Werner Enterprises Reports Fourth Quarter and Annual 2022 Results

Fourth Quarter 2022 Highlights (all metrics compared to fourth quarter 2021)

• Total revenues of $861.5 million, up 13%
• Operating income of $88.4 million, down 10%; non-GAAP adjusted operating income of $89.9 million, down 11%
• Operating margin of 10.3%, down 260 basis points; non-GAAP adjusted operating margin of 10.4%, down 280 basis points
• Diluted EPS of $0.94, down 18%; non-GAAP adjusted diluted EPS of $0.99, down 13%

2022 Highlights (all metrics compared to 2021)

• Total revenues of $3.29 billion, up 20%
• Operating income of $323.1 million, up 5%; non-GAAP adjusted operating income of $333.2 million, up 5%
• Operating margin of 9.8%, down 150 basis points; non-GAAP adjusted operating margin of 10.1%, down 150 basis points
• Diluted EPS of $3.74, down 2%; non-GAAP adjusted diluted EPS of $3.70, up 7%

Werner Enterprises, Inc. (Nasdaq: WERN), a premier transportation and logistics provider, today reported results for the fourth quarter and year ended December 31, 2022.

“We made significant progress executing our strategy in 2022, and also closed on two additive acquisitions in fourth quarter. While changing macroeconomic conditions led to a lackluster truckload and logistics freight market in fourth quarter, the durability and resilience of our business model, combined with the efforts of our determined and talented team, produced strong fourth quarter results,” said Derek J. Leathers, Chairman, President and CEO. “As we look out into what remains an uncertain and more difficult operating environment, we remain laser focused on implementing our DRIVE strategy to deliver value to our customers, associates, shareholders, suppliers and carrier partners.”

Total revenues for the quarter were $861.5 million, an increase of $96.3 million compared to the prior year quarter, due to Truckload Transportation Services (“TTS”) revenues growth of $71.6 million and Logistics revenues growth of $28.5 million.

Operating income of $88.4 million decreased $10.1 million, or 10%, while operating margin of 10.3% decreased 260 basis points. On a non-GAAP basis, adjusted operating income of $89.9 million decreased $11.2 million, or 11%. Adjusted operating margin of 10.4% declined 280 basis points from 13.2% for the same quarter last year.

Truckload Transportation Services operating income decreased by $7.9 million and adjusted operating income decreased by $6.9 million. Logistics operating income declined $1.9 million and adjusted operating income declined by $3.9 million. Corporate and Other (including driving schools) operating income decreased by $0.4 million.

Interest expense of $5.8 million increased $4.2 million primarily due to an increase in average debt outstanding and higher interest rates. The effective income tax rate during the quarter was 24.7%, compared to 23.0% in fourth quarter 2021.

During fourth quarter 2022, our strategic minority equity investments had market valuation changes causing a net unrealized loss on equity securities, which resulted in lower non-operating income of $2.2 million, or $0.03 per share, compared to a net unrealized gain, which resulted in higher non-operating income of $4.0 million, or $0.05 per share, in fourth quarter 2021. Consistent with prior reporting, market value increases or decreases for these strategic minority investments are adjusted out for determining non-GAAP adjusted net income and non-GAAP adjusted earnings per share.

Net income attributable to Werner of $60.2 million decreased 22%. On a non-GAAP basis, adjusted net income attributable to Werner of $62.8 million decreased 17%. Diluted EPS of $0.94 decreased 18%. On a non-GAAP basis, adjusted diluted EPS of $0.99 decreased 13%.

Key Consolidated Financial Metrics

Noteworthy Developments

On November 5, 2022, Werner acquired ReedTMS Logistics (“ReedTMS”) of Tampa, Florida. ReedTMS is a leading asset-light logistics provider and truckload carrier that offers a comprehensive suite of freight brokerage and truckload solutions to a diverse customer base. ReedTMS achieved revenues of $372.0 million for the last 12 months ended September 30, 2022, 90% freight brokerage and 10% trucking. ReedTMS further strengthens our freight brokerage capabilities with its extensive freight brokerage network and elevates our logistics portfolio with new customers.

On October 1, 2022, Werner acquired Baylor Trucking (“Baylor”) of Milan, Indiana. Baylor achieved revenues of $81.5 million for the last 12 months ended August 31, 2022. Baylor is a premier truckload carrier that operates 200 trucks and 980 trailers in the east central and south central U.S. with their network of two terminals. Baylor, with its highly skilled professional drivers and non-driver associates, further strengthens our portfolio with their exceptional service and stellar reputation.

Truckload Transportation Services (TTS) Segment

• Revenues of $634.8 million increased $71.6 million
• Operating income of $80.3 million decreased $7.9 million; non-GAAP adjusted operating income of $83.1 million decreased $6.9 million due to strength in our Dedicated fleet performance, partially offset by moderating performance in One-Way Truckload
• Operating margin of 12.7% decreased 300 basis points from 15.7%; non-GAAP adjusted operating margin of 13.1% decreased 290 basis points from 16.0%
• Non-GAAP adjusted operating margin, net of fuel, of 15.8% decreased 240 basis points from 18.2%
• Average segment trucks in service totaled 8,709, an increase of 396 trucks year over year, or 4.8%
• Dedicated unit trucks at quarter end totaled 5,450, or 63% of the total TTS segment fleet, compared to 5,235 trucks, or 63%, a year ago
• 1.3% increase in TTS average revenues per truck per week

During fourth quarter 2022, Dedicated experienced solid and steady freight demand from our customers. One-Way Truckload customer freight demand during fourth quarter 2022 was seasonally weaker than normal compared to a strong freight market in fourth quarter 2021.

Comparisons of key financial metrics for the TTS segment, including operating ratios (actual and net of fuel surcharge revenues), are shown in the table below.

Key Truckload Transportation Services Segment Financial Metrics

Werner Logistics Segment

• Revenues of $213.5 million increased $28.5 million, or 15%
• Operating income of $9.9 million decreased $1.9 million
• Operating margin of 4.6% decreased 170 basis points from 6.3%
• Adjusted operating income of $8.0 million decreased $3.9 million
• Adjusted operating margin of 3.8% decreased 260 basis points from 6.4%

Truckload Logistics revenues (71% of Logistics revenues) increased 20%, driven by a 34% increase in shipments, partially offset by an 11% decline in revenues per shipment. Excluding the eight weeks of ReedTMS Logistics revenues in fourth quarter 2022, Truckload Logistics revenues declined 17% in fourth quarter year-over-year.

Intermodal revenues (17% of Logistics revenues) decreased 23%, due to a 25% decline in shipments, partially offset by a 3% increase in revenues per shipment.

Final Mile revenues (12% of Logistics revenues) increased $14 million due primarily to a full quarter impact in 2022 from the November 2021 NEHDS acquisition compared to the six weeks of revenues in 2021.

Logistics operating income decreased $1.9 million and adjusted operating income decreased $3.9 million in fourth quarter 2022, due to a seasonally soft freight market in fourth quarter 2022 compared to a strong freight market with significant project, surge and peak pricing freight opportunities in fourth quarter 2021.

Key Werner Logistics Segment Financial Metrics

Cash Flow and Capital Allocation

Cash flow from operations in fourth quarter 2022 was $116.0 million compared to $79.5 million in fourth quarter 2021, an increase of 46%.

Net capital expenditures in fourth quarter 2022 were $63.5 million compared to $30.3 million in fourth quarter 2021, an increase of 109%. We plan to continue to invest in new trucks and trailers and our terminals to improve our driver experience, optimize operational efficiency and more effectively manage our maintenance, safety and fuel costs. The average ages of our truck and trailer fleets were 2.3 years and 5.0 years, respectively, as of December 31, 2022.

Gains on sales of property and equipment in fourth quarter 2022 were $25.9 million, or $0.30 per share, compared to $21.2 million, or $0.24 per share, in fourth quarter 2021. Year over year, we sold more trucks and trailers and realized lower average gains per truck and trailer. Gains on sales of property and equipment are reflected as a reduction of Other Operating Expenses in our income statement.

We did not repurchase shares of our common stock in fourth quarter 2022. As of December 31, 2022, we had 2.3 million shares remaining under our share repurchase authorization.

As of December 31, 2022, we had $107 million of cash and over $1.4 billion of stockholders’ equity. Total debt outstanding was $694 million at December 31, 2022. In December 2022, we finalized a new $1.075 billion five-year unsecured syndicated credit facility with six banks, to expand our credit capacity, and we extended most of our debt maturities out to 2027. After considering letters of credit issued, we had available liquidity consisting of cash and available borrowing capacity as of December 31, 2022 of $523 million.

Introducing 2023 Guidance Metrics and Assumptions

Assumptions

• Effective income tax rate of 24.0% to 25.0% in 2023 compared to 4Q22 of 24.7%.
• Average truck age of 2.2 years and trailer age of 5.0 years as of 12/31/23, compared to 2.3 years and 5.0 years as of 12/31/22.

Call Information

Werner Enterprises, Inc. will conduct a conference call to discuss fourth quarter 2022 earnings today beginning at 4:00 p.m. CT. The news release, live webcast of the earnings conference call, and accompanying slide presentation will be available at werner.com in the “Investors” section under “News & Events” and then “Events Calendar.” To participate in the conference call, please dial (844) 701-1165 (domestic) or (412) 317-5498 (international). Please mention to the operator that you are dialing in for the Werner Enterprises call.

A replay of the conference call will be available on February 7, 2023 at approximately 6:00 p.m. CT through March 7, 2023 by dialing (877) 344-7529 (domestic) or (412) 317-0088 (international) and using the access code 6540190. A replay of the webcast will also be available at werner.com in the “Investors” section under “News & Events” and then “Events Calendar.”

About Werner Enterprises

Werner Enterprises, Inc. (Nasdaq: WERN) delivers superior truckload transportation and logistics services to customers across the United States, Mexico and Canada. With 2022 revenues of $3.3 billion, an industry-leading modern truck and trailer fleet, over 14,000 talented associates and our innovative Werner EDGE technology, we are an essential solutions provider for customers who value the integrity of their supply chain and require safe and exceptional on-time service. Werner provides Dedicated and One-Way Truckload services as well as Logistics services that include truckload brokerage, freight management, intermodal and final mile. As an industry leader, Werner is deeply committed to promoting sustainability and supporting diversity, equity and inclusion.

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements are based on information presently available to the Company’s management and are current only as of the date made. Actual results could also differ materially from those anticipated as a result of a number of factors, including, but not limited to, those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and subsequently filed Quarterly Reports on Form 10-Q.

For those reasons, undue reliance should not be placed on any forward-looking statement. The Company assumes no duty or obligation to update or revise any forward-looking statement, although it may do so from time to time as management believes is warranted or as may be required by applicable securities law. Any such updates or revisions may be made by filing reports with the U.S. Securities and Exchange Commission (“SEC”), through the issuance of press releases or by other methods of public disclosure.

Consolidated Financial Information

Segment Financial and Operating Statistics Information

Non-GAAP Financial Measures and Reconciliations

To supplement our financial results presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”), we provide certain non-GAAP financial measures as defined by the SEC Regulation G, including non-GAAP adjusted operating income; non-GAAP adjusted operating margin; non-GAAP adjusted operating margin, net of fuel surcharge; non-GAAP adjusted net income attributable to Werner; non-GAAP adjusted diluted earnings per share; non-GAAP adjusted operating revenues, net of fuel surcharge; non-GAAP adjusted operating expenses; non-GAAP adjusted operating expenses, net of fuel surcharge; non-GAAP adjusted operating ratio; and non-GAAP adjusted operating ratio, net of fuel surcharge. We believe these non-GAAP financial measures provide a more useful comparison of our performance from period to period because they exclude the effect of items that, in our opinion, do not reflect our core operating performance. Our non-GAAP financial measures are not meant to be considered in isolation or as substitutes for their comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. There are limitations to using non-GAAP financial measures. Although we believe that they improve comparability in analyzing our period to period performance, they could limit comparability to other companies in our industry if those companies define these measures differently. Because of these limitations, our non-GAAP financial measures should not be considered measures of income generated by our business. Management compensates for these limitations by primarily relying on GAAP results and using non-GAAP financial measures on a supplemental basis.

The following tables present reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure as required by SEC Regulation G. In addition, information regarding each of the excluded items as well as our reasons for excluding them from our non-GAAP results is provided below.