4Q18 AND FULL YEAR 2018 EARNINGS PRESENTATION February 6, 2019 - - PowerPoint PPT Presentation

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4Q18 AND FULL YEAR 2018 EARNINGS PRESENTATION February 6, 2019 DISCLOSURE STATEMENT This presentation may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the

SLIDE 1

4Q18 AND FULL YEAR 2018 EARNINGS PRESENTATION

February 6, 2019

SLIDE 2

DISCLOSURE STATEMENT

This presentation 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

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, 2017. 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, through the issuance of press releases or by other methods of public disclosure.

SLIDE 3

WERNER OVERVIEW, 4Q18 AND FULL YEAR 2018 HIGHLIGHTS

Derek Leathers President and Chief Executive Officer

SLIDE 4

1) As of 1/31/19 for Market Cap and Dividend Yield, and as of 12/31/18 for Dedicated Fleet Size and One-Way Truckload Fleet Size 2) Associates as of 12/31/18, includes 12,852 employees and 580 independent contractor drivers

WERNER OVERVIEW

Premium Truckload Transportation & Logistics Services Provider

Headquarters Omaha Market Cap1 $2.3B Dedicated Fleet Size1 4,500 One-Way Fleet Size1 3,320 Associates2 13,432 Dividend Yield1 1.1%

77% 21% 2% 2018 Revenues by Segment

Truckload Transportation Services (TTS) Werner Logistics Schools/Other

74% 60% 45% 32% Top 50 Top 25 Top 10 Top 5 2018 Revenues by Customer 12% 18% 18% 52% Logistics/Other Manuf./Ind. Food & Beverage Retail 2018 Revenues by Vertical

Top 50 Customers

SLIDE 5

4Q18 AND FULL YEAR 2018 HIGHLIGHTS

4Q18 Financial Highlights

▪ Revenues increased 14% to $646M ▪ GAAP EPS decreased 61% to $0.77; GAAP EPS for 4Q17 included a $110.5M favorable income

tax adjustment, or $1.52/share, due to Tax Reform

▪ Adj. EPS increased 79% to $0.75 ▪ Adj. operating income increased 63% to $73.6M ▪ Adj. operating margin improved ~350 bps to 11.4%

2018 Financial Highlights

▪ Revenues increased 16% to $2.5B ▪ GAAP EPS decreased 17% to $2.33; same income tax adjustment as above ▪ Adj. EPS increased 86% to $2.38 ▪ Adj. operating income increased 59% to $228.6M ▪ Adj. operating margin improved ~ 250 bps to 9.3%

Strategic Updates and Other Developments

▪ Freight demand for our One-Way Truckload fleet was stronger than normal in 4Q18, but not as

strong as 4Q17

▪ At 12/31/18, 7,820 total tractors in TTS, up 385 YoY and 70 sequentially; all YoY and sequential

fleet growth occurred in Dedicated

SLIDE 6

TOTAL COMPANY AND SEGMENT FINANCIAL RESULTS

John Steele Executive Vice President, Treasurer and Chief Financial Officer

SLIDE 7

4Q18 FINANCIAL PERFORMANCE

Total Revenues

$567 $646 4Q17 4Q18

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 $160 $170 $180 $190 $200 $210 $220 $230 $240 $250 $260 $270 $280 $290 $300 $310 $320 $330 $340 $350 $360 $370 $380 $390 $400 $410 $420 $430 $440 $450 $460 $470 $480 $490 $500 $510 $520 $530 $540 $550 $560 $570 $580 $590 $600 $610 $620 $630 $640 $650 $660 $670 $680 $690 $700 $710 $720 $730 $740 $750 $760 $770 $780 $790 $800

▪ 14% total revenues growth ▪ +6.9% TTS revenues per truck per

week*

▪ +4.7% TTS average trucks ▪ 22% logistics revenues growth

Adjusted Operating Income and Operating Margin

▪ 63% Adj. operating income growth ▪ Adj. TTS operating margin

improved 360 bps

▪ Logistics operating margin grew

350 bps

▪ Continued to invest in our

professional drivers; driver pay increase of over 9% per company mile Adjusted EPS

$0.42 $0.75 4Q17 4Q18

$0.00

▪ 79% Adj. EPS growth ▪ Adj. TTS contributed Adj. EPS

growth of $0.24

▪ Logistics contributed Adj. EPS

growth of $0.05

$45.1 $73.6 7.9% 11.4%

$0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 $70.0

4Q17 4Q18

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%

($M)

* Net of fuel surcharge revenues

SLIDE 8

FULL YEAR 2018 FINANCIAL PERFORMANCE

($M)

$2,117 $2,458 FY 2017 FY 2018

$500 $510 $520 $530 $540 $550 $560 $570 $580 $590 $600 $610 $620 $630 $640 $650 $660 $670 $680 $690 $700 $710 $720 $730 $740 $750 $760 $770 $780 $790 $800 $810 $820 $830 $840 $850 $860 $870 $880 $890 $900 $910 $920 $930 $940 $950 $960 $970 $980 $990 $1,000 $1,010 $1,020 $1,030 $1,040 $1,050 $1,060 $1,070 $1,080 $1,090 $1,100 $1,110 $1,120 $1,130 $1,140 $1,150 $1,160 $1,170 $1,180 $1,190 $1,200 $1,210 $1,220 $1,230 $1,240 $1,250 $1,260 $1,270 $1,280 $1,290 $1,300 $1,310 $1,320 $1,330 $1,340 $1,350 $1,360 $1,370 $1,380 $1,390 $1,400 $1,410 $1,420 $1,430 $1,440 $1,450 $1,460 $1,470 $1,480 $1,490 $1,500 $1,510 $1,520 $1,530 $1,540 $1,550 $1,560 $1,570 $1,580 $1,590 $1,600 $1,610 $1,620 $1,630 $1,640 $1,650 $1,660 $1,670 $1,680 $1,690 $1,700 $1,710 $1,720 $1,730 $1,740 $1,750 $1,760 $1,770 $1,780 $1,790 $1,800 $1,810 $1,820 $1,830 $1,840 $1,850 $1,860 $1,870 $1,880 $1,890 $1,900 $1,910 $1,920 $1,930 $1,940 $1,950 $1,960 $1,970 $1,980 $1,990 $2,000 $2,010 $2,020 $2,030 $2,040 $2,050 $2,060 $2,070 $2,080 $2,090 $2,100 $2,110 $2,120 $2,130 $2,140 $2,150 $2,160 $2,170 $2,180 $2,190 $2,200 $2,210 $2,220 $2,230 $2,240 $2,250 $2,260 $2,270 $2,280 $2,290 $2,300 $2,310 $2,320 $2,330 $2,340 $2,350 $2,360 $2,370 $2,380 $2,390 $2,400 $2,410 $2,420 $2,430 $2,440 $2,450 $2,460 $2,470 $2,480 $2,490 $2,500 $2,510 $2,520 $2,530 $2,540 $2,550 $2,560 $2,570 $2,580 $2,590 $2,600 $2,610 $2,620 $2,630 $2,640 $2,650 $2,660 $2,670 $2,680 $2,690 $2,700 $2,710 $2,720 $2,730 $2,740 $2,750 $2,760 $2,770 $2,780 $2,790 $2,800 $2,810 $2,820 $2,830 $2,840 $2,850 $2,860 $2,870 $2,880 $2,890 $2,900 $2,910 $2,920 $2,930 $2,940 $2,950 $2,960 $2,970 $2,980 $2,990 $3,000

$1.27 $2.38

FY 2017 FY 2018

$0.00

$143.8 $228.6

6.8% 9.3%

$0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 $70.0 $80.0 $90.0 $100.0 $110.0 $120.0 $130.0 $140.0 $150.0 $160.0 $170.0 $180.0 $190.0 $200.0 $210.0 $220.0 $230.0 $240.0 $250.0

FY 2017 FY 2018

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%

* Net of fuel surcharge revenues

▪ 16% total revenues growth ▪ +8.4% TTS revenues per truck per

week*

▪ +4.3% TTS average trucks ▪ 24% logistics revenues growth ▪ 59% Adj. operating income growth ▪ Adj. TTS operating margin

improved 290 bps

▪ Logistics operating margin grew

180 bps

▪ Continued to invest in our

professional drivers, driver pay increase of over 10% per company mile

▪ 86% Adj. EPS growth ▪ Adj. TTS contributed Adj. EPS

growth of $0.78

▪ Logistics contributed Adj. EPS

growth of $0.12 Total Revenues Adjusted Operating Income and Operating Margin Adjusted EPS

SLIDE 9

4Q18 4Q17 Change YoY

Revenues ($M)

$494.7 $439.2 13%

Adj. Op. Income ($M)

$68.0 $44.5 53%

Adj. Op. Margin

13.7% 10.1% 360 bps

Adj. OR, net FSC

84.1% 88.3% (420) bps 2018 2017 Change YoY

Revenues ($M)

$1,881.3 $1,635.2 15%

Adj. Op. Income ($M)

$212.9 $138.1 54%

Adj. Op. Margin

11.3% 8.4% 290 bps

Adj. OR, net FSC

86.8% 90.3% (350) bps

▪

TTS RPTPW* +6.9%; led by One-Way TL RPTPW* +9.8%, including 10.5% higher One-Way TL RPTM*

▪

TTS RPTPW* increases and operating margin expansion led to $23.4M Adj. operating income growth

▪

7 consecutive quarters of TTS operating margin improvement

▪

TTS RPTPW* +8.4%; led by One-Way TL RPTPW* +13.2%, including 13.2% higher One-Way TL RPTM*

▪

TTS RPTPW* increases and operating margin expansion led to $74.8M Adj. operating income growth

▪

Fluctuating fuel prices and fuel surcharge (FSC) revenues impact the TTS operating ratio (OR) when FSC revenues are reported on a gross basis as revenues vs netting FSC revenues against fuel expense (affects 4Q and full year)

TRUCKLOAD TRANSPORTATION SERVICES (TTS) RESULTS

* Net of fuel surcharge revenues

SLIDE 10

* TTS consists of the Dedicated and One-Way Truckload fleets

TTS* FLEET METRICS UPDATE

** Net of fuel surcharge revenues

Dedicated Truckload One-Way Truckload

$695 $817 $183 $215 2017 2018 4Q17 4Q18

$- $100 $200 $300 $400 $500 $600 $700 $800 $900

Trucking Revenues** ($M)

$3,496 $3,673 $3,502 $3,703 2017 2018 4Q17 4Q18

Revenues / Tractor / Week**

3,822 4,277 4,009 4,472 2017 2018 4Q17 4Q18

Average Tractors

$709 $771 $192 $204 2017 2018 4Q17 4Q18

$0 $100 $200 $300 $400 $500 $600 $700 $800 $900

Trucking Revenues** ($M)

$3,914 $4,432 $4,316 $4,739 2017 2018 4Q17 4Q18

Revenues / Tractor / Week**

3,483 3,345 3,427 3,315 2017 2018 4Q17 4Q18

Average Tractors

SLIDE 11

WERNER LOGISTICS RESULTS

4Q18 4Q17 Change YoY

Revenues ($M)

$137.2 $112.4 22%

Gross Margin

16.8% 14.4% 240 bps

Op. Income ($M)

$7.2 $2.0 257%

Op. Margin

5.3% 1.8% 350 bps 2018 2017 Change YoY

Revenues ($M)

$518.1 $417.6 24%

Gross Margin

15.8% 14.9% 90 bps

Op. Income ($M)

$20.4 $8.7 135%

Op. Margin

3.9% 2.1% 180 bps

▪

Brokerage led the way with 23% revenues growth

▪

All 5 Logistics units increased revenues (Brokerage, Freight Management, Intermodal, International and Final Mile)

▪

Strong peak season and improved execution resulted in significant margin expansion and operating income growth

Brokerage contributed 37% revenues growth
All 5 Logistics units increased revenues
Improved gross margin and improved execution combined with

revenue growth contributed to an $11.7M increase in operating income

SLIDE 12

BUSINESS UPDATE AND FINANCIAL OUTLOOK

Derek Leathers President and Chief Executive Officer

SLIDE 13

WE ARE TRANSFORMING WERNER INTO A STRONGER PERFORMING AND BETTER POSITIONED COMPANY

2015 2016 2018 2017

May Derek Leathers named President and CEO Continued large CapEx and fleet age reduction during challenging freight market Apr Announced new metrics- based management performance pay program Reinvested in owned driver training school network Expanded Dedicated fleet Increased CapEx to:

Lower fleet age, enhance

truck features

Strengthen terminal

network

Enhance IT

Jun Launched 5 T’s Strategy Aug C.L. Werner, founder, reassumed CEO role Derek Leathers, President and COO, takes on increased responsibility Implemented balanced revenue portfolio initiative

Dec 31, 2014 Dec 31, 2018

Truck Age (Yrs.) 2.2 1.8 Trailer Age (Yrs.) 7.4 4.1

SLIDE 14

FIVE T’S STRATEGY EXECUTION

Tractors

▪ Reduced tractor age to 1.8 years; maintain at or near this level going forward

Trailers

▪ Reduced trailer age to 4.1 years, lowest level since the year 2000

Talent

▪ Despite an extremely competitive driver market, reduced driver turnover to one of the lowest levels in the last 20 years

Terminals

▪ Upgraded and expanded our terminal network to improve driver training, safety, equipment maintenance and throughput

Technology

▪ Upgrading and modernizing our IT infrastructure, network and data security; enhancing our logistics applications software to improve real-time execution and decision making.

01 02 03 04 05

Best in Class Customer Service

SLIDE 15

OUR DRIVER STRATEGY IS WORKING IN A VERY COMPETITIVE LABOR MARKET

Werner Programs Are Attracting and Retaining Professional Drivers

New, modern and

perationally efficient

tractors and trailers Advanced truck fleet with nearly 100% auto- manual transmissions and active-braking collision mitigation technology Top tier driver pay packages for multiple and varied driving

ptions

Nearly 60% of driving jobs in Dedicated with better home time frequency Largest owned driver training school network (14 locations) Industry-leading driver recruiting and retention program for former military personnel Female driver percentage double the industry average Over 20 years and 18 billion miles of ELD experience

For 4Q18, 2nd lowest driver turnover % in the last 20 years; For Full Year 2018, 3rd lowest driver turnover % in the last 20 years

SLIDE 16

CAPEX MODERATING IN 2019; STRONG FCF GENERATION FORTHCOMING

▪ 2019 Net CapEx expected to

normalize in the range of $275M to $300M; over the long term, targeting Net CapEx at 11-13% of gross revenues

▪ Investment in 2019 focused on

continued IT modernization, commercial and operational excellence initiatives and advancing truck technologies

▪ Free Cash Flow expected to be in

excess of $100M in 2019

$207 $370 $310 $283 $418

$212 $351 $430 $199 $349

($5) $19 ($120) $84 $69

2014 2015 2016 2017 2018 2019 ($M) CF Net CapEx FCF 2019 Net CapEx: $275 - $300

SLIDE 17

CAPITAL ALLOCATION STRATEGY

Continue to Invest in Growth and Productivity Return Cash to Shareholders Flexible Balance Sheet

▪ Our first priority remains continued investment in the business across cycles;

perational and commercial excellence initiatives in place

▪ 2018 was a higher than average Net CapEx spend year to invest in the 5 T’s ▪ Fleet and terminal network improved; continuing upgrades to IT infrastructure, truck

technology

▪ Expect Net CapEx to moderate and normalize going forward ▪ Long history of returning cash via dividends and share repurchases ▪ Quarterly cash dividend rate per common share of $0.09 per quarter ($0.36 per year) ▪ In 2018, repurchased ~2.1M shares, including 800K shares during 4Q18 for total cost

f $72.2M and $25.8M, respectively; 2.6M shares remaining under current

authorization

▪ Regularly evaluate opportunities to return excess cash ▪ Financial position remains strong ▪ As of December 31, 2018, $125M of debt outstanding and over $1.26B of

stockholders’ equity; Debt to EBITDA of 0.3x

▪ Provides flexibility to continue to invest in the business across cycles and

pportunistically return capital to further drive shareholder value

SLIDE 18

FULL YEAR 2019 OUTLOOK

Assumptions

▪ Truck growth of 3% to 5% in our TTS truck fleet

in Dedicated in 1H19; minimal to no truck growth planned for 2H19

▪ One-Way Truckload RPTM for full year 2019 vs

2018 expected to increase in a range of 4% to 8%; YoY increase expected to gradually moderate from 1Q19 to 4Q19

▪ Gains on sales of equipment in 2019 are

expected to be similar to the $19M in 2018 and more consistent quarter to quarter

▪ Expect effective income tax rate to be in the

range of 25% to 26%

▪ Net capital expenditures in the range of $275M

to $300M

▪ Maintain newer fleet age at or near current

levels of 1.8 years for trucks and 4.1 years for trailers Business Drivers

▪ 2019 a more normalized fleet replacement year;

Net CapEx declining $50M to $75M from 2018

▪ Driver supply expected to be very tight with

50-year low domestic unemployment rate

▪ Used equipment market for our lower mileage

trucks and trailers is expected to remain at current levels

One-Way Truckload Freight Demand

▪ QTD 2019 has been tracking slightly better than

normal for this time of year, but lower than the unusually strong freight demand during the same period in 2018

SLIDE 19

WERNER WELL-POSITIONED FOR POTENTIAL ECONOMIC OUTCOMES

Bearish case (domestic GDP growth < 2.5%, driver supply increases, freight demand moderates) ▪ Werner continues to provide outstanding customer service with new fleet, more experienced drivers, enhanced IT, strong operational execution ▪ One-Way Truckload RPTM and driver pay increases moderate to the low-to-mid single digit percentage range (2019 vs 2018) ▪ Werner already prepared with nearly 60% of trucks/drivers in more stable and predictable Dedicated;

ver 20% Logistics revenues; less exposure to One-Way Truckload market. Fleet already new, fleet

does not need to be aggressively refreshed as we did during the last softer industry period in 2016. Bullish case (domestic GDP growth > 2.5%, driver supply tight, freight demand solid) ▪ Werner continues to provide outstanding customer service with new fleet, more experienced drivers, enhanced IT, strong operational execution ▪ One-Way Truckload rate (RPTM) and driver pay increases rise mid-to-high single digit percentages (2019 vs 2018) Bullish case (domestic GDP growth > 2.5%, driver supply tight, freight demand solid) ▪ Werner continues to provide outstanding customer service with new fleet, more experienced drivers, enhanced IT, strong operational execution ▪ One-Way Truckload RPTM and driver pay increases rise in the mid-to-high single digit percentage range (2019 vs 2018)

SLIDE 20

Q&A

SLIDE 21

SUMMARY – INVEST WITH US

Focused effort

ver the past

several years to balance the portfolio toward more consistent revenue streams positions us well across various freight markets Heavy capex period to transform our company is behind us; we will continue to invest strategically and will begin to generate higher free cash flow Our new, technologically- advanced fleet, updated terminal network and industry-leading experienced drivers will continue to serve as a differentiator Long-term margin and return expectations going forward are higher than the past

We are a stronger, better positioned company than we were three years ago; we will continue to deliver shareholder value

SLIDE 22

APPENDIX

SLIDE 23

GAAP to NON-GAAP RECONCILIATION

(Unaudited) (In thousands, except per share amounts)

Three Months Ended Year Ended December 31, December 31, 2018 2017 2018 2017 Operating revenues $ 646,365 $ 567,365 $ 2,457,914 $ 2,116,737 Operating expenses 571,434 522,304 2,233,699 1,972,917 Adjusted for: Insurance and claims (1) (1,150) — (15,189) — Property tax settlement (2) — — 4,900 — Gains on sale of real estate (3) 2,432 — 5,927 — Adjusted operating expenses 572,716 522,304 2,229,337 1,972,917 Adjusted operating income (4) 73,649 45,061 228,577 143,820 Total other expense (income) 399 (366) 334 (737) Adjusted income before income taxes 73,250 45,427 228,243 144,557 Adjusted income tax expense (benefit) 19,647 (95,707) 56,830 (58,332) Deferred income tax adjustment for tax reform (5) — 110,508 — 110,508 Adjusted net income (4) 53,603 30,626 171,413 92,381 Diluted shares outstanding 71,136 72,660 72,057 72,558 Adjusted diluted earnings per share (4) $ 0.75 $ 0.42 $ 2.38 $ 1.27

SLIDE 24

GAAP to NON-GAAP RECONCILIATION

(Unaudited) (In thousands, except per share amounts)

(1) During 2Q18, we accrued $11,250 of pre-tax insurance and claims expense (including interest of $1,300) related to a previously disclosed excess adverse jury verdict rendered on May 17, 2018 in a lawsuit arising from a December 2014 accident. 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 $10,000 (plus pre-judgment and post-judgment interest) with premium-based insurance coverage that exceeds the jury verdict amount. The Company is appealing this verdict. During 3Q18 and 4Q18, respectively, we accrued $2,789 of interest and legal fees and $1,150 of interest related to this jury verdict. 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. (2) During 3Q18, we reached a favorable settlement related to a property tax dispute that reduced taxes and licenses expense by $4,900, for property taxes that were previously expensed and paid over a multi-year period. This item is included in the Truckload Transportation Services segment in our Segment information table. (3) During 2Q18, we sold a parcel of real estate which resulted in a $3,495 pre-tax gain. During 4Q18, we sold a parcel of real estate which resulted in a $2,432 pre-tax gain. These items are included in Corporate in our Segment information table. (4) Our definition of the non-GAAP measures adjusted operating income, adjusted net income and adjusted diluted earnings per share begins with (a) operating expenses, the most comparable GAAP measure. We add the insurance and claims jury verdict expense accrual and related interest and legal fees to (a) and subtract the gains on sale of real estate and the property tax settlement from (a) to arrive at (b) adjusted operating expenses. We subtract (c) total other expense (income) from (b) adjusted operating expenses to arrive at (d) adjusted income before income taxes. We calculate adjusted income tax expense (benefit) by applying the incremental income tax rate excluding discrete items to the net pre-tax adjustments and adding this additional income tax to actual income tax expense. We then subtract adjusted income tax expense and the fourth quarter 2017 deferred income tax adjustment from adjusted income before income taxes to arrive at adjusted net income. The adjusted net income is divided by the diluted shares outstanding to calculate the adjusted diluted earnings per share. (5) During 4Q17 and full year 2017, our results included a $110,508 non-cash reduction in income tax expense, which resulted from the revaluation of net deferred income tax liabilities to reflect the lower federal income tax rate enacted on December 22, 2017. The Tax Cuts and Jobs Act of 2017 (the Tax Act) lowered the federal corporate income tax rate to 21% from 35% beginning in 2018.

SLIDE 25