WERNER ENTERPRISES INC 10-Q

Item 1. Financial Statements. WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (In thousands, except per share amounts) 2022 2021 2022 2021 Operating revenues $ 836,276 $ 649,814 $ 1,600,881 $ 1,266,260 Operating expenses: Salaries, wages and benefits 253,639 210,095 495,635 414,948 Fuel 125,446 58,503 213,867 109,341 Supplies and maintenance 62,656 49,414 119,681 95,561 Taxes and licenses 23,791 23,744 47,624 46,977 Insurance and claims 41,071 20,739 68,563 42,795 Depreciation and amortization 68,471 63,865 135,700 127,816 Rent and purchased transportation 197,116 150,920 382,353 297,413 Communications and utilities 3,781 3,333 7,707 6,355 Other ( 14,618 ) ( 7,662 ) ( 28,683 ) ( 14,280 ) Total operating expenses 761,353 572,951 1,442,447 1,126,926 Operating income 74,923 76,863 158,434 139,334 Other expense (income): Interest expense 1,787 701 3,226 1,539 Interest income ( 313 ) ( 334 ) ( 588 ) ( 631 ) Gain on investments in equity securities, net ( 24,095 ) ( 20,191 ) ( 14,289 ) ( 20,191 ) Other 126 54 199 96 Total other expense (income) ( 22,495 ) ( 19,770 ) ( 11,452 ) ( 19,187 ) Income before income taxes 97,418 96,633 169,886 158,521 Income tax expense 23,809 24,601 41,242 39,997 Net income 73,609 72,032 128,644 118,524 Net income attributable to noncontrolling interest ( 1,319 ) — ( 2,605 ) — Net income attributable to Werner $ 72,290 $ 72,032 $ 126,039 $ 118,524 Earnings per share: Basic $ 1.12 $ 1.06 $ 1.94 $ 1.74 Diluted $ 1.12 $ 1.06 $ 1.93 $ 1.74 Weighted-average common shares outstanding: Basic 64,394 67,926 64,965 67,929 Diluted 64,726 68,216 65,327 68,237 See Notes to Consolidated Financial Statements (Unaudited). 4 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2022 2021 2022 2021 Net income $ 73,609 $ 72,032 $ 128,644 $ 118,524 Other comprehensive income (loss): Foreign currency translation adjustments ( 47 ) 1,865 1,106 297 Change in fair value of interest rate swaps, net of tax 1,283 360 4,914 1,663 Other comprehensive income 1,236 2,225 6,020 1,960 Comprehensive income 74,845 74,257 134,664 120,484 Comprehensive income attributable to noncontrolling interest ( 1,319 ) — ( 2,605 ) — Comprehensive income attributable to Werner $ 73,526 $ 74,257 $ 132,059 $ 120,484 See Notes to Consolidated Financial Statements (Unaudited). 5 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands, except share amounts) June 30, 2022 December 31, 2021 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 54,424 $ 54,196 Accounts receivable, trade, less allowance of $ 9,976 and $ 9,169 , respectively 482,006 460,518 Other receivables 165,205 24,449 Inventories and supplies 12,568 11,140 Prepaid taxes, licenses and permits 8,803 17,549 Other current assets 49,399 63,361 Total current assets 772,405 631,213 Property and equipment 2,703,628 2,557,825 Less – accumulated depreciation 1,032,948 944,582 Property and equipment, net 1,670,680 1,613,243 Goodwill 74,404 74,618 Intangible assets, net 52,597 55,315 Other non-current assets 278,501 229,324 Total assets $ 2,848,587 $ 2,603,713 LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY Current liabilities: Checks issued in excess of cash balances $ 6,032 $ — Accounts payable 126,178 93,987 Current portion of long-term debt 5,000 5,000 Insurance and claims accruals 221,219 72,594 Accrued payroll 57,624 44,333 Accrued expenses 30,274 28,758 Other current liabilities 24,653 24,011 Total current liabilities 470,980 268,683 Long-term debt, net of current portion 440,000 422,500 Other long-term liabilities 43,782 43,314 Insurance and claims accruals, net of current portion 242,094 237,220 Deferred income taxes 269,307 268,499 Total liabilities 1,466,163 1,240,216 Commitments and contingencies Temporary equity - redeemable noncontrolling interest 38,552 35,947 Stockholders’ equity: Common stock, $ 0.01 par value, 200,000,000 shares authorized; 80,533,536 shares issued; 63,415,565 and 65,790,112 shares outstanding, respectively 805 805 Paid-in capital 124,065 121,904 Retained earnings 1,777,092 1,667,104 Accumulated other comprehensive loss ( 14,584 ) ( 20,604 ) Treasury stock, at cost; 17,117,971 and 14,743,424 shares, respectively ( 543,506 ) ( 441,659 ) Total stockholders’ equity 1,343,872 1,327,550 Total liabilities, temporary equity and stockholders’ equity $ 2,848,587 $ 2,603,713 See Notes to Consolidated Financial Statements (Unaudited). 6 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, (In thousands) 2022 2021 Cash flows from operating activities: Net income $ 128,644 $ 118,524 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 135,700 127,816 Deferred income taxes ( 630 ) 15,036 Gain on disposal of property and equipment ( 41,138 ) ( 24,008 ) Non-cash equity compensation 6,085 5,249 Insurance and claims accruals, net of current portion 4,874 4,632 Other ( 4,142 ) 842 Gain on investments in equity securities, net ( 14,289 ) ( 20,191 ) Changes in certain working capital items: Accounts receivable, net ( 21,125 ) ( 49,978 ) Other current assets 20,728 3,144 Accounts payable 30,091 16,639 Other current liabilities 22,729 ( 8,241 ) Net cash provided by operating activities 267,527 189,464 Cash flows from investing activities: Additions to property and equipment ( 227,334 ) ( 192,983 ) Proceeds from sales of property and equipment 73,911 90,036 Net cash invested in acquisition 705 — Investment in equity securities ( 20,250 ) ( 5,000 ) Decrease in notes receivable 3,288 3,342 Net cash used in investing activities ( 169,680 ) ( 104,605 ) Cash flows from financing activities: Repayments of short-term debt ( 2,500 ) ( 25,000 ) Proceeds from issuance of short-term debt — 5,000 Repayments of long-term debt ( 100,000 ) — Proceeds from issuance of long-term debt 120,000 120,000 Change in checks issued in excess of cash balances 6,032 — Dividends on common stock ( 15,702 ) ( 12,906 ) Repurchases of common stock ( 102,113 ) ( 5,507 ) Tax withholding related to net share settlements of restricted stock awards ( 3,658 ) ( 3,740 ) Net cash provided by (used in) financing activities ( 97,941 ) 77,847 Effect of exchange rate fluctuations on cash 322 88 Net increase in cash and cash equivalents 228 162,794 Cash and cash equivalents, beginning of period 54,196 29,334 Cash and cash equivalents, end of period $ 54,424 $ 192,128 Supplemental disclosures of cash flow information: Interest paid $ 3,236 $ 1,583 Income taxes paid 31,096 40,047 Supplemental schedule of non-cash investing and financing activities: Notes receivable issued upon sale of property and equipment $ 2,350 $ 2,646 Change in fair value of interest rate swaps 4,914 1,663 Property and equipment acquired included in accounts payable 8,431 6,715 Property and equipment disposed included in other receivables 1,205 32 Dividends accrued but not yet paid at end of period 8,244 8,151 See Notes to Consolidated Financial Statements (Unaudited). 7 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST (Unaudited) Three Months Ended June 30, 2022 (In thousands, except share and per share amounts) Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders’ Equity Temporary Equity - Redeemable Noncontrolling Interest BALANCE, March 31, 2022 $ 805 $ 121,157 $ 1,713,046 $ ( 15,820 ) $ ( 477,724 ) $ 1,341,464 $ 37,233 Net income attributable to Werner — — 72,290 — — 72,290 — Net income attributable to noncontrolling interest — — — — — — 1,319 Other comprehensive income — — — 1,236 — 1,236 — Purchases of 1,650,000 shares of common stock — — — — ( 65,933 ) ( 65,933 ) — Dividends on common stock ($ 0.13 per share) — — ( 8,244 ) — — ( 8,244 ) — Equity compensation activity, 7,802 shares — ( 151 ) — — 151 — — Non-cash equity compensation expense — 3,059 — — — 3,059 — BALANCE, June 30, 2022 $ 805 $ 124,065 $ 1,777,092 $ ( 14,584 ) $ ( 543,506 ) $ 1,343,872 $ 38,552 Three Months Ended June 30, 2021 (In thousands, except share and per share amounts) Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders’ Equity Temporary Equity - Redeemable Noncontrolling Interest BALANCE, March 31, 2021 $ 805 $ 114,588 $ 1,478,616 $ ( 23,098 ) $ ( 343,181 ) $ 1,227,730 $ — Net income attributable to Werner — — 72,032 — — 72,032 — Other comprehensive income — — — 2,225 — 2,225 — Dividends on common stock ($ 0.12 per share) — — ( 8,151 ) — — ( 8,151 ) — Equity compensation activity, 13,725 shares — ( 266 ) — — 266 — — Non-cash equity compensation expense — 2,747 — — — 2,747 — BALANCE, June 30, 2021 $ 805 $ 117,069 $ 1,542,497 $ ( 20,873 ) $ ( 342,915 ) $ 1,296,583 $ — See Notes to Consolidated Financial Statements (Unaudited). 8 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST (CONTINUED) (Unaudited) Six Months Ended June 30, 2022 (In thousands, except share and per share amounts) Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders’ Equity Temporary Equity - Redeemable Noncontrolling Interest BALANCE, December 31, 2021 $ 805 $ 121,904 $ 1,667,104 $ ( 20,604 ) $ ( 441,659 ) $ 1,327,550 $ 35,947 Net income attributable to Werner — — 126,039 — — 126,039 — Net income attributable to noncontrolling interest — — — — — — 2,605 Other comprehensive income — — — 6,020 — 6,020 — Purchases of 2,495,100 shares of common stock — — — — ( 102,113 ) ( 102,113 ) — Dividends on common stock ($ 0.25 per share) — — ( 16,051 ) — — ( 16,051 ) — Equity compensation activity, 120,553 shares — ( 3,924 ) — — 266 ( 3,658 ) — Non-cash equity compensation expense — 6,085 — — — 6,085 — BALANCE, June 30, 2022 $ 805 $ 124,065 $ 1,777,092 $ ( 14,584 ) $ ( 543,506 ) $ 1,343,872 $ 38,552 Six Months Ended June 30, 2021 (In thousands, except share and per share amounts) Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders’ Equity Temporary Equity - Redeemable Noncontrolling Interest BALANCE, December 31, 2020 $ 805 $ 116,039 $ 1,438,916 $ ( 22,833 ) $ ( 337,887 ) $ 1,195,040 $ — Net income attributable to Werner — — 118,524 — — 118,524 — Other comprehensive income — — — 1,960 — 1,960 — Purchases of 130,446 shares of common stock — — — — ( 5,507 ) ( 5,507 ) — Dividends on common stock ($ 0.22 per share) — — ( 14,943 ) — — ( 14,943 ) — Equity compensation activity, 130,593 shares — ( 4,219 ) — — 479 ( 3,740 ) — Non-cash equity compensation expense — 5,249 — — — 5,249 — BALANCE, June 30, 2021 $ 805 $ 117,069 $ 1,542,497 $ ( 20,873 ) $ ( 342,915 ) $ 1,296,583 $ — See Notes to Consolidated Financial Statements (Unaudited). 9 Table of Contents WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation and Recent Accounting Pronouncements Basis of Presentation The accompanying unaudited interim consolidated financial statements include the accounts of Werner Enterprises, Inc. and its controlled subsidiaries (collectively, the “Company” or “Werner”). Noncontrolling interest on the consolidated condensed balance sheets represents the portion of a consolidated entity in which we do not have a direct equity ownership. In these notes, the terms “we,” “us,” or “our” refer to Werner Enterprises, Inc. and its subsidiaries. All significant intercompany accounts and transactions relating to these entities have been eliminated. These consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (SEC) instructions to Form 10-Q and, in the opinion of management, reflect all adjustments, which are all of normal recurring nature, necessary to present fairly the financial condition, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles (“GAAP”). These consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements; although in management’s opinion, the disclosures are adequate so that the information presented is not misleading. Operating results for the three-month and six-month periods ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31 , 2022. In the opinion of management, the information set forth in the accompanying consolidated condensed balance sheets is fairly stated in all material respects in relation to the consolidated balance sheets from which it has been derived. These consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes contained in our 2021 Form 10-K. New Accounting Pronouncements Adopted In the first quarter 2022, we adopted Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848) , which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. The provisions of this update are effective for all entities as of March 12, 2020 through December 31, 2022 and apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The adoption of the new guidance did not have a material impact on our consolidated financial statements. (2) Business Acquisitions On July 1, 2021, we acquired an 80 % ownership interest in ECM Associated, LLC ("ECM”) for a final purchase price of $ 141.3 million after net working capital changes and net of cash acquired. ECM, through its ECM Transport, LLC (“ECM Transport”) and Motor Carrier Service, LLC (“MCS”) subsidiaries, provides regional truckload carrier services in the Mid-Atlantic, Ohio, and Northeast regions of the United States. The results of operations for ECM are included in our consolidated financial statements beginning July 1, 2021, and the noncontrolling interest is presented as a separate component of the consolidated financial statements. On November 22, 2021, we acquired 100 % of the equity interests in NEHDS Logistics, LLC (“NEHDS”) for a final purchase price of $ 62.3 million after including the impacts of contingent consideration and net working capital changes. The purchase price allocation for NEHDS is considered final as of March 31, 2022. NEHDS is a final mile residential delivery provider serving customers primarily in the Northeast and Midwest U.S. markets. NEHDS delivers primarily big and bulky products (primarily furniture and appliances) using 2-person delivery teams performing residential and commercial deliveries. The results of operations for NEHDS are included in our consolidated financial statements beginning November 22, 2021. Amortization expense on intangible assets was $ 1.4 million and $ 2.7 million for the three and six months ended June 30, 2022 . 10 Table of Contents (3) Revenue Revenue Recognition Revenues are recognized over time as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The following table presents our revenues disaggregated by revenue source (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Truckload Transportation Services $ 613,616 $ 491,200 $ 1,172,033 $ 954,149 Werner Logistics 203,861 141,673 392,869 279,526 Inter-segment eliminations ( 625 ) ( 193 ) ( 1,347 ) ( 327 ) Transportation services 816,852 632,680 1,563,555 1,233,348 Other revenues 19,424 17,134 37,326 32,912 Total revenues $ 836,276 $ 649,814 $ 1,600,881 $ 1,266,260 The following table presents our revenues disaggregated by geographic areas in which we conduct business (in thousands). Operating revenues for foreign countries include revenues for (i) shipments with an origin or destination in that country and (ii) other services provided in that country. If both the origin and destination are in a foreign country, the revenues are attributed to the country of origin. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 United States $ 770,849 $ 602,146 $ 1,481,753 $ 1,157,385 Mexico 51,461 39,325 94,752 78,081 Other 13,966 8,343 24,376 30,794 Total revenues $ 836,276 $ 649,814 $ 1,600,881 $ 1,266,260 Contract Balances and Accounts Receivable A receivable is an unconditional right to consideration and is recognized when shipments have been completed and the related performance obligation has been fully satisfied. At June 30, 2022 and December 31, 2021, the accounts receivable, trade, net, balance was $ 482.0 million and $ 460.5 million, respectively. Contract assets represent a conditional right to consideration in exchange for goods or services and are transferred to receivables when the rights become unconditional. At June 30, 2022 and December 31, 2021, the balance of contract assets was $ 10.2 million and $ 9.0 million, respectively. We have recognized contract assets within the other current assets financial statement caption on the consolidated condensed balance sheets. These contract assets are considered current assets as they will be settled in less than 12 months. Contract liabilities represent advance consideration received from customers and are recognized as revenues over time as the related performance obligation is satisfied. The balance of contract liabilities was $ 1.5 million and $ 1.2 million at June 30, 2022 and December 31, 2021, respectively . The amount of revenues recognized in the six months ended June 30, 2022 that was included in the December 31, 2021 contract liability balance was $ 1.2 million. We have recognized contract liabilities within the accounts payable and other current liabilities financial statement captions on the consolidated condensed balance sheets. These contract liabilities are considered current liabilities as they will be settled in less than 12 months. Performance Obligations We have elected to apply the practical expedient in Accounting Standards Codification (“ASC”) Topic 606, Revenue From Contracts With Customers , to not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less. Remaining performance obligations represent the transaction price allocated to future reporting periods for freight shipments started but not completed at the reporting date that we expect to recognize as revenue in the period subsequent to the reporting date; transit times generally average approximately 3 days. During the six months ended June 30, 2022 and 2021, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material. 11 Table of Contents (4) Leases We have entered into operating leases primarily for real estate. The leases have terms which range from 1 year to 18 years, and some include options to renew. Renewal terms are included in the lease term when it is reasonably certain that we will exercise the option to renew. Operating leases are included in other non-current assets, other current liabilities and other long-term liabilities on the consolidated condensed balance sheets. These assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date, using our incremental borrowing rate because the rate implicit in each lease is not readily determinable. We have certain contracts for real estate that may contain lease and non-lease components which we have elected to treat as a single lease component. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Lease expense is reported in rent and purchased transportation on the consolidated statements of income. The following table presents balance sheet and other operating lease information (dollars in thousands): June 30, 2022 December 31, 2021 Balance Sheet Classification Right-of-use assets (recorded in other non-current assets) $ 34,143 $ 28,458 Current lease liabilities (recorded in other current liabilities) $ 7,191 $ 6,380 Long-term lease liabilities (recorded in other long-term liabilities) 28,042 22,634 Total operating lease liabilities $ 35,233 $ 29,014 Other Information Weighted-average remaining lease term for operating leases 7.40 years 7.63 years Weighted-average discount rate for operating leases 2.6 % 2.7 % The following table presents the maturities of operating lease liabilities as of June 30, 2022 (in thousands): Maturity of Lease Liabilities 2022 (remaining) $ 4,145 2023 7,102 2024 6,146 2025 5,238 2026 4,230 Thereafter 11,883 Total undiscounted operating lease payments $ 38,744 Less: Imputed interest ( 3,511 ) Present value of operating lease liabilities $ 35,233 Cash Flows During the six months ended June 30, 2022 and 2021, right-of-use assets of $ 11.2 million and $ 2.1 million, respectively, were recognized as non-cash asset additions that resulted from new operating lease liabilities. Cash paid for amounts included in the present value of operating lease liabilities was $ 3.8 million and $ 1.9 million for the six months ended June 30, 2022 and 2021, respectively, and are included in operating cash flows. Operating Lease Expense Operating lease expense was $ 5.3 million and $ 10.4 million for the three and six months ended June 30, 2022, respectively, and $ 3.5 million and $ 7.1 million for the three and six months ended June 30, 2021, respectively. This expense included $ 2.3 million and $ 4.4 million for the three and six months ended June 30, 2022, respectively, and $ 1.0 million and $ 2.0 million for the three and six months ended June 30, 2021, respectively, for long-term operating leases, with the remainder for variable and short-term lease expense . 12 Table of Contents Lessor Operating Leases We are the lessor of tractors and trailers under operating leases with initial terms of 1 to 10 years. We recognize revenue for such leases on a straight-line basis over the term of the lease. Revenues were $ 3.1 million and $ 6.3 million for the three and six months ended June 30, 2022, respectively, and $ 3.0 million and $ 6.1 million for the three and six months ended June 30, 2021, respectively. The following table presents information about the maturities of these operating leases as of June 30, 2022 (in thousands): 2022 (remaining) $ 4,267 2023 2,986 2024 — 2025 — 2026 — Thereafter — Total $ 7,253 (5) Fair Value Fair Value Measurement — Definition and Hierarchy ASC 820-10, Fair Value Measurement , defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows: Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Such inputs include quoted prices in markets that are not active, quoted prices for similar assets and liabilities in active and inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 — Unobservable inputs for the asset or liability, where there is little, if any, observable market activity or data for the asset or liability. In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to our Level 1 assets and liabilities. If quoted prices in active markets for identical assets and liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. This pricing methodology would apply to Level 2 assets and liabilities. The following table presents the Company's fair value hierarchy for assets measured at fair value on a recurring basis (in thousands): Level in Fair Value Hierarchy Fair Value June 30, 2022 December 31, 2021 Other non-current assets: Equity securities (1) 1 $ 2,818 $ 17,166 (1) Represents our investments in autonomous technology companies. For additional information regarding the valuation of these equity securities, see Note 6 – Investments. We have no material liabilities measured at fair value on a recurring basis for the periods presented. 13 Table of Contents Our ownership interest in Mastery Logistics Systems, Inc. (“MLSI”) does not have a readily determinable fair value and is accounted for using the measurement alternative in ASC 321, Investments - Equity Securities . For additional information regarding the valuation of our investment in MLSI, see Note 6 – Investments. Fair Value of Financial Instruments Not Recorded at Fair Value Cash and cash equivalents, accounts receivable trade, and accounts payable are short-term in nature and accordingly are carried at amounts that approximate fair value. These financial instruments are recorded at or near their respective transaction prices and historically have been settled or converted to cash at approximately that value (categorized as Level 2 of the fair value hierarchy). The carrying amounts of our long-term debt approximate fair value due to the duration of our credit arrangements and the variable interest rates (categorized as Level 2 of the fair value hierarchy). (6) Investments Equity Investments without Readily Determinable Fair Values In 2020, we entered into a strategic partnership with MLSI, a transportation management systems company. We are collaborating with MLSI to develop a cloud-based transportation management system using MLSI's SaaS technology which we have agreed to license. In June 2022, we paid MLSI $ 20.0 million for additional shares of its preferred stock. This minority equity investment is being accounted for under ASC 321 using the measurement alternative, and is recorded in other noncurrent assets on the consolidated condensed balance sheets. As of June 30, 2022 and December 31, 2021, the value of our investment was $ 86.8 million and $ 38.2 million, respectively. We record changes in the value of this investment, based on events that occur that would indicate the value of our investment in MLSI has changed, in gain or loss on investments in equity securities on the consolidated statements of income. During second quarter 2022, investments by third-parties resulted in the remeasurement of our investment in MLSI, and in the three and six months ended June 30, 2022, we recognized an unrealized gain of $ 28.6 million. No gains or losses were recorded in the three and six months ended June 30, 2021. At June 30, 2022, cumulative unrealized gains on our investment in MLSI totaled $ 56.8 million. Equity Investments with Readily Determinable Fair Values We own strategic minority equity investments in autonomous technology companies, which are being accounted for under ASC 321 and are recorded in other noncurrent assets on the consolidated condensed balance sheets. We record changes in the value of these investments, based on the share prices reported by Nasdaq, in gain or loss on investments in equity securities on the consolidated statements of income. We recognized an unrealized loss of $ 4.5 million and $ 14.3 million on these investments for the three and six months ended June 30, 2022, respectively, and an unrealized gain of $ 20.2 million for the three and six months ended June 30, 2021. For additional information regarding the fair value of these equity investments, see Note 5 – Fair Value. (7) Debt and Credit Facilities On March 25, 2022, we entered into a new credit agreement (the “Wells Credit Agreement”) with Wells Fargo Bank, National Association ("Wells Fargo"), replacing our previous credit agreement with Wells Fargo dated May 14, 2019, as amended. The Wells Credit Agreement provides for a $ 300.0 million unsecured revolving line of credit ("Wells Line of Credit"), with a $ 75.0 million maximum limit for the aggregate amount of letters of credit issued, and expires on May 14, 2024 . The Wells Credit Agreement also provides for an unsecured term loan commitment not to exceed a principal amount of $ 100.0 million ("Wells Term Loan"), with the outstanding principal balance due and payable in full on May 14, 2024 . The proceeds of the Wells Line of Credit and Wells Term Loan may be used for the Company's general corporate purposes. Amounts drawn under the Wells Line of Credit and the outstanding principal balance of the Wells Term Loan bear interest either, at our option, (i) at a variable rate based on the daily Secured Overnight Financing Rate (" SOFR ") plus 0.10 % and a margin ranging between 0.675 % and 0.925 %, or (ii) at a fixed rate based on the Term SOFR in effect on the first day of an applicable interest period designated by us plus 0.10 % in the case of one month Term SOFR, 0.15 % in the case of three month Term SOFR, 0.25 % in the case of six month Term SOFR, and plus, in each case, a margin ranging between 0.675 % and 0.925 %, payable monthly. The margin rates are based on our ratio of total funded debt to earnings before interest, income taxes, depreciation and amortization (“EBITDA”). The Wells Credit Agreement also requires us to pay Wells Fargo (i) an annualized letter of credit fee based on the face amount of each letter of credit outstanding at rates ranging between 0.55 % and 0.80 % per annum and (ii) a nonrefundable commitment fee on the average daily unused amount of the Wells Line of Credit (after deducting undrawn letters of credit) at rates ranging between 0.11 % and 0.15 % per annum. The rates for the letter of credit and nonrefundable commitment fees are based on our ratio of total funded debt to EBITDA. On March 25, 2022, we also entered into a second amendment to our existing unsecured revolving line of credit agreement, dated May 14, 2019, with BMO Harris Bank N.A. (“BMO Harris”), expiring May 14, 2024 (“BMO Line of Credit”). The 14 Table of Contents second amendment increased our BMO Line of Credit from $ 200.0 million to $ 300.0 million and changed the variable interest rate calculation by replacing the LIBOR with the SOFR . Amounts drawn under the BMO Line of Credit bear interest, for a selected interest period, at a variable rate based on the SOFR plus 0.10 % and a margin ranging between 0.70 % and 1.50 %, based on our ratio of total funded debt to EBITDA, payable at the end of the applicable interest period. No changes were made to the annualized letter of credit fee, nonrefundable commitment fee, and financial covenants as a result of the second amendment. We also have a $ 100.0 million unsecured fixed-rate term loan commitment with BMO Harris, with quarterly principal payments of $ 1.25 million, which began on September 30, 2021, and a final payment of principal and interest due and payable on May 14, 2024 ("BMO Term Loan"). The outstanding principal balance of the BMO Term Loan bears interest at a fixed rate of 1.28 %, payable quarterly in arrears. As of June 30, 2022 and December 31, 2021, our outstanding debt totaled $ 445.0 million and $ 427.5 million, respectively. As of June 30, 2022, we had a total of $ 250.0 million outstanding under our revolving lines of credit, including (i) $ 100.0 million at a weighted average variable interest rate of 2.10 %; (ii) $ 75.0 million at a variable interest rate of 1.93 %, which is effectively fixed at 2.29 % with an interest rate swap agreement through May 14, 2024 ; and (iii) $ 75.0 million at a variable interest rate of 1.96 %, which is effectively fixed at 2.34 % with an interest rate swap agreement through May 14, 2024 . The total borrowing capacity of $ 600.0 million under our revolving lines of credit at June 30, 2022, is further reduced by $ 58.4 million in stand-by letters of credit under which we are obligated. In addition, as of June 30, 2022, we had $ 100.0 million outstanding under the Wells Term Loan at a variable interest rate of 2.23 % and $ 95.0 million outstanding under the BMO Term Loan at a fixed interest rate of 1.28 %. Availability of such funds under the debt agreements is conditional upon various customary terms and covenants. Such covenants include, among other things, financial covenants requiring us (i) to exceed a minimum ratio of earnings before interest, income taxes, depreciation and amortization to interest expense and/or (ii) not to exceed a maximum ratio of total funded debt to earnings before interest, income taxes, depreciation and amortization (as such terms are defined in each credit facility). As of June 30, 2022 we were in compliance with these covenants. At June 30, 2022, the aggregate future maturities of long-term debt by year are as follows (in thousands): 2022 (remaining) $ 2,500 2023 5,000 2024 437,500 2025 — 2026 — Total $ 445,000 (8) Commitments and Contingencies We have committed to property and equipment purchases of approximately $ 182.4 million at June 30, 2022 . We are involved in certain claims and pending litigation, including those described herein, arising in the ordinary course of business. The majority of these claims relate to bodily injury, property damage, cargo and workers’ compensation incurred in the transportation of freight, as well as certain class action litigation related to personnel and employment matters. We accrue for the uninsured portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on the knowledge of the facts, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on our consolidated financial statements. Moreover, the results of complex legal proceedings are difficult to predict, and our view of these matters may change in the future as the litigation and related events unfold. On May 17, 2018, in Harris County District Court in Houston, Texas, a jury rendered an adverse verdict against the Company in a lawsuit arising from a December 30, 2014 accident between a Werner tractor-trailer and a passenger vehicle. On July 30, 2018, the court entered a final judgment against Werner for $ 92.0 million, including pre-judgment interest. The Company has premium-based liability insurance to cover the potential outcome from this jury verdict. Under the Company’s insurance policies in effect on the date of this accident, the Company’s maximum liability for this accident is $ 10.0 million (plus pre-judgment and post-judgment interest) with premium-based coverage that exceeds the jury verdict amount. As a result of this jury verdict, the Company had recorded a liability of $ 31.4 million as of June 30, 2022, and $ 28.8 million as of December 31, 2021. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the verdict, and as such, the Company has also recorded a $ 79.2 million receivable from its third-party insurance providers in other non-current assets and a corresponding liability of the same amount in the long-term portion of insurance and claims accruals in the consolidated condensed balance sheets as of June 30, 2022 and December 31, 2021. The Company is pursuing an appeal of this verdict. No assurances can be given regarding the outcome of any such appeal. 15 Table of Contents In July 2022, the Hopkins County District Court in Sulphur Springs, Texas approved a $ 150.0 million settlement, voluntarily agreed to by the Company and its insurers, of a motor vehicle accident lawsuit in Texas arising from a May 24, 2020 accident between a Werner tractor-trailer and a passenger vehicle. Under the Company’s insurance policies in effect on the date of this accident, the Company’s maximum liability for this accident is $ 10.0 million with premium-based coverage for the remainder of the settlement amount. As a result of this settlement, the Company recognized $ 9.5 million of insurance and claims expense for the three and six months ended June 30, 2022, and had recorded a liability of $ 10.0 million and $ 0.5 million as of June 30, 2022 and December 31, 2021, respectively. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the settlement, and as such, the Company has also recorded a $ 140.0 million receivable from its third-party insurance providers in other current assets and a corresponding liability of the same amount in the current portion of insurance and claims accruals in the consolidated condensed balance sheets as of June 30, 2022. We have been involved in class action litigation in the U.S. District Court for the District of Nebraska, in which the plaintiffs allege that we owe drivers for unpaid wages under the Fair Labor Standards Act (“FLSA”) and the Nebraska Wage Payment and Collection Act and that we failed to pay minimum wage per hour for drivers in our Career Track Program, related to short break time and sleeper berth time. The period covered by this class action suit is August 2008 through March 2014. The case was tried to a jury in May 2017, resulting in a verdict of $ 0.8 million in plaintiffs’ favor on the short break matter and a verdict in our favor on the sleeper berth matter. As a result of various post-trial motions, the court awarded $ 0.5 million to the plaintiffs for attorney fees and costs. Plaintiffs appealed the post-verdict amounts awarded by the trial court for fees, costs and liquidated damages, and the Company filed a cross appeal on the verdict that was in plaintiffs’ favor. The United States Court of Appeals for the Eighth Circuit denied Plaintiffs’ appeal and granted Werner’s appeal, vacating the judgment in favor of the plaintiffs. The appellate court sent the case back to the trial court for proceedings consistent with the appellate court’s opinion. On June 22, 2020, the trial court denied Plaintiffs’ request for a new trial and entered judgment in favor of the Company, dismissing the case with prejudice. On July 21, 2020, Plaintiffs’ counsel filed a notice of appeal of that dismissal, and that appeal remains pending. As of June 30, 2022, we have an accrual for the jury’s award, attorney fees and costs in the short break matter and had not accrued for the sleeper berth matter. We are also involved in certain class action litigation in which the plaintiffs allege claims for failure to provide meal and rest breaks, unpaid wages, unauthorized deductions and other items. Based on the knowledge of the facts, management does not currently believe the outcome of these class actions is likely to have a material adverse effect on our financial position or results of operations. However, the final disposition of these matters and the impact of such final dispositions cannot be determined at this time. (9) Earnings Per Share Basic earnings per share is computed by dividing net income attributable to Werner by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to Werner by the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding restricted stock awards. Performance awards are excluded from the calculation of dilutive potential common shares until the threshold performance conditions have been satisfied. There are no differences in the numerators of our computations of basic and diluted earnings per share for any periods presented. The computation of basic and diluted earnings per share is shown below (in thousands, except per share amounts). Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income attributable to Werner $ 72,290 $ 72,032 $ 126,039 $ 118,524 Weighted average common shares outstanding 64,394 67,926 64,965 67,929 Dilutive effect of stock-based awards 332 290 362 308 Shares used in computing diluted earnings per share 64,726 68,216 65,327 68,237 Basic earnings per share $ 1.12 $ 1.06 $ 1.94 $ 1.74 Diluted earnings per share $ 1.12 $ 1.06 $ 1.93 $ 1.74 (10) Segment Information We have two reportable segments – Truckload Transportation Services (“TTS”) and Werner Logistics. The TTS segment consists of two operating units, Dedicated and One-Way Truckload. These units are aggregated because they have similar economic characteristics and meet the other aggregation criteria described in the accounting guidance for segment reporting. Dedicated provides truckload services dedicated to a specific customer, generally for a retail distribution center or 16 Table of Contents manufacturing facility, utilizing either dry van or specialized trailers. One-Way Truckload is comprised of the following operating fleets: (i) the medium-to-long-haul van (“Van”) fleet transports a variety of consumer nondurable products and other commodities in truckload quantities over irregular routes using dry van trailers, including Mexico cross-border routes; (ii) the expedited (“Expedited”) fleet provides time-sensitive truckload services utilizing driver teams; (iii) the regional short-haul (“Regional”) fleet, including ECM, provides comparable truckload van service within geographic regions across the United States; and (iv) the Temperature Controlled fleet provides truckload services for temperature sensitive products over irregular routes utilizing temperature-controlled trailers. Revenues for the TTS segment include a small amount of non-trucking revenues which consist primarily of the intra-Mexico portion of cross-border shipments delivered to or from Mexico where we utilize a third-party capacity provider. The Werner Logistics segment generates the majority of our non-trucking revenues through three operating units that provide non-trucking services to our customers. These three Werner Logistics operating units are as follows: (i) Truckload Logistics, which uses contracted carriers to complete shipments for brokerage customers and freight management customers for which we offer a full range of single-source logistics management services and solutions; (ii) the intermodal (“Intermodal”) unit offers rail transportation through alliances with rail and drayage providers as an alternative to truck transportation; and (iii) Werner Final Mile (“Final Mile”), including NEHDS, offers residential and commercial deliveries of large or heavy items using third-party agents, independent contractors, and Company employees with two-person delivery teams operating a liftgate straight truck. In first quarter 2021, we completed the sale of the Werner Global Logistics (“WGL”) freight forwarding services for international ocean and air shipments to Scan Global Logistics Group, and we realized a $ 1.0 million gain when the transaction closed on February 26, 2021. Werner Logistics continues to provide North American truck brokerage, freight management, intermodal and final mile services. We generate other revenues from our driver training schools, transportation-related activities such as third-party equipment maintenance and equipment leasing, and other business activities. None of these operations meets the quantitative reporting thresholds. As a result, these operations are grouped in “Other” in the tables below. “Corporate” includes revenues and expenses that are incidental to our activities and are not attributable to any of our operating segments, including gains and losses on sales of assets not attributable to our operating segments. We do not prepare separate balance sheets by segment and, as a result, assets are not separately identifiable by segment. Based on our operations, certain revenue-generating assets (primarily tractors and trailers) are interchangeable between segments. Depreciation for these interchangeable assets is allocated to segments based on the actual number of units utilized by the segment during the period. Other depreciation and amortization is allocated to segments based on specific identification or as a percentage of a metric such as average number of tractors. Inter-segment eliminations represent transactions between reporting segments that are eliminated in consolidation. The following tables summarize our segment information (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenues by Segment Truckload Transportation Services $ 613,616 $ 491,200 $ 1,172,033 $ 954,149 Werner Logistics 203,861 141,673 392,869 279,526 Other 18,946 16,725 36,459 32,124 Corporate 478 409 867 788 Subtotal 836,901 650,007 1,602,228 1,266,587 Inter-segment eliminations ( 625 ) ( 193 ) ( 1,347 ) ( 327 ) Total $ 836,276 $ 649,814 $ 1,600,881 $ 1,266,260 Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Operating Income (Loss) by Segment Truckload Transportation Services $ 64,004 $ 73,108 $ 140,097 $ 130,736 Werner Logistics 12,490 3,927 21,171 8,501 Other 461 1,663 906 2,529 Corporate ( 2,032 ) ( 1,835 ) ( 3,740 ) ( 2,432 ) Total $ 74,923 $ 76,863 $ 158,434 $ 139,334 17 Table of Contents Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Depreciation and Amortization by Segment Truckload Transportation Services $ 62,867 $ 58,533 $ 124,704 $ 117,058 Werner Logistics 2,351 2,085 4,619 4,306 Other 2,791 2,761 5,472 5,490 Corporate 462 486 905 962 Total $ 68,471 $ 63,865 $ 135,700 $ 127,816 18 Table of Contents