Third Quarter 2023 Highlights (all metrics compared to third quarter 2022)

• Total revenues of $817.7 million, down 1%
• Operating income of $37.9 million, down 50%; non-GAAP adjusted operating income of $41.9 million, down 47%
• Operating margin of 4.6%, down 460 basis points; non-GAAP adjusted operating margin of 5.1%, down 450 basis points
• Diluted EPS of $0.37, down 57%; non-GAAP adjusted diluted EPS of $0.42, down 53%

Werner Enterprises, Inc. (Nasdaq: WERN), a premier transportation and logistics provider, today reported results for the third quarter ended September 30, 2023.

“Despite a continued challenging economic backdrop and soft freight market, in the third quarter 2023, we grew total revenue net of fuel year-over-year led by our Logistics segment that grew revenues for the 12th-straight quarter, and our Dedicated business that remained steady with near-flat year-over-year revenue-per-truck,” said Derek J. Leathers, Chairman, President and CEO. “Pricing and margin pressures persist in Logistics, while soft freight demand has reduced overall fleet size in Truckload Transportation Services (“TTS”) and we are seeing lower equipment gains. Offsetting these impacts and ongoing inflationary headwinds are certain moderating expense categories from our cost saving efforts. Our results continue to reflect a business model that is durable, diversified and resilient despite an extraordinary and extended down cycle. The combination of our talented associates, cycle-tested management team, scale, reputation, and innovation positions us well to navigate, grow and expand margin as the freight market strengthens.”

Total revenues for the quarter were $817.7 million, a decrease of $9.9 million compared to the prior year quarter, due to a $49.7 million decrease in TTS revenues, partially offset by Logistics revenues growth of $43.1 million or 23% including the ReedTMS acquisition. The TTS revenue decline was largely due to $28.4 million lower fuel surcharge revenues. Net of fuel surcharges, consolidated total revenues grew during the quarter by $18.6 million or 3%.

Operating income of $37.9 million decreased $38.4 million, or 50%, while operating margin of 4.6% decreased 460 basis points. On a non-GAAP basis, adjusted operating income of $41.9 million decreased $37.6 million, or 47%. Adjusted operating margin of 5.1% declined 450 basis points from 9.6% for the same quarter last year.

TTS operating income decreased by $35.3 million, and TTS adjusted operating income decreased by $34.7 million. Logistics operating income decreased $3.1 million and adjusted operating income decreased by $2.5 million. Corporate and Other (including driving schools) operating income remained flat.

Net interest expense of $6.9 million increased $4.5 million primarily due to higher interest rates for variable rate debt and an increase in average debt outstanding. The effective income tax rates during the third quarter and year to date 2023 were 23.0% and 24.3%, respectively.

During third quarter 2023, we had net losses on our strategic investments of $0.1 million compared to net gains of $0.1 million in third 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 $23.7 million decreased 57%. On a non-GAAP basis, adjusted net income attributable to Werner of $26.6 million decreased 53%. Diluted EPS of $0.37 decreased 57%. On a non-GAAP basis, adjusted diluted EPS of $0.42 decreased 53%.

Truckload Transportation Services (TTS) Segment

• Revenues of $572.2 million decreased $49.7 million; Trucking revenues, net of fuel surcharges, decreased 4%
• Operating income of $38.8 million decreased $35.3 million; non-GAAP adjusted operating income of $41.6 million decreased $34.7 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 6.8% decreased 510 basis points from 11.9%
• Non-GAAP adjusted operating margin, net of fuel surcharges, of 8.5% decreased 640 basis points from 14.9%
• Average segment trucks in service totaled 8,226, a decrease of 287 trucks year over year, or 3%
• Dedicated unit trucks at quarter end totaled 5,260, or 64% of the total TTS segment fleet, compared to 5,430 trucks, or 63%, a year ago
• Average revenues per truck per week, net of fuel surcharges, decreased 0.9% for TTS and decreased 0.4% for Dedicated

During third quarter 2023, Dedicated experienced modest net reduction in fleet, down 2.0% year over year and down 0.4% sequentially. Dedicated revenue per truck per week remained nearly unchanged year over year (down 0.4%), and pipeline opportunities remain strong, while seeing delays in implementing price increases with certain customers. One-Way Truckload customer freight demand during third quarter 2023 reflected a softer freight market with year-over-year reductions in rate per mile (down 4.8%), fleet size (down 5.8%) and total miles (down 2.7%), despite the second consecutive quarter of higher total miles per truck.

Werner Logistics Segment

• Revenues of $230.3 million increased $43.1 million, or 23%, including ReedTMS acquisition which closed in November 2022
• Operating income of $2.0 million decreased $3.1 million
• Operating margin of 0.9% decreased 180 basis points from 2.7%
• Adjusted operating income of $3.2 million decreased $2.5 million
• Adjusted operating margin of 1.4% decreased 160 basis points from 3.0%

Truckload Logistics revenues (77% of Logistics revenues) increased 48%, driven by an increase in shipments due to the November 2022 ReedTMS acquisition, partially offset by a decline in revenues per shipment.

Final Mile revenues (12% of Logistics revenues) increased $3.7 million and 16%.

Intermodal revenues (11% of Logistics revenues) decreased 40%, due primarily to lower revenues per shipment and a modest decline in shipments.

Logistics operating income decreased $3.1 million and adjusted operating income decreased $2.5 million in third quarter 2023, due to a competitive freight and rate market in third quarter 2023 despite generally stronger volume and load growth.

Cash Flow and Capital Allocation

Cash flow from operations in third quarter 2023 was $74.2 million compared to $65.2 million in third quarter 2022, an increase of 14%. Operating cash flow margins improved greater than 100 basis points for third quarter 2023 to 9% of operating revenues and are up 75 basis points year to date 2023 to 14% of operating revenues.

Net capital expenditures in third quarter 2023 were $120.0 million compared to $100.6 million in third quarter 2022, an increase of 19%. 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 2.0 years and 5.1 years, respectively, as of September 30, 2023.

Gains on sales of property and equipment in third quarter 2023 were $9.1 million, or $0.11 per share, compared to $21.5 million, or $0.25 per share, in third quarter 2022. Year over year, we sold significantly more trucks and 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 third quarter 2023. As of September 30, 2023, we had 2.3 million shares remaining under our share repurchase authorization.

As of September 30, 2023, we had $43 million of cash and cash equivalents and $1.5 billion of stockholders’ equity. Total debt outstanding was $690 million at September 30, 2023. After considering letters of credit issued, we had available liquidity consisting of cash and cash equivalents and available borrowing capacity as of September 30, 2023 of $452 million.

Assumptions

• Effective income tax rate of 23.0% and 24.3% in third quarter and year to date 2023, respectively. Expect full year 2023 effective tax rate in the range of 24.0% to 25.0%.
• Average truck age of 2.0 years and average trailer age of 5.1 years as of 9/30/23. Expect average truck and trailer ages of 2.1 years and 5.0 years, respectively, as of 12/31/23.

Call Information

Werner Enterprises, Inc. will conduct a conference call to discuss third 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 November 1, 2023 at approximately 6:00 p.m. CT through December 1, 2023 by dialing (877) 344-7529 (domestic) or (412) 317-0088 (international) and using the access code 1330561. 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 2022 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.

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.