What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-26 · 114 added, 114 removed, 214 unchanged (52% of the section changed)

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Business Acquisitions:

We acquired the following entities in 2022 and 2021:

We acquired the following entities in 2022:

• 100% of ReedTMS on November 5, 2022.

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Revenues generated by Baylor are reported in One-Way Truckload within our TTS segment.

• 100% of NEHDS on November 22, 2021.

Revenues generated by NEHDS are reported in Final Mile within our Werner Logistics segment.

• 80% of ECM on July 1, 2021.

Revenues generated by ECM are reported in One-Way Truckload within our TTS segment.

Additional information regarding these acquisitions is included in Note 2 in the Notes to Consolidated Financial Statements under Item 8 of Part II of this Form 10-K.

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Resource requirements vary with customer demand, which may be subject to seasonal or general economic conditions.

Our ability to adapt to changes

in customer transportation requirements is essential to efficiently deploy resources and make capital investments in tractors and trailers (with respect to our TTS segment) or obtain qualified third-party capacity at a reasonable price (with respect to our Werner Logistics segment).

Our ability to adapt to changes in customer transportation requirements is essential to efficiently deploy resources and make capital investments in tractors and trailers (with respect to our TTS segment) or obtain qualified third-party capacity at a reasonable price (with respect to our Werner Logistics segment).

We may also be affected by our customers’ financial failures or loss of customer business.

Revenues for our TTS segment operating units (Dedicated and One-Way Truckload) are typically generated on a per-mile basis and also include revenues such as stop charges, loading and unloading charges, equipment detention charges and equipment repositioning charges.

Revenues for the operating segments (Dedicated and One-Way Truckload) within our TTS reportable segment are typically generated on a per-mile basis and also include revenues such as stop charges, loading and unloading charges, equipment detention charges and equipment repositioning charges.

To mitigate our risk to fuel price increases, we recover additional fuel surcharge revenues from our customers that generally recoup a majority of the increased fuel costs;

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Because fuel surcharge revenues fluctuate in response to changes in fuel costs, we identify them separately and exclude them from the statistical calculations to provide a more meaningful comparison between periods.

The key statistics used to evaluate trucking revenues, net of fuel surcharge, are (i) average revenues per tractor per week, (ii) average percentage of empty miles (miles without trailer cargo), (iii) average trip length (in loaded miles) and (iv) average number of tractors in service.

The key statistics used to evaluate trucking revenues, net of fuel surcharge, are (i) average revenues per tractor per week, (ii) One-Way Truckload average revenues per total mile, (iii) average percentage of empty miles (miles without trailer cargo), (iv) average trip length (in loaded miles) and (v) average number of tractors in service.

General economic conditions, seasonal trucking industry freight patterns and industry capacity are important factors that impact these statistics.

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These issues include shortages of drivers or independent contractors, changing fuel prices, changing used truck and trailer pricing, compliance with new or proposed regulations and tightening of the commercial truck liability insurance market.

Our main fixed costs include depreciation expense for tractors and trailers and equipment licensing fees (included in taxes and licenses expense).

Our main fixed costs include depreciation expense for tractors and trailers and non-driver salaries, wages and benefits.

The TTS segment requires substantial cash expenditures for tractor and trailer purchases.

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We provide non-trucking services primarily through the three operating units within our Werner Logistics segment (Truckload Logistics, Intermodal, and Final Mile).

In first quarter 2021, we completed the sale of the Werner Global Logistics (“WGL”) freight forwarding services for international ocean and air shipments to Scan Global Logistics Group.

WGL had annual revenues of $53 million in 2020, and we realized a $1.0 million gain from the sale in first quarter 2021, which assumed achievement of the full earnout.

At the end of the twelve-month period following the completed sale of WGL, the full earnout was achieved.

Unlike our TTS segment, the Werner Logistics segment is less asset-intensive and is instead dependent upon qualified associates, information systems and qualified third-party capacity providers.

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As of December 31, 2024, we were in compliance with our debt covenants and expect to continue to be in compliance in 2025.

We currently plan to continue paying our quarterly dividend, which we

have paid quarterly since 1987.

This cash outlay currently results in nearly $9 million per quarter.

We currently plan to continue paying our quarterly dividend, which we have paid quarterly since 1987.

This cash outlay currently results in approximately $9 million per quarter.

Net capital expenditures (primarily revenue equipment) in 2025 currently are expected to b e in the ran ge of $185 million to $235 million.

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Operating income 66,148 2.2 176,416 5.4 (62.5)

Total other expense (income), net 28,635 0.9 (1,710) (0.1) (1,774.6)

Total other expense, net 23,666 0.8 28,635 0.9 (17.4)

Income before income taxes 42,482 1.4 147,781 4.5 (71.3)

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Net income 33,570 1.1 112,290 3.4 (70.1)

Net loss (income) attributable to noncontrolling interest 92 — (4,324) (0.2) (102.1)

Net loss attributable to noncontrolling interest 663 — 92 — 620.7

Net income attributable to Werner $ 34,233 1.1 $ 112,382 3.4 (69.5)

The following tables set forth the operating revenues, operating expenses and operating income for the TTS segment and certain statistical data regarding our TTS segment operations, as well as statistical data for the One-Way Truckload and Dedicated operating units within TTS.

The following tables set forth the operating revenues, operating expenses and operating income for the TTS segment and certain statistical data regarding our TTS segment operations, as well as statistical data for One-Way Truckload and Dedicated operations within TTS.

TTS segment (in thousands) $ % $ % % Chg

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Total operating expenses 832,218 100.1 894,554 98.3 (7.0) %

Operating income $ 15,879 1.7 $ 36,184 4.6 (56.1) %

Operating income (loss) $ (881) (0.1) $ 15,879 1.7 (105.5) %

Werner Logistics segment 2024 2023 % Chg

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Total trailers (at year end) 3,170 2,960 7.1 %

Total containers (at year end) 200 — N/A

2024 Compared to 2023

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When comparing 2024 to 2023, TTS segment revenues decreased $172.5 million, or 7.5%.

Revenues for the Werner Logistics segment increased $116.9 million or 14.7%.

Dedicated continues to experience steady demand from the majority of our long-term customers, and our Dedicated pipeline of new opportunities remains healthy.

In 2024, we expect freight demand to remain steady in Dedicated and be seasonally weaker for One-Way Truckload and Werner Logistics early in the year, and then improve in the second half of the year, as capacity exits the market and retail inventory replenishments reset to normalized levels.

Trucking revenues, net of fuel surcharge, decreased 1.7% in 2023 compared to 2022 due to a 1.3% decrease in the average number of tractors in service and a 0.4% decrease in average revenues per tractor per week, net of fuel surcharge.

During 2023, One-Way Truckload average revenues per total mile, net of fuel surcharge, decreased 5.5%, as One-Way Truckload was challenged by elevated transactional spot rate exposure and pricing pressure.

We expect ongoing pricing pressure for One-Way Truckload during the early part of 2024, then moderating later in the year.

Revenues for the Werner Logistics segment decreased $79.1 million, or 8.7%.

While Dedicated customer retention rate and pipeline of opportunities remained strong throughout 2024, the first half of the year experienced a decline in the Dedicated fleet from isolated losses as a result of pricing discipline, followed by greater stability in the fleet during the second half of the year.

In One-Way Truckload, our pricing discipline, combined with better freight options and strong miles per tractor, led to a 6.4% increase in average revenues per tractor per week, net of fuel surcharge during 2024.

Werner Logistics revenues and profitability continue to be impacted by ongoing pricing pressure.

The potential implementation of tariffs on goods imported from China, Mexico, and Canada are expected to impact supply chains, although, it is difficult to forecast the depth and duration of these impacts since the tariff policies continue to evolve.

Absent uncertainties related to tariff policies, we anticipate a challenging but improving environment in 2025.

Trucking revenues, net of fuel surcharge, decreased 5.8% in 2024 compared to 2023 due to an 8.5% decrease in the average number of tractors in service, partially offset by a 3.0% increase in average revenues per tractor per week, net of fuel surcharge.

During 2024, One-Way Truckload average revenues per total mile, net of fuel surcharge, decreased 1.2%.

Despite an 11.4% decline in One-Way Truckload average tractors in service, One-Way Truckload total miles were only down 4.7%, due to the impact of a 7.6% increase in average total miles per tractor per week in 2024.

Dedicated average revenues per tractor per week, net of fuel surcharge, increased 1.1%.

Considering the freight market outlook, we expect average revenues per total mile, net of fuel surcharge, for the One-Way Truckload fleet to decrease in a range of 6% to 3% in the first half of 2024 when compared to the first half of 2023, and we expect Dedicated average revenues per tractor per week, net of fuel surcharge, to remain flat or increase up to 3% in 2024 compared to 2023.

The average number of tractors in service in the TTS segment decreased 1.3% to 8,326 in 2023 compared to 8,437 in 2022, as we decreased our fleet size to adjust to the challenging freight market conditions.

We ended 2023 with 8,000 tractors in the TTS segment, a year-over-year decrease of 600 tractors.

Our Dedicated unit ended 2023 with 5,265 tractors (or 66% of our total TTS segment fleet) compared to 5,450 tractors (or 63%) at the end of 2022.

We currently expect our fleet size at the end of 2024 to remain flat or decrease up to 3% when compared to the fleet size at the end of 2023, with potential for growth in our Dedicated unit in the second half of the year.

We cannot predict whether future driver shortages, if any, will adversely affect our ability to maintain our fleet size.

If such a driver market shortage were to occur, it could result in a fleet size reduction, and our results of operations could be adversely affected.

Trucking fuel surcharge revenues decreased 20.7% to $332.4 million in 2023 from $419.2 million in 2022 due primarily to lower average diesel fuel prices.

These revenues represent collections from customers for the increase in fuel and fuel-related expenses, including the fuel component of our independent contractor cost (recorded as rent and purchased transportation expense) and fuel taxes (recorded in taxes and licenses expense), when diesel fuel prices rise.

Considering the freight market outlook, we expect average revenues per total mile, net of fuel surcharge, for the One-Way Truckload fleet to increase in a range of 1% to 4% in the first half of 2025 when compared to the first half of 2024, and we expect Dedicated average revenues per tractor per week, net of fuel surcharge, to remain flat or increase up to 3% in 2025 compared to 2024.

TTS had operating income of $75.2 million in 2024 compared to $169.3 million in 2023, and its operating margin percentage decreased to 3.5% in 2024 from 7.3% in 2023.

We believe rate improvements, as a result of our continued pricing discipline, will be the greatest lift to TTS operating margins going forward.

The average number of tractors in service in the TTS segment decreased 8.5% to 7,619 in 2024 compared to 8,326 in 2023.

The prolonged weak freight market combined with the impact from certain fleet losses as a result of maintaining our pricing and operating margin discipline resulted in fewer tractors at the end of 2024.

We ended 2024 with 7,450 tractors in the TTS segment, a year-over-year decrease of 550 tractors compared to the end of 2023.

Within TTS, Dedicated ended 2024 with 4,840 tractors (or 65% of our total TTS segment fleet) compared to 5,265 tractors (or 66%) at the end of 2023.

We currently expect our TTS segment fleet size at the end of 2025 to increase in a range of 1% to 5% when compared to the fleet size at the end of 2024, with more weighted to the second half of the year.

We cannot predict whether future driver shortages, if any, would have a further adverse effect on our fleet size.

If such a driver market shortage were to occur, it could result in further fleet size reductions, and our results of operations could be adversely affected.

Trucking fuel surcharge revenues decreased 20.8% to $263.3 million in 2024 from $332.4 million in 2023 due primarily to lower average diesel fuel prices and the impact of 38.7 million fewer company tractor miles.

These revenues represent

collections from customers for the increase in fuel and fuel-related expenses, including the fuel component of our independent contractor cost (recorded as rent and purchased transportation expense) and fuel taxes (recorded in taxes and licenses expense), when diesel fuel prices rise.

Conversely, when fuel prices decrease, fuel surcharge revenues decrease.

To lessen the effect of fluctuating fuel prices on our margins, we collect fuel surcharge revenues from our customers for the cost of diesel fuel and taxes in excess of specified base fuel price levels according to terms in our customer contracts.

Fuel surcharge rates generally adjust weekly based on an independent U.S.

Department of Energy fuel price survey which is released every Monday.

Fuel surcharge rates generally adjust weekly based on an independent DOE fuel price survey which is released every Monday.

Our fuel surcharge programs are designed to (i) recoup higher fuel costs from customers when fuel prices rise and (ii) provide customers with the benefit of lower fuel costs when fuel prices decline.

These programs generally enable us to recover a majority, but not all, of the fuel price increases.

remaining portion is generally not recoverable because it results from empty and out-of-route miles (which are not billable to customers) and tractor idle time.

The remaining portion is generally not recoverable because it results from empty and out-of-route miles (which are not billable to customers) and tractor idle time.

Fuel prices that change rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes once per week.

Werner Logistics revenues are generated by its three operating units.

Werner Logistics revenues exclude revenues for full truckload shipments transferred to the TTS segment, which are recorded as trucking revenues by the TTS segment.

Werner Logistics also recorded revenue and brokered freight expense of $17.7 million in 2023 and $5.2 million in 2022 for shipments performed by the TTS segment (also recorded as trucking revenue by the TTS segment), and these transactions between reporting segments are eliminated in consolidation.

Werner Logistics revenues increased 14.7% to $910.4 million in 2023 from $793.5 million in 2022 primarily due to growth from the November 2022 ReedTMS acquisition.

Truckload Logistics revenues (77% of total Werner Logistics revenues) increased 32% driven by an increase in shipments due to the ReedTMS acquisition, partially offset by a decline in revenue per shipment.

Intermodal revenues (12% of total Werner Logistics revenues) decreased 38% due to a decline in shipments and lower revenue per shipment.

Final Mile revenues (11% of total Werner Logistics revenues) increased $11.0 million, or 12%, despite a softer market for discretionary spending on big and bulky products.

Werner Logistics operating income decreased to $15.9 million in 2023 from $36.2 million in 2022 and operating margin percentage decreased to 1.7% in 2023 from 4.6% in 2022, due to a competitive pricing environment.

In 2024, we expect Truckload Logistics margins will remain challenged in the near term, but may improve later in the year from further synergies realized from the integration of our acquired companies.

We also expect to continue to generate double-digit revenue growth in Werner Logistics in 2024, while getting back to a mid-single digit operating margin percentage entering into 2025.

Werner Logistics recorded revenue and brokered freight expense of $14.4 million in 2024 and $17.7 million in 2023 for certain shipments performed by the TTS segment (also recorded as trucking revenue by the TTS segment), and these transactions between reporting segments are eliminated in consolidation.

Werner Logistics revenues decreased 8.7% to $831.3 million in 2024 from $910.4 million in 2023.

Truckload Logistics revenues (76% of total Werner Logistics segment revenues) decreased $72.1 million, or 10%, compared to 2023, driven by a decrease in shipments and a decline in revenue per shipment.

The Power Only solution, which utilizes third-party carriers who provide only a driver and a tractor, represented a growing portion of the Truckload Logistics volume in 2024, as Power Only volumes increased over 24% in 2024 compared to 2023.

Intermodal revenues (13% of total Werner Logistics segment revenues) increased $2.3 million, or 2%, in 2024, due to an increase in shipments, partially offset by a decline in revenue per shipment.

Final Mile revenues (11% of total Werner Logistics segment revenues) decreased $9.2 million, or 9%, in 2024 due to lower volume for furniture and appliances.

Werner Logistics had an operating loss of $0.9 million in 2024 compared to operating income of $15.9 million in 2023, and its operating margin percentage decreased to (0.1)% in 2024 from 1.7% in 2023.

The operating environment continues to be competitive, which is pressuring Werner Logistics operating margins.

Operating Expenses

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The tables on pages 18 through 20 show the consolidated statements of income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, TTS and Werner Logistics.

Salaries, wages and benefits increased $51.9 million or 5.1% in 2023 compared to 2022 and increased 1.7% as a percentage of operating revenues.

The higher dollar amount of salaries, wages and benefits expense in 2023 was due primarily to increased non-driver pay, higher driver pay from 3.4 million more company tractor miles, and higher benefit costs.

The increase in non-driver pay was primarily due to a larger average number of non-driver employees, including the impact from our ReedTMS and Baylor acquisitions.

Non-driver salaries, wages and benefits in our non-trucking Werner Logistics segment increased 37.2%, primarily as a result of the ReedTMS acquisition.

Salaries, wages and benefits decreased $37.7 million, or 3.5%, in 2024 compared to 2023 and increased 1.4% as a percentage of operating revenues.

The lower dollar amount of salaries, wages and benefits expense in 2024 was due primarily to the impact of 38.7 million fewer company tractor miles and decreased non-driver pay, partially offset by higher benefit costs resulting primarily from elevated health care claims.

The decrease in non-driver pay was due primarily to a smaller average number of non-driver employees.

Non-driver salaries, wages and benefits in our non-trucking Werner Logistics segment decreased 8.5% in 2024 compared to 2023.

We renewed our workers’ compensation insurance coverage on April 1, 2024.

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We continue to maintain a self-insurance retention of $2.0 million per claim.

Our workers’ compensation insurance premiums for the policy year beginning April 2023 were flat compared to the previous policy year.

Our workers’ compensation insurance premiums for the policy year beginning April 2024 are $0.3 million higher than the previous policy year.

While we currently believe the driver recruiting and retention market may be less difficult in the near term, a competitive driver market presents labor challenges for customers and carriers alike.

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If such a driver shortage were to occur and driver pay rate increases became necessary to attract and retain drivers, our results of operations would be negatively impacted to the extent that we could not obtain corresponding freight rate increases.

Fuel decreased $92.3 million or 21.1% in 2023 compared to 2022 and decreased 2.8% as a percentage of operating revenues due to much lower average diesel fuel prices, partially offset by 3.4 million more company tractor miles in 2023.

Average diesel fuel prices, excluding fuel taxes, for the full year 2023 were 80 cents lower than the full year 2022, a 22% decrease.

Fuel decreased $69.6 million, or 20.2%, in 2024 compared to 2023 and decreased 1.4% as a percentage of operating revenues due to lower average diesel fuel prices and 38.7 million fewer company tractor miles in 2024.

Average diesel fuel prices, excluding fuel taxes, for the full year 2024 were 42 cents per gallon lower than the full year 2023, a 14% decrease.

We continue to employ measures to improve our fuel mpg such as (i) limiting tractor engine idle time by installing auxiliary power units, (ii) optimizing the speed, weight and specifications of our equipment and (iii) implementing mpg-enhancing equipment changes to our fleet including new tractors, more aerodynamic tractor features, idle reduction systems, trailer tire inflation systems, trailer skirts and automated manual transmissions to reduce our fuel gallons purchased.

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Although our fuel management programs require significant capital investment and research and development, we intend to continue these and other environmentally conscious initiatives, including our active participation as a U.S.

Transport Partner.

EPA SmartWay Transport Partner.

The SmartWay Transport Partnership is a national voluntary program developed by the EPA and freight industry representatives to reduce greenhouse gases and air pollution and promote cleaner, more efficient ground freight transportation.

Through February 16, the average diesel fuel price per gallon in 2024 was approximatel y 53 cents lower than the average diesel fuel price per gallon in the same period of 2023 and approxima tely 36 cents lower t han the average for first quarter 2023.

Through February 16, the average diesel fuel price per gallon in 2025 was approximately 21 cents lower than the average diesel fuel price per gallon in the same period of 2024 and approxima te ly 26 cents lower than the average for first quarter 2024.

Shortages of fuel, increases in fuel prices and petroleum product rationing can have a material adverse effect on our operations and profitability.

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As of December 31, 2024, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

Supplies and maintenance increased $3.4 million or 1.3% in 2023 compared to 2022 and increased 0.1% as a percentage of operating revenues.

Supplies and maintenance expense increased due to higher costs for over-the-road repairs and the impact of 3.4 million more company tractor miles in 2023.

Supplies and maintenance decreased $10.4 million, or 4.1%, in 2024 compared to 2023 and increased 0.3% as a percentage of operating revenues.

Supplies and maintenance expense decreased due primarily to lower driver and placement driver-related costs such as lodging, driver advertising, and maintenance supplies, lower costs for tires and over-the-road repairs, and the impact of 38.7 million fewer company tractor miles in 2024.

These decreases were partially offset by higher costs for tolls.

We have taken steps to reduce repair and maintenance expense by growing our in-house maintenance capabilities throughout our terminal network.

We are also developing digital solutions to further optimize the routing and scheduling of tractors and trailers for preventive maintenance.

Insurance and claims decreased $8.8 million or 6.0% in 2023 compared to 2022 and decreased 0.3% as a percentage of operating revenues, due primarily to lower expense for large dollar liability claims resulting from a lower amount of unfavorable reserve development and lower new claims, partially offset by higher expense for new small dollar liability claims, increasing cost-per-claim, and increased cost for repairs.

The majority of the higher unfavorable reserve development in 2022 related to unexpected and unfortunate legal developments for two prior year motor vehicle accidents that have been settled, including a settlement of a lawsuit in Texas arising from a May 24, 2020 accident for which we recognized $9.5 million of insurance and claims expense in 2022.

We also incurred insurance and claims expense of $5.7 million and $5.4 million in 2023 and 2022, respectively, for accrued interest related to a previously-disclosed adverse jury verdict rendered on May 17, 2018, which we are appealing (see Note 12 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K).

Interest will continue to accrue monthly until such time as the outcome of our appeal is finalized.

Insurance and claims increased $6.9 million, or 5.0%, in 2024 compared to 2023 and increased 0.6% as a percentage of operating revenues.

We had higher expense for large dollar liability claims, primarily due to a higher amount of unfavorable reserve development and higher expense for new claims.

These increases were partially offset by lower expense for small dollar liability claims, resulting primarily from a higher amount of favorable reserve development and lower expense for new claims.

We also incurred insurance and claims expense of $4.5 million and $5.7 million in 2024 and 2023, respectively, for accrued interest related to a previously-disclosed adverse jury verdict rendered on May 17, 2018, which we are continuing to defend.

Interest is accrued at $0.5 million per month until such time as the outcome of the litigation is finalized, excluding months where the plaintiffs requested an extension of time to respond to our petition to review.

For additional information related to this lawsuit, see Note 12 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K.

The majority of our insurance and claims expense results from our claim experience and claim development under our self-insurance program;

the remainder results from insurance premiums for claims in excess of our self-insured limits.

In 2023, we achieved our lowest DOT preventable accident rate per million miles in the last 19 years.

Our elevated insurance and claims expense is a reflection of the ongoing unprecedented rise in verdicts and litigation settlements across the industry, particularly for larger carriers.

In contrast to these trends, in 2024 we produced near 20-year record lows in DOT preventable accidents per million miles, trailing only 2023.

We renewed our liability insurance policies on August 1, 2024 and are responsible for the first $15.0 million per claim on all claims with an annual $7.5 million aggregate for claims between $15.0 million and $20.0 million.

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We maintain liability insurance coverage with insurance carriers in excess of the $15.0 million per claim.

Our liability insurance premiums for the policy year that began August 1, 2023 are $1.0 million higher than premiums for the previous policy year.

Depreciation and amortization expense increased $19.6 million or 7.0% in 2023 compared to 2022 and increased 0.6% as a percentage of operating revenues due primarily to the higher cost of new tractors and trailers, a larger company trailer fleet, and depreciation and amortization on tangible and intangible assets recorded in the ReedTMS and Baylor acquisitions.

Our liability insurance premiums for the policy year that began August 1, 2024 are lower than premiums for the previous policy year as a result of changes in our retention level and aggregate insurance limits.

Depreciation and amortization expense decreased $9.1 million, or 3.0%, in 2024 compared to 2023 and increased 0.5% as a percentage of operating revenues due primarily to decreases in depreciation of tractors as we had fewer average tractors in service, and technology equipment as we continue to transition to more cloud-based technology solutions.

These decreases were partially offset by the higher cost of new tractors and trailers.

The average age of our tractor fleet remains low by industry standards and was 2.1 years as of December 31, 2024, and the average age of our trailers was 5.3 years.

We continued to invest in new tractors and trailers and our terminals in 2023 to improve our driver experience, increase operational efficiency and more effectively manage our maintenance, safety and fuel costs.

In 2024, we expect the average age of our tractor and trailer fleets to remain at or near current levels.

Rent and purchased transportation expense increased $108.8 million or 14.0% in 2023 compared to 2022 and increased 3.4% as a percentage of operating revenues.

Rent and purchased transportation expense consists mostly of payments to third-party capacity providers in the Werner Logistics segment and other non-trucking operations, payments to independent contractors in the TTS segment, and cloud-based technology fees.

We continued to invest in new tractors and trailers, technology, and our terminal network in 2024 to improve our driver experience, increase operational efficiency and more effectively manage our maintenance, safety and fuel costs.

Rent and purchased transportation expense decreased $41.4 million, or 4.7%, in 2024 compared to 2023 and increased 0.9% as a percentage of operating revenues.

the TTS segment, and cloud-based technology fees.

The payments to third-party capacity providers generally vary depending on changes in the volume of services generated by the Werner Logistics segment.

Werner Logistics recorded revenue and brokered freight expense of $17.7 million in 2023 and $5.2 million in 2022 for shipments performed by the TTS segment (also recorded as trucking revenue by the TTS segment), and these transactions between reporting segments are eliminated in consolidation.

Werner Logistics purchased transportation expense increased $108.8 million as a result of higher logistics revenues, including the ReedTMS logistics business, and increased to 83.7% as a percentage of Werner Logistics revenues in 2023 from 82.3% in 2022.

Rent and purchased transportation expense for the TTS segment increased $10.6 million in 2023 compared to 2022 due primarily to an increase in cloud-based technology fees and more independent contactor miles in 2023, partially offset by lower

reimbursements to independent contractors because of lower average diesel fuel prices.

Werner Logistics purchased transportation expense decreased $54.5 million as a result of lower logistics revenues, but increased to 85.1% as a percentage of Werner Logistics revenues in 2024 from 83.7% in 2023 due to the competitive operating environment in 2024.

Rent and purchased transportation expense for the TTS segment increased $9.8 million in 2024 compared to 2023 due primarily to higher cloud-based technology fees, more independent contractor miles, and additional operational facility costs.

These increases were partially offset by lower reimbursements to independent contractors because of lower average diesel fuel prices in 2024.

Independent contractor miles increased 0.8 million miles in 2024 and as a percentage of total miles were 4.9% in 2024 compared to 4.6% in 2023.

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These increased expenses could negatively affect our results of operations to the extent that we would not be able to obtain corresponding freight rate increases.

Other operating expenses increased $50.2 million in 2023 compared to 2022 and increased 1.5% as a percentage of operating revenues due primarily to lower gains on sales of property and equipment (primarily used tractors and trailers), and increased costs associated with professional technology services related to our multi-year technology and innovation strategy.

Other operating expenses increased $25.1 million in 2024 compared to 2023 and increased 0.8% as a percentage of operating revenues due primarily to lower gains on sales of property and equipment (primarily used tractors and trailers) and the impact of a $2.7 million net favorable change to a contingent earnout in 2023 related to the ReedTMS acquisition.

These increases were partially offset by decreased costs associated with professional technology services and decreased bad debt expense.

Gains on sales of property and equipment are reflected as a reduction of other operating expenses and are reported net of sales-related expenses (which include costs to prepare the equipment for sale).

Gains on sales of property and equipment were $42.4 million in 2023, compared to $88.6 million in 2022.

In 2023, we sold significantly more tractors and trailers than in 2022 and realized substantially lower average gains per tractor and trailer due to lower pricing in the market for our used equipment, which we believe is due to decreased demand for our used equipment because of carriers increasingly exiting the trucking industry in 2023 due to the challenging freight market and an increase in the availability of new equipment due to fewer production delays in 2023 compared to 2022.

For the used tractor and trailer market, we expect continued low demand with moderating pricing and equipment gains through the first half of 2024.

As a result, we expect our gains on sales of property and equipment in 2024 to decrease to between $10 million and $30 million.

Gains on sales of property and equipment were $15.3 million in 2024, including $7.0 million from the sale of real estate, compared to $42.4 million in 2023.

In 2024, we sold fewer tractors and substantially more trailers than in 2023 and realized lower average gains per tractor and trailer due to lower pricing in the market for our used equipment.

For the used tractor and trailer market, we expect stable demand and pricing through the first half of 2025, with moderate improvement in the second half of the year as a result of an improving operating environment, along with upcoming environmental regulations as carriers look to upgrade their fleets and prepare for these mandates.

In 2025, we plan to sell fewer tractors and trailers at higher prices, resulting in expected gains on our used equipment to range between $8 million and $18 million.

Other Expense (Income)

Other expense, net of other income, increased $30.3 million in 2023 compared to 2022 due primarily to a $16.7 million increase in net interest expense, a $12.5 million decrease in the amount of unrealized net gains recognized on our investments in equity securities, and a loss from our equity method investment of $1.0 million (see Note 7 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K for information regarding our investments).

Net interest expense increased due to higher interest rates for variable rate debt and an increase in average debt outstanding.

In July 2023, we entered into four additional variable-for-fixed interest rate swap agreements for a notional amount of $130.0 million to further limit our exposure to increases in interest rates on a portion of our variable-rate indebtedness (see Note 8 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K regarding these interest rate swaps).

We expect net interest expense to increase up to $10 million in 2024 compared to 2023, primarily due to the repricing of the BMO Term Loan that is maturing in May 2024 and the impact of two interest rate swaps that are expiring in May 2024.

We expect these increases in net interest expense to be partially offset by debt reduction during 2024.

Other expense, net of other income, decreased $5.0 million in 2024 compared to 2023 due primarily to an $8.2 million increase in the amount of gains on our investments in equity securities and a $1.6 million increase in the amount of earnings from our equity method investment (see Note 7 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K for information regarding our investments), partially offset by a $5.5 million increase in net interest expense.

Net interest expense increased due to the impact of replacing lower-cost debt and interest rate swaps with higher-cost debt and interest rate swaps upon certain maturities in 2024 and higher interest rates for variable-rate debt, partially offset by a decrease in average debt outstanding.

In May 2024, we repaid the remaining outstanding principal balance under the BMO Term Loan using proceeds from the 2022 Credit Agreement, and two variable-for-fixed interest rate swap agreements with an aggregate notional amount of $150.0 million matured.

Subsequent to May 2024, we entered into three variable-for-fixed interest rate swap agreements with an aggregate notional amount of $225.0 million to limit our exposure to increases in interest rates on a portion of our variable-rate indebtedness (see Note 8 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K for further information on our debt and interest rate swaps).

We expect net interest expense to be flat in 2025 compared to 2024, higher in the first half and lower in the second half of 2025.

Income Tax Expense

Income tax expense decreased $43.7 million in 2023 compared to 2022, due primarily to lower pre-tax income.

The effective income tax rate (income taxes expressed as a percentage of income before income taxes) was 24.0% in 2023 compared to 24.4% in 2022.

The lower income tax rate in 2023 was attributed primarily to a higher amount of favorable discrete income tax items in 2023, partially offset by the income tax effect of the noncontrolling interest.

Income tax expense decreased $26.6 million in 2024 compared to 2023, due primarily to lower pre-tax income and a decrease in the effective income tax rate.

Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) was 21.0% in 2024 compared to 24.0% in 2023.

The lower income tax rate was attributed primarily to certain discrete

return-to-provision adjustments for a prior year.

We currently estimate our full year 2025 effective income tax rate to be approximately 25.0% to 26.0%.

2023 Compared to 2022

For a comparison of the Company’s results of operations for the fiscal year ended December 31, 2022 to the fiscal year ended December 31, 2021, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the U.S.

Securities and Exchange Commission on February 27, 2023.

For a comparison of the Company’s results of operations for the fiscal year ended December 31, 2023 to the fiscal year ended December 31, 2022, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 26, 2024.

Liquidity and Capital Resources:

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Our liquidity requirements depend on key variables, including the level of investment needed to support business strategies, the performance of the business, capital expenditures, borrowing arrangements, and working capital management.

Capital expenditures, business acquisitions, stock repurchases, and dividend

payments are components of our cash flow and capital management strategy, which to a large extent, can be adjusted in response to economic and other changes in the business environment.

Management’s approach to capital allocation focuses on investing in key priorities that support our business and growth strategies and providing shareholder returns, while funding ongoing operations.

Capital expenditures, business acquisitions, stock repurchases, and dividend payments are components of our cash flow and capital management strategy, which to a large extent, can be adjusted in response to economic and other changes in the business environment.

Management’s approach to capital allocation focuses on investing in key priorities that support our business and growth strategies and providing stockholder returns, while funding ongoing operations.

Management believes our financial position at December 31, 2024 is strong.

As of December 31, 2023, we had $61.7 million of cash and cash equivalents and over $1.5 billion of stockholders’ equity.

As of December 31, 2024, we had $40.8 million of cash and cash equivalents and $1.5 billion of stockholders’ equity.

Cash is invested primarily in short-term money market funds.

In addition, we have a $1.075 billion credit facility, for which our total available borrowing capacity was $419.1 million as of December 31, 2024.

After considering recent developments in the banking sector, we believe the six commercial banks in our $1.075 billion syndicated credit facility all have strong tier-one capital ratios and good loan-to-deposit ratios.

We believe our liquid assets, cash generated from operating activities, and borrowing capacity under our existing credit facility will provide sufficient funds to meet our cash requirements and our planned shareholder returns for the foreseeable future.

We believe the six commercial banks in our $1.075 billion syndicated credit facility all have strong tier-one capital ratios and good loan-to-deposit ratios.

Our material cash requirements include the following contractual and other obligations.

• Debt Obligations and Interest Payments – As of December 31, 2023, we had outstanding debt with an aggregate principal amount of $648.8 million, with $88.8 million payable within 12 months.

We are currently planning to repay the remaining outstanding principal balance of $86.3 million under the BMO Term Loan in May 2024 using proceeds from the 2022 Credit Agreement.

• Debt Obligations and Interest Payments – As of December 31, 2024, we had outstanding debt with an aggregate principal amount of $650.0 million, with $20.0 million expected to be paid within 12 months.

Future interest payments associated with our debt obligations are estimated to be $120.4 million through 2028, with $39.7 million payable within 12 months.

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• Purchase Obligations – As of December 31, 2024, we have committed to property and equipment purchases of approximately $47.7 million within the next 12 months.

In addition to our cash requirements, the Board of Directors has authorized us to deliver value to shareholders through stock repurchases and quarterly cash dividends.

In addition to our cash requirements, the Board of Directors has authorized us to deliver value to stockholders through stock repurchases and quarterly cash dividends.

The stock repurchase program does not obligate the Company to acquire any specific number of shares.

We plan to continue paying a quarterly dividend, which currently results in a cash outlay of nearly $9 million per quarter.

We generated cash flow from operations of $474.4 million during 2023, a 5.7% or $25.7 million increase in cash flows compared to $448.7 million during 2022.

The increase in net cash provided by operating activities was due primarily to working capital changes, including a decrease in accounts receivable days sales outstanding, offset by a decrease in net income during 2023.

We were able to make net capital expenditures, make net repayments on our debt, make a strategic loan and investments, and pay dividends with the net cash provided by operating activities and existing cash balances.

We plan to continue paying a quarterly dividend, which currently results in a cash outlay of approximately $9 million per quarter.

We generated cash flow from operations of $329.7 million during 2024, a 30.5% or $144.6 million decrease in cash flows compared to $474.4 million during 2023.

The decrease in net cash provided by operating activities was due primarily to a decrease in net income during 2024 and working capital changes.

We were able to make net capital expenditures, repay debt, make strategic investments, pay dividends, and repurchase company stock with the net cash provided by operating activities and existing cash balances, supplemented by borrowings under our existing credit facility.

Net cash used in investing activities was $241.4 million during 2024 compared to $434.9 million during 2023.

Net cash invested in our business acquisitions was $0.2 million during 2023 compared to $184.1 million during 2022.

Net property and equipment additions (primarily revenue equipment) were $234.9 million during 2024 compared to $408.7 million during 2023.

We currently estimate net capital expenditures (primarily revenue equipment) in 2024 to be in the range of $260 million to $310 million.

We currently estimate net capital expenditures (primarily revenue equipment) in 2025 to be in the range of $185 million to $235 million, which is lower than historical ranges as our portfolio evolves to be more asset light.

We intend to fund these net capital expenditures through cash flows from operations and financing available under our existing credit facility, if necessary.

We also purchased a $25.0 million subordinated promissory note from Mastery Logistics Systems, Inc.

on January 24, 2023, with a maturity date of January 24, 2030 (see Note 9 in the Notes to Consolidated Financial Statements under Item 8 of Part II of this Form 10-K for information regarding our notes receivable).

Net financing activities used $87.1 million during 2023 and provided $118.0 million during 2022.

We had net repayments on our debt of $45.0 million during 2023, decreasing our outstanding debt to $648.8 million at December 31, 2023.

We had net borrowings on our debt of $266.3 million during 2022, which a portion of the proceeds were used to finance our Baylor and ReedTMS acquisitions.

During 2023, we purchased a $25.0 million subordinated promissory note from Mastery Logistics Systems, Inc.

with a maturity date of

January 24, 2030 (see Note 9 in the Notes to Consolidated Financial Statements under Item 8 of Part II of this Form 10-K for information regarding our notes receivable).

Net financing activities used $105.7 million during 2024 compared to $87.1 million during 2023.

We had net borrowings on our debt of $1.3 million during 2024, slightly increasing our outstanding debt to $650.0 million at December 31, 2024.

We had net repayments on our debt of $45.0 million during 2023.

We paid dividends of $35.1 million during 2024 and $34.2 million during 2023.

We increased our quarterly dividend rate by $0.01 per share, or 8%, beginning with the quarterly dividend paid in July 2023, and we increased our quarterly dividend rate by $0.01 per share, or 8%, beginning with the dividend paid in July 2022.

On November 9, 2021, our Board of Directors approved a stock repurchase program under which the Company is authorized to repurchase up to 6,000,000 shares of its common stock.

We increased our quarterly dividend rate by $0.01 per share, or 8%, beginning with the quarterly dividend paid in July 2023.

Financing activities for 2024 also included common stock repurchases of 1,787,810 shares at a cost of $67.1 million.

We did not repurchase any shares of common stock in 2023.

Financing activities for 2022 included common stock repurchases of 2,710,304 shares at a cost of $110.4 million.

As of December 31,

2023, the Company had purchased 3,688,190 shares pursuant to this authorization and had 2,311,810 shares remaining available for repurchase.

On May 14, 2024, the Board of Directors approved a new stock repurchase program under which the Company is authorized to repurchase up to 5,000,000 shares of its common stock.

Upon approval of the new program, the Board of Directors withdrew the previous stock repurchase authorization, which had 1,627,651 shares remaining available for repurchase.

As of December 31, 2024, the Company had purchased 1,103,651 shares pursuant to the new authorization and had 3,896,349 shares remaining available for repurchase.

The Company has repurchased, and may continue to repurchase, shares of the Company’s common stock.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis