WERNER ENTERPRISES INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) summarizes the financial statements from management’s perspective with respect to our financial condition, results of operations, liquidity and other factors that may affect actual results. The MD&A is organized in the following sections: • Overview • Results of Operations • Liquidity and Capital Resources • Regulations • Critical Accounting Estimates The MD&A should be read in conjunction with our 2024 Form 10-K. Overview: We have two reportable segments, TTS and Werner Logistics, and we operate in the truckload and logistics sectors of the transportation industry. In the truckload sector, we focus on transporting consumer nondurable products that generally ship more consistently throughout the year. In the logistics sector, besides managing transportation requirements for individual customers, we provide additional sources of truck capacity, alternative modes of transportation, a North American delivery network and systems analysis to optimize transportation needs. Our success depends on our ability to efficiently and effectively manage our resources in the delivery of truckload transportation and logistics services to our customers. 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). We may also be affected by our customers’ financial failures or loss of customer business. 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; however, we cannot assure that current recovery levels will continue in future periods. 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) 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. Our TTS segment also generates a small amount of revenues categorized as non-trucking revenues, which consist primarily of the intra-Mexico portion of cross-border shipments delivered to or from Mexico where the TTS segment utilizes a third-party capacity provider. We exclude such revenues from the statistical calculations. Our most significant resource requirements are company drivers, independent contractors, tractors, and trailers with respect to our TTS segment and qualified third-party capacity providers with respect to our Werner Logistics segment. Independent contractors supply their own tractors and drivers and are responsible for their operating expenses. Our financial results are affected by company driver and independent contractor availability and the markets for new and used revenue equipment. We are self-insured for a significant portion of bodily injury, property damage and cargo claims; workers’ compensation claims; and associate health claims (supplemented by premium-based insurance coverage above certain dollar levels). For that reason, our financial results may also be affected by driver safety, medical costs, weather, legal and regulatory environments and insurance coverage costs to protect against catastrophic losses. The operating ratio is a common industry measure used to evaluate our profitability and that of our TTS segment operating fleets. The operating ratio consists of operating expenses expressed as a percentage of operating revenues. The most significant variable expenses that impact the TTS segment are driver salaries and benefits, fuel, fuel taxes (included in taxes and licenses expense), payments to independent contractors (included in rent and purchased transportation expense), supplies and maintenance and insurance and claims. As discussed further in the comparison of operating results for first quarter 2025 to first quarter 2024, several industry-wide issues have caused, and could continue to cause, costs to increase in future periods. 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 non-driver salaries, wages and benefits. The TTS segment requires substantial cash expenditures for tractor and trailer purchases. We fund these purchases with net cash from operations and financing available under our existing credit facilities, as management deems necessary. 21 Table of Contents We provide non-trucking services primarily through the three operating units within our Werner Logistics segment (Truckload Logistics, Intermodal, and Final Mile). 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. The largest expense item related to the Werner Logistics segment is the cost of purchased transportation we pay to third-party capacity providers. This expense item is recorded as rent and purchased transportation expense. Other operating expenses consist primarily of salaries, wages and benefits, as well as depreciation and amortization, supplies and maintenance, and other general expenses. We evaluate the Werner Logistics segment’s financial performance by reviewing operating expenses and operating income expressed as a percentage of revenues. Purchased transportation expenses as a percentage of revenues can be impacted by the rates charged to customers and the costs of securing third-party capacity. We have a mix of contracted long-term rates and variable rates for the cost of third-party capacity, and we cannot assure that our operating results will not be adversely impacted in the future if our ability to obtain qualified third-party capacity providers changes or the rates of such providers increase. Results of Operations: The following table sets forth 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. Three Months Ended (3ME) March 31, Percentage Change in Dollar Amounts 2025 2024 3ME (in thousands) $ % $ % % Operating revenues $ 712,114 100.0 $ 769,080 100.0 (7.4) Operating expenses: Salaries, wages and benefits 243,225 34.2 265,403 34.5 (8.4) Fuel 63,092 8.9 77,622 10.1 (18.7) Supplies and maintenance 60,040 8.4 61,775 8.0 (2.8) Taxes and licenses 22,344 3.1 25,164 3.3 (11.2) Insurance and claims 43,777 6.2 36,362 4.7 20.4 Depreciation and amortization 70,049 9.8 74,270 9.7 (5.7) Rent and purchased transportation 206,142 28.9 203,925 26.5 1.1 Communications and utilities 4,357 0.6 4,706 0.6 (7.4) Other 4,920 0.7 4,265 0.6 15.4 Total operating expenses 717,946 100.8 753,492 98.0 (4.7) Operating income (loss) (5,832) (0.8) 15,588 2.0 (137.4) Total other expense, net 7,556 1.1 6,273 0.8 20.5 Income (loss) before income taxes (13,388) (1.9) 9,315 1.2 (243.7) Income tax expense (benefit) (3,167) (0.5) 3,067 0.4 (203.3) Net income (loss) (10,221) (1.4) 6,248 0.8 (263.6) Net loss attributable to noncontrolling interest 123 — 64 — 92.2 Net income (loss) attributable to Werner $ (10,098) (1.4) $ 6,312 0.8 (260.0) 22 Table of Contents The following tables set forth the operating revenues, operating expenses and operating income (loss) 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. Three Months Ended March 31, 2025 2024 TTS segment (in thousands) $ % $ % Trucking revenues, net of fuel surcharge $ 433,073 $ 469,879 Trucking fuel surcharge revenues 57,640 72,983 Non-trucking and other operating revenues 11,162 8,264 Operating revenues 501,875 100.0 551,126 100.0 Operating expenses 502,791 100.2 530,286 96.2 Operating income (loss) $ (916) (0.2) $ 20,840 3.8 Three Months Ended March 31, TTS segment 2025 2024 % Change Average tractors in service 7,415 7,935 (6.6) % Average revenues per tractor per week (1) $ 4,493 $ 4,555 (1.4) % Total tractors (at quarter end) Company 7,135 7,535 (5.3) % Independent contractor 305 275 10.9 % Total tractors 7,440 7,810 (4.7) % Total trailers (at quarter end) 24,930 27,650 (9.8) % One-Way Truckload Trucking revenues, net of fuel surcharge (in 000’s) $ 154,421 $ 168,837 (8.5) % Average tractors in service 2,632 2,786 (5.5) % Total tractors (at quarter end) 2,605 2,730 (4.6) % Average percentage of empty miles 16.01 % 14.90 % 7.4 % Average revenues per tractor per week (1) $ 4,513 $ 4,661 (3.2) % Average % change in revenues per total mile (1) 0.3 % (5.1) % Average % change in total miles per tractor per week (3.5) % 11.3 % Average completed trip length in miles (loaded) 576 591 (2.5) % Dedicated Trucking revenues, net of fuel surcharge (in 000’s) $ 278,652 $ 301,042 (7.4) % Average tractors in service 4,783 5,149 (7.1) % Total tractors (at quarter end) 4,835 5,080 (4.8) % Average revenues per tractor per week (1) $ 4,482 $ 4,497 (0.3) % (1) Net of fuel surcharge revenues. 23 The following tables set forth the Werner Logistics segment’s revenues, purchased transportation expense, other operating expenses (primarily salaries, wages and benefits expense), total operating expenses, and operating income (loss), as well as certain statistical data regarding the Werner Logistics segment. Three Months Ended March 31, 2025 2024 Werner Logistics segment (in thousands) $ % $ % Operating revenues $ 195,558 100.0 $ 202,482 100.0 Operating expenses: Purchased transportation expense 167,158 85.5 172,487 85.2 Other operating expenses 28,875 14.7 32,324 16.0 Total operating expenses 196,033 100.2 204,811 101.2 Operating income (loss) $ (475) (0.2) $ (2,329) (1.2) Three Months Ended March 31, Werner Logistics segment 2025 2024 % Change Average tractors in service 20 26 (23.1) % Total tractors (at quarter end) 22 21 4.8 % Total trailers (at quarter end) 3,200 3,115 2.7 % Total containers (at quarter end) 200 — N/A Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 Operating Revenues and Operating Profitability Operating reve nues decreased 7.4% for the three months ended March 31, 2025, comp ared to the same period of the prior year. When comparing first quarter 2025 to first quarter 2024, TTS segment reven ues decreased $49.3 million, or 8.9%, and Werner Logistics revenues decreased $6.9 million, or 3.4%. We had an operating loss of $5.8 million in first quarter 2025 compared to $15.6 million operating income in first quarter 2024, and our operating margin percentage decreased to (0.8)% in first quarter 2025 from 2.0% in first quarter 2024. First quarter 2025 operating results were negatively impacted by elevated insurance costs and claims, extreme weather conditions in areas in which we operate, more elevated costs to progress our technology strategy and transformation, and isolated operating inefficiencies and lower utilization stemming from select customer decisions and stop-and-go activity from tariff-induced uncertainties. Dedicated customer retention remains strong and interest in our Dedicated solutions from new customers is increasing. We were awarded several fleet contracts from new and existing customers during first quarter 2025, representing over 200 tractors that are scheduled to be implemented in late second quarter or early third quarter 2025. In first quarter 2025, One-Way Truckload freight conditions were more stable early in the quarter, but weakened in March, as trade policy resulted in a more uncertain and cautious environment. Weaker One-Way Truckload volumes continued in April 2025. One-Way Truckload retention has been good thus far, as we have secured new business with some of our largest customers. Werner Logistics revenues and profitability were impacted by lower volumes in Truckload Logistics. Trucking revenues, net of fuel surcharge, decreased 7.8% in first quart er 2025 compared to first quarter 2024 due to a 6.6% decrease in the average number of tractors in service. TTS average revenues per tractor per week, net of fuel surcharge, decreased 1.4%, due primarily to a 3.5% decrease in One-Way Truckload average total miles per tractor per week, which was negatively impacted by adverse weather conditions in first quart er 2025 . During first quarter 2025, One-Way Truckload average revenues per total mile, net of fuel su rcharge, increased 0.3% and One-Way Truckload average tractors in service decreased 5.5%. Due to higher freight volatility caused by tariff related uncertainties, we are slightly lowering our expectation for the One-Way Truckload fleet average revenues per total mile, net of fuel surcharge, to remain flat or increase up to 3% in second quarter 2025 compared to second quarter 2024. Dedicated average revenues per tractor per week, net of fuel surcharge, decreased 0.3% and was impacted by one fewer business day in first quarter 2025 compared to first quarter 2024. We continue to expect Dedicated average revenues per tractor per week, net of fuel surcharge, will remain flat or increase up to 3% in 2025 compared to 2024. TTS had an operating loss of $0.9 million in first quarter 2025 compared to $20.8 million operating income in first quarter 2024, and its operating margin percentage decreased to (0.2)% in first quarter 2025 from 3.8% in first quarter 2024. First quarter 2025 TTS results were negatively impacted by elevated insurance costs and claims, extreme weather conditions, elevated technology costs, and tariff-induced uncertainties. 24 Table of Contents The average number of tractors in service in the TTS segment decreased 6.6% to 7,415 in first qu arter 2025 from 7,935 in first quarter 2024. W e ended first quarter 2025 wi th 7,440 tractors in the TTS segment, a year-over-year decrease of 370 tractors compared to the e nd of first quarter 2024 , and a sequential decrease of 10 tractors compared to the end of fourth quarter 2024. Within TTS, Dedicated ended first quarter 2025 with 4,835 tractors (or 65% of our total TTS segment fleet) compared to 5,080 tractors (or 65%) a year ago. We continue to 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, as we implement new dedicated contracts in late second quarter and early third quarter 2025. 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 21.0% to $57.6 million in first quarter 2025 from $73.0 million in first quarter 2024 due primarily to lower average diesel fuel prices and the impact of 18.6 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. 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. 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 recorded revenue and brokered freight expense of $4.1 million in first quarter 2025 and 2024 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. In first quarter 2025, Werner Logistics revenues decreased $6.9 million, or 3.4%, compared to first quarter 2024. Truckload Logistics revenues (75% of total Werner Logistics segment revenues) decreased $7.6 million, or 5%, in first quarter 2025, 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 first quarter 2025, as Power Only volumes increased over 8% in first quarter 2025 compared to first quarter 2024. Intermodal revenues (14% of total Werner Logistics segment revenues) increased $3.5 million, or 14%, in first quarter 2025, due to an increase in shipments, partially offset by lower revenue per shipment. Final Mile revenues (11% of total Werner Logistics segment revenues) decreased $2.8 million, or 12%, in first quarter 2025, due to lower volumes in furniture and appliance vertical. Werner Logistics had operating losses of $0.5 million and $2.3 million in first quarter 2025 and 2024, respectively, and its operating margin percentage increased to (0.2)% in first quarter 2025 from (1.2)% in first quarter 2024. The competitive operating environment continued to pressure Werner Logistics operating margin for most of first quarter 2025, but improved in March 2025. Operating Expenses Our operating ratio (operati ng expenses expressed as a percentage of ope rating revenues) was 100.8% in first quarter 2025 compared to 98.0% in first quarter 2024. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 22 through 24 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 same period of 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 decreased $22.2 million or 8.4% in first quarter 2025 compared to first quarter 2024 and decreased 0.3% as a percentage of operating revenues. The lower dollar amount of salaries, wages and benefits expense in the first quarter of 2025 was due primarily to the impact of 18.6 million fewer company tractor miles, decreased non-driver pay, and lower benefit costs. 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 14% in first quarter 2025 compared to first quarter 2024. We renewed our workers’ compensation insurance coverage on April 1, 2025. Our coverage levels are the same as the prior policy year. 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 2025 are $0.1 million lower than the previous policy year. 25 Table of Contents 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. Several factors impacting the driver market include a declining number of, and increased competition for, driver training school graduates, aging truck driver demographics and increased truck safety regulations. We continue to take significant actions to strengthen our driver recruiting and retention as we strive to be the truckload employer of choice, including competitive driver pay, providing a modern tractor and trailer fleet with the latest safety equipment and technology, investing in our driver training school network and offering a wide variety of driving positions including daily and weekly home time opportunities. We are unable to predict whether we will experience future driver shortages or maintain our current driver retention rates. 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 $14.5 million or 18.7% in first quarter 2025 compared to first quarter 2024 and decreased 1.2% as a percentage of operating revenues, due to lower average diesel fuel prices and 18.6 million fewer company tractor miles in first quarter 2025. Average diesel fuel prices were 30 cents per gallon lower in first quarter 2025 than in first quarter 2024 and were 12 cents per gallon higher than in fourth quarter 2024. 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. However, fuel savings from mpg improvement is partially offset by higher depreciation expense and the additional cost of diesel exhaust fluid. 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. Environmental Protection Agency (“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. For April 2025, the average diesel fuel price per gallon was approximately 47 cents lower than the average diesel fuel price per gallon in April 2024 and approximately 31 cents lower than in second quarter 2024. Shortages of fuel, increases in fuel prices and petroleum product rationing can have a material adverse effect on our operations and profitability. We are unable to predict whether fuel price levels will increase or decrease in the future or the extent to which fuel surcharges will be collected from customers. As of March 31, 2025, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations. Supplies and maintenance decreased $1.7 million or 2.8% in first quarter 2025 compared to first quarter 2024 and increased 0.4% as a percentage of operating revenues. Supplies and maintenance expense decreased due primarily to lower costs for over-the-road tractor and trailer maintenance and the impact of 18.6 million fewer company tractor miles in first quarter 2025. These decreases were partially offset by higher costs for tires. Taxes and licenses decreased $2.8 million or 11.2% in first quarter 2025 compared to first quarter 2024 and decreased 0.2% as a percentage of operating revenues due primarily to lower costs for fuel taxes. The decrease in fuel tax expense in the first quarter of 2025 was impacted by lower average diesel fuel prices and 18.6 million fewer company tractor miles. Insurance and claims increased $7.4 million or 20.4% in first quarter 2025 compared to first quarter 2024 and increased 1.5% as a percentage of operating revenues. We had higher expense for large dollar liability claims, due primarily to a higher amount of unfavorable reserve development and higher expense for new claims. The higher amount of unfavorable reserve development was due primarily to one adverse verdict late in first quarter 2025 related to a 2019 incident, which we plan to appeal. We also had higher expense for small dollar liability claims, resulting primarily from unfavorable reserve development in first quarter 2025 compared to favorable reserve development in first quarter 2024, partially offset by lower expense for new claims. Expense for new claims was impacted by decreased cost per claim in first quarter 2025 compared to first quarter 2024. We also incurred insurance and claims expense of $1.5 million in first quarter 2025 and $0.5 million for first quarter 2024 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 8 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report. 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. 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. 26 Table of Contents We ren ewed 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. For the policy year that began August 1, 2023, we were responsible for the first $10.0 million per claim on all claims with an annual $12.5 million aggregate for claims between $10.0 million and $20.0 million . 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, 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 $4.2 million or 5.7% in first quarter 2025 compared to first quarter 2024 and increased 0.1% as a percentage of operating revenues due primarily to a decrease in depreciation of tractors, as we had fewer average tractors in service. The average age of our tractor fleet remains low by industry standards and was 2.2 years as of March 31, 2025, and the average age of our trailers was 5.4 years. We are continuing to invest in new tractors and trailers, technology, and our terminal network in 2025 to improve our driver experience, increase operational efficiency and more effectively manage our maintenance, safety and fuel costs. Rent and purchased transportation expense increased $2.2 million or 1.1% in first quarter 2025 compared to first quarter 2024, and increased 2.4% 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. 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 $4.1 million in first quarter 2025 and 2024 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 purchased transportation expense decreased $5.3 million in first quarter 2025 as a result of lower logistics revenues, but increased to 85.5% as a percentage of Werner Logistics revenues in first quarter 2025 from 85.2% in first quarter 2024. Rent and purchased transportation expense for the TTS segment increased $6.0 million in first quarter 2025 compared to first quarter 2024 due primarily to more independent contractor miles, higher technology-related costs, and additional operational facility costs. These increases were partially offset by lower reimbursements to independent contractors because of lower average diesel fuel prices in first quarter 2025. Independent contractor miles increased approximately 1.6 million miles in first quarter 2025 and as a percentage of total miles were 5.6% in first quarter 2025 compared to 4.3% in first quarter 2024. Because independent contractors supply their own tractors and drivers and are responsible for their operating expenses, the increase in independent contractor miles as a percentage of total miles shifted costs from other expense categories, including (i) salaries, wages and benefits, (ii) fuel, (iii) depreciation, (iv) supplies and maintenance and (v) taxes and licenses to the rent and purchased transportation category. Challenging operating conditions continue to make independent contractor recruitment and retention difficult. Such conditions include inflationary cost increases that are the responsibility of independent contractors and a shortage of financing available to independent contractors for equipment purchases. Historically, we have been able to add company tractors and recruit additional company drivers to offset any decrease in the number of independent contractors. If a shortage of independent contractors and company drivers were to occur, increases in per-mile settlement rates (for independent contractors) and driver pay rates (for company drivers) may become necessary to attract and retain these drivers. 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 $0.7 million in first quarter 2025 compared to first quarter 2024 and increased 0.1% as a percentage of operating revenues due primarily to lower gains on sales of property and equipment (primarily used tractors and trailers) and increased bad debt expense, partially offset by decreased costs associated with general professional services. 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 $2.8 million in first quarter 2025 compared to $3.6 million in first quarter 2024. We sold fewer tractors and trailers in first quarter 2025 compared to first quarter 2024 and realized lower average gains per tractor and improved average gains per trailer. Recently, we have seen increased values on used revenue equipment as pricing on new equipment is fluid and is being influenced by tariff uncertainties. While this is a positive development, it is too early to predict the impact this will have on our used equipment gains for the remainder of the year. We continue to expect gains on our used equipment to range between $8 million and $18 million in 2025. Other Expense (Income) Other expense, net of other income, increased $1.3 million in first quarter 2025 compared to first quarter 2024, due primarily to a $1.8 million increase in net interest expense, partially offset by a $0.4 million increase in the amount of net earnings 27 Table of Contents recognized from our investments (see Note 6 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report for information regarding our investments). 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 second quarter 2024 and an increase in average debt outstanding. During the first quarter 2025, we entered into a LSA, which bears interest at a lower rate than the 2022 Credit Agreement (see Note 7 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report for information regarding our credit facilities and interest rate swaps). We continue to expect net interest expense for full-year 2025 to be flat-to-down compared to 2024, higher in the first half and lower in the second half of the year, as we start to benefit from lower interest rates under the LSA. Income Tax Expense (Benefit) We had an income tax benefit of $3.2 million in first quarter 2025 compared to income tax expense of $3.1 million in first quarter 2024. Our effective income tax rate (income taxes expressed as a percentage of income (loss) before income taxes) was 23.7% in first quarter 2025 compared to 32.9% in first quarter 2024. The lower effective income tax rate in first quarter 2025 is attributed primarily to a higher amount of unfavorable discrete income tax items in the first quarter 2024. We continue to estimate our full year 2025 effective income tax rate to be approximately 25.0% to 26.0%, as we expect an elevated effective income tax rate in future quarters. Liquidity and Capital Resources: We closely manage our liquidity and capital resources. 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 stockholder returns, while funding ongoing operations. Management believes our financial position at March 31, 2025 is strong. As of March 31, 2025, we had $52.0 million of cash and cash equivalents and $1.4 billion of stockholders’ equity. Cash is invested primarily in short-term money market funds. In addition, we have a maximum borrowing capacity of $1.375 billion under our credit facilities, for which our total available borrowing capacity was $725.3 million as of March 31, 2025 (see Note 7 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report for information regarding our credit facilities). 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 facilities will provide sufficient funds to meet our cash requirements and our planned stockholder returns for the foreseeable future. Item 7 of Part II of our 2024 Form 10-K includes our disclosure of material cash requirements as of December 31, 2024. There were no material changes in the nature of these items during the three months ended March 31, 2025. Cash Flows During the three months ended March 31, 2025, we generated cash flow from operations of $29.4 million, a 66.8% or $59.2 million decrease in cash flows compared to the same three-month period a year ago. The decrease in net cash provided by operating activities was due primarily to working capital changes and a $16.5 million decrease in earnings for the three-month period ended March 31, 2025. We were able to make net capital expenditures, repay debt, make strategic investments, and pay dividends with the net cash provided by operating activities and existing cash balances. Net investing activities provided $2.4 million for the three-month period ended March 31, 2025, and used $19.4 million during the same period in 2024. Net proceeds from the sales of property and equipment (primarily revenue equipment) were $7.6 million for the three-month period ended March 31, 2025, compared to net property and equipment additions of $19.0 million during the same period of 2024. We continue to estimate net capital expenditures (primarily revenue equipment) in 2025 to be in the range of $185 million to $235 million, compared to net capital expenditures in 2024 of $234.9 million. Tariffs on equipment will have an impact on our capital expenditure decisions, including the timing of our purchases for the remainder of the year. In the event tariffs continue, we expect low single digit percent increases to the cost of equipment and parts, but with favorable offsets due to growing demand and improved resale values for our used revenue equipment, which we saw as an early development in April 2025. We intend to fund these net capital expenditures through cash flows from operations and financing available under our existing credit facilities, if necessary. As of March 31, 2025, we were committed to property and equipment purchases of approximately $94.4 million. Net financing activities used $20.5 million during the three months ended March 31, 2025 compared to $70.8 million during the same period in 2024. We had net repayments on our debt of $10.0 million during the three months ended March 31, 2025, 28 Table of Contents decreasing our outstanding debt to $640.0 million at March 31, 2025. We had net repayments on our debt of $51.3 million during the three months ended March 31, 2024. We paid dividends of $8.7 million during the three months ended March 31, 2025 and $8.9 million during the same period in 2024. We currently plan to continue paying a quarterly dividend. We did not repurchase any shares of common stock during the three months ended March 31, 2025. Financing activities for the same period in 2024 included common stock repurchases of 167,818 shares at a cost of $6.5 million. As of March 31, 2025, the Company had purchased 1,103,651 shares pursuant to our current Board of Directors repurchase 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. The timing and amount of such purchases depend upon economic and stock market conditions and other factors. Regulations: Item 1 of Part I of our 2024 Form 10-K includes a discussion of pending proposed regulations that may have an effect on our operations if they become adopted and effective as proposed. There have been no material changes in the status of the proposed regulations previously disclosed in the 2024 Form 10-K. Critical Accounting Estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the (i) reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and (ii) reported amounts of revenues and expenses during the reporting period. We evaluate these estimates on an ongoing basis as events and circumstances change, utilizing historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Actual results could differ from those estimates and may significantly impact our results of operations from period to period. It is also possible that materially different amounts would be reported if we used different estimates or assumptions. Information regarding our Critical Accounting Estimates can be found in our 2024 Form 10-K. Estimates of accrued liabilities for insurance and claims for bodily injury and property damage is a critical accounting estimate that requires us to make significant judgments and estimates and affects our financial statements. There have been no material changes to this critical accounting estimate from that discussed in our 2024 Form 10-K.