Werner Enterprises(WERN) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements 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 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 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 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) 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][35] - 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][71] - 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] 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) 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] - 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] - 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] - 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] Results of Operations 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] - Werner Logistics revenues grew 34.6% in Q3 2021, with its operating margin improving to 4.8% from -0.7% in Q3 2020[125] - 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] Liquidity and Capital Resources 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] - 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] - 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] Quantitative and Qualitative Disclosures About Market Risk 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] - 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] Controls and Procedures 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] PART II – OTHER INFORMATION Risk Factors 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] - 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] Unregistered Sales of Equity Securities and Use of Proceeds 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][187] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial data in iXBRL format