What changed in this filing

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Item 1. Financial Statements

2023-05-09 compared with 2022-11-04 · 223 added, 195 removed, 371 unchanged (53% of the section changed)

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(In thousands, except per share amounts) 2023 2022

15 unchanged sentences

Interest income ( 1,552 ) ( 275 )

Gain on investments in equity securities, net ( 114 ) ( 16,090 ) ( 14,403 ) ( 36,281 )

Other 77 50 276 146

Total other expense (income) 2,349 ( 15,043 ) ( 9,103 ) ( 34,230 )

Loss on investments in equity securities 81 9,806

Total other expense, net 6,452 11,043

Income before income taxes 46,934 72,468

13 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(In thousands) 2023 2022

3 unchanged sentences

Change in fair value of interest rate swaps, net of tax ( 973 ) 3,631

Other comprehensive income (loss) 1,149 ( 719 ) 7,169 1,241

Other comprehensive income, net 2,028 4,784

Comprehensive income 37,562 59,819

4 unchanged sentences

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands, except share amounts) September 30,

(In thousands, except share amounts) March 31,

2023 December 31,

46 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

Three Months Ended

(In thousands) 2023 2022

7 unchanged sentences

Insurance and claims accruals, net of current portion 954 4,470

Loss on investments in equity securities 81 9,806

Other ( 417 ) ( 2,080 )

Gain on investments in equity securities, net ( 14,403 ) ( 36,281 )

Changes in certain working capital items:

8 unchanged sentences

Net cash invested in acquisition ( 188 ) 705

Investment in equity securities ( 20,250 ) ( 10,000 )

Payment to acquire equity method investment ( 2,125 ) —

Issuance of notes receivable ( 25,000 ) —

Decrease in notes receivable 826 1,831

2 unchanged sentences

Repayments of short-term debt ( 2,500 ) ( 1,250 )

Proceeds from issuance of short-term debt — 5,000

Repayments of long-term debt — ( 100,000 )

3 unchanged sentences

Tax withholding related to net share settlements of restricted stock awards ( 5,514 ) ( 3,658 )

Other cash flows from financing activities ( 750 ) ( 35 )

Net cash provided by financing activities 7,450 71,869

Net cash used in financing activities ( 16,234 ) ( 48,983 )

Effect of exchange rate fluctuations on cash 968 317

11 unchanged sentences

Dividends accrued but not yet paid at end of period 8,239 7,807

Redeemable noncontrolling interest associated with acquisition — 35,322

Contingent consideration associated with acquisitions ( 800 ) —

See Notes to Consolidated Financial Statements (Unaudited).

2 unchanged sentences

TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST

Three Months Ended September 30, 2022

(In thousands, except share and per share amounts) Common

Stock Paid-In

Capital Retained

Earnings Accumulated

Comprehensive

Loss Treasury

Stockholders’

Equity Temporary Equity - Redeemable Noncontrolling Interest

BALANCE, June 30, 2022 $ 805 $ 124,065 $ 1,777,092 $ ( 14,584 ) $ ( 543,506 ) $ 1,343,872 $ 38,552

Net income attributable to Werner — — 55,051 — — 55,051 —

Net income attributable to noncontrolling interest — — — — — — 874

Other comprehensive income — — — 1,149 — 1,149 —

Purchases of 215,204 shares of common stock

— — — — ( 8,287 ) ( 8,287 ) —

Dividends on common stock ($ 0.13 per share)

— — ( 8,216 ) — — ( 8,216 ) —

Equity compensation activity, 1,692 shares

— ( 54 ) — — 8 ( 46 ) —

Non-cash equity compensation expense — 3,035 — — — 3,035 —

Distribution to noncontrolling interest — — — — — — ( 750 )

BALANCE, September 30, 2022 $ 805 $ 127,046 $ 1,823,927 $ ( 13,435 ) $ ( 551,785 ) $ 1,386,558 $ 38,676

Three Months Ended September 30, 2021

(In thousands, except share and per share amounts) Common

Stock Paid-In

Capital Retained

Earnings Accumulated

Comprehensive

Loss Treasury

Stockholders’

Equity Temporary Equity - Redeemable Noncontrolling Interest

BALANCE, June 30, 2021 $ 805 $ 117,069 $ 1,542,497 $ ( 20,873 ) $ ( 342,915 ) $ 1,296,583 $ —

Net income attributable to Werner — — 63,761 — — 63,761 —

Net income attributable to noncontrolling interest — — — — — — 1,328

Other comprehensive loss — — — ( 719 ) — ( 719 ) —

Purchases of 1,049,120 shares of common stock

— — — — ( 47,759 ) ( 47,759 ) —

Dividends on common stock ($ 0.12 per share)

— — ( 8,026 ) — — ( 8,026 ) —

Equity compensation activity, 1,498 shares

— ( 43 ) — — 10 ( 33 ) —

Non-cash equity compensation expense — 2,750 — — — 2,750 —

Investment in noncontrolling interest — — — — — — 35,322

Distribution to noncontrolling interest — — — — — — ( 35 )

BALANCE, September 30, 2021 $ 805 $ 119,776 $ 1,598,232 $ ( 21,592 ) $ ( 390,664 ) $ 1,306,557 $ 36,615

See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND

TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST (CONTINUED)

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

(In thousands, except share and per share amounts) Common

10 unchanged sentences

Other comprehensive income — — — 2,028 — 2,028 —

Purchases of 2,710,304 shares of common stock

— — — — ( 110,400 ) ( 110,400 ) —

Dividends on common stock ($ 0.13 per share)

3 unchanged sentences

Non-cash equity compensation expense — 3,403 — — — 3,403 —

Distribution to noncontrolling interest — — — — — — ( 750 )

BALANCE, September 30, 2022 $ 805 $ 127,046 $ 1,823,927 $ ( 13,435 ) $ ( 551,785 ) $ 1,386,558 $ 38,676

Nine Months Ended September 30, 2021

BALANCE, March 31, 2023 $ 805 $ 128,050 $ 1,902,858 $ ( 9,264 ) $ ( 551,912 ) $ 1,470,537 $ 39,009

Three Months Ended March 31, 2022

(In thousands, except share and per share amounts) Common

17 unchanged sentences

Non-cash equity compensation expense — 3,026 — — — 3,026 —

Investment in noncontrolling interest — — — — — — 35,322

Distribution to noncontrolling interest — — — — — — ( 35 )

BALANCE, September 30, 2021 $ 805 $ 119,776 $ 1,598,232 $ ( 21,592 ) $ ( 390,664 ) $ 1,306,557 $ 36,615

BALANCE, March 31, 2022 $ 805 $ 121,157 $ 1,713,046 $ ( 15,820 ) $ ( 477,724 ) $ 1,341,464 $ 37,233

See Notes to Consolidated Financial Statements (Unaudited).

4 unchanged sentences

The accompanying unaudited interim consolidated financial statements include the accounts of Werner Enterprises, Inc.

and its controlled subsidiaries (collectively, the “Company” or “Werner”).

and its 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.

7 unchanged sentences

although in management’s opinion, the disclosures are adequate so that the information presented is not misleading.

Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31 , 2022.

Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

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 2022 Form 10-K.

New Accounting Pronouncements Adopted

In 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 was 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.

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 $ 4.1 million for the three and nine months ended September 30, 2022 .

Developments during the three months ended March 31, 2023 related to our 2022 business acquisitions are discussed below.

On November 5, 2022, we acquired 100 % of the equity interests in Reed Transport Services, Inc.

and RTS-TMS, Inc., doing business as ReedTMS Logistics (“ReedTMS”), for a total purchase price of $ 108.6 million after including the impacts of working capital adjustments, cash acquired, net present value of future insurance payments, and contingent consideration.

ReedTMS is an asset-light logistics provider and dedicated truckload carrier that offers a comprehensive suite of freight brokerage and truckload solutions to a diverse customer base.

The results of operations for ReedTMS are included in our consolidated financial statements beginning November 5, 2022.

Pro forma information for this acquisition is not provided as it did not have a material impact on our consolidated operating results.

The following table summarizes the provisional purchase price allocation for ReedTMS, including any adjustments during the three months ended March 31, 2023 (in thousands):

November 5, 2022

Opening Balance sheet

as Reported at

December 31, 2022 Adjustments (1)

November 5, 2022

Opening Balance sheet

as Reported at

March 31, 2023

Purchase Price

Cash consideration paid

$ — $ 116,989 (2)

Cash and cash equivalents acquired

( 12,120 ) — ( 12,120 )

Contingent consideration arrangement

( 800 ) 4,200 (3)

Working capital surplus (deficiency)

( 689 ) 188 ( 501 )

Total purchase price (fair value of consideration)

109,180 ( 612 ) 108,568

Purchase Price Allocation

Current assets

52,531 49 52,580

Property and equipment

35,000 ( 12,485 ) 22,515

Intangible assets

12,000 15,300 27,300

Other non-current assets

7,927 ( 1 ) 7,926

Total assets acquired

107,458 2,863 110,321

Current liabilities

( 45,497 ) ( 389 ) ( 45,886 )

Other long-term liabilities

( 5,622 ) 527 ( 5,095 )

Total liabilities assumed

( 51,119 ) 138 ( 50,981 )

$ 52,841 $ ( 3,613 ) $ 49,228

(1) No material statement of income effects were identified with these adjustments.

(2) Includes $ 0.9 million related to the net present value of future insurance payments.

At closing, $ 11.5 million of the cash consideration was placed in escrow to secure certain indemnification obligations of the sellers and to cover post-closing adjustments.

During the three months ended March 31, 2023, we received $ 2.1 million from escrow for post-closing adjustments.

The remaining balance of the escrow, except for $ 0.5 million, was returned to the sellers.

In exchange, the sellers obtained a $ 10.0 million Standby Letter of Credit with the Company named as beneficiary.

(3) The contingent earnout liability is recorded in other long-term liabilities on the consolidated condensed balance sheets as of March 31, 2023 and December 31, 2022 .

For additional information regarding the valuation of the contingent liability, see Note 6 – Fair Value.

On October 1, 2022, we acquired 100 % of the equity interests in FAB9, Inc., doing business as Baylor Trucking, Inc.

(“Baylor”), for a total purchase price of $ 89.0 million after including the impacts of working capital adjustments, cash acquired, and contingent consideration.

Baylor operates in the east central and south central United States.

The results of operations for Baylor are included in our consolidated financial statements beginning October 1, 2022.

Pro forma information for this acquisition is not provided as it did not have a material impact on our consolidated operating results.

No measurement period adjustments were recorded during the three months ended March 31, 2023.

Purchase Price Allocations

We accounted for the ReedTMS and Baylor purchases using the acquisition method of accounting under GAAP.

The purchase price of each acquisition has been allocated to the assets acquired and liabilities assumed using market data and valuation techniques.

The estimated fair values of the assets acquired and liabilities assumed are considered provisional for ReedTMS and Baylor, pending the completion of acquired tangible assets valuations, independent valuations of certain acquired intangible assets, and calculations of deferred taxes based upon the underlying tax basis of assets acquired and liabilities assumed.

The determination of estimated fair values requires management to make significant estimates and assumptions.

We believe that the information available provides a reasonable basis for estimating the values of assets acquired and liabilities assumed in the ReedTMS and Baylor acquisitions;

however, these provisional estimates may be adjusted upon the availability of new information regarding facts and circumstances which existed at the acquisition dates, and such adjustments may impact future earnings.

We expect to finalize the valuation of assets and liabilities for ReedTMS and Baylor as soon as practicable, but not later than one year from the respective acquisition dates.

Any adjustments to the initial estimates of the fair value of the

acquired assets and liabilities assumed in the ReedTMS and Baylor acquisitions will be recorded as adjustments to the respective assets and liabilities, with the residual amounts allocated to goodwill.

Revenue Recognition

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Truckload Transportation Services $ 588,330 $ 558,417

8 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

United States $ 782,293 $ 710,904

4 unchanged sentences

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 September 30, 2022 and December 31, 2021, the accounts receivable, trade, net, balance was $ 493.1 million and $ 460.5 million, respectively.

At March 31, 2023 and December 31, 2022, the accounts receivable, trade, net, balance was $ 461.0 million and $ 518.8 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 September 30, 2022 and December 31, 2021, the balance of contract assets was $ 9.3 million and $ 9.0 million, respectively.

At March 31, 2023 and December 31, 2022, the balance of contract assets was $ 7.3 million and $ 8.9 million, respectively.

We have recognized contract assets within the other current assets financial statement caption on the consolidated condensed balance sheets.

1 unchanged sentence

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 $ 1.2 million at September 30, 2022 and December 31, 2021 .

The amount of revenues recognized in the nine months ended September 30, 2022 that was included in the December 31, 2021 contract liability balance was $ 1.2 million.

A t March 31, 2023 and December 31, 2022, t he balance of contract liabilities was $ 1.2 million and $ 0.9 million, respectively .

The amount of revenues recognized in the three months ended March 31, 2023 that was included in the December 31, 2022 contract liability balance was $ 0.9 million.

We have recognized contract liabilities within the accounts payable and other current liabilities financial statement captions on the consolidated condensed balance sheets.

4 unchanged sentences

transit times generally average approximately 3 days.

During the nine months ended September 30, 2022 and 2021, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material.

During the three months ended March 31, 2023 and 2022, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material.

(4) Goodwill and Intangible Assets

Goodwill represents the excess of cost over the fair value of net identifiable tangible and intangible assets acquired in business combinations.

The following table summarizes changes in the carrying amount of goodwill by segment for the three months ended March 31, 2023 (in thousands):

Werner Logistics

Balance as of December 31, 2022

$ 53,897 $ 78,820 $ 132,717

Purchase accounting adjustments (1)

( 7,841 ) 4,228 ( 3,613 )

Balance as of March 31, 2023

$ 46,056 $ 83,048 $ 129,104

(1) The purchase accounting adjustments consist of post-closing adjustments related to net assets assumed in the acquisition of ReedTMS.

For additional information regarding these purchase accounting adjustments, see Note 2.

The following table presents acquired intangible assets (in thousands):

March 31, 2023 December 31, 2022

Customer relationships

$ 80,200 $ ( 7,974 ) $ 72,226 $ 64,900 $ ( 5,714 ) $ 59,186

24,600 ( 2,796 ) 21,804 24,600 ( 2,284 ) 22,316

Total intangible assets

$ 104,800 $ ( 10,770 ) $ 94,030 $ 89,500 $ ( 7,998 ) $ 81,502

Amortization expense on intangible assets was $ 2.8 million and $ 1.4 million for the three months ended March 31, 2023 and 2022, respectively, and is reported in depreciation and amortization on the consolidated statements of income.

As of March 31, 2023, we estimate future amortization expense for intangible assets will be $ 7.6 million for the remainder of 2023, and $ 10.1 million for each of the five succeeding fiscal years.

We have entered into operating leases primarily for real estate.

8 unchanged sentences

The following table presents balance sheet and other operating lease information (dollars in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Balance Sheet Classification

6 unchanged sentences

Weighted-average discount rate for operating leases 3.4 % 3.3 %

The following table presents the maturities of operating lease liabilities as of September 30, 2022 (in thousands):

The following table presents the maturities of operating lease liabilities as of March 31, 2023 (in thousands):

Maturity of Lease Liabilities

4 unchanged sentences

Present value of operating lease liabilities $ 41,215

During the nine months ended September 30, 2022 and 2021, right-of-use assets of $ 12.4 million and $ 3.9 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 $ 5.9 million and $ 3.2 million for the nine months ended September 30, 2022 and 2021, respectively, and are included in operating cash flows.

During the three months ended March 31, 2023 and 2022, right-of-use assets of $ 1.5 million and $ 10.2 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 $ 2.9 million and $ 1.8 million for the three months ended March 31, 2023 and 2022, respectively, and are included in operating cash flows.

Operating Lease Expense

Operating lease expense was $ 5.4 million and $ 15.8 million for the three and nine months ended September 30, 2022, respectively, and $ 4.2 million and $ 11.3 million for the three and nine months ended September 30, 2021, respectively.

This expense included $ 2.2 million and $ 6.6 million for the three and nine months ended September 30, 2022, respectively, and $ 1.3 million and $ 3.3 million for the three and nine months ended September 30, 2021, respectively, for long-term operating leases, with the remainder for variable and short-term lease expense .

Operating lease expense was $ 6.2 million and $ 5.1 million for the three months ended March 31, 2023 and 2022, respectively.

This expense included $ 3.0 million and $ 2.1 million for long-term operating leases for the three months ended March 31, 2023 and 2022, respectively, with the remainder for variable and short-term lease expense .

Lessor Operating Leases

1 unchanged sentence

We recognize revenue for such leases on a straight-line basis over the term of the lease.

Revenues were $ 3.3 million and $ 9.6 million for the three and nine months ended September 30, 2022, respectively, and $ 2.9 million and $ 9.0 million for the three and nine months ended September 30, 2021, respectively.

The following table presents information about the maturities of these operating leases as of September 30, 2022 (in thousands):

Revenues were $ 2.7 million and $ 3.2 million for the three months ended March 31, 2023 and 2022, respectively.

The following table presents information about the maturities of these operating leases as of March 31, 2023 (in thousands):

2023 (remaining) $ 6,907

Thereafter 71

Total $ 9,485

14 unchanged sentences

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):

The following table presents the fair value hierarchy for our assets and liabilities measured at fair value on a recurring basis (in thousands):

Hierarchy Fair Value

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Other non-current assets:

1 unchanged sentence

1 $ 642 $ 723

Other long-term liabilities:

Contingent consideration associated with acquisitions 3 $ 12,877 $ 13,400

(1) Represents our investments in autonomous technology companies.

For additional information regarding the valuation of these equity securities, see Note 7 – Investments.

We have no material liabilities measured at fair value on a recurring basis for the periods presented.

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.

The following table presents changes in the fair value of our contingent earnout liabilities (in thousands):

Three Months Ended

Balance at beginning of period

$ 13,400 $ 2,500

Measurement period adjustment associated with the acquisition of ReedTMS (1)

Change in fair value 277 —

Balance at end of period

$ 12,877 $ 2,500

(1) The measurement period adjustment was recorded in goodwill on the consolidated condensed balance sheet.

The estimated fair values of our contingent consideration arrangements are based upon probability-adjusted inputs for each acquired entity.

Additionally, as the liability is stated at present value, the passage of time alone will increase the estimated fair value of the liability each reporting period.

Any changes in fair value will be recorded in other operating expenses on the consolidated statements of income.

Our ownership interests in Mastery Logistics Systems, Inc.

(“MLSI”) and Fleet Defender, Inc.

do not have readily determinable fair values and are accounted for using the measurement alternative in ASC 321, Investments - Equity Securities .

Our ownership interest in Autotech Fund III, L.P.

(“Autotech Fund III”) is accounted for under ASC 323, “ Investments - Equity Method and Joint Ventures .” For additional information regarding the valuation of these investments, see Note 7 – 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).

The carrying amount of our fixed-rate debt not measured at fair value on a recurring basis was $ 91.3 million and $ 93.8 million as of March 31, 2023 and December 31, 2022, respectively.

The estimated fair value of our fixed-rate debt using the income approach, based on its net present value, discounted at our current borrowing rate, was $ 85.9 million and $ 87.2 million as of March 31, 2023 and December 31, 2022, respectively (categorized as Level 2 of the fair value hierarchy).

The carrying amount

of our variable-rate long-term debt approximates fair value due to the duration of our credit arrangement and the variable interest rate (categorized as Level 2 of the fair value hierarchy).

(7) 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 September 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 and third quarter 2021, investments by third-parties resulted in the remeasurements of our investment in MLS, and in the nine months ended September 30, 2022 we recognized an unrealized gain of $ 28.6 million and in the three and nine months ended September 30, 2021 we recognized an unrealized gain of $ 28.2 million on our investment based upon the prices paid by third parties.

No gains or losses were recognized in the three months ended September 30, 2022.

At September 30, 2022, cumulative unrealized gains on our investment in MLSI totaled $ 56.8 million.

Our strategic equity investments without readily determinable fair values include MLSI, a transportation management systems company, and Fleet Defender, Inc., a platform cybersecurity company for fleet owners.

MLSI is developing a cloud-based transportation management system using MLSI's SaaS technology which we have agreed to license.

These investments are being accounted for under ASC 321 using the measurement alternative and are recorded in other noncurrent assets on the consolidated condensed balance sheets.

We record changes in the values of these investments based on events that occur that would indicate the values have changed, in loss (gain) on investments in equity securities on the consolidated statements of income.

As of March 31, 2023 and December 31, 2022, the value of our investment in MLSI was $ 86.8 million and the value of our investment in Fleet Defender, Inc.

was $ 250 thousand.

There was no activity related to our equity investments without readily determinable fair values during the three months ended March 31, 2023 and 2022.

As of March 31, 2023, cumulative upward adjustments on our equity securities without readily determinable fair values 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 gain of $ 0.1 million and an unrealized loss of $ 14.2 million on these investments for the three and nine months ended September 30, 2022, respectively.

We recognized an unrealized loss of $ 12.1 million and an unrealized gain of $ 8.1 million on our investments for the three and nine months ended September 30, 2021, respectively.

We record changes in the value of these investments, based on the share prices reported by Nasdaq, in loss (gain) on investments in equity securities on the consolidated statements of income.

As of March 31, 2023 and December 31, 2022, the value of these investments was $ 0.6 million and $ 0.7 million, respectively.

We recognized an unrealized loss of $ 0.1 million and $ 9.8 million on these investments for the three months ended March 31, 2023 and 2022, respectively.

For additional information regarding the fair value of these equity investments, see Note 6 – Fair Value.

Equity Method Investment

In January 2023, we committed to make a $ 20.0 million investment in Autotech Fund III pursuant to a limited partnership agreement.

Autotech Fund III is managed by Autotech Ventures, a venture capital firm focused on ground transportation technology.

Our interest, which represents an ownership percentage of less than 20 %, is being accounted for under ASC 323, “ Investments - Equity Method and Joint Ventures .” As a limited partner, we will make periodic capital contributions toward this total commitment amount.

As of March 31, 2023, our cumulative investment in Autotech Fund III was $ 2.1 million, which we contributed during the three months ended March 31, 2023.

As of March 31, 2023, the value of our investment in Autotech Fund III was $ 2.1 million and is recorded in other noncurrent assets on the consolidated condensed balance sheets.

We will record earnings and losses attributed to the fund in loss (earnings) from equity method investment on the consolidated statements of income.

No earnings or losses were recognized for the three months ended March 31, 2023.

The carrying amount of Autotech Fund III as of March 31, 2023 approximates its fair value, as this is the most recent information available to us at this time.

(8) Notes Receivable

We provide financing to some individuals who want to become independent contractors by purchasing a tractor from us and leasing their services to us.

We maintain a primary security interest in the tractor until the independent contractor pays the note balance in full.

On January 24, 2023, we purchased a $ 25.0 million subordinated promissory note from MLSI with a maturity date of January 24, 2030.

The proceeds of the promissory note may be used by MLSI for working capital and general business purposes, including a limited amount for possible repayment of certain advances.

There are no scheduled principal payments due on the MLSI promissory note until the maturity date, and interest accrues at 7.5 % compounded annually, with the first accrued interest payment due on January 24, 2028, and at the end of each calendar year thereafter.

The independent contractor notes receivable, MLSI subordinated promissory note, and other notes receivable are included in other current assets and other non-current assets in the consolidated balance sheets.

The following table presents our notes receivable (in thousands):

March 31, 2023 December 31, 2022

Independent contractor notes receivable

$ 8,080 $ 8,287

MLSI subordinated promissory note 25,000 —

Other notes receivable

Notes receivable

41,138 16,208

Less current portion

Notes receivable – non-current

$ 38,484 $ 13,517

We also provide financing to some individuals who attended our driver training schools.

The student notes receivable is included in other receivables and other non-current assets in the consolidated balance sheets.

The following table presents our student notes receivable (in thousands):

March 31, 2023 December 31, 2022

Student notes receivable

$ 62,971 $ 63,351

Allowance for doubtful student notes receivable

( 22,885 ) ( 23,491 )

Total student notes receivable, net of allowance

40,086 39,860

Less current portion, net of allowance

13,194 12,574

Student notes receivable – non-current

$ 26,892 $ 27,286

(9) 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 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").

On December 20, 2022, we entered into a $ 1.075 billion unsecured credit facility with a group of lenders (the “2022 Credit Agreement”), replacing our previous unsecured credit facility with BMO Harris Bank N.A.

(“BMO Harris”), dated May 14, 2019, as amended, and the credit agreement with Wells Fargo Bank, National Association, dated March 25, 2022.

The 2022 Credit Agreement is scheduled to mature on December 20, 2027 and has a $ 100.0 million maximum limit for the aggregate amount of letters of credit issued.

Revolving credit loans drawn under the 2022 Credit Agreement bear interest, at our option, at (i) the Base Rate (the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50 %, or (c) the one-month Term SOFR plus 1.10 %), plus a margin ranging between 0.125 % and 0.750 %, or (ii) Term SOFR plus 0.10 % and a margin ranging between 1.125 % and 1.750 %.

Swingline loans drawn under the 2022 Credit Agreement bear interest at the Base Rate, as defined above, plus a margin ranging between 0.125 % and 0.750 %.

The 2022 Credit Agreement also requires us to pay quarterly (i) a letter of credit commission on the daily amount available to be drawn under such standby letters of credit at rates ranging between 1.125 % and 1.750 % per annum and (ii) a nonrefundable commitment fee on the average daily unused amount of the commitment at rates ranging between 0.125 % and 0.250 % per annum.

The margin, letter of credit commission, and commitment fee rates are based on our ratio of net funded debt to earnings before interest, income taxes, depreciation and amortization (“EBITDA”).

There are no scheduled principal payments due on the 2022 Credit Agreement until the maturity date, and interest is payable in arrears at periodic intervals not to exceed three months.

On June 30, 2021, we entered into a $ 100.0 million unsecured fixed-rate term loan commitment with BMO Harris, with quarterly principal payments of $ 1.25 million 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 September 30, 2022 and December 31, 2021, our outstanding debt totaled $ 573.8 million and $ 427.5 million, respectively.

As of September 30, 2022, we had a total of $ 380.0 million outstanding under our revolving lines of credit, including (i) $ 230.0 million at a weighted average variable interest rate of 3.59 %;

(ii) $ 75.0 million at a variable interest rate of 3.43 %, 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 3.45 %, which is effectively fixed at 2.34 % with an interest rate swap agreement through May 14, 2024 .

Subsequent to the end of the quarter, in October 2022, we borrowed an additional $ 10.0 million under our revolving lines of credit, which will be classified as long-term in the consolidated condensed balance sheets.

The total borrowing capacity of $ 600.0 million under our revolving lines of credit at September 30, 2022, is further reduced by $ 58.4 million in stand-by letters of credit under which we are obligated.

In addition, as of September 30, 2022, we had $ 100.0 million outstanding under the Wells Term Loan at a variable interest rate of 3.77 % and $ 93.8 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 September 30, 2022 we were in compliance with these covenants.

At September 30, 2022, the aggregate future maturities of long-term debt by year are as follows (in thousands):

As of March 31, 2023 and December 31, 2022, our outstanding debt totaled $ 691.3 million and $ 693.8 million, respectively.

As of March 31, 2023, we had an outstanding revolving credit loan balance of $ 600.0 million under the 2022 Credit Agreement, including (i) $ 450.0 million at a variable interest rate of 6.11 % and (ii) $ 150.0 million which is effectively fixed at 2.88 % with two interest rate swap agreements through May 14, 2024.

In addition, as of March 31, 2023, we had $ 91.3 million outstanding under the BMO Term Loan at a fixed interest rate of 1.28 %.

The $ 1.075 billion of borrowing capacity under our 2022 Credit Agreement at March 31, 2023, is further reduced by $ 60.4 million in stand-by letters of credit under which we are obligated.

Availability of such funds under the current debt agreements is conditional upon various customary terms and covenants.

Such covenants include, among other things, two financial covenants requiring us (i) not to exceed a maximum ratio of net funded debt to EBITDA and (ii) to exceed a minimum ratio of EBITDA to interest expense.

As of March 31, 2023, we were in compliance with these covenants.

At March 31, 2023, the aggregate future maturities of long-term debt by year are as follows (in thousands):

2023 (remaining) $ 3,750

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(10) Commitments and Contingencies

We have committed to property and equipment purchases of approximately $ 177.1 million at September 30, 2022 .

We have committed to property and equipment purchases of approximately $ 271.4 million at March 31, 2023 .

We are involved in certain claims and pending litigation, including those described herein, arising in the ordinary course of business.

7 unchanged sentences

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 $ 32.7 million as of September 30, 2022, and $ 28.8 million as of December 31, 2021.

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 September 30, 2022 and December 31, 2021.

As a result of this jury verdict, the Company had recorded a liability of $ 35.5 million as of March 31, 2023, and $ 34.1 million as of December 31, 2022.

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 March 31, 2023 and December 31, 2022.

The Company is pursuing an appeal of this verdict.

No assurances can be given regarding the outcome of any such appeal.

As previously disclosed, 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 nine months ended September 30, 2022, and had recorded a liability of $ 0.5 million as of December 31, 2021.

The settlement was paid by the Company and its insurers during third quarter 2022.

We have been involved in class action litigation in the U.S.

8 unchanged sentences

On July 21, 2020, Plaintiffs’ counsel filed a notice of appeal of that dismissal.

On August 3, 2022, the Eighth Circuit Court of Appeals vacated the district court’s judgment and remanded the case, and now the trial court is expected to determine whether the plaintiffs should be granted a new trial on the short break claim.

As of September 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.

On August 3, 2022, the Eighth Circuit Court of Appeals vacated the district court’s judgment and remanded the case, for the trial court to determine whether the plaintiffs should be granted a new trial on the short break claim.

On January 10, 2023, the trial court denied Plaintiff’s motion for a new trial and entered judgment in Werner’s favor on all claims.

As of March 31, 2023, 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.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income attributable to Werner $ 35,224 $ 53,749

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(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;

(iii) the regional short-haul (“Regional”) fleet 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.

The Werner Logistics segment is a non-asset based transportation and logistics provider.

Werner Logistics provides services throughout North America and generates the majority of our non-trucking revenues through three operating units.

These three Werner Logistics operating units are as follows:

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(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.

and (iii) Werner Final Mile (“Final Mile”) 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.

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.

1 unchanged sentence

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.

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Revenues by Segment

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Operating Income (Loss) by Segment

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Depreciation and Amortization by Segment

4 unchanged sentences

Total $ 74,313 $ 67,229

(11) Subsequent Event

On October 1, 2022, we acquired 100 % of the equity interests in FAB9, Inc., doing business as Baylor Trucking, Inc.

(“Baylor”), for a cash purchase price of $ 80.0 million, before including the impacts of working capital adjustments, cash acquired, and a contingent earnout payment of up to $ 15.0 million based on Baylor achieving certain financial performance goals over a three-year period.

We financed the transaction through existing credit facilities.

Baylor, based in Milan, Indiana, operates 200 trucks and 980 trailers in the east central and south central United States.

The acquisition expands our terminal, fleet, and professional driver presence in these geographic truckload markets and adds two terminals to our network.

The acquisition will be accounted for as a business combination using the acquisition method of accounting under GAAP.

The results of operations for Baylor will be included in our consolidated financial statements, within our TTS segment, beginning October 1, 2022.

Due to the recent timing of this transaction, the initial accounting for the acquisition is not complete.

As a result, we are currently unable to provide purchase price allocation disclosures based on acquisition date fair values of assets acquired and liabilities assumed, as well as other related information.

We plan to include these disclosures in our Annual Report on Form 10-K for the year ending December 31, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements