WERNER ENTERPRISES INC [WERN] Filings

10-Q 1 wern-20220930.htm 10-Q wern-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


[Mark			one]
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-14690

WERNER ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

Nebraska

47-0648386

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

14507 Frontier Road

Post Office Box 45308

Omaha

Nebraska

68145-0308

(Address of principal executive offices)

(Zip Code)

(402) 895-6640

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 Par Value

WERN

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 2, 2022, 63,202,053 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

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WERNER ENTERPRISES, INC.

INDEX


		PAGE
PART I – FINANCIAL INFORMATION
	Cautionary Note Regarding Forward-Looking Statements	3
Item 1.	Financial Statements:	4
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended Septem ber 30, 2022 and 2021	5
	Consolidated Condensed Balance Sheets as of September 30, 2022 and December 31, 2021	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	7
	Consolidated Statements of Stockholders’ Equity and Temporary Equity - Redeemable Noncontrolling Interest for the Three and Nine Months Ended September 30, 2022 and 2021	8
	Notes to Consolidated Financial Statements (Unaudited) as of September 30, 2022	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 6.	Exhibits	32

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PART I

FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements:

This Quarterly Report on Form 10-Q contains historical information and forward-looking statements based on information currently available to our management. The forward-looking statements in this report, including those made in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part I, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These safe harbor provisions encourage reporting companies to provide prospective information to investors. Forward-looking statements can be identified by the use of certain words, such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project” and other similar terms and language. We believe the forward-looking statements are reasonable based on currently available information. However, forward-looking statements involve risks, uncertainties and assumptions, whether known or unknown, that could cause our actual results, business, financial condition and cash flows to differ materially from those anticipated in the forward-looking statements. A discussion of important factors relating to forward-looking statements is included in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). Readers should not unduly rely on the forward-looking statements included in this Form 10-Q because such statements speak only to the date they were made. Unless otherwise required by applicable securities laws, we undertake no obligation or duty to update or revise any forward-looking statements contained herein to reflect subsequent events or circumstances or the occurrence of unanticipated events.

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Item 1. Financial Statements.

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share amounts)	2022		2021		2022		2021
Operating revenues	$	827,606	$	702,891	$	2,428,487	$	1,969,151
Operating expenses:
Salaries, wages and benefits	264,443		234,250		760,078		649,198
Fuel	111,985		64,692		325,852		174,033
Supplies and maintenance	68,009		57,067		187,690		152,628
Taxes and licenses	25,016		24,419		72,640		71,396
Insurance and claims	34,501		27,702		103,064		70,497
Depreciation and amortization	70,397		68,615		206,097		196,431
Rent and purchased transportation	187,449		161,061		569,802		458,474
Communications and utilities	3,720		3,598		11,427		9,953
Other	(14,175)		(9,837)		(42,858)		(24,117)
Total operating expenses	751,345		631,567		2,193,792		1,758,493
Operating income	76,261		71,324		234,695		210,658
Other expense (income):
Interest expense	2,778		1,284		6,004		2,823
Interest income	(392)		(287)		(980)		(918)
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)
Income before income taxes	73,912		86,367		243,798		244,888
Income tax expense	17,987		21,278		59,229		61,275
Net income	55,925		65,089		184,569		183,613
Net income attributable to noncontrolling interest	(874)		(1,328)		(3,479)		(1,328)
Net income attributable to Werner	$	55,051	$	63,761	$	181,090	$	182,285
Earnings per share:
Basic	$	0.87	$	0.94	$	2.81	$	2.69
Diluted	$	0.86	$	0.94	$	2.79	$	2.68
Weighted-average common shares outstanding:
Basic	63,386		67,475		64,433		67,776
Diluted	63,782		67,834		64,819		68,136

See Notes to Consolidated Financial Statements (Unaudited).

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WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Net income	$	55,925	$	65,089	$	184,569	$	183,613
Other comprehensive income (loss):
Foreign currency translation adjustments	(708)		(1,119)		398		(822)
Change in fair value of interest rate swaps, net of tax	1,857		400		6,771		2,063
Other comprehensive income (loss)	1,149		(719)		7,169		1,241
Comprehensive income	57,074		64,370		191,738		184,854
Comprehensive income attributable to noncontrolling interest	(874)		(1,328)		(3,479)		(1,328)
Comprehensive income attributable to Werner	$	56,200	$	63,042	$	188,259	$	183,526

See Notes to Consolidated Financial Statements (Unaudited).

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WERNER ENTERPRISES, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS


(In thousands, except share amounts)	September 30, 2022		December 31, 2021
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	125,683	$	54,196
Accounts receivable, trade, less allowance of $10,142 and $9,169, respectively	493,139		460,518
Other receivables	24,480		24,449
Inventories and supplies	12,849		11,140
Prepaid taxes, licenses and permits	8,510		17,549
Other current assets	65,845		63,361
Total current assets	730,506		631,213
Property and equipment	2,780,691		2,557,825
Less – accumulated depreciation	1,061,578		944,582
Property and equipment, net	1,719,113		1,613,243
Goodwill	74,404		74,618
Intangible assets, net	51,238		55,315
Other non-current assets	283,868		229,324
Total assets	$	2,859,129	$	2,603,713
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY
Current liabilities:

Accounts payable	$	115,860	$	93,987
Current portion of long-term debt	5,000		5,000
Insurance and claims accruals	77,663		72,594
Accrued payroll	47,619		44,333

Accrued expenses	31,553		28,758
Other current liabilities	24,939		24,011
Total current liabilities	302,634		268,683
Long-term debt, net of current portion	568,750		422,500
Other long-term liabilities	42,765		43,314
Insurance and claims accruals, net of current portion	238,689		237,220

Deferred income taxes	281,057		268,499
Total liabilities	1,433,895		1,240,216
Commitments and contingencies
Temporary equity - redeemable noncontrolling interest	38,676		35,947
Stockholders’ equity:
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares
issued; 63,202,053 and 65,790,112 shares outstanding, respectively	805		805
Paid-in capital	127,046		121,904
Retained earnings	1,823,927		1,667,104
Accumulated other comprehensive loss	(13,435)		(20,604)
Treasury stock, at cost; 17,331,483 and 14,743,424 shares, respectively	(551,785)		(441,659)
Total stockholders’ equity	1,386,558		1,327,550
Total liabilities, temporary equity and stockholders’ equity	$	2,859,129	$	2,603,713

See Notes to Consolidated Financial Statements (Unaudited).

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WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
(In thousands)	2022		2021
Cash flows from operating activities:
Net income	$	184,569	$	183,613
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	206,097		196,431
Deferred income taxes	10,262		14,756
Gain on disposal of property and equipment	(62,659)		(39,292)
Non-cash equity compensation	9,120		7,999
Insurance and claims accruals, net of current portion	1,469		2,362
Other	(5,056)		(1,422)
Gain on investments in equity securities, net	(14,403)		(36,281)
Changes in certain working capital items:
Accounts receivable, net	(32,258)		(69,072)
Other current assets	3,922		(10,319)
Accounts payable	21,061		17,236
Other current liabilities	10,592		(12,667)
Net cash provided by operating activities	332,716		253,344
Cash flows from investing activities:
Additions to property and equipment	(379,902)		(295,485)
Proceeds from sales of property and equipment	125,830		132,755
Net cash invested in acquisition	705		(141,291)
Investment in equity securities	(20,250)		(10,000)
Decrease in notes receivable	4,870		5,114
Net cash used in investing activities	(268,747)		(308,907)
Cash flows from financing activities:
Repayments of short-term debt	(3,750)		(25,000)
Proceeds from issuance of short-term debt	—		5,000
Repayments of long-term debt	(100,000)		—
Proceeds from issuance of long-term debt	250,000		170,000

Dividends on common stock	(23,946)		(21,057)
Repurchases of common stock	(110,400)		(53,266)
Tax withholding related to net share settlements of restricted stock awards	(3,704)		(3,773)
Other cash flows from financing activities	(750)		(35)


Net cash provided by financing activities	7,450		71,869
Effect of exchange rate fluctuations on cash	68		(212)
Net increase in cash and cash equivalents	71,487		16,094
Cash and cash equivalents, beginning of period	54,196		29,334
Cash and cash equivalents, end of period	$	125,683	$	45,428
Supplemental disclosures of cash flow information:
Interest paid	$	5,664	$	2,517
Income taxes paid	38,797		56,350
Supplemental schedule of non-cash investing and financing activities:
Notes receivable issued upon sale of property and equipment	$	3,771	$	4,252
Change in fair value of interest rate swaps	6,772		2,063
Property and equipment acquired included in accounts payable	7,143		3,666
Property and equipment disposed included in other receivables	190		—
Dividends accrued but not yet paid at end of period	8,216		8,026
Redeemable noncontrolling interest associated with acquisition	—		35,322

See Notes to Consolidated Financial Statements (Unaudited).

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WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND

TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST

(Unaudited)


	Three Months Ended September 30, 2022
(In thousands, except share and per share amounts)	Common Stock		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders’ Equity		Temporary Equity - Redeemable Noncontrolling Interest
BALANCE, 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 Other Comprehensive Loss		Treasury Stock		Total 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).

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WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND

TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST (CONTINUED)

(Unaudited)


	Nine Months Ended September 30, 2022
(In thousands, except share and per share amounts)	Common Stock		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders’ Equity		Temporary Equity - Redeemable Noncontrolling Interest
BALANCE, December 31, 2021	$	805	$	121,904	$	1,667,104	$	(20,604)	$	(441,659)	$	1,327,550	$	35,947
Net income attributable to Werner	—		—		181,090		—		—		181,090		—
Net income attributable to noncontrolling interest	—		—		—		—		—		—		3,479
Other comprehensive income	—		—		—		7,169		—		7,169		—
Purchases of 2,710,304 shares of common stock	—		—		—		—		(110,400)		(110,400)		—
Dividends on common stock ($0.38 per share)	—		—		(24,267)		—		—		(24,267)		—
Equity compensation activity, 122,245 shares	—		(3,978)		—		—		274		(3,704)		—
Non-cash equity compensation expense	—		9,120		—		—		—		9,120		—
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
(In thousands, except share and per share amounts)	Common Stock		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders’ Equity		Temporary Equity - Redeemable Noncontrolling Interest
BALANCE, December 31, 2020	$	805	$	116,039	$	1,438,916	$	(22,833)	$	(337,887)	$	1,195,040	$	—
Net income attributable to Werner	—		—		182,285		—		—		182,285		—
Net income attributable to noncontrolling interest	—		—		—		—		—		—		1,328
Other comprehensive income	—		—		—		1,241		—		1,241		—
Purchases of 1,179,566 shares of common stock	—		—		—		—		(53,266)		(53,266)		—
Dividends on common stock ($0.34 per share)	—		—		(22,969)		—		—		(22,969)		—
Equity compensation activity, 132,091 shares	—		(4,262)		—		—		489		(3,773)		—
Non-cash equity compensation expense	—		7,999		—		—		—		7,999		—
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).

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WERNER ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of Werner Enterprises, Inc. and its controlled subsidiaries (collectively, the “Company” or “Werner”). Noncontrolling interest on the consolidated condensed balance sheets represents the portion of a consolidated entity in which we do not have a direct equity ownership. In these notes, the terms “we,” “us,” or “our” refer to Werner Enterprises, Inc. and its subsidiaries. All significant intercompany accounts and transactions relating to these entities have been eliminated.

These consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (SEC) instructions to Form 10-Q and, in the opinion of management, reflect all adjustments, which are all of normal recurring nature, necessary to present fairly the financial condition, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles (“GAAP”). These consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements; although in management’s opinion, the disclosures are adequate so that the information presented is not misleading.

Operating results for the three 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. In the opinion of management, the information set forth in the accompanying consolidated condensed balance sheets is fairly stated in all material respects in relation to the consolidated balance sheets from which it has been derived.

These consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes contained in our 2021 Form 10-K.

New Accounting Pronouncements Adopted

In 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. markets. NEHDS delivers primarily big and bulky products (primarily furniture and appliances) using 2-person delivery teams performing residential and commercial deliveries. The results of operations for NEHDS are included in our consolidated financial statements beginning November 22, 2021.

Amortization expense on intangible assets was $1.4 million and $4.1 million for the three and nine months ended September 30, 2022.

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(3) Revenue

Revenue Recognition

Revenues are recognized over time as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

The following table presents our revenues disaggregated by revenue source (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Truckload Transportation Services	$	621,866	$	527,697	$	1,793,899	$	1,481,846
Werner Logistics	187,138		157,968		580,007		437,494
Inter-segment eliminations	(402)		(212)		(1,749)		(539)
Transportation services	808,602		685,453		2,372,157		1,918,801
Other revenues	19,004		17,438		56,330		50,350
Total revenues	$	827,606	$	702,891	$	2,428,487	$	1,969,151

The following table presents our revenues disaggregated by geographic areas in which we conduct business (in thousands). Operating revenues for foreign countries include revenues for (i) shipments with an origin or destination in that country and (ii) other services provided in that country. If both the origin and destination are in a foreign country, the revenues are attributed to the country of origin.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
United States	$	765,559	$	657,795	$	2,247,307	$	1,815,180
Mexico	50,681		38,187		145,433		116,268
Other	11,366		6,909		35,747		37,703
Total revenues	$	827,606	$	702,891	$	2,428,487	$	1,969,151

Contract Balances and Accounts Receivable

A receivable is an unconditional right to consideration and is recognized when shipments have been completed and the related performance obligation has been fully satisfied. At September 30, 2022 and December 31, 2021, the accounts receivable, trade, net, balance was $493.1 million and $460.5 million, respectively. Contract assets represent a conditional right to consideration in exchange for goods or services and are transferred to receivables when the rights become unconditional. At September 30, 2022 and December 31, 2021, the balance of contract assets was $9.3 million and $9.0 million, respectively. We have recognized contract assets within the other current assets financial statement caption on the consolidated condensed balance sheets. These contract assets are considered current assets as they will be settled in less than 12 months.

Contract liabilities represent advance consideration received from customers and are recognized as revenues over time as the related performance obligation is satisfied. The balance of contract liabilities was $1.2 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. We have recognized contract liabilities within the accounts payable and other current liabilities financial statement captions on the consolidated condensed balance sheets. These contract liabilities are considered current liabilities as they will be settled in less than 12 months.

Performance Obligations

We have elected to apply the practical expedient in Accounting Standards Codification (“ASC”) Topic 606, Revenue From Contracts With Customers, to not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less. Remaining performance obligations represent the transaction price allocated to future reporting periods for freight shipments started but not completed at the reporting date that we expect to recognize as revenue in the period subsequent to the reporting date; transit times generally average approximately 3 days.

During the 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.

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(4) Leases

We have entered into operating leases primarily for real estate. The leases have terms which range from 1 year to 18 years, and some include options to renew. Renewal terms are included in the lease term when it is reasonably certain that we will exercise the option to renew.

Operating leases are included in other non-current assets, other current liabilities and other long-term liabilities on the consolidated condensed balance sheets. These assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date, using our incremental borrowing rate because the rate implicit in each lease is not readily determinable. We have certain contracts for real estate that may contain lease and non-lease components which we have elected to treat as a single lease component. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Lease expense is reported in rent and purchased transportation on the consolidated statements of income.

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


	September 30, 2022			December 31, 2021
Balance Sheet Classification
Right-of-use assets (recorded in other non-current assets)	$	33,430		$	28,458

Current lease liabilities (recorded in other current liabilities)	$	7,028		$	6,380
Long-term lease liabilities (recorded in other long-term liabilities)	27,573			22,634
Total operating lease liabilities	$	34,601		$	29,014

Other Information
Weighted-average remaining lease term for operating leases	7.26 years			7.63 years
Weighted-average discount rate for operating leases	2.6		%	2.7		%

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


Maturity of Lease Liabilities
2022 (remaining)	$	2,086
2023	7,357
2024	6,412
2025	5,515
2026	4,518
Thereafter	12,130
Total undiscounted operating lease payments	$	38,018
Less: Imputed interest	(3,417)
Present value of operating lease liabilities	$	34,601

Cash Flows

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.

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.

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Lessor Operating Leases

We are the lessor of tractors and trailers under operating leases with initial terms of 1 to 10 years. We recognize revenue for such leases on a straight-line basis over the term of the lease. Revenues were $3.3 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):


2022 (remaining)	$	2,486
2023	5,366
2024	266
2025	273
2026	282
Thereafter	71
Total	$	8,744

(5) Fair Value

Fair Value Measurement — Definition and Hierarchy

ASC 820-10, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.

Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Such inputs include quoted prices in markets that are not active, quoted prices for similar assets and liabilities in active and inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 — Unobservable inputs for the asset or liability, where there is little, if any, observable market activity or data for the asset or liability.

In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to our Level 1 assets and liabilities. If quoted prices in active markets for identical assets and liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. This pricing methodology would apply to Level 2 assets and liabilities.

The following table presents the Company's fair value hierarchy for assets measured at fair value on a recurring basis (in thousands):


	Level in Fair Value Hierarchy	Fair Value
		September 30, 2022		December 31, 2021
Other non-current assets:
Equity securities (1)	1	$	2,932	$	17,166

(1) Represents our investments in autonomous technology companies. For additional information regarding the valuation of these equity securities, see Note 6 – Investments.

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

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Our ownership interest in Mastery Logistics Systems, Inc. (“MLSI”) does not have a readily determinable fair value and is accounted for using the measurement alternative in ASC 321, Investments - Equity Securities. For additional information regarding the valuation of our investment in MLSI, see Note 6 – Investments.

Fair Value of Financial Instruments Not Recorded at Fair Value

Cash and cash equivalents, accounts receivable trade, and accounts payable are short-term in nature and accordingly are carried at amounts that approximate fair value. These financial instruments are recorded at or near their respective transaction prices and historically have been settled or converted to cash at approximately that value (categorized as Level 2 of the fair value hierarchy).

The carrying amounts of our long-term debt approximate fair value due to the duration of our credit arrangements and the variable interest rates (categorized as Level 2 of the fair value hierarchy).

(6) Investments

Equity Investments without Readily Determinable Fair Values

In 2020, we entered into a strategic partnership with MLSI, a transportation management systems company. We are collaborating with MLSI to develop a cloud-based transportation management system using MLSI's SaaS technology which we have agreed to license. In June 2022, we paid MLSI $20.0 million for additional shares of its preferred stock. This minority equity investment is being accounted for under ASC 321 using the measurement alternative, and is recorded in other noncurrent assets on the consolidated condensed balance sheets. As of 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.

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. For additional information regarding the fair value of these equity investments, see Note 5 – Fair Value.

(7) Debt and Credit Facilities

On March 25, 2022, we entered into a new credit agreement (the “Wells Credit Agreement”) with Wells Fargo Bank, National Association ("Wells Fargo"), replacing our previous credit agreement with Wells Fargo dated May 14, 2019, as amended. The Wells Credit Agreement provides for a $300.0 million unsecured revolving line of credit ("Wells Line of Credit"), with a $75.0 million maximum limit for the aggregate amount of letters of credit issued, and expires on May 14, 2024. The Wells Credit Agreement also provides for an unsecured term loan commitment not to exceed a principal amount of $100.0 million ("Wells Term Loan"), with the outstanding principal balance due and payable in full on May 14, 2024. The proceeds of the Wells Line of Credit and Wells Term Loan may be used for the Company's general corporate purposes.

Amounts drawn under the Wells Line of Credit and the outstanding principal balance of the Wells Term Loan bear interest either, at our option, (i) at a variable rate based on the daily Secured Overnight Financing Rate ("SOFR") plus 0.10% and a margin ranging between 0.675% and 0.925%, or (ii) at a fixed rate based on the Term SOFR in effect on the first day of an applicable interest period designated by us plus 0.10% in the case of one month Term SOFR, 0.15% in the case of three month Term SOFR, 0.25% in the case of six month Term SOFR, and plus, in each case, a margin ranging between 0.675% and 0.925%, payable monthly. The margin rates are based on our ratio of total funded debt to earnings before interest, income taxes, depreciation and amortization (“EBITDA”). The Wells Credit Agreement also requires us to pay Wells Fargo (i) an annualized letter of credit fee based on the face amount of each letter of credit outstanding at rates ranging between 0.55% and 0.80% per annum and (ii) a nonrefundable commitment fee on the average daily unused amount of the Wells Line of Credit (after deducting undrawn letters of credit) at rates ranging between 0.11% and 0.15% per annum. The rates for the letter of credit and nonrefundable commitment fees are based on our ratio of total funded debt to EBITDA.

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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"). The outstandin