Werner Enterprises(WERN) - 2023 Q4 - Annual Report

Part I Business Werner Enterprises is a major US transportation and logistics company operating through its TTS and Werner Logistics segments - The company operates through two reportable segments: Truckload Transportation Services (TTS) and Werner Logistics[20][21] - As of December 31, 2023, the TTS segment had a fleet of 8,000 trucks (7,740 company-operated, 260 independent contractors)[20][21] 2023 Revenue and Customer Concentration | Metric | Value | | :--- | :--- | | Segment Revenue Split | | | TTS Segment | 70% of total operating revenues | | Werner Logistics | 28% of total operating revenues | | Customer Concentration | | | Top 5 Customers | 35% of revenues | | Top 10 Customers | 48% of revenues | | Largest Customer (Dollar General) | 10% of total revenues | - The company has expanded through four business acquisitions since 2021: ReedTMS and Baylor in 2022, and NEHDS and ECM in 2021[23][24][25] - As of December 31, 2023, the company employed 13,809 associates, including 9,929 drivers[34] - The female driver workforce is double the national industry average, and over 60% of driver associates are ethnically diverse[40] Revenue Equipment Fleet Age (as of Dec 31, 2023) | Equipment | Average Age (Years) | | :--- | :--- | | TTS Company Truck Fleet | 2.1 | | Trailer Fleet | 4.9 | Risk Factors The company faces significant risks from economic conditions, driver shortages, customer concentration, and cybersecurity threats - The business is sensitive to economic conditions that impact customer shipping volumes, freight demand, and truck capacity[71] - Difficulty in recruiting and retaining experienced drivers could negatively impact results of operations and limit growth[72][73] - A significant portion of revenue is generated from key customers; in 2023, the top 5 customers accounted for 35% of revenues[79] - The company relies extensively on its information systems, and a disruption or breach could have a material adverse effect[85] - As a highly regulated entity, changes in transportation rules could adversely affect operations and capital expenditures[90] - The company is self-insured for a significant portion of liability claims, and an increase in claims could reduce earnings[96] Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[98] Cybersecurity The company manages cybersecurity through a dedicated team and has experienced no material breaches in the past three years - The company has not experienced any material cybersecurity breaches in the last three years[99] - A dedicated cybersecurity team, coordinated by the CIO, manages risks with oversight from the Board's Audit Committee[100][101] - The cybersecurity strategy includes awareness, prevention, detection, response, and recovery components[102] Properties The company owns and leases numerous terminals and facilities, with corporate headquarters in Omaha, Nebraska - The corporate headquarters are situated on a 147-acre property in Omaha, Nebraska, with 63 acres undeveloped[106] - Werner owns and leases a network of terminals, maintenance facilities, and offices throughout the United States[106] Legal Proceedings The company is party to routine litigation incidental to its business, primarily involving liability claims - The company is subject to routine litigation, mainly related to claims from the transportation of freight[108] Mine Safety Disclosures This item is not applicable to the company - Not applicable[109] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on NASDAQ, it pays a regular dividend, and maintains an active share repurchase program - The company has paid quarterly cash dividends since July 1987, with the current rate at $0.14 per common share[111] - As of December 31, 2023, 2,311,810 shares remained available for repurchase under its 6,000,000 share program[117] - No shares of common stock were repurchased during the fourth quarter of 2023[118] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, flat revenues and a challenging freight market led to a significant decline in operating and net income Results of Operations Fiscal year 2023 saw a significant profitability decline due to pricing pressure and lower gains on equipment sales Consolidated Financial Performance (2023 vs 2022) | Metric (in thousands) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Operating Revenues | $3,283,499 | $3,289,978 | (0.2)% | | Total Operating Expenses | $3,107,083 | $2,966,902 | 4.7% | | Operating Income | $176,416 | $323,076 | (45.4)% | | Net Income Attributable to Werner | $112,382 | $241,256 | (53.4)% | Segment Performance (2023 vs 2022) | Segment | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | :--- | | TTS | Operating Revenues | $2,310.8M | $2,428.7M | (4.9)% | | | Operating Income | $169.3M | $294.6M | (42.5)% | | Werner Logistics | Operating Revenues | $910.4M | $793.5M | 14.7% | | | Operating Income | $15.9M | $36.2M | (56.1)% | - Gains on sales of property and equipment decreased significantly to $42.4 million in 2023 from $88.6 million in 2022[161] - One-Way Truckload average revenues per total mile decreased by 5.5% in 2023 due to pricing pressure[138] Liquidity and Capital Resources The company maintained strong liquidity with $526 million available and generated increased cash from operations in 2023 - The company had available liquidity of $526 million as of December 31, 2023, comprising cash and available borrowing capacity[167] Cash Flow Summary (in millions) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operations | $474.4 | $448.7 | | Net Cash used in Investing | ($434.9) | ($514.3) | | Net Cash from (used in) Financing | ($87.1) | $118.0 | - Net capital expenditures for 2024 are projected to be $260 million to $310 million, a decrease from $408.7 million in 2023[171][129] - Total outstanding debt was reduced to $648.8 million at the end of 2023 from $693.8 million at the end of 2022[172][282] Critical Accounting Estimates The most significant accounting estimate relates to the accrual for insurance and claims for bodily injury and property damage - The most critical accounting estimate is for accrued liabilities for insurance and claims[176] - As of December 31, 2023, the total accrual for estimated insurance and claims was $321.5 million[176] - A 10% change in the bodily injury and property damage portion of this estimate would alter the accrual by approximately $24.8 million[176] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from diesel fuel prices, foreign currency rates, and interest rate fluctuations - The company is exposed to commodity price risk from diesel fuel, managed through customer fuel surcharge programs[178] - The company faces foreign currency risk, primarily related to the Mexican Peso[179] - A hypothetical one-percentage point increase in the SOFR rate would increase annual interest expense by approximately $4.3 million[180] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements and accompanying notes for fiscal year 2023 Consolidated Statements of Income (Year Ended Dec 31, in thousands) | Line Item | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Operating Revenues | $3,283,499 | $3,289,978 | $2,734,372 | | Operating Income | $176,416 | $323,076 | $309,146 | | Net Income Attributable to Werner | $112,382 | $241,256 | $259,052 | | Diluted EPS | $1.76 | $3.74 | $3.82 | Consolidated Balance Sheets (As of Dec 31, in thousands) | Line Item | 2023 | 2022 | | :--- | :--- | :--- | | Total Current Assets | $634,628 | $762,615 | | Property and Equipment, net | $1,972,956 | $1,825,276 | | Total Assets | $3,157,936 | $3,097,255 | | Total Current Liabilities | $330,585 | $309,520 | | Long-term Debt | $646,250 | $687,500 | | Total Liabilities | $1,590,990 | $1,614,921 | | Total Stockholders' Equity | $1,528,339 | $1,443,635 | Consolidated Statements of Cash Flows (Year Ended Dec 31, in thousands) | Line Item | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $474,366 | $448,711 | $332,819 | | Net cash used in investing activities | ($434,944) | ($514,333) | ($397,301) | | Net cash provided by (used in) financing activities | ($87,067) | $118,034 | $89,668 | | Net increase (decrease) in cash | ($45,517) | $53,044 | $24,862 | - Note 12 discloses an adverse jury verdict from a 2014 accident with a $92.0 million judgment, with the case under appeal[305][306][307] - The company's maximum liability for the verdict is $10.0 million plus interest, with the remainder covered by insurance[305][306][307] - For 2023, Truckload Transportation Services generated $169.3 million in operating income, while Werner Logistics generated $15.9 million[316] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - No disagreements with accountants on accounting and financial disclosure were reported[320] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of December 31, 2023[321] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[325] - KPMG LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[328] Other Information No previously unreported Form 8-K information or new director/officer Rule 10b5-1 plans were noted in Q4 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the fourth quarter of 2023[337] Part III Directors, Executive Officers and Corporate Governance Required information is incorporated by reference from the company's forthcoming definitive proxy statement - Information is incorporated by reference to the company's Proxy Statement[340] - The company's Code of Corporate Conduct is available on its website[341] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the company's Proxy Statement[342] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference, with details provided on equity compensation plans Equity Compensation Plan Information (as of Dec 31, 2023) | Plan Category | Securities to be Issued upon Exercise/Vesting | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 687,932 | 3,791,411 | Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the proxy statement - Information is incorporated by reference to the company's Proxy Statement[346] Principal Accountant Fees and Services Information on principal accountant fees is incorporated by reference from the company's definitive proxy statement - The company's independent registered public accounting firm is KPMG LLP[347] - Information on fees and services is incorporated by reference to the company's Proxy Statement[347] Part IV Exhibit and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K - This section contains a list of all financial statements, schedules, and exhibits included in the Form 10-K[349][354] Form 10-K Summary This item is not applicable - Not applicable[357]