Werner Enterprises - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered sequential improvement: revenue $753.1M (-1% YoY), adjusted operating margin 2.2% (down 60 bps YoY), and adjusted EPS $0.11 (down 36% YoY), while GAAP EPS rose to $0.72 (+380% YoY) propelled by one-time legal and earnout reversals.
• Results beat Wall Street consensus: revenue $753.1M vs $734.3M*, adjusted EPS $0.11 vs $0.049*, and EBITDA $124.6M* vs $82.5M*; a notable reversal from Q1’s misses (revenue $712.1M vs $739.3M*, EPS -$0.12 vs $0.116*). Values retrieved from S&P Global.
• Dedicated implementations and One-Way Truckload rate gains (revenue per total mile +2.7% YoY) supported core Truckload, while Logistics grew revenue 6% with margin expansion (adjusted OI margin 2.7%).
• Guidance tightened/lowered for fleet growth (1–4%) and net capex ($145–$185M), with cost savings target raised (> $45M) and equipment gains guidance lifted ($12–$18M), reflecting disciplined capital allocation and operational self-help.
• Potential stock catalysts: estimate beats, Texas Supreme Court verdict reversal (reversing $90M case; $45.7M benefit) and $55M buyback (2.1M shares at $26.05), alongside improving used equipment gains and technology-driven productivity.

What Went Well and What Went Wrong

What Went Well

• Logistics posted YoY revenue growth (+6%), adjusted operating income up 246%, and adjusted margin expanded to 2.7% on disciplined cost management and higher volumes; Intermodal had its best operating income quarter in two years.
• One-Way Truckload revenue per total mile rose 2.7% YoY (fourth consecutive quarter), aided by contractual rate changes; Dedicated fleet implementations progressed and quarter-end fleet grew 1.3% YoY.
• Management amplified cost actions and tech productivity: “We are driving efficiency by scaling the use of conversational AI… and growing no-touch, fully automated load bookings,” and raised the 2025 cost savings target to >$45M.

What Went Wrong

• Adjusted profitability remained pressured: adjusted OI $16.6M (-22% YoY), adjusted EPS $0.11 (-36% YoY), and TTS adjusted OI margin net of fuel fell 220 bps to 2.8% due to elevated insurance/claims, fuel net impacts, and Dedicated startups (~40 bps headwind to TTS adj OI margin).
• Operating cash flow fell to $46.0M (-58% YoY) and net capex, while reduced YoY, remained elevated sequentially as the company continued reinvestment in fleet and technology.
• Q1 headwinds highlight fragility: prior quarter revenue and EPS missed consensus and weather/tariffs created network inefficiencies; ongoing macro/tariff uncertainty and spot rate softness persist into Q3.

Transcript

Operator (participant)

Good afternoon and welcome to the Werner Enterprises second quarter 2025 earnings conference call. All participants will be in listen-only mode.

Should you need assistance, please signal a conference specialist by pressing the Star key followed by zero. After today's presentation, there will be an opportunity for questions.

Opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note this event is being recorded.

I would now like to turn the conference over to Chris Neil, Senior Vice President.

President of Pricing and Strategic Planning.

Please go ahead.

Chris Neil (SVP of Pricing and Strategic Planning)

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, Treasurer, and CFO. I will now turn the call over to Derek.

Derek Leathers (CEO)

Thank you, Chris, and good afternoon everyone. We appreciate you joining us today. We generated solid results during the second quarter and are encouraged by the sequential improvement in financial performance relative to Q1. The freight market faces ongoing uncertainty related to shifting global trade policy and regulatory issues. We remain focused on providing superior and diversified solutions to our customers by investing in our future through technology and structurally improving our business with a commitment to delivering value.

The key priorities we have been focusing on have started to bear fruit as evidenced by numerous positive operating metrics in the quarter, including year-over-year growth in revenue, net of fuel surcharge for the first time in six quarters, a return to profitability driven by decisive action and execution, and sequential growth in various forms including revenue, TTS fleet one-way revenue per total mile, gains from sale of used equipment, TTS operating income, and logistics gross margin. As a reminder on slide 5, there are three priorities that underpin our DRIVE strategy, which we execute day in and day out. First, driving growth in core business in DTS. Our fleet is up year to date. Our dedicated solution is winning in the marketplace. One-way rates are increasing and we realize year-over-year growth in overall combined miles across our one-way tractor assets and PowerLink trailer-only offering.

Within logistics, we are back to mid-single-digit growth driven by Truckload Brokerage and Intermodal Services volumes. Our customers are voting with their freight as we notch several new business awards with strategic customers across our portfolio. Second, driving operational excellence is a core competency. Our focus on creating and fostering a culture around safety never changes. Our DOT preventable accident per million miles continues to trend favorably as we hire quality professional drivers and invest in new technology-laden equipment. We are pleased the Texas Supreme Court has ruled on the accident that occurred in 2014, reversing the $90 million jury verdict from 2018. The court's decision provided much-needed clarity in the state of Texas, but legal reform is still needed in many states across the country.

We will continue to work at the state level and with others in and outside our industry for fairness and reasonableness regarding these types of claims and lawsuits. This marks the end of a decade-long and difficult chapter. While we are grateful for the clarity this decision brings, we will not lose sight of the tragic loss for the Blake family. Our focus on safety improvement is shown through our investments in technology, an increasing part of our operational strategy, and we are progressing on this front as well. Volume on our Werner EDGE TMS Platform is growing. Nearly two-thirds of one-way trucking volume is now on EDGE, and over half of the dedicated volume. Logistics has largely been on EDGE TMS for several quarters, leading to 20% productivity improvement in brokerage loads per full-time employee.

We are seeing more top and bottom line tech-enabled synergies such as growing no-touch, fully automated load bookings and back office efficiencies like carrier payment automation. We are driving efficiency by scaling the use of conversational AI calling and notifications for reminders and communication with new hires, associates, and brokerage carriers. Our professional drivers have greater technology tools, improving their situational awareness while on the road and providing mobile ease of access to important information when off the road. I'm proud of the efforts of our technology team and the willingness of our associates to lead into change and transformation. These changes are benefiting all of our stakeholders including our customers while further securing our IT infrastructure and cloud environments. Finally, our reliability and commitment to excellence was recently recognized as Werner was named a 2025 Top 3PL and Cold Storage Provider for Food Logistics for the ninth consecutive year.

Our final priority is driving capital efficiency. We're generating positive cash flow and supporting this. We are maximizing value on the sale of used equipment, tightening our full year guide on equipment gains to the upper end of the prior range. Regarding CapEx, we will continue to invest in the 5 T's: trucks, trailers, terminals, technology, and talent this year. However, we decided to moderate our equipment spend with a modern and low age fleet. We have assets in place to support growth through the rest of this year. With a strong balance sheet inclusive of low leverage, we are focused on disciplined return-oriented investments. This quarter we flexed our share repurchase authorization and bought back $55 million of shares at an exceptional value. When it comes to evaluating the impact of tariffs on our equipment costs, our strong balance sheet yields optionality.

Let's turn to Slide 6 and discuss our second quarter results. During the quarter, revenues decreased 1% versus the prior year. Revenues net of fuel increased 1%, adjusted EPS was $0.11, adjusted operating margin was 2.2%, and adjusted TTS operating margin was 2.8% net of fuel surcharges. Results in the quarter benefited from a growing fleet size due to dedicated startups and pop up truck opportunities in one-way. One-way revenue per total mile growth, cost containment, discipline and action, higher volumes in truckload logistics, particularly in brokerage at stable gross margins, and increased gains on equipment both sequentially and year-over-year. In dedicated, retention remains strong and shipper conversations are constructive as customers look for reliable and flexible transportation partners who offer creative solutions, high service, and scale.

The implementation of new dedicated fleet sign last quarter is progressing well and continuing to ramp into Q3 as we hire drivers and build fleets to targeted levels. Additional fleets were awarded in the quarter and the opportunity pipeline remains strong. Our dedicated expertise is a competitive advantage that has and will continue to drive growth over the long run. In one way, truckload revenue per total mile increased sequentially and was up year-over-year for the fourth consecutive quarter, as recent contractual rate changes became effective and deadhead improved sequentially. Our one-way fleet size increased sequentially, driven apart from engineered pop-up solutions in response to customer requests. This demonstrates our flexibility and adaptability in meeting customers' needs in an improving market, all while implementing new fleets in Dedicated and supporting brokerage growth in Logistics.

We are pleased with our Q2 trends in Logistics, showing double-digit growth sequentially and mid-single-digit growth year-over-year. We expect continued growth driven by a track record and reputation with large shippers needing additional capacity. In addition to sequential and year-over-year top line growth, expenses were down and operating margin improved. Turning to slide 7, our comprehensive Logistics portfolio is a key component of our diversified, solution-focused strategy. One is a mix of large, complex shippers. Regional requires a combination of multimodal solutions that are coordinated, reliable, and cost effective. Our solution-oriented Logistics service provides expertise that benefits larger customers while also expanding our reach to small and mid-sized shippers. Truckload Brokerage complements our truckload division, offering customers additional capacity and flexibility through creative and competitive solutions. We offer tailored solutions that are mode agnostic, combining the strengths of all Werner services to solve customer challenges.

Our large trailer pools provide capacity, simplify shipper operations, improve efficiency, and minimize the need for costly labor to live load and unload trailers. Brokerage also enables new customers to be introduced to Werner in a low-risk setting, often leading to expanded business relationships in one-way, truckload, or Dedicated. Our Intermodal business is a high-service product that provides a lower-cost option to customers. We have partnerships with all of the major railroads for nationwide rail access and capacity through a combination of private containers and rail-owned equipment to provide high service levels across the United States and Mexico cross border. Finally, our dedicated Final Mile Services division moves big and bulky goods nationwide directly to homes and B2B in verticals such as furniture, appliances, auto parts, and healthcare.

Our technological advancements are fueling logistics growth, including running on our Werner EDGE TMS Platform and other tools like Werner Bridge, which makes us a preferred user-friendly choice for third-party carriers and enables more automation in load booking and back office processes, keeping us agile and cost effective. Moving on to Slide 8 to summarize our market outlook for the remainder of the year, although there could be fits and starts, we expect stable truckload fundamentals throughout the rest of the year. Supply and demand in our industry has continued to work towards equilibrium in recent years. As the current challenging environment lingers, we anticipate ongoing capacity attrition. Long haul truckload employment is below the prior peak in 2019, and additional exits could accelerate with greater ELD and B1 enforcement.

Class 8 truck orders are on the decline, and lenders are driving out capacity through growing repossessions, given resale values are on the rise. Consumers have remained resilient as they search for value and trade down, resulting in relatively stable non-discretionary spending. The one big beautiful bill could stimulate consumer demand and industrial investment over time, both of which would benefit freight volumes. Tariff and interest rate impacts remain uncertain for both shippers and consumers. Retail inventories have mostly normalized, while some inventory was pulled forward from the tariff pause. Non-discretionary goods have had more consistent replenishment cycles. Volumes from our value and discount retailers were steady in Q2 and into July. Spot rates have weakened since the July 4th holiday, and we expect spot rates to follow normal seasonal patterns for the remainder of the year.

Used truck and trailer values have accelerated since March, benefiting from tariff and other macro uncertainty. With that, I'll turn it over to Chris to discuss our second quarter results in more detail.

Chris Wikoff (EVP and CFO)

Thank you, Derek. Let's continue on slide 10. All performance comparisons here are year-over-year unless otherwise noted. Second quarter revenues totaled $753 million, down 1%. Adjusted operating income was $16.6 million and adjusted operating margin was 2.2%. Adjusted EPS of $0.11 was down $0.06. We are pleased with the improved adjusted results in the core business. We also benefited from a handful of non-GAAP adjustments during the quarter. First, the Texas Supreme Court's ruling in Werner's favor reversing and dismissing the landmark $90 million truck accident verdict from 2018. This ruling led to the reversal of a $45.7 million net liability including interest and benefiting GAAP operating income. Our consolidated insurance and claims expense for the quarter excluding this benefit was $38.9 million. In addition, our acquisition of Baylor Trucking in October 2022 included an earnout provision based on a range of outcomes.

During the quarter, we settled on a final payout resulting in the reversal of $7.9 million from previously accrued amounts. Although the accrued earnout has been included in GAAP results since the date of the acquisition, the reversal was classified as a non-GAAP adjustment in the quarter due to the large one-time nature of the reversal. This benefit was included in other expense. Last, severance expense of $1.3 million from recent cost actions was also treated as a non-GAAP adjustment. Severance is included in the salaries, wages and benefits. Turning to slide 11, Truckload Transportation Services total revenue for the quarter was $518 million, down 4%. Revenues net of fuel surcharges decreased 1% to $462 million. TTS adjusted operating income was $12.8 million.

Adjusted operating margin net of fuel was 2.8%, a decrease of 220 basis points of which 150 basis points of the decrease is attributed to higher insurance and claims expense. Excluding the $45.7 million reversal during the quarter, consolidated gains on sale of property and equipment totaled $5.9 million. Let's turn to slide 12 to review our fleet metrics. TTS average trucks were 7,489 during the quarter. The TTS fleet ended the quarter up 1% year-over-year and up over 100 trucks, or 1.4%. Sequentially, TTS revenue per truck per week net of fuel increased 0.3% primarily due to higher one-way revenue per total mile mitigated by lower one-way miles within TTS. Dedicated revenue net of fuel was $287 million, down 0.7%. Dedicated represented 64% of TTS trucking revenues, up from 63% a year ago.

Dedicated average trucks decreased 0.9% year-over-year but increased sequentially by 1.6% to 4,855 trucks at quarter end. The dedicated fleet was up 50 trucks or 1% from year end and represented 65% of the TTS fleet. Dedicated revenue per truck per week grew 0.2% and has increased 28 of the last 30 quarters. It often takes 90 days or more before new fleets meet targeted utility as drivers are hired and integrated into the fleet, equipment is positioned, and routes are optimized. Lower utility in the startup fleets negatively impacted revenue per truck per week by 60 basis points in the quarter. Higher insurance costs versus the prior year period on an adjusted basis excluding the Texas Supreme Court reversal was nearly a 200 basis point drag on operating income. Startup costs for new dedicated fleets were a headwind as well, totaling approximately $1 million.

We expect some additional startup costs to linger into the third quarter. Excluding the elevated insurance and claims costs, dedicated operating income margin improved 50 basis points in our one way business for the second quarter. Trucking revenue net of fuel was $164 million, a decrease of 3%. Average truck count of 2,634 declined 3.5% year-over-year but grew slightly on a sequential basis. Revenue per truck per week increased 0.4% due to 2.7% higher rates mitigated by a 2.3% lower miles per truck per week. Revenue per loaded mile increased 3.7% year-over-year. Deadhead improved sequentially but was still elevated year-over-year, resulting in a 2.7% increase in revenue per total mileage. One way freight conditions were steady throughout the quarter.

We experienced tighter conditions around road check week in May and stable volumes throughout June, which have largely continued into the early stages of the third quarter. We were able to flex the fleet and provide one way capacity for select customers who had temporary needs. This work is ongoing. The total one way miles decreased 6% versus prior year with 3.5% fewer average trucks. However, increased miles in PowerLink offset the decline in one way truckload miles, ultimately resulting in combined miles that increased 1%. Now turning to logistics on slide 13, in the second quarter, logistics revenue was $221 million, representing 30% of total second quarter revenues. Revenues increased 6% year-over-year and 13% sequentially. Revenue in Truckload Logistics increased 9% and shipments increased 7% with gross margin expansion. Revenue from our PowerLink offering was up 17% while traditional brokerage recorded mid single digit revenue growth.

Higher volume was the driving factor with modest rate improvement. Intermodal revenues, which make up approximately 13% of logistics revenue, increased 3% due to 7% more shipments, partially offset by a 4% decrease in revenue per shipment. Q2 was our highest operating income quarter in two years for Intermodal. Final Mile Services revenues decreased 10% year-over-year but increased 7% sequentially. Logistics adjusted operating margin of 2.7% improved 190 basis points driven by volume growth and double digit percent reduction in operating expenses. Moving to Slide 14 and our Cost Savings Program, as we execute our cost savings strategy, we are slightly increasing our 2025 savings target to greater than $45 million from our prior $40 million estimate. In the first half of the year, we achieved $20 million in savings towards that goal.

Actions to achieve the full $45 million have largely already been taken, given high assurance of achieving the remaining $25 million in the second half of the year. The majority of our cost savings actions are structural and should result in enhanced operating leverage as demand returns. Let's review our cash flow and liquidity on Slide 15. Operating cash flow was $46 million for the quarter or 6% of total revenue. Net CapEx was $66 million or nearly 9% of revenue year to date. Net CapEx is 4% of revenue. Free cash flow year to date is $17.3 million or 1.2% of total revenues. We ended the quarter with $725 million of debt. Our net debt to adjusted EBITDA as of June 30 was 1.7 times. We have a strong balance sheet, access to capital, relatively low leverage, and no near term maturities in our debt structure.

Total liquidity at quarter end was $695 million, including $51 million of cash on hand and $644 million of combined availability on a revolver and receivable securitization facility, which we closed in the first quarter. Let's turn to Slide 16. While we have been focused on cost discipline, strategic reinvestment in the business to support future growth remains a top priority, ranging from trucks to technology. When it comes to broad capital allocation decisions, we will remain balanced over the long term, strategically reinvesting in the business, returning capital to shareholders, maintaining appropriate leverage, and remaining disciplined and opportunistic with share repurchase and M&A. During the second quarter, we deployed $55 million of capital to repurchase more than 2.1 million shares at an average price of $26.05, including fees, providing accretive value to shareholders.

In the future, as earnings improve, we have 1.8 million shares remaining under our board-approved share repurchase authorization. Let's review our guidance for the year. On slide 17, we are narrowing our full year fleet guidance range from up 1%-5% to up 1%-4%. The TTS fleet is up 1.1% year to date. Implementations of new fleets in Dedicated remain ongoing, and over the course of the year, as new Dedicated fleets are seeded, growth is expected to be driven more by Dedicated versus One-Way. We are adjusting our full year net CapEx guidance from a range of $185 million-$235 million to a range of $145 million-$185 million. Given our strong balance sheet and proactive fleet management, we entered the year with a higher than normal inventory of new trucks ready to support growth.

CapEx for this year is below our historical range given lower end-year needs and a deliberate shift to a more asset-light mix. Dedicated revenue per truck per week increased 0.2% year-over-year but is down 0.1% for the first six months of the year versus prior year. New fleet startups were a limiting factor this quarter in revenue per truck. Excluding inefficiencies from startups, this metric would have been up by 80 basis points instead of 20 basis points. We expect this metric to remain within our full year guidance range of 0%-3%. One-Way Truckload revenue per total mile increased 2.7%, near the upper end of our flat to up 3% guidance range for the second quarter. We are reissuing the same revenue per total mile guide of flat to up 3% for the third quarter compared to the prior year period.

Our effective tax rate was 26.2% in the second quarter. Our 2025 guidance range of 25%-26% remains unchanged, and we expect a lower effective tax rate in future quarters. The average age of our truck and trailer fleet at the end of the second quarter was 2.4 and 5.5 years, respectively. Regarding other modeling assumptions, after decreasing on a year-over-year basis for nine straight quarters, equipment gains more than doubled sequentially and year-over-year to $5.9 million in the second quarter. Despite the number of units sold being less than half compared to prior year, used tractor values have been elevated largely due to trade policy. We are adjusting our full year guidance range for equipment gains from a range of $8 million-$18 million to a range of $12 million-$18 million in the first half of the year.

Net interest expense increased $600,000 year-over-year. We expect the inverse in the second half and for net interest expense to be down year-over-year. With that, I'll turn it back to Derek.

Derek Leathers (CEO)

Thank you, Chris. In summary, our strategy is working as proven by our second quarter growth. That said, more work remains, and we'll continue to take near-term decisive action to position Werner for success. We are a large-scale, award-winning, reliable partner with diverse and agile solutions to support customers' transportation and logistics needs. We've been making considerable operational improvements and building a leaner but more powerful organization. Our nearly 13,000 hardworking, talented team members are committed to moving this company forward. While our hard work has started to pay off, we have a line of sight to accelerated earnings power as the trucking environment shows signs of improving. We've got tailwinds forming at a macro level and specific to Werner. Our fleet is new and modern due to the investments made the last few years.

We're progressing through our transformational technology journey, and our balance sheet is strong, enabling flexibility in our capital allocation strategy. As the economy grows and transportation helps deliver that growth, we expect our earnings to improve, leverage to decrease, and our investments to begin showcasing their value. With that, let's open it up for questions.

Operator (participant)

We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.

Up your handset before pressing the keys. To withdraw your question, please press star then two. Our first question today is from Eric Morgan with Barclays.

Please go ahead.

Eric Morgan (Analyst)

Hey, good afternoon. Thanks for taking my question, Derek. I guess I just wanted to ask for some thoughts on the cycle. You know you're calling for stable fundamentals and normal spot rate cadence in the back half, and you listed some favorable trends for capacity. It sounds like maybe demand is kind of stable, some tariff uncertainty. I guess just wondering when you think about the shape of the upcycle when it eventually arrives, can we get something resembling a normal upcycle if we don't really get much demand help? If supply just, we see more of the same trends on capacity and no real demand help to note, what does the shape of the upcycle look like and what does that mean for your TTS margins?

Derek Leathers (CEO)

Yeah, Eric, thanks for that question.

Obviously, this cycle has been longer and more painful than any prior cycle that any of us have been through. I'm a little hesitant to try to predict the future here. As we think about where we're at and you look at sort of the ongoing attrition, you look at BLS data now back to pre-COVID or even below pre-COVID levels, you look at ongoing attrition, both in downsizing the fleets but also just bankruptcies. Even today, there was an announcement about a 400-truck carrier going under or closing their doors down in the Southeast. I think we're going to continue to see that given the tough rate environment that everybody's living in. We've said all along we think it's going to be a supply-driven upcycle, if you will, more than demand.

With that said, if I take a step back and look at the consumer and think about the tariff noise and everything else they've been kind of dealt and they've been dealing with and yet their ongoing resiliency, if I compare that to our book of business, which is heavily discretionary or non-discretionary, I should say non-discretionary goods and discount retail, we think the backdrop sets up pretty well for where that consumer will migrate to if they are looking to be a little more cautious in the coming quarters, as well as those consumers that are already in that bucket kind of hanging in there and staying resilient and really living in that more non-discretionary kind of ordering pattern. With all that, we have ongoing customer conversations.

We just came through our annual customer forum where we bring in well over $1 billion of revenue under one roof for a multi-day event. Gives me the opportunity to spend time and talk to them about their outlooks. I think with the tariff noise settling, with some of the white noise in general kind of calming down, a lot of their outlooks are positive. We're not banking on big demand improvement, but we do think the supply story will continue to play out. Demand assumptions are basically for stability and then peak season, still peak season. We've seen over the last couple of years kind of a return to normal seasonality. We think that is really the expectation at this point going into the latter half of the year.

If all of that plays out, I think it does set the stage for an upcycle that starts to kind of look like prior normal upcycles, not Covid. Last thing I would just say is if you think about it from an OEM perspective and how curtailed orders have been and well below replacement levels and now actions being taken at the OEM level that are hard to bounce back from as that demand comes back. I think we've got a little bit of a capacity lid over several quarters, if not really throughout 2026, just as they rebuild their capacity and that also helps extend that upcycle and kind of more than anything probably causes a better inflection of the slope.

Eric Morgan (Analyst)

Appreciate that. I was also just hoping you could elaborate a bit on the temporary elevated demand from certain customers I think you called it.

Would you say that's a thing or a sign of things to come like later and when you traditionally see peak or was that a function of some of the surge in imports and something that we shouldn't really expect to see in the back half?

Derek Leathers (CEO)

I think it's a little bit of both to be frank. I think the biggest sign that it represents to me is, and we see this often at this point in the inflection where there's a flight to quality. When a customer has, whether it's driven by a surge of imports or it's driven by a sudden increase in demand or any other reason, any other external factor, the question is where do they go for that support and where we find them going to for that support.

When you're closer to this sort of inflection point and you're kind of at that equilibrium level, it is to quality diverse portfolio companies that are well capitalized and able to respond. We think that's really the indication. Most of that activity took place in our one network where we were able to step up and engineer solutions on a short term basis. That short term can often extend into a long term extended relationship. Right now many of those sort of short term activities continue as we sit here today. Some will wind down throughout Q3, others may extend well into Q4. It's really too early to tell. I'm most excited about the fact that these are great examples where customers vote with their freight, they look for quality and they tend to aggregate their attention around that quality provider and we're happy to serve them in that capacity.

Eric Morgan (Analyst)

Thanks a lot.

Derek Leathers (CEO)

Thank you.

Operator (participant)

The next question is from Brian Ossenbeck with JPMorgan.

Please go ahead.

Brian Ossenbeck (Analyst)

Hey, good evening, guys. Thanks for taking the question.

I just wanted to.

To ask you a little bit more on the capacity side, now that we're I guess a month.

Or so into ELP, we call it.

Greater enforcement, at least the standardization and focus on it and non-domicile drivers focus there on as well. I know you've made some comments on that in the past and you've got a cross-border business who might see some of these impacts. Maybe not on your fleet, but others. You can get a little bit of color what you're seeing and how you expect this to progress throughout the rest of the year.

Derek Leathers (CEO)

Yeah, Brian, I'll give it my best shot starting with this. You're right. We don't expect any impact on our fleet. We've always kept our English language proficiency test in place throughout the time that it wasn't being enforced. We continue to do that as we bring drivers into our fleet. We think it's important from a safety perspective. It's something we've never taken our eye off the ball on the enforcement side.

You know, a month, month and a half in government time is like a minute and a half in everybody else's life. Meaning it just goes slower than we'd like to see. We have seen enforcement starting to ramp up. It's kind of a state-by-state thing and it's certainly being enforced differently in different states. I think as we sit here today we've seen over 1,500 out-of-service violations where not just that ELP was an issue, but it actually resulted in an out-of-service violation. That number does continue to ramp, but obviously at a slower rate than we would have expected or that maybe we would have wished for. I think that enforcement will only continue to gain traction from here. It's just too early to tell what level across all states ultimately we will see it enforced by.

I'd also call everyone's attention to the reality that the enforcement data is only one part of the equation because what we do know relative to scales, inspections, and general enforcement over the road and trucking is as enforcement elevates, people deviate or they move out of the altogether or they simply avoid enforcement points. Those bad actors that may be out there, that may not be in compliance, may in fact be exiting. They may in fact be returning to other occupations. It's hard to know any numbers around that, but I think over time we'll be able to get a better view on that.

Brian Ossenbeck (Analyst)

Understood. Thanks for all the clarification there, Derek. Just in terms of the broader market, obviously we've seen a lot of choppiness and uncertainty and it's probably set to continue for at least a little while longer. What are you doing?

Hearing from some of your customers is using commentary on peak season, but just broadly speaking, bigger shift to dedicated, pulling away from dedicated. Now there's probably a mix of different outcomes and opinions you're hearing, but you're seeing any shift between moving back into dedicated, moving more into one way, moving more into brokerage. What's the general sense in terms of how they're going about procuring or at least thinking about getting more capacity into the end of this year and into next.

Thanks.

Derek Leathers (CEO)

Yeah, Brian, it's a great question again. When we're at this sort of inflection point or close to it, what we hear a lot of is that flight to quality. Part of that flight to quality is one way to dedicated. We don't want to bring dedicated into our business that isn't truly dedicated. If it's just a capacity solution, that's really the commoditized end of dedicated. We are pretty averse to that. We'll support that same customer with a one way solution, an engineered one, but that won't reside within our dedicated numbers because we want pure play dedicated in those numbers. We see some of that. What I would tell you we see probably more of as of late is customers looking for that sort of portfolio approach.

Coming out of our recent forum, the conversations I've had with customers is a higher level of excitement and they can come to somebody like Werner and they can work with us on their one way needs. In that same relationship, they can work across Truckload Brokerage and specifically PowerLink Power, which is our power only solution. They often have Intermodal needs and we're able to step up and meet those needs and give them some diversity in their solution set. Across all of that, I think that's really kind of the movement that we're seeing as it relates to their overall dedicated needs. One thing I would say is a bit of a theme is a lot less enthusiasm for private fleet growth than what we saw during the COVID years.

I think a lot of that was a defensive play on their part because absent other capacity solutions, they went out and tried to address it themselves. Now that they've been in this trucking business for a while, they also realize that even when they have the pick of the freight and they can work it through their own network, it's a little harder than they might have forecasted. Not a lot of conversations going on about them growing their private fleet in any significant way and in some cases even shrinking or exiting. That sets up well for our dedicated pipeline. I covered a lot of ground there, but hopefully that answers the bulk of your question.

Brian Ossenbeck (Analyst)

Yeah, no, I appreciate the perspective, Derek. Thank you.

Derek Leathers (CEO)

Thank you. Thank you, Brian.

Operator (participant)

The next question is from Ravi Shanker with Morgan Stanley.

Please go ahead.

Ravi Shanker (Analyst)

Great, thanks. Good afternoon, guys.

Congratulations on the case reversal, as I know it's something that you guys have been pushing for for a while. Do you think that this is the start, the light at the end, the beginning of the tunnel, if you will, for kind of court reform and maybe insurance numbers coming back in check for the industry?

Derek Leathers (CEO)

Yeah. Ravi, you know, I'd love to believe that it's the start of a tidal wave of similar decisions, but I think that would be a bit optimistic at this point. What we do believe is it was the right decision. We do believe that the Texas Supreme Court affirmed irrefutably the facts of the case as we had stated them all along, which is, you know, we were hit head on in our own lane of travel by a vehicle that lost control across the median and traveled across lanes of traffic prior to even impacting us in our own lane of travel. We think it's a great win for us financially. We also think it's great for our drivers to kind of affirmatively be supported by the Texas Supreme Court.

We think we got a lot of work to do still as an industry and as a company on tort reform. We got to do that at a state-by-state level. It's difficult work, but work that needs to be done. All we're looking for is an even and equitable playing field. We're not looking for any special advantages or anything else. We've always stood by the reality that if we have a mistake, we're going to stand up to it, learn from it, try to improve and try to do what's right. With that said, egregious verdicts like this do nothing but leak into cost inflation, ultimately into real inflation at the consumer level. It's not ultimately good for the U.S. consumer. There are some, you know, remedies out there, as you indicated, from the tort side.

I think playing a more active role relative to states where judges are elected versus appointed and making sure that we're not asleep at the wheel on that is important. Ultimately, the most important thing is lowering our accident rate. We're committed to doing that. We've been on a multi-year trend of continuing to push lower and lower our DOT reportables, which are sort of the larger accidents, and that's what really, really matters. On the injury side, doing the same thing, really leaning in on better and better injury prevention, better driver training, better post-injury care to try to get drivers back in the seat and back driving again quicker so that they can, you know, get back with their lives. It's an all-of-the-above strategy.

Ideally, both the industry will have some success at moving things from a state level into federal court because we believe that's where they ultimately belong. That's going to be a long fight, but one worth fighting. As it relates to the insurance line, the problem there with any kind of prediction is that you're one moment away from another day in court where you've got to kind of fight for what's right and you don't really know the outcome. Yes, we are expecting over time to flatten that curve. We're making progress on doing so. We still don't love the elevated reality of where insurance sits as a percent of revenue today.

Ravi Shanker (Analyst)

Understood, that's really helpful. Maybe as a follow-up, you did note your high consumer non-discretionary exposure, but I think there has been some view that in this cycle it's non-discretionary that's under pressure more. You've seen some of the CPG companies say that, and UPS hinted that in the call this morning. Do you feel like you guys have been a little more pressure macro wise from a demand perspective, and does that potentially give you a little more upside when the upcycle comes?

Derek Leathers (CEO)

Look, I think the consumer has been more frugal perhaps than they have in prior cycles. What I mean by that, especially since you mentioned CPG companies, I'll stay away from names, but we know that private label, white label type products have become more in vogue and people are willing not just to trade down in what store they shop at, but trade down the product mix within that store. In both of those types of cases, the places that we work and who we haul for, they play in those arenas. We have not seen that kind of duress within our customer mix. As a matter of fact, several of our customers, as indicated by some of these pop up kind of opportunities and project opportunities that we commented on, are actually seeing some increased volumes that needed a special solution to be able to solve for.

That doesn't mean I can predict that that's what it looks like two quarters out or even into the fall, but right now it appears as though that discount retail, non-discretionary arena is holding up pretty well overall and we're heavily exposed in that part and we do a really good job and a very unique job for those customers. That would be the other part of it I would just remind everybody of, is that the work we do for them is not as much just that commoditized you call, we haul type end of the spectrum. It's more dedicated, it's more engineered, it's a lot of cross border and as they benefit through this upside, and as they attract customers, what we've seen in prior cycles is they tend to hold onto them pretty well.

Customers are exposed to a product mix that maybe they didn't realize was as strong as it was. That's where we see them usually take a step up in store growth and same store sales and we're along for the ride with them, supporting them in every way.

Ravi Shanker (Analyst)

Very good.

Thank you.

Derek Leathers (CEO)

Thank you, Ravi.

Operator (participant)

Excuse me.

The next question is from Ken Hoexter.

With Bank of America.

Please go ahead.

Ken Hoexter (Senior Research Analyst)

Great. Good afternoon, Derek and Chris. Utilization seems to be improving.

Deadhead.

Improved sequentially. Is that better asset focus on your part? Is that selling more equipment?

Sign of excess capacity coming out? I guess just maybe positioning that into.

Your thoughts on what's normal for TTS.

Margin gain from 2Q to 3Q?

Derek Leathers (CEO)

Yeah, great question Ken. It's interesting because, I'll start with this. The utilization gains we've been making, especially across the one-way network, are really engineered in nature. It's structural, strategic changes that we're making to be able to sweat the assets more. We're pretty excited about it, especially because right now those increased miles don't really give you much leverage to the upside until you start to see rate move. When it does, it's a real earning opportunity with those excess miles. Actually, in Q2, what's interesting is they were down slightly, but that's more reflective of some of the outsized dedicated wins that we had and our need to move some of those high-quality one-way drivers in some of those engineered solutions over to dedicated, reseat those trucks in one-way.

We had a bit of a utilization impact from our own success, if you will, in dedicated. That passes here shortly as we continue to see dedicated growth, but maybe not quite as lumpy as what it's been in Q2. That's coming into Q3, we'll have an opportunity to kind of get our arms back around that network on the one-way side. We think there's gains to be made from a productivity perspective. You only have to go back a couple of years to see a miles per truck gain from a couple of years ago that's double-digit higher today than where we used to reside. That's part of what led to, in a very tough market with rates that are still pressured, the highest revenue per truck per week we've seen in one-way in our history.

Now what we need to do is continue to focus on the cost side of the equation, which we've been diligent about and very methodical about. We're going to continue to do that so that that then translates as rates start to improve to expanded margins, which is the first step toward that march back to double-digit operating margins in TTS.

Ken Hoexter (Senior Research Analyst)

I'm sorry, your thoughts on what that means for kind of normal seasonality for third quarter operating margin in TTS.

Is that a Chris question?

Derek, you want to take it? Derek?

Chris Wikoff (EVP and CFO)

Yeah, sure, Ken. I can give you some insight on that. Overall, it's been a good start to Q3. Revenue is positive, the outlook is positive, and I think points to sequential improvement in revenue in part from dedicated within TTS where we'll continue to ramp up with new fleets and continue to benefit from the streak of wins that we signed last quarter. I know your question was specifically on TTS, but broadly Q2 to Q3, we're also seeing very positive momentum in logistics, and we expect that to continue. From a TTS perspective, we expect some ongoing improvement in operating income, and as Derek Leathers mentioned, we continue to be confident in the pathway back to double-digit TTS operating margins.

Ken Hoexter (Senior Research Analyst)

Okay, but there's no, I guess you're not talking a historical average or anything.

Moving from a 2Q, I don't know if there's a 130 basis point or any kind of a normal improvement from 2Q that.

Sorry, just to keep reiterating on it.

Derek Leathers (CEO)

I think the difficult thing there is, Ken, is we could look at the averages, but they wouldn't tell much of a story because about half the time from Q2 to Q3, operating income increases and about half the time it decreases. It's really dependent on the year you're in. I think Chris's comments give you a decent direction that we think we're going to see some incremental gains from Q2 to Q3. We're not talking about monumental gains. We're going to have to continue to plug away and work at the work we're doing today to see some small incremental gains as we continue to climb this mountain. The starting point, unfortunately for us, is at the base of the mountain, which is where we found ourselves entering into Q2, and we're going to start that slow climb out.

Ken Hoexter (Senior Research Analyst)

Totally understand.

Can I just squeeze one more in?

On the age of the fleet? You went up to 2.4 years. Derek.

Is that anything on moderating?

You mentioned moderating equipment spend. Is that a trade-off of buying?

Back a stock versus a deliberate move.

To age the fleet?

I just want to understand if there.

Was a signal there.

Derek Leathers (CEO)

Yeah, it definitely wasn't a trade off in order to buy back stock. Our balance sheet is strong enough. We could have done both. It's more reflective of the ongoing uncertainty around tariffs and a little bit of the uncertainty that was wrapped up in some of the EPA things that are still going on right now in D.C. We feel like we're in a really good position. It's a little bit also, just to be frank, a reflection of as our fleet gets more and more engineered. As our fleet gets, it's 65% of the trucks in dedicated, 35% in one way, challenging kind of some assumptions as to what is the right fleet age. I'm not saying long term we've determined 24 is perfect. 24 doesn't worry me a whole lot compared to our more recent range that was a little lower than that.

We think we're better positioned and still have the optionality if we can get some things done with some of our OEM partners that that fleet age could go slightly up or slightly down from here as we look forward through the remainder of the year. We're going to be flexible but opportunistic as it relates to the fleet age. We feel very good about the utilization in our terminals to do on-site maintenance versus over the road and the ability to expand that even further, as well as the ability to allocate these trucks in the right fleets dependent on their age to be able to still do the work perfectly fine with no impact on service or the driver.

Ken Hoexter (Senior Research Analyst)

Derek, great insight.

Appreciate your thoughts.

Thanks, Chris.

Derek Leathers (CEO)

Thank you, Ken.

Operator (participant)

The next question is from Tom Wadewitz with UBS.

Please go ahead.

Tom Wadewitz (Analyst)

Yeah, good afternoon. Derek, how do I think about, or Chris, I guess your kind of underlying inflation and kind of how much rate you need because it does seem like you're getting some traction in revenue per tractor ex fuel and traction and rate on one way and then a variety of factors in dedicated that's moving in a favorable way. It's like 2% or 3% gain in, say, revenue per truck per week is not enough to get you there, I guess. Would you think that, is inflation going to come down as you look maybe out beyond a couple quarters? Are you more optimistic about that, or do you say, look, you know what we've got today continues and we just really, to make margin progress, we really need like 5%, 6%, 7% rate?

I don't know if you have any thoughts on that broader equation. I know you've had some number of questions related, but I don't know how much rate do you need, or is inflation likely to come down if you look out into 2026 or out a couple quarters.

Chris Wikoff (EVP and CFO)

Hey Tom, this is Chris. Yeah, we certainly need rate recovery in one way. As you know, we've had multiple years of significant rate reduction. I think we've held in well relative to the overall industry, but broadly it's been a couple of years of rate reduction while other expense line items have been on an inflationary trend, as you said. We certainly need more in the range of mid single digit improvement in rate. It's not only about particularly one way rates.

To get back to the low double digit TTS kind of mid cycle adjusted OI margins that we've talked about, it's rate but also continued growth in dedicated in addition to ongoing cost discipline, leveraging our technology investments, and a sustained recovery in the used equipment market. Those are really the levers that we talked about. We continue to pressure test within our own walls here, those levers, and it continues to give us confidence that those in combination is the pathway back to low double digits, 10%-12% or more. The good news is in the second quarter all of those areas and levers are progressing positively for the first time in two years. We have a ways to go, but we're encouraged with the recent momentum and we remain confident in our gradual progression.

Tom Wadewitz (Analyst)

Thank you.

And on the, you know, vas, it's a lot better year-over-year. You know, cost takeout supportive for that operating income. Is that kind of the right run rate assuming you know you don't have big shifts in truckload market backdrop, that you're kind of, you know, $6 million a quarter operating income in VAs, or how do you think about the run rate there? Because it's a pretty big improvement, and it sounds like, you know, if it's cost driven, that maybe you can kind of keep that going for the next, you know, next three quarters before you lap it. Just any more thoughts on the, you know, kind of VAS operating income, that should good improvement.

Derek Leathers (CEO)

Yeah. Tom, first off, I'll congratulate you for wearing your throwback analyst jacket today by calling it VAs. It's Werner Logistics now.

Tom Wadewitz (Analyst)

Sorry about that. I don't know.

We.

Our model's been in use for a long time.

Derek Leathers (CEO)

The structural improvements made there are reflective of some of these tech investments we've been talking about. We're very excited about the ongoing integration that is now basically complete between ReedTMS and Werner Logistics. That team's really found its stride structurally. We believe that yes, on the horizon we need to all realize that at some point with this inflection comes buy rate pressure and that pressure will be managed as well here as anywhere. At the same time, that will come with our ability to reset sell rates with our customers. There's always a timing issue. Absent of that timing issue, as you stated in your question, we do believe that we have a structurally different logistics group now. They're operating at a high level of performance. We're proud of the Q2 performance and as we look forward we've got momentum into Q3 that continues to give us optimism.

I don't know if that fully answers, but I'm not going to guide you to an actual number obviously, but Werner Logistics is on the right path and it's really the output of what's been a very arduous integration effort as well as the output of the one place where we have Werner EDGE fully integrated and fully committed, minus the small Final Mile Services piece of the business.

Tom Wadewitz (Analyst)

Okay, it's good to see the improvement in logistics. Thank you.

Derek Leathers (CEO)

Thank you.

Operator (participant)

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

Scott Group (Analyst)

Hey, thanks. Afternoon.

Just to follow up on one of.

The earlier questions about Q3, right.

If I just look Q1 to Q2, trucking margins got about 2 points better. Is that sort of like the magnitude of improvement we can continue to expect sequentially, or is it, hey, gains.

On sale got better.

Q1 was really bad, so maybe that's too much improvement to expect on a quarter-to-quarter basis.

Any thoughts?

Derek Leathers (CEO)

Yeah, I'm not going to guide to a number, Scott, but I will obviously restate what you just stated, which is Q1 was that bad. Some of the improvement is just based on the starting point. We need to recognize that gains and on a per unit basis have been much improved, and really at two-year highs. It does come down to what's the number of units that we're going to be able to move and what's that gain line going to look like. I would just think about it as it's up and down the P&L. It's the ongoing, it's the increase in the cost takeout, it's the execution that we've been talking about relative to one-way and one-way improvements. All of that in the soup, and we're going to see sort of small incremental gains from Q2 to Q3 would be our expectation.

Now we've got to go and execute on that. Things that make that optimism kind of resonate with me is the pipeline looks strong, both dedicated and one-way. The stuff in what we refer to as BI, business implementation, is strong, especially for this time of year. That's already secured and going through the final implementation stages and launch with the dedicated side. That does include headwinds still that come with launching a new dedicated fleet, but the bigger part of those headwinds is behind us. We still have some to come with some of the implementation still yet to be finalized. It's hard to, we don't guide quarterly, we don't guide annually. I want to stick to that for now, but hopefully that gives you some color or some way to think about it.

Chris Wikoff (EVP and CFO)

Scott, maybe just to add to that, the cost savings program, we've been very focused on that. Part of that goal is holding the line as much as we can, particularly on the fixed costs and even some of the variable as we continue to see more volume, particularly on the dedicated side where as we're adding trucks to existing fleets that comes with a higher contribution margin and as we're turning on and it takes a while to ramp up these new fleets. We did experience some startup cost as well as some headwind just in kind of the efficiency on a revenue per truck per week basis and dedicated some of that will continue into Q3.

When we get past kind of the maturity stage of these new fleets, the contribution margin really starts to take effect and we see the benefit not only of the technology that Derek mentioned but also just becoming a more agile and lean organization.

Scott Group (Analyst)

That's helpful. Maybe just a big picture question, it is a big day in the broad transport landscape with the UPNs merger. I'm just curious, Derek, if you've had a chance to think about what this.

Means for your business, is this good for Intermodal?

I don't know, channel partners with Rails, and does this have any impact in any way, do you think, on your.

Trucking business with the transcon merger? Just big picture thoughts.

Derek Leathers (CEO)

Yeah, Scott, I'll be a bit careful here about getting too much into the weeds with their respective companies. I will just tell you this from our viewpoint today as we are digesting and continuing to do so. Good news for us is our two partners right now, predominant partners in the west and the east, are UP and NS respectively. We've seen outsized growth in Intermodal, although from a smaller base than some of the major players, but continue to grow and make headroads. We think this does create a more competitive product as it relates to threatening the truckload business that we currently are in.

If you look at our length of haul and if you look at what our one-way business looks like and how it's sort of divided between engineered lanes, cross-border Mexico, and expedited freight, those are in each way for different reasons much tougher to tackle and much tougher to convert. I'm not naive enough not to believe that there won't be some freight out there that's convertible and that's why we have an Intermodal product and that's why we've had some good success converting it ourselves. All things being equal, if there was going to be a merger west and east, from our point of view we like this particular option. We think it bodes well for Werner and we think our 65% dedicated exposure, as an example, is completely insulated from any kind of rail merger.

Within our one-way, the predominance of what we do is nowhere near in the crosshairs of what the kind of work that would be. Rail convertible doesn't mean there isn't opportunities around the edges and we're constantly already working with our customers on some of those opportunities. If it's going to go Intermodal, I'd rather go Intermodal here than somewhere else.

Scott Group (Analyst)

Very helpful, thank you.

Derek Leathers (CEO)

Thank you, Scott.

Operator (participant)

The next question is from Richa Harneit with Deutsche Bank.

Please go ahead.

Richa Harneit (Analyst)

Good afternoon, gentlemen. Thank you. Chris, you and I have talked a lot about. Can you hear me?

Derek Leathers (CEO)

Yes, we can. Good afternoon.

Richa Harneit (Analyst)

Oh, hi. Chris, you and I have talked a lot about how the gains on sale, just the trend that's out there right now, as maybe a double positive, and that obviously it provides a nice uplift to earnings, but it also means that the secondary market improving and maybe the banks therefore have more options when they repossess assets from carriers that are delinquent. They would be more inclined to do that because they can go on and sell those fleets. Maybe you can talk about the other side of the coin, which is not just what's impacting your financials, but how this is impacting the supply side of the equation, and if we should expect into 2026 these gains on sales to be a continued feature of earnings or if you could give us any guidance as far as the longevity of this trend. Thanks.

Chris Wikoff (EVP and CFO)

Yeah, sure.

Hey Richa, from a supply side standpoint, your point is 100% valid. Bankruptcies are up and lenders, with the rise in resale values, just have more options besides what they've been doing more so over the last 18 months or so of just being more accommodative as smaller fleets continue to be under pressure. Lenders having options can drive out some additional capacity in addition to other things like the ELP and the B1 enforcement and other things that would drive out capacity. From a gain standpoint overall for U.S. second quarter, great to see nearly $6 million, over two times prior year. Really the best gains on used equipment that we've had in six quarters and resale values really being at the core of that. Actually, our unit sales were down a little bit.

In terms of the actual units that we're selling from one quarter to the next, it can vary. A lot of that, primarily all of that, driven from just higher resale values that are at more than two-year highs. In terms of its sustainability, obviously it depends on the supply of used equipment, tariffs, and OEM demand. I think it's a bit early for us to go out on a limb and say how sustainable this is. As a result of Q2, we've moved our guide on gains for the full year to the upper end of where we originally started that guide first of the year. We are expecting Q3 to be a bit lower than Q2, but overall for the year, it still looks like we're heading in the right direction.

Richa Harneit (Analyst)

Okay, thanks. And if I can ask one more clarification. 1.

You talked about the impact from some of these dedicated and the startup costs on revenue per truck per week. Can you talk about the impact on margins? I'm just trying to understand maybe what's a clean margin as we sort of work through these startup costs, what you're delivering today versus what the potential is on the current book of business.

Derek Leathers (CEO)

Yeah, Rich, I'll start and then Chris Neil might follow up with some additional color. When you start up dedicated accounts, and especially I think what's unique here that we need to explain is these are dedicated accounts in new verticals that we have strategically decided to pursue. They have additional complexities to them, but we think there's also the appropriate upside over time. As such, as you start them, you have an impact on utilization in that fleet. Until drivers start to find their rhythm and understand the routes, you have impact as it relates to the training, the development and sort of R&D that goes into making sure you perform at the level and expectations of the customers.

There's a lot of just headwind noise, both from a margin perspective as well as just overall time, mind share that it takes to pull one of these off when you're in new verticals. You absolutely want to pull it off and you want to pull it off at the highest level, which we are doing, because that then of course is the gift that keeps on giving and you continue to grow deeper into them. These have some unique characteristics. We are largely through the headwinds on the ones we've implemented thus far. We do have additional headwinds coming as we look forward with further implementation. Along with those implementations comes fleet add backs into existing dedicated accounts, which is much, much more streamlined, much simpler and higher contribution margin.

All of the above allows us to sort of affirm some of the fleet growth guidance and affirm the reality that it will be largely in dedicated as we go into the back half of the year.

Chris Wikoff (EVP and CFO)

Henrietta, just to give you a little bit of size and scope on the startup costs for the new fleets, we're estimating around $1 million of expense in the quarter related to repositioning and travel and hiring. Just true incremental expenses. In addition to that $1 million, we're also estimating that there was a headwind on revenue per truck per week. You know, we reported that being up about 20 basis points, we think it would be closer to about 80 basis points, so 60 basis points higher. Once those fleets get into what we would consider to be settled in and get mature and more efficient and start hitting our expectations on revenue per truck per week, overall if we fast forward to that point, we would have seen more of an 80 basis points increase.

That translates also to about another $1 million or over $1 million of revenue net of fuel and TTS, the sum of those. The pure incremental cost as well as just some of the revenue inefficiency, I would say our estimate would be around 40 basis points of headwind to TTS adjusted OI margin.

Richa Harneit (Analyst)

Appreciate that. Thank you.

Derek Leathers (CEO)

Thank you, Richa.

Operator (participant)

The final question today is from Chris Wethebee with Wells Fargo. Please go ahead.

Chris Wetherbee (Analyst)

Yeah, hey, thanks guys. Thanks for squeezing me in here at the end. I guess wanted to hit on the.

Tractor age and just get a sense.

How you think about what sort of optimal is. I guess it sounds like maybe the opportunity to age this up a little bit. Not sure if I'm reading that correctly. Just want to get a sense of how you think about optimal tractor age and what you have from an equipment perspective right now.

Derek Leathers (CEO)

Yeah, Chris, this is Derek. I think if the backdrop was different, if we were in a different part of the cycle, optimal might take on a slightly different form, if I'm being frank. I'll answer it differently and say we feel good about the tractor age where we're at today. We feel good about our ability to allocate those assets appropriately because of the type of work and the line of work that they're in and their ability to get to and through a terminal for us to be able to support them. We don't believe that we have any kind of equipment debt, if you will, that's just sort of pending in the background that we're going to have to make up for and make some sudden shift at the same time.

Regardless of what optimal may or may not be, we don't feel good about pricing fluctuations or changes that were unanticipated or overpaying for a piece of equipment or worse, buying into equipment that may or may not in fact be the standard post regulatory changes that are still ongoing in D.C. right now relative to the EPA. I do believe we're making the optimal decision right now to sit back, be patient, purchase appropriately, keep the fleet appropriately young to be able to do the work we do for our customers every day without any impact on service, as well as put our drivers in a piece of equipment they can be proud of. We like our positioning. I'd say ±0.2 is a range that I think we can live within from where we're at today.

We'll continue to be nimble and agile as some of this tariff noise and other things play itself out.

Chris Wetherbee (Analyst)

Okay, that's helpful.

Just one follow up, Chris.

I just wanted to make sure I was following what you were saying about the impact of the startups.

On the operating income margin, I think in 2Q, can you just give a sense of what that is, maybe what the clean.

Run rate is, in your opinion, as.

We enter the quarter?

Chris Wikoff (EVP and CFO)

Yeah, sure. The run rate on TTS adjusted OI. Chris? Overall.

Chris Wetherbee (Analyst)

Yes, please. Yes,

Chris Wikoff (EVP and CFO)

yes. Net of fuel adjusted OI was 2.8%, and what we just went through of the approximately what we would estimate of $1 million in startup cost and then some of the additional headwind on revenue side of an additional $1 million, that would get to about 40 basis points. The net fuel impact was also more meaningful in the quarter. We would estimate that was about 70 basis points of TTS adjusted OI impact. That net impact on fuel is just the simple math of our fuel revenue, fuel surcharges minus the fuel expense and comparing that year-over-year, so that was an additional 70 basis points. All of that in total would get us closer to 4%, about 3.9%.

If you were to put all of that math together in terms of what would have been more normalized.

Chris Wetherbee (Analyst)

Okay, that's very helpful, thank you. Appreciate it.

Derek Leathers (CEO)

Thanks, Chris.

Operator (participant)

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Derek Leathers, who will provide closing comments.

Derek Leathers (CEO)

Thank you, Gary. I just want to thank everybody for taking the time to be with us today. While the macro environment has some uncertainty related to the tariffs, the health of the consumer, and ongoing capacity attrition, we remain committed to our self-help path towards increased profitability and controlling the controllables. The structural improvements to our cost structure, combined with increased focus on operational productivity measures, put us in a solid footing to leverage the upside as the market comes further into balance. We have a resilient and diverse portfolio to support our customers' transportation and logistics needs, and our pipeline of recent wins demonstrates the value they see in Werner.

I'll close by thanking our customers and our nearly 13,000 associates for their dedication as we keep America moving. Thanks for your time today, everyone.

Operator (participant)

The conference is now concluded.

Thank you for attending today's presentation.

You may now disconnect.