WERN

Strategic & Market Context

• Structural capacity attrition driven by stricter regulatory enforcement (non-domiciled CDLs, English language proficiency, cabotage) and ELD provider consolidation (1/3 of providers have exited or lost certification) is reducing shadow capacity and tightening supply. The Montgomery verdict has increased shipper caution around third-party carrier risk, which plays to Werner's compliant, reputable position.
• The company's multi-year strategic actions (restructuring, portfolio streamlining, technology investment, First Fleet acquisition) are delivering results, with Q2 showing 24% revenue growth and 80 basis points of adjusted operating margin expansion.

Operational Progress

• Technology: 100% of legacy freight is now ingested into the new single-edge TMS platform, creating the foundation for expanded automation. AI and automated workflows are already delivering measurable results across load planning, maintenance, safety, and recruiting, with successful use cases now being scaled across the enterprise to drive structural cost savings.
• Safety: DOT preventable accidents per million miles saw a repeat 45% YoY decline in Q2, bringing insurance and claims expense to its lowest level since Q3 2024. Improvements stem from ongoing investment in tech-enabled safety tools, enhanced driver training, and upgraded equipment.
• First Fleet Integration: Six months post-acquisition, integration is progressing ahead of schedule, with 98% customer renewal rate on the 80% of the portfolio that has renewed to date. Driver and employee retention has been excellent, and the acquisition is already accretive to earnings and TTS margins.
• Balance Sheet & Capital Allocation: Q2 operating cash flow was $85 million, up 84% YoY, and free cash flow hit $94 million (10% of total revenue). The company retired nearly half of the acquisition debt taken on in Q1, ending Q2 with $657 million in total liquidity and a pro forma net leverage ratio of 2x, maintaining a strong balance sheet with no near-term debt maturities.

Commercial Highlights

• One-way restructuring is complete: the segment is now more profitable, productive, and focused on high-value geographies and lanes, with 60% of the portfolio repriced to higher rates in H1. The company is securing upper single-digit to double-digit contractual increases in new one-way bids.
• Dedicated remains a resilient cornerstone, with >95% customer retention. Q2 bid volume was the highest since 2020, as shippers seek long-term reliable capacity amid market tightening.
• While spot rate spikes pressured logistics margins in Q2, margins improved sequentially through the quarter, and management expects margins to improve for the full year as the business resets to higher contract rates.

• Full-year 2026 dedicated revenue per truck per week: Guidance raised from a range of flat to up 3% to up 3% to 5%, driven by realized contract rate increases and improved density from the First Fleet acquisition.
• Full-year average TTS fleet growth: Guidance revised lower from 23% to 28% YoY growth to 16% to 18% YoY growth. The downward revision reflects higher than expected productivity gains across the fleet and a slower pace of quality driver hiring, pushing some growth into 2027 rather than eliminating growth opportunities.
• Full-year net capex: Guidance raised from $185-$225 million to $215-$250 million. The increase is to accelerate fleet modernization (reducing average tractor age) and support a modest strategic pre-buy of 2026 model year tractors ahead of 2027 emission standards, which will improve reliability, lower long-term maintenance costs, and support driver retention.
• Effective tax rate: Full-year guidance maintained at 25.5% to 26.5%.
• Net interest expense: Full-year guidance maintained at $40 to $45 million.
• Gains on sale of used equipment: Full-year guidance narrowed from $8-$18 million to $10-$14 million, with improving resale values expected in H2 2026 driven by OEM manufacturing constraints and regulatory pressure that increases demand for high-quality used equipment.
• Q3 2026 one-way revenue per total mile: Guidance calls for 10% to 13% YoY growth, following Q2's 10.4% YoY increase, with ongoing pricing improvement expected as more renewals take effect and peak season demand builds.
• Margin outlook: Management expects accelerated adjusted operating income and EPS growth in H2 2026, with consolidated margins moving toward mid-single digits. Logistics gross margins are expected to improve meaningfully in Q3, with recent July truckload brokerage gross margins up 300-400 basis points from Q2 levels.

Total Q2 2026 consolidated revenue was $934 million, up 24% year-over-year (YoY). Adjusted operating income was $27.6 million, up 67% YoY, with an adjusted operating margin of 3%, an increase of 80 basis points YoY. Adjusted EPS was $0.22, up $0.14 YoY.

1. Truckload Transportation Services (TTS): Total segment revenue was $703 million (75.3% of total revenue), up 36% YoY. Revenue net of fuel surcharges was $582 million, up 26% YoY. Adjusted operating income was $32.3 million, with an adjusted operating margin of 5.5% (net of fuel), up 270 basis points YoY. Excluding gains on equipment sales in both periods, margin improved 370 basis points YoY. Average fleet size was 8,712 trucks, up 16% YoY.

   • Dedicated: Net fuel revenue was $434 million, up 51% YoY, representing 76% of TTS trucking revenue (up from 64% YoY). Average trucks increased 44% YoY, and 80% of TTS end-of-quarter trucks were dedicated, driven by the First Fleet acquisition. Revenue per truck per week rose 5.4% YoY, with legacy dedicated up 8% YoY. Synergy realization from First Fleet is ahead of schedule: $3 million in year-to-date savings have been realized, with $7 million of the $18 million total annual target expected to be realized in 2026.
   • One-way Truckload: Net fuel revenue decreased 16% YoY to $138 million. Average fleet size declined 34% YoY to 1,736 trucks following restructuring. Revenue per truck per week increased 27.7% YoY, miles per truck up 15.7% YoY, and revenue per total mile up 10.4% YoY. Adjusted operating margin improved over 700 basis points YoY, and the segment is now profitable.

2. Logistics: Total segment revenue was $212 million (22.7% of total revenue), down 4% YoY but up 8% sequentially. Adjusted operating margin was negative 1.3%, down 400 basis points YoY, driven by gross margin pressure in truckload brokerage from volatile buy-side rates. Intermodal revenue (16% of logistics revenue) rose 18% YoY on 17% higher load volume. Final Mile revenue (12% of logistics revenue) increased 14% YoY and 13% sequentially.

• Industry-wide regulatory enforcement is accelerating capacity removal, but creates ongoing operational and hiring uncertainty. Non-compliant operators exiting the market create tighter supply, but also increase competition for qualified, compliant drivers.
• Large jury nuclear/employment verdicts (such as the recent Montgomery ruling) are putting significant upward pressure on industry insurance costs, particularly for smaller brokers and small fleet operators, creating systemic risk even as major carriers reduce accident frequency.
• Ongoing driver availability constraints are delaying expected fleet growth, even with Werner's vertically integrated driver training network and attractive dedicated job offerings.
• Ongoing macroeconomic uncertainty: while household balance sheets are broadly resilient, budget pressure on lower-income consumers creates mixed demand trends, and trade policy/tariff uncertainty can impact retail inventory restocking timing.
• New 2027 engine emission standards are untested, creating near-term uncertainty for OEM production and equipment pricing.
• Logistics margins remain under near-term pressure from buy-side rate volatility, particularly in temperature-controlled brokerage, which was heavily impacted by capacity constraints and extreme weather in Q2.

Q: What is the outlook for remaining regulatory capacity removal, how much more attrition is expected and what impact will it have on pricing? / A: Regulatory enforcement is still in the early innings (roughly the third inning) after one year of heightened activity. To date, over 27,000 drivers have been put out of service for English proficiency violations, 550 fraudulent CDL schools have been shut down, and 400+ high-risk carriers have voluntarily ceased operations. Upcoming steps include better interagency data sharing and technology-enabled enforcement via the new MODIS system, which will accelerate bad actor identification. Management expects significantly more capacity to be removed by the end of 2026, with the process continuing into early 2027, supporting ongoing upward rate pressure.

Q: Dedicated bid activity is at multi-year highs, but driver constraints are pushing growth to 2027. How is driver recruiting progressing, and how does pay address shortages? / A: Dedicated bid pipeline is robust, but management is being selective to avoid transient one-way traffic reclassified as dedicated. Werner's vertically integrated Roadmaster driver schools and network of partner schools continue to produce high-quality drivers, and experienced driver hiring has improved recently. Dedicated jobs with predictable schedules and frequent home time are attractive to drivers, and targeted pay increases are used where needed, with customer alignment on rate adjustments to support this. Hiring momentum has improved in Q3 compared to Q2, with delayed growth expected to be realized in 2027 rather than lost.

Q: How is the First Fleet integration progressing relative to original synergy targets, and have there been any unexpected upside or downside surprises? / A: Integration has gone exceptionally well, with strong cultural alignment between the two companies (both focused on safety and service) and 98% customer retention on renewed contracts. The process is ahead of schedule: $3 million in synergies have been realized year-to-date, with $7 million of the $18 million total annual target expected to be realized in 2026, and half of the total synergy target already actioned. First Fleet has been a top contributor to Q2 YoY EPS and TTS margin growth, and has delivered over 100 basis points of margin improvement already, exceeding early expectations.

Q: Is this trucking cycle structurally different from past cycles, and will shippers pivot more permanently to dedicated and asset-heavy brokerage after the Montgomery verdict? / A: The cycle is structurally different because it is driven by sustained, supply-side contraction rather than demand shifts, with regulatory enforcement and driver shortages continuing to constrain capacity for years. Shippers are increasingly focused on risk management following large employment/nuclear verdicts, driving more private fleet conversions and higher demand for dedicated capacity from compliant, reputable providers. Werner sees growing shipper preference for asset-heavy brokerage, which aligns with its existing portfolio mix. Management is careful to avoid misclassifying transient one-way freight as dedicated, and expects the current supply tightness to be more sustained than past upcycles.

Q: Why is capex guidance higher even as fleet growth guidance is lower, and will you grow the owner-operator fleet to address driver constraints? / A: The higher capex is mostly for accelerated fleet replacement to reduce average tractor age, with only a modest pre-buy of 2026 models ahead of 2027 emission standards. Fresher equipment improves reliability, lowers maintenance costs, and supports driver retention. Werner is actively looking to grow its high-quality owner-operator fleet, focused on multi-truck owners, and the upper end of the 16-18% fleet growth guidance includes expected owner-operator additions. Even with the higher capex, capital spending remains at ~8% of revenue, consistent with recent trends and below historical levels, and the company will remain free cash flow positive for the full year.