WERNER ENTERPRISES INC 10-Q

Item 1. Financial Statements. WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except per share amounts) 2024 2023 2024 2023 Operating revenues $ 745,701 $ 817,744 $ 2,275,579 $ 2,461,554 Operating expenses: Salaries, wages and benefits 258,335 268,054 783,492 802,742 Fuel 64,886 90,369 214,506 259,523 Supplies and maintenance 61,548 60,181 185,311 193,370 Taxes and licenses 23,565 25,852 74,223 76,685 Insurance and claims 27,678 31,261 95,937 104,552 Depreciation and amortization 71,584 74,586 218,526 223,797 Rent and purchased transportation 211,667 224,556 626,009 661,866 Communications and utilities 4,186 4,555 13,019 13,957 Other 4,657 430 11,762 ( 13,422 ) Total operating expenses 728,106 779,844 2,222,785 2,323,070 Operating income 17,595 37,900 52,794 138,484 Other expense (income): Interest expense 11,093 8,661 28,084 24,716 Interest income ( 1,834 ) ( 1,727 ) ( 5,305 ) ( 5,178 ) Loss on investments in equity securities, net 37 34 227 36 Loss (earnings) from equity method investment ( 295 ) 110 ( 21 ) 954 Other 50 284 ( 181 ) 377 Total other expense, net 9,051 7,362 22,804 20,905 Income before income taxes 8,544 30,538 29,990 117,579 Income tax expense 2,004 7,034 8,002 28,521 Net income 6,540 23,504 21,988 89,058 Net loss (income) attributable to noncontrolling interest 25 200 354 ( 249 ) Net income attributable to Werner $ 6,565 $ 23,704 $ 22,342 $ 88,809 Earnings per share: Basic $ 0.11 $ 0.37 $ 0.36 $ 1.40 Diluted $ 0.11 $ 0.37 $ 0.36 $ 1.39 Weighted-average common shares outstanding: Basic 61,808 63,390 62,659 63,360 Diluted 62,022 63,737 62,862 63,703 See Notes to Consolidated Financial Statements (Unaudited). 4 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2024 2023 2024 2023 Net income $ 6,540 $ 23,504 $ 21,988 $ 89,058 Other comprehensive income (loss): Foreign currency translation adjustments ( 2,426 ) ( 1,333 ) ( 6,011 ) 4,410 Change in fair value of interest rate swaps, net of tax ( 4,606 ) ( 694 ) ( 5,742 ) ( 1,768 ) Other comprehensive income (loss) ( 7,032 ) ( 2,027 ) ( 11,753 ) 2,642 Comprehensive income (loss) ( 492 ) 21,477 10,235 91,700 Comprehensive loss (income) attributable to noncontrolling interest 25 200 354 ( 249 ) Comprehensive income (loss) attributable to Werner $ ( 467 ) $ 21,677 $ 10,589 $ 91,451 See Notes to Consolidated Financial Statements (Unaudited). 5 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands, except share amounts) September 30, 2024 December 31, 2023 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 54,660 $ 61,723 Accounts receivable, trade, less allowance of $ 7,496 and $ 9,337 , respectively 384,023 444,944 Other receivables 25,199 25,479 Inventories and supplies 15,442 18,077 Prepaid taxes, licenses and permits 7,218 16,505 Other current assets 60,424 67,900 Total current assets 546,966 634,628 Property and equipment, at cost 3,022,296 2,951,654 Less – accumulated depreciation 1,001,471 978,698 Property and equipment, net 2,020,825 1,972,956 Goodwill 129,104 129,104 Intangible assets, net 78,924 86,477 Other non-current assets 345,898 334,771 Total assets $ 3,121,717 $ 3,157,936 LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 164,410 $ 135,990 Current portion of long-term debt — 2,500 Insurance and claims accruals 81,155 81,794 Accrued payroll 54,833 50,549 Accrued expenses 22,227 30,282 Other current liabilities 35,084 29,470 Total current liabilities 357,709 330,585 Long-term debt, net of current portion 690,000 646,250 Other long-term liabilities 66,867 54,275 Insurance and claims accruals, net of current portion 228,192 239,700 Deferred income taxes 292,139 320,180 Total liabilities 1,634,907 1,590,990 Commitments and contingencies Temporary equity - redeemable noncontrolling interest 38,253 38,607 Stockholders’ equity: Common stock, $ 0.01 par value, 200,000,000 shares authorized; 80,533,536 shares issued; 61,807,803 and 63,444,681 shares outstanding, respectively 805 805 Paid-in capital 137,219 134,894 Retained earnings 1,949,543 1,953,385 Accumulated other comprehensive loss ( 21,437 ) ( 9,684 ) Treasury stock, at cost; 18,725,733 and 17,088,855 shares, respectively ( 617,573 ) ( 551,061 ) Total stockholders’ equity 1,448,557 1,528,339 Total liabilities, temporary equity and stockholders’ equity $ 3,121,717 $ 3,157,936 See Notes to Consolidated Financial Statements (Unaudited). 6 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (In thousands) 2024 2023 Cash flows from operating activities: Net income $ 21,988 $ 89,058 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 218,526 223,797 Deferred income taxes ( 26,133 ) 23,775 Gain on disposal of property and equipment ( 8,848 ) ( 39,346 ) Non-cash equity compensation 7,071 8,671 Insurance and claims accruals, net of current portion ( 11,508 ) ( 6,866 ) Loss on investments in equity securities, net 227 36 Loss (earnings) from equity method investment ( 21 ) 954 Other ( 10,509 ) ( 4,741 ) Changes in certain working capital items: Accounts receivable, net 60,921 69,079 Other current assets 18,007 ( 12,135 ) Accounts payable ( 9,821 ) 5,844 Other current liabilities ( 1,200 ) ( 2,107 ) Net cash provided by operating activities 258,700 356,019 Cash flows from investing activities: Additions to property and equipment ( 332,999 ) ( 530,085 ) Proceeds from sales of property and equipment 126,894 155,924 Net cash invested in acquisition — ( 188 ) Investment in equity securities, net ( 32 ) ( 2,865 ) Payment to acquire equity method investment ( 2,360 ) ( 2,645 ) Purchase of promissory note — ( 25,000 ) Decrease in notes receivable 2,028 2,809 Net cash used in investing activities ( 206,469 ) ( 402,050 ) Cash flows from financing activities: Repayments of short-term debt ( 72,500 ) ( 33,750 ) Proceeds from issuance of short-term debt 70,000 30,000 Repayments of long-term debt ( 156,250 ) ( 50,000 ) Proceeds from issuance of long-term debt 200,000 50,000 Change in checks issued in excess of cash balances — 14,659 Dividends on common stock ( 26,413 ) ( 25,333 ) Repurchases of common stock ( 67,086 ) — Tax withholding related to net share settlements of restricted stock awards ( 4,172 ) ( 5,554 ) Net cash used in financing activities ( 56,421 ) ( 19,978 ) Effect of exchange rate fluctuations on cash ( 2,873 ) 1,523 Net decrease in cash and cash equivalents ( 7,063 ) ( 64,486 ) Cash and cash equivalents, beginning of period 61,723 107,240 Cash and cash equivalents, end of period $ 54,660 $ 42,754 Supplemental disclosures of cash flow information: Interest paid $ 27,403 $ 25,299 Income taxes paid 14,847 17,140 Supplemental schedule of non-cash investing and financing activities: Notes receivable issued upon sale of property and equipment $ 1,795 $ 1,968 Change in fair value of interest rate swaps ( 5,742 ) ( 1,768 ) Property and equipment acquired included in accounts payable 52,480 4,701 Dividends accrued but not yet paid at end of period 8,653 8,875 Contingent consideration associated with acquisitions — ( 800 ) See Notes to Consolidated Financial Statements (Unaudited). 7 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST (Unaudited) Three Months Ended September 30, 2024 (In thousands, except share and per share amounts) Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders’ Equity Temporary Equity - Redeemable Noncontrolling Interest BALANCE, June 30, 2024 $ 805 $ 134,769 $ 1,951,631 $ ( 14,405 ) $ ( 617,573 ) $ 1,455,227 $ 38,278 Net income attributable to Werner — — 6,565 — — 6,565 — Net loss attributable to noncontrolling interest — — — — — — ( 25 ) Other comprehensive loss — — — ( 7,032 ) — ( 7,032 ) — Dividends on common stock ($ 0.14 per share) — — ( 8,653 ) — — ( 8,653 ) — Non-cash equity compensation expense — 2,450 — — — 2,450 — BALANCE, September 30, 2024 $ 805 $ 137,219 $ 1,949,543 $ ( 21,437 ) $ ( 617,573 ) $ 1,448,557 $ 38,253 Three Months Ended September 30, 2023 (In thousands, except share and per share amounts) Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders’ Equity Temporary Equity - Redeemable Noncontrolling Interest BALANCE, June 30, 2023 $ 805 $ 130,694 $ 1,923,865 $ ( 6,623 ) $ ( 551,671 ) $ 1,497,070 $ 39,148 Net income attributable to Werner — — 23,704 — — 23,704 — Net loss attributable to noncontrolling interest — — — — — — ( 200 ) Other comprehensive loss — — — ( 2,027 ) — ( 2,027 ) — Dividends on common stock ($ 0.14 per share) — — ( 8,875 ) — — ( 8,875 ) — Equity compensation activity, 1,020 shares — ( 36 ) — — ( 1 ) ( 37 ) — Non-cash equity compensation expense — 2,380 — — — 2,380 — BALANCE, September 30, 2023 $ 805 $ 133,038 $ 1,938,694 $ ( 8,650 ) $ ( 551,672 ) $ 1,512,215 $ 38,948 See Notes to Consolidated Financial Statements (Unaudited). 8 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST (CONTINUED) (Unaudited) Nine Months Ended September 30, 2024 (In thousands, except share and per share amounts) Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders’ Equity Temporary Equity - Redeemable Noncontrolling Interest BALANCE, December 31, 2023 $ 805 $ 134,894 $ 1,953,385 $ ( 9,684 ) $ ( 551,061 ) $ 1,528,339 $ 38,607 Net income attributable to Werner — — 22,342 — — 22,342 — Net loss attributable to noncontrolling interest — — — — — — ( 354 ) Other comprehensive loss — — — ( 11,753 ) — ( 11,753 ) — Repurchases of common stock, 1,787,810 shares — — — — ( 67,086 ) ( 67,086 ) — Dividends on common stock ($ 0.42 per share) — — ( 26,184 ) — — ( 26,184 ) — Equity compensation activity, 150,932 shares — ( 4,746 ) — — 574 ( 4,172 ) — Non-cash equity compensation expense — 7,071 — — — 7,071 — BALANCE, September 30, 2024 $ 805 $ 137,219 $ 1,949,543 $ ( 21,437 ) $ ( 617,573 ) $ 1,448,557 $ 38,253 Nine Months Ended September 30, 2023 (In thousands, except share and per share amounts) Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders’ Equity Temporary Equity - Redeemable Noncontrolling Interest BALANCE, December 31, 2022 $ 805 $ 129,837 $ 1,875,873 $ ( 11,292 ) $ ( 551,588 ) $ 1,443,635 $ 38,699 Net income attributable to Werner — — 88,809 — — 88,809 — Net income attributable to noncontrolling interest — — — — — — 249 Other comprehensive income — — — 2,642 — 2,642 — Dividends on common stock ($ 0.41 per share) — — ( 25,988 ) — — ( 25,988 ) — Equity compensation activity, 167,513 shares — ( 5,470 ) — — ( 84 ) ( 5,554 ) — Non-cash equity compensation expense — 8,671 — — — 8,671 — BALANCE, September 30, 2023 $ 805 $ 133,038 $ 1,938,694 $ ( 8,650 ) $ ( 551,672 ) $ 1,512,215 $ 38,948 See Notes to Consolidated Financial Statements (Unaudited). 9 Table of Contents WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation and Recent Accounting Pronouncements Basis of Presentation The accompanying unaudited interim consolidated financial statements include the accounts of Werner Enterprises, Inc. and its subsidiaries (collectively, the “Company” or “Werner”). Redeemable noncontrolling interest on the consolidated condensed balance sheets represents the portion of a consolidated entity in which we do not have a direct equity ownership. In these notes, the terms “we,” “us,” or “our” refer to Werner Enterprises, Inc. and its subsidiaries. All significant intercompany accounts and transactions relating to these entities have been eliminated. These consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (“SEC”) instructions to Form 10-Q and, in the opinion of management, reflect all adjustments, which are all of normal recurring nature, necessary to present fairly the financial condition, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles (“GAAP”). These consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements; although in management’s opinion, the disclosures are adequate so that the information presented is not misleading. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. In the opinion of management, the information set forth in the accompanying consolidated condensed balance sheets is fairly stated in all material respects in relation to the consolidated balance sheets from which it has been derived. These consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes contained in our 2023 Form 10-K. Recently Issued Accounting Pronouncements, Not Yet Effective In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , with the objective of improving financial reporting, primarily through enhanced disclosures about significant segment expenses. The provisions of this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, using a retrospective approach. We are evaluating the impact of adopting ASU 2023-07, and we expect this ASU to impact our disclosures but not our results of operations, cash flows, and financial condition. In December 2023, FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures , with the objective of enhancing the transparency and decision usefulness of income tax information through income tax disclosure improvements, primarily related to the rate reconciliation and income taxes paid information. The provisions of this update are effective for annual periods beginning after December 15, 2024, using a prospective approach. Retrospective application is permitted. We are evaluating the impact of adopting ASU 2023-09, and we expect this ASU to impact our disclosures but not our results of operations, cash flows, and financial condition. (2) Revenue Revenue Recognition Revenues are recognized over time as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The following table presents our revenues disaggregated by revenue source (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Truckload Transportation Services $ 522,803 $ 572,195 $ 1,610,998 $ 1,730,717 Werner Logistics 206,774 230,252 618,168 683,470 Inter-segment eliminations ( 3,248 ) ( 4,402 ) ( 10,582 ) ( 13,185 ) Transportation services 726,329 798,045 2,218,584 2,401,002 Other revenues 19,372 19,699 56,995 60,552 Total revenues $ 745,701 $ 817,744 $ 2,275,579 $ 2,461,554 10 Table of Contents The following table presents our revenues disaggregated by geographic areas in which we conduct business (in thousands). Operating revenues for foreign countries include revenues for (i) shipments with an origin or destination in that country and (ii) other services provided in that country. If both the origin and destination are in a foreign country, the revenues are attributed to the country of origin. Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 United States $ 702,875 $ 769,524 $ 2,141,294 $ 2,317,133 Mexico 35,597 38,941 110,882 118,092 Other 7,229 9,279 23,403 26,329 Total revenues $ 745,701 $ 817,744 $ 2,275,579 $ 2,461,554 Contract Balances and Accounts Receivable A receivable is an unconditional right to consideration and is recognized when shipments have been completed and the related performance obligation has been fully satisfied. At September 30, 2024 and December 31, 2023, the accounts receivable, trade, net, balance was $ 384.0 million and $ 444.9 million, respectively. Contract assets represent a conditional right to consideration in exchange for goods or services and are transferred to receivables when the rights become unconditional. At September 30, 2024 and December 31, 2023, the balance of contract assets was $ 6.8 million and $ 7.4 million, respectively. We have recognized contract assets within the other current assets financial statement caption on the consolidated condensed balance sheets. These contract assets are considered current assets as they will be settled in less than 12 months. Contract liabilities represent advance consideration received from customers and are recognized as revenues over time as the related performance obligation is satisfied. A t September 30, 2024 and December 31, 2023, t he balance o f contract liabilities was $ 2.1 million and $ 0.9 million, respectively. The amount of revenues recognized in the nine months ended September 30, 2024 that was included in the December 31, 2023 contract liability balance was $ 0.9 million. We have recognized contract liabilities within the accounts payable and other current liabilities financial statement captions on the consolidated condensed balance sheets. These contract liabilities are considered current liabilities as they will be settled in less than 12 months. Performance Obligations We have elected to apply the practical expedient in Accounting Standards Codification (“ASC”) Topic 606, Revenue From Contracts With Customers , to not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less. Remaining performance obligations represent the transaction price allocated to future reporting periods for freight shipments started but not completed at the reporting date that we expect to recognize as revenue in the period subsequent to the reporting date; transit times generally average approximately 3 days. During the nine months ended September 30, 2024 and 2023, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material. (3) Goodwill and Intangible Assets Goodwill represents the excess of cost over the fair value of net identifiable tangible and intangible assets acquired in business combinations. There were no changes in the carrying amount of goodwill by segment for the nine months ended September 30, 2024. The following table presents acquired intangible assets (in thousands): September 30, 2024 December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 80,200 $ ( 20,005 ) $ 60,195 $ 80,200 $ ( 13,989 ) $ 66,211 Trade names 24,600 ( 5,871 ) 18,729 24,600 ( 4,334 ) 20,266 Total intangible assets $ 104,800 $ ( 25,876 ) $ 78,924 $ 104,800 $ ( 18,323 ) $ 86,477 Amortization expense on intangible assets was $ 2.5 million and $ 7.6 million for the three and nine months ended September 30, 2024, respectively, and $ 2.5 million and $ 7.8 million for the three and nine months ended September 30, 2023, respectively, and is reported in depreciation and amortization on the consolidated statements of income. As of September 30, 2024, we estimate future amortization expense for intangible assets will be $ 2.5 million for the remainder of 2024, and $ 10.1 million for each of the five succeeding fiscal years. 11 Table of Contents (4) Leases We have entered into operating leases primarily for real estate. The leases have terms which range from 1 year to 18 years, and some include options to renew. Renewal terms are included in the lease term when it is reasonably certain that we will exercise the option to renew. Operating leases are included in other non-current assets, other current liabilities and other long-term liabilities on the consolidated condensed balance sheets. These assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date, using our incremental borrowing rate because the rate implicit in each lease is not readily determinable. We have certain contracts for real estate that may contain lease and non-lease components which we have elected to treat as a single lease component. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Lease expense is reported in rent and purchased transportation on the consolidated statements of income. The following table presents balance sheet and other operating lease information (dollars in thousands): September 30, 2024 December 31, 2023 Right-of-use assets (recorded in other non-current assets) $ 41,184 $ 34,814 Current lease liabilities (recorded in other current liabilities) $ 10,216 $ 9,017 Long-term lease liabilities (recorded in other long-term liabilities) 32,865 27,495 Total operating lease liabilities $ 43,081 $ 36,512 Weighted-average remaining lease term for operating leases 5.61 years 6.15 years Weighted-average discount rate for operating leases 4.6 % 3.6 % The following table presents the maturities of operating lease liabilities as of September 30, 2024 (in thousands): 2024 (remaining) $ 3,110 2025 11,515 2026 9,835 2027 7,807 2028 6,504 Thereafter 9,555 Total undiscounted operating lease payments $ 48,326 Less: Imputed interest ( 5,245 ) Present value of operating lease liabilities $ 43,081 Cash Flows During the nine months ended September 30, 2024 and 2023, right-of-use assets of $ 14.8 million and $ 3.8 million, respectively, were recognized as non-cash asset additions that resulted from new operating lease liabilities. Cash paid for amounts included in the present value of operating lease liabilities was $ 8.9 million and $ 8.4 million for the nine months ended September 30, 2024 and 2023, respectively, and are included in operating cash flows. Operating Lease Expense Operating lease expense was $ 4.8 million and $ 14.2 million for the three and nine months ended September 30, 2024, respectively, and $ 5.7 million and $ 17.8 million for the three and nine months ended September 30, 2023, respectively. This expense included $ 3.2 million and $ 9.1 million for the three and nine months ended September 30, 2024, respectively, and $ 2.8 million and $ 8.8 million for the three and nine months ended September 30, 2023, respectively, for long-term operating leases, with the remainder for variable and short-term lease expense . Lessor Operating Leases We are the lessor of tractors and trailers under operating leases with initial terms of 3 to 8 years. We recognize revenue for such leases on a straight-line basis over the term of the lease. Revenues were $ 2.3 million and $ 7.1 million for the three and nine 12 Table of Contents months ended September 30, 2024, respectively, and $ 2.8 million and $ 8.2 million for the three and nine months ended September 30, 2023, respectively. The following table presents information about the maturities of these operating leases as of September 30, 2024 (in thousands): 2024 (remaining) $ 2,170 2025 4,607 2026 291 2027 73 2028 — Thereafter — Total $ 7,141 (5) Fair Value Fair Value Measurement — Definition and Hierarchy ASC 820-10, Fair Value Measurement , defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows: Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Such inputs include quoted prices in markets that are not active, quoted prices for similar assets and liabilities in active and inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 — Unobservable inputs for the asset or liability, where there is little, if any, observable market activity or data for the asset or liability. In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to our Level 1 assets and liabilities. If quoted prices in active markets for identical assets and liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. This pricing methodology would apply to Level 2 assets and liabilities. The following table presents the fair value hierarchy for our assets and liabilities measured at fair value on a recurring basis (in thousands): Level in Fair Value Hierarchy Fair Value September 30, 2024 December 31, 2023 Assets: Other non-current assets: Equity securities (1) 1 $ 83 $ 310 Liabilities: Other long-term liabilities: Contingent consideration associated with acquisition 3 $ 9,208 $ 8,896 (1) Represents our investment in an autonomous technology company. For additional information regarding the valuation of this equity security, see Note 6 – Investments. 13 Table of Contents The following table presents changes in the fair value of our contingent earnout liabilities (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Balance at beginning of period $ 9,102 $ 13,028 $ 8,896 $ 13,400 Measurement period adjustment associated with the acquisition of ReedTMS Logistics (1) — — — ( 800 ) Change in fair value 106 155 312 583 Balance at end of period $ 9,208 $ 13,183 $ 9,208 $ 13,183 (1) The measurement period adjustment was recorded in goodwill on the consolidated condensed balance sheet. The estimated fair values of our contingent consideration arrangements are based upon probability-adjusted inputs for each acquired entity. Additionally, as the liability is stated at present value, the passage of time alone will increase the estimated fair value of the liability each reporting period. Change in fair value is recorded in other operating expenses on the consolidated statements of income. We have ownership interests in investments, primarily Mastery Logistics Systems, Inc. (“MLSI”), which do not have readily determinable fair values and are accounted for using the measurement alternative in ASC 321, Investments - Equity Securities . Our ownership interest in Autotech Fund III, L.P. (the “Autotech Fund”) is accounted for under ASC 323, “ Investments - Equity Method and Joint Ventures .” For additional information regarding the valuation of these investments, see Note 6 – Investments. Fair Value of Financial Instruments Not Recorded at Fair Value Cash and cash equivalents, accounts receivable trade, and accounts payable are short-term in nature and accordingly are carried at amounts that approximate fair value. The carrying amount of our fixed-rate debt not measured at fair value on a recurring basis was $ 88.8 million as of December 31, 2023. We had no fixed-rate debt outstanding as of September 30, 2024. The estimated fair value of our fixed-rate debt using the income approach, based on its net present value, discounted at our current borrowing rate, was $ 86.7 million as of December 31, 2023 (categorized as Level 2 of the fair value hierarchy). The carrying amount of our variable-rate long-term debt approximates fair value due to the duration of our credit arrangement and the variable interest rate. (6) Investments Equity Investments without Readily Determinable Fair Values Our strategic equity investments without readily determinable fair values primarily consist of our investment in MLSI, a transportation management systems company. MLSI has developed a cloud-based transportation management system using its SaaS technology, and we have obtained a license. Our investments are being accounted for under ASC 321 using the measurement alternative and are recorded in other noncurrent assets on the consolidated condensed balance sheets. We record changes in the values of our investments based on events that occur that would indicate the values have changed, in loss (gain) on investments in equity securities on the consolidated statements of income. As of September 30, 2024 and December 31, 2023, the value of our investment in MLSI was $ 89.8 million, and the value of our other equity investments without readily determinable fair values was $ 348 thousand and $ 316 thousand, respectively. No gains or losses were recorded for the three and nine months ended September 30, 2024 and 2023. The following table summarizes the activity related to our equity investments without readily determinable fair values during the periods presented (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Investment in equity securities $ 11 $ 3,000 $ 32 $ 3,000 As of September 30, 2024, cumulative upward adjustments on our equity securities without readily determinable fair values totaled $ 56.8 million. Equity Investments with Readily Determinable Fair Values We own a strategic minority equity investment in an autonomous technology company, which is being accounted for under ASC 321 and is recorded in other noncurrent assets on the consolidated condensed balance sheets. As of September 30, 2024 and December 31, 2023, the value of this investment was $ 0.1 million and $ 0.3 million, respectively. For additional information regarding the fair value of this equity investment, see Note 5 – Fair Value. 14 Table of Contents The following table summarizes the activity related to our equity investments with readily determinable fair values during the periods presented (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Loss on investments in equity securities, net $ 37 $ 34 $ 227 $ 36 Portion of net unrealized loss for the period related to equity securities still held at the reporting date 37 35 227 28 Equity Method Investment In January 2023, we committed to make a $ 20.0 million investment in the Autotech Fund pursuant to a limited partnership agreement. The Autotech Fund is managed by Autotech Ventures, a venture capital firm focused on ground transportation technology. Our interest, which represents an ownership percentage of less than 20 %, is being accounted for under ASC 323, “ Investments - Equity Method and Joint Ventures .” As a limited partner, we will make periodic capital contributions toward this total commitment amount. As of September 30, 2024, our cumulative contributions in the Autotech Fund were $ 5.7 million. We contributed $ 2.4 million and $ 2.6 million to the Autotech Fund during the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024 and December 31, 2023, the value of our investment in the Autotech Fund was $ 4.7 million and $ 2.3 million, respectively, and is recorded in other noncurrent assets on the consolidated condensed balance sheets. The carrying amount of the Autotech Fund as of September 30, 2024 approximates its fair value as of June 30, 2024, as this is the most recent information available to us at this time. We recognized earnings of $ 0.3 million and $ 21 thousand from the Autotech Fund for the three and nine months ended September 30, 2024, respectively, and a loss of $ 0.1 million and $ 1.0 million from the Autotech Fund for the three and nine months ended September 30, 2023, respectively, which is reported in loss (earnings) from equity method investment on the consolidated statements of income. (7) Debt and Credit Facilities On December 20, 2022, we entered into a $ 1.075 billion unsecured credit facility with a group of lenders (the “2022 Credit Agreement”), replacing our previous credit facilities. The 2022 Credit Agreement is scheduled to mature on December 20, 2027, and has a $ 100.0 million maximum limit for the aggregate amount of letters of credit issued. Revolving credit loans drawn under the 2022 Credit Agreement bear interest, at our option, at (i) the Base Rate (the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50 %, or (c) the one-month Term SOFR plus 1.10 %), plus a margin ranging between 0.125 % and 0.750 %, or (ii) Term SOFR plus 0.10 % and a margin ranging between 1.125 % and 1.750 %. Swingline loans drawn under the 2022 Credit Agreement bear interest at the Base Rate, as defined above, plus a margin ranging between 0.125 % and 0.750 %. The 2022 Credit Agreement also requires us to pay quarterly (i) a letter of credit commission on the daily amount available to be drawn under such standby letters of credit at rates ranging between 1.125 % and 1.750 % per annum and (ii) a nonrefundable commitment fee on the average daily unused amount of the commitment at rates ranging between 0.125 % and 0.250 % per annum. The margin, letter of credit commission, and commitment fee rates are based on our ratio of net funded debt to earnings before interest, income taxes, depreciation and amortization (“EBITDA”). There are no scheduled principal payments due on the 2022 Credit Agreement until the maturity date, and interest is payable in arrears at periodic intervals not to exceed three months. We have entered into variable-for-fixed interest rate swap agreements in order to limit our exposure to increases in interest rates on a portion of our variable-rate indebtedness. Under the terms of our interest rate swap agreements, we receive monthly variable-rate interest payments based on one-month Term SOFR and make monthly fixed-rate interest payments as specified in the interest rate swap agreements. We have designated our interest rate swap agreements as cash flow hedges. Changes in fair value of outstanding derivatives in cash flow hedges are recorded in other comprehensive income (loss) in the consolidated statements of comprehensive income until earnings are impacted by the hedged transactions. Two variable-for-fixed interest rate swap agreements with an aggregate notional amount of $ 150.0 million matured in May 2024. In August 2024, we entered into a variable-for-fixed interest rate swap agreement with a notional amount of $ 75.0 million, maturing in 2028, and during the three months ended June 30, 2024, we entered into two variable-for-fixed interest rate swap agreements with an aggregate notional amount of $ 150.0 million, maturing in 2027. On June 30, 2021, we entered into a $ 100.0 million unsecured 1.28 % fixed-rate term loan commitment with BMO Harris, with quarterly principal payments of $ 1.25 million and a final payment of principal and interest due and payable on May 14, 2024 ("BMO Term Loan"). We repaid the remaining $ 86.3 million outstanding principal balance under the BMO Term Loan in May 2024 using proceeds from the 2022 Credit Agreement. 15 Table of Contents As of September 30, 2024 and December 31, 2023, our outstanding debt totaled $ 690.0 million and $ 648.8 million, respectively. As of September 30, 2024, our outstanding revolving credit loan balance under the 2022 Credit Agreement, consisted of: • $ 335.0 million at a variable interest rate of 6.81 %; • $ 40.0 million which is effectively fixed at 6.45 % with interest rate swap agreements through July 2025; • $ 90.0 million which is effectively fixed at 6.12 % with interest rate swap agreements through July 2026; • $ 75.0 million which is effectively fixed at 6.23 % with an interest rate swap agreement through April 2027; • $ 75.0 million which is effectively fixed at 6.09 % with an interest rate swap agreement through May 2027; and • $ 75.0 million which is effectively fixed at 5.14 % with an interest rate swap agreement through August 2028. Subsequent to the end of the quarter, in October 2024, we borrowed $ 45.0 million on our revolving line of credit. Our total available borrowing capacity under the 2022 Credit Agreement was $ 379.1 million as of September 30, 2024, after considering $ 5.9 million in stand-by letters of credit under which we are obligated. Availability of such funds under the current debt agreement is conditional upon various customary terms and covenants. Such covenants include, among other things, two financial covenants requiring us (i) not to exceed a maximum ratio of net funded debt to EBITDA and (ii) to exceed a minimum ratio of EBITDA to interest expense. As of September 30, 2024, we were in compliance with these covenants. At September 30, 2024, the aggregate future maturities of long-term debt by year are as follows (in thousands): 2024 (remaining) $ — 2025 — 2026 — 2027 690,000 2028 — Total $ 690,000 (8) Commitments and Contingencies We have committed to property and equipment purchases of approximately $ 81.1 million at September 30, 2024 . We are involved in certain claims and pending litigation, including those described herein, arising in the ordinary course of business. The majority of these claims relate to bodily injury, property damage, cargo and workers’ compensation incurred in the transportation of freight, as well as certain class action litigation related to personnel and employment matters. We accrue for the uninsured portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on the knowledge of the facts, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on our consolidated financial statements. Moreover, the results of complex legal proceedings are difficult to predict, and our view of these matters may change in the future as the litigation and related events unfold. On May 17, 2018, in Harris County District Court in Houston, Texas, a jury rendered an adverse verdict against the Company in a lawsuit arising from a December 30, 2014 accident between a Werner tractor-trailer and a passenger vehicle. On July 30, 2018, the court entered a final judgment against Werner for $ 92.0 million, including pre-judgment interest. The Company has premium-based liability insurance to cover the potential outcome from this jury verdict. Under the Company’s insurance policies in effect on the date of this accident, the Company’s maximum liability for this accident is $ 10.0 million (plus pre-judgment and post-judgment interest) with premium-based coverage that exceeds the jury verdict amount. As a result of this jury verdict, the Company had recorded a liability of $ 42.8 million as of September 30, 2024, and $ 39.8 million as of December 31, 2023. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the verdict, and as such, the Company has also recorded a $ 79.2 million receivable from its third-party insurance providers in other non-current assets and a corresponding liability of the same amount in the long-term portion of insurance and claims accruals in the consolidated condensed balance sheets as of September 30, 2024 and December 31, 2023. The Company pursued an appeal of this verdict, and on May 18, 2023, the Texas Court of Appeals overruled Werner’s appeal and affirmed the trial court’s judgment. The Company has since filed a Petition for Review with the Texas Supreme Court, seeking further review of the Texas Court of Appeals decision. On August 30, 2024 the Texas Supreme Court granted the Company’s Petition for Review. Oral argument is scheduled for December 3, 2024. No assurances can be given regarding the outcome of the review. 16 Table of Contents We are also involved in certain class action litigation in which the plaintiffs allege claims for failure to provide meal and rest breaks, unpaid wages, unauthorized deductions and other items. Based on the knowledge of the facts, management does not currently believe the outcome of these class actions is likely to have a material adverse effect on our financial position or results of operations. However, the final disposition of these matters and the impact of such final dispositions cannot be determined at this time. (9) Earnings Per Share Basic earnings per share is computed by dividing net income attributable to Werner by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to Werner by the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding restricted stock awards. Performance awards are excluded from the calculation of dilutive potential common shares until the threshold performance conditions have been satisfied. There are no differences in the numerators of our computations of basic and diluted earnings per share for any periods presented. The computation of basic and diluted earnings per share is shown below (in thousands, except per share amounts). Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income attributable to Werner $ 6,565 $ 23,704 $ 22,342 $ 88,809 Weighted average common shares outstanding 61,808 63,390 62,659 63,360 Dilutive effect of stock-based awards 214 347 203 343 Shares used in computing diluted earnings per share 62,022 63,737 62,862 63,703 Basic earnings per share $ 0.11 $ 0.37 $ 0.36 $ 1.40 Diluted earnings per share $ 0.11 $ 0.37 $ 0.36 $ 1.39 (10) Segment Information We have two reportable segments – Truckload Transportation Services (“TTS”) and Werner Logistics. The TTS segment consists of two operating units, Dedicated and One-Way Truckload. These units are aggregated because they have similar economic characteristics and meet the other aggregation criteria described in the accounting guidance for segment reporting. Dedicated provides truckload services dedicated to a specific customer, generally for a retail distribution center or manufacturing facility, utilizing either dry van or specialized trailers. One-Way Truckload is comprised of the following operating fleets: (i) the medium-to-long-haul van (“Van”) fleet transports a variety of consumer nondurable products and other commodities in truckload quantities over irregular routes using dry van trailers, including Mexico cross-border routes; (ii) the expedited (“Expedited”) fleet provides time-sensitive truckload services utilizing driver teams; (iii) the regional short-haul (“Regional”) fleet provides comparable truckload van service within geographic regions across the United States; and (iv) the Temperature Controlled fleet provides truckload services for temperature sensitive products over irregular routes utilizing temperature-controlled trailers. Revenues for the TTS segment include a small amount of non-trucking revenues which consist primarily of the intra-Mexico portion of cross-border shipments delivered to or from Mexico where we utilize a third-party capacity provider. The Werner Logistics segment is a non-asset-based transportation and logistics provider. Werner Logistics provides services throughout North America and generates the majority of our non-trucking revenues through three operating units. These three Werner Logistics operating units are as follows: (i) Truckload Logistics, which uses contracted carriers to complete shipments for brokerage customers and freight management customers for which we offer a full range of single-source logistics management services and solutions; (ii) the Intermodal (“Intermodal”) unit offers rail transportation through alliances with rail and drayage providers as an alternative to truck transportation; and (iii) Werner Final Mile (“Final Mile”) offers residential and commercial deliveries of large or heavy items using third-party agents, independent contractors, and Company employees with two-person delivery teams operating a liftgate straight truck. We generate other revenues from our driver training schools, transportation-related activities such as third-party equipment maintenance and equipment leasing, and other business activities. None of these operations meets the quantitative reporting thresholds. As a result, these operations are grouped in “Other” in the tables below. “Corporate” includes revenues and expenses that are incidental to our activities and are not attributable to any of our operating segments, including gains and losses on sales of property and equipment not attributable to our operating segments. 17 Table of Contents We do not prepare separate balance sheets by segment and, as a result, assets are not separately identifiable by segment. Based on our operations, certain revenue-generating assets (primarily tractors and trailers) are interchangeable between segments. Depreciation for these interchangeable assets is allocated to segments based on the actual number of units utilized by the segment during the period. Other depreciation and amortization is allocated to segments based on specific identification or as a percentage of a metric such as average number of tractors. Inter-segment eliminations represent transactions between reporting segments that are eliminated in consolidation. The following tables summarize our segment information (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenues by Segment Truckload Transportation Services $ 522,803 $ 572,195 $ 1,610,998 $ 1,730,717 Werner Logistics 206,774 230,252 618,168 683,470 Other 18,698 19,212 55,118 59,089 Corporate 674 487 1,877 1,463 Subtotal 748,949 822,146 2,286,161 2,474,739 Inter-segment eliminations ( 3,248 ) ( 4,402 ) ( 10,582 ) ( 13,185 ) Total $ 745,701 $ 817,744 $ 2,275,579 $ 2,461,554 Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Operating Income (Loss) by Segment Truckload Transportation Services $ 21,607 $ 38,846 $ 63,445 $ 134,991 Werner Logistics ( 345 ) 2,012 ( 2,124 ) 11,304 Other ( 980 ) ( 150 ) ( 2,155 ) 313 Corporate ( 2,687 ) ( 2,808 ) ( 6,372 ) ( 8,124 ) Total $ 17,595 $ 37,900 $ 52,794 $ 138,484 Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Depreciation and Amortization by Segment Truckload Transportation Services $ 64,352 $ 67,819 $ 196,857 $ 202,276 Werner Logistics 3,862 3,682 11,274 11,606 Other 2,541 2,946 7,808 8,733 Corporate 829 139 2,587 1,182 Total $ 71,584 $ 74,586 $ 218,526 $ 223,797 18 Table of Contents