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. 24 Table of Contents 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 second quarter 2025 to second 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. We provide non-trucking services primarily through the three divisions 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) June 30, Six Months Ended (6ME) June 30, Percentage Change in Dollar Amounts 2025 2024 2025 2024 3ME 6ME (in thousands) $ % $ % $ % $ % % % Operating revenues $ 753,148 100.0 $ 760,798 100.0 $ 1,465,262 100.0 $ 1,529,878 100.0 (1.0) (4.2) Operating expenses: Salaries, wages and benefits 250,451 33.2 259,754 34.1 493,676 33.7 525,157 34.3 (3.6) (6.0) Fuel 60,401 8.0 71,998 9.5 123,493 8.4 149,620 9.8 (16.1) (17.5) Supplies and maintenance 62,260 8.3 61,988 8.1 122,300 8.3 123,763 8.1 0.4 (1.2) Taxes and licenses 23,100 3.1 25,494 3.3 45,444 3.1 50,658 3.3 (9.4) (10.3) Insurance and claims (6,813) (0.9) 31,897 4.2 36,964 2.5 68,259 4.4 (121.4) (45.8) Depreciation and amortization 70,757 9.4 72,672 9.6 140,806 9.6 146,942 9.6 (2.6) (4.2) Rent and purchased transportation 228,280 30.3 210,417 27.7 434,422 29.7 414,342 27.1 8.5 4.8 Communications and utilities 3,730 0.5 4,127 0.5 8,087 0.6 8,833 0.6 (9.6) (8.4) Other (5,339) (0.7) 2,840 0.4 (419) — 7,105 0.5 (288.0) (105.9) Total operating expenses 686,827 91.2 741,187 97.4 1,404,773 95.9 1,494,679 97.7 (7.3) (6.0) Operating income 66,321 8.8 19,611 2.6 60,489 4.1 35,199 2.3 238.2 71.8 Total other expense, net 7,231 1.0 7,480 1.0 14,787 1.0 13,753 0.9 (3.3) 7.5 Income before income taxes 59,090 7.8 12,131 1.6 45,702 3.1 21,446 1.4 387.1 113.1 Income tax expense 15,468 2.0 2,931 0.4 12,301 0.8 5,998 0.4 427.7 105.1 Net income 43,622 5.8 9,200 1.2 33,401 2.3 15,448 1.0 374.2 116.2 Net loss attributable to noncontrolling interest 440 0.1 265 — 563 — 329 — 66.0 71.1 Net income attributable to Werner $ 44,062 5.9 $ 9,465 1.2 $ 33,964 2.3 $ 15,777 1.0 365.5 115.3 25 Table of Contents 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. Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 TTS segment (in thousands) $ % $ % $ % $ % Trucking revenues, net of fuel surcharge $ 450,903 $ 458,140 $ 883,976 $ 928,019 Trucking fuel surcharge revenues 55,201 69,966 112,841 142,949 Non-trucking and other operating revenues 11,543 8,963 22,705 17,227 Operating revenues 517,647 100.0 537,069 100.0 1,019,522 100.0 1,088,195 100.0 Operating expenses 453,558 87.6 516,071 96.1 956,349 93.8 1,046,357 96.2 Operating income $ 64,089 12.4 $ 20,998 3.9 $ 63,173 6.2 $ 41,838 3.8 Three Months Ended June 30, Six Months Ended June 30, TTS segment 2025 2024 % Change 2025 2024 % Change Average tractors in service 7,489 7,630 (1.8) % 7,452 7,783 (4.3) % Average revenues per tractor per week (1) $ 4,632 $ 4,619 0.3 % $ 4,563 $ 4,586 (0.5) % Total tractors (at quarter end) Company 7,215 7,180 0.5 % 7,215 7,180 0.5 % Independent contractor 330 280 17.9 % 330 280 17.9 % Total tractors 7,545 7,460 1.1 % 7,545 7,460 1.1 % Total trailers (at quarter end) 24,660 26,965 (8.5) % 24,660 26,965 (8.5) % One-Way Truckload Trucking revenues, net of fuel surcharge (in 000’s) $ 164,083 $ 169,283 (3.1) % $ 318,504 $ 338,120 (5.8) % Average tractors in service 2,634 2,730 (3.5) % 2,633 2,758 (4.5) % Total tractors (at quarter end) 2,655 2,635 0.8 % 2,655 2,635 0.8 % Average percentage of empty miles 15.50 % 14.70 % 5.4 % 15.75 % 14.80 % 6.4 % Average revenues per tractor per week (1) $ 4,787 $ 4,770 0.4 % $ 4,650 $ 4,716 (1.4) % Average % change in revenues per total mile (1) 2.7 % (2.7) % 1.5 % (4.0) % Average % change in total miles per tractor per week (2.3) % 10.8 % (2.9) % 11.1 % Average completed trip length in miles (loaded) 581 589 (1.4) % 579 590 (1.9) % Dedicated Trucking revenues, net of fuel surcharge (in 000’s) $ 286,820 $ 288,857 (0.7) % $ 565,472 $ 589,899 (4.1) % Average tractors in service 4,855 4,901 (0.9) % 4,819 5,025 (4.1) % Total tractors (at quarter end) 4,890 4,825 1.3 % 4,890 4,825 1.3 % Average revenues per tractor per week (1) $ 4,542 $ 4,534 0.2 % $ 4,512 $ 4,516 (0.1) % (1) Net of fuel surcharge revenues. 26 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 June 30, Six Months Ended June 30, 2025 2024 2025 2024 Werner Logistics segment (in thousands) $ % $ % $ % $ % Operating revenues $ 221,177 100.0 $ 208,912 100.0 $ 416,735 100.0 $ 411,394 100.0 Operating expenses: Purchased transportation expense 188,326 85.1 177,066 84.8 355,484 85.3 349,553 85.0 Other operating expenses 28,523 12.9 31,296 14.9 57,398 13.8 63,620 15.4 Total operating expenses 216,849 98.0 208,362 99.7 412,882 99.1 413,173 100.4 Operating income (loss) $ 4,328 2.0 $ 550 0.3 $ 3,853 0.9 $ (1,779) (0.4) Three Months Ended June 30, Six Months Ended June 30, Werner Logistics segment 2025 2024 % Change 2025 2024 % Change Average tractors in service 28 22 27.3 % 24 24 — % Total tractors (at quarter end) 23 21 9.5 % 23 21 9.5 % Total trailers (at quarter end) 3,650 3,350 9.0 % 3,650 3,350 9.0 % Total containers (at quarter end) 200 — N/A 200 — N/A Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 Operating Revenues and Operating Profitability Operating reve nues decreased 1.0% for the three months ended June 30, 2025, comp ared to the same period of the prior year. When comparing second quarter 2025 to second quarter 2024, TTS segment reven ues decreased $19.4 million, or 3.6%, and Werner Logistics revenues increased $12.3 million, or 5.9%. We had operating income of $66.3 million in second quarter 2025 compared to $19.6 million in second quarter 2024, and our operating margin percentage increased to 8.8% in second quarter 2025 from 2.6% in second quarter 2024. Our second quarter 2025 consolidated and TTS segment operating results were positively impacted by a $45.7 million liability reversal through insurance and claims expense as a result of a favorable decision related to a lawsuit arising from a December 2014 accident, and a net favorable change of $7.9 million to the contingent earnout liability related to the Baylor Trucking, Inc. acquisition. The Baylor Trucking, Inc. contingent consideration arrangement was finalized through negotiations in April 2025. For additional information related to this lawsuit and contingent consideration arrangement, see Notes 8 and 5, respectively, in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report. Dedicated retention and pipeline remains strong. The implementation of new Dedicated fleets awarded in first quarter 2025 started in the later half of second quarter 2025, and are continuing to progress into the third quarter as we hire drivers and build the new fleets to targeted levels. Additional Dedicated fleet contracts were awarded in second quarter 2025. One-Way Truckload freight conditions were steady through second quarter 2025, benefiting from pop-up opportunities, with stable volumes continuing into the early stages of the third quarter. The OBBBA, enacted on July 4, 2025, could stimulate consumer demand and industrial investment over time, both of which we believe would benefit freight volumes. Tariff and interest rate impacts remain uncertain for both shippers and consumers. Trucking revenues, net of fuel surcharge, decreased 1.6% in second quart er 2025 compared to second quarter 2024 due to a 1.8% decrease in the average number of tractors in service. TTS average revenues per tractor per week, net of fuel surcharge, increased 0.3%, due primarily to a 2.7% increase in One-Way Truckload revenues per total mile, net of fuel surcharge, partially offset by a 2.3% decrease in One-Way Truckload average total miles per tractor per week. One-Way Truckload revenues per total mile, net of fuel surcharge, increased as recent contractual rate changes became effective. One-Way Truckload average tractors in service decreased 3.5%. We continue to expect One-Way Truckload fleet average revenues per total mile, net of fuel surcharge, to remain flat or increase up to 3% in third quarter 2025 compared to third quarter 2024. Despite inefficiencies from new Dedicated fleet startups during second quarter 2025, Dedicated average revenues per tractor per week, net of fuel surcharge, increased 0.2%. It often takes 90 days or more before new fleets meet targeted levels. 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 a operating income of $64.1 million in second quarter 2025 compared to $21.0 million in second quarter 2024, and its operating margin percentage increased to 12.4% in second quarter 2025 from 3.9% in second quarter 2024. As discussed above, second quarter 2025 TTS operating results were positively impacted by a favorable decision related to a 27 Table of Contents lawsuit and the finalization of the contingent consideration arrangement in April 2025 related to the Baylor Trucking, Inc. acquisition. The average number of tractors in service in the TTS segment decreased 1.8% to 7,489 in second qu arter 2025 from 7,630 in second quarter 2024. W e ended second quarter 2025 wi th 7,545 tractors in the TTS segment, a year-over-year increase of 85 tractors compared to the e nd of second quarter 2024 , and a sequential increase of 105 tractors compared to the end of the first quarter 2025. Within TTS, Dedicated ended second quarter 2025 with 4,890 tractors (or 65% of our total TTS segment fleet) compared to 4,825 tractors (or 65%) a year ago. We are slightly lowering our expectation for our TTS segment fleet size at the end of 2025 to increase in a range from 1% to 5% to 1% to 4% when compared to the fleet size at the end of 2024. The One-Way Truckload fleet size increased sequentially in second quarter 2025, driven in part from the fleet meeting temporary capacity needs for select customers. Implementations of new Dedicated fleets remain ongoing, and over the remainder of 2025, growth is expected to be driven more by Dedicated than One-Way Truckload. 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 21.1% to $55.2 million in second quarter 2025 from $70.0 million in second quarter 2024 due primarily to lower average diesel fuel prices and the impact of 10.9 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 divisions. Werner Logistics recorded revenue and brokered freight expense of $4.7 million in second quarter 2025 and $3.3 million in second quarter 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 second quarter 2025, Werner Logistics revenues increased $12.3 million, or 5.9%, compared to second quarter 2024. Truckload Logistics revenues (77% of total Werner Logistics segment revenues) increased $13.9 million, or 9%, in second quarter 2025, driven by a 7% increase in shipments and higher 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 Truckload Logistics operations in second quarter 2025. Power Only revenues increased 17% while traditional brokerage recorded mid-single digit revenue growth in second quarter 2025 compared to second quarter 2024. Intermodal revenues (13% of total Werner Logistics segment revenues) increased $0.7 million, or 3%, in second quarter 2025, due to a 7% increase in shipments, partially offset by a 4% decrease in revenue per shipment. Final Mile revenues (10% of total Werner Logistics segment revenues) decreased $2.4 million, or 10%, in second quarter 2025. Werner Logistics had operating income $4.3 million in second quarter 2025 compared to $0.5 million in second quarter 2024, and its operating margin percentage increased to 2.0% in second quarter 2025 from 0.3% in second quarter 2024, due primarily to volume growth and a reduction in operating expenses. We expect growth in Werner Logistics revenues to continue, as large shippers need additional capacity. Operating Expenses Our operating ratio (operati ng expenses expressed as a percentage of ope rating revenues) was 91.2% in second quarter 2025 compared to 97.4% in second quarter 2024. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 25 through 27 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 $9.3 million or 3.6% in second quarter 2025 compared to second quarter 2024 and decreased 0.9% as a percentage of operating revenues. The lower dollar amount of salaries, wages and benefits expense in the second quarter of 2025 was due primarily to the impact of 10.9 million fewer company tractor miles, lower benefit costs, and decreased non-driver pay. The decrease in non-driver pay was due primarily to a smaller average number of non-driver employees, partially offset by severance expense of $1.3 million from recent cost saving initiatives. Non-driver salaries, wages 28 Table of Contents and benefits in our non-trucking Werner Logistics segment decreased 11% in second quarter 2025 compared to second 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. 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 $11.6 million or 16.1% in second quarter 2025 compared to second quarter 2024 and decreased 1.5% as a percentage of operating revenues, due to lower average diesel fuel prices and 10.9 million fewer company tractor miles in second quarter 2025. Average diesel fuel prices were 29 cents per gallon lower in second quarter 2025 than in second quarter 2024 and were 14 cents per gallon lower than in first quarter 2025. 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 July 2025, the average diesel fuel price per gallon was 2 cents lower than the average diesel fuel price per gallon in July 2024 and 12 cents higher than in third 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 June 30, 2025, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations. Supplies and maintenance increased $0.3 million or 0.4% in second quarter 2025 compared to second quarter 2024 and increased 0.2% as a percentage of operating revenues. Supplies and maintenance expense increased due primarily to higher driver and placement driver-related costs such as driver advertising and lodging. These increases were partially offset by lower costs for over-the-road tractor maintenance and the impact of 10.9 million fewer company tractor miles in second quarter 2025. Taxes and licenses decreased $2.4 million or 9.4% in second quarter 2025 compared to second 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 second quarter of 2025 was impacted by lower average diesel fuel prices and 10.9 million fewer company tractor miles. Insurance and claims decreased $38.7 million or 121.4% in second quarter 2025 compared to second quarter 2024 and decreased 5.1% as a percentage of operating revenues due primarily to the impact of a $45.7 million liability reversal through insurance and claims expense as a result of a favorable decision in second quarter 2025 related to an adverse jury verdict rendered on May 17, 2018 for a December 2014 accident, effectively ending the lawsuit in favor of Werner. 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 favorable impact of the liability reversal was partially offset by higher expense for liability claims, due primarily to a higher amount of unfavorable reserve development, partially offset by lower expense for new claims. Lower expense for new claims was impacted by decreased cost per claim in second quarter 2025 compared to the same period in 2024. We also incurred insurance and claims expense of $1.0 million for second quarter 2024 for accrued interest related to the adverse jury verdict rendered on May 17, 2018. We continued to accrue pre-tax insurance and claims expense for interest at 29 Table of Contents $0.5 million per month (excluding months where the plaintiffs requested an extension of time to respond to our petition for review) until our appeal was finalized in second quarter 2025. 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. We ren ewed our liability insurance policies on August 1, 2025, 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, 2024, we were 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 . 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, 2025 are slightly higher than premiums for the previous policy year. Depreciation and amortization expense decreased $1.9 million or 2.6% in second quarter 2025 compared to second quarter 2024 and decreased 0.2% as a percentage of operating revenues due primarily to a decrease 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. The average age of our tractor fleet remains low by industry standards and was 2.4 years as of June 30, 2025, and the average age of our trailers was 5.5 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 $17.9 million or 8.5% in second quarter 2025 compared to second quarter 2024, and increased 2.6% 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 $4.7 million in second quarter 2025 and $3.3 million in second quarter 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 increased $11.3 million in second quarter 2025 as a result of higher logistics revenues, and increased to 85.1% as a percentage of Werner Logistics revenues in second quarter 2025 from 84.8% in second quarter 2024. Rent and purchased transportation expense for the TTS segment increased $6.3 million in second quarter 2025 compared to second quarter 2024 due primarily to more independent contractor miles and higher technology-related costs. These increases were partially offset by lower reimbursements to independent contractors because of lower average diesel fuel prices in second quarter 2025. Independent contractor miles increased approximately 1.9 million miles in second quarter 2025 and as a percentage of total miles were 6.0% in second quarter 2025 compared to 4.8% in second 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 decreased $8.2 million in second quarter 2025 compared to second quarter 2024 and decreased 1.1% as a percentage of operating revenues due primarily to the impact of a $7.9 million net favorable change to the contingent earnout liability in April 2025 related to the Baylor Trucking, Inc. acquisition and higher gains on sales of property and equipment (primarily used tractors and trailers), partially offset by increased bad debt expense and costs associated with 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 $5.9 million in second quarter 2025 compared to $2.7 million, which includes $1.8 million from sales of real estate, in second quarter 2024. We sold fewer tractors and trailers in second quarter 2025 compared to second quarter 2024 and 30 Table of Contents realized much higher average gains per tractor and trailer. Recently, used tractor values have been elevated due largely to tariff uncertainties. As a result, we are adjusting our full-year guidance range for gains on our used equipment from a range of $8 million and $18 million to a range of $12 million to $18 million in 2025. Other Expense (Income) Other expense, net of other income, decreased $0.2 million in second quarter 2025 compared to second quarter 2024, due primarily to a $0.9 million increase in the amount of net earnings 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), partially offset by a $0.6 million increase in net interest expense. Net interest expense increased primarily due to 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 Income tax expense increased $12.5 million in second quarter 2025 compared to second quarter 2024 due primarily to higher pre-tax income and an increase in the effective income tax rate. Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) increased to 26.2% in second quarter 2025 compared to 24.2% in second quarter 2024 due primarily to differences in discrete income tax items. We continue to estimate our full year 2025 effective income tax rate to be approximately 25.0% to 26.0%, as we expect a lower effective income tax rate in future quarters. Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 Operating Revenues and Operating Profitability Operating revenues decreased 4.2% for the six months ended June 30, 2025, compared to the same period of the prior year. When comparing the first six months of 2025 to the first six months of 2024, TTS segment revenues decreased $68.7 million, or 6.3%, and Werner Logistics revenues increased $5.3 million, or 1.3%. In the TTS segment, trucking revenues, net of fuel surcharge, decreased $44.0 million, due primarily to a 4.3% decrease in average tractors in service and a 0.5% decrease in average revenues per tractor per week, net of fuel surcharge. TTS segment fuel surcharge revenues for the six months ended June 30, 2025 decreased $30.1 million, or 21.1%, when compared to the same period of the prior year due to the impact of 29.6 million fewer company tractor miles and lower average diesel fuel prices. The increase in Werner Logistics revenues was primarily due to higher volumes in Truckload Logistics. We had operating income of $60.5 million for the six months ended June 30, 2025 compared to $35.2 million for the first six months of 2024, and our operating margin percentage increased to 4.1% for the six months ended June 30, 2025 from 2.3% for the first six months of 2024. As discussed above, consolidated and TTS operating results for the six months ended June 30, 2025 were positively impacted by a favorable decision related to a lawsuit and the finalization of the contingent consideration arrangement in April 2025 related to the Baylor Trucking, Inc. acquisition. Operating Expenses Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 95.9% for the six months ended June 30, 2025 and 97.7% for the six months ended June 30, 2024. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 25 through 27 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 $31.5 million, or 6.0%, in the first six months of 2025 compared to the same period in 2024 and decreased 0.6% as a percentage of operating revenues to 33.7%. The lower dollar amount of salaries, wages and benefits expense in the first six months of 2025 was due primarily to the impact of 29.6 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, partially offset by severance expense of $1.3 million from recent cost saving initiatives. Non-driver salaries, wages and benefits in our non-trucking Werner Logistics segment decreased 13% in the first six months of 2025 compared to the same period in 2024. Fuel decreased $26.1 million, or 17.5%, in the first six months of 2025 compared to the same period in 2024 and decreased 1.4% as a percentage of operating revenues due to lower average diesel fuel prices and 29.6 million fewer company tractor miles in the first six months of 2025. Average diesel fuel prices were 30 cents per gallon lower in the first six months of 2025 than in same period in 2024. 31 Table of Contents Supplies and maintenance decreased $1.5 million, or 1.2%, in the first six months of 2025 compared to the same period in 2024 and increased 0.2% as a percentage of operating revenues. Supplies and maintenance expense decreased due primarily to the impact of 29.6 million fewer company tractor miles and lower costs for tractor maintenance and tolls. These decreases were partially offset by higher costs for tire maintenance and driver-related costs such as driver advertising. Insurance and claims decreased $31.3 million, or 45.8%, in the first six months of 2025 compared to the same period in 2024 and decreased 1.9 as a percentage of operating revenues due primarily to the impact of a $45.7 million liability reversal through insurance and claims expense as a result of a favorable decision in second quarter 2025 related to an adverse jury verdict rendered on May 17, 2018 for a December 2014 accident, effectively ending the lawsuit in favor of Werner. 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 favorable impact of the liability reversal was partially offset by higher expense for liability claims, due primarily to a higher amount of unfavorable reserve development, partially offset by lower expense for new claims. Lower expense for new claims was impacted by decreased cost per claim in first six months of 2025 compared to the same period in 2024. Depreciation and amortization expense decreased $6.1 million, or 4.2%, in the first six months of 2025 compared to the same period in 2024 and was flat 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. Werner Logistics purchased transportation expense increased $5.9 million in the first six months of 2025 as a result of higher logistics revenues, and increased 0.3% as a percentage of Werner Logistics revenues to 85.3% in the first six months of 2025 from 85.0% in the same period in 2024. Rent and purchased transportation expense for the TTS segment increased $12.3 million in the first six months of 2025 compared to the same period in 2024 due primarily to 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 six months of 2025. Independent contractor miles increased 3.4 million miles in the first six months of 2025 and as a percentage of total miles were 5.8% in the first six months of 2025 compared to 4.5% in the first six months of 2024. Other operating expenses decreased $7.5 million in the first six months of 2025 compared to the same period in 2024 and decreased 0.5% as a percentage of operating revenues due primarily to the impact of a $7.8 million net favorable change to the contingent earnout liability related to the Baylor Trucking, Inc. acquisition and higher gains on sales of property and equipment (primarily used tractors and trailers), partially offset by increased bad debt expense and costs associated with professional services. Gains on sales of property and equipment were $8.8 million in the first six months of 2025 compared to $6.2 million, including $1.8 million from the sale of real estate, in the same period in 2024. We sold fewer tractors and trailers in the first six months of 2025 compared to the same period in 2024 and realized much higher average gains per tractor and trailer, as used equipment values have been elevated due largely to global trade policy. Other Expense (Income) Other expense, net of inco me, increased $1.0 million in the first six months of 2025 compared to the same period in 2024 due primari ly to a $2.4 million increase in net interest expense, partially offset by a $1.3 million increase in the amount of net earnings 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 primarily 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 the second quarter of 2024 (see Note 7 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report for further information on our debt and interest rate swaps) and an increase in average debt outstanding. Income Tax Expense Income tax expense increased $6.3 million in the first six months of 2025 compared to the same period in 2024 , due primarily to higher pre-tax income, partially offset by a decrease in the effective income tax rate. Our effective income tax rate decreased to 26.9% in the first six months of 2025 compared to 28.0% in the first six months of 2024 due primarily to differences in discrete income tax items. 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 32 Table of Contents 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 June 30, 2025 is strong. As of June 30, 2025, we had $51.4 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 $644.1 million as of June 30, 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 six months ended June 30, 2025. Cash Flows During the six months ended June 30, 2025, we generated cash flow from operations of $75.4 million, a 61.9% or $122.3 million decrease in cash flows compared to the same six-month period a year ago. The decrease in net cash provided by operating activities was due primarily to working capital changes for the six-month period ended June 30, 2025. We were able to make net capital expenditures, make strategic investments, pay dividends, and repurchase company stock with the net cash provided by operating activities, supplemented by borrowings under our existing credit facilities. Net investing activities used $63.9 million for the six-month period ended June 30, 2025, and $119.4 million during the same period in 2024. Net property and equipment additions (primarily revenue equipment) were $58.1 million for the six-month period ended June 30, 2025, compared to $118.2 million during the same period of 2024. We are adjusting our full-year 2025 net capital expenditures (primarily revenue equipment) guidance from a range of $185 million to $235 million to a range of $145 million to $185 million. Given our strong balance sheet and proactive fleet management, we entered 2025 with a higher-than-normal inventory of new tractors ready to support growth. These factors, combined with a deliberate shift to a more asset light operational mix are expected to result in net capital expenditures below our historical range in 2025. Net capital expenditures in 2024 was $234.9 million. 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 June 30, 2025, we were committed to property and equipment purchases of approximately $116.4 million. Net financing activities used $1.8 million during the six months ended June 30, 2025 compared to $67.8 million during the same period in 2024. We had net borrowings on our debt of $75.0 million during the six months ended June 30, 2025, increasing our outstanding debt to $725.0 million at June 30, 2025. We had net borrowings on our debt of $21.3 million during the six months ended June 30, 2024. We paid dividends of $17.3 million during the six months ended June 30, 2025 and $17.8 million during the same period in 2024. We currently plan to continue paying a quarterly dividend. Financing activities for the six months ended June 30, 2025, also included stock repurchases of 2,113,007 shares at a cost of $55.6 million, including broker commissions and excise taxes. Financing activities for the same period in 2024 included common stock repurchases of 1,787,810 shares at a cost of $67.1 million, including broker commissions and excise taxes. As of June 30, 2025, the Company had purchased 3,216,658 shares pursuant to our current Board of Directors repurchase authorization and had 1,783,342 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. The following is an update to the regulations set forth in our 2024 Form 10-K. In January 2025, California voluntarily withdrew the Advanced Clean Fleets (“ACF”) waiver request from the U.S. Environmental Protection Agency. Also, in June 2025, Congress rescinded the previously granted waivers for Advanced Clean Trucks (“ACT”). While these regulations remain in the California Administrative Code, the future of the ACF and ACT regulations is uncertain. Werner continues to monitor any California Air Resources Board-related regulatory developments. The rescission of the waiver request and approved waivers will potentially impact tractor prices, availability, performance, and efficiency. 33 Table of Contents There have been no other 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.