Werner Enterprises, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the provided text does not give standalone fourth-quarter results. Werner is a U.S. truckload transportation and logistics company with two reportable segments: Truckload Transportation Services (TTS) and Werner Logistics.
Financial performance and condition
| Metric | FY2023 | FY2022 |
|---|---|---|
| Operating revenue | $3.283 billion | $3.290 billion |
| Operating income / margin | $176.4 million / 5.4% | $323.1 million / 9.8% |
| Net income attributable to Werner | $112.4 million | $241.3 million |
| Diluted EPS | $1.76 | $3.74 |
| Cash from operating activities | $474.4 million | $448.7 million |
| Net capital expenditures | $408.7 million | $317.6 million |
- Revenue was nearly flat year over year, but operating income fell 45.4% and Werner-attributable net income declined 53.4%. The consolidated operating ratio increased to 94.6% from 90.2%.
- TTS revenue decreased 4.9% to $2.311 billion; segment operating income fell 42.5% to $169.3 million, with a 7.3% margin versus 12.1%. One-Way Truckload net-of-fuel-surcharge revenue declined 6.8%, while Dedicated revenue increased 1.6%.
- Werner Logistics revenue rose 14.7% to $910.4 million, primarily reflecting ReedTMS acquisition growth. Segment operating income fell 56.1% to $15.9 million, and its margin contracted to 1.7% from 4.6%, amid competitive pricing and higher purchased-transportation costs.
- Fuel expense decreased 21.1%, chiefly as average diesel prices fell; fuel surcharge revenue also declined 20.7%. Salaries and benefits rose 5.1%, depreciation and amortization rose 7.0%, and rent and purchased transportation rose 14.0%.
- Lower gains on sales of used equipment were a notable earnings headwind: $42.4 million in 2023 versus $88.6 million in 2022. Other expense also increased, including higher interest expense and reduced investment gains.
- Operating cash flow increased 5.7% to $474.4 million. Investing activities used $434.9 million, including $408.7 million of net property and equipment additions; financing activities used $87.1 million, including $45.0 million of net debt repayments and $34.2 million of dividends.
- At year-end, cash was $61.7 million, total debt was $648.8 million, and stockholders’ equity was $1.528 billion. Available borrowing capacity was $463.9 million; management reported total available liquidity of approximately $526 million and covenant compliance.
- Current assets were $634.6 million and current liabilities $330.6 million. The quarterly dividend rate was $0.14 per share. No shares were repurchased in 2023; 2.31 million shares remained authorized for repurchase.
Changes, outlook and management commentary
- Management attributed weaker profitability to the challenging freight market, pricing pressure and elevated spot-rate exposure in One-Way Truckload, lower used-equipment gains, and reduced investment-related gains. The TTS fleet contracted 7.0% year over year to 8,000 tractors at year-end.
- For 2024, management expects Dedicated demand to remain steady and its revenue per tractor per week, excluding fuel surcharge, to remain flat or rise up to 3%. It expects One-Way Truckload revenue per total mile, excluding fuel surcharge, to decline 3%–6% in the first half versus the prior-year first half, with pressure moderating later. The year-end TTS fleet is expected to remain flat or decrease by up to 3%, with possible Dedicated growth in the second half.
- Management expects freight demand in One-Way Truckload and Werner Logistics to be seasonally weaker early in 2024 and improve in the second half. Werner Logistics is expected to deliver double-digit revenue growth in 2024; near-term Truckload Logistics margins are expected to remain challenged, with improvement potentially supported by acquisition synergies. Management targets a mid-single-digit Logistics operating margin entering 2025.
- 2024 net capital expenditures are projected at $260 million–$310 million. Used-equipment demand and pricing are expected to remain weak into the first half; management forecasts 2024 gains on equipment sales of $10 million–$30 million. Net interest expense may increase by up to $10 million in 2024, partly due to loan repricing and expiring swaps. The projected 2024 effective tax rate is approximately 24.5%–25.5%.
- The $86.3 million remaining BMO Term Loan balance was planned to be repaid in May 2024 using the 2022 Credit Agreement. The $560 million revolving balance under that agreement is scheduled to mature in December 2027. Management expects sufficient liquidity and continued covenant compliance.
Risks, contingencies and unusual items
- Customer concentration is material: the largest customer, Dollar General, represented 10% of 2023 revenue; the top five represented 35% and the top ten 48%. Many One-Way Truckload contracts can be terminated on 30 days’ notice.
- Key risks include freight-market weakness and pricing competition; driver and independent-contractor recruitment and retention; fuel-price changes not fully recovered through surcharges; third-party capacity availability and cost; used-equipment values; and evolving emissions, safety and labor regulations.
- Werner self-insures a significant portion of claims. The year-end insurance and claims accrual was $321.5 million; a 10% change in actuarial estimates for bodily injury and property damage reserves would change the accrual by approximately $24.8 million. KPMG identified evaluation of these reserves as a critical audit matter.
- A Texas accident verdict was affirmed by a state appeals court in May 2023; Werner petitioned the Texas Supreme Court for review. The company recorded a $39.8 million liability and a corresponding $79.2 million insurance receivable and liability presentation; its stated maximum accident liability under the applicable policies is $10 million plus interest. The appeal outcome is uncertain.
- Other pending matters include driver wage and employment-related class actions. Management stated that, based on its current knowledge and reserves, it does not believe resolution will materially adversely affect the consolidated financial statements, while noting outcomes remain uncertain.
- Werner reported no cybersecurity breach during the three years presented or in 2024 through the filing date, and said cyber threats had not materially affected its business. It nonetheless relies increasingly on cloud-based systems and third-party technology providers.
- The company reported a $25 million subordinated promissory note investment in Mastery Logistics Systems and a $20 million commitment to Autotech Fund III, of which $3.4 million had been contributed by year-end. These investments carry valuation and performance uncertainty.
Important facts for investors to verify
- Whether freight-market conditions, One-Way Truckload pricing and the projected second-half 2024 recovery develop as management expects.
- Whether Werner Logistics can achieve forecast revenue growth, acquisition synergies and margin improvement despite its 2023 margin decline.
- Actual 2024 capital spending, used-equipment sale proceeds and gains, and the effect of loan repricing and expiring interest-rate swaps on interest expense.
- The status and financial impact, if any, of the Texas verdict appeal, other litigation and changes in insurance reserve estimates.
- Customer concentration, driver and independent-contractor availability, and compliance costs from changing transportation and emissions regulations.
KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting as of December 31, 2023.