Werner Enterprises Reports Fourth Quarter and Annual 2023 Results

Fourth Quarter 2023 Highlights (all metrics compared to fourth quarter 2022)

• Total revenues of $821.9 million, down 5%
• Operating income of $37.9 million, down 57%; non-GAAP adjusted operating income of $39.2 million, down 56%
• Operating margin of 4.6%, down 570 basis points; non-GAAP adjusted operating margin of 4.8%, down 560 basis points
• Diluted EPS of $0.37, down 61%; non-GAAP adjusted diluted EPS of $0.39, down 61%

2023 Highlights (all metrics compared to 2022)

• Total revenues of $3.28 billion, relatively flat
• Operating income of $176.4 million, down 45%; non-GAAP adjusted operating income of $189.7 million, down 43%
• Operating margin of 5.4%, down 440 basis points; non-GAAP adjusted operating margin of 5.8%, down 430 basis points
• Diluted EPS of $1.76, down 53%; non-GAAP adjusted diluted EPS of $1.93, down 48%

Werner Enterprises, Inc. (Nasdaq: WERN), a premier transportation and logistics provider, today reported results for the fourth quarter and year ended December 31, 2023.

“Freight conditions remained challenging in the fourth quarter with ongoing pricing pressure. Despite this, our nearly 14,000 talented Werner team members and cycle-tested management team focused on what we can control. Our Dedicated business proved to be durable and resilient, generating double-digit margins and growing revenue per truck for the 9th year out of the last decade. Our One-Way Trucking business’ miles per truck improved nearly 9% year over year during the quarter, while rate per mile decline was more favorable than industry benchmarks. Logistics volume was strong, and revenue grew over 6% year over year, extending to 13 straight quarters of growth,” said Derek J. Leathers, Chairman and CEO. “We continue to execute on structural cost changes, realizing over $40 million of savings in 2023, helping to partially offset market dynamics and conditions out of our control, such as rate pressure, cost inflation and declining resale values of equipment. During the quarter, operating cash flow remained strong, which we used to reinvest in the business, pay down over $40 million in debt and return value to our shareholders. Improved production, our elevated rigor on operational excellence, cost savings, innovation, and capital deployment positions us well to benefit as the market comes more into balance.”

Total revenues for the quarter were $821.9 million, a decrease of $39.5 million compared to the prior year quarter, due to a $54.7 million decrease in Truckload Transportation Services (“TTS”) revenues, partially offset by Logistics revenues growth of $13.5 million, or 6%, including the ReedTMS acquisition. A significant portion of the TTS revenue decline was due to $24.9 million lower fuel surcharge revenues. Net of trucking fuel surcharge revenues, consolidated total revenues decreased $14.6 million, or 2%, during the quarter.

Operating income of $37.9 million decreased $50.4 million, or 57%, while operating margin of 4.6% decreased 570 basis points. On a non-GAAP basis, adjusted operating income of $39.2 million decreased $50.7 million, or 56%. Adjusted operating margin of 4.8% declined 560 basis points from 10.4% for the same quarter last year.

TTS operating income decreased $46.0 million, and TTS adjusted operating income decreased $45.9 million. Logistics operating income decreased $5.3 million and adjusted operating income decreased $5.0 million. Corporate and Other (including driving schools) operating income increased $0.8 million.

Net interest expense of $7.3 million increased $2.2 million primarily due to higher interest rates for variable rate debt and an increase in average debt outstanding. The effective income tax rate during the quarter was 23.1%, compared to 24.7% in fourth quarter 2022.

During fourth quarter 2023, we had losses on our strategic investments of $0.3 million, compared to losses of $2.2 million, or $0.03 per share, in fourth quarter 2022. Consistent with prior reporting, increases or decreases to the values of these strategic investments are adjusted out for determining non-GAAP adjusted net income and non-GAAP adjusted earnings per share.

Net income attributable to Werner of $23.6 million decreased 61%. On a non-GAAP basis, adjusted net income attributable to Werner of $24.6 million decreased 61%. Diluted EPS of $0.37 decreased 61%. On a non-GAAP basis, adjusted diluted EPS of $0.39 decreased 61%.

Key Consolidated Financial Metrics

Truckload Transportation Services (TTS) Segment

• Revenues of $580.1 million decreased $54.7 million; trucking revenues, net of fuel surcharge, decreased 6%
• Operating income of $34.3 million decreased $46.0 million; non-GAAP adjusted operating income of $37.2 million decreased $45.9 million due to a lower rate per mile in One-Way Truckload, smaller overall fleet size, and lower gains on the sale of property and equipment
• Operating margin of 5.9% decreased 680 basis points from 12.7%
• Non-GAAP adjusted operating margin, net of fuel surcharge, of 7.5% decreased 830 basis points from 15.8%
• Average segment trucks in service totaled 8,168, a decrease of 541 trucks year over year, or 6%
• Dedicated unit trucks at quarter end totaled 5,265, or 66% of the total TTS segment fleet, compared to 5,450 trucks, or 63%, a year ago
• Average revenues per truck per week, net of fuel surcharges, increased 0.2% for TTS and increased 0.9% for Dedicated

During fourth quarter 2023, Dedicated experienced net reduction in average trucks, down 3.3% year over year and down 0.3% sequentially. Dedicated revenue per truck per week increased 0.9% year over year, and despite a highly competitive environment and normal churn, pipeline opportunities remain healthy and client retention remains strong. One-Way Truckload customer freight demand during fourth quarter 2023 was stable with slightly better-than-expected peak volumes, but at significantly reduced pricing compared to the prior-year period. One-Way rate per mile was down 8.6% and fleet size was smaller year over year (down 11.0%), offset with the third consecutive quarter of higher total miles per truck (up 8.7%).

Key Truckload Transportation Services Segment Financial Metrics

Werner Logistics Segment

• Revenues of $227.0 million increased $13.5 million, or 6%, including ReedTMS acquisition which closed in November 2022
• Operating income of $4.6 million decreased $5.3 million
• Operating margin of 2.0% decreased 260 basis points from 4.6%
• Adjusted operating income of $3.0 million decreased $5.0 million
• Adjusted operating margin of 1.3% decreased 250 basis points from 3.8%

Truckload Logistics revenues (77% of Logistics revenues) increased 15%, driven by a double-digit increase in shipments (including November 2022 ReedTMS acquisition), partially offset by a decline in revenue per shipment.

Intermodal revenues (12% of Logistics revenues) decreased 27%, due to fewer shipments and lower revenue per shipment year over year; although we achieved the third consecutive quarter of a sequential increase in shipments.

Final Mile revenues (11% of Logistics revenues) increased $1.4 million, or 6%.

Logistics operating income decreased $5.3 million and adjusted operating income decreased $5.0 million in fourth quarter 2023, due to a competitive freight and rate market in fourth quarter 2023 despite generally stronger volume and load growth overall.

Key Werner Logistics Segment Financial Metrics

Cash Flow and Capital Allocation

Cash flow from operations in fourth quarter 2023 was $118.3 million compared to $116.0 million in fourth quarter 2022, an increase of 2%. Operating cash flow margins improved greater than 90 basis points for fourth quarter 2023 to 14% of operating revenues and increased 80 basis points year to date 2023 to 14% of operating revenues.

Net capital expenditures in fourth quarter 2023 were $34.5 million compared to $63.5 million in fourth quarter 2022, a decrease of 46%. We plan to continue to invest in new trucks, trailers and our terminals to improve our driver experience, optimize operational efficiency and more effectively manage our maintenance, safety and fuel costs. The average ages of our truck and trailer fleets were 2.1 years and 4.9 years, respectively, as of December 31, 2023.

Gains on sales of property and equipment in fourth quarter 2023 were $3.1 million, or $0.04 per share, compared to $25.9 million, or $0.30 per share, in fourth quarter 2022. Year over year, we sold 11% fewer trucks and over 60% more trailers and realized substantially lower average gains per truck and trailer. Gains on sales of property and equipment are reflected as a reduction of Other Operating Expenses in our income statement.

We did not repurchase shares of our common stock in fourth quarter 2023. As of December 31, 2023, we had 2.3 million shares remaining under our share repurchase authorization.

As of December 31, 2023, we had $62 million of cash and cash equivalents and $1.5 billion of stockholders’ equity. Total debt outstanding was $649 million at December 31, 2023. After considering letters of credit issued, we had available liquidity consisting of cash and cash equivalents and available borrowing capacity as of December 31, 2023 of $526 million.

Introducing 2024 Guidance

Assumptions

• Effective income tax rate of 24.5% to 25.5% in 2024 compared to 24.0% in 2023.
• Expect average truck age of 2.1 years and average trailer age of 5.0 years as of 12/31/24, compared to 2.1 years and 4.9 years as of 12/31/23, respectively.

Call Information

Werner Enterprises, Inc. will conduct a conference call to discuss fourth quarter 2023 earnings today beginning at 4:00 p.m. CT. The news release, live webcast of the earnings conference call, and accompanying slide presentation will be available at werner.com in the “Investors” section under “News & Events” and then “Events Calendar.” To participate in the conference call, please dial (844) 701-1165 (domestic) or (412) 317-5498 (international). Please mention to the operator that you are dialing in for the Werner Enterprises call.

A replay of the conference call will be available on February 6, 2024 at approximately 6:00 p.m. CT through March 6, 2024 by dialing (877) 344-7529 (domestic) or (412) 317-0088 (international) and using the access code 1321524. A replay of the webcast will also be available at werner.com in the “Investors” section under “News & Events” and then “Events Calendar.”

About Werner Enterprises

Werner Enterprises, Inc. (Nasdaq: WERN) delivers superior truckload transportation and logistics services to customers across the United States, Mexico and Canada. With 2023 revenues of $3.3 billion, an industry-leading modern truck and trailer fleet, nearly 14,000 talented associates and our innovative Werner EDGE^® technology, we are an essential solutions provider for customers who value the integrity of their supply chain and require safe and exceptional on-time service. Werner provides Dedicated and One-Way Truckload services as well as Logistics services that include truckload brokerage, freight management, intermodal and final mile. As an industry leader, Werner is deeply committed to promoting sustainability and supporting diversity, equity and inclusion.

This press release 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 current only as of the date made. Actual results could also differ materially from those anticipated as a result of a number of factors, including, but not limited to, those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and subsequently filed Quarterly Reports on Form 10-Q.

For those reasons, undue reliance should not be placed on any forward-looking statement. The Company assumes no duty or obligation to update or revise any forward-looking statement, although it may do so from time to time as management believes is warranted or as may be required by applicable securities law. Any such updates or revisions may be made by filing reports with the U.S. Securities and Exchange Commission (“SEC”), through the issuance of press releases or by other methods of public disclosure.

Consolidated Financial Information

Segment Financial and Operating Statistics Information

Non-GAAP Financial Measures and Reconciliations

To supplement our financial results presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”), we provide certain non-GAAP financial measures as defined by the SEC Regulation G, including non-GAAP adjusted operating income; non-GAAP adjusted operating margin; non-GAAP adjusted operating margin, net of fuel surcharge; non-GAAP adjusted net income attributable to Werner; non-GAAP adjusted diluted earnings per share; non-GAAP adjusted operating revenues, net of fuel surcharge; non-GAAP adjusted operating expenses; non-GAAP adjusted operating expenses, net of fuel surcharge; non-GAAP adjusted operating ratio; and non-GAAP adjusted operating ratio, net of fuel surcharge. We believe these non-GAAP financial measures provide a more useful comparison of our performance from period to period because they exclude the effect of items that, in our opinion, do not reflect our core operating performance. Our non-GAAP financial measures are not meant to be considered in isolation or as substitutes for their comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. There are limitations to using non-GAAP financial measures. Although we believe that they improve comparability in analyzing our period to period performance, they could limit comparability to other companies in our industry if those companies define these measures differently. Because of these limitations, our non-GAAP financial measures should not be considered measures of income generated by our business. Management compensates for these limitations by primarily relying on GAAP results and using non-GAAP financial measures on a supplemental basis.

The following tables present reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure as required by SEC Regulation G. In addition, information regarding each of the excluded items as well as our reasons for excluding them from our non-GAAP results is provided below.