Werner Enterprises(WERN) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Cautionary Note Regarding Forward-Looking Statements This section advises readers that the report contains forward-looking statements, which are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially - Forward-looking statements are based on current management information and are subject to known and unknown risks, uncertainties, and assumptions that could cause actual results to differ materially[9] Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Werner Enterprises, Inc., including statements of income, comprehensive income, balance sheets, cash flows, and stockholders' equity, prepared in accordance with SEC instructions and GAAP Consolidated Statements of Income | Metric (in thousands, except per share) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (YoY) | | :------------------------------------ | :--------------------------- | :--------------------------- | :-------------- | :--------------------------- | :--------------------------- | :-------------- | | Operating revenues | $753,148 | $760,798 | (1.0)% | $1,465,262 | $1,529,878 | (4.2)% | | Total operating expenses | $686,827 | $741,187 | (7.3)% | $1,404,773 | $1,494,679 | (6.0)% | | Operating income | $66,321 | $19,611 | 238.2% | $60,489 | $35,199 | 71.8% | | Income before income taxes | $59,090 | $12,131 | 387.1% | $45,702 | $21,446 | 113.1% | | Net income attributable to Werner | $44,062 | $9,465 | 365.5% | $33,964 | $15,777 | 115.3% | | Basic EPS | $0.72 | $0.15 | 380.0% | $0.55 | $0.25 | 120.0% | | Diluted EPS | $0.72 | $0.15 | 380.0% | $0.55 | $0.25 | 120.0% | Consolidated Statements of Comprehensive Income | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income | $43,622 | $9,200 | $33,401 | $15,448 | | Other comprehensive income (loss) | $2,164 | $(5,339) | $668 | $(4,721) | | Comprehensive income | $45,786 | $3,861 | $34,069 | $10,727 | | Comprehensive income attributable to Werner | $46,226 | $4,126 | $34,632 | $11,056 | Consolidated Condensed Balance Sheets | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total current assets | $559,482 | $541,773 | | Property and equipment, net | $1,878,106 | $1,934,236 | | Goodwill | $129,104 | $129,104 | | Intangible assets, net | $71,372 | $76,407 | | Total assets | $2,946,375 | $3,052,237 | | Total current liabilities | $334,333 | $355,749 | | Long-term debt, net of current portion | $725,000 | $630,000 | | Total liabilities | $1,488,586 | $1,558,361 | | Total stockholders' equity | $1,420,924 | $1,455,932 | Consolidated Statements of Cash Flows | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $75,395 | $197,657 | | Net cash used in investing activities | $(63,921) | $(119,409) | | Net cash used in financing activities | $(1,846) | $(67,768) | | Net increase in cash and cash equivalents | $10,668 | $8,725 | | Cash and cash equivalents, end of period | $51,420 | $70,448 | Consolidated Statements of Stockholders' Equity and Temporary Equity - Redeemable Noncontrolling Interest - Stockholders' equity decreased from $1,455.9 million at December 31, 2024, to $1,420.9 million at June 30, 2025, primarily due to common stock repurchases and dividends, partially offset by net income[17][21] Key Changes in Stockholders' Equity (Six Months Ended June 30, 2025) | Item (in thousands) | Amount | | :------------------ | :----- | | Net income attributable to Werner | $33,964 | | Repurchases of common stock | $(55,562) | | Dividends on common stock | $(17,046) | | Non-cash equity compensation expense | $4,907 | Notes to Consolidated Financial Statements (Unaudited) This section provides unaudited consolidated financial statements, prepared under SEC and GAAP guidelines, with results not indicative of the full year - The financial statements are unaudited and prepared in accordance with SEC instructions to Form 10-Q and U.S. GAAP, reflecting all normal recurring adjustments[24] - Operating results for the three and six months ended June 30, 2025, are not necessarily indicative of the full year's expected results[25] (1) Basis of Presentation and Recent Accounting Pronouncements The interim consolidated financial statements are unaudited and prepared in accordance with SEC instructions to Form 10-Q and U.S. GAAP, reflecting normal recurring adjustments - The interim consolidated financial statements are unaudited and prepared in accordance with SEC instructions to Form 10-Q and U.S. GAAP, reflecting normal recurring adjustments[24] - Operating results for the three and six months ended June 30, 2025, are not necessarily indicative of the full year's expected results[25] - The company is evaluating ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures), expecting them to impact disclosures but not results of operations, cash flows, or financial condition[27][28] (2) Revenue - Revenues are recognized over time as control of promised services is transferred to customers[29] Revenues Disaggregated by Source (in thousands) | Revenue Source | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Truckload Transportation Services | $517,647 | $537,069 | $1,019,522 | $1,088,195 | | Werner Logistics | $221,177 | $208,912 | $416,735 | $411,394 | | Total revenues | $753,148 | $760,798 | $1,465,262 | $1,529,878 | Revenues Disaggregated by Geographic Area (in thousands) | Geographic Area | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | United States | $715,677 | $716,559 | $1,390,919 | $1,438,419 | | Mexico | $33,557 | $36,165 | $67,168 | $75,285 | | Canada | $3,914 | $8,074 | $7,175 | $16,174 | | Total revenues | $753,148 | $760,798 | $1,465,262 | $1,529,878 | (3) Goodwill and Intangible Assets - No changes in the carrying amount of goodwill by segment for the six months ended June 30, 2025[34] Acquired Intangible Assets (in thousands) | Intangible Asset | June 30, 2025 Net Carrying Amount | December 31, 2024 Net Carrying Amount | | :--------------- | :-------------------------------- | :------------------------------------ | | Customer relationships | $54,180 | $58,191 | | Trade names | $17,192 | $18,216 | | Total intangible assets | $71,372 | $76,407 | - Amortization expense on intangible assets was $2.5 million for Q2 2025 and $5.0 million for 6M 2025; estimated future amortization is $5.0 million for the remainder of 2025 and $10.1 million for each of the next five fiscal years[36] (4) Leases - The company primarily uses operating leases for real estate, with terms ranging from 2 to 18 years, some including renewal options[37] Operating Lease Information (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :----- | :------------ | :---------------- | | Right-of-use assets | $44,176 | $49,599 | | Total operating lease liabilities | $46,545 | $51,758 | | Weighted-average remaining lease term | 4.58 years | 4.75 years | | Weighted-average discount rate | 4.9 % | 5.0 % | - Operating lease expense was $6.6 million for Q2 2025 (vs $4.9 million in Q2 2024) and $13.3 million for 6M 2025 (vs $9.4 million in 6M 2024)[42] - As a lessor, the company leases tractors and trailers, generating revenues of $2.9 million for Q2 2025 (vs $2.3 million in Q2 2024) and $5.5 million for 6M 2025 (vs $4.8 million in 6M 2024)[43] (5) Fair Value - The company uses a fair value hierarchy (Level 1, 2, 3) to measure assets and liabilities, prioritizing observable inputs[48][49][50][51] Fair Value Hierarchy for Assets and Liabilities (in thousands) | Item | Level | June 30, 2025 | December 31, 2024 | | :--- | :---- | :------------ | :---------------- | | Assets: | | | | | Pay-fixed interest rate swaps | 2 | $— | $1,162 | | Equity securities | 1 | $106 | $141 | | Liabilities: | | | | | Pay-fixed interest rate swaps (current) | 2 | $11 | $134 | | Pay-fixed interest rate swaps (long-term) | 2 | $3,961 | $2,420 | | Contingent consideration associated with acquisition | 3 | $— | $9,315 | - The contingent earnout liability related to the Baylor Trucking, Inc. acquisition was finalized and paid in April 2025, resulting in a net favorable change of $7.9 million for Q2 2025 and $7.8 million for 6M 2025[53] (6) Investments - Strategic equity investments without readily determinable fair values, primarily in MLSI, totaled $109.9 million at June 30, 2025 (vs $103.9 million at Dec 31, 2024); cumulative upward adjustments on these equity securities totaled $64.9 million[56][57] - The company holds a strategic minority equity investment in an autonomous technology company, valued at $0.1 million at June 30, 2025[58] - Investment in Autotech Fund (equity method) was $9.3 million at June 30, 2025 (vs $6.7 million at Dec 31, 2024); capital contributions for 6M 2025 were $1.76 million, and loss from equity method investment was $(842) thousand for 6M 2025[60][61] (7) Debt and Credit Facilities - The company has a $1.075 billion unsecured credit facility maturing in December 2027, with compliance with financial covenants as of June 30, 2025[62][64] - A new Loan Security Agreement (LSA) was entered into on March 27, 2025, providing up to $300.0 million (potentially $350.0 million) in secured borrowing collateralized by eligible receivables[67][68] Total Debt (in thousands) | Debt Type | June 30, 2025 | December 31, 2024 | | :-------- | :------------ | :---------------- | | 2022 Credit Agreement | $430,000 | $650,000 | | LSA | $295,000 | $— | | Total debt | $725,000 | $650,000 | - Total available borrowing capacity was $644.1 million as of June 30, 2025, including $639.1 million under the 2022 Credit Agreement and $5.0 million under the LSA[70] - The company uses variable-for-fixed interest rate swap agreements to limit exposure to interest rate increases, with $355.0 million of variable debt effectively fixed at 5.97% at June 30, 2025[65][163] (8) Commitments and Contingencies - The company has committed to property and equipment purchases of approximately $116.4 million at June 30, 2025[73] - On June 27, 2025, the Texas Supreme Court reversed an adverse $92.0 million jury verdict from a 2014 accident, effectively ending the case in Werner's favor, resulting in a $45.7 million liability reversal through insurance and claims expense in Q2 2025[75][76] - The company is involved in class action litigation regarding meal/rest breaks, unpaid wages, and unauthorized deductions, with an inability to reasonably estimate liability at this time for certain claims[77] (9) Earnings Per Share - Basic EPS is computed by dividing net income attributable to Werner by weighted average common shares outstanding; diluted EPS includes the effect of dilutive potential common shares[78] Earnings Per Share Calculation (in thousands, except per share amounts) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income attributable to Werner | $44,062 | $9,465 | $33,964 | $15,777 | | Weighted average common shares outstanding | 60,888 | 62,706 | 61,386 | 63,089 | | Diluted EPS | $0.72 | $0.15 | $0.55 | $0.25 | (10) Segment Information - The company operates two reportable segments: Truckload Transportation Services (TTS) and Werner Logistics[80] - TTS includes Dedicated and One-Way Truckload operating segments, focusing on consumer nondurable products and specialized services; Werner Logistics provides non-asset-based transportation and logistics services through Truckload Logistics, Intermodal, and Final Mile divisions[81][82] Segment Revenues and Operating Income (Three Months Ended June 30, 2025 vs 2024, in thousands) | Segment | 2025 Revenues | 2024 Revenues | % Change | 2025 Operating Income | 2024 Operating Income | % Change | | :------ | :------------ | :------------ | :------- | :-------------------- | :-------------------- | :------- | | TTS | $517,647 | $537,069 | (3.6)% | $64,089 | $20,998 | 205.2% | | Werner Logistics | $221,177 | $208,912 | 5.9% | $4,328 | $550 | 686.9% | Segment Revenues and Operating Income (Six Months Ended June 30, 2025 vs 2024, in thousands) | Segment | 2025 Revenues | 2024 Revenues | % Change | 2025 Operating Income | 2024 Operating Income | % Change | | :------ | :------------ | :------------ | :------- | :-------------------- | :-------------------- | :------- | | TTS | $1,019,522 | $1,088,195 | (6.3)% | $63,173 | $41,838 | 51.0% | | Werner Logistics | $416,735 | $411,394 | 1.3% | $3,853 | $(1,779) | N/A | (11) Subsequent Events - In July 2025, two variable-for-fixed interest rate swap agreements with an aggregate notional amount of $40.0 million matured, and two new agreements with an aggregate notional amount of $60.0 million, maturing in July 2028, were entered into[91] - The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025, which will impact deferred tax balances in Q3 2025; the company expects a favorable impact on cash flows due to the reinstatement of 100% bonus depreciation for qualified property[93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, liquidity, and other factors, and should be read in conjunction with the 2024 Form 10-K - The MD&A summarizes financial statements from management's perspective, covering financial condition, results of operations, liquidity, and other factors[94] Overview - The company operates in the truckload and logistics sectors, focusing on consumer nondurable products in truckload and providing non-asset-based logistics services[95] - Success depends on efficient resource management, adaptability to customer demand, and capital investments in equipment or securing third-party capacity[95] - Key resource requirements include company drivers, independent contractors, tractors, trailers for TTS, and qualified third-party capacity for Werner Logistics; the company is self-insured for a significant portion of claims[97] - The operating ratio is a key industry measure for profitability, with significant variable expenses including driver salaries, fuel, and purchased transportation[99] Results of Operations Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 - Operating revenues decreased by 1.0% to $753.1 million, while operating income significantly increased by 238.2% to $66.3 million, with the operating margin rising to 8.8% from 2.6%[102][107] - Consolidated and TTS segment operating results were positively impacted by a $45.7 million liability reversal from a favorable lawsuit decision and a $7.9 million net favorable change to the contingent earnout liability[107] - TTS segment revenues decreased 3.6%, while Werner Logistics revenues increased 5.9%; TTS operating income increased to $64.1 million (12.4% margin) from $21.0 million (3.9% margin); Werner Logistics operating income increased to $4.3 million (2.0% margin) from $0.6 million (0.3% margin)[107][109][113] - Trucking revenues, net of fuel surcharge, decreased 1.6% due to a 1.8% decrease in average tractors in service; TTS average revenues per tractor per week, net of fuel surcharge, increased 0.3%[109] - Fuel expense decreased 16.1% due to lower average diesel fuel prices and fewer company tractor miles; insurance and claims expense decreased 121.4% primarily due to the $45.7 million liability reversal[118][124] - Rent and purchased transportation expense increased 8.5%, driven by higher logistics revenues and more independent contractor miles in TTS, shifting costs from other categories[129][130] - Other operating expenses decreased 288.0% primarily due to the $7.9 million favorable change in contingent earnout liability and higher gains on sales of property and equipment[102][132] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 - Operating revenues decreased by 4.2% to $1,465.3 million, while operating income increased by 71.8% to $60.5 million, with the operating margin rising to 4.1% from 2.3%[102][136] - TTS segment revenues decreased 6.3%, primarily due to a 4.3% decrease in average tractors in service and a 0.5% decrease in average revenues per tractor per week; Werner Logistics revenues increased 1.3% due to higher volumes in Truckload Logistics[136] - Salaries, wages and benefits decreased 6.0% due to fewer company tractor miles, decreased non-driver pay, and lower benefit costs; fuel expense decreased 17.5% due to lower average diesel fuel prices and fewer company tractor miles[138][139] - Insurance and claims decreased 45.8% primarily due to the $45.7 million liability reversal from the favorable lawsuit decision[141] - Rent and purchased transportation expense increased due to higher logistics revenues and more independent contractor miles in TTS; other operating expenses decreased due to the favorable contingent earnout liability change and higher gains on equipment sales[143][144] - Net interest expense increased $1.0 million due to replacing lower-cost debt with higher-cost debt and an increase in average debt outstanding[145] Liquidity and Capital Resources - The company's financial position is strong with $51.4 million in cash and cash equivalents and $1.4 billion in stockholders' equity as of June 30, 2025[149] - Total available borrowing capacity was $644.1 million under existing credit facilities[149] - Net cash provided by operating activities decreased by $122.3 million to $75.4 million for the six months ended June 30, 2025, primarily due to working capital changes[151] - Net capital expenditures guidance for full-year 2025 was adjusted down to a range of $145 million to $185 million (from $185 million-$235 million), driven by a higher inventory of new tractors and a shift to a more asset-light operational mix[152] - Financing activities for 6M 2025 included $75.0 million in net debt borrowings, $17.3 million in dividends, and $55.6 million in stock repurchases (2,113,007 shares)[153][154] Regulations - California voluntarily withdrew the Advanced Clean Fleets (ACF) waiver request, and Congress rescinded previously granted waivers for Advanced Clean Trucks (ACT), creating uncertainty for these regulations[156] - The rescission of these waivers could potentially impact tractor prices, availability, performance, and efficiency[156] Critical Accounting Estimates - Estimates of accrued liabilities for insurance and claims for bodily injury and property damage are a critical accounting estimate[159] - There have been no material changes to critical accounting estimates from those discussed in the 2024 Form 10-K[159] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks from changes in commodity prices (diesel fuel), foreign currency exchange rates (primarily Mexican Peso), and interest rates - The company is exposed to commodity price risk from diesel fuel fluctuations, recovering a majority but not all increases through fuel surcharges; no derivative financial instruments were used for fuel price hedging as of June 30, 2025[161] - Foreign currency exchange rate risk primarily relates to changes in the value of revenue equipment owned by a Mexican subsidiary, with most foreign revenues denominated in U.S. Dollars[162] - Interest rate risk is managed through a mix of variable interest rate debt and interest rate swap agreements; a hypothetical one-percentage point increase in SOFR and commercial paper rate would increase interest expense by approximately $3.5 million for the next 12 months[163] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they are effective at a reasonable assurance level - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of June 30, 2025[164] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the most recent fiscal quarter[166] PART II – OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 8 in the Notes to Consolidated Financial Statements for information regarding legal proceedings - Information regarding legal proceedings is detailed in Note 8 of the Consolidated Financial Statements[169] Item 1A. Risk Factors This section advises readers to consider the risk factors discussed in the 2024 Form 10-K, noting no material changes from those previously disclosed - Readers should carefully consider risk factors from the 2024 Form 10-K, with no material changes reported in this period[170][171] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section details the company's stock repurchase program, including shares purchased during the second quarter of 2025 - The company has a stock repurchase program authorized for up to 5,000,000 shares, with 1,783,342 shares remaining available as of June 30, 2025[172] Issuer Purchases of Equity Securities (Second Quarter 2025) | 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 | | :----- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | :----------------------------------------------------------------------------- | | April 1-30, 2025 | — | $— | — | 3,896,349 | | May 1-31, 2025 | 1,729,868 | $25.83 | 1,729,868 | 2,166,481 | | June 1-30, 2025 | 383,139 | $27.02 | 383,139 | 1,783,342 | | Total | 2,113,007 | $26.05 | 2,113,007 | | Item 5. Other Information This section states that no Company director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the second quarter of 2025 - No Company director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q2 2025[176] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications, financial statements in iXBRL, and the cover page - The report includes various exhibits, such as Restated Articles of Incorporation, Revised and Restated By-Laws, CEO/CFO certifications (302 and 906), and unaudited financial information in iXBRL format[177]