Financial Data and Key Metrics Changes - Orders increased by 2% year over year to $259 million, driven by an 8% growth in project-related orders, particularly in EMEA [5][6] - Sales for Q1 were $235.9 million, down 2% from the prior year, attributed to a 3% decline in short cycle sales [12][16] - Gross profit decreased by $11.8 million year over year to $77.2 million, impacted by lower sales volume and tariff-related costs [14][16] - Adjusted earnings per diluted share were $0.50, a decrease of $0.12 compared to the prior year, primarily due to a $0.11 tariff-related impact [16][17] Business Line Data and Key Metrics Changes - Short cycle orders were down 4% due to surcharges and price increases, while project-related sales remained unchanged from the prior year despite order growth [5][12] - SG&A expenses decreased by 5% excluding acquisition-related costs, resulting in an adjusted SG&A of $54.8 million [10][15] - Adjusted operating income was $18.5 million with an adjusted operating margin of 7.8% [15] Market Data and Key Metrics Changes - The backlog increased by $67 million or 23% year over year to $360 million, driven by longer cycle project orders [6][12] - Strength was noted in vertical end markets such as battery production, e-commerce, food and beverage, aerospace, oil and gas, and rail projects [6][7] - Tariffs were identified as a headwind, with an expected $10 million impact on operating profit in the first half of the year [9][17] Company Strategy and Development Direction - The company is focused on operational execution, cost control, and advancing its strategic plan, particularly in targeted end markets [18][58] - The pending acquisition of Keto Crosby is expected to scale the business, expand customer capabilities, and enable synergies [10][18] - The company anticipates achieving tariff cost neutrality by 2026 and margin neutrality by fiscal 2027 [9][17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the order backlog and the potential for growth in targeted industries despite macroeconomic uncertainties [6][57] - The company expects the next few quarters to remain volatile but anticipates stabilization in demand over time [6][18] - Management remains focused on mitigating tariff impacts and is implementing price adjustments to offset these costs [9][17] Other Important Information - The company is preparing for the integration of Keto Crosby and expects to close the acquisition by the end of the calendar year [10][36] - Free cash flow was a use of cash of $21.4 million in the quarter, reflecting normal working capital seasonality [16][46] Q&A Session Summary Question: Can you help parse out the gross margin performance in the quarter? - Management noted a 180 basis point erosion in gross margin tied to tariffs and a mix of lower volume of higher margin products [20][22] Question: How should we think about gross margins moving forward? - Management expressed confidence in expanding margins, anticipating improvements as the year progresses and production ramps up [24][25] Question: Can you provide more detail on order backlog in areas like EV battery and e-commerce? - Management highlighted a strong funnel of opportunities in battery production, e-commerce, and defense industries, with positive trends in steel and heavy equipment [27][28] Question: Can you provide an update on the Keto Crosby acquisition? - Management confirmed that the acquisition is advancing and expects to close by the end of the year, with preparations for integration underway [34][36] Question: How much of the backlog is actionable this year? - Management indicated that 70-80% of the current backlog is actionable within the fiscal year, with the remainder extending beyond that timeframe [40][41] Question: What are the expectations for cash flow this year? - Management noted that cash flow predictions are challenging due to deal costs and timing of the acquisition closure, but improvements in working capital are expected [46][47]

Summary of Werner Enterprises Conference Call Company Overview - **Company**: Werner Enterprises - **Industry**: Transportation and Logistics - **Key Figures**: - Asset pool: Approximately 7,500 trucks and nearly 30,000 trailers - Consolidated revenue: Over $3 billion - Employees: Nearly 13,000 associates [4][4] Core Business Segments - **Truckload Transportation Services (TTS)**: - Annualized revenue: Over $2 billion - Two-thirds dedicated services, focusing on reliability for large enterprise customers - One-way services include expedited lanes and cross-border operations [5][5] - **Logistics**: - Revenue: Over $900 million - 75% from truckload brokerage, 25% from intermodal and final mile services [5][5] Recent Challenges and Strategies - **Market Conditions**: - Experienced a long downturn with macroeconomic challenges - Focused on long-term strategy, customer trust, safety, service solutions, and technology investments [6][6][7][7] - **Tariff Impact**: - Approximately 10% of consolidated revenues are exposed to Mexico - West Coast operations also affected by tariff-related disruptions, but no permanent changes in supply chains observed [8][10][11] - **Inventory Levels**: - Customers' inventories are healthy, with some elevated levels noted - Shippers are managing inventory effectively, indicating stability in freight flow [12][13][17] Pricing and Revenue Insights - **Contract Rates**: - Low to mid-single-digit increases in contract rates observed during bid season - One-way trucking rate per total mile increased by 0.3% year-over-year in Q1 [18][19][20] - **Spot Market Comparison**: - Spot rates are generally lower than contract rates, with a difference of 20 to 30 cents [22][22] - **Revenue per Truck**: - Revenue per truck per week in dedicated services has been increasing consistently over the years [54][54] Operational Metrics - **Operating Ratio**: - Reported at 99.6% in Q1, with expectations for improvement in Q2 due to increased dedicated volume and cost savings initiatives [57][59] - **Utilization Rates**: - Utilization fell by 3.5% in Q1, attributed to weather disruptions and tariff impacts, but improvements are expected moving forward [69][70] Future Outlook - **Growth Strategy**: - Targeting 1% to 5% growth in fleet size, with a focus on dedicated services - Positive momentum in customer conversations and strategic long-term focus noted [36][38][41] - **Cost Management**: - Aiming for $40 million in cost savings for the year, with operational expenses down 11% year-over-year in logistics [74][74] - **Market Balance**: - Evidence of capacity reduction in the trucking market, with a 30% year-over-year increase in bankruptcies noted in March [68][68] Conclusion - **Overall Sentiment**: - Mixed results but a positive outlook with intentional actions taken to improve business performance and readiness for macroeconomic recovery [77][77][78][78]