Werner Enterprises, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Interim financial statements are unaudited. Comparisons are with the corresponding 2020 periods.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $649.8 million | $569.0 million | $1,266.3 million | $1,161.7 million |
| Operating income | $76.9 million | $52.8 million | $139.3 million | $83.9 million |
| Net income | $72.0 million | $39.1 million | $118.5 million | $62.2 million |
| Diluted EPS | $1.06 | $0.56 | $1.74 | $0.89 |
| Operating ratio | 88.2% | 90.7% | 89.0% | 92.8% |
- Q2 revenue rose 14.2%; operating income rose 45.5% and net income rose 84.1%. Six-month revenue rose 9.0%, operating income 66.1%, and net income 90.6%.
- Q2 TTS revenue increased 10.4% and Werner Logistics revenue increased 28.6%. TTS operating margin was 14.9% versus 11.5%; Logistics operating margin was 2.8% in both periods. Logistics gross margin percentage declined to 12.2% from 15.7%, as purchased-capacity costs rose.
- Q2 results included a $20.2 million unrealized gain on TuSimple shares. Higher gains on used-equipment sales also reduced operating expenses: $13.5 million in Q2 2021 versus $0.9 million in Q2 2020. For the first half, equipment-sale gains were $25.0 million versus $3.4 million, and the WGL sale generated a $1.0 million gain.
Cash flow, balance sheet and liquidity
- First-half operating cash flow was $189.5 million, down from $287.3 million. Management attributed the decline primarily to working-capital timing, including income-tax payments and accounts receivable, partly offset by higher net income.
- First-half investing cash use was $104.6 million; financing provided $77.8 million. Cash and cash equivalents were $192.1 million at June 30, 2021, before the July 1 ECM acquisition payment.
- Total debt was $300.0 million, versus $200.0 million at December 31, 2020. Credit facilities totaled $600.0 million; after $300.0 million of borrowings and $50.9 million of standby letters of credit, approximately $249.1 million remained available. The company reported compliance with debt covenants.
- Stockholders’ equity was $1.30 billion. The current ratio was approximately 2.6x, based on current assets of $666.5 million and current liabilities of $259.2 million.
- Management forecast 2021 net capital expenditures of $275–$300 million; approximately $269.8 million of equipment purchases were committed at quarter-end.
Changes, outlook and risks
- Management cited strong freight demand, a recovering economy, tight industry capacity and improved pricing. It expected strong service demand to continue through the remainder of 2021.
- Management projected second-half 2021 One-Way Truckload revenue per total mile to rise 16%–19% versus the second half of 2020, and 2021 Dedicated revenue per truck per week to rise 3%–5% versus 2020. It expected year-end truck count to be 1%–4% above year-end 2020, with growth expected from the ECM acquisition.
- On July 1, 2021, Werner acquired an 80% interest in ECM Transport Group for $142.4 million in cash, financed with cash, existing facilities and a new $100 million fixed-rate term loan at 1.28%. Werner has an exclusive option to acquire the remaining 20% after five years. ECM reported 2020 revenue of $108 million and operating margin of 19.8%.
- Driver and independent-contractor shortages could constrain fleet capacity and require higher pay or settlement rates. Fuel prices were substantially higher year over year; fuel surcharges recover most, but not all, fuel-cost increases. Higher spot truckload and intermodal dray rates pressured Logistics margins.
- Liability insurance premiums for the policy year beginning August 1, 2021 were $7.0 million higher than the prior policy year. Werner remains exposed to self-insured claims and litigation. It is appealing a jury verdict with a $92.0 million judgment; the company recorded a $26.2 million liability and a corresponding $79.2 million insurance receivable and liability. Management said resolution of claims and litigation, considering reserves, was not expected to materially adversely affect the financial statements, but appeal outcomes are uncertain.
- Other risks include the uncertain COVID-19 economic impact, LIBOR transition, and potential limits on fuel surcharge recovery. Management said disclosure controls were effective at a reasonable assurance level and there were no material changes to internal control over financial reporting during the quarter.
Key facts for investors to verify
- How much reported earnings growth reflects recurring freight operations versus the TuSimple unrealized gain and elevated used-equipment sale gains.
- Whether driver availability, pay increases and fleet capacity support the stated pricing and truck-count outlook.
- Whether Logistics can restore gross margin as purchased-capacity costs and spot rates evolve.
- Cash, debt and covenant capacity after the $142.4 million ECM payment, and the acquisition’s subsequent contribution to results.
- Developments in the appealed $92.0 million verdict, other litigation and rising insurance premiums.