Werner Enterprises, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods. Werner operates Truckload Transportation Services (TTS) and Werner Logistics.
Financial performance
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $827.6 | $702.9 | $2,428.5 | $1,969.2 |
| Operating income | $76.3 | $71.3 | $234.7 | $210.7 |
| Operating margin | 9.2% | 10.1% | 9.7% | 10.7% |
| Net income attributable to Werner | $55.1 | $63.8 | $181.1 | $182.3 |
| Diluted EPS | $0.86 | $0.94 | $2.79 | $2.68 |
| Cash from operations | — | — | $332.7 | $253.3 |
- Revenue and segment results: Q3 revenue grew 17.7%. TTS revenue rose 17.8% to $621.9 million, while Logistics revenue rose 18.5% to $187.1 million. TTS operating income increased to $74.1 million; Logistics operating income declined to $5.1 million from $7.7 million. For the first nine months, revenue increased 23.3% and operating income increased 11.4%.
- Margins and earnings: Q3 operating expenses rose 19.0%, faster than revenue, and the operating ratio worsened to 90.8% from 89.9%. Q3 net income attributable to Werner fell 13.7%, despite higher operating income, largely because investment gains were much lower than in the prior-year quarter. Nine-month attributable net income was nearly flat, down 0.7%.
- Cash flow and investment: Nine-month operating cash flow was $332.7 million. Additions to property and equipment were $379.9 million, partly offset by $125.8 million of asset-sale proceeds. Net property additions were $254.1 million. The company forecast 2022 net capital expenditures of $300–$325 million and had $177.1 million of equipment and property purchase commitments at quarter-end.
- Liquidity and debt: September 30 cash was $125.7 million. Total debt was $573.8 million, up from $427.5 million at year-end 2021; stockholders’ equity was $1.39 billion. The company reported $161.5 million of available borrowing capacity under its two revolving facilities after standby letters of credit. Debt maturities include $567.5 million in 2024. Werner was in compliance with its credit covenants.
- Shareholder returns: Nine-month dividends were $23.9 million and share repurchases were $110.4 million. The quarterly dividend was $0.13 per share. At September 30, 2.31 million shares remained under the repurchase authorization.
Material changes, outlook, and risks
- Q3 TTS trucking revenue excluding fuel surcharge grew 9.2%, supported by 4.3% more tractors in service and 4.6% higher revenue per tractor per week. One-Way Truckload revenue per tractor per week declined 1.8%; Dedicated increased 9.2%.
- Management expected Q4 2022 One-Way Truckload revenue per total mile, excluding fuel surcharge, to be down 3% to flat year over year, and Dedicated revenue per tractor per week to increase 6%–8%. It expected year-end tractor count to be 3%–5% above year-end 2021, including 200 tractors acquired with Baylor.
- Management described softer freight conditions, fewer premium or “pop-up” freight opportunities, and a more subdued Q4 peak season than in 2021. It expected the decline in pop-up opportunities to weigh more heavily on Logistics in Q4. Driver availability, wage pressure, fuel prices, inflation, equipment costs and insurance remain risks; fuel surcharges recover most, but not all, fuel-cost increases.
- On October 1, 2022, Werner acquired Baylor Trucking for $80 million, subject to working-capital adjustments and cash acquired, plus a potential earnout of up to $15 million. The acquisition was financed through existing credit facilities; purchase accounting was incomplete at filing.
- Unusual and nonrecurring factors include a $9.5 million insurance-and-claims expense in the first nine months related to a 2020 accident settlement, and higher gains on used-equipment sales ($62.7 million for nine months versus $40.3 million). Q3 2021 included substantial unrealized investment gains; Q3 2022 had no gain on the MLSI investment. Investment gains and losses can add volatility to reported earnings.
- Werner settled a 2020 accident lawsuit for $150 million in July 2022; the company’s stated maximum liability under its insurance was $10 million, and the settlement was paid by the company and insurers in Q3. A separate 2014 accident verdict remains under appeal; the company recorded a $32.7 million liability and a corresponding $79.2 million insurance receivable, with interest continuing to accrue. An employment class action was remanded for the trial court to consider whether a new trial should be granted.
- Management said it believed cash, operating cash generation and borrowing capacity would fund foreseeable requirements and planned shareholder returns. It also cautioned that operating results are not necessarily indicative of full-year results. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether freight-market moderation, weaker premium opportunities and the Q4 segment outlook developed as management expected.
- How much fuel, labor, maintenance and insurance cost pressure the company can offset through pricing, surcharges and productivity.
- Debt and liquidity following the Baylor acquisition, capital spending and the 2024 debt maturities; also verify facility availability and covenant compliance in subsequent filings.
- The eventual accounting, performance and earnout cost of Baylor, and the integration and profitability of recent acquisitions, particularly NEHDS.
- Developments in the appealed 2014 verdict, the remanded wage case and other claims, including changes to reserves or insurance recoverables.
- The sustainability of used-equipment sale gains and investment-related earnings, which materially affect period-to-period comparisons.