PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Werner Enterprises' unaudited interim consolidated financial statements as of September 30, 2021, covering income, balance, and cash flow [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) The company reported significant growth in revenues and net income for both the third quarter and the first nine months of 2021 compared to the same periods in 2020, with Q3 2021 operating revenues increasing by **19.1%** to **$702.9 million** and net income rising by **37.6%** to **$63.8 million** Consolidated Statements of Income Highlights (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | YoY Change | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Operating Revenues** | $702,891 | $590,214 | 19.1% | $1,969,151 | $1,751,876 | 12.4% | | **Operating Income** | $71,324 | $62,103 | 14.8% | $210,658 | $145,987 | 44.3% | | **Net Income Attributable to Werner** | $63,761 | $46,332 | 37.6% | $182,285 | $108,522 | 68.0% | | **Diluted EPS** | $0.94 | $0.67 | 40.3% | $2.68 | $1.56 | 71.8% | [Consolidated Condensed Balance Sheets](index=6&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) As of September 30, 2021, total assets increased to **$2.48 billion** from **$2.16 billion** at year-end 2020, primarily due to the ECM acquisition, while total liabilities rose to **$1.14 billion** and stockholders' equity grew to **$1.31 billion** Balance Sheet Summary (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total Current Assets** | $569,791 | $456,916 | | **Property and Equipment, net** | $1,606,526 | $1,543,258 | | **Goodwill** | $44,710 | $0 | | **Total Assets** | **$2,479,141** | **$2,156,676** | | **Total Current Liabilities** | $261,228 | $274,014 | | **Long-term Debt** | $343,750 | $175,000 | | **Total Liabilities** | **$1,135,969** | **$961,636** | | **Total Stockholders' Equity** | **$1,306,557** | **$1,195,040** | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2021, net cash from operating activities was **$253.3 million**, a decrease from the prior year, while net cash used in investing activities significantly increased to **$308.9 million** due to the ECM acquisition Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $253,344 | $346,396 | | **Net Cash used in Investing Activities** | ($308,907) | ($180,986) | | **Net Cash from (used in) Financing Activities** | $71,869 | ($156,408) | | **Net Increase in Cash** | $16,094 | $7,034 | [Notes to Consolidated Financial Statements (Unaudited)](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20%28Unaudited%29) The notes detail key events and accounting treatments, including the **$141.3 million** ECM acquisition, strong segment revenue growth, significant unrealized gains on equity investments, and an increase in total debt to **$350.0 million** - On July 1, 2021, the company acquired an **80%** ownership interest in ECM Associated, LLC for **$141.3 million** to expand its fleet size and geographic presence. The acquisition added nearly **500** trucks and **2,000** trailers[34](index=34&type=chunk)[35](index=35&type=chunk) - The company recognized a **$28.2 million** unrealized gain on its investment in Mastery Logistics Systems, Inc. (MLSI) and an **$8.1 million** unrealized gain on its TuSimple investment during the first nine months of 2021[70](index=70&type=chunk)[71](index=71&type=chunk) - Total outstanding debt increased to **$350.0 million** as of September 30, 2021, up from **$200.0 million** at year-end 2020, primarily to finance the ECM acquisition[74](index=74&type=chunk) Segment Revenues (in thousands) | Segment | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | **Truckload Transportation Services** | $527,697 | $458,256 | $1,481,846 | $1,368,172 | | **Werner Logistics** | $157,968 | $117,351 | $437,494 | $339,678 | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong Q3 2021 performance driven by robust freight market conditions and the ECM acquisition, despite driver shortages and rising costs - The acquisition of an **80%** interest in ECM on July 1, 2021, for **$141.3 million** was a key strategic move, adding a regional truckload carrier with nearly **500** trucks and **2,000** trailers[102](index=102&type=chunk) - Management highlights a strong freight market in Q3 2021, driven by robust consumer demand, but notes this is concurrent with an extremely competitive driver market and shortfalls in new truck manufacturing[120](index=120&type=chunk) - Gains on sales of assets were significantly higher at **$15.3 million** in Q3 2021 compared to **$3.9 million** in Q3 2020, due to a strong used equipment market caused by new equipment production delays[146](index=146&type=chunk) - The company's liquidity remains strong, with net capital expenditures for 2021 estimated to be between **$250 million** and **$275 million**, though equipment delivery delays are a known challenge[162](index=162&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) For Q3 2021, operating revenues grew **19.1%** to **$702.9 million**, driven by strong TTS and Werner Logistics segment performance, despite increased salaries and fuel costs, partially offset by gains on asset sales Q3 2021 vs Q3 2020 Performance | Metric | Q3 2021 | Q3 2020 | Change | | :--- | :--- | :--- | :--- | | **Operating Revenues** | $702.9M | $590.2M | +19.1% | | **Operating Income** | $71.3M | $62.1M | +14.8% | | **Operating Ratio** | 89.9% | 89.5% | +0.4 pts | | **Net Income (Werner)** | $63.8M | $46.3M | +37.6% | - TTS trucking revenues (net of fuel surcharge) increased **10.6%** in Q3 2021, driven by a **7.2%** increase in average tractors (largely from the ECM acquisition) and a **3.2%** increase in average revenues per tractor per week[121](index=121&type=chunk) - Werner Logistics revenues grew **34.6%** in Q3 2021, with its operating margin improving to **4.8%** from **-0.7%** in Q3 2020[125](index=125&type=chunk) - Driver pay per company driver mile increased nearly **20%** in Q3 2021 due to multiple pay rate increases implemented to address the competitive driver market[127](index=127&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong financial position with **$45.4 million** in cash and **$1.3 billion** in equity, with operating cash flow of **$253.3 million** for the first nine months of 2021, funding the ECM acquisition, stock repurchases, and dividends - Operating cash flow decreased by **26.9%** to **$253.3 million** in the first nine months of 2021 compared to the prior year, mainly due to working capital changes[161](index=161&type=chunk) - During the first nine months of 2021, the company repurchased **1,179,566** shares for **$53.3 million** and paid **$21.1 million** in dividends[163](index=163&type=chunk) - As of September 30, 2021, the company had **$350.0 million** of debt outstanding and **$199.1 million** of available borrowing capacity under its credit facilities (after accounting for letters of credit)[164](index=164&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages market risks from commodity prices, foreign currency, and interest rates, primarily mitigating fuel price volatility and interest rate risk - The company's primary market risk is commodity price risk related to diesel fuel, but it recovers a majority of fuel price increases through customer surcharges[171](index=171&type=chunk) - Interest rate risk is managed with a mix of debt instruments. Of the **$350 million** debt, **$150 million** is effectively fixed via swaps, **$100 million** is fixed-rate, and **$100 million** is variable-rate. A **1%** increase in LIBOR would increase annual interest expense by approximately **$1.0 million**[173](index=173&type=chunk) [Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes - The CEO and CFO concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level[176](index=176&type=chunk) PART II – OTHER INFORMATION [Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section highlights new and existing risks, including OSHA's COVID-19 rule impact on driver retention and challenges in acquiring new equipment due to supply chain issues - A new OSHA rule requiring COVID-19 vaccination or weekly testing for companies with over **100** employees could negatively impact driver retention, increase costs, and exacerbate the existing driver shortage[182](index=182&type=chunk) - The company is facing difficulties obtaining new tractors and trailers due to manufacturer shortages of semiconductor chips and other components, which could lead to higher maintenance costs, lower productivity, and challenges with driver retention[183](index=183&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2021, the company repurchased **1,049,120** shares for approximately **$47.7 million**, with **1,637,442** shares remaining under authorization as of September 30, 2021 Q3 2021 Stock Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | **July 2021** | 0 | N/A | | **August 2021** | 752,004 | $45.33 | | **September 2021** | 297,116 | $46.00 | | **Total Q3 2021** | **1,049,120** | **$45.52** | - As of September 30, 2021, the company had **1,637,442** shares remaining under its **5,000,000**-share repurchase authorization announced in May 2019[184](index=184&type=chunk)[187](index=187&type=chunk) [Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial data in iXBRL format

E ER PITS E NET E S 3Q 2021 EARNINGS PRESENTATION October 28, 2021 DISCLOSURE STATEMENT This presentation may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements are based on information presently available to the Company's management ...

Financial Data and Key Metrics Changes - Total revenues for Q3 increased by 19% to $703 million, with adjusted EPS growing by 14% to $0.79 per share [10][24] - Adjusted operating income rose by 15% to $73.9 million, while the adjusted operating margin net fuel declined by 150 basis points to 14% [10][12] - TTS revenues per truck per week increased by 3.2%, driven by a 15% year-over-year improvement in revenues for total miles, offset by a 10% decline in miles per truck [20] Business Line Data and Key Metrics Changes - Dedicated freight demand remained strong, with dedicated average trucks growing over 10% year-over-year and 2% sequentially [13] - One way truckload revenues net of fuel increased by 10% to $190 million, with revenues per truck per week rising by 7.8% [28] - Logistics segment revenues grew by 35%, with truckload logistics revenues increasing by 63% [34][23] Market Data and Key Metrics Changes - Employment in the trucking industry remains 1% below pre-COVID levels, while the cast truckload freight index is 16% higher [5] - The truckload industry capacity is significantly constrained due to a competitive driver market and shortages in new truck builds [6] - The average age of the truck fleet slightly increased due to OEM build challenges [44] Company Strategy and Development Direction - The company is focused on strategic investments in driver sourcing and pay to address the competitive labor market [3][7] - The acquisition of ECM is expected to enhance fleet growth and profitability, with strong performance noted since the acquisition [4][41] - The company aims to achieve a long-term adjusted operating margin goal range of 12% to 17% [60] Management's Comments on Operating Environment and Future Outlook - Management expects a strong freight market to continue through the end of the year and into 2022, despite challenges in the driver market [6] - The company is addressing cost pressures related to health insurance and liability insurance, which are expected to normalize [90] - Management is optimistic about restoring productivity and improving margins in the upcoming quarters [90][94] Other Important Information - The company has made significant progress in its ESG initiatives, including the launch of its corporate social responsibility report [54] - Werner was awarded the 2021 SmartWay Excellence Award for outstanding environmental performance [58] - The company is committed to maintaining a strong financial position, with a net debt to EBITDA ratio of 0.5 [42] Q&A Session Summary Question: Can you provide a breakdown of cost impacts on TTS profitability? - Management indicated that miles were a major issue due to parts availability, leading to increased costs in driver lodging and layover pay [75][79] Question: What are the expectations for operating ratio improvement in Q4? - Management expects to see operating ratio improvement in Q4, with adjustments made to address transitory costs [100][101] Question: How is the company preparing for potential vaccine mandates? - The company is pro-vaccine and is setting up vaccination clinics, while also preparing for potential impacts on the workforce [102][106] Question: What are the expectations for contractual rate increases in 2022? - Management anticipates double-digit rate increases for renewals, reflecting inflationary pressures across the P&L [116] Question: How are shippers responding to the current freight cycle? - Shippers are looking for longer-term partnerships with carriers that can provide consistent service and capacity [120][121]

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the company's unaudited interim consolidated financial statements and accompanying notes [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) The company reports significant year-over-year growth in revenues, operating income, and net income Consolidated Statements of Income (3 Months Ended June 30) | Metric | 2021 (in thousands) | 2020 (in thousands) | % Change | | :-------------------------- | :------------------ | :------------------ | :------- | | Operating revenues | $649,814 | $568,959 | 14.2% | | Operating income | $76,863 | $52,818 | 45.5% | | Net income | $72,032 | $39,132 | 84.1% | | Basic EPS | $1.06 | $0.57 | 86.0% | | Diluted EPS | $1.06 | $0.56 | 89.3% | Consolidated Statements of Income (6 Months Ended June 30) | Metric | 2021 (in thousands) | 2020 (in thousands) | % Change | | :-------------------------- | :------------------ | :------------------ | :------- | | Operating revenues | $1,266,260 | $1,161,662 | 9.0% | | Operating income | $139,334 | $83,884 | 66.1% | | Net income | $118,524 | $62,190 | 90.6% | | Basic EPS | $1.74 | $0.90 | 93.3% | | Diluted EPS | $1.74 | $0.89 | 95.5% | - Other expense (income) decreased by **$20.6 million** for the three months and **$21.0 million** for the six months ended June 30, 2021, primarily due to a **$20.2 million unrealized gain** on an equity investment[16](index=16&type=chunk)[129](index=129&type=chunk)[141](index=141&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income grew substantially, driven by higher net income and favorable currency and interest rate adjustments Consolidated Statements of Comprehensive Income | Metric | Three Months Ended June 30, 2021 (in thousands) | Three Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income | $72,032 | $39,132 | $118,524 | $62,190 | | Foreign currency translation adjustments | 1,865 | 929 | 297 | (8,964) | | Change in fair value of interest rate swaps, net of tax | 360 | (623) | 1,663 | (6,220) | | Other comprehensive income (loss) | 2,225 | 306 | 1,960 | (15,184) | | Comprehensive income | $74,257 | $39,438 | $120,484 | $47,006 | [Consolidated Condensed Balance Sheets](index=6&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) The balance sheet reflects growth in total assets and stockholders' equity, funded partly by increased long-term debt Key Balance Sheet Items (June 30, 2021 vs December 31, 2020) | Metric | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :------- | | Cash and cash equivalents | $192,128 | $29,334 | 554.9% | | Total current assets | $666,511 | $456,916 | 45.9% | | Total assets | $2,382,867 | $2,156,676 | 10.5% | | Total current liabilities | $259,187 | $274,014 | (5.5)% | | Long-term debt, net of current portion | $295,000 | $175,000 | 68.6% | | Total stockholders' equity | $1,296,583 | $1,195,040 | 8.5% | - The significant increase in long-term debt is primarily due to new borrowings to finance the acquisition of ECM Transport Group[22](index=22&type=chunk)[145](index=145&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow decreased due to working capital changes, while financing activities provided cash for acquisitions Cash Flow Summary (Six Months Ended June 30, 2021 vs 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | % Change | | :------------------------------------ | :------------------ | :------------------ | :------- | | Net cash provided by operating activities | $189,464 | $287,342 | (34.1)% | | Net cash used in investing activities | $(104,605) | $(103,217) | (1.3)% | | Net cash provided by (used in) financing activities | $77,847 | $(150,183) | 151.8% | | Net increase (decrease) in cash, cash equivalents and restricted cash | $162,794 | $31,947 | 409.6% | | Cash, cash equivalents and restricted cash, end of period | $192,128 | $65,389 | 193.8% | - The decrease in net cash provided by operating activities was primarily due to working capital changes resulting from the timing of federal and state estimated income tax payments and changes in accounts receivable, partially offset by higher net income[143](index=143&type=chunk) - Net cash provided by financing activities in 2021 was driven by **net borrowings of $100.0 million**, including proceeds from the issuance of **$120.0 million in long-term debt**, primarily to finance the ECM acquisition[24](index=24&type=chunk)[145](index=145&type=chunk) [Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased due to strong comprehensive income, partially offset by dividends and share repurchases Total Stockholders' Equity | Date | Amount (in thousands) | | :---------------- | :-------------------- | | June 30, 2021 | $1,296,583 | | December 31, 2020 | $1,195,040 | | % Change | 8.5% | - Key changes contributing to the increase in stockholders' equity from December 31, 2020, to June 30, 2021, include **comprehensive income of $120.5 million** and non-cash equity compensation expense of **$5.2 million**, partially offset by dividends of **$14.9 million** and common stock repurchases of **$5.5 million**[26](index=26&type=chunk) [Notes to Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes provide detailed explanations of accounting policies, revenue sources, leases, investments, and other key items [(1) Accounting Policies](index=9&type=section&id=(1)%20Accounting%20Policies) The company adopted a new income tax accounting standard and is evaluating the impact of reference rate reform - The company adopted ASU 2019-12, 'Simplifying the Accounting for Income Taxes,' as of January 1, 2021, with **no effect** on its financial position, results of operations, or cash flows[29](index=29&type=chunk) - The company is evaluating the impact of ASU 2020-04, 'Reference Rate Reform,' on its existing credit facilities and hedging relationships that reference LIBOR[30](index=30&type=chunk) [(2) Revenue](index=9&type=section&id=(2)%20Revenue) Revenue growth was driven by both the Truckload Transportation Services and Werner Logistics segments Total Revenues by Period | Period | 2021 (in thousands) | 2020 (in thousands) | % Change | | :-------------------------- | :------------------ | :------------------ | :------- | | Three Months Ended June 30, | $649,814 | $568,959 | 14.2% | | Six Months Ended June 30, | $1,266,260 | $1,161,662 | 9.0% | Revenue by Source (6 Months Ended June 30) | Revenue Source | 2021 (in thousands) | 2020 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Truckload Transportation Services | $954,149 | $909,916 | | Werner Logistics | $279,526 | $222,327 | - Accounts receivable, trade, net, increased to **$391.1 million** at June 30, 2021, from **$341.1 million** at December 31, 2020[34](index=34&type=chunk)[35](index=35&type=chunk) [(3) Leases](index=10&type=section&id=(3)%20Leases) The company details its operating lease liabilities and expenses, primarily for terminals and office facilities Operating Lease Liabilities (June 30, 2021) | Metric | Amount (in thousands) | | :---------------------------------------- | :-------------------- | | Total undiscounted operating lease payments | $11,136 | | Present value of operating lease liabilities | $10,480 | | Weighted-average remaining lease term | 3.85 years | | Weighted-average discount rate | 3.18% | Operating Lease Expense | Period | 2021 (in thousands) | 2020 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Three Months Ended June 30, | $3,500 | $2,100 | | Six Months Ended June 30, | $7,100 | $4,100 | - Revenues from lessor operating leases (tractors and trailers) were **$3.0 million** for the three months ended June 30, 2021, and **$6.1 million** for the six months ended June 30, 2021[46](index=46&type=chunk) [(4) Investments](index=12&type=section&id=(4)%20Investments) An equity investment in TuSimple generated a significant unrealized gain following its initial public offering - The company made a **$5.0 million** equity investment in TuSimple on January 8, 2021, which resulted in a **$20.2 million unrealized gain** in the three and six months ended June 30, 2021, following its IPO[49](index=49&type=chunk) - A **$5.0 million** investment in Mastery Logistics Systems, Inc (MLSI) in 2020 represents approximately **5% ownership** and is accounted for under ASC 321[48](index=48&type=chunk) [(5) Credit Facilities](index=12&type=section&id=(5)%20Credit%20Facilities) The company amended its credit agreement, increasing borrowing capacity and adding a new term loan - On June 30, 2021, the company amended its credit agreement, adding a **$100.0 million** unsecured fixed-rate term loan (1.28% interest) and increasing its borrowing capacity with BMO Harris Bank N.A. from **$200.0 million to $300.0 million**[50](index=50&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) - Total outstanding debt increased to **$300.0 million** as of June 30, 2021, from **$200.0 million** at December 31, 2020[52](index=52&type=chunk) Aggregate Future Maturities of Long-Term Debt (June 30, 2021) | Year | Amount (in thousands) | | :--- | :-------------------- | | 2021 | $2,500 | | 2022 | $5,000 | | 2023 | $5,000 | | 2024 | $287,500 | | 2025 | — | | Total | $300,000 | [(6) Commitments and Contingencies](index=13&type=section&id=(6)%20Commitments%20and%20Contingencies) The company has significant equipment purchase commitments and is appealing a large adverse jury verdict - The company has committed to property and equipment purchases of approximately **$269.8 million** as of June 30, 2021[56](index=56&type=chunk) - The company is appealing a **$92.0 million** adverse jury verdict from 2018, with its maximum liability limited to **$10.0 million** plus interest due to insurance coverage[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk) - Accrued interest related to the adverse jury verdict was **$1.3 million** for the three months ended June 30, 2021, accruing at **$0.4 million per month**[120](index=120&type=chunk) [(7) Earnings Per Share](index=14&type=section&id=(7)%20Earnings%20Per%20Share) Both basic and diluted earnings per share showed substantial growth compared to the prior year Basic and Diluted Earnings Per Share | Period | Basic EPS (2021) | Basic EPS (2020) | Diluted EPS (2021) | Diluted EPS (2020) | | :-------------------------- | :--------------- | :--------------- | :----------------- | :----------------- | | Three Months Ended June 30, | $1.06 | $0.57 | $1.06 | $0.56 | | Six Months Ended June 30, | $1.74 | $0.90 | $1.74 | $0.89 | [(8) Equity Compensation](index=14&type=section&id=(8)%20Equity%20Compensation) The company details its equity compensation plan, including available shares and recognized expenses - As of June 30, 2021, there were **6,534,087 shares available** for granting additional awards under the Equity Plan, with total unrecognized compensation cost of approximately **$15.7 million**[67](index=67&type=chunk)[68](index=68&type=chunk) - The total fair value of previously granted restricted awards vested during the six-month periods ended June 30, 2021 and 2020 was **$5.1 million** and **$3.4 million**, respectively[73](index=73&type=chunk)[77](index=77&type=chunk) Pre-tax Equity Compensation Expense (in thousands) | Award Type | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :---------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Restricted awards | $1,538 | $1,090 | $3,087 | $2,488 | | Performance awards | $1,209 | $53 | $2,155 | $1,063 | [(9) Segment Information](index=16&type=section&id=(9)%20Segment%20Information) Both the Truckload Transportation Services and Werner Logistics segments reported strong growth in revenues and operating income - The company operates in two reportable segments: **Truckload Transportation Services (TTS)** and **Werner Logistics**[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) Revenues by Segment (in thousands) | Segment | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Truckload Transportation Services | $491,200 | $445,053 | $954,149 | $909,916 | | Werner Logistics | $141,673 | $110,163 | $279,526 | $222,327 | Operating Income by Segment (in thousands) | Segment | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Truckload Transportation Services | $73,108 | $51,225 | $130,736 | $80,314 | | Werner Logistics | $3,927 | $3,139 | $8,501 | $4,224 | [(10) Subsequent Event](index=17&type=section&id=(10)%20Subsequent%20Event) The company acquired an 80% equity interest in ECM Transport Group immediately after the quarter ended - On July 1, 2021, the company acquired an **80% equity ownership interest** in ECM Transport Group for a cash purchase price of **$142.4 million**, with an exclusive option to purchase the remaining 20% after five years[82](index=82&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's strong financial performance, the strategic ECM acquisition, and ongoing market dynamics [ECM Acquisition](index=18&type=section&id=ECM%20Acquisition) The company acquired a majority stake in ECM Transport Group to expand its regional truckload services - Werner acquired an **80% equity ownership interest** in ECM Transport Group on July 1, 2021, for **$142.4 million**, with an exclusive option to buy the remaining 20% after five years[85](index=85&type=chunk)[86](index=86&type=chunk) - ECM generated **$108 million in revenues in 2020** with a **19.8% operating margin**, and its future revenues will be reported in the One-Way Truckload unit within the TTS segment[85](index=85&type=chunk) - The acquisition was financed through a combination of cash on hand, existing credit facilities, and a new **$100.0 million fixed-rate term loan**[86](index=86&type=chunk) [Overview](index=18&type=section&id=Overview) The company operates through its TTS and Werner Logistics segments, with profitability measured by its operating ratio - The company operates in two reportable segments: **Truckload Transportation Services (TTS)** and **Werner Logistics**, focusing on transporting consumer nondurable products and providing logistics services[87](index=87&type=chunk) - TTS segment revenues are typically generated on a per-mile basis, supplemented by fuel surcharge revenues designed to recover a majority of increased fuel costs[88](index=88&type=chunk)[108](index=108&type=chunk) - The **operating ratio** (operating expenses as a percentage of operating revenues) is a key profitability measure for the TTS segment[91](index=91&type=chunk) [COVID-19](index=19&type=section&id=COVID-19) The company's focus on transporting essential products has enabled effective management through the pandemic environment - The transportation industry has been designated an essential industry during the COVID-19 pandemic, and Werner's freight base, heavily weighted toward essential products, has enabled effective management[93](index=93&type=chunk)[94](index=94&type=chunk) - Demand for the company's services is expected to **remain strong** through the remainder of 2021[93](index=93&type=chunk)[94](index=94&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) The company achieved significant growth in revenues and operating income, driven by strong freight market conditions [Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020](index=23&type=section&id=Three%20Months%20Ended%20June%2030%2C%202021%20Compared%20to%20Three%20Months%20Ended%20June%2030%2C%202020) Quarterly revenue and income surged due to strong performance in both TTS and Logistics segments - Operating revenues increased **14.2% to $649.8 million**, with TTS segment revenues up **10.4%** and Werner Logistics revenues up **28.6%**[98](index=98&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - Operating income surged **45.5% to $76.9 million**, and net income increased **84.1% to $72.0 million**, with the operating ratio improving to **88.2%** from 90.7%[98](index=98&type=chunk)[110](index=110&type=chunk) - Key expense changes include a **90.7% increase in fuel costs**, a **7.8% increase in salaries**, and a **19.6% decrease in insurance and claims**[111](index=111&type=chunk)[114](index=114&type=chunk)[120](index=120&type=chunk)[128](index=128&type=chunk) [Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020](index=28&type=section&id=Six%20Months%20Ended%20June%2030%2C%202021%20Compared%20to%20Six%20Months%20Ended%20June%2030%2C%202020) Half-year results show robust growth in revenue and profitability, with an improved operating ratio - Operating revenues increased **9.0% to $1,266.3 million**, with TTS segment revenues up **4.9%** and Werner Logistics revenues up **25.7%**[98](index=98&type=chunk)[131](index=131&type=chunk) - Operating income increased **66.1% to $139.3 million**, and net income increased **90.6% to $118.5 million**, with the operating ratio improving to **89.0%** from 92.8%[98](index=98&type=chunk)[132](index=132&type=chunk) - Key expense changes include a **37.6% increase in fuel costs**, a **3.5% increase in salaries**, and a **30.8% decrease in insurance and claims**[134](index=134&type=chunk)[135](index=135&type=chunk)[137](index=137&type=chunk)[140](index=140&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with substantial cash, equity, and available credit - Cash flow from operations decreased by **34.1% ($97.9 million) to $189.5 million** for the six months ended June 30, 2021, primarily due to working capital changes[143](index=143&type=chunk) - Net financing activities provided **$77.8 million**, a significant increase from using $150.2 million in the prior year, driven by **$100.0 million in net borrowings** to finance the ECM acquisition[145](index=145&type=chunk) - As of June 30, 2021, the company had a strong financial position with **$192.1 million in cash**, nearly **$1.3 billion in stockholders' equity**, and **$300.0 million in available credit**[146](index=146&type=chunk) [Contractual Obligations and Commercial Commitments](index=30&type=section&id=Contractual%20Obligations%20and%20Commercial%20Commitments) No material changes occurred in contractual obligations, aside from new debt agreements for the ECM acquisition - There were no material changes in contractual obligations and commercial commitments as of June 30, 2021, compared to December 31, 2020, except for new borrowings as disclosed in Note 5[147](index=147&type=chunk) [Regulations](index=30&type=section&id=Regulations) There have been no material changes in the status of previously disclosed proposed regulations - There have been no material changes in the status of proposed regulations previously disclosed in the 2020 Form 10-K[148](index=148&type=chunk) [Critical Accounting Estimates](index=31&type=section&id=Critical%20Accounting%20Estimates) The company's critical accounting estimates, particularly for insurance and claims liabilities, remain unchanged - The company's critical accounting estimates, particularly for accrued liabilities for insurance and claims, remain unchanged from those discussed in the 2020 Form 10-K[150](index=150&type=chunk)[151](index=151&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company actively manages market risks from commodity prices, foreign currency, and interest rates [Commodity Price Risk](index=31&type=section&id=Commodity%20Price%20Risk) Diesel fuel price fluctuations are the primary commodity risk, largely mitigated through customer fuel surcharges - The company is exposed to fluctuations in diesel fuel prices, which it largely mitigates through customer fuel surcharge programs[108](index=108&type=chunk)[153](index=153&type=chunk) - As of June 30, 2021, the company had **no derivative financial instruments** to reduce its exposure to fuel price fluctuations[118](index=118&type=chunk) [Foreign Currency Exchange Rate Risk](index=31&type=section&id=Foreign%20Currency%20Exchange%20Rate%20Risk) Foreign currency risk is primarily related to the Mexican Peso, with most foreign revenues denominated in U.S. Dollars - The company conducts business primarily in Mexico, with most foreign revenues denominated in U.S. Dollars to reduce direct foreign currency risk[154](index=154&type=chunk) - Foreign currency translation gains were **$1.9 million** for the second quarter of 2021 and **$0.9 million** for the second quarter of 2020[154](index=154&type=chunk) [Interest Rate Risk](index=31&type=section&id=Interest%20Rate%20Risk) Interest rate risk is managed through a mix of fixed and variable rate debt and interest rate swaps - The company manages interest rate exposure through a mix of variable rate debt and interest rate swap agreements, with **$150 million of debt effectively fixed at 2.34%** and **$100 million at a fixed rate of 1.28%**[155](index=155&type=chunk) - A hypothetical one-percentage point increase in the LIBOR interest rate would increase annual interest expense by approximately **$500,000**[155](index=155&type=chunk) - The company is evaluating the impact of the discontinuation of LIBOR, which is referenced by its unsecured credit facilities[156](index=156&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of the quarter-end - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective at a reasonable assurance level** as of June 30, 2021[157](index=157&type=chunk)[158](index=158&type=chunk) - **No changes** in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[159](index=159&type=chunk) - Management acknowledges that internal control systems provide only **reasonable, not absolute, assurance** that objectives are met[160](index=160&type=chunk) PART II – OTHER INFORMATION [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has an ongoing stock repurchase program with shares remaining available for purchase - The Board of Directors approved a stock repurchase program for up to 5,000,000 shares, with **2,686,562 shares remaining available** as of June 30, 2021[163](index=163&type=chunk) - **No shares** of common stock were repurchased during the second quarter of 2021[164](index=164&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate and financial documents - Exhibits include Restated Articles of Incorporation, By-Laws, credit agreements, CEO and CFO certifications, and iXBRL financial information[166](index=166&type=chunk)[167](index=167&type=chunk)

Financial Performance - The company reported record earnings in Q2 2021, with revenues increasing 14% to $650 million and adjusted EPS growing 40% to $0.86 per share [12][19] - Adjusted operating income increased 37% to $79.1 million, with an adjusted operating margin, net of fuel, growing 340 basis points to 17.1% [12][19] - The TTS adjusted operating ratio improved to 82.9% [20][94] Business Segment Performance - TTS revenues increased 10% driven by higher revenues per mile, while dedicated freight revenues grew by 10% to $262 million [20][21] - One-way truckload revenues decreased 1% to $166 million, but revenues per truck per week increased 14.8% due to higher revenues per total mile [21] - Logistics revenues grew 29% to $142 million, with truckload logistics revenues increasing 49% [22] Market Conditions - The retail inventory to sales ratio reached a new 30-year low, indicating strong future freight demand [7] - The driver shortage remains severe, impacting the ability to grow the fleet organically [8][17] - The company added 500 trucks and skilled drivers through the acquisition of ECM Transport Group, enhancing its regional fleet presence [10][28] Strategic Direction - The company aims to leverage its consumer-oriented freight base and enhance its logistics capabilities through technology and strategic acquisitions [9][24] - The acquisition of ECM is expected to be accretive to adjusted EPS in the first year and strategically expands operations in key regions [28] - The company is committed to sustainability and has published its inaugural corporate social responsibility report, outlining specific ESG goals [36][40] Management Commentary - Management expressed confidence in strong freight demand continuing through 2022, supported by retail inventory replenishment needs [6][48] - The company is focused on maintaining a strong financial position with a long-term leverage goal of a net debt to annual EBITDA ratio of 0.5 to 1 turn [26][27] - Management acknowledged challenges in driver recruitment but remains optimistic about future growth opportunities [30][68] Other Important Information - The company plans to maintain net capital expenditures in the range of $275 million to $300 million for 2021 [23][44] - The company is expanding its driver training school network to improve driver recruitment and retention [30] - The company is implementing innovative technology solutions to enhance operational efficiency and reduce maintenance downtime [33][34] Q&A Session Summary Question: What signs do you look for in terms of demand continuation? - Management highlighted customer conversations and macroeconomic data as indicators, noting a low inventory to sales ratio and a net fleet decline in the industry [52][54] Question: How do you view margin progression in the back half of the year? - Management indicated that seasonality may be affected by the strong second quarter, but they expect to continue improving margins through capacity creation and contract rate increases [58][60] Question: What is the impact of the ECM acquisition on utilization? - The ECM acquisition will contribute to rate per mile improvements, but the lower length of haul will result in lower miles per truck [62] Question: How is the dedicated business performing? - Management reported strong performance in dedicated, with a robust pipeline and successful driver recruitment efforts [78][80] Question: How do you manage the trade-off between dedicated and one-way truckload? - Management emphasized the importance of driver preferences and the stability offered by dedicated contracts, which can provide long-term returns [86][88]

Financial Highlights - Revenues increased by 14% to $650 million in 2Q 2021[11] - GAAP EPS increased significantly by 87% to $1.06[12] - Adjusted EPS grew by 40% to $0.86[13] - Adjusted operating income increased by 37% to $79.1 million[14] - Adjusted TTS operating margin increased by 340 bps to 17.1%[15] Truckload Transportation Services (TTS) - TTS revenues increased by 10% to $491.2 million in 2Q 2021 compared to $445.1 million in 2Q 2020[28] - TTS adjusted operating income increased by 33% to $74.4 million in 2Q 2021 compared to $56.1 million in 2Q 2020[28] Werner Logistics - Werner Logistics revenues increased by 29% to $141.7 million in 2Q 2021 compared to $110.2 million in 2Q 2020[34] - Logistics operating income increased by 25% to $3.9 million[24, 34] Strategic Acquisition - Purchased 80% equity ownership interest in ECM Transport Group on 7/1/21 for $142.4 million[15, 40]

| --- | --- | --- | --- | --- | |-----------------------------------------------|-------|-------|-------|---------| | | | | | | | | | | | | | | | | | | | BUILt | | | | | | CROSS THE | | | | | | Investor Presentation, May 2021 TSX/NYSE: CP | | | | 1881 Cb | FORWARD LOOKING STATEMENTS The following investor presentation contains certain forward-looking information within the meaning of applicable securities laws relating, but not limited, to Canadian Pacific's operations, priorities and plans, anticipated fin ...

[PART I – FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Unaudited interim consolidated financial statements, including income, balance sheets, cash flows, equity, and detailed notes, are presented - The interim consolidated financial statements are unaudited and prepared in accordance with SEC instructions to Form 10-Q, reflecting management's opinion that all necessary adjustments for a fair statement are included[11](index=11&type=chunk) - Operating results for the three-month period ended March 31, 2021, are not necessarily indicative of the full year's expected results[12](index=12&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net income and operating income significantly increased in Q1 2021, driven by higher operating revenues and reduced expenses Consolidated Statements of Income (Three Months Ended March 31) | Metric (in thousands, except per share) | 2021 | 2020 | | :-------------------------------------- | :--- | :--- | | Operating revenues | $616,446 | $592,703 | | Total operating expenses | $553,975 | $561,637 | | Operating income | $62,471 | $31,066 | | Income before income taxes | $61,888 | $30,056 | | Net income | $46,492 | $23,058 | | Basic Earnings per share | $0.68 | $0.33 | | Diluted Earnings per share | $0.68 | $0.33 | - Net income increased by **101.6%** from **$23,058 thousand** in Q1 2020 to **$46,492 thousand** in Q1 2021[16](index=16&type=chunk) - Operating income more than doubled, rising from **$31,066 thousand** in Q1 2020 to **$62,471 thousand** in Q1 2021[16](index=16&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income substantially increased in Q1 2021, driven by higher net income and reduced other comprehensive losses Consolidated Statements of Comprehensive Income (Three Months Ended March 31) | Metric (in thousands) | 2021 | 2020 | | :-------------------- | :--- | :--- | | Net income | $46,492 | $23,058 | | Other comprehensive income (loss) | $(265) | $(15,490) | | Comprehensive income | $46,227 | $7,568 | - Comprehensive income increased significantly from **$7,568 thousand** in Q1 2020 to **$46,227 thousand** in Q1 2021[19](index=19&type=chunk) - Foreign currency translation adjustments improved from a loss of **$9,893 thousand** in Q1 2020 to a loss of **$1,568 thousand** in Q1 2021[19](index=19&type=chunk) - Changes in fair value of interest rate swaps shifted from a loss of **$5,597 thousand** in Q1 2020 to a gain of **$1,303 thousand** in Q1 2021[19](index=19&type=chunk) [Consolidated Condensed Balance Sheets](index=6&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) Total assets and stockholders' equity increased as of March 31, 2021, driven by a substantial increase in cash and cash equivalents Consolidated Condensed Balance Sheets (as of) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total assets | $2,229,526 | $2,156,676 | | Total liabilities | $1,001,800 | $961,636 | | Total stockholders' equity | $1,227,730 | $1,195,040 | | Cash and cash equivalents | $83,130 | $29,334 | - Cash and cash equivalents significantly increased by **$53,796 thousand** from **$29,334 thousand** at December 31, 2020, to **$83,130 thousand** at March 31, 2021[22](index=22&type=chunk) - Current portion of long-term debt decreased from **$25,000 thousand** at December 31, 2020, to zero at March 31, 2021[22](index=22&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating activities generated healthy cash, funding increased investing and reduced financing, resulting in a net cash increase for Q1 2021 Consolidated Statements of Cash Flows (Three Months Ended March 31) | Cash Flow Activity (in thousands) | 2021 | 2020 | | :-------------------------------- | :--- | :--- | | Net cash provided by operating activities | $135,867 | $133,376 | | Net cash used in investing activities | $(41,291) | $(16,524) | | Net cash used in financing activities | $(40,361) | $(68,960) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $53,796 | $45,819 | | Cash, cash equivalents and restricted cash, end of period | $83,130 | $79,261 | - Net cash provided by operating activities increased by **1.9%** to **$135,867 thousand** in Q1 2021[24](index=24&type=chunk) - Net cash used in investing activities more than doubled to **$41,291 thousand** in Q1 2021, primarily due to higher additions to property and equipment and an investment in equity securities[24](index=24&type=chunk) - Net cash used in financing activities decreased by **41.5%** to **$40,361 thousand** in Q1 2021, mainly due to lower debt repayments[24](index=24&type=chunk) [Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity increased in Q1 2021, driven by net income and equity compensation, offset by dividends and stock repurchases Consolidated Statements of Stockholders' Equity (Three Months Ended March 31, 2021) | Metric (in thousands) | Balance, Dec 31, 2020 | Comprehensive Income | Purchases of Common Stock | Dividends on Common Stock | Equity Compensation Activity | Non-cash Equity Compensation Expense | Balance, Mar 31, 2021 | | :-------------------- | :-------------------- | :------------------- | :------------------------ | :------------------------ | :--------------------------- | :----------------------------------- | :-------------------- | | Common Stock | $805 | — | — | — | — | — | $805 | | Paid-In Capital | $116,039 | — | — | — | $(3,953) | $2,502 | $114,588 | | Retained Earnings | $1,438,916 | $46,492 | — | $(6,792) | — | — | $1,478,616 | | Accumulated Other Comprehensive Income (Loss) | $(22,833) | $(265) | — | — | — | — | $(23,098) | | Treasury Stock | $(337,887) | — | $(5,507) | — | $213 | — | $(343,181) | | Total Stockholders' Equity | $1,195,040 | $46,227 | $(5,507) | $(6,792) | $(3,740) | $2,502 | $1,227,730 | - Total stockholders' equity increased by **$32,690 thousand** from **$1,195,040 thousand** at December 31, 2020, to **$1,227,730 thousand** at March 31, 2021[26](index=26&type=chunk) - The company repurchased **130,446 shares** of common stock for **$5,507 thousand** during Q1 2021[26](index=26&type=chunk) - Dividends on common stock amounted to **$6,792 thousand** (**$0.10 per share**) in Q1 2021[26](index=26&type=chunk) [Notes to Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) Notes provide critical context and detailed disclosures for interim financial statements, covering policies, revenue, leases, investments, credit, contingencies, EPS, equity, and segment data [(1) Accounting Policies](index=9&type=section&id=(1)%20Accounting%20Policies) ASU 2019-12 was adopted with no material effect, and ASU 2020-04 is being evaluated for LIBOR-related credit facilities and hedging - ASU 2019-12, 'Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,' was adopted on January 1, 2021, with no effect on financial statements[29](index=29&type=chunk) - The company is evaluating ASU 2020-04, 'Reference Rate Reform (Topic 848),' for its applicability to existing credit facilities and hedging relationships that reference LIBOR[30](index=30&type=chunk) [(2) Revenue](index=9&type=section&id=(2)%20Revenue) Revenues are recognized over time, disaggregated by source (TTS, Werner Logistics) and geography, with contract assets and liabilities detailed Revenues Disaggregated by Source (Three Months Ended March 31, in thousands) | Revenue Source | 2021 | 2020 | | :--------------- | :--- | :--- | | Truckload Transportation Services | $462,949 | $464,863 | | Werner Logistics | $137,853 | $112,164 | | Inter-segment eliminations | $(134) | $(11) | | Transportation services | $600,668 | $577,016 | | Other revenues | $15,778 | $15,687 | | Total revenues | $616,446 | $592,703 | Revenues Disaggregated by Geographic Area (Three Months Ended March 31, in thousands) | Geographic Area | 2021 | 2020 | | :---------------- | :--- | :--- | | United States | $555,239 | $530,071 | | Mexico | $38,756 | $43,421 | | Other | $22,451 | $19,211 | | Total revenues | $616,446 | $592,703 | - Contract assets increased from **$6.9 million** at December 31, 2020, to **$8.9 million** at March 31, 2021[34](index=34&type=chunk) - Contract liabilities increased from **$1.5 million** at December 31, 2020, to **$1.7 million** at March 31, 2021[35](index=35&type=chunk) [(3) Leases](index=10&type=section&id=(3)%20Leases) Operating leases for real estate are primary, with lease liabilities and right-of-use assets recognized; the company also leases tractors and trailers Operating Lease Liabilities (as of March 31, 2021, in thousands) | Metric | Amount | | :-------------------------------------- | :----- | | Total undiscounted operating lease payments | $10,599 | | Present value of operating lease liabilities | $9,966 | | Right-of-use assets | $9,506 | | Current lease liabilities | $3,408 | | Long-term lease liabilities | $6,558 | | Weighted-average remaining lease term | 3.70 years | | Weighted-average discount rate | 3.30 % | - Operating lease expense increased from **$2.0 million** in Q1 2020 to **$3.6 million** in Q1 2021[44](index=44&type=chunk) - Revenues from lessor operating leases for tractors and trailers decreased from **$3.3 million** in Q1 2020 to **$3.1 million** in Q1 2021[45](index=45&type=chunk) [(4) Investments](index=12&type=section&id=(4)%20Investments) Strategic equity investments in MLSI and TuSimple were made, with TuSimple's converting to Class A shares post-IPO - Invested **$5.0 million** in Mastery Logistics Systems, Inc. (MLSI) in 2020 for approximately **5% ownership**, accounted for under ASC 321[47](index=47&type=chunk) - Made a **$5.0 million** equity investment in TuSimple in January 2021, representing less than **1% ownership**, also accounted for under ASC 321[48](index=48&type=chunk) - TuSimple completed its IPO in April 2021, converting the company's equity investment to Class A common shares, with future value changes to be recorded in other expense (income)[49](index=49&type=chunk) [(5) Credit Facilities](index=12&type=section&id=(5)%20Credit%20Facilities) Unsecured credit facilities total $500.0 million, with $175.0 million outstanding, largely fixed by interest rate swaps, and the company is covenant compliant - Total unsecured committed credit facilities amount to **$500.0 million**, expiring May 14, 2024[50](index=50&type=chunk) - Outstanding debt decreased from **$200.0 million** at December 31, 2020, to **$175.0 million** at March 31, 2021[51](index=51&type=chunk) - **$150.0 million** of the outstanding debt is effectively fixed at **2.32%-2.36%** through interest rate swap agreements[51](index=51&type=chunk) - The company was in compliance with all financial covenants as of March 31, 2021[51](index=51&type=chunk) Aggregate Future Maturities of Long-Term Debt (as of March 31, 2021, in thousands) | Year | Amount | | :--- | :----- | | 2021 | $— | | 2022 | $— | | 2023 | $— | | 2024 | $175,000 | | 2025 | $— | | Total | $175,000 | [(6) Commitments and Contingencies](index=13&type=section&id=(6)%20Commitments%20and%20Contingencies) Commitments include $164.4 million in property purchases; litigation includes a $92.0 million jury verdict under appeal, with a $24.9 million liability and $79.2 million insurer receivable - Committed to approximately **$164.4 million** in property and equipment purchases[54](index=54&type=chunk) - Accrued a liability of **$24.9 million** as of March 31, 2021, for a **$92.0 million** adverse jury verdict, with a maximum liability of **$10.0 million** (plus interest) under insurance policies and a corresponding **$79.2 million** receivable from insurers[56](index=56&type=chunk)[57](index=57&type=chunk) - The company is appealing the **$92.0 million** jury verdict[58](index=58&type=chunk) - A class action lawsuit for unpaid wages (FLSA) was dismissed in the trial court in June 2020, with plaintiffs' counsel filing an appeal in July 2020[59](index=59&type=chunk) [(7) Earnings Per Share](index=14&type=section&id=(7)%20Earnings%20Per%20Share) Basic and diluted EPS significantly increased in Q1 2021, reflecting higher net income and slightly fewer weighted-average common shares Earnings Per Share (Three Months Ended March 31, in thousands, except per share amounts) | Metric | 2021 | 2020 | | :---------------------------------- | :--- | :--- | | Net income | $46,492 | $23,058 | | Weighted average common shares outstanding | 67,932 | 69,253 | | Dilutive effect of stock-based awards | 291 | 356 | | Shares used in computing diluted earnings per share | 68,223 | 69,609 | | Basic earnings per share | $0.68 | $0.33 | | Diluted earnings per share | $0.68 | $0.33 | - Basic and diluted EPS both increased by **$0.35**, from **$0.33** in Q1 2020 to **$0.68** in Q1 2021[63](index=63&type=chunk) [(8) Equity Compensation](index=14&type=section&id=(8)%20Equity%20Compensation) The Equity Plan grants restricted and performance awards, with $16.1 million in unrecognized compensation cost over 2.0 years, vesting by time or performance - **6,537,930 shares** were available for granting additional awards under the Equity Plan as of March 31, 2021[64](index=64&type=chunk) - Total unrecognized compensation cost related to non-vested equity compensation awards was approximately **$16.1 million**, with a weighted average recognition period of **2.0 years**[65](index=65&type=chunk) Equity Compensation Expense (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | | :-------------------------- | :--- | :--- | | Restricted awards pre-tax compensation expense | $1,549 | $1,398 | | Performance awards pre-tax compensation expense | $946 | $1,010 | Restricted Award Activity (Three Months Ended March 31, 2021, in thousands of awards) | Activity | Number of Restricted Awards | | :------------------------ | :-------------------------- | | Nonvested at beginning of period | 367 | | Granted | 114 | | Vested | (107) | | Forfeited | (2) | | Nonvested at end of period | 372 | Performance Award Activity (Three Months Ended March 31, 2021, in thousands of awards) | Activity | Number of Performance Awards | | :------------------------ | :--------------------------- | | Nonvested at beginning of period | 262 | | Granted | 74 | | Vested | (100) | | Forfeited | — | | Nonvested at end of period | 236 | [(9) Segment Information](index=16&type=section&id=(9)%20Segment%20Information) The company operates in two segments: Truckload Transportation Services (TTS) and Werner Logistics; WGL freight forwarding services were sold in Q1 2021 Segment Revenues (Three Months Ended March 31, in thousands) | Segment | 2021 | 2020 | | :-------------------------- | :--- | :--- | | Truckload Transportation Services | $462,949 | $464,863 | | Werner Logistics | $137,853 | $112,164 | | Other | $15,399 | $15,068 | | Corporate | $379 | $619 | | Inter-segment eliminations | $(134) | $(11) | | Total | $616,446 | $592,703 | Segment Operating Income (Three Months Ended March 31, in thousands) | Segment | 2021 | 2020 | | :-------------------------- | :--- | :--- | | Truckload Transportation Services | $57,628 | $29,089 | | Werner Logistics | $4,574 | $1,085 | | Other | $866 | $2,900 | | Corporate | $(597) | $(2,008) | | Total | $62,471 | $31,066 | - Werner Logistics operating income increased significantly from **$1,085 thousand** in Q1 2020 to **$4,574 thousand** in Q1 2021[79](index=79&type=chunk) - The sale of Werner Global Logistics (WGL) freight forwarding services was completed in Q1 2021, realizing a **$1.0 million** gain[77](index=77&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2021 financial condition, operations, and liquidity, including business overview, COVID-19 impact, operating results, capital, obligations, regulations, and critical estimates [Overview](index=18&type=section&id=Overview) Operating in truckload and logistics, the company focuses on consumer nondurables, managing resources and demand; profitability is measured by TTS operating ratio and Werner Logistics gross margin - The company's two reportable segments are Truckload Transportation Services (TTS) and Werner Logistics[81](index=81&type=chunk) - TTS segment revenues are typically generated on a per-mile basis, with fuel surcharge revenues used to mitigate fuel price increases[82](index=82&type=chunk) - The operating ratio (operating expenses as a percentage of operating revenues) is a key profitability measure for the TTS segment[84](index=84&type=chunk) - Werner Logistics segment is less asset-intensive, relying on associates, information systems, and third-party capacity providers, with financial performance evaluated by gross margin and operating income percentages[86](index=86&type=chunk) [COVID-19 Impact](index=19&type=section&id=COVID-19) As an essential industry, the company prioritized safety and adapted operations during COVID-19, achieving strong Q1 2021 results due to freight demand and a tight driver market, maintaining a strong balance sheet and liquidity - The transportation industry was designated an essential industry during the COVID-19 pandemic, allowing the company to continue operations[87](index=87&type=chunk) - Q1 2021 results reflect seasonally strong freight market conditions in a strengthening economy and tight driver market, with strong demand in both One-Way Truckload and Dedicated fleets[89](index=89&type=chunk) - The company ended Q1 2021 with a strong balance sheet, low debt (**$175 million**), and available liquidity of **$357 million**[91](index=91&type=chunk) - Net capital expenditures in 2021 are expected to be in the range of **$275 million** to **$300 million**[91](index=91&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Operating income increased by 101.1% and net income by 101.6% in Q1 2021, driven by a 4.0% rise in operating revenues and a 1.4% decrease in total operating expenses Consolidated Operating Results (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | % Change | | :-------------------------- | :--- | :--- | :------- | | Operating revenues | $616,446 | $592,703 | 4.0% | | Total operating expenses | $553,975 | $561,637 | (1.4)% | | Operating income | $62,471 | $31,066 | 101.1% | | Net income | $46,492 | $23,058 | 101.6% | | Operating ratio | 89.9% | 94.8% | (4.9) pts | [Operating Revenues Analysis](index=22&type=section&id=Operating%20Revenues%20Analysis) Total operating revenues increased by 4.0% in Q1 2021, driven by Werner Logistics growth offsetting a slight TTS decrease, with improved pricing per tractor per week - Total operating revenues increased by **4.0%** to **$616.4 million** in Q1 2021[101](index=101&type=chunk) - Werner Logistics revenues increased by **$25.7 million** (**22.9%**), while TTS segment revenues decreased by **$1.9 million** (**0.4%**)[101](index=101&type=chunk) - Trucking revenues, net of fuel surcharge, increased **0.4%** due to a **1.3%** increase in average revenues per tractor per week, partially offset by a **0.9%** decrease in average tractors in service[104](index=104&type=chunk) - Werner Logistics revenues increased primarily due to higher pricing in Truckload Logistics (**22%** increase in revenues per load) and Intermodal (**6%** higher revenues per load, **23%** volume growth)[107](index=107&type=chunk) [Operating Expenses Analysis](index=23&type=section&id=Operating%20Expenses%20Analysis) Total operating expenses decreased by 1.4% in Q1 2021, improving the operating ratio to 89.9%, driven by lower insurance, depreciation, and higher asset sale gains, partially offset by increased rent, purchased transportation, and driver pay - Operating ratio improved to **89.9%** in Q1 2021 from **94.8%** in Q1 2020[108](index=108&type=chunk) - Salaries, wages and benefits decreased by **0.6%** due to fewer company truck miles and improved workers' compensation costs, despite increased driver pay rates (nearly **7%** per company driver mile)[109](index=109&type=chunk) - Fuel expense increased by **4.2%** due to higher average diesel fuel prices, partially offset by fewer company truck miles[113](index=113&type=chunk) - Insurance and claims decreased by **38.8%** (**$14.0 million**) primarily due to lower expense for new large dollar claims, despite higher liability insurance premiums[118](index=118&type=chunk) - Depreciation expense decreased by **7.1%** due to a prior year accounting estimate change for trucks sold in 2020[120](index=120&type=chunk) - Rent and purchased transportation expense increased by **15.9%**, mainly driven by higher spot truckload and dray rates in the Werner Logistics segment[123](index=123&type=chunk) - Other operating expenses decreased by **$9.8 million**, primarily due to higher gains on sales of used trucks and trailers (**$10.5 million** in Q1 2021 vs. **$2.5 million** in Q1 2020) and a **$1.0 million** gain from the WGL sale[126](index=126&type=chunk) [Other Expense (Income)](index=27&type=section&id=Other%20Expense%20(Income)) Total other expense (income) decreased by **$0.4 million** in Q1 2021, primarily due to lower interest expense from reduced average outstanding debt - Interest expense decreased by **$0.8 million** in Q1 2021 compared to Q1 2020, attributed to lower average outstanding debt[127](index=127&type=chunk) [Income Taxes](index=27&type=section&id=Income%20Taxes) The effective income tax rate increased to **24.9%** in Q1 2021 from **23.3%** in Q1 2020, mainly due to fewer favorable discrete income tax items - Effective income tax rate increased to **24.9%** in Q1 2021 from **23.3%** in Q1 2020[128](index=128&type=chunk) - The increase in tax rate was primarily due to a lower amount of favorable discrete income tax items[128](index=128&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) Strong operating cash flow of **$135.9 million** in Q1 2021 funded capital expenditures, debt repayment, dividends, and stock repurchases, maintaining a strong financial position - Cash flow from operations increased by **1.9%** to **$135.9 million** in Q1 2021[129](index=129&type=chunk) - Net cash used in investing activities increased to **$41.3 million**, with net property additions of **$37.9 million**[130](index=130&type=chunk) - Net capital expenditures for 2021 are estimated to be in the range of **$275 million** to **$300 million**[131](index=131&type=chunk) - Repaid **$25.0 million** of debt in Q1 2021, reducing outstanding debt to **$175.0 million**[132](index=132&type=chunk) - Repurchased **130,446 shares** of common stock for **$5.5 million** in Q1 2021, with **2,686,562 shares** remaining available under authorization[132](index=132&type=chunk) - As of March 31, 2021, the company had **$83.1 million** in cash and cash equivalents and **$325.0 million** in available credit under its facilities[133](index=133&type=chunk) [Contractual Obligations and Commercial Commitments](index=29&type=section&id=Contractual%20Obligations%20and%20Commercial%20Commitments) No material changes occurred in contractual obligations and commercial commitments during Q1 2021 compared to the 2020 Form 10-K disclosures - No material changes in contractual obligations and commercial commitments from the 2020 Form 10-K[134](index=134&type=chunk) [Regulations](index=29&type=section&id=Regulations) No material changes occurred in the status of proposed regulations from the 2020 Form 10-K that may affect company operations - No material changes in the status of proposed regulations from the 2020 Form 10-K[135](index=135&type=chunk) [Critical Accounting Estimates](index=29&type=section&id=Critical%20Accounting%20Estimates) Critical accounting estimates, particularly accrued liabilities for insurance and claims, remain unchanged from the 2020 Form 10-K, requiring significant judgment - Estimates of accrued liabilities for insurance and claims for bodily injury, property damage, and workers' compensation are critical accounting estimates[137](index=137&type=chunk) - No material changes to critical accounting estimates from those discussed in the 2020 Form 10-K[138](index=138&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from commodity prices, foreign currency, and interest rates, mitigating them with fuel surcharges and interest rate swaps, and preparing for LIBOR discontinuation - The company is exposed to commodity price risk from diesel fuel, recovering a majority of price increases through customer fuel surcharges[140](index=140&type=chunk) - Foreign currency exchange rate risk primarily relates to the Mexican Peso, with foreign currency translation losses of **$1.6 million** in Q1 2021[141](index=141&type=chunk) - Interest rate risk is managed through a mix of variable rate debt and interest rate swap agreements, with **$150 million** of debt effectively fixed at **2.34%** through May 2024[142](index=142&type=chunk) - The company is communicating with banks regarding the transition from LIBOR, which is expected to cease publication by June 2023[143](index=143&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management deemed disclosure controls effective at a reasonable assurance level, with no material changes in internal control over financial reporting, acknowledging inherent limitations - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level[144](index=144&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[145](index=145&type=chunk) - Management acknowledges that internal control systems provide only reasonable, not absolute, assurance due to inherent limitations[146](index=146&type=chunk) [PART II – OTHER INFORMATION](index=32&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **130,446** common shares in February 2021 under an authorized program, with **2,686,562** shares remaining available for repurchase as of March 31, 2021 - The Board of Directors authorized a stock repurchase program for up to **5,000,000 shares** on May 14, 2019[148](index=148&type=chunk) Issuer Purchases of Equity Securities (Q1 2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | | :----------------- | :----------------------------- | :------------------------------- | :----------------------------------------------------------------------------- | :----------------------------------------------------------------------------- | | January 1-31, 2021 | — | — | — | 2,817,008 | | February 1-28, 2021 | 130,446 | 42.22 | 130,446 | 2,686,562 | | March 1-31, 2021 | — | — | — | 2,686,562 | | Total | 130,446 | 42.22 | 130,446 | 2,686,562 | - As of March 31, 2021, **2,686,562 shares** remained available for repurchase under the current authorization[148](index=148&type=chunk)[151](index=151&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, compensation plans, officer certifications, and iXBRL financial information - Key exhibits include Restated Articles of Incorporation, Revised and Restated By-Laws, Amended and Restated Equity Plan, Change in Control Severance Plan, and CEO/CFO certifications[153](index=153&type=chunk) - Exhibit 101 provides the unaudited financial information from the 10-Q in iXBRL format[153](index=153&type=chunk)

Financial Data and Key Metrics Changes - In Q1 2021, revenues increased by 4% to $616 million, adjusted EPS grew by 72% to $0.68 per share, and adjusted operating income rose by 68% to $62.7 million [13][24][25] - The adjusted operating margin net of fuel for Truckload Transportation Services (TTS) grew by 570 basis points to 14.2% [13][25] - Equipment gains from truck and trailer sales reached $10.5 million, an increase of $8 million compared to the previous year [21] Business Line Data and Key Metrics Changes - TTS revenues were flat year-over-year due to a decrease in miles per truck, while adjusted operating income for TTS increased by 67% to $58.9 million [25] - Dedicated revenues net of fuel increased by 10% to $254 million, with average trucks growing by 7.5% [26] - One-Way Truckload revenues net of fuel decreased by 12% to $157 million, with average trucks decreasing by 12.7% [27] - Logistics revenues grew by 23% to $138 million, with truckload logistics revenues increasing by 20% [28] Market Data and Key Metrics Changes - Retail inventories are at a 30-year low, indicating strong demand for truckload freight [8] - The driver market remains tight, impacting the supply of truckload capacity [9] - The company expects strong truckload freight demand to continue through 2022 [8] Company Strategy and Development Direction - The company is focused on a consumer-centric freight base, with over 70% of revenues coming from retail and food and beverage [12] - The 5T's plus S strategy emphasizes operational efficiency, safety, and driver retention [35] - The company is investing in technology and infrastructure, including new terminals and a modern fleet [31][32] Management's Comments on Operating Environment and Future Outlook - Management anticipates continued strong freight demand and inventory restocking in the coming quarters [52] - The company is optimistic about maintaining elevated rates in the spot market through the end of the year and into 2022 [59][51] - Management acknowledges challenges in inventory levels and supply chain disruptions affecting restocking efforts [68][70] Other Important Information - The company repurchased 130,000 shares and raised its quarterly dividend rate by 11% [33] - The company is committed to maintaining a strong financial position with a long-term leverage goal of a net debt to annual EBITDA ratio of 0.5 to 1 turn [34] Q&A Session Summary Question: Rate growth dynamics and future expectations - Management expressed confidence that rates will remain elevated, with spot market rates expected to outpace contract rates through 2022 [59] Question: Fleet mix and growth expectations - Management aims to stabilize the One-Way Truckload fleet while expecting growth primarily in the Dedicated segment [62] Question: Customer inventory levels and restocking timelines - Management indicated that inventory restocking will take several more quarters due to low levels and various supply chain challenges [68][70] Question: Cross-border business outlook - Management noted that the cross-border business faced temporary pressures but remains optimistic about its potential for growth [75] Question: Logistics segment performance and future expectations - Management highlighted improvements in the logistics segment and expects continued progress throughout the year [82] Question: Dedicated contracts and rate increases - Management stated that a significant portion of Dedicated contracts will be renegotiated this year, with expectations for rate increases [111] Question: Wage pressures and equipment gains - Management clarified that the deceleration in equipment gains is volume-related and not indicative of a peak in wage pressures [114]

ARRETSES 1Q 2021 EARNINGS PRESENTATION April 28, 2021 DISCLOSURE STATEMENT This presentation may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements are based on information presently available to the Company's management and are curre ...