ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“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:
• Cautionary Note Regarding Forward-Looking Statements
• Overview
• Results of Operations
• Liquidity and Capital Resources
• Critical Accounting Estimates
Cautionary Note Regarding Forward-Looking Statements:
This Annual Report on Form 10-K contains historical information and forward-looking statements based on information currently available to our management. The forward-looking statements in this report, including those made in this Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These safe harbor provisions encourage reporting companies to provide prospective information to investors. Forward-looking statements can be identified by the use of certain words, such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” and other similar terms and language. We believe the forward-looking statements are reasonable based on currently available information. However, forward-looking statements involve risks, uncertainties and assumptions, whether known or unknown, that could cause our actual results, business, financial condition and cash flows to differ materially from those anticipated in the forward-looking statements. A discussion of important factors relating to forward-looking statements is included in Item 1A (Risk Factors) of Part I of this Form 10-K. Readers should not unduly rely on the forward-looking statements included in this Form 10-K because such statements speak only to the date they were made. Unless otherwise required by applicable securities laws, we undertake no obligation or duty to update or revise any forward-looking statements contained herein to reflect subsequent events or circumstances or the occurrence of unanticipated events.
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.
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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 2025 to 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.
At the end of 2025, we believe we are well positioned with a strong balance sheet and sufficient liquidity. Our debt is at $752 million, or a net debt ratio (debt less cash) of 2.0 times earnings before interest, income taxes, depreciation and amortization, and restructuring and impairment for the year ended December 31, 2025. We had available liquidity of $702 million, considering cash and cash equivalents on hand and available borrowing capacity of $642 million. As of December 31, 2025, we were in compliance with our debt covenants and expect to continue to be in compliance in 2026. We currently plan to continue paying our quarterly dividend, which we have paid quarterly since 1987. This cash outlay currently results in approximately $8.4 million per quarter. Net capital expenditures (primarily revenue equipment) in 2026 currently are expected to b e in the ran ge of $185 million to $225 million.
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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.
Percentage Change in Dollar Amounts
(in thousands)
Operating revenues
Operating expenses:
Salaries, wages and benefits
Fuel
Supplies and maintenance
Taxes and licenses
Insurance and claims
Depreciation and amortization
Rent and purchased transportation
Communications and utilities
Restructuring and impairment
Other
Total operating expenses
Operating income
Total other expense, net
Income (loss) before income taxes
Income tax expense
Net income (loss)
Net loss attributable to noncontrolling interest
Net income (loss) attributable to Werner
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The following tables set forth the operating revenues, operating expenses and operating income for the TTS segment and certain statistical data regarding our TTS segment operations, as well as statistical data for One-Way Truckload and Dedicated operations within TTS.
TTS segment (in thousands)
% Chg
Trucking revenues, net of fuel surcharge
Trucking fuel surcharge revenues
Non-trucking and other operating revenues
Operating revenues
Operating expenses
Operating income
TTS segment
% Chg
Average tractors in service
Average revenues per tractor per week (1)
Total tractors (at year end)
Company
Independent contractor
Total tractors
Total trailers (at year end)
One-Way Truckload
Trucking revenues, net of fuel surcharge (in 000’s)
Average tractors in service
Total tractors (at year end)
Average percentage of empty miles
Average revenues per tractor per week (1)
Average % change in revenues per total mile (1)
Average % change in total miles per tractor per week
Average completed trip length in miles (loaded)
Dedicated
Trucking revenues, net of fuel surcharge (in 000’s)
Average tractors in service
Total tractors (at year end)
Average revenues per tractor per week (1)
(1) Net of fuel surcharge revenues
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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.
Werner Logistics segment (in thousands)
% Chg
Operating revenues
Operating expenses:
Purchased transportation expense
Other operating expenses
Total operating expenses
Operating income (loss)
Werner Logistics segment
% Chg
Average tractors in service
Total tractors (at year end)
Total trailers (at year end)
Total containers (at year end)
2025 Compared to 2024
Operating Revenues and Operating Profitability
Operating revenues decreased $55.9 million, or 1.8%, in 2025 compared to 2024. When comparing 2025 to 2024, TTS segment revenues decreased $86.3 million, or 4.0%, and Werner Logistics segment revenues increased $25.5 million, or 3.1%. We had operating income of $11.7 million in 2025 compared to $66.1 million in 2024, and our operating margin percentage decreased to 0.4% in 2025 from 2.2% in 2024. TTS segment had operating income of $16.4 million in 2025 compared to $75.2 million in 2024, and its operating margin percentage decreased to 0.8% in 2025 from 3.5% in 2024. Our consolidated and TTS segment operating results in 2025 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. These positive impacts were offset by $44.2 million of restructuring and impairment charges and an $18.0 million litigation settlement agreement plus $3.4 million of associated legal fees related to the consolidated class action lawsuits entitled Abarca et al. v. Werner . In fourth quarter 2025, we began a strategic of our One-Way Truckload business, a decisive action designed to significantly long-term and fleet utilization by maximizing production and mitigating freight. Key steps in this initiative included exiting selective regional and short-haul truckload freight, further integrating our one-way acquisition operations, and a further shift in the One-Way Truckload fleet composition toward more specialized, Expedited, and team capacity. This repositioning is focused on eliminating business. The resulted in a total charge of $44.2 million in the fourth quarter, of which $42.7 is considered non-cash. For additional information related to the and charges, legal proceedings and the contingent consideration arrangement, see Note 13, Note 12 and Note 6, respectively, in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K. Werner Logistics had operating income $6.7 million in 2025 compared to an operating of $0.9 million in 2024, and its operating margin percentage increased to 0.8% in 2025 from (0.1)% in 2024. The increase in Werner Logistics operating income and operating margin was due primarily to an increase in shipments with gross margin expansion.
We believe Dedicated retention and pipeline remains strong, as we are continuing to see steady momentum in adding new business. The implementation of new Dedicated fleets awarded in first quarter 2025 started in the later half of second quarter 2025, and continued to progress into the third quarter as we hired drivers and built the new fleets to targeted levels. Additional Dedicated fleet contracts were awarded in second quarter 2025. Overall demand was below normal seasonality for most of the second half of 2025, however One-Way Truckload demand improved throughout the same period. The 2025 peak season shipment volume was lower while 2025 peak revenue per shipment was flat compared to 2024. Spot freight rates trended positively in fourth quarter 2025 which is consistent with normal seasonality. Industry capacity has continued to contract following recent regulatory and enforcement actions related to non-domiciled commercial driver's licenses (“CDLs”), B1 Visas, and English Language Proficiency standards. As challenging operating conditions continue, we are also seeing an increase in bankruptcies in the trucking industry further limiting capacity.
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In the TTS segment, trucking revenues, net of fuel surcharge, decreased 2.9% to $1.78 billion in 2025 from $1.84 billion in 2024 due primarily to an 2.4% decrease in the average number of tractors in service and a 0.5% decrease in average revenues per tractor per week, net of fuel surcharge. TTS average revenues per tractor per week, net of fuel surcharge, decreased due primarily to a 2.1% decrease in One-Way Truckload average total miles per tractor per week, partially offset by a 0.8% increase in One-Way Truckload revenues per total mile, net of fuel surcharge. One-Way Truckload average tractors in service decreased 4.5% in 2025 compared to 2024. Dedicated average revenues per tractor per week, net of fuel surcharge, remained flat. Considering the freight market outlook, we expect average revenues per total mile, net of fuel surcharge, for the One-Way Truckload fleet to remain flat or increase up to 3% in the first half of 2026 when compared to the first half of 2025, and we expect Dedicated average revenues per tractor per week, net of fuel surcharge, to be in the range of a 1% decrease to a 2% increase in 2026 compared to 2025.
The average number of tractors in service in the TTS segment decreased 2.4% to 7,437 in 2025 compared to 7,619 in 2024. The prolonged weak freight market combined with the implementation of our One-Way Truckload restructuring plan resulted in fewer tractors at the end of 2025, as we ended 2025 with 7,100 tractors in the TTS segment, a year-over-year decrease of 350 tractors compared to the end of 2024. Within TTS, Dedicated ended 2025 with 4,850 tractors (or 68% of our total TTS segment fleet) compared to 4,840 tractors (or 65%) at the end of 2024. We currently expect our TTS segment fleet size at the end of 2026 to increase in a range of 23% to 28% when compared to the fleet size at the end of 2025, which includes FirstFleet tractors. 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 12.7% to $229.9 million in 2025 from $263.3 million in 2024 due primarily to the impact of 47.0 million fewer company tractor miles and lower average diesel fuel prices. These revenues represent collections from customers for the increase in fuel and fuel-related expenses, including the fuel component of our independent contractor cost (recorded as rent and purchased transportation expense) and fuel taxes (recorded in taxes and licenses expense), when diesel fuel prices rise. 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 DOE fuel price survey which is released every Monday. Our fuel surcharge programs are designed to (i) recoup higher fuel costs from customers when fuel prices rise and (ii) provide customers with the benefit of lower fuel costs when fuel prices decline. These programs generally enable us to recover a majority, but not all, of the fuel price increases. 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 $9.3 million in 2025 and $14.4 million in 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 revenues increased 3.1% to $856.9 million in 2025 from $831.3 million in 2024. Truckload Logistics revenues (75% of total Werner Logistics segment revenues) increased $13.1 million, or 2%, compared to 2024, driven by an increase in shipments. The PowerLink solution, which utilizes third-party carriers who provide only a driver and a tractor, represented a growing portion of Truckload Logistics operations in 2025. PowerLink revenues increased 11% in 2025 compared to 2024. Intermodal revenues (15% of total Werner Logistics segment revenues) increased $17.1 million, or 16%, in 2025, due to a 17% increase in shipments and flat revenue per shipment. Final Mile revenues (10% of total Werner Logistics segment revenues) decreased $4.7 million, or 5%, in 2025 due to lower volume for furniture and appliances.
Operating Expenses
Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 99.6% in 2025 compared to 97.8% in 2024. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 17 through 19 show the consolidated statements of income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, TTS and Werner Logistics.
Salaries, wages and benefits decreased $34.1 million, or 3.3%, in 2025 compared to 2024 and decreased 0.4% as a percentage of operating revenues. The lower dollar amount of salaries, wages and benefits expense in 2025 was due primarily to the impact of 47.0 million fewer company tractor miles and decreased non-driver pay, partially offset by the impact of an $18.0 million litigation settlement agreement discussed above. The $18.0 million litigation settlement is included in our TTS segment. The decrease in non-driver pay was due primarily to a smaller average number of non-driver employees, partially offset by
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severance expense of $1.3 million from cost saving initiatives. Non-driver salaries, wages and benefits in our non-trucking Werner Logistics segment decreased 12.0% in 2025 compared to 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 $27.6 million, or 10.0%, in 2025 compared to 2024 and decreased 0.8% as a percentage of operating revenues due to lower average diesel fuel prices and 47.0 million fewer company tractor miles in 2025. Average diesel fuel prices, excluding fuel taxes, for the full year 2025 were 12 cents per gallon lower than the full year 2024, a 5% decrease.
We continue to employ measures to improve our fuel mpg such as (i) limiting tractor engine idle time by installing auxiliary power units, (ii) optimizing the speed, weight and specifications of our equipment and (iii) implementing mpg-enhancing equipment changes to our fleet including new tractors, more aerodynamic tractor features, idle reduction systems, trailer tire inflation systems, trailer skirts and automated manual transmissions to reduce our fuel gallons purchased. 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. EPA SmartWay Transport Partner. The SmartWay Transport Partnership is a national voluntary program developed by the EPA and freight industry representatives to reduce greenhouse gases and air pollution and promote cleaner, more efficient ground freight transportation.
Through February 16, the average diesel fuel price per gallon in 2026 was 14 cents lower than the average diesel fuel price per gallon in the same period of 2025 and 10 cents lower than the average for first quarter 2025.
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 December 31, 2025, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.
Supplies and maintenance increased $2.2 million, or 0.9%, in 2025 compared to 2024 and increased 0.2% as a percentage of operating revenues. Supplies and maintenance expense increased due primarily to higher costs for tires and advertising, partially offset by lower costs for over-the-road tractor maintenance and the impact of 47.0 million fewer company tractor miles in 2025.
Taxes and licenses decreased $6.8 million, or 7.0%, in 2025 compared to 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 2025 was impacted by 47.0 million fewer company tractor miles.
Insurance and claims decreased $29.4 million, or 20.2%, in 2025 compared to 2024 and decreased 0.9% 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 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. We also incurred insurance and claims expense of $4.5 million in 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 $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 2025. For additional information related to this legal proceeding, see Note 12 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K. The impact of the liability reversal was partially offset by higher expense for liability . We had higher expense for large dollar liability , resulting primarily from higher amount of reserve development. Our expense for small dollar liability was also higher, primarily due to a lower amount of reserve development and
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higher expense for new claims. The expense for new claims was impacted by decreased cost per claim in 2025 compared to 2024. 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. In contrast to these trends, in 2025 we produced near 20-year record lows in DOT preventable accidents per million miles, trailing only 2023.
We renewed our liability insurance policies on August 1, 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 $4.1 million, or 1.4%, in 2025 compared to 2024 and remained 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. These decreases were partially offset by an increase in depreciation for trailers due to higher costs for recent specialty trailer purchases.
The average age of our tractor fleet remains low by industry standards and was 2.7 years as of December 31, 2025, and the average age of our trailers was 5.6 years. We continued 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 $58.0 million, or 6.9%, in 2025 compared to 2024 and increased 2.5% 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 $9.3 million in 2025 and $14.4 million in 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 $27.4 million as a result of higher logistics revenues, and increased to 85.8% as a percentage of Werner Logistics revenues in 2025 from 85.1% in 2024 due to the competitive operating environment in 2025.
Rent and purchased transportation expense for the TTS segment increased $18.9 million in 2025 compared to 2024 due primarily to more independent contractor miles, higher technology-related costs, and additional operational facility costs. Independent contractor miles increased 6.8 million miles in 2025 and as a percentage of total miles were 6.2% in 2025 compared to 4.9% in 2024. These increases were partially offset by lower reimbursements to independent contractors because of lower average diesel fuel prices in 2025. 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 $2.5 million in 2025 compared to 2024 and remained flat 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, partially offset by legal fees related to the Abarca et al. v. Werner litigation discussed above and increased bad debt expense. Gains on sales of property and equipment are reflected as a reduction of other operating expenses and are reported net of sales-related expenses (which include costs to prepare the equipment for sale). Gains on sales of property and equipment were $15.7 million in 2025 compared to $15.3 million, including $7.0 million from the sale of real estate, in 2024. We sold fewer tractors and trailers in 2025 compared to 2024 and realized much higher average gains per tractor and trailer, as used equipment values have been elevated due largely to global trade policy. We expect used equipment values to
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remain stable in the near term given manufacturing production constraints and the evolving regulatory environment that will be an incentive towards higher quality used assets, including assets with lower miles and remaining warranties.
Other Expense (Income)
Other expense, net of other income, increased $8.8 million in 2025 compared to 2024 due primarily to an $7.9 million decrease in the amount of net earnings recognized from our investments (see Note 7 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K for information regarding our investments). Net interest expense remained flat in 2025 compared to 2024 (see Note 8 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K for further information on our debt and interest rate swaps). We expect net interest expense to increase in 2026 compared to 2025, as we anticipate higher average outstanding debt in 2026 due primarily to the previously mentioned acquisition of FirstFleet.
Income Tax Expense
Income tax expense decreased $6.7 million in 2025 compared to 2024, due primarily to lower pre-tax income and a decrease in the effective income tax rate. Our effective income tax rate (income taxes expressed as a percentage of income (loss) before income taxes) decreased to (10.6)% in 2025 compared to 21.0% in 2024 due primarily to the impact of $4.7 million of unfavorable return to provision adjustments related to changes in deferred tax assets and liabilities for acquired entities and a subsidiary located in Mexico. We estimate our full year 2026 effective income tax rate to be approximately 25.5% to 26.5%.
2024 Compared to 2023
For a comparison of the Company’s results of operations for the fiscal year ended December 31, 2024 to the fiscal year ended December 31, 2023, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 26, 2025.
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 December 31, 2025 is strong. As of December 31, 2025, we had $59.9 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 $1.4 billion under our credit facilities, for which our total available borrowing capacity was $702.0 million as of December 31, 2025. 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.
Our material cash requirements include the following contractual and other obligations.
• Debt Obligations and Interest Payments – As of December 31, 2025, we had outstanding debt with an aggregate principal amount of $752.0 million, with none expected to be paid within 12 months. As of December 31, 2025, future interest payments associated with our debt obligations are estimated to be $87.8 million through 2028, with $40.7 million payable within 12 months. See Note 8 in the Notes to Consolidated Financial Statements under Item 8 of Part II of this Form 10-K for further detail of our credit facilities and the timing of expected future principal payments.
On January 27, 2026, we acquired 100% of the equity interests of FirstFleet for $245 million, which includes a maximum $35 million earnout based on gross revenue net of fuel surcharge for the period April 1, 2026, through March 31, 2027. Under a separate agreement, we also acquired real estate properties from FirstFleet for $37.8 million. We funded these transactions using cash on hand and our existing revolving credit facility. We also assumed finance leases estimated at $57.0 million. As of January 31, 2026, the total aggregate borrowings outstanding under our revolver and accounts receivable securitization facility was $884.6 million. Including the estimated value of the finance leases assumed, our total debt increased by $189.6 million during the month of January 2026 primarily as a result of the acquisition.
• Operating Leases – We have entered into operating leases primarily for real estate. As of December 31, 2025, we had fixed lease payment obligations of $46.1 million, with $17.1 million payable within 12 months. See Note 5 in the Notes to
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Consolidated Financial Statements under Item 8 of Part II of this Form 10-K for further detail of our lease obligations and the timing of expected future payments.
• Purchase Obligations – As of December 31, 2025, we have committed to property and equipment purchases of approximately $24.9 million within the next 12 months.
In addition to our cash requirements, the Board of Directors has authorized us to deliver value to stockholders through stock repurchases and quarterly cash dividends. The stock repurchase program does not obligate the Company to acquire any specific number of shares. We plan to continue paying a quarterly dividend, which currently results in a cash outlay of approximately $8.4 million per quarter.
Cash Flows
We generated cash flow from operations of $181.8 million during 2025, a 44.9% or $147.9 million decrease in cash flows compared to $329.7 million during 2024. The decrease in net cash provided by operating activities was due primarily to working capital changes and a decrease in net income and insurance,claims and other long-term accruals during 2025, partially offset by restructuring costs recorded in 2025. We were able to make net capital expenditures, repay debt, make strategic investments, pay dividends, and repurchase company stock with the net cash provided by operating activities and existing cash balances, supplemented by borrowings under our existing credit facility.
Net cash used in investing activities was $171.6 million during 2025 compared to $241.4 million during 2024. Net property and equipment additions (primarily revenue equipment) were $162.7 million during 2025 compared to $234.9 million during 2024. 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 resulted in net capital expenditures below our historical range in 2025. We currently estimate net capital expenditures (primarily revenue equipment) in 2026 to be in the range of $185 million to $255 million. We intend to fund these net capital expenditures through cash flows from operations and financing available under our existing credit facilities, if necessary.
Net financing activities provided $7.3 million during 2025 compared to using $105.7 million during 2024. We had net borrowings on our debt of $102.0 million during 2025, increasing our outstanding debt to $752.0 million at December 31, 2025. We had net borrowings on our debt of $1.3 million during 2024. We paid dividends of $34.1 million during 2025 and $35.1 million during 2024, and we currently plan to continue paying a quarterly dividend.
Financing activities for 2025 also included common stock repurchases of 2,113,007 shares at a cost of $55.6 million, including broker commissions and excise taxes. Financing activities for 2024 included common stock repurchases of 1,787,810 shares at a cost of $67.1 million, including broker commissions and excise taxes. On August 7, 2025, the Board of Directors approved a new stock repurchase program under which the Company is authorized to repurchase up to 5,000,000 shares of its common stock. Upon approval of the new program, the Board of Directors withdrew the previous stock repurchase authorization, which had 1,783,342 shares remaining available for repurchase. As of December 31, 2025, the Company had not purchased any shares pursuant to the new authorization and had 5,000,000 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.
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.
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. The accruals for bodily injury and property damage (current and non-current) are recorded at the estimated ultimate payment amounts and are based upon individual case estimates and actuarial estimates of loss development for reported losses and incurred-but-not-reported losses using loss development factors based upon past experience. In order to determine the loss development factors, we make judgments relating to the comparability of historical claims to current claims. These judgments consider the nature, frequency, severity, and age of , and industry, regulatory, and company-specific trends impacting the development of . An independent actuary reviews our calculation of the undiscounted self-insurance reserves for bodily and property
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claims at year-end. The actual cost to settle our self-insured claim liabilities can differ from our reserve estimates because of a number of uncertainties, including the inherent difficulty in estimating the severity of a claim and the potential amount to defend and settle a claim. We have not made any material changes in the accounting methodology or assumptions used to calculate our accrued liabilities for insurance and claims for bodily injury and property damage during the past three years. At December 31, 2025 and 2024, we had an accrual of $212.0 million and $330.6 million, respectively, for estimated insurance and claims for (i) cargo loss and damage, (ii) bodily injury and property damage, (iii) group health, and (iv) workers’ compensation claims not covered by insurance. A 10% change in actuarial estimates for insurance and for bodily and property at December 31, 2025, would have changed our insurance and accrual by approximately $14.6 million.
