WERNER ENTERPRISES INC (WERN)

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

•Business Acquisitions

•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.

Business Acquisitions:

We acquired the following entities in 2022:

•100% of ReedTMS on November 5, 2022. Freight brokerage and truckload revenues generated by ReedTMS are reported in our Werner Logistics segment and in Dedicated within our TTS segment, respectively.

•100% of Baylor on October 1, 2022. Revenues generated by Baylor are reported in One-Way Truckload within our TTS segment.

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

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.

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Revenues for the operating segments (Dedicated and One-Way Truckload) within our TTS reportable segment are typically generated on a per-mile basis and also include revenues such as stop charges, loading and unloading charges, equipment detention charges and equipment repositioning charges. To mitigate our risk to fuel price increases, we recover additional fuel surcharge revenues from our customers that generally recoup a majority of the increased fuel costs; however, we cannot assure that current recovery levels will continue in future periods. Because fuel surcharge revenues fluctuate in response to changes in fuel costs, we identify them separately and exclude them from the statistical calculations to provide a more meaningful comparison between periods. The key statistics used to evaluate trucking revenues, net of fuel surcharge, are (i) average revenues per tractor per week, (ii) One-Way Truckload average revenues per total mile, (iii) average percentage of empty miles (miles without trailer cargo), (iv) average trip length (in loaded miles) and (v) average number of tractors in service. General economic conditions, seasonal trucking industry freight patterns and industry capacity are important factors that impact these statistics. Our TTS segment also generates a small amount of revenues categorized as non-trucking revenues, which consist primarily of the intra-Mexico portion of cross-border shipments delivered to or from Mexico where the TTS segment utilizes a third-party capacity provider. We exclude such revenues from the statistical calculations.

Our most significant resource requirements are company drivers, independent contractors, tractors, and trailers with respect to our TTS segment and qualified third-party capacity providers with respect to our Werner Logistics segment. Independent contractors supply their own tractors and drivers and are responsible for their operating expenses. Our financial results are affected by company driver and independent contractor availability and the markets for new and used revenue equipment. We are self-insured for a significant portion of bodily injury, property damage and cargo claims; workers’ compensation claims; and associate health claims (supplemented by premium-based insurance coverage above certain dollar levels). For that reason, our financial results may also be affected by driver safety, medical costs, weather, legal and regulatory environments and insurance coverage costs to protect against catastrophic losses.

The operating ratio is a common industry measure used to evaluate our profitability and that of our TTS segment operating fleets. The operating ratio consists of operating expenses expressed as a percentage of operating revenues. The most significant variable expenses that impact the TTS segment are driver salaries and benefits, fuel, fuel taxes (included in taxes and licenses expense), payments to independent contractors (included in rent and purchased transportation expense), supplies and maintenance and insurance and claims. As discussed further in the comparison of operating results for 2024 to 2023, 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 facility, as management deems necessary.

We provide non-trucking services primarily through the three operating units within our Werner Logistics segment (Truckload Logistics, Intermodal, and Final Mile). Unlike our TTS segment, the Werner Logistics segment is less asset-intensive and is instead dependent upon qualified associates, information systems and qualified third-party capacity providers. The largest expense item related to the Werner Logistics segment is the cost of purchased transportation we pay to third-party capacity providers. This expense item is recorded as rent and purchased transportation expense. Other operating expenses consist primarily of salaries, wages and benefits, as well as depreciation and amortization, supplies and maintenance, and other general expenses. We evaluate the Werner Logistics segment’s financial performance by reviewing operating expenses and operating income expressed as a percentage of revenues. Purchased transportation expenses as a percentage of revenues can be impacted by the rates charged to customers and the costs of securing third-party capacity. We have a mix of contracted long-term rates and variable rates for the cost of third-party capacity, and we cannot assure that our operating results will not be adversely impacted in the future if our ability to obtain qualified third-party capacity providers changes or the rates of such providers increase.

At the end of 2024, we believe we are well positioned with a strong balance sheet and sufficient liquidity. Our debt is at $650 million, or a net debt ratio (debt less cash) of 1.6 times earnings before interest, income taxes, depreciation and amortization for the year ended December 31, 2024. We had available liquidity of $460 million, considering cash and cash equivalents on hand and available borrowing capacity of $419 million. As of December 31, 2024, we were in compliance with our debt covenants and expect to continue to be in compliance in 2025. We currently plan to continue paying our quarterly dividend, which we have paid quarterly since 1987. This cash outlay currently results in approximately $9 million per quarter. Net capital expenditures (primarily revenue equipment) in 2025 currently are expected to be in the range of $185 million to $235 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.

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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.

(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, as well as certain statistical data regarding the Werner Logistics segment.

2024 Compared to 2023

Operating Revenues

Operating revenues decreased 7.7% in 2024 compared to 2023. When comparing 2024 to 2023, TTS segment revenues decreased $172.5 million, or 7.5%. Revenues for the Werner Logistics segment decreased $79.1 million, or 8.7%.

While Dedicated customer retention rate and pipeline of opportunities remained strong throughout 2024, the first half of the year experienced a decline in the Dedicated fleet from isolated losses as a result of pricing discipline, followed by greater stability in the fleet during the second half of the year. In One-Way Truckload, our pricing discipline, combined with better freight options and strong miles per tractor, led to a 6.4% increase in average revenues per tractor per week, net of fuel surcharge during 2024. Werner Logistics revenues and profitability continue to be impacted by ongoing pricing pressure. The potential implementation of tariffs on goods imported from China, Mexico, and Canada are expected to impact supply chains, although, it is difficult to forecast the depth and duration of these impacts since the tariff policies continue to evolve. Absent uncertainties related to tariff policies, we anticipate a challenging but improving environment in 2025.

Trucking revenues, net of fuel surcharge, decreased 5.8% in 2024 compared to 2023 due to an 8.5% decrease in the average number of tractors in service, partially offset by a 3.0% increase in average revenues per tractor per week, net of fuel surcharge. During 2024, One-Way Truckload average revenues per total mile, net of fuel surcharge, decreased 1.2%. Despite an 11.4% decline in One-Way Truckload average tractors in service, One-Way Truckload total miles were only down 4.7%, due to the impact of a 7.6% increase in average total miles per tractor per week in 2024. Dedicated average revenues per tractor per week, net of fuel surcharge, increased 1.1%. Considering the freight market outlook, we expect average revenues per total mile, net of fuel surcharge, for the One-Way Truckload fleet to increase in a range of 1% to 4% in the first half of 2025 when compared to the first half of 2024, and we expect Dedicated average revenues per tractor per week, net of fuel surcharge, to remain flat or increase up to 3% in 2025 compared to 2024. TTS had operating income of $75.2 million in 2024 compared to $169.3 million in 2023, and its operating margin percentage decreased to 3.5% in 2024 from 7.3% in 2023. We believe rate improvements, as a result of our continued pricing discipline, will be the greatest lift to TTS operating margins going forward.

The average number of tractors in service in the TTS segment decreased 8.5% to 7,619 in 2024 compared to 8,326 in 2023. The prolonged weak freight market combined with the impact from certain fleet losses as a result of maintaining our pricing and operating margin discipline resulted in fewer tractors at the end of 2024. We ended 2024 with 7,450 tractors in the TTS segment, a year-over-year decrease of 550 tractors compared to the end of 2023. Within TTS, Dedicated ended 2024 with 4,840 tractors (or 65% of our total TTS segment fleet) compared to 5,265 tractors (or 66%) at the end of 2023. We currently expect our TTS segment fleet size at the end of 2025 to increase in a range of 1% to 5% when compared to the fleet size at the end of 2024, with more weighted to the second half of the year. We cannot predict whether future driver shortages, if any, would have a further adverse effect on our fleet size. If such a driver market shortage were to occur, it could result in further fleet size reductions, and our results of operations could be adversely affected.

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

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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 operating units. Werner Logistics recorded revenue and brokered freight expense of $14.4 million in 2024 and $17.7 million in 2023 for certain shipments performed by the TTS segment (also recorded as trucking revenue by the TTS segment), and these transactions between reporting segments are eliminated in consolidation. Werner Logistics revenues decreased 8.7% to $831.3 million in 2024 from $910.4 million in 2023. Truckload Logistics revenues (76% of total Werner Logistics segment revenues) decreased $72.1 million, or 10%, compared to 2023, driven by a decrease in shipments and a decline in revenue per shipment. The Power Only solution, which utilizes third-party carriers who provide only a driver and a tractor, represented a growing portion of the Truckload Logistics volume in 2024, as Power Only volumes increased over 24% in 2024 compared to 2023. Intermodal revenues (13% of total Werner Logistics segment revenues) increased $2.3 million, or 2%, in 2024, due to an increase in shipments, partially offset by a decline in revenue per shipment. Final Mile revenues (11% of total Werner Logistics segment revenues) decreased $9.2 million, or 9%, in 2024 due to lower volume for furniture and appliances. Werner Logistics had an operating loss of $0.9 million in 2024 compared to operating income of $15.9 million in 2023, and its operating margin percentage decreased to (0.1)% in 2024 from 1.7% in 2023. The operating environment continues to be competitive, which is pressuring Werner Logistics operating margins.

Operating Expenses

Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 97.8% in 2024 compared to 94.6% in 2023. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 18 through 20 show the consolidated statements of income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, TTS and Werner Logistics.

Salaries, wages and benefits decreased $37.7 million, or 3.5%, in 2024 compared to 2023 and increased 1.4% as a percentage of operating revenues. The lower dollar amount of salaries, wages and benefits expense in 2024 was due primarily to the impact of 38.7 million fewer company tractor miles and decreased non-driver pay, partially offset by higher benefit costs resulting primarily from elevated health care claims. The decrease in non-driver pay was due primarily to a smaller average number of non-driver employees. Non-driver salaries, wages and benefits in our non-trucking Werner Logistics segment decreased 8.5% in 2024 compared to 2023.

We renewed our workers’ compensation insurance coverage on April 1, 2024. 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 2024 are $0.3 million higher than the previous policy year.

While we currently believe the driver recruiting and retention market may be less difficult in the near term, a competitive driver market presents labor challenges for customers and carriers alike. 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 $69.6 million, or 20.2%, in 2024 compared to 2023 and decreased 1.4% as a percentage of operating revenues due to lower average diesel fuel prices and 38.7 million fewer company tractor miles in 2024. Average diesel fuel prices, excluding fuel taxes, for the full year 2024 were 42 cents per gallon lower than the full year 2023, a 14% decrease.

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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 2025 was approximately 21 cents lower than the average diesel fuel price per gallon in the same period of 2024 and approximately 26 cents lower than the average for first quarter 2024.

Shortages of fuel, increases in fuel prices and petroleum product rationing can have a material adverse effect on our operations and profitability. 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, 2024, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

Supplies and maintenance decreased $10.4 million, or 4.1%, in 2024 compared to 2023 and increased 0.3% as a percentage of operating revenues. Supplies and maintenance expense decreased due primarily to lower driver and placement driver-related costs such as lodging, driver advertising, and maintenance supplies, lower costs for tires and over-the-road repairs, and the impact of 38.7 million fewer company tractor miles in 2024. These decreases were partially offset by higher costs for tolls. We have taken steps to reduce repair and maintenance expense by growing our in-house maintenance capabilities throughout our terminal network.

Insurance and claims increased $6.9 million, or 5.0%, in 2024 compared to 2023 and increased 0.6% as a percentage of operating revenues. We had higher expense for large dollar liability claims, primarily due to a higher amount of unfavorable reserve development and higher expense for new claims. These increases were partially offset by lower expense for small dollar liability claims, resulting primarily from a higher amount of favorable reserve development and lower expense for new claims. We also incurred insurance and claims expense of $4.5 million and $5.7 million in 2024 and 2023, respectively, for accrued interest related to a previously-disclosed adverse jury verdict rendered on May 17, 2018, which we are continuing to defend. Interest is accrued at $0.5 million per month until such time as the outcome of the litigation is finalized, excluding months where the plaintiffs requested an extension of time to respond to our petition to review. For additional information related to this lawsuit, see Note 12 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K. The majority of our insurance and claims expense results from our claim experience and claim development under our self-insurance program; the remainder results from insurance premiums for claims in excess of our self-insured limits. Our elevated insurance and claims expense is a reflection of the ongoing unprecedented rise in verdicts and litigation settlements across the industry, particularly for larger carriers. In contrast to these trends, in 2024 we produced near 20-year record lows in DOT preventable accidents per million miles, trailing only 2023.

We renewed our liability insurance policies on August 1, 2024 and are responsible for the first $15.0 million per claim on all claims with an annual $7.5 million aggregate for claims between $15.0 million and $20.0 million. For the policy year that began August 1, 2023 we were responsible for the first $10.0 million per claim on all claims with an annual $12.5 million aggregate for claims between $10.0 million and $20.0 million. We maintain liability insurance coverage with insurance carriers in excess of the $15.0 million per claim. Our liability insurance premiums for the policy year that began August 1, 2024 are lower than premiums for the previous policy year as a result of changes in our retention level and aggregate insurance limits.

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

The average age of our tractor fleet remains low by industry standards and was 2.1 years as of December 31, 2024, and the average age of our trailers was 5.3 years. We continued to invest in new tractors and trailers, technology, and our terminal network in 2024 to improve our driver experience, increase operational efficiency and more effectively manage our maintenance, safety and fuel costs.

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

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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 $14.4 million in 2024 and $17.7 million in 2023 for certain shipments performed by the TTS segment (also recorded as trucking revenue by the TTS segment), and these transactions between reporting segments are eliminated in consolidation. Werner Logistics purchased transportation expense decreased $54.5 million as a result of lower logistics revenues, but increased to 85.1% as a percentage of Werner Logistics revenues in 2024 from 83.7% in 2023 due to the competitive operating environment in 2024.

Rent and purchased transportation expense for the TTS segment increased $9.8 million in 2024 compared to 2023 due primarily to higher cloud-based technology fees, more independent contractor miles, and additional operational facility costs. These increases were partially offset by lower reimbursements to independent contractors because of lower average diesel fuel prices in 2024. Independent contractor miles increased 0.8 million miles in 2024 and as a percentage of total miles were 4.9% in 2024 compared to 4.6% in 2023. Because independent contractors supply their own tractors and drivers and are responsible for their operating expenses, the increase in independent contractor miles as a percentage of total miles shifted costs from other expense categories, including (i) salaries, wages and benefits, (ii) fuel, (iii) depreciation, (iv) supplies and maintenance and (v) taxes and licenses to the rent and purchased transportation category.

Challenging operating conditions continue to make independent contractor recruitment and retention difficult. Such conditions include inflationary cost increases that are the responsibility of independent contractors and a shortage of financing available to independent contractors for equipment purchases. Historically, we have been able to add company tractors and recruit additional company drivers to offset any decrease in the number of independent contractors. If a shortage of independent contractors and company drivers were to occur, increases in per-mile settlement rates (for independent contractors) and driver pay rates (for company drivers) may become necessary to attract and retain these drivers. These increased expenses could negatively affect our results of operations to the extent that we would not be able to obtain corresponding freight rate increases.

Other operating expenses increased $25.1 million in 2024 compared to 2023 and increased 0.8% as a percentage of operating revenues due primarily to lower gains on sales of property and equipment (primarily used tractors and trailers) and the impact of a $2.7 million net favorable change to a contingent earnout in 2023 related to the ReedTMS acquisition. These increases were partially offset by decreased costs associated with professional technology services and decreased bad debt expense. Gains on sales of property and equipment are reflected as a reduction of other operating expenses and are reported net of sales-related expenses (which include costs to prepare the equipment for sale). Gains on sales of property and equipment were $15.3 million in 2024, including $7.0 million from the sale of real estate, compared to $42.4 million in 2023. In 2024, we sold fewer tractors and substantially more trailers than in 2023 and realized lower average gains per tractor and trailer due to lower pricing in the market for our used equipment. For the used tractor and trailer market, we expect stable demand and pricing through the first half of 2025, with moderate improvement in the second half of the year as a result of an improving operating environment, along with upcoming environmental regulations as carriers look to upgrade their fleets and prepare for these mandates. In 2025, we plan to sell fewer tractors and trailers at higher prices, resulting in expected gains on our used equipment to range between $8 million and $18 million.

Other Expense (Income)

Other expense, net of other income, decreased $5.0 million in 2024 compared to 2023 due primarily to an $8.2 million increase in the amount of gains on our investments in equity securities and a $1.6 million increase in the amount of earnings from our equity method investment (see Note 7 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K for information regarding our investments), partially offset by a $5.5 million increase in net interest expense. Net interest expense increased due to the impact of replacing lower-cost debt and interest rate swaps with higher-cost debt and interest rate swaps upon certain maturities in 2024 and higher interest rates for variable-rate debt, partially offset by a decrease in average debt outstanding. In May 2024, we repaid the remaining outstanding principal balance under the BMO Term Loan using proceeds from the 2022 Credit Agreement, and two variable-for-fixed interest rate swap agreements with an aggregate notional amount of $150.0 million matured. Subsequent to May 2024, we entered into three variable-for-fixed interest rate swap agreements with an aggregate notional amount of $225.0 million to limit our exposure to increases in interest rates on a portion of our variable-rate indebtedness (see Note 8 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K for further information on our debt and interest rate swaps). We expect net interest expense to be flat in 2025 compared to 2024, higher in the first half and lower in the second half of 2025.

Income Tax Expense

Income tax expense decreased $26.6 million in 2024 compared to 2023, due primarily to lower pre-tax income and a decrease in the effective income tax rate. Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) was 21.0% in 2024 compared to 24.0% in 2023. The lower income tax rate was attributed primarily to certain discrete

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return-to-provision adjustments for a prior year. We currently estimate our full year 2025 effective income tax rate to be approximately 25.0% to 26.0%.

2023 Compared to 2022

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

Liquidity and Capital Resources:

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, 2024 is strong. As of December 31, 2024, we had $40.8 million of cash and cash equivalents and $1.5 billion of stockholders’ equity. Cash is invested primarily in short-term money market funds. In addition, we have a $1.075 billion credit facility, for which our total available borrowing capacity was $419.1 million as of December 31, 2024. We believe the six commercial banks in our $1.075 billion syndicated credit facility all have strong tier-one capital ratios and good loan-to-deposit ratios. We believe our liquid assets, cash generated from operating activities, and borrowing capacity under our existing credit facility will provide sufficient funds to meet our cash requirements and our planned 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, 2024, we had outstanding debt with an aggregate principal amount of $650.0 million, with $20.0 million expected to be paid within 12 months. Future interest payments associated with our debt obligations are estimated to be $120.4 million through 2028, with $39.7 million payable within 12 months. 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 debt and the timing of expected future principal payments.

•Operating Leases – We have entered into operating leases primarily for real estate. As of December 31, 2024, we had fixed lease payment obligations of $57.3 million, with $17.4 million payable within 12 months. See Note 5 in the Notes to 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, 2024, we have committed to property and equipment purchases of approximately $47.7 million within the next 12 months.

In addition to our cash requirements, the Board of Directors has authorized us to deliver value to 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 $9 million per quarter.

Cash Flows

We generated cash flow from operations of $329.7 million during 2024, a 30.5% or $144.6 million decrease in cash flows compared to $474.4 million during 2023. The decrease in net cash provided by operating activities was due primarily to a decrease in net income during 2024 and working capital changes. We were able to make net capital expenditures, repay debt, make strategic investments, pay dividends, and repurchase company stock with the net cash provided by operating activities and existing cash balances, supplemented by borrowings under our existing credit facility.

Net cash used in investing activities was $241.4 million during 2024 compared to $434.9 million during 2023. Net property and equipment additions (primarily revenue equipment) were $234.9 million during 2024 compared to $408.7 million during 2023. We currently estimate net capital expenditures (primarily revenue equipment) in 2025 to be in the range of $185 million to $235 million, which is lower than historical ranges as our portfolio evolves to be more asset light. We intend to fund these net capital expenditures through cash flows from operations and financing available under our existing credit facility, if necessary. During 2023, we purchased a $25.0 million subordinated promissory note from Mastery Logistics Systems, Inc. with a maturity date of

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

Net financing activities used $105.7 million during 2024 compared to $87.1 million during 2023. We had net borrowings on our debt of $1.3 million during 2024, slightly increasing our outstanding debt to $650.0 million at December 31, 2024. We had net repayments on our debt of $45.0 million during 2023. We paid dividends of $35.1 million during 2024 and $34.2 million during 2023. We increased our quarterly dividend rate by $0.01 per share, or 8%, beginning with the quarterly dividend paid in July 2023.

Financing activities for 2024 also included common stock repurchases of 1,787,810 shares at a cost of $67.1 million. We did not repurchase any shares of common stock in 2023. On May 14, 2024, the Board of Directors approved a new stock repurchase program under which the Company is authorized to repurchase up to 5,000,000 shares of its common stock. Upon approval of the new program, the Board of Directors withdrew the previous stock repurchase authorization, which had 1,627,651 shares remaining available for repurchase. As of December 31, 2024, the Company had purchased 1,103,651 shares pursuant to the new authorization and had 3,896,349 shares remaining available for repurchase. The Company has repurchased, and may continue to repurchase, shares of the Company’s common stock. 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 claims, and industry, regulatory, and company-specific trends impacting the development of claims. An independent actuary reviews our calculation of the undiscounted self-insurance reserves for bodily injury and property damage 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, 2024 and 2023, we had an accrual of $330.6 million and $321.5 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 claims for bodily injury and property damage at December 31, 2024, would have changed our insurance and claims accrual by approximately $26.0 million.

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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

•Business Acquisitions

•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.

Business Acquisitions:

We acquired the following entities in 2022 and 2021:

•100% of ReedTMS on November 5, 2022. Freight brokerage and truckload revenues generated by ReedTMS are reported in our Werner Logistics segment and in Dedicated within our TTS segment, respectively.

•100% of Baylor on October 1, 2022. Revenues generated by Baylor are reported in One-Way Truckload within our TTS segment.

•100% of NEHDS on November 22, 2021. Revenues generated by NEHDS are reported in Final Mile within our Werner Logistics segment.

•80% of ECM on July 1, 2021. Revenues generated by ECM are reported in One-Way Truckload within our TTS segment.

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

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

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in customer transportation requirements is essential to efficiently deploy resources and make capital investments in tractors and trailers (with respect to our TTS segment) or obtain qualified third-party capacity at a reasonable price (with respect to our Werner Logistics segment). We may also be affected by our customers’ financial failures or loss of customer business.

Revenues for our TTS segment operating units (Dedicated and One-Way Truckload) are typically generated on a per-mile basis and also include revenues such as stop charges, loading and unloading charges, equipment detention charges and equipment repositioning charges. 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) average percentage of empty miles (miles without trailer cargo), (iii) average trip length (in loaded miles) and (iv) average number of tractors in service. General economic conditions, seasonal trucking industry freight patterns and industry capacity are important factors that impact these statistics. Our TTS segment also generates a small amount of revenues categorized as non-trucking revenues, which consist primarily of the intra-Mexico portion of cross-border shipments delivered to or from Mexico where the TTS segment utilizes a third-party capacity provider. We exclude such revenues from the statistical calculations.

Our most significant resource requirements are company drivers, independent contractors, tractors, and trailers with respect to our TTS segment and qualified third-party capacity providers with respect to our Werner Logistics segment. Independent contractors supply their own tractors and drivers and are responsible for their operating expenses. Our financial results are affected by company driver and independent contractor availability and the markets for new and used revenue equipment. We are self-insured for a significant portion of bodily injury, property damage and cargo claims; workers’ compensation claims; and associate health claims (supplemented by premium-based insurance coverage above certain dollar levels). For that reason, our financial results may also be affected by driver safety, medical costs, weather, legal and regulatory environments and insurance coverage costs to protect against catastrophic losses.

The operating ratio is a common industry measure used to evaluate our profitability and that of our TTS segment operating fleets. The operating ratio consists of operating expenses expressed as a percentage of operating revenues. The most significant variable expenses that impact the TTS segment are driver salaries and benefits, fuel, fuel taxes (included in taxes and licenses expense), payments to independent contractors (included in rent and purchased transportation expense), supplies and maintenance and insurance and claims. As discussed further in the comparison of operating results for 2023 to 2022, 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 equipment licensing fees (included in taxes and licenses expense). 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 facility, as management deems necessary.

We provide non-trucking services primarily through the three operating units within our Werner Logistics segment (Truckload Logistics, Intermodal, and Final Mile). In first quarter 2021, we completed the sale of the Werner Global Logistics (“WGL”) freight forwarding services for international ocean and air shipments to Scan Global Logistics Group. WGL had annual revenues of $53 million in 2020, and we realized a $1.0 million gain from the sale in first quarter 2021, which assumed achievement of the full earnout. At the end of the twelve-month period following the completed sale of WGL, the full earnout was achieved. Unlike our TTS segment, the Werner Logistics segment is less asset-intensive and is instead dependent upon qualified associates, information systems and qualified third-party capacity providers. 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 2023, we believe we are well positioned with a strong balance sheet and sufficient liquidity. Our debt is at $649 million, or a net debt ratio (debt less cash) of 1.2 times earnings before interest, income taxes, depreciation and amortization for the year ended December 31, 2023. We had available liquidity of $526 million, considering cash and cash equivalents on hand and available borrowing capacity of $464 million. As of December 31, 2023, we were in compliance with our debt covenants and expect to continue to be in compliance in 2024. We currently plan to continue paying our quarterly dividend, which we

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have paid quarterly since 1987. This cash outlay currently results in nearly $9 million per quarter. Net capital expenditures (primarily revenue equipment) in 2024 currently are expected to be in the range of $260 million to $310 million.

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.

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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 the One-Way Truckload and Dedicated operating units within TTS.

(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, as well as certain statistical data regarding the Werner Logistics segment.

2023 Compared to 2022

Operating Revenues

Operating revenues decreased 0.2% in 2023 compared to 2022. When comparing 2023 to 2022, TTS segment revenues decreased $117.9 million, or 4.9%. Revenues for the Werner Logistics segment increased $116.9 million or 14.7%.

Dedicated continues to experience steady demand from the majority of our long-term customers, and our Dedicated pipeline of new opportunities remains healthy. In 2024, we expect freight demand to remain steady in Dedicated and be seasonally weaker for One-Way Truckload and Werner Logistics early in the year, and then improve in the second half of the year, as capacity exits the market and retail inventory replenishments reset to normalized levels.

Trucking revenues, net of fuel surcharge, decreased 1.7% in 2023 compared to 2022 due to a 1.3% decrease in the average number of tractors in service and a 0.4% decrease in average revenues per tractor per week, net of fuel surcharge. During 2023, One-Way Truckload average revenues per total mile, net of fuel surcharge, decreased 5.5%, as One-Way Truckload was challenged by elevated transactional spot rate exposure and pricing pressure. We expect ongoing pricing pressure for One-Way Truckload during the early part of 2024, then moderating later in the year. Dedicated average revenues per tractor per week, net of fuel surcharge, increased 1.5%. Considering the freight market outlook, we expect average revenues per total mile, net of fuel surcharge, for the One-Way Truckload fleet to decrease in a range of 6% to 3% in the first half of 2024 when compared to the first half of 2023, and we expect Dedicated average revenues per tractor per week, net of fuel surcharge, to remain flat or increase up to 3% in 2024 compared to 2023.

The average number of tractors in service in the TTS segment decreased 1.3% to 8,326 in 2023 compared to 8,437 in 2022, as we decreased our fleet size to adjust to the challenging freight market conditions. We ended 2023 with 8,000 tractors in the TTS segment, a year-over-year decrease of 600 tractors. Our Dedicated unit ended 2023 with 5,265 tractors (or 66% of our total TTS segment fleet) compared to 5,450 tractors (or 63%) at the end of 2022. We currently expect our fleet size at the end of 2024 to remain flat or decrease up to 3% when compared to the fleet size at the end of 2023, with potential for growth in our Dedicated unit in the second half of the year. We cannot predict whether future driver shortages, if any, will adversely affect our ability to maintain our fleet size. If such a driver market shortage were to occur, it could result in a fleet size reduction, and our results of operations could be adversely affected.

Trucking fuel surcharge revenues decreased 20.7% to $332.4 million in 2023 from $419.2 million in 2022 due primarily to lower average diesel fuel prices. These revenues represent collections from customers for the increase in fuel and fuel-related expenses, including the fuel component of our independent contractor cost (recorded as rent and purchased transportation expense) and fuel taxes (recorded in taxes and licenses expense), when diesel fuel prices rise. 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

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remaining portion is generally not recoverable because it results from empty and out-of-route miles (which are not billable to customers) and tractor idle time. Fuel prices that change rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes once per week.

Werner Logistics revenues are generated by its three operating units. Werner Logistics revenues exclude revenues for full truckload shipments transferred to the TTS segment, which are recorded as trucking revenues by the TTS segment. Werner Logistics also recorded revenue and brokered freight expense of $17.7 million in 2023 and $5.2 million in 2022 for shipments performed by the TTS segment (also recorded as trucking revenue by the TTS segment), and these transactions between reporting segments are eliminated in consolidation. Werner Logistics revenues increased 14.7% to $910.4 million in 2023 from $793.5 million in 2022 primarily due to growth from the November 2022 ReedTMS acquisition. Truckload Logistics revenues (77% of total Werner Logistics revenues) increased 32% driven by an increase in shipments due to the ReedTMS acquisition, partially offset by a decline in revenue per shipment. Intermodal revenues (12% of total Werner Logistics revenues) decreased 38% due to a decline in shipments and lower revenue per shipment. Final Mile revenues (11% of total Werner Logistics revenues) increased $11.0 million, or 12%, despite a softer market for discretionary spending on big and bulky products. Werner Logistics operating income decreased to $15.9 million in 2023 from $36.2 million in 2022 and operating margin percentage decreased to 1.7% in 2023 from 4.6% in 2022, due to a competitive pricing environment. In 2024, we expect Truckload Logistics margins will remain challenged in the near term, but may improve later in the year from further synergies realized from the integration of our acquired companies. We also expect to continue to generate double-digit revenue growth in Werner Logistics in 2024, while getting back to a mid-single digit operating margin percentage entering into 2025.

Operating Expenses

Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 94.6% in 2023 compared to 90.2% in 2022. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 18 through 20 show the consolidated statements of income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the prior year, as well as the operating ratios, operating margins and certain statistical information for our two reportable segments, TTS and Werner Logistics.

Salaries, wages and benefits increased $51.9 million or 5.1% in 2023 compared to 2022 and increased 1.7% as a percentage of operating revenues. The higher dollar amount of salaries, wages and benefits expense in 2023 was due primarily to increased non-driver pay, higher driver pay from 3.4 million more company tractor miles, and higher benefit costs. The increase in non-driver pay was primarily due to a larger average number of non-driver employees, including the impact from our ReedTMS and Baylor acquisitions. Non-driver salaries, wages and benefits in our non-trucking Werner Logistics segment increased 37.2%, primarily as a result of the ReedTMS acquisition.

We renewed our workers’ compensation insurance coverage on April 1, 2023. 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 2023 were flat compared to 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 $92.3 million or 21.1% in 2023 compared to 2022 and decreased 2.8% as a percentage of operating revenues due to much lower average diesel fuel prices, partially offset by 3.4 million more company tractor miles in 2023. Average diesel fuel prices, excluding fuel taxes, for the full year 2023 were 80 cents lower than the full year 2022, a 22% decrease.

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

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

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

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, 2023, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

Supplies and maintenance increased $3.4 million or 1.3% in 2023 compared to 2022 and increased 0.1% as a percentage of operating revenues. Supplies and maintenance expense increased due to higher costs for over-the-road repairs and the impact of 3.4 million more company tractor miles in 2023. We have taken steps to reduce repair and maintenance expense by growing our in-house maintenance capabilities throughout our terminal network. We are also developing digital solutions to further optimize the routing and scheduling of tractors and trailers for preventive maintenance.

Insurance and claims decreased $8.8 million or 6.0% in 2023 compared to 2022 and decreased 0.3% as a percentage of operating revenues, due primarily to lower expense for large dollar liability claims resulting from a lower amount of unfavorable reserve development and lower new claims, partially offset by higher expense for new small dollar liability claims, increasing cost-per-claim, and increased cost for repairs. The majority of the higher unfavorable reserve development in 2022 related to unexpected and unfortunate legal developments for two prior year motor vehicle accidents that have been settled, including a settlement of a lawsuit in Texas arising from a May 24, 2020 accident for which we recognized $9.5 million of insurance and claims expense in 2022. We also incurred insurance and claims expense of $5.7 million and $5.4 million in 2023 and 2022, respectively, for accrued interest related to a previously-disclosed adverse jury verdict rendered on May 17, 2018, which we are appealing (see Note 12 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K). Interest will continue to accrue monthly until such time as the outcome of our appeal is finalized. The majority of our insurance and claims expense results from our claim experience and claim development under our self-insurance program; the remainder results from insurance premiums for claims in excess of our self-insured limits. In 2023, we achieved our lowest DOT preventable accident rate per million miles in the last 19 years.

We renewed our liability insurance policies on August 1, 2023 and are responsible for the first $10.0 million per claim on all claims with an annual $12.5 million aggregate for claims between $10.0 million and $20.0 million. For the policy year that began August 1, 2022 we were responsible for the first $10.0 million per claim on all claims with an annual $10.0 million aggregate for claims between $10.0 million and $20.0 million. We maintain liability insurance coverage with insurance carriers in excess of the $10.0 million per claim. Our liability insurance premiums for the policy year that began August 1, 2023 are $1.0 million higher than premiums for the previous policy year.

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

The average age of our tractor fleet remains low by industry standards and was 2.1 years as of December 31, 2023, and the average age of our trailers was 4.9 years. We continued to invest in new tractors and trailers and our terminals in 2023 to improve our driver experience, increase operational efficiency and more effectively manage our maintenance, safety and fuel costs. In 2024, we expect the average age of our tractor and trailer fleets to remain at or near current levels.

Rent and purchased transportation expense increased $108.8 million or 14.0% in 2023 compared to 2022 and increased 3.4% as a percentage of operating revenues. Rent and purchased transportation expense consists mostly of payments to third-party capacity providers in the Werner Logistics segment and other non-trucking operations, payments to independent contractors in the TTS segment, and cloud-based technology fees. The payments to third-party capacity providers generally vary depending on changes in the volume of services generated by the Werner Logistics segment. Werner Logistics recorded revenue and brokered freight expense of $17.7 million in 2023 and $5.2 million in 2022 for shipments performed by the TTS segment (also recorded as trucking revenue by the TTS segment), and these transactions between reporting segments are eliminated in consolidation. Werner Logistics purchased transportation expense increased $108.8 million as a result of higher logistics revenues, including the ReedTMS logistics business, and increased to 83.7% as a percentage of Werner Logistics revenues in 2023 from 82.3% in 2022.

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

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reimbursements to independent contractors because of lower average diesel fuel prices. Independent contractor miles increased 1.3 million miles in 2023 and as a percentage of total miles were 4.6% in 2023 compared to 4.5% in 2022. Because independent contractors supply their own tractors and drivers and are responsible for their operating expenses, the increase in independent contractor miles as a percentage of total miles shifted costs from other expense categories, including (i) salaries, wages and benefits, (ii) fuel, (iii) depreciation, (iv) supplies and maintenance and (v) taxes and licenses to the rent and purchased transportation category.

Challenging operating conditions continue to make independent contractor recruitment and retention difficult. Such conditions include inflationary cost increases that are the responsibility of independent contractors and a shortage of financing available to independent contractors for equipment purchases. Historically, we have been able to add company tractors and recruit additional company drivers to offset any decrease in the number of independent contractors. If a shortage of independent contractors and company drivers were to occur, increases in per-mile settlement rates (for independent contractors) and driver pay rates (for company drivers) may become necessary to attract and retain these drivers. These increased expenses could negatively affect our results of operations to the extent that we would not be able to obtain corresponding freight rate increases.

Other operating expenses increased $50.2 million in 2023 compared to 2022 and increased 1.5% as a percentage of operating revenues due primarily to lower gains on sales of property and equipment (primarily used tractors and trailers), and increased costs associated with professional technology services related to our multi-year technology and innovation strategy. Gains on sales of property and equipment are reflected as a reduction of other operating expenses and are reported net of sales-related expenses (which include costs to prepare the equipment for sale). Gains on sales of property and equipment were $42.4 million in 2023, compared to $88.6 million in 2022. In 2023, we sold significantly more tractors and trailers than in 2022 and realized substantially lower average gains per tractor and trailer due to lower pricing in the market for our used equipment, which we believe is due to decreased demand for our used equipment because of carriers increasingly exiting the trucking industry in 2023 due to the challenging freight market and an increase in the availability of new equipment due to fewer production delays in 2023 compared to 2022. For the used tractor and trailer market, we expect continued low demand with moderating pricing and equipment gains through the first half of 2024. As a result, we expect our gains on sales of property and equipment in 2024 to decrease to between $10 million and $30 million.

Other Expense (Income)

Other expense, net of other income, increased $30.3 million in 2023 compared to 2022 due primarily to a $16.7 million increase in net interest expense, a $12.5 million decrease in the amount of unrealized net gains recognized on our investments in equity securities, and a loss from our equity method investment of $1.0 million (see Note 7 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K for information regarding our investments). Net interest expense increased due to higher interest rates for variable rate debt and an increase in average debt outstanding. In July 2023, we entered into four additional variable-for-fixed interest rate swap agreements for a notional amount of $130.0 million to further limit our exposure to increases in interest rates on a portion of our variable-rate indebtedness (see Note 8 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K regarding these interest rate swaps). We expect net interest expense to increase up to $10 million in 2024 compared to 2023, primarily due to the repricing of the BMO Term Loan that is maturing in May 2024 and the impact of two interest rate swaps that are expiring in May 2024. We expect these increases in net interest expense to be partially offset by debt reduction during 2024.

Income Tax Expense

Income tax expense decreased $43.7 million in 2023 compared to 2022, due primarily to lower pre-tax income. The effective income tax rate (income taxes expressed as a percentage of income before income taxes) was 24.0% in 2023 compared to 24.4% in 2022. The lower income tax rate in 2023 was attributed primarily to a higher amount of favorable discrete income tax items in 2023, partially offset by the income tax effect of the noncontrolling interest. We currently estimate our full year 2024 effective income tax rate to be approximately 24.5% to 25.5%.

2022 Compared to 2021

For a comparison of the Company’s results of operations for the fiscal year ended December 31, 2022 to the fiscal year ended December 31, 2021, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the U.S. Securities and Exchange Commission on February 27, 2023.

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

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payments are components of our cash flow and capital management strategy, which to a large extent, can be adjusted in response to economic and other changes in the business environment. Management’s approach to capital allocation focuses on investing in key priorities that support our business and growth strategies and providing shareholder returns, while funding ongoing operations.

Management believes our financial position at December 31, 2023 is strong. As of December 31, 2023, we had $61.7 million of cash and cash equivalents and over $1.5 billion of stockholders’ equity. Cash is invested primarily in short-term money market funds. In addition, we have a $1.075 billion credit facility, for which our total available borrowing capacity was $463.9 million as of December 31, 2023. After considering recent developments in the banking sector, we believe the six commercial banks in our $1.075 billion syndicated credit facility all have strong tier-one capital ratios and good loan-to-deposit ratios. We believe our liquid assets, cash generated from operating activities, and borrowing capacity under our existing credit facility will provide sufficient funds to meet our cash requirements and our planned shareholder returns for the foreseeable future.

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

•Debt Obligations and Interest Payments – As of December 31, 2023, we had outstanding debt with an aggregate principal amount of $648.8 million, with $88.8 million payable within 12 months. We are currently planning to repay the remaining outstanding principal balance of $86.3 million under the BMO Term Loan in May 2024 using proceeds from the 2022 Credit Agreement. Future interest payments associated with our debt obligations are estimated to be $168.9 million through 2027, with $39.3 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 debt and the timing of expected future principal payments.

•Operating Leases – We have entered into operating leases primarily for real estate. As of December 31, 2023, we had fixed lease payment obligations of $40.3 million, with $10.1 million payable within 12 months. See Note 5 in the Notes to 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, 2023, we have committed to property and equipment purchases of approximately $107.9 million within the next 12 months.

In addition to our cash requirements, the Board of Directors has authorized us to deliver value to shareholders through stock repurchases and quarterly cash dividends. The stock repurchase program does not obligate the Company to acquire any specific number of shares. We plan to continue paying a quarterly dividend, which currently results in a cash outlay of nearly $9 million per quarter.

Cash Flows

We generated cash flow from operations of $474.4 million during 2023, a 5.7% or $25.7 million increase in cash flows compared to $448.7 million during 2022. The increase in net cash provided by operating activities was due primarily to working capital changes, including a decrease in accounts receivable days sales outstanding, offset by a decrease in net income during 2023. We were able to make net capital expenditures, make net repayments on our debt, make a strategic loan and investments, and pay dividends with the net cash provided by operating activities and existing cash balances.

Net cash used in investing activities was $434.9 million during 2023 compared to $514.3 million during 2022. Net cash invested in our business acquisitions was $0.2 million during 2023 compared to $184.1 million during 2022. Net property and equipment additions (primarily revenue equipment) were $408.7 million during 2023 compared to $317.6 million during 2022. We currently estimate net capital expenditures (primarily revenue equipment) in 2024 to be in the range of $260 million to $310 million. We intend to fund these net capital expenditures through cash flows from operations and financing available under our existing credit facility, if necessary. We also purchased a $25.0 million subordinated promissory note from Mastery Logistics Systems, Inc. on January 24, 2023, with a maturity date of January 24, 2030 (see Note 9 in the Notes to Consolidated Financial Statements under Item 8 of Part II of this Form 10-K for information regarding our notes receivable).

Net financing activities used $87.1 million during 2023 and provided $118.0 million during 2022. We had net repayments on our debt of $45.0 million during 2023, decreasing our outstanding debt to $648.8 million at December 31, 2023. We had net borrowings on our debt of $266.3 million during 2022, which a portion of the proceeds were used to finance our Baylor and ReedTMS acquisitions. We paid dividends of $34.2 million during 2023 and $32.2 million during 2022. We increased our quarterly dividend rate by $0.01 per share, or 8%, beginning with the quarterly dividend paid in July 2023, and we increased our quarterly dividend rate by $0.01 per share, or 8%, beginning with the dividend paid in July 2022.

On November 9, 2021, our Board of Directors approved a stock repurchase program under which the Company is authorized to repurchase up to 6,000,000 shares of its common stock. We did not repurchase any shares of common stock in 2023. Financing activities for 2022 included common stock repurchases of 2,710,304 shares at a cost of $110.4 million. As of December 31,

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2023, the Company had purchased 3,688,190 shares pursuant to this authorization and had 2,311,810 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 claims, and industry, regulatory, and company-specific trends impacting the development of claims. An independent actuary reviews our calculation of the undiscounted self-insurance reserves for bodily injury and property damage 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, 2023 and 2022, we had an accrual of $321.5 million and $323.6 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 claims for bodily injury and property damage at December 31, 2023, would have changed our insurance and claims accrual by approximately $24.8 million.

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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

•Business Acquisitions

•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.

Business Acquisitions:

We recently acquired the following entities:

•100% of ReedTMS on November 5, 2022. Freight brokerage and truckload revenues generated by ReedTMS are reported in our Werner Logistics segment and in Dedicated within our TTS segment, respectively.

•100% of Baylor on October 1, 2022. Revenues generated by Baylor are reported in One-Way Truckload within our TTS segment.

•100% of NEHDS on November 22, 2021. Revenues generated by NEHDS are reported in Final Mile within our Werner Logistics segment.

•80% of ECM on July 1, 2021. Revenues generated by ECM are reported in One-Way Truckload within our TTS segment.

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

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

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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) average percentage of empty miles (miles without trailer cargo), (iii) average trip length (in loaded miles) and (iv) 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. 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 2022 to 2021, 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 equipment licensing fees (included in taxes and licenses expense). 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 operating units within our Werner Logistics segment (Truckload Logistics, Intermodal, and Final Mile). In first quarter 2021, we completed the sale of the Werner Global Logistics (“WGL”) freight forwarding services for international ocean and air shipments to Scan Global Logistics Group. WGL had annual revenues of $53 million in 2020, and we realized a $1.0 million gain from the sale in first quarter 2021, which assumed achievement of the full earnout. At the end of the twelve month period following the completed sale of WGL, the full earnout was achieved. Unlike our TTS segment, the Werner Logistics segment is less asset-intensive and is instead dependent upon qualified associates, information systems and qualified third-party capacity providers. 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 2022, we believe we are well positioned with a strong balance sheet and sufficient liquidity. Our debt is at $694 million, or a net debt ratio (debt less cash) of 1.0 times earnings before interest, income taxes, depreciation and amortization for the year ended December 31, 2022. We had available liquidity of $523 million, considering cash on hand and available borrowing capacity of $416 million. As of December 31, 2022, we were in compliance with our debt covenants and expect to continue to be in compliance in 2023. We currently plan to continue paying our quarterly dividend, which we have paid quarterly since 1987. This cash outlay currently results in slightly more than $8 million per quarter. Net capital expenditures (primarily revenue equipment) in 2023 currently are expected to be in the range of $350 million to $400 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.

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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 the One-Way Truckload and Dedicated operating units within TTS.

(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, as well as certain statistical data regarding the Werner Logistics segment.

2022 Compared to 2021

Operating Revenues

Operating revenues increased 20.3% in 2022 compared to 2021. When comparing 2022 to 2021, TTS segment revenues increased $383.6 million, or 18.8%. Revenues for the Werner Logistics segment increased $171.0 million or 27.5%.

Dedicated continues to experience strong demand from the majority of our long-term customers, and our Dedicated pipeline of new opportunities remains strong. In the current freight market, there are fewer project and surge freight opportunities in One-Way Truckload and Logistics compared to record high levels a year ago. We expect that the 2023 freight market will be challenging in the first half of the year, and then gradually begin to show improvement in the second half of the year, as capacity exits the market and retail inventory resets to normalized levels.

Trucking revenues, net of fuel surcharge, increased 10.8% in 2022 compared to 2021 due to a 5.7% increase in the average number of tractors in service and a 4.8% increase in average revenues per tractor per week, net of fuel surcharge. The increase in average revenues per tractor per week, net of fuel surcharge was due primarily to improved pricing in both Dedicated and One-Way Truckload, partially offset by a decline in miles per tractor. The decline in miles per tractor resulted from several factors, including a lower length of haul due to freight mix, growth in Dedicated, the impact of our acquisitions which have a more regional footprint, and more tractor down time early in the year due to equipment parts shortages and COVID issues. We expect total miles per tractor per week for the One-Way Truckload fleet in 2023 to be comparable to 2022, and we expect a gradually improving pricing environment during the second half of 2023. Considering the freight market outlook, we expect average revenues per total mile, net of fuel surcharge, for the One-Way Truckload fleet to decline in a range of 3% to 6% in the first half of 2023 when compared to the first half of 2022, and we expect Dedicated average revenues per tractor per week, net of fuel surcharge, to increase in a range of 0% to 3% in 2023 compared to 2022.

The average number of tractors in service in the TTS segment increased 5.7% to 8,437 in 2022 compared to 7,982 in 2021. We ended 2022 with 8,600 tractors in the TTS segment, a year-over-year increase of 260 tractors. The increase in end of period tractors was due primarily to tractors acquired in the fourth quarter 2022 Baylor and ReedTMS acquisitions, which also contributed to the increase in the average number of tractors in service along with the full year impact in 2022 of the July 1, 2021 ECM acquisition. Our Dedicated unit ended 2022 with 5,450 tractors (or 63% of our total TTS segment fleet) compared to 5,235 tractors at the end of 2021. We currently expect our fleet size at the end of 2023 to be in a range of 1% to 4% higher when compared to the fleet size at the end of 2022, with the majority of the growth planned for our Dedicated unit in the second half of the year. We cannot predict whether future driver shortages, if any, will adversely affect our ability to maintain our fleet size. If such a driver market shortage were to occur, it could result in a fleet size reduction, and our results of operations could be adversely affected.

Trucking fuel surcharge revenues increased 79.0% to $419.2 million in 2022 from $234.2 million in 2021 due primarily to higher average diesel fuel prices, driven by impacts of the war in Ukraine early in the year. 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

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fluctuating fuel prices on our margins, we collect fuel surcharge revenues from our customers for the cost of diesel fuel and taxes in excess of specified base fuel price levels according to terms in our customer contracts. Fuel surcharge rates generally adjust weekly based on an independent U.S. Department of Energy fuel price survey which is released every Monday. Our fuel surcharge programs are designed to (i) recoup higher fuel costs from customers when fuel prices rise and (ii) provide customers with the benefit of lower fuel costs when fuel prices decline. These programs generally enable us to recover a majority, but not all, of the fuel price increases. The remaining portion is generally not recoverable because it results from empty and out-of-route miles (which are not billable to customers) and tractor idle time. Fuel prices that change rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes once per week.

Werner Logistics revenues are generated by its three operating units, following the sale of its WGL freight forwarding services for international ocean and air shipments in first quarter 2021. Werner Logistics revenues exclude revenues for full truckload shipments transferred to the TTS segment, which are recorded as trucking revenues by the TTS segment. Werner Logistics also recorded revenue and brokered freight expense of $5.2 million in 2022 and $0.9 million in 2021 for movements 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 27.5% to $793.5 million in 2022 from $622.5 million in 2021 due primarily to volume growth in Truckload Logistics, which includes eight weeks of the acquired ReedTMS business, a $74.8 million increase in Final Mile revenues primarily due to the impact of NEHDS acquired in November 2021, and higher pricing in Intermodal. Truckload Logistics revenues (67% of total Logistics revenues), including ReedTMS, increased 24% due to a 20% increase in volume and a 4% increase in revenues per shipment. Intermodal revenues (22% of total Logistics revenues) increased 6% due to a 23% increase in revenues per shipment, partially offset by a 17% decline in shipment volume. Werner Logistics operating income increased to $36.2 million in 2022 compared to $27.9 million in 2021 and operating margin percentage increased to 4.6% in 2022 from 4.5% in 2021. During 2022 we experienced fewer premium pop-up freight opportunities, Intermodal customer and market challenges, softening demand and start up costs in Final Mile. Werner Logistics revenues were 24% of total operating revenues in 2022. Including our recent acquisition of ReedTMS, we expect Werner Logistics revenues in 2023 will grow to over 30% of total operating revenues.

Operating Expenses

Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 90.2% in 2022 compared to 88.7% in 2021. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 18 through 20 show the consolidated statements of income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the prior year, as well as the operating ratios, operating margins and certain statistical information for our two reportable segments, TTS and Werner Logistics.

Salaries, wages and benefits increased $125.6 million or 14.0% in 2022 compared to 2021 and decreased 1.7% as a percentage of operating revenues. The higher dollar amount of salaries, wages and benefits expense in 2022 was due primarily to increased driver pay, including driver pay rate increases and the impact of 18.0 million more company tractor miles in 2022. In August 2021, we implemented driver pay increases of approximately $11 million annually in our One-Way Truckload fleet. Within Dedicated, we continue to implement driver pay increases as needed. The increase in salaries, wages and benefits was also due to a larger number of non-driver employees, higher salaries, and higher benefits. Non-driver salaries, wages and benefits in our non-trucking Werner Logistics segment increased 58.4% as a result of more employees to support the 27.5% growth of Logistics revenues.

We renewed our workers’ compensation insurance coverage on April 1, 2022. 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 2022 are $0.4 million higher than the premiums for the previous policy year.

While inflationary cost pressures continue to be challenging, particularly for labor, equipment maintenance and insurance, we have begun to see some easing in the competitive driver recruiting and retention markets. A competitive driver market presents labor challenges for customers and carriers alike. Several ongoing market factors persisted including 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 raising driver pay, providing a modern tractor and trailer fleet with the latest safety equipment and technology, investing and expanding 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 additional 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.

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Fuel increased $191.4 million or 77.9% in 2022 compared to 2021 and increased 4.3% as a percentage of operating revenues due to higher average diesel fuel prices and 18.0 million more company tractor miles in 2022. Average diesel fuel prices, excluding fuel taxes, for the full year 2022 were $1.55 higher than the full year 2021, a 71% increase.

We continue to employ measures to improve our fuel mpg such as (i) limiting tractor engine idle time, (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 an 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 17, the average diesel fuel price per gallon in 2023 was approximately 47 cents higher than the average diesel fuel price per gallon in the same period of 2022 and approximately 7 cents higher than the average for first quarter 2022.

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, 2022, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

Supplies and maintenance increased $46.4 million or 22.4% in 2022 compared to 2021 and increased 0.1% as a percentage of operating revenues. Supplies and maintenance expense increased due to higher costs for tractor and trailer parts, tires, and over-the-road repairs resulting from inflationary cost increases, as well as higher costs for tolls and travel post-COVID. The average age of our tractors and trailers increased by 0.1 years and 0.5 years at December 31, 2022 compared to December 31, 2021, respectively, primarily due to limited new equipment availability. While it remains difficult to obtain new tractors and trailers, we anticipate that new tractor and trailer production will show modest improvement in 2023. Operating older equipment has a direct impact on our supplies and maintenance costs.

Insurance and claims increased $48.7 million or 49.4% in 2022 compared to 2021 and increased 0.9% as a percentage of operating revenues, due primarily to a higher amount of unfavorable reserve development, higher expense for new claims, and higher liability insurance premiums. The majority of the higher unfavorable reserve development related to unexpected and unfortunate legal developments for prior year motor vehicle accidents that have been settled, including a settlement of a lawsuit in Texas arising from a May 24, 2020 accident for which we recognized $9.5 million of insurance and claims expense in 2022. We also incurred insurance and claims expense of $5.4 million and $5.1 million in 2022 and 2021, respectively, for accrued interest related to a previously-disclosed adverse jury verdict rendered on May 17, 2018, which we are appealing (see Note 12 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K). Interest is accrued at $0.5 million per month, until such time as the outcome of our appeal is finalized. The majority of our insurance and claims expense results from our claim experience and claim development under our self-insurance program; the remainder results from insurance premiums for claims in excess of our self-insured limits. In 2022, we achieved our lowest DOT preventable accident rate per million miles in the last 10 years. Over the longer term, we expect our accident per million miles performance will improve our insurance and claims experience. While we cannot ignore the increasing trend of high dollar verdicts and settlements, we expect our 2023 insurance and claims expense to moderate from 2022.

We renewed our liability insurance policies on August 1, 2022 and are responsible for the first $10.0 million per claim on all claims with an annual $10.0 million aggregate for claims between $10.0 million and $20.0 million. For the policy year that began August 1, 2021, we were responsible for the first $10.0 million per claim on all claims with an annual $10.0 million aggregate for claims between $10.0 million and $15.0 million. We maintain liability insurance coverage with insurance carriers in excess of the $10.0 million per claim. Our liability insurance premiums for the policy year that began August 1, 2022 are $1.9 million higher than premiums for the previous policy year.

Depreciation and amortization expense increased $12.2 million or 4.6% in 2022 compared to 2021 and decreased 1.3% as a percentage of operating revenues due primarily to higher tractor depreciation on a larger company tractor fleet and depreciation and amortization on tangible and intangible assets recorded in our business acquisitions, partially offset by the impact of a change in accounting estimate effective January 1, 2022, due to the ongoing stronger used trailer market and the increasing cost of new trailers, which decreased trailer depreciation expense by $12.7 million in 2022.

The average age of our tractor fleet remains low by industry standards and was 2.3 years as of December 31, 2022, and the average age of our trailers was 5.0 years. We continued to invest in new tractors and trailers and our terminals in 2022 to

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improve our driver experience, increase operational efficiency and more effectively manage our maintenance, safety and fuel costs. In 2023, we expect to slightly lower the average age of our tractor fleet and maintain the average age of our trailer fleet.

Rent and purchased transportation expense increased $136.3 million or 21.3% in 2022 compared to 2021 and increased 0.2% 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 and payments to independent contractors in the TTS segment. 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 purchased transportation expense increased $117.8 million as a result of higher logistics revenues, which includes 8 weeks of the acquired ReedTMS logistics business, and decreased to 82.3% as a percentage of Werner Logistics revenues in 2022 from 86.0% in 2021 due to improved pricing and the effect of the NEHDS acquisition, as NEHDS utilizes both employees and contracted drive teams.

Rent and purchased transportation expense for the TTS segment increased $17.5 million in 2022 compared to 2021 due primarily to higher reimbursements to independent contractors because of significantly higher average diesel fuel prices. The higher expense was partially offset by fewer independent contractor miles in 2022. Independent contractor miles decreased 10.0 million miles in 2022 and as a percentage of total miles were 4.5% in 2022 compared to 5.8% in 2021. Because independent contractors supply their own tractors and drivers and are responsible for their operating expenses, the decrease in independent contractor miles as a percentage of total miles shifted costs from the rent and purchased transportation category to other expense categories, including (i) salaries, wages and benefits, (ii) fuel, (iii) depreciation, (iv) supplies and maintenance and (v) taxes and licenses.

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 occurs, further 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. This 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 $23.2 million in 2022 compared to 2021 and decreased 0.5% as a percentage of operating revenues due primarily to higher gains on sales of property and equipment (primarily used tractors and trailers) and a $2.5 million reversal of the contingent consideration recorded in the NEHDS acquisition because the financial performance goals in 2022 were not achieved, partially offset by the impact of a $1.0 million gain from the sale of WGL in first quarter 2021. 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 $88.6 million in 2022, compared to $61.5 million in 2021. In 2022, we sold fewer tractors and trailers than in 2021. We realized substantially higher average gains per tractor and trailer sold in 2022 due to significantly improved pricing in the market for our used equipment, which we believe is a result of increased demand for previously used equipment because of production delays limiting availability of new equipment in the industry. In 2023, we anticipate the used truck and trailer market will weaken, as we expect a greater number of small carriers to exit the trucking industry due to lower spot rates and much higher operating costs. As a result, we expect our gains on sales of property and equipment in 2023 to decrease to between $30 million and $50 million.

Other Income, Net

Other income, net of expense, decreased $35.2 million in 2022 compared to 2021 due primarily to a $28.1 million decrease in the amount of unrealized net gains recognized on our investments in equity securities (see Note 7 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K) and a $7.4 million increase in interest expense. Interest expense increased primarily due to higher average debt outstanding and higher interest rates. In 2023, we expect interest expense will be higher than in 2022, primarily due to higher interest rates, as well as maintaining a higher debt level.

Income Tax Expense

Income tax expense decreased $5.3 million in 2022 compared to 2021, due to lower pre-tax income. The effective income tax rate (income taxes expressed as a percentage of income before income taxes) was 24.4% in 2022 and 2021. We currently estimate our full year 2023 effective income tax rate to be approximately 24.0% to 25.0%.

2021 Compared to 2020

For a comparison of the Company’s results of operations for the fiscal year ended December 31, 2021 to the fiscal year ended December 31, 2020, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in

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the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the U.S. Securities and Exchange Commission on February 28, 2022.

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 shareholder returns, while funding ongoing operations.

Management believes our financial position at December 31, 2022 is strong. As of December 31, 2022, we had $107.2 million of cash and cash equivalents and over $1.4 billion of stockholders’ equity. Cash is invested primarily in government portfolio money market funds. In addition, we have a $1.075 billion credit facility, for which our total available borrowing capacity was $416.2 million as of December 31, 2022. We believe our liquid assets, cash generated from operating activities, and borrowing capacity under our existing credit facility will provide sufficient funds to meet our cash requirements and our planned shareholder returns for the foreseeable future.

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

•Debt Obligations and Interest Payments – As of December 31, 2022, we had outstanding debt with an aggregate principal amount of $693.8 million, with $6.3 million payable within 12 months. Future interest payments associated with our debt obligations are estimated to be $136.0 million through 2027, with $31.3 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 debt and the timing of expected future principal payments.

•Operating Leases – We have entered into operating leases primarily for real estate. As of December 31, 2022, we had fixed lease payment obligations of $46.6 million, with $10.6 million payable within 12 months. See Note 5 in the Notes to 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, 2022, we have committed to property and equipment purchases of approximately $278.6 million within the next 12 months.

In addition to our cash requirements, the Board of Directors has authorized us to deliver value to shareholders through stock repurchases and quarterly cash dividends. 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 slightly more than $8 million per quarter.

Cash Flows

We generated cash flow from operations of $448.7 million during 2022 compared to $332.8 million during 2021. The increase in net cash provided by operating activities was due primarily to working capital changes resulting from growth in accounts receivable during 2021. We were able to make net capital expenditures, make additional strategic investments, pay dividends, and repurchase Company stock with the net cash provided by operating activities and existing cash balances, supplemented by net borrowings under our credit facilities.

Net cash used in investing activities was $514.3 million during 2022 compared to $397.3 million during 2021. Net cash invested in our business acquisitions was $184.1 million during 2022 compared to $201.8 million during 2021. Net property and equipment additions (primarily revenue equipment) were $317.6 million during 2022 compared to $193.0 million during 2021. We currently estimate net capital expenditures (primarily revenue equipment) in 2023 to be in the range of $350 million to $400 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 cash provided by financing activities was $118.0 million during 2022 compared to $89.7 million during 2021. We had net borrowings of $266.3 million during 2022, increasing our outstanding debt to $693.8 million at December 31, 2022. A portion of the proceeds were used to finance our Baylor and ReedTMS acquisitions. We had net borrowings of $227.5 million during 2021, which were primarily used to finance our ECM and NEHDS acquisitions. We paid dividends of $32.2 million during 2022 and $29.1 million during 2021. We increased our quarterly dividend rate by $0.01 per share, or 8%, beginning with the quarterly dividend paid in July 2022.

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Financing activities for 2022 also included common stock repurchases of 2,710,304 shares at a cost of $110.4 million. We repurchased 2,297,911 shares during 2021 at a cost of $104.4 million. 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. On November 9, 2021, our Board of Directors approved a new stock repurchase program under which the Company is authorized to repurchase up to 6,000,000 shares of its common stock. As of December 31, 2022, the Company had purchased 3,688,190 shares pursuant to this authorization and had 2,311,810 shares remaining available for repurchase.

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, property damage and workers’ compensation is a critical accounting estimate that requires us to make significant judgments and estimates and affects our financial statements. The accruals for bodily injury, property damage and workers’ compensation (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 claims, and industry, regulatory, and company-specific trends impacting the development of claims. An independent actuary reviews our calculation of the undiscounted self-insurance reserves for bodily injury and property damage claims and workers’ compensation 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, property damage, and workers’ compensation during the past three years. At December 31, 2022 and 2021, we had an accrual of $323.6 million and $309.8 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 at December 31, 2022, would have changed our insurance and claims accrual by approximately $30.3 million.

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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

•Business Acquisitions

•Overview

•COVID-19

•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.

Business Acquisitions:

ECM Acquisition

On July 1, 2021, we acquired an 80% equity ownership interest in ECM for a cash purchase price of $141.3 million after net working capital changes and net of cash acquired. ECM achieved revenues of $108 million in 2020 with an operating margin of 19.8%. ECM consists of ECM Transport and MCS, which are regional truckload carriers that together operate nearly 500 trucks and 2,000 trailers in the Mid-Atlantic, Ohio and Northeast regions of the U.S. with low driver turnover. Revenues generated by ECM Transport and MCS are reported in One-Way Truckload within our TTS segment.

We financed the transaction through a combination of cash on hand, existing credit facilities and a new $100.0 million unsecured fixed-rate term loan maturing in May 2024 with BMO Harris Bank N.A., one of our two lead banks. The remaining 20% ownership interest in ECM is retained by Ed Meier, founder and President of ECM.

NEHDS Acquisition

On November 22, 2021, we acquired 100% of the equity interests in NEHDS for a cash purchase price of $63.1 million after including the impacts of contingent consideration, net working capital changes and cash acquired. We financed the transaction through a combination of cash on hand and existing credit facilities. NEHDS achieved revenues of $71 million for the 12-month period ended September 2021 and produced an average annual revenues growth rate of 27% over the last three years. NEHDS is a final mile residential delivery provider with access to a network of 400 final mile delivery trucks serving customers primarily in the Northeast and Midwest U.S. markets. Revenues generated by NEHDS are reported in Final Mile within our Werner Logistics segment.

Additional information regarding the ECM and NEHDS acquisitions is included in Note 2 in the Notes to Consolidated Financial Statements under Item 8 of Part II of this 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

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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 our TTS segment operating units (Dedicated and One-Way Truckload) are typically generated on a per-mile basis and also include revenues such as stop charges, loading and unloading charges, equipment detention charges and equipment repositioning charges. 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) average percentage of empty miles (miles without trailer cargo), (iii) average trip length (in loaded miles) and (iv) 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. 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 2021 to 2020, 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, compliance with new or proposed regulations and tightening of the commercial truck liability insurance market. Our main fixed costs include depreciation expense for tractors and trailers and equipment licensing fees (included in taxes and licenses expense). 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 operating units within our Werner Logistics segment (Truckload Logistics, Intermodal, and Final Mile). In first quarter 2021, we completed the previously-announced sale of the Werner Global Logistics (“WGL”) freight forwarding services for international ocean and air shipments to Scan Global Logistics Group. WGL had annual revenues of $53 million in 2020, and we realized a $1.0 million gain from the sale in first quarter 2021. 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, 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 2021, we believe we are well positioned with a strong balance sheet and sufficient liquidity. Our debt is at $428 million, or a net debt ratio of 0.6 times earnings before interest, income taxes, depreciation and amortization for the year ended December 31, 2021. We had available liquidity of $169 million, considering cash on hand and available credit facilities of $115 million. We also have sufficient cushion with our debt covenants. We currently plan to continue paying our quarterly dividend,

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which we have paid quarterly since 1987. This cash outlay currently results in slightly less than $8 million per quarter. Net capital expenditures (primarily revenue equipment) in 2022 currently are expected to be in the range of $275 million to $325 million.

COVID-19:

The COVID-19 pandemic continues to impact the U.S. and global economies and has resulted in ongoing supply chain challenges. During the pandemic, the transportation industry has been designated by the U.S. government as an essential industry for keeping the U.S. supply chain moving. We are monitoring and reacting to the evolving nature of the pandemic, governmental responses, and their impacts on our business, including employee availability. We are working hard to stay healthy while safely delivering our customers’ freight on time. Throughout our offices and terminal network, we are closely following the safety guidelines set forth by the Centers for Disease Control and Prevention (CDC) and World Health Organization (WHO).

Over the past several years, we have repositioned Werner to increase our ability to execute through different macroeconomic environments. We believe our freight base, which is heavily weighted toward customers delivering essential products that are continually being restocked in today’s economy, enabled us to more effectively manage through the difficult economic environment created by the pandemic. While there remain significant uncertainties related to COVID-19 and its effect on the economy, we believe that demand for our services will be strong in 2022.

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.

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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 the One-Way Truckload and Dedicated operating units within TTS.

(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, as well as certain statistical data regarding the Werner Logistics segment.

2021 Compared to 2020

Operating Revenues

Operating revenues increased 15.3% in 2021 compared to 2020. When comparing 2021 to 2020, TTS segment revenues increased $201.9 million, or 11.0%. Revenues for the Werner Logistics segment increased $152.7 million or 32.5%.

Freight demand was strong throughout 2021 in our Dedicated and One-Way Truckload fleets. Freight demand has continued to be strong during the first two months of 2022.

Trucking revenues, net of fuel surcharge, increased 7.3% in 2021 compared to 2020 due to a 4.3% increase in average revenues per tractor per week, net of fuel surcharge and a 2.9% increase in the average number of tractors in service. The increase in average revenues per tractor was due primarily to improved pricing in both Dedicated and One-Way Truckload, partially offset by a decline in miles per tractor caused by tractors down due to equipment parts shortages, more drivers unavailable to work due to COVID quarantine protocols, a 2% shorter average loaded length of haul for the TTS segment, and other factors. We currently expect average revenues per total mile, net of fuel surcharge, for the One-Way Truckload fleet to remain strong for the first half of 2022 and to increase in a range of 16% to 19% when compared to the first half of 2021, and we expect Dedicated average revenues per tractor per week, net of fuel surcharge, to increase in a range of 3% to 5% in 2022 compared to 2021.

The average number of tractors in service in the TTS segment increased 2.9% to 7,982 in 2021 compared to 7,757 in 2020. We ended 2021 with 8,340 tractors in the TTS segment, a year-over-year increase of 510 tractors, primarily resulting from the nearly 500 tractors acquired in the ECM acquisition. Our Dedicated unit ended 2021 with 5,235 tractors (or 63% of our total TTS segment fleet) compared to 4,945 tractors at the end of 2020. We currently expect our fleet size at the end of 2022 to be in a range of 2% to 5% higher when compared to the fleet size at the end of 2021, subject to driver availability and timing of delivery of new tractors from our equipment manufacturers. We cannot predict whether future driver shortages, if any, will adversely affect our ability to maintain our fleet size. If such a driver market shortage were to occur, it could result in a fleet size reduction, and our results of operations could be adversely affected.

Trucking fuel surcharge revenues increased 47.6% to $234.2 million in 2021 from $158.6 million in 2020 due primarily to higher average diesel fuel prices, partially offset by fewer miles in 2021. 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.

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Werner Logistics revenues are generated by its three operating units, following the sale of its WGL freight forwarding services for international ocean and air shipments in first quarter 2021. Werner Logistics revenues exclude revenues for full truckload shipments transferred to the TTS segment, which are recorded as trucking revenues by the TTS segment. Werner Logistics also recorded revenue and brokered freight expense of $0.9 million in 2021 and $0.1 million in 2020 for movements performed by the TTS segment (also recorded as trucking revenue by the TTS segment), primarily related to Intermodal drayage, and these transactions between reporting segments are eliminated in consolidation. Werner Logistics revenues increased 32.5% to $622.5 million in 2021 from $469.8 million in 2020 due primarily to higher pricing and volume growth in Truckload Logistics and Intermodal, and an $8.8 million increase in Final Mile revenues primarily due to the impact of NEHDS acquired in November 2021. Truckload Logistics revenues (68% of total Logistics revenues) increased 58% due to 29% higher revenues per shipment and a 23% increase in volume. Intermodal revenues (26% of total Logistics revenues) increased 37% due to 35% higher revenues per shipment and a 1% increase in volume. Werner Logistics operating income increased to $27.9 million in 2021 compared to $6.0 million in 2020, due to revenue growth and a 320 basis point expansion of operating margin percentage in a strong freight market. The Werner Logistics operating margin percentage increased to 4.5% in 2021 from 1.3% in 2020. We expect Werner Logistics to achieve continued revenue and operating income growth in 2022.

Operating Expenses

Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 88.7% in 2021 compared to 90.4% in 2020. 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 increased $99.2 million or 12.5% in 2021 compared to 2020 and decreased 0.9% as a percentage of operating revenues. The higher dollar amount of salaries, wages and benefits expense in 2021 was due primarily to increased driver pay, including: (i) driver pay rate increases, (ii) incentive recruiting bonuses, and (iii) minimum pay guarantees, and higher benefits expense, including group health insurance. These increases were partially offset by 20.5 million fewer company tractor miles during 2021. In January 2021, we implemented driver pay increases of approximately $10 million annually in our One-Way Truckload fleet, and another pay increase in August of approximately $11 million annually. Within Dedicated, we continue to implement pay increases as needed. As a result, driver pay per company driver mile increased 15% in 2021. Non-driver salaries, wages and benefits in our non-trucking Werner Logistics segment increased 4.1%.

We renewed our workers’ compensation insurance coverage on April 1, 2021. 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 2021 are $0.3 million higher than the premiums for the previous policy year.

Strong consumer demand combined with a severely constrained driver market is presenting labor challenges for customers and carriers alike and became more challenging in 2021, as the strong freight market caused increased competition for the finite number of experienced drivers that meet our hiring standards. Several ongoing market factors persisted including 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 raising driver pay, providing a modern tractor and trailer fleet with the latest safety equipment and technology, investing and expanding 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 additional 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 increased $88.7 million or 56.5% in 2021 compared to 2020 and increased 2.4% as a percentage of operating revenues due to higher average diesel fuel prices, partially offset by 20.5 million fewer company tractor miles in 2021. Average diesel fuel prices, excluding fuel taxes, for the full year 2021 were 85 cents per gallon higher than the full year 2020, a 64% increase.

We continue to employ measures to improve our fuel mpg such as (i) limiting tractor engine idle time, (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 an 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.

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Through February 18, the average diesel fuel price per gallon in 2022 was approximately $1.03 higher than the average diesel fuel price per gallon in the same period of 2021 and approximately 88 cents higher than the average for first quarter 2021.

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, 2021, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

Supplies and maintenance increased $30.9 million or 17.5% in 2021 compared to 2020 and increased 0.2% as a percentage of operating revenues. The higher dollar amount of supplies and maintenance expense was due primarily to higher equipment maintenance costs, driver lodging expenses and driver sourcing costs. Our driver sourcing costs were higher due to startup costs for our new and planned driving school location additions.

Insurance and claims decreased $11.2 million or 10.2% in 2021 compared to 2020 and decreased 1.0% as a percentage of operating revenues, due primarily to lower expense for new large dollar claims and a lower amount of unfavorable development on large dollar claims, partially offset by higher liability insurance premiums of $7.7 million. In January 2020, one of our tractors was involved in a serious accident. We self-insure for the first $10.0 million of liability coverage for this policy period, and have appropriate excess liability coverage with insurance carriers above that amount. As a result, we recorded $10.0 million of insurance and claims expense in first quarter 2020 for this accident. We also incurred insurance and claims expense of $5.1 million and $4.9 million in 2021 and 2020, respectively, for accrued interest related to a previously-disclosed adverse jury verdict rendered on May 17, 2018, which we are appealing (see Note 12 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K). Interest is accrued at $0.4 million per month, until such time as the outcome of our appeal is finalized. 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.

We renewed our liability insurance policies on August 1, 2021 and are responsible for the first $10.0 million per claim on all claims with an annual $10.0 million aggregate for claims between $10.0 million and $15.0 million. For the policy year that began August 1, 2020, we were responsible for the first $10.0 million per claim with no aggregates. We maintain liability insurance coverage with insurance carriers in excess of the $10.0 million per claim. Our liability insurance premiums for the policy year that began August 1, 2021 are $7.0 million higher than premiums for the previous policy year.

Depreciation and amortization expense increased $4.4 million or 1.7% in 2021 compared to 2020 and decreased 1.3% as a percentage of operating revenues due primarily to depreciation and amortization on tangible and intangible assets recorded in the ECM and NEHDS acquisitions, partially offset by the impact of a change in accounting estimate that was made in the first quarter 2020, which increased depreciation expense by $9.6 million in 2020. During the first quarter of 2020, we changed the estimated life of certain tractors expected to be sold in 2020 to more rapidly depreciate these tractors to their estimated residual values due to the weak used tractor market. These tractors continued to depreciate at the same higher rate per tractor until all were sold in 2020. This change in accounting estimate had no effect on 2021.

The average age of our tractor fleet remains low by industry standards and was 2.2 years as of December 31, 2021, and the average age of our trailers was 4.5 years. We continued to invest in new tractors and trailers and our terminals in 2021 to improve our driver experience, increase operational efficiency and more effectively manage our maintenance, safety and fuel costs. We currently intend to maintain the average age of our tractor and trailer fleet at or near current levels in 2022, subject to timing of delivery of new tractors and trailers from our equipment manufacturers.

Rent and purchased transportation expense increased $122.0 million or 23.5% in 2021 compared to 2020 and increased 1.5% 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 and payments to independent contractors in the TTS segment. 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 purchased transportation expense increased $128.1 million as a result of higher logistics revenues, and decreased to 86.0% as a percentage of Werner Logistics revenues in 2021 from 86.7% in 2020.

Rent and purchased transportation expense for the TTS segment decreased $6.0 million in 2021 compared to 2020. This decrease is due primarily to lower payments to independent contractors in 2021 compared to 2020, resulting from 22.6 million fewer independent contractor miles driven in 2021. Higher average diesel fuel prices in 2021 also resulted in a higher per-mile settlement rate for independent contractors. Independent contractor miles as a percentage of total miles were 5.8% in 2021 and 8.3% in 2020. Because independent contractors supply their own tractors and drivers and are responsible for their operating expenses, the decrease in independent contractor miles as a percentage of total miles shifted costs from the rent and purchased transportation category to other expense categories, including (i) salaries, wages and benefits, (ii) fuel, (iii) depreciation, (iv) supplies and maintenance and (v) taxes and licenses.

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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 occurs, further 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. This 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 $52.8 million in 2021 compared to 2020 and decreased 2.0% as a percentage of operating revenues. Gains on sales of assets (primarily used tractors and trailers) 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 assets were $61.5 million in 2021, compared to $11.3 million in 2020. In 2021, we sold fewer tractors and trailers than in 2020. We realized substantially higher average gains per tractor and trailer sold in 2021 due to significantly improved pricing in the market for our used equipment, which we believe is a result of increased demand for previously used equipment because of production delays limiting availability of new equipment in the industry.

Other Expense (Income)

Other expense (income) decreased $39.6 million in 2021 compared to 2020 due primarily to a $40.3 million net unrealized gain recognized on our investments in equity securities (see Note 7 in the Notes to Consolidated Financial Statements set forth in Part II of this Form 10-K).

Income Tax Expense

Income tax expense increased $28.9 million in 2021 compared to 2020, due to higher pre-tax income, partially offset by a slightly lower effective income tax rate (income taxes expressed as a percentage of income before income taxes) in 2021 of 24.4% compared to 24.8% in 2020. We currently estimate our full year 2022 effective income tax rate to be approximately 24.5% to 25.5%.

2020 Compared to 2019

For a comparison of the Company’s results of operations for the fiscal year ended December 31, 2020 to the fiscal year ended December 31, 2019, 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, 2020, which was filed with the U.S. Securities and Exchange Commission on February 24, 2021.

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, stock repurchases, and dividend payments are components of our cash flow and capital management strategy, which to a large extent, can be adjusted in response to economic and other changes in the business environment. Management’s approach to capital allocation focuses on investing in key priorities that support our business and growth strategies and providing shareholder returns, while funding ongoing operations.

Management believes our financial position at December 31, 2021 is strong. As of December 31, 2021, we had $54.2 million of cash and cash equivalents and over $1.3 billion of stockholders’ equity. Cash is invested primarily in government portfolio money market funds. In addition, we have a $300.0 million and a $200.0 million credit facility, for which our total available borrowing capacity was $115.1 million as of December 31, 2021 (see Note 8 in the Notes to Consolidated Financial Statements under Item 8 of Part II of this Form 10-K for information regarding our credit agreements). 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 shareholder 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, 2021, we had outstanding debt with an aggregate principal amount of $427.5 million, with $5.0 million payable within 12 months. Future interest payments associated with our debt obligations are estimated to be $14.6 million through 2024, with $6.2 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 debt and the timing of expected future principal payments.

•Operating Leases – We have entered into operating leases primarily for real estate. As of December 31, 2021, we had fixed lease payment obligations of $32.1 million, with $7.0 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, 2021, we have committed to property and equipment purchases of approximately $163.2 million within the next 12 months.

In addition to our cash requirements, the Board of Directors has authorized us to deliver value to shareholders through stock repurchases and quarterly cash dividends. 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 slightly less than $8 million per quarter.

Cash Flows

We generated cash flow from operations of $332.8 million during 2021 compared to $445.9 million during 2020. The decrease in net cash provided by operating activities was due primarily to working capital changes resulting from changes in accounts receivable, higher federal and state estimated income tax payments, and the deferral of 2020 employer payroll tax payments as permitted under the CARES Act. We were able to make net capital expenditures, repay debt, pay dividends, and repurchase stock with the net cash provided by operating activities and existing cash balances, supplemented by borrowings under our existing credit facilities.

Net cash used in investing activities was $397.3 million during 2021 compared to $263.3 million during 2020. Net cash invested in our ECM and NEHDS acquisitions during 2021 was $201.8 million. Net property additions (primarily revenue equipment) were $193.0 million for during 2021 compared to $266.2 million during 2020. We currently estimate net capital expenditures (primarily revenue equipment) in 2022 to be in the range of $275 million to $325 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 $89.7 million during 2021 and used $186.0 million during 2020. We had net borrowings of $227.5 million during 2021, bringing our outstanding debt at December 31, 2021 to $427.5 million. The proceeds were primarily used to finance our ECM and NEHDS acquisitions. During 2020, we repaid $100.0 million of debt, net of borrowings. We paid dividends of $29.1 million during 2021 and $24.9 million during 2020. We increased our quarterly dividend rate by $0.01 per share, or 11%, beginning with the quarterly dividend paid in May 2021, and we increased our quarterly dividend rate by $0.02 per share, or 20%, beginning with the dividend paid in July 2021.

Financing activities for 2021 also included common stock repurchases of 2,297,911 shares at a cost of $104.4 million. We repurchased 1,482,992 shares during 2020 at a cost of $56.5 million. The Company has repurchased, and may continue to repurchase, shares of the Company’s common stock. The timing and amount of such purchases depends upon economic and stock market conditions and other factors. On November 9, 2021, our Board of Directors approved a new stock repurchase program under which the Company is authorized to repurchase up to 6,000,000 shares of its common stock. On the same day, our Board of Directors withdrew the previous stock repurchase authorization, which had 1,496,983 shares remaining available for repurchase. As of December 31, 2021, the Company had purchased 977,886 shares pursuant to the new authorization and had 5,022,114 shares remaining available for repurchase.

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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 amount 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, property damage and workers’ compensation is a critical accounting estimate that requires us to make significant judgments and estimates and affects our financial statements. The accruals for bodily injury, property damage and workers’ compensation (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 claims, and industry, regulatory, and company-specific trends impacting the development of claims. An independent actuary reviews our calculation of the undiscounted self-insurance reserves for bodily injury and property damage claims and workers’ compensation 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, property damage, and workers’ compensation during the past three years. At December 31, 2021 and 2020, we had an accrual of $309.8 million and $308.6 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 at December 31, 2021, would have changed our insurance and claims accrual by approximately $29.3 million.

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