Werner Enterprises Reports Second Quarter 2022 Results

Werner Enterprises, Inc.

Second Quarter 2022 Highlights (all metrics compared to second quarter 2021)

• Total revenues of $836.3 million, up 29%

• Operating income of $74.9 million, down 3%; non-GAAP adjusted operating income of $77.6 million, down 2%

• Operating margin of 9.0%, down 280 bps; non-GAAP adjusted operating margin of 9.3%, down 290 bps

• Diluted EPS of $1.12, up 6%; non-GAAP adjusted diluted EPS of $0.87, up 1%

OMAHA, Neb., Aug. 03, 2022 (GLOBE NEWSWIRE) -- Werner Enterprises, Inc. (Nasdaq: WERN), a premier transportation and logistics provider, today reported results for the second quarter ended June 30, 2022.

“Our second quarter results showed progress, but did not meet our expectations. We achieved our eighth consecutive quarter of record quarterly earnings per share, despite unusually large insurance and claims expense in the quarter, with the majority of the increase related to recent unexpected and unfortunate developments related to two prior year accidents,” said Derek J. Leathers, Chairman, President and Chief Executive Officer. “I would like to specifically call out our Logistics team this quarter for a job well done serving our customers with valued and innovative capacity solutions, while at the same time expanding their revenues and operating income. As the economic landscape begins to change, our durable and resilient model is built to thrive, regardless of the economic or freight market conditions.”

Total revenues for the quarter were $836.3 million, an increase of $186.5 million compared to the prior year quarter, due to Truckload Transportation Services (“TTS”) revenues growth of $122.4 million and Logistics revenues growth of $62.2 million.

Operating income of $74.9 million decreased $1.9 million, or 3%, while operating margin of 9.0% decreased 280 basis points. On a non-GAAP basis, adjusted operating income of $77.6 million decreased $1.5 million, or 2%. Adjusted operating margin of 9.3% decreased 290 basis points from 12.2% for the same quarter last year. Unusually high insurance and claims expense that was $20.3 million higher year-over-year resulted in lower operating income and adjusted operating income and reduced diluted earnings per share (“EPS”) by 24 cents per share. The majority of this year-over-year increase in insurance and claims expense related to recent unexpected and unfortunate legal developments for two prior year accidents that have been settled.

Operating income in the TTS segment decreased $9.1 million, or 12%, due to the higher insurance and claims costs referenced above and other operating cost increases, offset by fleet growth, higher freight rates and increased gains on sale of equipment. On a non-GAAP basis, adjusted operating income in TTS decreased $8.2 million, or 11%. Werner Logistics operating income increased $8.6 million, or 218%, resulting from improved revenue growth and an expanded operating margin. On a non-GAAP basis, adjusted operating income in Logistics increased $9.1 million, or 231%.

Interest expense of $1.8 million increased $1.1 million primarily due to an increase in average debt outstanding and higher interest rates. The effective income tax rate during the quarter was 24.4%, compared to 25.5% in second quarter 2021.

During second quarter 2022, our strategic minority equity investments had market valuation changes causing a net unrealized gain on equity securities, which resulted in higher non-operating income of $24.1 million, or $0.28 per share, compared to a gain of $20.2 million, or $0.22 per share, in second quarter 2021. Consistent with prior reporting, market value increases or decreases for these strategic minority investments are adjusted out for determining non-GAAP adjusted net income and non-GAAP adjusted earnings per share.

Net income attributable to Werner increased slightly to $72.3 million. On a non-GAAP basis, adjusted net income attributable to Werner of $56.1 million decreased 4%. Diluted EPS of $1.12 increased 6%. On a non-GAAP basis, adjusted diluted EPS of $0.87 increased 1%.

Key Consolidated Financial Metrics

	Three Months Ended June 30,											Six Months Ended June 30,
(In thousands, except per share amounts)	2022				2021				Y/Y Change			2022				2021				Y/Y Change
Total revenues	$	836,276			$	649,814			29	%		$	1,600,881			$	1,266,260			26	%
Truckload Transportation Services revenues		613,616				491,200			25	%			1,172,033				954,149			23	%
Werner Logistics revenues		203,861				141,673			44	%			392,869				279,526			41	%
Operating income		74,923				76,863			(3	)%			158,434				139,334			14	%
Operating margin		9.0	%			11.8	%		(280) bps				9.9	%			11.0	%		(110) bps
Net income attributable to Werner		72,290				72,032			—	%			126,039				118,524			6	%
Diluted earnings per share		1.12				1.06			6	%			1.93				1.74			11	%
Adjusted operating income (1)		77,603				79,113			(2	)%			163,794				141,829			15	%
Adjusted operating margin (1)		9.3	%			12.2	%		(290) bps				10.2	%			11.2	%		(100) bps
Adjusted net income attributable to Werner (1)		56,100				58,576			(4	)%			119,084				105,252			13	%
Adjusted diluted earnings per share (1)		0.87				0.86			1	%			1.82				1.54			18	%

(1) See attached Reconciliation of Non-GAAP Financial Measures - Consolidated.

Truckload Transportation Services (TTS) Segment

• Revenues of $613.6 million increased $122.4 million

• Operating income of $64.0 million decreased $9.1 million; non-GAAP adjusted operating income of $66.2 million decreased $8.2 million; both operating income and non-GAAP adjusted operating income were reduced by $19.8 million due to the higher year-over-year insurance and claims costs referenced on page one

• Operating margin of 10.4% decreased 450 basis points from 14.9%; non-GAAP adjusted operating margin of 10.8% decreased 430 basis points from 15.1%

• Non-GAAP adjusted operating margin, net of fuel, of 13.4% decreased 370 basis points from 17.1%

• Average segment trucks in service totaled 8,286, an increase of 622 trucks year over year, or 8.1%

• Dedicated unit trucks at quarter end totaled 5,320 or 63% of the total TTS segment fleet, compared to 5,040 trucks, or 66%, a year ago

• 5.4% increase in TTS average revenues per truck per week

During second quarter 2022, Dedicated continued to experience strong and steady freight demand from its customers. One-Way Truckload customer freight demand during second quarter 2022 moderated from strong in April to seasonally normal by June. During July, Dedicated freight demand remained strong, and One-Way Truckload demand remained seasonally normal.

Comparisons of key financial metrics for the TTS segment, including operating ratios (actual and net of fuel surcharge revenues), are shown in the table below.

Key Truckload Transportation Services Segment Financial Metrics

	Three Months Ended June 30,											Six Months Ended June 30,
(In thousands)		2022			2021				Y/Y Change			2022				2021				Y/Y Change
Trucking revenues, net of fuel surcharge	$	488,208			$	428,523			14	%		$	960,569			$	839,175			14	%
Trucking fuel surcharge revenues		118,641				57,439			107	%			198,456				104,898			89	%
Non-trucking and other revenues		6,767				5,238			29	%			13,008				10,076			29	%
Total revenues	$	613,616			$	491,200			25	%		$	1,172,033			$	954,149			23	%
Operating income		64,004				73,108			(12	)%			140,097				130,736			7	%
Operating margin		10.4	%			14.9	%		(450) bps				12.0	%			13.7	%		(170) bps
Operating ratio		89.6	%			85.1	%		450 bps				88.0	%			86.3	%		170 bps
Adjusted operating income (1)		66,184				74,366			(11	)%			144,457				133,252			8	%
Adjusted operating margin (1)		10.8	%			15.1	%		(430) bps				12.3	%			14.0	%		(170) bps
Adjusted operating margin, net of fuel surcharge (1)		13.4	%			17.1	%		(370) bps				14.8	%			15.7	%		(90) bps
Adjusted operating ratio (1)		89.2	%			84.9	%		430 bps				87.7	%			86.0	%		170 bps
Adjusted operating ratio, net of fuel surcharge (1)		86.6	%			82.9	%		370 bps				85.2	%			84.3	%		90 bps

(1) See attached Reconciliation of Non-GAAP Financial Measures - Truckload Transportation Services (TTS) Segment.

Werner Logistics Segment

• Revenues of $203.9 million increased $62.2 million, or 44%

• Operating income of $12.5 million increased $8.6 million

• Operating margin of 6.1% increased 330 bps from 2.8%

• Adjusted operating income of $13.0 million increased $9.1 million

• Adjusted operating margin of 6.4% increased 360 bps from 2.8%

Truckload Logistics revenues (65% of total Logistics revenues) increased 36%, driven by a 17% increase in revenues per shipment and a 16% increase in shipments.

Intermodal revenues (23% of Logistics revenues) increased 18%, supported by a 35% increase in revenues per shipment, partially offset by a 13% decrease in shipments.

Final Mile revenues (12% of Logistics revenues) increased $21.1 million, due to the November 2021 acquisition of NEHDS and continued growth from our national final mile agent network.

Logistics adjusted operating income improved $9.1 million in second quarter due to the 44% revenue growth and 360 bps of adjusted operating margin expansion.

Key Werner Logistics Segment Financial Metrics

	Three Months Ended June 30,											Six Months Ended June 30,
(In thousands)	2022				2021				Y/Y Change			2022				2021				Y/Y Change
Total revenues	$	203,861			$	141,673			44	%		$	392,869			$	279,526			41	%
Operating expenses:
Purchased transportation expense		166,241				124,388			34	%			323,762				244,915			32	%
Other operating expenses		25,130				13,358			88	%			47,936				26,110			84	%
Total operating expenses		191,371				137,746			39	%			371,698				271,025			37	%
Operating income	$	12,490			$	3,927			218	%		$	21,171			$	8,501			149	%
Operating margin		6.1	%			2.8	%		330 bps				5.4	%			3.0	%		240 bps
Adjusted operating income (1)	$	12,990			$	3,927			231	%		$	22,171			$	7,488			196	%
Adjusted operating margin (1)		6.4	%			2.8	%		360 bps				5.6	%			2.7	%		290 bps

(1) See attached Reconciliation of Non-GAAP Financial Measures - Werner Logistics Segment.

Cash Flow and Capital Allocation

Cash flow from operations in second quarter 2022 was $112.6 million compared to $53.6 million in second quarter 2021, an increase of 110%, due to working capital improvements.

Net capital expenditures in second quarter 2022 were $116.3 million compared to $65.1 million in second quarter 2021, an increase of 79%. We plan to continue to invest in new trucks and trailers and our terminals to improve our driver experience, optimize operational efficiency and more effectively manage our maintenance, safety and fuel costs. The average ages of our truck and trailer fleets were 2.3 years and 4.7 years, respectively, as of June 30, 2022.

Gains on sales of equipment in second quarter 2022 were $20.7 million, or $0.24 per share, compared to $13.5 million, or $0.15 per share, in second quarter 2021. Year over year, we sold fewer trucks and trailers and realized substantially higher average gains per truck and trailer due to the significantly stronger pricing market for our used equipment. Gains on sales of assets are reflected as a reduction of Other Operating Expenses in our income statement.

During the quarter, we repurchased 1,650,000 shares of common stock for a total cost of $65.9 million, or an average price of $39.96 per share. As of June 30, 2022, we had 2.5 million shares remaining under our share repurchase authorization.

As of June 30, 2022, we had $54 million of cash and over $1.3 billion of stockholders’ equity. Total debt outstanding was $445 million at June 30, 2022. After considering letters of credit issued, we had available liquidity consisting of cash and available borrowing capacity as of June 30, 2022 of $340 million.

2022 Guidance Metrics and Assumptions

The following table summarizes our updated 2022 guidance and assumptions:

2022 Guidance	Prior (as of 5/3/22)	Actual (as of 6/30/22)	New (as of 8/3/22)	Commentary
TTS truck growth from BoY to EoY	2% to 5% (annual)	1% (YTD22)	2% to 5% (annual)	Subject to availability of drivers and new equipment; growth focused on Dedicated
Net capital expenditures	$250M to $300M (annual)	$153.4M (YTD22)	$275M to $325M (annual)	Subject to availability of new equipment
TTS Guidance
Dedicated RPTPW* growth	4% to 6% (annual)	9.1% (2Q22 vs. 2Q21)	6% to 8% (annual)	Expect continued strong rate levels partially offset by lower miles per truck
One-Way Truckload RPTM* growth	14% to 17% (2Q22 vs. 2Q21)	13.7% (2Q22 vs. 2Q21)	2% to 5% (3Q22 vs. 3Q21)	Moderating OWT freight market, tougher YOY RPTM comps, lapping ECM acquisition, declining spot rates
Assumptions
Effective income tax rate	24.5% to 25.5% (annual)	24.4% (2Q22)	24.5% to 25.5% (annual)
Truck age Trailer age	2.2 years 4.8 years	2.3 years 4.7 years	2.2 years 4.8 years	Subject to availability of new equipment

* Net of fuel surcharge revenues

Call Information

Werner Enterprises, Inc. will conduct a conference call to discuss second quarter 2022 earnings today beginning at 4:00 p.m. CT. The news release, live webcast of the earnings conference call, and accompanying slide presentation will be available at werner.com in the “Investors” section under “News & Events” and then “Events Calendar.” To participate in the conference call, please dial (844) 701-1165 (domestic) or (412) 317-5498 (international). Please mention to the operator that you are dialing in for the Werner Enterprises call.

A replay of the conference call will be available on August 3, 2022 at approximately 6:00 p.m. CT through September 3, 2022 by dialing (877) 344-7529 (domestic) or (412) 317-0088 (international) and using the access code 4899496. A replay of the webcast will also be available at werner.com in the “Investors” section under “News & Events” and then “Events Calendar.”

About Werner Enterprises

Werner Enterprises, Inc. (Nasdaq: WERN) delivers superior truckload transportation and logistics services to customers across the United States, Mexico and Canada. With 2021 revenues of $2.7 billion, an industry-leading modern truck and trailer fleet, over 14,000 talented associates and our innovative Werner EDGE technology, we are an essential solutions provider for customers who value the integrity of their supply chain and require safe and exceptional on-time service. Werner provides Dedicated and One-Way Truckload services as well as Logistics services that include truckload brokerage, freight management, intermodal and final mile. As an industry leader, Werner is deeply committed to promoting sustainability and supporting diversity, equity and inclusion.

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements are based on information presently available to the Company’s management and are current only as of the date made. Actual results could also differ materially from those anticipated as a result of a number of factors, including, but not limited to, those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and subsequently filed Quarterly Reports on Form 10-Q.

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

Contact:
John J. Steele
Executive Vice President, Treasurer
and Chief Financial Officer
(402) 894-3036

Source: Werner Enterprises, Inc.

Consolidated Financial Information

INCOME STATEMENT
(Unaudited)
(In thousands, except per share amounts)
	Three Months Ended June 30,														Six Months Ended June 30,
	2022							2021							2022							2021
	$				%			$				%			$				%			$				%
Operating revenues	$	836,276			100.0			$	649,814			100.0			$	1,600,881			100.0			$	1,266,260			100.0
Operating expenses:
Salaries, wages and benefits		253,639			30.3				210,095			32.4				495,635			31.0				414,948			32.8
Fuel		125,446			15.0				58,503			9.0				213,867			13.3				109,341			8.6
Supplies and maintenance		62,656			7.5				49,414			7.6				119,681			7.4				95,561			7.5
Taxes and licenses		23,791			2.8				23,744			3.7				47,624			3.0				46,977			3.7
Insurance and claims		41,071			4.9				20,739			3.2				68,563			4.3				42,795			3.4
Depreciation and amortization		68,471			8.2				63,865			9.8				135,700			8.5				127,816			10.1
Rent and purchased transportation		197,116			23.6				150,920			23.2				382,353			23.9				297,413			23.5
Communications and utilities		3,781			0.4				3,333			0.5				7,707			0.5				6,355			0.5
Other		(14,618	)		(1.7	)			(7,662	)		(1.2	)			(28,683	)		(1.8	)			(14,280	)		(1.1	)
Total operating expenses		761,353			91.0				572,951			88.2				1,442,447			90.1				1,126,926			89.0
Operating income		74,923			9.0				76,863			11.8				158,434			9.9				139,334			11.0
Other expense (income):
Interest expense		1,787			0.2				701			0.1				3,226			0.2				1,539			0.1
Interest income		(313	)		—				(334	)		(0.1	)			(588	)		—				(631	)		—
Gain on investments in equity securities, net		(24,095	)		(2.8	)			(20,191	)		(3.1	)			(14,289	)		(0.9	)			(20,191	)		(1.6	)
Other		126			—				54			—				199			—				96			—
Total other expense (income)		(22,495	)		(2.6	)			(19,770	)		(3.1	)			(11,452	)		(0.7	)			(19,187	)		(1.5	)
Income before income taxes		97,418			11.6				96,633			14.9				169,886			10.6				158,521			12.5
Income tax expense		23,809			2.8				24,601			3.8				41,242			2.6				39,997			3.1
Net income		73,609			8.8				72,032			11.1				128,644			8.0				118,524			9.4
Net income attributable to noncontrolling interest		(1,319	)		(0.2	)			—			—				(2,605	)		(0.1	)			—			—
Net income attributable to Werner	$	72,290			8.6			$	72,032			11.1			$	126,039			7.9			$	118,524			9.4
Diluted shares outstanding		64,726							68,216							65,327							68,237
Diluted earnings per share	$	1.12						$	1.06						$	1.93						$	1.74

CONDENSED BALANCE SHEET
(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 (1)		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 (2)		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 (1)		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 (2)		242,094				237,220
Deferred income taxes		269,307				268,499
Total liabilities		1,466,163				1,240,216
Temporary equity - redeemable noncontrolling interest		38,552				35,947
Stockholders’ equity:
Common stock, $.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

(1) Under the terms of our insurance policies, we are the primary obligor for the settlement of a previously disclosed motor vehicle accident lawsuit arising from a May 24, 2020 accident, and as such, we have recorded a $140.0 million receivable from our third-party insurance providers in other receivables and a corresponding liability of the same amount in the current portion of insurance and claims accruals in the unaudited condensed balance sheets as of June 30, 2022.
(2) Under the terms of our insurance policies, we are the primary obligor of the damage award in a previously disclosed adverse jury verdict, and as such, we have recorded a $79.2 million receivable from our 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 unaudited condensed balance sheets as of June 30, 2022 and December 31, 2021.

SUPPLEMENTAL INFORMATION
(Unaudited)
(In thousands)
	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
Capital expenditures, net	$	116,349			$	65,081			$	153,423			$	102,947
Cash flow from operations		112,570				53,597				267,527				189,464
Return on assets (annualized)		10.9	%			12.7	%			9.7	%			10.7	%
Return on equity (annualized)		21.3	%			22.9	%			18.7	%			19.2	%

Segment Financial and Operating Statistics Information

SEGMENT INFORMATION
(Unaudited)
(In thousands)
	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
Revenues
Truckload Transportation Services	$	613,616			$	491,200			$	1,172,033			$	954,149
Werner Logistics		203,861				141,673				392,869				279,526
Other (1)		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 (2)		(625	)			(193	)			(1,347	)			(327	)
Total	$	836,276			$	649,814			$	1,600,881			$	1,266,260
Operating Income
Truckload Transportation Services	$	64,004			$	73,108			$	140,097			$	130,736
Werner Logistics		12,490				3,927				21,171				8,501
Other (1)		461				1,663				906				2,529
Corporate		(2,032	)			(1,835	)			(3,740	)			(2,432	)
Total	$	74,923			$	76,863			$	158,434			$	139,334

(1) Other includes our driver training schools, transportation-related activities such as third-party equipment maintenance and equipment leasing, and other business activities.

(2) Inter-segment eliminations represent transactions between reporting segments that are eliminated in consolidation.

OPERATING STATISTICS BY SEGMENT
(Unaudited)
	Three Months Ended June 30,											Six Months Ended June 30,
	2022				2021				% Chg			2022				2021				% Chg
Truckload Transportation Services segment
Average trucks in service		8,286				7,664			8.1	%			8,262				7,727			6.9	%
Average revenues per truck per week (1)	$	4,532			$	4,301			5.4	%		$	4,472			$	4,177			7.1	%
Total trucks (at quarter end)
Company		8,145				7,305			11.5	%			8,145				7,305			11.5	%
Independent contractor		255				340			(25.0	)%			255				340			(25.0	)%
Total trucks		8,400				7,645			9.9	%			8,400				7,645			9.9	%
Total trailers (at quarter end)		25,905				23,090			12.2	%			25,905				23,090			12.2	%
One-Way Truckload
Trucking revenues, net of fuel surcharge (in 000’s)	$	188,173			$	166,171			13.2	%		$	374,933			$	323,010			16.1	%
Average trucks in service		3,102				2,715			14.3	%			3,083				2,785			10.7	%
Total trucks (at quarter end)		3,080				2,605			18.2	%			3,080				2,605			18.2	%
Average percentage of empty miles		12.39	%			10.72	%		15.6	%			12.07	%			11.04	%		9.3	%
Average revenues per truck per week (1)	$	4,665			$	4,709			(0.9	)%		$	4,677			$	4,461			4.8	%
Average % change YOY in revenues per total mile (1)		13.7	%			16.7	%						17.1	%			13.1	%
Average % change YOY in total miles per truck per week		(12.9	)%			(1.7	)%						(10.5	)%			(4.8	)%
Average completed trip length in miles (loaded)		692				877			(21.1	)%			704				865			(18.6	)%
Dedicated
Trucking revenues, net of fuel surcharge (in 000’s)	$	300,035			$	262,352			14.4	%		$	585,636			$	516,165			13.5	%
Average trucks in service		5,184				4,949			4.7	%			5,179				4,942			4.8	%
Total trucks (at quarter end)		5,320				5,040			5.6	%			5,320				5,040			5.6	%
Average revenues per truck per week (1)	$	4,452			$	4,079			9.1	%		$	4,349			$	4,018			8.2	%
Werner Logistics segment
Average trucks in service		58				34			70.6	%			55				36			52.8	%
Total trucks (at quarter end)		57				41			39.0	%			57				41			39.0	%
Total trailers (at quarter end)		1,920				1,325			44.9	%			1,920				1,325			44.9	%

(1) Net of fuel surcharge revenues

Non-GAAP Financial Measures and Reconciliations

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

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

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES – CONSOLIDATED
(unaudited)
(In thousands, except per share amounts)

		Three Months Ended June 30,												Six Months Ended June 30,
		2022						2021						2022						2021
Non-GAAP Adjusted Operating Income and Non-GAAP Adjusted Operating Margin (1)		$			% of Op. Rev.			$			% of Op. Rev.			$			% of Op. Rev.			$				% of Op. Rev.
Operating income and operating margin –		$	74,923		9.0	%		$	76,863		11.8	%		$	158,434		9.9	%		$	139,334			11.0	%
Non-GAAP adjustments:
Insurance and claims (2)			1,321		0.1	%			1,258		0.2	%			2,642		0.1	%			2,516			0.2	%
Gain on sale of Werner Global Logistics (3)			—		—	%			—		—	%			—		—	%			(1,013	)		(0.1	)%
Amortization of intangible assets (4)			1,359		0.2	%			—		—	%			2,718		0.2	%			—			—	%
Acquisition expenses (5)			—		—	%			992		0.2	%			—		—	%			992			0.1	%
Non-GAAP adjusted operating income and non-GAAP adjusted operating margin		$	77,603		9.3	%		$	79,113		12.2	%		$	163,794		10.2	%		$	141,829			11.2	%

		Three Months Ended June 30,																Six Months Ended June 30,
		2022								2021								2022								2021
Non-GAAP Adjusted Net Income Attributable to Werner and Non-GAAP Adjusted Diluted EPS (1)		$				Diluted EPS				$				Diluted EPS				$				Diluted EPS				$				Diluted EPS
Net income attributable to Werner and diluted EPS		$	72,290			$	1.12			$	72,032			$	1.06			$	126,039			$	1.93			$	118,524			$	1.74
Non-GAAP adjustments:
Insurance and claims (2)			1,321				0.02				1,258				0.02				2,642				0.04				2,516				0.04
Gain on sale of Werner Global Logistics (3)			—				—				—				—				—				—				(1,013	)			(0.01	)
Amortization of intangible assets, net of amount attributable to noncontrolling interest (4)			1,187				0.02				—				—				2,374				0.04				—				—
Acquisition expenses (5)			—				—				992				0.01				—				—				992				0.01
Gain on investments in equity securities, net (6)			(24,095	)			(0.37	)			(20,191	)			(0.30	)			(14,289	)			(0.22	)			(20,191	)			(0.30	)
Income tax effect of above adjustments (7)			5,397				0.08				4,485				0.07				2,318				0.03				4,424				0.06
Non-GAAP adjusted net income attributable to Werner and non-GAAP adjusted diluted EPS		$	56,100			$	0.87			$	58,576			$	0.86			$	119,084			$	1.82			$	105,252			$	1.54

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES – TRUCKLOAD TRANSPORTATION SERVICES (TTS) SEGMENT
(unaudited)
(In thousands)

		Three Months Ended June 30,												Six Months Ended June 30,
		2022						2021						2022						2021
Non-GAAP Adjusted Operating Income and Non-GAAP Adjusted Operating Margin (1)		$			% of Op. Rev.			$			% of Op. Rev.			$			% of Op. Rev.			$			% of Op. Rev.
Operating income and operating margin – (GAAP)		$	64,004		10.4	%		$	73,108		14.9	%		$	140,097		12.0	%		$	130,736		13.7	%
Non-GAAP adjustments:
Insurance and claims (2)			1,321		0.2	%			1,258		0.2	%			2,642		0.2	%			2,516		0.3	%
Amortization of intangible assets (4)			859		0.2	%			—		—	%			1,718		0.1	%			—		—	%
Non-GAAP adjusted operating income and non-GAAP adjusted operating margin		$	66,184		10.8	%		$	74,366		15.1	%		$	144,457		12.3	%		$	133,252		14.0	%

		Three Months Ended June 30,														Six Months Ended June 30,
		2022							2021							2022							2021
Non-GAAP Adjusted Operating Expenses and Non-GAAP Adjusted Operating Ratio (1)		$				% of Op. Rev.			$				% of Op. Rev.			$				% of Op. Rev.			$				% of Op. Rev.
Operating expenses and operating ratio – (GAAP)		$	549,612			89.6	%		$	418,092			85.1	%		$	1,031,936			88.0	%		$	823,413			86.3	%
Non-GAAP adjustments:
Insurance and claims (2)			(1,321	)		(0.2	)%			(1,258	)		(0.2	)%			(2,642	)		(0.2	)%			(2,516	)		(0.3	)%
Amortization of intangible assets (4)			(859	)		(0.2	)%			—			—	%			(1,718	)		(0.1	)%			—			—	%
Non-GAAP adjusted operating expenses and non-GAAP adjusted operating ratio		$	547,432			89.2	%		$	416,834			84.9	%		$	1,027,576			87.7	%		$	820,897			86.0	%

		Three Months Ended June 30,								Six Months Ended June 30,
Non-GAAP Adjusted Operating Expenses, Net of Fuel Surcharge; Non-GAAP Adjusted Operating Margin, Net of Fuel Surcharge; and Non-GAAP Adjusted Operating Ratio, Net of Fuel Surcharge (1)		2022				2021				2022				2021
		$				$				$				$
Operating revenues – (GAAP)		$	613,616			$	491,200			$	1,172,033			$	954,149
Less: Trucking fuel surcharge (8)			(118,641	)			(57,439	)			(198,456	)			(104,898	)
Operating revenues, net of fuel surcharge – (Non-GAAP)			494,975				433,761				973,577				849,251
Operating expenses – (GAAP)			549,612				418,092				1,031,936				823,413
Non-GAAP adjustments:
Trucking fuel surcharge (8)			(118,641	)			(57,439	)			(198,456	)			(104,898	)
Insurance and claims (2)			(1,321	)			(1,258	)			(2,642	)			(2,516	)
Amortization of intangible assets (4)			(859	)			—				(1,718	)			—
Non-GAAP adjusted operating expenses, net of fuel surcharge			428,791				359,395				829,120				715,999
Non-GAAP adjusted operating income		$	66,184			$	74,366			$	144,457			$	133,252
Non-GAAP adjusted operating margin, net of fuel surcharge			13.4	%			17.1	%			14.8	%			15.7	%
Non-GAAP adjusted operating ratio, net of fuel surcharge			86.6	%			82.9	%			85.2	%			84.3	%

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES – WERNER LOGISTICS SEGMENT
(unaudited)
(In thousands)

		Three Months Ended June 30,												Six Months Ended June 30,
		2022						2021						2022						2021
Non-GAAP Adjusted Operating Income and Non-GAAP Adjusted Operating Margin (1)		$			% of Op. Rev.			$			% of Op. Rev.			$			% of Op. Rev.			$				% of Op. Rev.
Operating income and operating margin – (GAAP)		$	12,490		6.1	%		$	3,927		2.8	%		$	21,171		5.4	%		$	8,501			3.0	%
Non-GAAP adjustments:
Gain on sale of Werner Global Logistics (3)			—		—	%			—		—	%			—		—	%			(1,013	)		(0.3	)%
Amortization of intangible assets (4)			500		0.3	%			—		—	%			1,000		0.2	%			—			—	%
Non-GAAP adjusted operating income and non-GAAP adjusted operating margin		$	12,990		6.4	%		$	3,927		2.8	%		$	22,171		5.6	%		$	7,488			2.7	%

(1) Non-GAAP adjusted operating income; non-GAAP adjusted operating margin; non-GAAP adjusted operating margin, net of fuel surcharge; non-GAAP adjusted net income attributable to Werner; non-GAAP adjusted diluted earnings per share; non-GAAP adjusted operating revenues, net of fuel surcharge; non-GAAP adjusted operating expenses; non-GAAP adjusted operating expenses, net of fuel surcharge; non-GAAP adjusted operating ratio; and non-GAAP adjusted operating ratio, net of fuel surcharge should be considered in addition to, rather than as substitutes for, GAAP operating income; GAAP operating margin; GAAP net income attributable to Werner; GAAP diluted earnings per share; GAAP operating revenues; GAAP operating expenses; and GAAP operating ratio, which are their most directly comparable GAAP financial measures.

(2) We accrued pre-tax insurance and claims expense for interest related to a previously disclosed excess adverse jury verdict rendered on May 17, 2018 in a lawsuit arising from a December 2014 accident. The Company is appealing this verdict. Additional information about the accident was included in our Current Report on Form 8-K dated May 17, 2018. Under our insurance policies in effect on the date of this accident, our maximum liability for this accident is $10.0 million (plus pre-judgment and post-judgment interest) with premium-based insurance coverage that exceeds the jury verdict amount. We continue to accrue pre-tax insurance and claims expense for interest at $0.4 million per month until such time as the outcome of our appeal is finalized. Management believes excluding the effect of this item provides a more useful comparison of our performance from period to period. This item is included in the Truckload Transportation Services segment in our Segment Information table.

(3) During first quarter 2021, we sold Werner Global Logistics (“WGL”) freight forwarding services for international ocean and air shipments to Scan Global Logistics Group, which resulted in the pre-tax gain on sale. Management believes excluding the effect of this unusual and infrequent item provides a more useful comparison of our performance from period to period. This item is included in our Werner Logistics segment in our Segment Information table.

(4) Amortization expense related to intangible assets acquired in the ECM Associated, LLC (“ECM”) and NEHDS Logistics, LLC (“NEHDS”) acquisitions on July 1, 2021 and November 22, 2021, respectively, is excluded because management does not believe it is indicative of our core operating performance. Amortization expense for ECM and NEHDS is included in our Truckload Transportation Services and Werner Logistics segments, respectively, in our Segment Information table.

(5) During second quarter 2021, we incurred legal and professional fees related to the acquisition of ECM. Acquisition-related expenses are excluded as management believes these costs are not representative of the costs of managing our on-going business. The expenses are included within other operating expenses in our Income Statement and in Corporate operating income in our Segment Information table.

(6) Represents non-operating mark-to-market adjustments for unrealized gains/losses on our minority equity investments, which we account for under ASC 321, Investments - Equity Securities. We record changes in the value of our investments in equity securities in other expense (income) in our Income Statement. Management believes excluding the effect of gains/losses on our investments in equity securities provides a more useful comparison of our performance from period to period.

(7) The income tax effect of the non-GAAP adjustments is calculated using the incremental income tax rate excluding discrete items, and the income tax effect for 2021 has been updated to reflect the annual incremental income tax rate.

(8) Fluctuating fuel prices and fuel surcharge revenues impact the total company operating ratio and the TTS segment operating ratio when fuel surcharges are reported on a gross basis as revenues versus netting the fuel surcharges against fuel expenses. Management believes netting fuel surcharge revenues, which are generally a more volatile source of revenue, against fuel expenses provides a more consistent basis for comparing the results of operations from period to period.