Werner Enterprises, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing; comparisons below are primarily with FY2021.
Business context
Werner provides truckload transportation through Truckload Transportation Services (TTS) and asset-light brokerage, intermodal and final-mile services through Werner Logistics. TTS generated 74% of 2022 revenue and Logistics 24%. The company acquired Baylor Trucking in October and ReedTMS Logistics in November 2022, expanding truckload and logistics operations.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Operating revenue | $3.290 billion | $2.734 billion | +20.3% |
| Operating income | $323.1 million | $309.1 million | +4.5% |
| Operating margin | 9.8% | 11.3% | Down 1.5 percentage points |
| Net income attributable to Werner | $241.3 million | $259.1 million | -6.9% |
| Diluted EPS | $3.74 | $3.82 | -2.1% |
| Cash from operations | $448.7 million | $332.8 million | +34.8% |
TTS revenue rose 18.8% to $2.429 billion; segment operating income increased 4.5% to $294.6 million, while its operating margin declined to 12.1% from 13.8%. Werner Logistics revenue grew 27.5% to $793.5 million and operating income grew 29.8% to $36.2 million; its margin improved slightly to 4.6% from 4.5%.
Fuel expense increased 77.9% to $437.3 million, reflecting higher diesel prices and additional miles. Fuel surcharge revenue rose 79.0% to $419.2 million, but surcharges generally recover only a majority of higher fuel costs. Insurance and claims expense increased 49.4% to $147.4 million. Equipment-sale gains, recorded as a reduction of other operating expenses, were $88.6 million versus $61.5 million in 2021.
Debt, liquidity and capital allocation
At year-end, cash was $107.2 million and debt was $693.8 million, compared with $54.2 million and $427.5 million, respectively, a year earlier. Management reported available liquidity of approximately $523 million, including $416.2 million of borrowing capacity, and a net debt-to-EBITDA ratio of 1.0x. The company was compliant with debt covenants. Its $1.075 billion unsecured credit facility matures in December 2027.
FY2022 investing cash outflow was $514.3 million, including $317.6 million of net property and equipment additions and $184.1 million invested in acquisitions. The company repurchased $110.4 million of shares and paid $32.2 million in dividends. It expects 2023 net capital expenditures of $350–$400 million and plans to continue quarterly dividends, currently costing slightly more than $8 million per quarter.
Outlook, material items and risks
- Management expected a challenging freight market in the first half of 2023, with gradual improvement in the second half as capacity exits and retail inventories normalize. It forecast One-Way Truckload revenue per total mile, excluding fuel surcharge, to decline 3%–6% in the first half year over year; Dedicated revenue per tractor per week to increase 0%–3% for 2023; and year-end TTS fleet size to be 1%–4% above 2022.
- Management expected 2023 Logistics revenue to exceed 30% of total operating revenue, partly reflecting ReedTMS. It forecast 2023 gains on equipment sales of $30–$50 million, below 2022’s $88.6 million, and insurance and claims expense to moderate. The estimated 2023 effective tax rate was 24%–25%.
- Other income benefited from net investment gains of $12.2 million in 2022, down from $40.3 million in 2021; higher interest expense also reduced earnings. Management expected interest expense to rise in 2023 due to higher rates and debt levels.
- Notable claims include a 2018 adverse jury verdict arising from a 2014 accident. Werner had recorded a $34.1 million liability and a corresponding $79.2 million insurance receivable and liability; it is appealing. A separate wage class action was remanded for consideration of a new trial, but the trial court denied that motion in January 2023 and entered judgment for Werner. Other routine claims and class actions remain; management did not believe their resolution would materially adversely affect the financial statements based on information available.
- Key risks include economic and freight-market downturns, customer concentration (Dollar General was 14% of revenue), driver and independent-contractor recruitment and retention, fuel and insurance costs, availability and cost of equipment and third-party capacity, regulation, cyber incidents, and self-insured claims. The insurance and claims accrual was $323.6 million; management estimated a 10% change in actuarial estimates would change the accrual by about $30.3 million.
Important facts for investors to verify
- Whether freight demand, pricing and TTS utilization followed the forecast recovery pattern, and how margins performed as 2022’s unusually strong equipment-sale gains receded.
- Acquisition integration and performance, including provisional purchase-price allocations and potential earnouts of up to $7.5 million for ReedTMS and $15 million for Baylor.
- Debt, borrowing availability, interest-rate exposure and capital spending relative to operating cash generation and shareholder returns.
- Developments in the appealed accident verdict, insurance recoverability, claims reserves and other litigation.
- Customer concentration, driver availability and Logistics’ access to qualified third-party capacity.
KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The internal-control assessment excluded the two 2022 acquisitions.