Werner Enterprises Inc.
02/26/2025 | Press release | Distributed by Public on 02/26/2025 15:06
Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)
| 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.
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.
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.
| 2024 | 2023 | Percentage Change in Dollar Amounts | |||||||||||||||||||||||||||
| (in thousands) | $ | % | $ | % | % | ||||||||||||||||||||||||
| Operating revenues | $ | 3,030,258 | 100.0 | $ | 3,283,499 | 100.0 | (7.7) | ||||||||||||||||||||||
|
Operating expenses: |
|||||||||||||||||||||||||||||
| Salaries, wages and benefits | 1,034,877 | 34.1 | 1,072,558 | 32.7 | (3.5) | ||||||||||||||||||||||||
| Fuel | 275,413 | 9.1 | 345,001 | 10.5 | (20.2) | ||||||||||||||||||||||||
| Supplies and maintenance | 246,061 | 8.1 | 256,494 | 7.8 | (4.1) | ||||||||||||||||||||||||
| Taxes and licenses | 97,230 | 3.2 | 102,684 | 3.1 | (5.3) | ||||||||||||||||||||||||
| Insurance and claims | 145,398 | 4.8 | 138,516 | 4.2 | 5.0 | ||||||||||||||||||||||||
| Depreciation and amortization | 290,405 | 9.6 | 299,509 | 9.1 | (3.0) | ||||||||||||||||||||||||
| Rent and purchased transportation | 844,870 | 27.9 | 886,284 | 27.0 | (4.7) | ||||||||||||||||||||||||
| Communications and utilities | 17,195 | 0.6 | 18,480 | 0.6 | (7.0) | ||||||||||||||||||||||||
| Other | 12,661 | 0.4 | (12,443) | (0.4) | (201.8) | ||||||||||||||||||||||||
| Total operating expenses | 2,964,110 | 97.8 | 3,107,083 | 94.6 | (4.6) | ||||||||||||||||||||||||
| Operating income | 66,148 | 2.2 | 176,416 | 5.4 | (62.5) | ||||||||||||||||||||||||
| Total other expense, net | 23,666 | 0.8 | 28,635 | 0.9 | (17.4) | ||||||||||||||||||||||||
| Income before income taxes | 42,482 | 1.4 | 147,781 | 4.5 | (71.3) | ||||||||||||||||||||||||
| Income tax expense | 8,912 | 0.3 | 35,491 | 1.1 | (74.9) | ||||||||||||||||||||||||
| Net income | 33,570 | 1.1 | 112,290 | 3.4 | (70.1) | ||||||||||||||||||||||||
| Net loss attributable to noncontrolling interest | 663 | - | 92 | - | 620.7 | ||||||||||||||||||||||||
| Net income attributable to Werner | $ | 34,233 | 1.1 | $ | 112,382 | 3.4 | (69.5) | ||||||||||||||||||||||
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.
| 2024 | 2023 | ||||||||||||||||||||||||||||
| TTS segment (in thousands) | $ | % | $ | % | % Chg | ||||||||||||||||||||||||
| Trucking revenues, net of fuel surcharge | $ | 1,836,581 | $ | 1,949,445 | (5.8) | % | |||||||||||||||||||||||
| Trucking fuel surcharge revenues | 263,263 | 332,388 | (20.8) | % | |||||||||||||||||||||||||
| Non-trucking and other operating revenues | 38,449 | 28,977 | 32.7 | % | |||||||||||||||||||||||||
| Operating revenues | 2,138,293 | 100.0 | 2,310,810 | 100.0 | (7.5) | % | |||||||||||||||||||||||
| Operating expenses | 2,063,127 | 96.5 | 2,141,480 | 92.7 | (3.7) | % | |||||||||||||||||||||||
| Operating income | $ | 75,166 | 3.5 | $ | 169,330 | 7.3 | (55.6) | % | |||||||||||||||||||||
| TTS segment | 2024 | 2023 | % Chg | ||||||||||||||
| Average tractors in service | 7,619 | 8,326 | (8.5) | % | |||||||||||||
|
Average revenues per tractor per week(1)
|
$ | 4,635 | $ | 4,502 | 3.0 | % | |||||||||||
| Total tractors (at year end) | |||||||||||||||||
| Company | 7,155 | 7,740 | (7.6) | % | |||||||||||||
| Independent contractor | 295 | 260 | 13.5 | % | |||||||||||||
|
Total tractors
|
7,450 | 8,000 | (6.9) | % | |||||||||||||
| Total trailers (at year end) | 25,495 | 27,850 | (8.5) | % | |||||||||||||
|
One-Way Truckload |
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| Trucking revenues, net of fuel surcharge (in 000's) | $ | 672,598 | $ | 713,762 | (5.8) | % | |||||||||||
| Average tractors in service | 2,695 | 3,042 | (11.4) | % | |||||||||||||
| Total tractors (at year end) | 2,610 | 2,735 | (4.6) | % | |||||||||||||
| Average percentage of empty miles | 15.25 | % | 14.36 | % | 6.2 | % | |||||||||||
|
Average revenues per tractor per week(1)
|
$ | 4,799 | $ | 4,512 | 6.4 | % | |||||||||||
|
Average % change in revenues per total mile(1)
|
(1.2) | % | (5.5) | % | |||||||||||||
| Average % change in total miles per tractor per week | 7.6 | % | 2.2 | % | |||||||||||||
| Average completed trip length in miles (loaded) | 582 | 595 | (2.2) | % | |||||||||||||
|
Dedicated |
|||||||||||||||||
| Trucking revenues, net of fuel surcharge (in 000's) | $ | 1,163,983 | $ | 1,235,683 | (5.8) | % | |||||||||||
| Average tractors in service | 4,924 | 5,284 | (6.8) | % | |||||||||||||
| Total tractors (at year end) | 4,840 | 5,265 | (8.1) | % | |||||||||||||
|
Average revenues per tractor per week(1)
|
$ | 4,546 | $ | 4,496 | 1.1 | % | |||||||||||
(1)Net of fuel surcharge revenues
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 | 2023 | ||||||||||||||||||||||||||||
| Werner Logistics segment (in thousands) | $ | % | $ | % | % Chg | ||||||||||||||||||||||||
| Operating revenues | $ | 831,337 | 100.0 | $ | 910,433 | 100.0 | (8.7) | % | |||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Purchased transportation expense | 707,493 | 85.1 | 761,948 | 83.7 | (7.1) | % | |||||||||||||||||||||||
| Other operating expenses | 124,725 | 15.0 | 132,606 | 14.6 | (5.9) | % | |||||||||||||||||||||||
| Total operating expenses | 832,218 | 100.1 | 894,554 | 98.3 | (7.0) | % | |||||||||||||||||||||||
| Operating income (loss) | $ | (881) | (0.1) | $ | 15,879 | 1.7 | (105.5) | % | |||||||||||||||||||||
| Werner Logistics segment | 2024 | 2023 | % Chg | ||||||||||||||
| Average tractors in service | 22 | 37 | (40.5) | % | |||||||||||||
| Total tractors (at year end) | 18 | 35 | (48.6) | % | |||||||||||||
| Total trailers (at year end) | 3,170 | 2,960 | 7.1 | % | |||||||||||||
| Total containers (at year end) | 200 | - | N/A | ||||||||||||||
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
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.
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
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
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
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.