Executive Summary / Key Takeaways

• Werner Enterprises is strategically positioned for margin expansion, driven by its multi-year technology transformation, a focused shift towards resilient Dedicated and Logistics segments, and aggressive cost management initiatives.
• The company's Q3 2025 results reflected mixed performance, with robust growth in Logistics and sustained momentum in Dedicated, partially offset by temporary challenges in the One-Way segment and significant litigation-related expenses.
• Accelerating industry capacity attrition, fueled by stringent regulatory enforcement regarding non-domiciled Commercial Driver's Licenses (CDLs), B1 Visas, and English Language Proficiency standards, is creating a more favorable rate environment for well-capitalized carriers like Werner.
• Werner's strong balance sheet, modern fleet, and recent legal victories—including the reversal of a $92 million judgment by the Texas Supreme Court and the settlement of a class action lawsuit—provide significant financial flexibility and remove substantial overhangs.
• The outlook anticipates gradual market improvement, with management focused on leveraging technological efficiencies and strategic positioning to achieve long-term double-digit operating margins in its Truckload Transportation Services (TTS) segment.

A Foundation for Growth: Strategy, Technology, and Market Position

Werner Enterprises, Inc., founded in 1956, has evolved into a premier transportation and logistics provider, offering a comprehensive suite of services across the United States, Mexico, and internationally. The company's core business is segmented into Truckload Transportation Services (TTS) and Werner Logistics. TTS encompasses Dedicated fleets, which serve specific customer needs with dry van or specialized trailers, and One-Way Truckload, including medium-to-long-haul, expedited, regional, and temperature-controlled fleets, alongside significant Mexico cross-border operations. The Werner Logistics segment provides non-asset-based solutions through Truckload Logistics (including "Power Only" services), Intermodal, and Werner Final Mile. This diversified portfolio is underpinned by Werner's "DRIVE" strategy, prioritizing core business growth, operational excellence, and capital efficiency.

A cornerstone of Werner's strategic differentiation is its multi-year, multi-million-dollar technology transformation. Over the past four years, the company has completely rebuilt its technology stack, creating a modern, scalable, secure, cloud-based platform known as EDGE TMS. This "Cloud First, Cloud Now" strategy is designed to automate processes and integrate AI agents across the business. The tangible benefits are already evident: one back-office department has seen its largest expense lowered by 40% over the last two years through modernization and AI automation, while maintaining full service levels. In the Logistics segment, which is nearly fully implemented on EDGE TMS, productivity has improved by 20% in brokerage loads per full-time employee. The technology enhances safety through in-cab situational awareness and visibility, such as real-time weather and routing, and supports driver development via data and cloud storage of video. Operationally, EDGE TMS streamlines workflows, reducing dwell time and increasing planning efficiency, with thousands of customer and driver interactions now handled weekly by conversational AI. For investors, this technological edge is crucial; it forms a competitive moat by driving efficiency, enhancing data utilization, improving safety, and elevating the customer experience, all contributing to Werner's long-term growth and profitability. The predominance of these productivity gains is expected to become visible in late Q3 and Q4 2025, with full conversion projected by roughly Q1 2026.

In the competitive landscape, Werner stands as a large-scale, reliable partner. The company's extensive fleet network and specialized services, particularly in temperature-controlled and expedited transport, provide a distinct advantage. This fleet versatility is a key differentiator against rivals like J.B. Hunt Transport Services (JBHT), which has a strong intermodal focus, and Knight-Swift Transportation Holdings (KNX), known for its scale and cost efficiency. While Werner may not always lead in growth rates or overall profitability compared to these more diversified or aggressively acquisitive competitors, its operational reliability and customer-specific adaptability in niche markets are strong. Werner's deep expertise in Mexico cross-border operations, accounting for approximately 10% of total revenues, further solidifies its position in a critical and growing trade corridor. The company's modern fleet, with an average tractor age of 2.50 years and trailers at 5.50 years as of September 30, 2025, also enhances operational efficiency and driver satisfaction.

The broader industry is experiencing significant capacity attrition, a trend Werner is well-positioned to capitalize on. Regulatory and enforcement actions related to non-domiciled CDLs, B1 Visas, and English Language Proficiency standards are projected to remove a substantial number of drivers from service, with estimates suggesting 30,000 annually from ELP enforcement and potentially 200,000 non-domiciled CDLs. This tightening supply, coupled with Class 8 net truck builds falling below replacement levels and an uptick in trucking bankruptcies, is creating a "flight to quality" among shippers. Werner's robust balance sheet and compliance-focused operations allow it to absorb these market shifts more effectively than smaller, less-resourced carriers, enhancing its competitive standing and pricing power.

Performance and Strategic Execution Amidst Headwinds

Werner's financial performance in the third quarter of 2025 reflected a challenging freight environment, yet demonstrated underlying strategic progress. Consolidated operating revenues increased 3.50% year-over-year to $771.499 million. However, the company reported a consolidated operating loss of $13.021 million, a significant decline from the $17.595 million operating income in Q3 2024, resulting in an operating margin of 1.70%. This performance was heavily impacted by an $18 million litigation settlement agreement and $3.4 million in related legal fees, which negatively affected Q3 2025 results.

The TTS segment experienced a 0.60% decrease in revenues, totaling $519.786 million, and recorded an operating loss of $13.832 million, down from $21.607 million in operating income in Q3 2024. Within TTS, Dedicated trucking revenues, net of fuel surcharge, grew 2.50% to $292.459 million, with average revenues per tractor per week increasing 1.30%. This growth occurred despite a 140 basis point drag from lower production in new fleet startups, which incurred over $2 million in startup costs during the quarter. The One-Way Truckload segment saw revenues, net of fuel surcharge, decrease 3.10% to $159.501 million, with average revenues per tractor per week declining 4.30% due to a 4.70% decrease in miles per truck, partially offset by a 0.40% increase in revenue per total mile. Insurance and claims expense for the quarter surged 37.50% year-over-year, reflecting higher costs for liability claims and unfavorable reserve development, an industry-wide challenge that Werner is actively addressing through safety initiatives and advocacy for tort reform. Despite these pressures, gains on sales of property and equipment increased to $4.50 million in Q3 2025 from $2.60 million in Q3 2024, driven by higher average gains per unit.

In contrast, the Werner Logistics segment demonstrated strong growth and improved profitability. Revenues increased 12.50% year-over-year to $232.585 million, and the segment achieved an operating income of $3.014 million, a significant turnaround from an operating loss of $0.345 million in Q3 2024, with its operating margin expanding to 1.30%. This growth was fueled by a 13% increase in Truckload Logistics revenues (with Power Only solutions up 26%) and a 23% rise in Intermodal revenues. While Logistics experienced some margin pressure due to a shift from higher-margin project work to contractual business, its ability to scale at a lower cost, partly due to EDGE TMS implementation, drove the operating margin expansion.

For the nine months ended September 30, 2025, consolidated operating revenues decreased 1.70% to $2.24 billion, and operating income was $47.468 million, down from $52.794 million in the prior year period. These nine-month results were positively impacted by a $45.70 million liability reversal from a favorable Texas Supreme Court decision regarding a 2014 accident and a $7.90 million net favorable change to the contingent earnout liability from the Baylor Trucking, Inc. acquisition. These positive impacts were partially offset by the aforementioned $18 million class action settlement and related legal fees.

Werner's liquidity remains robust, with $50.984 million in cash and cash equivalents and $644.10 million in available borrowing capacity under its credit facilities as of September 30, 2025. The company's total debt stood at $725 million, with net interest expense decreasing in Q3 2025 due to lower average interest rates and the benefit of a new Loan Security Agreement (LSA) facility. Werner also actively manages its capital, repurchasing 2.11 million shares at a cost of $55.562 million during the nine-month period and authorizing a new 5.00 million share repurchase program in August 2025.

Outlook and Strategic Trajectory

Werner's management anticipates a gradual improvement in truckload fundamentals throughout 2025, with rates expected to trend positively. For Q4 2025, the company projects seasonally softer revenue in Logistics but expects operating income upside from a significant reduction in Dedicated startup costs (down 75% from the Q3 run rate in October) and a rebound in One-Way production (nearly flat year-over-year in October). One-Way Truckload revenue per total mile is expected to be flat to down 1% or up to 1% in Q4 2025, while Dedicated average revenues per tractor per week are guided to be flat to up 1.50% for the full year 2025. The TTS segment fleet size is expected to decrease 2% or remain flat by year-end 2025.

The company's cost savings program remains on track, with $36 million achieved by Q3 2025 towards its $45 million target for the year, marking the third consecutive year of $40-$50 million in annual savings. This discipline is expected to continue into 2026, leveraging technology investments for enhanced efficiency. Net capital expenditures for 2025 are guided between $155 million and $175 million, reflecting a deliberate shift towards a more asset-light operational mix and a proactive fleet management strategy. Gains on used equipment are projected to be in the range of $14 million to $16 million for the full year, benefiting from elevated used tractor values.

Longer-term, Werner is confident in its ability to achieve double-digit TTS operating margins, driven by rate improvement, incremental growth in existing Dedicated fleets, and structural efficiencies from its technology transformation. The robust Dedicated pipeline, with new business precommitted into Q1 2026, underscores this growth potential. The company's strategic focus on new verticals like tech and aftermarket automotive parts, combined with its established strength in discount retail, positions it well to capture demand from a resilient, albeit cautious, consumer base.

Conclusion

Werner Enterprises is emerging from a challenging freight recession with a clear strategic roadmap and a strengthened operational foundation. Despite recent headwinds from litigation expenses and temporary One-Way segment softness, the company's commitment to its "DRIVE" strategy, particularly through its transformative EDGE TMS technology and disciplined cost management, is paving the way for enhanced profitability. The accelerating capacity attrition in the trucking industry, driven by regulatory enforcement, creates a favorable market backdrop that Werner, with its scale, modern fleet, and diversified solutions, is uniquely positioned to leverage.

The core investment thesis for Werner hinges on its ability to translate these internal efficiencies and external market tailwinds into sustained margin expansion. The strategic emphasis on the resilient Dedicated and high-growth Logistics segments, coupled with the ongoing benefits from technological leadership, positions Werner for a new era of operational excellence and increased earnings power. As the market rebalances, Werner's disciplined approach and strategic investments are expected to drive long-term value creation for investors, making it a compelling opportunity in the evolving transportation landscape.