Werner Enterprises Inc.

08/07/2026 | Press release | Distributed by Public on 08/07/2026 14:09

Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

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:
•FirstFleet Acquisition
•Overview
•Results of Operations
•Liquidity and Capital Resources
•Regulations
•Critical Accounting Estimates
The MD&A should be read in conjunction with our 2025 Form 10-K.
FirstFleet Acquisition:
On January 27, 2026, we acquired 100% of the equity interests of FirstFleet, headquartered in Murfreesboro, Tennessee, for $245.0 million, which includes a maximum $35.0 million earnout based on gross revenue net of fuel surcharge for the period April 1, 2026, through March 31, 2027, and a $5.9 million deferred transaction bonus payout. Under a separate agreement, we also acquired real estate properties from FirstFleet for $37.8 million. FirstFleet brings added scale to Werner with approximately 2,400 tractors, 11,000 trailers and 37 strategically located properties near 130 customer sites around the country.
We funded these transactions using cash on hand and our existing revolving credit facility, in addition to assuming $57.2 million of finance lease liabilities. Additional information regarding the FirstFleet acquisition is included in Note 2 in the Notes to Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q.
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 second quarter 2026 to second quarter 2025, several industry-wide issues have caused, and could continue to cause, costs to increase in future periods. These issues include shortages of drivers or independent contractors, changing fuel prices, changing used truck and trailer pricing, compliance with new or proposed regulations and tightening of the commercial truck liability insurance market. Our main fixed costs include depreciation expense for tractors and trailers and non-driver salaries, wages and benefits. The TTS segment requires substantial cash expenditures for tractor and trailer purchases. We fund these purchases with net cash from operations and financing available under our existing credit facilities, as management deems necessary.
We provide non-trucking services primarily through the three divisions within our Werner Logistics segment (Truckload Logistics, Intermodal, and Final Mile). Unlike our TTS segment, the Werner Logistics segment is less asset-intensive and is instead dependent upon qualified associates, information systems and qualified third-party capacity providers. The largest expense item related to the Werner Logistics segment is the cost of purchased transportation we pay to third-party capacity providers. This expense item is recorded as rent and purchased transportation expense. Other operating expenses consist primarily of salaries, wages and benefits, as well as depreciation and amortization, supplies and maintenance, and other general expenses. We evaluate the Werner Logistics segment's financial performance by reviewing operating expenses and operating income expressed as a percentage of revenues. Purchased transportation expenses as a percentage of revenues can be impacted by the rates charged to customers and the costs of securing third-party capacity. We have a mix of contracted long-term rates and variable rates for the cost of third-party capacity, and we cannot assure that our operating results will not be adversely impacted in the future if our ability to obtain qualified third-party capacity providers changes or the rates of such providers increase.
Results of Operations:
The following table sets forth the consolidated statements of income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the prior year.
Three Months Ended (3ME)
June 30,
Six Months Ended (6ME)
June 30,
Percentage Change in Dollar Amounts
2026 2025 2026 2025
3ME
6ME
(in thousands) $ % $ % $ % $ % % %
Operating revenues $ 933,927 100.0 $ 753,148 100.0 $ 1,742,537 100.0 $ 1,465,262 100.0 24.0 18.9
Operating expenses:
Salaries, wages and benefits 310,964 33.3 250,451 33.2 590,625 33.9 493,676 33.7 24.2 19.6
Fuel 119,897 12.8 60,401 8.0 202,342 11.6 123,493 8.4 98.5 63.8
Supplies and maintenance 77,648 8.3 62,260 8.3 145,453 8.3 122,300 8.3 24.7 18.9
Taxes and licenses 23,383 2.5 23,100 3.1 46,211 2.7 45,444 3.1 1.2 1.7
Insurance and claims 41,425 4.4 (6,813) (0.9) 83,353 4.8 36,964 2.5 708.0 125.5
Depreciation and amortization 78,811 8.4 70,757 9.4 155,008 8.9 140,806 9.6 11.4 10.1
Rent and purchased transportation 248,927 26.7 228,280 30.3 470,031 27.0 434,422 29.7 9.0 8.2
Communications and utilities 4,866 0.6 3,730 0.5 9,457 0.5 8,087 0.6 30.5 16.9
Restructuring and impairment 4,094 0.4 - - 4,094 0.2 - - N/A N/A
Other 6,991 0.8 (5,339) (0.7) 15,047 0.9 (419) - 230.9 3,691.2
Total operating expenses 917,006 98.2 686,827 91.2 1,721,621 98.8 1,404,773 95.9 33.5 22.6
Operating income 16,921 1.8 66,321 8.8 20,916 1.2 60,489 4.1 (74.5) (65.4)
Total other expense, net 9,583 1.0 7,231 1.0 19,520 1.1 14,787 1.0 32.5 32.0
Income before income taxes 7,338 0.8 59,090 7.8 1,396 0.1 45,702 3.1 (87.6) (96.9)
Income tax expense 2,003 0.2 15,468 2.0 522 - 12,301 0.8 (87.1) (95.8)
Net income 5,335 0.6 43,622 5.8 874 0.1 33,401 2.3 (87.8) (97.4)
Net loss attributable to noncontrolling interest 1,015 0.1 440 0.1 1,214 - 563 - 130.7 115.6
Net income attributable to Werner $ 6,350 0.7 $ 44,062 5.9 $ 2,088 0.1 $ 33,964 2.3 (85.6) (93.9)
The following tables set forth the operating revenues, operating expenses and operating income for the TTS segment and certain statistical data regarding our TTS segment operations, as well as statistical data for One-Way Truckload and Dedicated operations within TTS.
Three Months Ended
June 30, 		Six Months Ended
June 30,
2026 2025 2026 2025
TTS segment (in thousands) $ % $ % $ % $ %
Trucking revenues, net of fuel surcharge $ 572,224 $ 450,903 $ 1,080,505 $ 883,976
Trucking fuel surcharge revenues 120,569 55,201 199,037 112,841
Non-trucking and other operating revenues 9,779 11,543 17,342 22,705
Operating revenues 702,572 100.0 517,647 100.0 1,296,884 100.0 1,019,522 100.0
Operating expenses 675,454 96.1 453,558 87.6 1,255,828 96.8 956,349 93.8
Operating income $ 27,118 3.9 $ 64,089 12.4 $ 41,056 3.2 $ 63,173 6.2
Three Months Ended
June 30, 		Six Months Ended
June 30,
TTS segment 2026 2025 % Change 2026 2025 % Change
Average tractors in service 8,712 7,489 16.3 % 8,583 7,452 15.2 %
Average revenues per tractor per week (1)
$ 5,053 $ 4,632 9.1 % $ 4,842 $ 4,563 6.1 %
Total tractors (at quarter end)
Company 8,380 7,215 16.1 % 8,380 7,215 16.1 %
Independent contractor 315 330 (4.5) % 315 330 (4.5) %
Total tractors 8,695 7,545 15.2 % 8,695 7,545 15.2 %
Total trailers (at quarter end) 35,510 24,660 44.0 % 35,510 24,660 44.0 %

One-Way Truckload
Trucking revenues, net of fuel surcharge (in 000's) $ 137,948 $ 164,083 (15.9) % $ 274,349 $ 318,504 (13.9) %
Average tractors in service 1,736 2,634 (34.1) % 1,929 2,633 (26.7) %
Total tractors (at quarter end) 1,735 2,655 (34.7) % 1,735 2,655 (34.7) %
Average percentage of empty miles 14.94 % 15.50 % (3.6) % 15.27 % 15.75 % (3.0) %
Average revenues per tractor per week (1)
$ 6,114 $ 4,787 27.7 % $ 5,529 $ 4,650 18.9 %
Average % change in revenues per total mile (1)
10.4 % 2.7 % 7.0 % 1.5 %
Average % change in total miles per tractor per week 15.7 % (2.3) % 10.8 % (2.9) %
Average completed trip length in miles (loaded) 685 581 17.9 % 679 579 17.3 %

Dedicated
Trucking revenues, net of fuel surcharge (in 000's) $ 434,276 $ 286,820 51.4 % $ 806,156 $ 565,472 42.6 %
Average tractors in service 6,976 4,855 43.7 % 6,654 4,819 38.1 %
Total tractors (at quarter end) 6,960 4,890 42.3 % 6,960 4,890 42.3 %
Average revenues per tractor per week (1)
$ 4,789 $ 4,542 5.4 % $ 4,654 $ 4,512 3.1 %
(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 (loss), as well as certain statistical data regarding the Werner Logistics segment.
Three Months Ended
June 30, 		Six Months Ended
June 30,
2026 2025 2026 2025
Werner Logistics segment (in thousands) $ % $ % $ % $ %
Operating revenues $ 211,732 100.0 $ 221,177 100.0 $ 407,568 100.0 $ 416,735 100.0
Operating expenses:
Purchased transportation expense 185,744 87.7 188,326 85.1 354,274 86.9 355,484 85.3
Other operating expenses 29,858 14.1 28,523 12.9 59,169 14.5 57,398 13.8
Total operating expenses 215,602 101.8 216,849 98.0 413,443 101.4 412,882 99.1
Operating income (loss) $ (3,870) (1.8) $ 4,328 2.0 $ (5,875) (1.4) $ 3,853 0.9
Three Months Ended
June 30, 		Six Months Ended
June 30,
Werner Logistics segment 2026 2025 % Change 2026 2025 % Change
Average tractors in service 27 28 (3.6) % 26 24 8.3 %
Total tractors (at quarter end) 27 23 17.4 % 27 23 17.4 %
Total trailers (at quarter end) 2,470 3,650 (32.3) % 2,470 3,650 (32.3) %
Total containers (at quarter end) 375 200 87.5 % 375 200 87.5 %
Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025
Operating Revenues and Operating Profitability
Operating revenues increased 24.0% for the three months ended June 30, 2026, compared to the same period of the prior year. When comparing second quarter 2026 to second quarter 2025, TTS segment revenues increased $184.9 million, or 35.7%, and Werner Logistics revenues decreased $9.4 million, or 4.3%. The increase in TTS segment revenues was primarily due to $169.1 million of operating revenues related to our FirstFleet acquisition in the second quarter 2026. We had operating income of $16.9 million in second quarter 2026 compared to operating income of $66.3 million in second quarter 2025, and our operating margin percentage decreased to 1.8% in second quarter 2026 from 8.8% in second quarter 2025. TTS segment had operating income of $27.1 million in second quarter 2026 compared to operating income of $64.1 million in second quarter 2025, and its operating margin percentage decreased to 3.9% in second quarter 2026 from 12.4% in second quarter 2025. The decrease in our consolidated and TTS segment operating results during the second quarter 2026 was due primarily to the prior year impacts of a $45.7 million liability reversal through insurance and claims expense as a result of a previously disclosed favorable decision related to a lawsuit arising from a December 2014 accident, and a net favorable change of $7.9 million to the contingent earnout liability related to the Baylor Trucking, Inc. acquisition. For additional information related to the contingent consideration arrangement, see Note 7 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report. These impacts from the prior year were partially offset by the addition of FirstFleet operating results, profitability improvement in One-Way Truckload related to our recent restructuring efforts, and lower insurance and claims expense for our legacy business (not including FirstFleet) during the second quarter 2026. In fourth quarter 2025, we began a strategic restructuring of our One-Way Truckload business, a decisive action designed to significantly enhance long-term profitability and fleet utilization by maximizing production and mitigating unprofitable freight. Key steps in this initiative include exiting selective unprofitable regional and short-haul truckload freight, further integrating our one-way acquisition operations, and a further shift in the One-Way Truckload fleet composition toward more specialized, Expedited, and team capacity. This repositioning is focused on eliminating underperforming business. For additional information related to the restructuring and impairment charges, see Note 11 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report.
Werner Logistics had an operating loss of $3.9 million in second quarter 2026 compared to operating income of $4.3 million in second quarter 2025, and its operating margin percentage decreased to (1.8)% in second quarter 2026 from 2.0% in second quarter 2025. Truckload Logistics operating margin was pressured during second quarter 2026, as higher spot freight rates drove an increase in purchased transportation costs as a percentage of operating revenues. We are focused on proactively engaging with customers on resetting to higher contract rates. We believe the margin pressure is mostly transitory as contract rates are reset. As a result, we expect Logistics margins to improve during the second half of 2026.
In January 2026, we expanded our Dedicated offering through the acquisition of FirstFleet, adding scale, density and exposure to what we believe are more resilient customer markets, including grocery and food & beverage. At the same time, we also restructured our One-Way Truckload business to create a more balanced and higher-producing network to improve profitability. Our Dedicated business remains strong as customer retention remains high, and we have been successful in continuing to secure rate increases on renewals. In addition, Dedicated customers are expanding existing fleets, and we continue to have success with customers in new markets. Werner Logistics profitability continues to be impacted by ongoing pricing pressure. Industry capacity has continued to contract driven by regulatory enforcement actions related to non-domiciled commercial driver's licenses ("CDLs"), B1 Visas, and English Language Proficiency standards. In addition, increased competition for high-quality drivers, combined with rising fuel, insurance and equipment replacement costs, may further limit capacity. We anticipate further capacity attrition, along with seasonal peak volumes, to improve freight rates through the remainder of 2026.
In the TTS segment, trucking revenues, net of fuel surcharge, increased 26.9% in second quarter 2026 compared to second quarter 2025 due to a 16.3% increase in the average number of tractors in service and a 9.1% increase in average revenues per tractor per week, net of fuel surcharge. The TTS segment average number of tractors in service increase was due primarily to a 43.7% increase in Dedicated average tractors in service, which was mostly due to the addition of FirstFleet, partially offset by a 34.1% decrease in One-Way Truckload average tractors in service as a result of our One-Way Truckload restructuring plan, and slightly lower legacy Dedicated tractors. The result of our One-Way Truckload restructuring is showing early gains, with second quarter 2026 One-Way Truckload average revenues per tractor per week, net of fuel surcharge increasing 27.7%, average total miles per tractor per week up 15.7%, and One-Way Truckload revenues per total mile, net of fuel surcharge increasing 10.4%, compared to second quarter 2025, reflecting the combined effect of our restructuring and pricing actions. We expect One-Way Truckload fleet average revenues per total mile, net of fuel surcharge, to increase 10% to 13% in third quarter 2026 compared to third quarter 2025, as we expect ongoing pricing improvement as more contract renewals become effective, alongside anticipated seasonal demand later in the year. The increase in TTS average revenues per tractor per week, net of fuel surcharge was also due to a 5.4% increase in Dedicated average revenues per tractor per week, net of fuel surcharge. We are raising our full-year 2026 guidance for Dedicated average revenues per tractor per week, net of fuel surcharge, from a range of flat or increase up to 3%, to a range of an increase of 3% to 5%, as we have been successful in securing price increases in contract renewals for both our legacy Dedicated fleet and FirstFleet business.
The average number of tractors in service in the TTS segment increased 16.3% to 8,712 in second quarter 2026 from 7,489 in second quarter 2025. We ended second quarter 2026 with 8,695 tractors in the TTS segment, an increase of 1,150 tractors compared to the end of second quarter 2025, and a sequential decrease of 345 tractors compared to the end of the first quarter 2026. Within TTS, Dedicated ended second quarter 2026 with 6,960 tractors (or 80% of our total TTS segment fleet) compared to 4,890 tractors (or 65%) a year ago. We our revising our full-year 2026 guidance for TTS average tractors in service from up 23% to 28% to a range of up 16% to 18% when compared to the same period in 2025. A portion of our previously anticipated growth in the second half may be delayed beyond year end, in part from further productivity gains we are realizing with our revenue equipment across the TTS segment, coupled with a slower pace of driver hiring, as there are currently fewer quality drivers available across the industry.
Trucking fuel surcharge revenues increased 118.4% to $120.6 million in second quarter 2026 from $55.2 million in second quarter 2025 due primarily to higher average diesel fuel prices in second quarter 2026 and the impact of the FirstFleet acquisition. These revenues represent collections from customers for the increase in fuel and fuel-related expenses, including the fuel component of our independent contractor cost (recorded as rent and purchased transportation expense) and fuel taxes (recorded in taxes and licenses expense), when diesel fuel prices rise. Conversely, when fuel prices decrease, fuel surcharge revenues decrease. To lessen the effect of fluctuating fuel prices on our margins, we collect fuel surcharge revenues from our customers for the cost of diesel fuel and taxes in excess of specified base fuel price levels according to terms in our customer contracts. Fuel surcharge rates generally adjust weekly based on an independent U.S. Department of Energy fuel price survey which is released every Monday. Our fuel surcharge programs are designed to (i) recoup higher fuel costs from customers when fuel prices rise and (ii) provide customers with the benefit of lower fuel costs when fuel prices decline. These programs generally enable us to recover a majority, but not all, of the fuel price increases. The remaining portion is generally not recoverable because it results from empty and out-of-route miles (which are not billable to customers) and tractor idle time. Fuel prices that change rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes once per week.
Werner Logistics revenues are generated by its three divisions. Werner Logistics recorded a minimal amount of revenue and brokered freight expense in second quarter 2026 and $4.7 million in second quarter 2025 for certain shipments performed by the TTS segment (also recorded as trucking revenue by the TTS segment), and these transactions between reporting segments are eliminated in consolidation. In second quarter 2026, Werner Logistics revenues decreased $9.4 million, or 4.3%, compared to second quarter 2025. Truckload Logistics revenues (72% of total Werner Logistics segment revenues) decreased $17.8 million, or 10%, in second quarter 2026, driven by a decrease in shipments of 29%, partially offset by a 26% increase in revenue per shipment. Intermodal revenues (16% of total Werner Logistics segment revenues) increased $5.4 million, or 18%, due to an increase in shipments of 17% and a 2% increase in revenue per shipment. Final Mile revenues (12% of total Werner Logistics segment revenues) increased $3.0 million, or 14%, in second quarter 2026, and increased 13% sequentially.
Operating Expenses
Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 98.2% in second quarter 2026 compared to 91.2% in second quarter 2025. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 31 through 32 show the consolidated statements of income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the same period of the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, TTS and Werner Logistics.
Salaries, wages and benefits increased $60.5 million, or 24.2%, in second quarter 2026 compared to second quarter 2025, and increased 0.1% as a percentage of operating revenues. The higher dollar amount of salaries, wages and benefits expense was due primarily to increased driver and non-driver pay and higher benefit costs, as we had a higher average number of employees. These increases were due primarily to the impact of the FirstFleet acquisition. Non-driver salaries, wages and benefits in our non-trucking Werner Logistics segment decreased 1.7% in second quarter 2026 compared to second quarter 2025.
We renewed our workers' compensation insurance coverage on April 1, 2026. Our coverage levels are the same as the prior policy year. We maintain a self-insurance retention of up to $2.0 million per claim. Our workers' compensation insurance premiums for the policy year beginning April 2026 are $0.6 million higher than the previous policy year due to the FirstFleet acquisition.
Competition for high-quality drivers has increased. 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 increased $59.5 million, or 98.5%, in second quarter 2026 compared to second quarter 2025, and increased 4.8% as a percentage of operating revenues, due primarily to higher average diesel fuel prices in second quarter 2026 and the impact of the FirstFleet acquisition. Average diesel fuel prices were $1.67 per gallon higher in second quarter 2026 than in second quarter 2025, and were $1.08 per gallon higher than in first quarter 2026.
We continue to employ measures to improve our fuel mpg such as (i) limiting tractor engine idle time by installing auxiliary power units, (ii) optimizing the speed, weight and specifications of our equipment and (iii) implementing mpg-enhancing equipment changes to our fleet including new tractors, more aerodynamic tractor features, idle reduction systems, trailer tire inflation systems, trailer skirts and automated manual transmissions to reduce our fuel gallons purchased. However, fuel savings from mpg improvement is partially offset by higher depreciation expense and the additional cost of diesel exhaust fluid. Although our fuel management programs require significant capital investment and research and development, we intend to continue these and other environmentally conscious initiatives, including our active participation as a U.S. Environmental Protection Agency ("EPA") SmartWay Transport Partner. The SmartWay Transport Partnership is a national voluntary program developed by the EPA and freight industry representatives to reduce greenhouse gases and air pollution and promote cleaner, more efficient ground freight transportation.
For July 2026, the average diesel fuel price per gallon was $1.31 higher than the average diesel fuel price per gallon in July 2025, and $1.38 higher than in third quarter 2025.
Shortages of fuel, increases in fuel prices and petroleum product rationing can have a material adverse effect on our operations and profitability. We are unable to predict whether fuel price levels will increase or decrease in the future or the extent to which fuel surcharges will be collected from customers. As of June 30, 2026, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.
Supplies and maintenance increased $15.4 million, or 24.7%, in second quarter 2026 compared to second quarter 2025, and was flat as a percentage of operating revenues. The expense increase was driven by an increase in over-the-road tractor and trailer maintenance, in-house tractor maintenance, and higher toll and tire costs in second quarter 2026, resulting primarily from the FirstFleet acquisition.
Insurance and claims increased $48.2 million, or 708.0%, in second quarter 2026 compared to second quarter 2025, and increased 5.3% as a percentage of operating revenues, due primarily to the impact of a $45.7 million liability reversal through insurance and claims expense in second quarter 2025 as a result of a favorable decision related to an adverse jury verdict rendered on May 17, 2018 for a December 2014 accident, effectively ending the lawsuit in favor of Werner. The addition of insurance and claims expense in connection with the FirstFleet acquisition in January 2026 is also contributing to the increase in insurance and claims expense year over year. These increases were partially offset by lower unfavorable reserve development in second quarter 2026 compared to the same period in 2025. The majority of our insurance and claims expense results from our claim experience and claim development under our self-insurance program; the remainder results from insurance premiums for claims in excess of our self-insured limits. We believe our elevated insurance and claims expense is generally a reflection of the ongoing unprecedented rise in verdicts and litigation settlements across the industry, particularly for larger carriers.
We renewed our liability insurance policies on August 1, 2026, 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, consistent with the prior year. We maintain liability insurance coverage with insurance carriers in excess of the $15.0 million per claim. Our liability insurance premiums per mile for the policy year that began August 1, 2026 increased approximately six percent from the previous policy year.
Depreciation and amortization expense increased $8.1 million, or 11.4%, in second quarter 2026 compared to second quarter 2025, and decreased 1.0% as a percentage of operating revenues due primarily to depreciation and amortization of tangible and intangible assets recorded in the FirstFleet acquisition. These increases were partially offset by lower intangible amortization driven by a restructuring of our One-Way Truckload operating segment during the fourth quarter 2025 that impaired certain customer relationships and trade names.
The average age of our tractor fleet was 3.0 years as of June 30, 2026, and the average age of our trailers was 6.3 years. We are continuing to invest in new tractors and trailers, technology, and our terminal network in 2026 to improve our driver experience, increase operational efficiency and more effectively manage our maintenance, safety and fuel costs.
Rent and purchased transportation expense increased $20.6 million, or 9.0%, in second quarter 2026 compared to second quarter 2025, and decreased 3.6% as a percentage of operating revenues. Rent and purchased transportation expense consists mostly of payments to third-party capacity providers in the Werner Logistics segment and other non-trucking operations, payments to independent contractors in the TTS segment, and cloud-based technology fees. The payments to third-party capacity providers generally vary depending on changes in the volume of services generated by the Werner Logistics segment. Werner Logistics recorded a minimal amount of revenue and brokered freight expense in second quarter 2026 and $4.7 million in second quarter 2025 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 $2.6 million in second quarter 2026, and increased to 87.7% as a percentage of Werner Logistics revenues in second quarter 2026 from 85.1% in second quarter 2025. The increase in the percentage of Werner Logistics revenues was due primarily to higher capacity costs year over year.
Rent and purchased transportation expense for the TTS segment increased $18.5 million in second quarter 2026 compared to second quarter 2025 due primarily to an increase in operating lease expense in connection with the FirstFleet acquisition and higher reimbursements to independent contractors related to higher average diesel fuel prices.
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.
Restructuring and impairment expense was $4.1 million in second quarter 2026. As discussed above, we began a strategic restructuring of our One-Way Truckload business in fourth quarter 2025. We do not expect further restructuring expenses going forward.
Other operating expenses increased $12.3, or 230.9%, in second quarter 2026 compared to second quarter 2025, and increased 1.5% as a percentage of operating revenues due primarily to the impact of a $7.9 million net favorable change to the contingent earnout liability related to the Baylor Trucking, Inc. acquisition in the second quarter 2025. The increase in other operating expenses was also due to acquisition expenses of $4.3 million in connection with the FirstFleet acquisition and continued integration efforts and a decrease in net gains on sales of property and equipment (primarily used tractors and trailers). 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 $1.5 million in second quarter 2026 compared to $5.9 million in second quarter 2025. We sold more tractors and fewer trailers in second quarter 2026 compared to second quarter 2025, and realized lower average sale prices for our used equipment. We continue to anticipate increasing used equipment demand and resale values through the remainder of 2026. Increased supply of used equipment from regulatory enforcement is likely to be offset by equipment manufacturers production constraints, aging fleets, and higher-priced 2027 engines, which may be an incentive towards high quality used assets. As a result, we are narrowing our anticipated gains on our used equipment for full-year 2026 from a range between $8 million and $18 million to a range between $10 million and $14 million.
Other Expense (Income)
Other expense, net of other income, increased $2.4 million, or 32.5%, in second quarter 2026 compared to second quarter 2025, due primarily to a $2.2 million increase in net interest expense. Net interest expense increased due primarily to an increase in average debt outstanding, partially offset by a decrease in average interest rates. We continue to expect net interest expense to be between $40 million and $45 million for full-year 2026.
Income Tax Expense
Income tax expense decreased $13.5 million in second quarter 2026 compared to second quarter 2025 due to lower pre-tax income, partially offset by an increase in the effective income tax rate. Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) increased to 27.3% in second quarter 2026 compared to 26.2% in second quarter 2025. We continue to estimate our full-year 2026 effective income tax rate to be approximately 25.5% to 26.5%.
Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025
Operating Revenues and Operating Profitability
Operating revenues increased 18.9% for the first six months of 2026, compared to the same period of the prior year. When comparing the first six months of 2026 to the first six months of 2025, TTS segment revenues increased $277.4 million, or
27.2%, and Werner Logistics revenues decreased $9.2 million, or 2.2%. The increase in TTS segment revenues was primarily due to $277.0 million of operating revenues related to our FirstFleet acquisition in the first six months of 2026. In the TTS segment, trucking revenues, net of fuel surcharge, increased $196.5 million, due primarily to a 15.2% increase in average tractors in service and a 6.1% increase in average revenues per tractor per week, net of fuel surcharge. TTS segment fuel surcharge revenues for the first six months 2026 increased $86.2 million, or 76.4%, when compared to the same period of the prior year due to higher average diesel fuel prices and the impact of the FirstFleet acquisition. The decrease in Werner Logistics revenues was due primarily to lower volumes in Truckload Logistics, partially offset by higher volumes in Intermodal and increased Final Mile revenues. We had operating income of $20.9 million for the first six months of 2026 compared to $60.5 million for the first six months of 2025, and our operating margin percentage decreased to 1.2% for the first six months of 2026 from 4.1% for the first six months of 2025. TTS segment had operating income of $41.1 million for the first six months of 2026 compared to $63.2 million for the first six months of 2025, and its operating margin percentage decreased to 3.2% for the first six months of 2026 from 6.2% for the first six months of 2025. The decrease in our consolidated and TTS segment operating results during the first six months of 2026 was due primarily to the prior year impacts of a $45.7 million liability reversal through insurance and claims expense as a result of a previously disclosed favorable decision related to a lawsuit arising from a December 2014 accident, and a net favorable change of $7.8 million to the contingent earnout liability related to the Baylor Trucking, Inc. acquisition. These impacts from the prior year were partially offset by the addition of FirstFleet operating results, profitability improvement in One-Way Truckload related to our recent restructuring efforts, and lower insurance and claims expense for our legacy business (not including FirstFleet) during the first six months of 2026.
Werner Logistics had an operating loss of $5.9 million for the first six months of 2026 compared to operating income of $3.9 million for the first six months of 2025, and its operating margin percentage decreased to (1.4)% for the first six months of 2026 from 0.9% for the first six months of 2025, primarily due to continued operating margin pressure during the first six months of 2026, as higher spot freight rates drove an increase in purchased transportation costs as a percentage of operating revenues.
Operating Expenses
Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 98.8% for the six months ended June 30, 2026 and 95.9% for the six months ended June 30, 2025. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 31 through 32 show the consolidated statements of income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the same period of the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, TTS and Werner Logistics.
Salaries, wages and benefits increased $96.9 million, or 19.6%, in the first six months of 2026 compared to the same period in 2025, and increased 0.2% as a percentage of operating revenues. The higher dollar amount of salaries, wages and benefits expense was due primarily to increased driver and non-driver pay and higher benefit costs, as we had a higher average number of employees. These increases were due primarily to the impact of the FirstFleet acquisition. Non-driver salaries, wages and benefits in our non-trucking Werner Logistics segment decreased 3.2% in the first six months of 2026 compared to the same period in 2025.
Fuel increased $78.8 million, or 63.8%, in the first six months of 2026 compared to the same period in 2025, and increased 3.2% as a percentage of operating revenues due to higher average diesel fuel prices in the first six months of 2026 and the impact of the FirstFleet acquisition. Average diesel fuel prices were $1.08 per gallon higher in the first six months of 2026 than in same period in 2025.
Supplies and maintenance increased $23.2 million, or 18.9%, in the first six months of 2026 compared to the same period in 2025 and remained flat as a percentage of operating revenues. The expense increase was driven by an increase in over-the-road tractor and trailer maintenance, in-house tractor maintenance, and higher toll and office supply costs in the first six months of 2026, resulting primarily from the FirstFleet acquisition.
Insurance and claims increased $46.4 million, or 125.5% in the first six months of 2026 compared to the same period in 2025, and increased 2.3% as a percentage of operating revenues, due primarily to the impact of a $45.7 million liability reversal through insurance and claims expense in second quarter 2025 as a result of a favorable decision related to an adverse jury verdict rendered on May 17, 2018 for a December 2014 accident, effectively ending the lawsuit in favor of Werner. The addition of insurance and claims expense in connection with the FirstFleet acquisition in January 2026 is also contributing to the increase in insurance and claims expense year over year. These increases were partially offset by lower expense for liability claims, resulting primarily from lower unfavorable reserve development and lower expense for new claims in the first six months of 2026 compared to the same period in 2025.
Depreciation and amortization expense increased $14.2 million, or 10.1%, in the first six months of 2026 compared to the same period in 2025, and decreased 0.7% as a percentage of operating revenues due primarily to depreciation and amortization of
tangible and intangible assets recorded in the FirstFleet acquisition. These increases were partially offset by lower intangible amortization driven by a restructuring of our One-Way Truckload operating segment during the fourth quarter 2025 that impaired certain customer relationships and trade names.
Werner Logistics purchased transportation expense decreased $1.2 million in the first six months of 2026 as a result of the decline in Werner Logistics revenues, and increased 1.6% as a percentage of Werner Logistics revenues to 86.9% in the first six months of 2026 from 85.3% in the same period in 2025. The increase in the percentage of Werner Logistics revenues was due primarily to higher capacity costs year over year. Rent and purchased transportation expense for the TTS segment increased $28.2 million in the first six months of 2026 compared to the same period in 2025 due primarily to an increase in operating lease expense in connection with the FirstFleet acquisition and higher reimbursements to independent contractors related to higher average diesel fuel prices.
Restructuring and impairment expense was $4.1 million in the first six months of 2026. As discussed above, we began a strategic restructuring of our One-Way Truckload business in fourth quarter 2025.
Other operating expenses increased $15.5 million in the first six months of 2026 compared to the same period in 2025, and increased 0.9% as a percentage of operating revenues. The expense increased due primarily to acquisition expenses of $10.3 million in connection with the FirstFleet acquisition and continued integration efforts, and a decrease in net gains on sales of property and equipment (primarily used tractors and trailers) in the first six months of 2026. The increase in other operating expenses was also impacted by a $7.8 million net favorable change to the contingent earnout liability related to the Baylor Trucking, Inc. acquisition in the second quarter of 2025. Gains on sales of property and equipment were $5.3 million in the first six months of 2026 compared to $8.8 million in the same period in 2025. We sold more tractors and fewer trailers in in the first six months of 2026 compared to the same period in 2025, and realized lower average sale prices for our used equipment.
Other Expense (Income)
Other expense, net of income, increased $4.7 million in the first six months of 2026 compared to the same period in 2025 due primarily to a $4.3 million increase in net interest expense. Net interest expense increased due primarily to an increase in average debt outstanding, partially offset by a decrease in average interest rates (see Note 9 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report for further information on our debt and interest rate swaps).
Income Tax Expense
Income tax expense decreased $11.8 million in the first six months of 2026 compared to the same period in 2025, due to lower pre-tax income, partially offset by an increase in the effective income tax rate. Our effective income tax rate increased to 37.4% in the first six months of 2026 compared to 26.9% in the first six months of 2025 due primarily to differences in discrete income tax items.
Liquidity and Capital Resources:
We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment needed to support business strategies, the performance of the business, capital expenditures, borrowing arrangements, and working capital management. Capital expenditures, business acquisitions, stock repurchases, and dividend payments are components of our cash flow and capital management strategy, which to a large extent, can be adjusted in response to economic and other changes in the business environment. Management's approach to capital allocation focuses on investing in key priorities that support our business and growth strategies and providing stockholder returns, while funding ongoing operations.
Management believes our financial position at June 30, 2026 is strong. As of June 30, 2026, we had $57.0 million of cash and cash equivalents and $1.4 billion of stockholders' equity. Cash is invested primarily in short-term money market funds. In addition, we have a maximum amount of funding available of $1.4 billion under our Credit Facilities, for which our total available borrowing capacity was $599.9 million as of June 30, 2026 (see Note 9 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report for information regarding our credit facilities). We believe the six commercial banks in our $1.075 billion syndicated credit facility all have strong tier-one capital ratios and good loan-to-deposit ratios. We believe our liquid assets, cash generated from operating activities, and borrowing capacity under our existing credit facilities will provide sufficient funds to meet our cash requirements and our planned stockholder returns for the foreseeable future.
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