Werner Enterprises, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This annual filing reports full-year results, not standalone fourth-quarter results. Werner provides truckload transportation and logistics services through Truckload Transportation Services (TTS) and Werner Logistics.
Key financial results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Operating revenue | $2,734.4 million | $2,372.2 million | +15.3% |
| Operating income | $309.1 million | $227.4 million | +35.9% |
| Operating margin | 11.3% | 9.6% | +1.7 percentage points |
| Net income attributable to Werner | $259.1 million | $169.1 million | +53.2% |
| Diluted EPS | $3.82 | $2.44 | +56.6% |
| Cash flow from operations | $332.8 million | $445.9 million | Down $113.1 million |
| Net capital expenditures | $193.0 million | $266.2 million | Down $73.2 million |
Revenue growth reflected strong freight demand, improved pricing and acquisitions. TTS revenue rose 11.0% to $2,045.1 million, with operating margin improving to 13.8% from 12.0%. Werner Logistics revenue rose 32.5% to $622.5 million; its operating margin increased to 4.5% from 1.3%.
Year-end cash was $54.2 million. Debt totaled $427.5 million, versus $200.0 million a year earlier; reported available borrowing capacity was $115.1 million, or approximately $169 million of liquidity including cash. The company reported more than $1.3 billion of stockholders’ equity and compliance with debt covenants. Current debt maturities were $5.0 million; $417.5 million was scheduled for 2024.
Changes, transactions and unusual items
- ECM was acquired on July 1, 2021 for an 80% interest, for $141.3 million net of working-capital changes and cash acquired. The regional carrier was added to TTS; the remaining 20% is redeemable under specified terms.
- NEHDS was acquired on November 22, 2021 for $63.1 million and added to Final Mile in Werner Logistics. Its purchase-price allocation remained provisional at year-end.
- Werner sold its international ocean and air freight-forwarding business in early 2021, recognizing a $1.0 million gain.
- Other expense/income included a $40.3 million net unrealized gain on equity investments. Gains on used-equipment sales, recorded as a reduction of other operating expenses, were $61.5 million versus $11.3 million in 2020. These items materially contributed to reported earnings and should be distinguished from recurring operations.
- Fuel expense increased 56.5%, reflecting higher diesel prices; fuel surcharges recover a majority, but not all, of higher fuel costs. Driver pay also rose, with per-mile pay for company drivers increasing 15% in 2021.
Outlook, risks and contingencies
- Management said freight demand remained strong into early 2022 and expected demand for services to be strong in 2022. It forecast One-Way Truckload revenue per total mile, net of surcharge, to rise 16%–19% in the first half of 2022 versus the prior-year period; Dedicated revenue per tractor per week, net of surcharge, to increase 3%–5% for 2022; and year-end fleet size to be 2%–5% higher, subject to driver availability and equipment deliveries.
- 2022 net capital expenditures were estimated at $275–$325 million. Management estimated a 2022 effective tax rate of 24.5%–25.5% and expected continued Werner Logistics revenue and operating-income growth.
- Key risks include driver and independent-contractor shortages, pay and capacity-cost inflation, fuel-price volatility, equipment and component shortages, customer concentration, severe weather, COVID-related disruption, cyber and information-system risks, and regulation. Dollar General represented 14% of 2021 revenue; the largest 10 customers represented 49%.
- The company self-insures significant claims. Insurance and claims accruals totaled $309.8 million; management estimated a 10% change in actuarial assumptions would change the accrual by approximately $29.3 million.
- A 2018 adverse jury verdict related to a 2014 accident resulted in a $92.0 million judgment. Werner is appealing; it reported a $28.8 million liability and a $79.2 million insurance receivable and corresponding liability. The outcome of the appeal is uncertain. Management said other pending claims and litigation were not expected to have a material adverse effect, but acknowledged outcomes are difficult to predict.
- The company paid a quarterly dividend of $0.12 per share and authorized repurchases of up to 6 million shares in November 2021. It repurchased 2.30 million shares for $104.4 million during 2021.
Investor verification priorities
- Assess how much earnings growth came from recurring freight operations versus unrealized investment gains and unusually high used-equipment sale gains.
- Review acquisition performance, integration progress, NEHDS provisional purchase accounting and ECM’s redeemable 20% noncontrolling interest.
- Track 2022 pricing, fleet-growth and capital-expenditure outlook against driver supply, equipment availability and fuel surcharge recovery.
- Verify liquidity and debt capacity alongside the 2024 maturity concentration, committed equipment purchases, dividends and repurchases.
- Monitor customer concentration, insurance-reserve assumptions and the appeal and insurance recovery relating to the Texas verdict.
KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Insurance and claims accruals were identified as a critical audit matter.