specialized in geographies of choice. One-Way is now contributing nicely to TTS margin expansion. And given the surge in One-Way revenue per truck per week of nearly 28%, TTS also experienced outsized revenue per truck per week growth, increasing 9% year-over-year, the largest quarterly increase for TTS since the third quarter of 2018. Logistics results are shown on Slide 12. In the second quarter, Logistics revenue was $212 million, representing 23% of total second quarter revenues. Revenues decreased 4% year-over-year but increased 8% sequentially. Truckload Logistics revenues, which represented 72% of total Logistics revenues, decreased 10% on 29% fewer shipments, partially offset by 26% higher revenue per load. Mix change between truckload brokerage and PowerLink was also a driving factor on year-over-year revenue. Brokerage volumes were lower due to actions to protect yield while downward pressure persisted in our PowerLink fleet. Higher purchased transportation costs reduced segment gross margin by 260 basis points. Truckload brokerage bore the greatest margin pressure due to the pace of buy-side rate volatility. April and May were the most challenging. June gross margins improved and represented the highest margin of the quarter. While Truckload Logistics revenues declined and margins were pressured, revenues in Intermodal and Final Mile grew double digits. Intermodal revenues, accounting for roughly 16% of the Logistics segment, rose by 18%, driven by a 17% increase in load volume and a 2% increase in revenue per load. Final Mile revenues, which comprise the remaining 12% of the segment, increased 14% year-over-year and 13% sequentially. Adjusted operating margin for the Logistics segment was negative 1.3%, a 400-basis-point decline driven primarily by the gross margin pressure in Truckload Logistics. Let's review our cash flow and liquidity on Slide 13. In the second quarter, we generated very strong operating cash flow, which enabled us to retire nearly half of the additional debt we took on in the first quarter as a result of the acquisition of FirstFleet. Operating cash flow was $85 million, up 84% year-over-year and comparable to the first quarter of this year. Our second quarter net CapEx was net proceeds of nearly $10 million. As a result, second quarter free cash flow was $94 million, or 10% of total revenues. Similarly, on a year-to-date basis, net CapEx is a net proceeds of nearly $8 million, and free cash flow is $176 million, or 10% of first-half revenues. Net CapEx for the first half of 2026 was nearly $66 million lower year-over-year, primarily due to several largely one-time factors, including selling more equipment and buying less following our One-Way restructuring, modest incremental use of operating leases, and declining technology-related capital spending as we near completion of building the technology stack for our future. Total liquidity at quarter end was $657 million, including $57 million of cash on hand and $600 million of combined availability under our credit facilities. We ended the quarter with $841 million in debt, consisting of $48 million in assumed low-cost capital leases from the FirstFleet acquisition and $793 million on our credit facilities. Net debt decreased $86 million sequentially and is up $111 million from a year earlier. Covenant-defined pro forma net leverage at the end of the quarter was 2.0x, including pro forma synergies and trailing 12 months of FirstFleet results. We continue to have a strong balance sheet, access to low-cost capital, and no near-term maturities in our credit facilities. Let's turn to Slide 14. When it comes to broad capital allocation decisions, we will remain balanced over the long term, strategically investing in the business, returning capital to shareholders, and maintaining appropriate leverage. With the acquisition of FirstFleet, our focus in 2026 will continue to be on integrating the business, gaining momentum on realizing $18 million of targeted synergies, and enhancing value. On Slide 15, let's review our guidance for the year. We are updating our guidance to reflect the significant productivity improvement that we are realizing with our assets. At the same time, there are currently fewer quality drivers available across the industry. As we go into the second half, we will continue leaning into productivity enhancements while also ensuring we maintain an excellent driver experience. Dedicated revenue per truck per week increased 5.4% year-over-year and is up 3.1% year-to-date compared to the prior-year period. We are raising our full year guidance from a range of flat-to-up 3% to up 3% to 5%. We have been successful securing low- to mid-single-digit increases in contract renewals for both our legacy Dedicated fleet and the FirstFleet business, while asset productivity has improved with greater density from the addition of FirstFleet. One-Way Truckload revenue per total mile guidance for the third quarter is up 10% to 13% year-over-year. Second quarter was up 10.4%. We expect ongoing pricing improvement as more contract renewals become effective and as peak projects and freight surface later in the year. We are revising our full year average truck fleet guidance from a range of up 23% to 28% to a range of up 16% to 18%. A portion of our previously anticipated growth in the second half is likely delayed beyond year-end, in part from further production gains across TTS, coupled with a slower pace of driver hiring. Average TTS trucks ended the quarter up 3% sequentially and increased 16% year-over-year. We are raising our full year 2026 net CapEx guidance from $185 million to $225 million to $215 million to $250 million. The average age of our truck and trailer fleet at the end of second quarter was 3 years and 6.3 years, respectively. The higher CapEx will accelerate fleet modernization and reduce average age of our tractor fleet. The increase also reflects a strategic prebuy of certain 2026 model year tractors ahead of the 2027 emission standards. These investments are expected to improve reliability, lower repair and maintenance costs, enhance driver satisfaction and customer service, and support higher equipment gains in future years. Our effective tax rate in the second quarter was 27.3%, including certain discrete items. We are maintaining our full year 2026 guidance range of between 25.5% and 26.5%. Regarding other modeling assumptions, we expect net interest expense this year will be between $40 million and $45 million. We anticipate increasing demand for quality used equipment and expect increasing resale values through the end of 2026, given OEM production constraints and the evolving regulatory backdrop that will be an incentive towards high-quality used assets. We are narrowing our anticipated gains on sale of used equipment and revenue-generating assets for the year from a range of $8 million to $18 million to a range of $10 million to $14 million. Our gains for the first half of the year are $5.2 million. With that, I'll turn it back to Derek.

Thank you, Chris. In the second quarter, we saw a clear improvement from the actions we have taken. We're seeing early signs from the recovery beginning to translate into our results, and we are certainly not taking our foot off the throttle when it comes to continuing to drive improved results through the remainder of the year and into next year. With that, let's open it up for questions.

The first question will come from Bascome Majors with Stephens.

This is Reed Seay on for Bascome. You mentioned talking about getting -- I think you said low- to mid-single-digit increases on your Dedicated business. Did I hear that right? And why is that not moving higher as we move through the rest of the year?

Yes, Reed. When we talked about low- to mid-single-digit increases, we were talking about One-Way contract renewals, if that's what you're speaking to, relative to what we're seeing from a price perspective. We did raise our guide on Dedicated revenue per truck per week from the prior guidance, which was flat to 3%, up to 3% to 5%. We are seeing progress in both Dedicated and One-Way. But I guess if you have a more specific question, I could certainly speak to it. In general, the market continues to strengthen, and cooperation with customers relative to securing reliable, sustainable capacity are ongoing.

And then if we could just touch on the impact from the latest court ruling when C.H. Robinson was ruled an employer of a carrier that they employed. Can you talk about how you expect that to impact your Logistics business and where that could go in terms of costs, and how that could impact the market as a whole?

Yes. I guess I'll start by saying given that they have ongoing litigation and have already talked about an appeal, I don't want to get into the weeds on their case as I'm not an expert. I will tell you that the verdict that took place in that particular case -- the verdict amount I'm speaking to -- simply shines yet another light on the risks that are out there. We, in advance of Montgomery -- the original C.H. ruling -- in advance of that case in the Supreme Court, had doubled down our efforts on our vetting processes, our carrier qualifications team, and the use of a trilateral set of systems that we use to vet carriers to put ourselves in the best possible position. We're going to continue to lean into compliance everywhere we can and solid vetting from a customer perspective. I think the response has varied. Most customers do view this as a legitimate risk and a concern that's at the forefront. We've seen conversations convert quickly from price to quality and reliability. That bodes well both for our asset business as well as, as we continue to try to lead from the front on the Logistics side relative to our vetting processes. So there'll be ongoing dialog. I think it's going to become interesting as this all continues to play out. Obviously, I have heartburn with the verdict itself, just given the margin level business that we're in, both in Logistics and in Truckload, and the amounts that continue to increase verdict after verdict. But right now, my focus is on this organization and making sure this organization is putting forth a high-quality product and doing everything we can to put safety at the forefront.

The next question will come from Eric Morgan with Barclays.

I wanted to ask one on supply. Derek, you noted we're several quarters into the regulatory enforcement actions. I think we're a year or so since the -- we first started hearing about English Language Proficiency. But you said we're still in the early innings. So I know you ran through a few of the initiatives being pursued by the regulators. But I guess I was curious if you could provide some thoughts on what the remaining innings might look like from here, and maybe how material is what's to come relative to what we've already seen. And, yes, I guess, just what that means for pricing on the market.

Yes, sure. I'll take a swing at that. So we're about a 1-year anniversary really since ELP became front of mind. And in that year, the conversation started around English Language Proficiency. Predominantly, that's led to out-of-service violations and 27,000-plus drivers now being put out of service for various violations of English Language Proficiency. But it quickly advanced to what I'm referring to as it relates to more technical approaches. When you start now looking across the landscape of 550 fraudulent CDL schools being shut down at this point, nearly 10,000 CDL schools being removed from the registry, 700-plus carrier -- high-risk carrier investigations that have taken place over the last 12 months, and then just overall a more widespread enforcement and honestly, just acknowledgment of how significant the problem is. What lies in front of us is the ability for FMCSA to have better inter-agency cooperation agreements in place with CBP and others, the ability to layer technology on top of what has largely up to now been a boots-on-the-ground approach, and instead use technology -- the new MOTUS system -- which has had some interruptions in its launch, but still is a huge step forward from what we had before from a carrier registration perspective. And then just the fiscal reality of the government operates on October to October budget. And we know that there's some funding available as they renew that budget this October to bring more resources to bear. All of that collectively just paints the environment that it's circling the wagon, so to speak, on bad actors out there. It needs to be done. The motoring public deserves that level of enforcement. We're going to continue to be a highly compliant carrier and do everything in our power to lower accident rates, even after having just posted a really strong first half of the year from an accident per million miles perspective. But I think you're going to continue to see folks shut down. Just looking at the 700-plus high-risk investigations as an example, 400-plus voluntarily agreed to cease operations, 60 to 70 more were shut down actively by the government, 3,200 visa revocations as they look now at the V-1 Visa issue, and some of the cabotage stuff that's tied to that. And there's just ongoing efforts relative to auditing CDL issuance and making sure things are done in compliance with federal regulations. So it's going to be a build. It's going to continue to build from here. I think third inning-ish right now is where we're at, and there's still going to be significantly more capacity removed from the road between now and the end of the year. And frankly, it will probably take into the early parts of next year.

The next question will come from Tom Wadewitz with UBS.

This is Mike Triano on for Tom. So you mentioned Dedicated bid activity is at multiyear highs, but drivers seem to be constraining and pushing out that growth to 2027. So I was just wondering if you're seeing the pipeline of trainees in your driver school network pick up at all just since the beginning of the year. And then, I guess related to that, how does potentially raising driver pay address this issue?

Yes. Thank you for the question. Yes, Dedicated bid activity is very robust right now. We want to be careful and selective. We want to make sure it's truly Dedicated driver-involved multi-stop work that stands the test of time. It isn't just a capacity play, trying to look for shelter in a very turbulent One-Way market. As we do that and work our way through that, we also have to work with our current customers relative to repricing, where repricing is the right answer, to make sure we can guarantee that ongoing supply of capacity that we're providing. So far, those conversations have gone well. We've also raised our guide relative to revenue per truck per week. That's driven a lot by backhaul opportunities, the ability to eliminate more empty miles, and some of the density that came with the FirstFleet operation. On the driver question, clearly, qualified driver hires are more difficult as we look forward. That market is tightening. Our schools are playing an active role in producing high-quality drivers into the network. And when I say ours, I mean both our vertically integrated Roadmaster schools as well as our Tier 1 collection of schools that we work with around the country. We've also ramped up efforts relative to experienced hires and are seeing some benefits on that front relative to the lucrative type of jobs we already have within our walls. One of the advantages of being 80% Dedicated is those don't just pay better, but they often have better lifestyles associated to them as well, and repetitive routes that drivers really covet. And so, we're making more inroads with some of the experienced driver population as part of the solution. And then where applicable, we're working with customers, and again, 80% of it is Dedicated. So we work directly with the customer in a one-to- one relationship on targeted driver pay increases where that's the right answer. But lifestyle still matters, quality of equipment still matters, and basically the confidence in the job, being one that gets them to and through to home with high levels of frequency, matters a great deal. And so we've got the right jobs to be positioning in the market today, and we're going to continue to lean into that.

Just a follow-up on, I guess, the Dedicated fleet growth. Is there any amount contemplated in the full year guide for second half just in terms of sequential growth from 2Q?

Overall, Mike, I would say for the TTS fleet guide, there is some modest fleet growth that's in that number. Obviously, we've pared back the average year-over-year fleet from the previously 23% to 28% to the 16% to 18%. So there's still some lift to go in that number. Part of what's bringing that down is a combination of seeing some incremental production gains across the fleet, not just from the One-Way restructuring, but also in Dedicated, which has favorable bottom line implications, essentially providing the same level of reliability and service to Dedicated customers with fewer assets, particularly with the added density from FirstFleet. But also, as you're alluding to, the slower pace of driver hiring has also brought that down. As a reminder, with the One-Way restructuring, we had to reposition some assets into different geographies and therefore reseat drivers, all at a time when the labor market is tightening. And so that was -- it's really a delay of growth, not lost opportunity, as we can make some further headway with recruiting and retention efforts, which is getting more positive in the third quarter relative to the second quarter, that will lead to more fleet growth through the end of the year and into 2027.

The next question will come from Bruce Chan with Stifel.

This is Matt Milask on for Bruce. I guess to start with respect to demand, curious how the freight trends progressed throughout the quarter, April through June, and whether it's strengthening perhaps into July. Whether you see any customers pulling some freight forward due to tariffs or inventory rebuilding, and to what extent customers are preparing for a more robust peak season this year relative to years past?

Yes, Matt. Throughout the quarter, we saw freight continuing to strengthen. And obviously, there were some events that took place in Q2 like Roadcheck and some other enforcement activities that caused even incrementally tighter markets for periods of time. But in general, everything has been continuing up and to the right relative to overall tightness. I would remind people that July is normally the second weakest month of the year after only February. And so, some of the slight drawback you're seeing in some of the macro data at this point is not of any concern from our long-term outlook. We still see internally, both with our core customers as well as opportunities in the transactional market, a lot of strength right now. It's still predominantly, we believe, supply-driven, meaning contraction of overall capacity. But customers' optimism as they look into the fall at this point is fairly positive. We work with a lot of discount and nondiscretionary type retailers. That stuff tends to turn quickly and get replenished quickly. Inventory levels across the retail space are in pretty good shape. Meaning, they're no longer bloated. They're either at or below expectations in most cases. So we know replenishment is going to continue. That also gives some insulation against some of the tariff noise that we faced in 2025 when tariffs were on again, off again, and people were trying to react and, at times, built excess inventories as a blanket or an insulation to that phenomenon. Right now, they don't have that luxury. They're going to have to replenish in order to keep store shelves stocked, and we're positioned well to be able to support them as they go through that. Peak season overall is shaping up right now positively. Those dialogs will continue, obviously, over the next couple of months. And we expect a more normalized peak season this year than we've seen in years past through a combined impact of both the supply and then, later in the year, the influx of demand into the equation.

That's good color, Derek. And then secondly, on the FirstFleet integration, I know you mentioned that the process has gone very well, including some valuable density gains. Can you tell us where you are versus the original synergy targets? And I guess whether there's been anything unexpected, both to the upside or downside, throughout the process related to cost or revenue retention, anything like that?

Yes, I'll start, and I'll turn it to Chris for some detail. But I'll just tell you, I'll start with the big picture. Like every time you do an acquisition, there's always some risk relative to culture, quality, and just -- is the team what you think that you're getting along with the deal. All of those things have been very, very positive. It's a great organization led by great people that have similar commitments to safety and service above all else, similar to Werner. We have found the integration from a culture perspective going as well as anything we've done to this point. Both teams are committed. We talk the same languages. We have similar profiles with our Dedicated density. And so it's been really a positive impact, I would say, to the joint organization, if you will. On the overall synergy targets, we mentioned during the period that we're ahead of schedule where we -- in the opening, we talked about being ahead of schedule where we thought we'd be at this point. I'll turn it to Chris, he can give you some details on where those are coming from and why we feel good about the synergy target.

Yes, Bruce. Just as a reminder, we've talked about the $18 million of synergy target over 18 months, and that would equate to a 300 basis point margin expansion for FirstFleet which would bridge the gap between the FirstFleet adjusted operating income margins compared to our organic Dedicated fleet. So we're making very good progress in that regard. In the second quarter, we increased FirstFleet margins by over 100 basis points. We did that through $3 million of realized synergies. We've actioned synergies that we believe will equate to $7 million to be realized in the current year 2026, or $9 million on an annualized basis. So we've actioned effectively half of that $18 million target. So things are going very, very well. We've said before that this acquisition was accretive from day 1. And in the second quarter, it was a top contributor to the EPS year-over-year growth as well as the TTS margin expansion alongside improved insurance gains and alongside the benefits that we realized from the One-Way restructuring.

The next question will come from Ari Rosa with Citigroup.

You guys mentioned there are fewer quality drivers out there. I'm curious just if you could talk about the dynamics between the driver pool for One-Way and the driver pool in the Dedicated market. Has the driver pool in Dedicated actually shrunk? It seemed like at least others have suggested that a lot of the low-cost capacity or low-quality capacity was more in the One-Way market. Just talk about those dynamics, if you would. And then, Derek, maybe your views on how the cycle plays out. I heard you say we're just in the third inning, but what are your thoughts on capacity coming back into the market? Or what it would take from a wage increase standpoint to draw people into the industry such that we might start to worry a little bit about supply in the normal cycle taking hold?

Yes. So thanks for the question. On Dedicated, I want to be clear, these are the jobs that drivers covet. And so there's only 1 driver pool. Obviously, it's a collective driver pool where people are tugging every day to pull them from one-way to dedicated to private fleets, and we're all fishing in the same ponds essentially. But the jobs they want are those dedicated jobs with high quality of life and high -- and the compensation levels are commensurate also with it being a premium job with premium expectations. So I like the positioning we have in a market that is becoming tighter on quality drivers. The reality, though, is that because it is all 1 pool, when the one-way market is as hot as it is right now and when spot rates are doing what they're doing, you do see the normal transition where some folks that have been driving as a company driver maybe want to go out and become an owner-operator again and chase spot rates for a while. And so there's going to be a lot of give and take on this. Our focus is continuing to build larger quantities of higher quality, long-term career type jobs. Our driver pay is actually right now in really good shape. We've got a significant amount of jobs in our network in Dedicated and other places where drivers can earn 6 figures. We have jobs across our network where if we need to make targeted pay adjustments, we will. But again, in Dedicated, those are negotiated with the customer alongside us. If we have difficulties getting that done, then that's a more strategic discussion as to in a limited asset world where those assets need to be deployed. And we need to have that discussion in a very professional way and hopefully find agreement. So we'll continue to work to do that. The driver schools play a major role in producing high-quality drivers, especially our Roadmaster network. We see better compliance, better retention, better maintenance and better service records with drivers that are coming out of our Roadmaster school or any of our Tier 1 schools that we work with in a partnership basis. So we've got a lot of solutions in place. We're open-minded to pulling various levers. And as Chris mentioned earlier, as we get into Q3, we've seen the momentum of some of the initiatives that were previously put in place really starting to build, both on driver retention as well as driver hires.

That's great. 6 figures sounds pretty nice. Just for a second question, if I could. I know somebody asked about some of the nuclear verdict impact. And not asking you to opine on C.H. Robinson or anyone else really. I'm just curious to hear your thoughts on for the broader market, where do insurance costs go? I think I, like a lot of people, were alarmed at the size of the awards being given out. Just give your thoughts on like if that's standard, if that's the new normal, if juries are seeing those kinds of numbers as appropriate, what has to happen with insurance costs? And how do carriers, how does the industry adapt?

Yes. Clearly, there is significant pressure on insurers in terms of how do you quantify and try to develop an actuarial for some of these outsized verdicts that are coming out on carriers because we are working diligently every year to continuously lower the frequency of accidents. And if you look at all the major carriers, which also tend to be the ones that get pursued in these cases, they're all at 20, 25 or all-time low in accident rates. So the efforts are working. We are making America's roadways safer, and we're focused on it every day. But when you cover millions of miles a day over the nation's highways, there will be the accidents that happen. And so the question is, when does -- when do we get more reasonableness in the room as it relates to making sure that we do everything we can to prevent an accident. And when accidents do happen, we also try to do the right thing, lean into it and come to a reasonable outcome. Where does it go? I think it puts increasing pressure in places that people don't talk about as much. I think small brokers, I'm not sure how they survive the onslaught of this world that we're in today. I worry about the backbone of the industry, honestly, which is the 1-truck, 2-truck, 5-truck carrier. I'm not sure how we, over time, continue to try to vet and utilize what is some of the strongest capacity out there in terms of quality if the new normal is that we've got to have entire safety departments and safety directors and other things inside these organizations when, in fact, what they bring to the table is 20, 30 years of driving history and they're quality people. So all of us are having to navigate this. Where does it go from here? I think it's yet another lid on capacity to go back to the original question that I failed to answer about how do I see the cycle playing out. It's a tough time right now to try to grow into a good market. I don't think you're going to see a lot of that. I think we've got EPA emissions and engine changes around the corner. They're going to keep a lid on capacity growth. I think we've got a whole lot of margin improvement that needs to take place across the entire industry to make the industry reinvestable before we start talking about trying to grow our way into added trucks. And I think we have a driver market that is very difficult right now and will stay that way for the foreseeable future as everybody continues to increase their hiring standards, increase their betting standards. And my only hope is that we don't end up with good drivers being left on the outside looking in because of how stringent everybody is trying to become. We have to be careful. We have to be prudent, but we also have to be willing to give people the opportunity to enter a career that at this point can become very, very lucrative and not be carrying $200,000 of college debt along with it.