Werner Enterprises(WERN) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for Q2 2023 and 2022, covering Income, Balance Sheets, Cash Flows, and detailed Notes on key financial items Consolidated Statements of Income In Q2 2023, operating revenues decreased to $811.1 million, with operating income falling to $47.2 million and net income attributable to Werner dropping to $29.9 million Q2 2023 vs Q2 2022 Income Statement Highlights | Metric (in thousands, except per share) | Q2 2023 (in thousands) | Q2 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Operating Revenues | $811,096 | $836,276 | -3.0% | | Operating Income | $47,198 | $74,923 | -37.0% | | Net Income Attributable to Werner | $29,881 | $72,290 | -58.7% | | Diluted EPS | $0.47 | $1.12 | -58.0% | Six Months Ended June 30, 2023 vs 2022 Income Statement Highlights | Metric (in thousands, except per share) | 6M 2023 (in thousands) | 6M 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Operating Revenues | $1,643,810 | $1,600,881 | +2.7% | | Operating Income | $100,584 | $158,434 | -36.5% | | Net Income Attributable to Werner | $65,105 | $126,039 | -48.3% | | Diluted EPS | $1.02 | $1.93 | -47.2% | Consolidated Condensed Balance Sheets As of June 30, 2023, total assets were $3.11 billion, liabilities decreased to $1.57 billion, and stockholders' equity increased to $1.50 billion, while cash declined to $46.5 million Balance Sheet Summary (in thousands) | Metric | June 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $46,502 | $107,240 | | Total current assets | $609,335 | $762,615 | | Property and equipment, net | $1,944,424 | $1,825,276 | | Total assets | $3,105,193 | $3,097,255 | | Total current liabilities | $315,129 | $309,520 | | Long-term debt, net | $636,250 | $687,500 | | Total liabilities | $1,568,975 | $1,614,921 | | Total stockholders' equity | $1,497,070 | $1,443,635 | Consolidated Statements of Cash Flows For the first half of 2023, net cash from operations increased to $281.8 million, while net cash used in investing activities rose to $280.3 million, and financing activities used $64.2 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $281,790 | $267,527 | | Net cash used in investing activities | ($280,317) | ($169,680) | | Net cash used in financing activities | ($64,196) | ($97,941) | | Net (decrease) increase in cash | ($60,738) | $228 | | Cash and cash equivalents, end of period | $46,502 | $54,424 | Notes to Consolidated Financial Statements These notes detail accounting policies, acquisition adjustments, disaggregated revenue trends, investment commitments, debt structure, and updates on significant legal proceedings - The purchase price allocation for the ReedTMS acquisition was adjusted during the first six months of 2023, resulting in a $3.6 million decrease in goodwill[33][42] Revenue by Source (Six Months Ended June 30, in thousands) | Revenue Source | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Truckload Transportation Services | $1,158,522 | $1,172,033 | | Werner Logistics | $453,218 | $392,869 | - As of June 30, 2023, total outstanding debt was $640.0 million. In July 2023, the company entered into four additional interest rate swap agreements for a notional amount of $130 million to hedge against interest rate increases[70][91] - The company is appealing an adverse $92.0 million jury verdict from a 2014 accident, with the Texas Court of Appeals affirming the judgment in May 2023, leading to a Petition for Review with the Texas Supreme Court[75][77] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes the company's financial performance, highlighting the challenging Q2 2023 freight market, segment results, cost inflation, liquidity, and capital allocation strategy Overview Werner operates two segments, Truckload Transportation Services (TTS) and Werner Logistics, with performance driven by economic conditions, freight demand, and efficient resource management - The company operates two reportable segments: Truckload Transportation Services (TTS) and Werner Logistics[96] - Key success factors include efficient resource management, adapting to customer demand, and managing variable costs such as driver pay, fuel, and insurance[96][98][99] Results of Operations Q2 2023 saw a 3.0% decrease in operating revenues and a 37.0% drop in operating income, driven by a soft freight market, pricing pressure in TTS, and lower gains on equipment sales Q2 2023 vs Q2 2022 Segment Operating Income (in thousands) | Segment | Q2 2023 (in thousands) | Q2 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Truckload Transportation Services | $45,159 | $64,004 | -29.4% | | Werner Logistics | $4,355 | $12,490 | -65.1% | - One-Way Truckload was challenged by a soft freight market, with average revenues per total mile (net of fuel surcharge) decreasing 5.2% YoY in Q2 2023[109] - Fuel expense decreased 38.0% in Q2 2023 due to significantly lower average diesel fuel prices[118] - Gains on sales of property and equipment fell to $11.9 million in Q2 2023 from $20.7 million in Q2 2022, reflecting lower used equipment prices[130] Liquidity and Capital Resources The company maintains a strong liquidity position with $46.5 million in cash and $476.4 million in available borrowing capacity, funding projected capital expenditures of $400-$450 million through cash flow and borrowing - As of June 30, 2023, the company had $46.5 million in cash and cash equivalents and $476.4 million of available borrowing capacity[146] - Net cash provided by operating activities for the first six months of 2023 was $281.8 million, an increase of 5.3% YoY[148] - The company estimates net capital expenditures for 2023 to be in the range of $400 million to $450 million[149] - No shares of common stock were repurchased during the six months ended June 30, 2023[152] Regulations The company is adapting its fleet plans to comply with California's stricter emissions regulations, effective 2024, which were authorized by the EPA in March 2023 - In March 2023, the EPA granted California the authority to enforce stricter environmental rules for vehicles beginning with the 2024 model year[154] - Approximately 4% of the company's truck miles in 2022 were in California[154] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from diesel fuel prices, foreign currency exchange rates, and interest rates, which are managed through surcharges and interest rate swaps - The company is exposed to market risk from diesel fuel prices, foreign currency exchange rates (primarily Mexican Peso), and interest rates[158] - A hypothetical one-percentage point increase in the SOFR interest rate would increase annual interest expense by approximately $4.5 million on its $450.0 million of unhedged variable-rate debt[162] - To mitigate interest rate risk, the company uses interest rate swaps and entered into four additional agreements in July 2023 for a notional amount of $130.0 million[162] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level[163] - No material changes to internal control over financial reporting were identified during the most recent fiscal quarter[164] PART II – OTHER INFORMATION Legal Proceedings This section refers to Note 10 of the Consolidated Financial Statements for detailed information on ongoing legal proceedings - For information regarding legal proceedings, the report refers to Note 10 in the Notes to Consolidated Financial Statements[167] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - There have been no material changes from the risk factors disclosed in the company's 2022 Form 10-K[169] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2023, Werner Enterprises did not repurchase any common stock, with 2,311,810 shares remaining available under the current authorization - No shares of common stock were repurchased during the second quarter of 2023[171] - As of June 30, 2023, 2,311,810 shares remained available for repurchase under the Board's authorization[170] Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q2 2023 - During Q2 2023, no Company director or officer adopted or terminated a Rule 10b5-1 trading arrangement[172] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, incentive plans, CEO/CFO certifications, and iXBRL financial data - Lists all exhibits filed with the quarterly report, including required CEO/CFO certifications (Sections 302 and 906) and iXBRL financial data[174]