3Q2026 Earnings Conference Call - WERNER ENTERPRISES INC

Explicit Guidance:

• TTS Average Truck Count: Full-year 2026 guidance tightened to 16%–17% growth (revised down from 16%–18%), reflecting consistent fleet expansion and driver retention investments.
• Dedicated Revenue per Truck: Updated full-year guidance range raised to up 4%–5% growth (bottom of range increased), driven by mid-single-digit contract renewal rate increases and asset productivity.
• One-Way Revenue per Total Mile (Q4): Expected to grow 10%–13% year-over-year in Q4 2026, driven by contract rate repricing and peak season volumes.
• Net Capital Expenditures: Full-year 2026 range lowered and narrowed to $190–$205 million (revised down from $215–$250 million) due to OEM delivery timing, not a reduction in commitment to fleet refreshment.
• Effective Income Tax Rate: Full-year 2026 GAAP effective tax rate updated to 24.5%–25.5% (year-to-date was 17% due to discrete favorable items).
• Net Interest Expense: Expected to be $40–$45 million for the full year 2026.
• Gains on Sale of Assets: Full-year 2026 anticipated gains on sale of used equipment and revenue-generating assets raised to $13–$16 million (revised up from $10–$14 million), reflecting expected acceleration in demand for high-quality used assets.

Business-Segment Outlook:

• Truckload Transportation Services (TTS): Targeting a return to mid-cycle double-digit adjusted operating margins by 2027, anchored by market tailwinds (yield expansion, volume contribution) and self-help initiatives (fleet growth, cost discipline, technology).
• Dedicated: Pipeline remains robust with implementations expected in Q4 2026 (unusual timing); 2027 expected to feature net growth though likely not "record-breaking" additions immediately due to need for yield improvement before expansion. Dedicated fleet up 46% year-over-year at quarter-end.
• One-Way Truckload: Continued focus on yield over share volume; 85%+ of portfolio repriced at higher rates through Q3; early bid season 2027 expectations of double-digit rate increases on average for contracts repriced in the first half of the year.
• Logistics: Brokerage gross margins expanded >600 bps sequentially in Q3, returning segment to positive adjusted operating income; accelerating momentum in cross-border Mexico and PowerLink offerings.
• First Fleet Acquisition: On track to achieve $18 million synergy target; $11 million in annualized cost savings initiated, with $8 million to be realized in 2026; nearly $6 million in savings realized in first 8 months.

Market and Competitive Outlook:

• Capacity & Structure: Industry viewed as "early innings" of a multi-year upcycle driven by structural supply contractions via regulatory enforcement (FMCSA), higher barriers to entry (insurance, vetting, litigation), and aging fleet (approaching 2027 EPA emission standards).
• Pricing: Expect ongoing rate lift through end of 2026 and into 2027; peak season expected to outperform prior years. Tender rejections remain elevated, signaling market tightness.
• Spot Market: Some easing in July/August, but recent improvement; spot rates expected to rise further.
• Used Equipment: Demand for high-quality used assets expected to accelerate due to OEM manufacturing constraints and 2027 emission standards; used equipment market strengthened early in 2026.
• Competitive Advantage: "Flight to quality" post-Montgomery ruling continues; shippers acknowledging need to transition from non-compliant capacity to asset-backed providers.

Macro / Industry Outlook:

• Regulatory Enforcement: FMCSA efforts viewed as ongoing (entering "fourth inning"); net widening to include schools and CDL issuances; B-1 visa cabotage issues gaining steam; executive branch actions considered durable.
• Demand: Consumer demand remains stable; retailers carrying leaner inventories may allow demand to play a larger role as market recovers.
• Fuel: Rapidly rising diesel prices creating temporary margin headwinds in Q3; surcharge lag effect expected to abate in Q4 if prices stabilize, though volatility remains a risk.
• Interest Rates: Elevated interest rates pressuring consumers to seek value, but Werner's focus on non-discretionary retail (grocery, discount) provides resilience.

Strategic Initiatives:

• Fleet Growth: Accelerating investments in driver hiring, training, and onboarding to support fleet growth into 2027; dedicated fleet increased 130 trucks sequentially in Q3.
• Technology: Transitioning from heavy build phase to full application; focus on enterprise efficiency across customer experience, driver enablement, carrier ecosystems, and fleet management to drive tech-enabled cost savings in 2027.
• Capital Allocation: Balanced approach prioritizing fleet reinvestment (low-age, modern trucks), First Fleet integration/synergies, and continued shareholder returns; open to accretive M&A with strong cultural/financial fit.
• Credit Facility: New $1.1 billion unsecured facility (5-year maturity) entered Oct 5, 2026, replacing prior facility; improved flexibility and reduced borrowing costs.

Risks and Headwinds to Outlook:

• Driver Costs: Intentional front-loaded investments in recruiting and retention creating near-term earnings drag ($18 cents/Q3); continued elevated spending expected in Q4 and potentially Q1 2027.
• Fuel Volatility: Sharp price spikes and regional disparities temporarily blunt surcharge effectiveness; spread between wholesale and retail fuel prices remained historically low in Q3.
• Insurance Claims: Unfavorable development on select First Fleet claims contributed to Q3 headwinds; expected to be contained to the quarter but insurance premiums remain a structural barrier to entry.
• Seasonality/Volume: Gains on sale of used equipment expected to step down in Q4 due to OEM delivery timing delays (lack of inventory to sell).
• Regulatory/Legal: Ongoing enforcement disruptions at borders (Mexico cross-border) and potential litigation risks.

Management Tone on the Future:

• Confidence: High confidence in structural business strength and ability to achieve double-digit TTS operating margins by 2027; described as "unwavering" commitment to the target.
• Cycle View: Firm belief in being in the "early innings" of a multi-year upcycle driven by supply-side contraction; rates moving toward "sustainable, reinvestable levels."
• Strategic Patience: Willing to absorb near-term friction (costs, Q3 EPS drag) to secure long-term position; rejects short-termism in favor of strategic restructuring and fleet rebuilding.
• Labor Market: Acknowledges fierce competition for drivers but confident in Werner's positioning (Roadmaster schools, engineered routes, pay packages); expects retention to improve further.