Werner Enterprises, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. Werner operates Truckload Transportation Services (TTS) and Werner Logistics. Results include ECM, acquired in July 2021, and NEHDS, acquired in November 2021.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Operating revenue | $764.6 million | $616.4 million |
| Operating income / margin | $83.5 million / 10.9% | $62.5 million / 10.1% |
| Operating ratio | 89.1% | 89.9% |
| Net income attributable to Werner | $53.7 million | $46.5 million |
| Diluted EPS | $0.82 | $0.68 |
| Cash from operations | $155.0 million | $135.9 million |
| Cash and cash equivalents (period-end) | $125.9 million | $54.2 million at Dec. 31, 2021 |
| Total debt (period-end) | $426.3 million | $427.5 million at Dec. 31, 2021 |
Revenue increased 24.0%; operating income rose 33.7%, while Werner-attributable net income increased 15.6%. Fuel expense increased 73.9% to $88.4 million, reflecting higher diesel prices and more company-truck miles. Fuel surcharge revenue rose 68.2% to $79.8 million; surcharges generally recover most, but not all, fuel-cost increases.
TTS revenue was $558.4 million, up 20.6%, and operating income was $76.1 million versus $57.6 million. Werner Logistics revenue was $189.0 million, up 37.1%, and operating income was $8.7 million versus $4.6 million. Excluding WGL freight-forwarding revenue sold in Q1 2021, Logistics revenue increased 55%.
Liquidity, debt and capital allocation
Cash from operations was $155.0 million; investing activities used $34.5 million and financing activities used $49.0 million. Net cash increased $71.8 million to $125.9 million. The company reported $316.1 million of available borrowing capacity under its two $300 million revolving facilities, after letters of credit. Management said cash, operating cash flow and available credit should fund requirements and planned shareholder returns for the foreseeable future.
During Q1, Werner repurchased 845,100 shares for $36.2 million and paid $7.9 million in dividends. It expects to continue quarterly dividends; the board’s authorization had 4,177,014 shares remaining at quarter-end. Q1 net property additions were $37.1 million. Management estimated 2022 net capital expenditures of $250–$300 million, with approximately $182.3 million of equipment and property purchases committed at March 31.
On March 25, the company entered into a new $300 million Wells Fargo revolver and increased its BMO revolver from $200 million to $300 million; both mature in May 2024. Debt agreements use SOFR-based rates and contain customary financial covenants. Werner reported compliance at quarter-end. A one-percentage-point SOFR increase was estimated to raise annual interest expense by approximately $1.8 million, assuming the reported borrowing level.
Outlook, management commentary and risks
- Management described freight demand as strong: Dedicated demand remained strong, while One-Way demand moderated from strong to very good in March. April Dedicated demand remained strong and One-Way demand very good.
- For Q2 2022, management expected One-Way Truckload average revenue per total mile, excluding fuel surcharge, to increase 14%–17% versus Q2 2021. For full-year 2022, it expected Dedicated average revenue per tractor per week, excluding fuel surcharge, to rise 4%–6% versus 2021, and year-end tractor count to be 2%–5% above year-end 2021.
- Management expected continued growth in Werner Logistics during the capacity-constrained period and stated that demand for its services was expected to remain strong through the rest of 2022. These are forward-looking expectations, not guarantees.
- Key operating pressures include driver and independent-contractor availability, driver-pay and recruiting costs, fuel-price volatility, equipment production delays and parts shortages, third-party capacity costs, rail congestion, and liability insurance and claims costs. Fuel surcharges do not fully eliminate fuel exposure.
- Used-equipment sale gains reduced operating expenses by $20.5 million, versus $10.5 million in Q1 2021; management said unusually strong used-equipment pricing may be temporary. A $9.8 million unrealized loss on autonomous-technology equity investments increased other expense. A change in estimated trailer salvage values reduced Q1 depreciation expense by $3.1 million.
- A Texas accident case carries a $92.0 million judgment. Werner recorded a $30.1 million liability and a corresponding $79.2 million insurance receivable and liability; it is appealing, and the outcome is uncertain. The filing also describes employment-related class actions and other claims; management did not expect the matters, based on its current assessment, to materially adversely affect the company.
- Werner adopted reference-rate reform guidance without material financial-statement impact. It migrated its core finance general-ledger function during Q1, resulting in material changes to internal-control processes; management said disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- Whether freight demand, pricing and fleet growth meet the stated outlook amid driver constraints and equipment delays.
- Whether higher fuel, labor, maintenance and insurance costs are recovered through freight rates and fuel surcharges.
- Execution and returns on planned $250–$300 million net capital expenditures, and funding needs relative to cash and credit availability.
- Future used-equipment sale gains and the effects of equity-investment valuation changes on earnings.
- Developments in the Texas verdict appeal, insurance recovery and other litigation, along with ongoing reserve estimates.
- Performance of internal controls after the general-ledger migration and compliance with debt covenants.