WERNER ENTERPRISES INC Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

Management’s Discussion and Analysis of Financial Condition and Results of
Operations (the “MD&A”) summarizes the financial statements from management’s
perspective with respect to our financial condition, results of operations,
liquidity and other factors that may affect actual results. The MD&A is
organized in the following sections:

•Overview

•COVID-19

•Results of Operations
•Liquidity and Capital Resources
•Regulations
•Critical Accounting Estimates

The MD&A should be read in conjunction with our 2021 Form 10-K.

Overview:

We have two reportable segments, Truckload Transportation Services ("TTS") and
Werner Logistics, and we operate in the truckload and logistics sectors of the
transportation industry. In the truckload sector, we focus on transporting
consumer nondurable products that generally ship more consistently throughout
the year. In the logistics sector, besides managing transportation requirements
for individual customers, we provide additional sources of truck capacity,
alternative modes of transportation, a North American delivery network and
systems analysis to optimize transportation needs. Our success depends on our
ability to efficiently and effectively manage our resources in the delivery of
truckload transportation and logistics services to our customers. Resource
requirements vary with customer demand, which may be subject to seasonal or
general economic conditions. Our ability to adapt to changes in customer
transportation requirements is essential to efficiently deploy resources and
make capital investments in tractors and trailers (with respect to our TTS
segment) or obtain qualified third-party capacity at a reasonable price (with
respect to our Werner Logistics segment). We may also be affected by our
customers' financial failures or loss of customer business.

Revenues for our TTS segment operating units (Dedicated and One-Way Truckload)
are typically generated on a per-mile basis and also include revenues such as
stop charges, loading and unloading charges, equipment detention charges and
equipment repositioning charges. To mitigate our risk to fuel price increases,
we recover additional fuel surcharge revenues from our customers that generally
recoup a majority of the increased fuel costs; however, we cannot assure that
current recovery levels will continue in future periods. Because fuel surcharge
revenues fluctuate in response to changes in fuel costs, we identify them
separately and exclude them from the statistical calculations to provide a more
meaningful comparison between periods. The key statistics used to evaluate
trucking revenues, net of fuel surcharge, are (i) average revenues per tractor
per week, (ii) average percentage of empty miles (miles without trailer cargo),
(iii) average trip length (in loaded miles) and (iv) average number of tractors
in service. General economic conditions, seasonal trucking industry freight
patterns and industry capacity are important factors that impact these
statistics. Our TTS segment also generates a small amount of revenues
categorized as non-trucking revenues, which consist primarily of the
intra-Mexico portion of cross-border shipments delivered to or from Mexico where
the TTS segment utilizes a third-party capacity provider. We exclude such
revenues from the statistical calculations.

Our most significant resource requirements are company drivers, independent
contractors, tractors and trailers. Independent contractors supply their own
tractors and drivers and are responsible for their operating expenses. Our
financial results are affected by company driver and independent contractor
availability and the markets for new and used revenue equipment. We are
self-insured for a significant portion of bodily injury, property damage and
cargo claims; workers' compensation claims; and associate health claims
(supplemented by premium-based insurance coverage above certain dollar levels).
For that reason, our financial results may also be affected by driver safety,
medical costs, weather, legal and regulatory environments and insurance coverage
costs to protect against catastrophic losses.

The operating ratio is a common industry measure used to evaluate our
profitability and that of our TTS segment operating fleets. The operating ratio
consists of operating expenses expressed as a percentage of operating revenues.
The most significant variable expenses that impact the TTS segment are driver
salaries and benefits, fuel, fuel taxes (included in taxes and licenses
expense), payments to independent contractors (included in rent and purchased
transportation expense), supplies and maintenance and insurance and claims. As
discussed further in the comparison of operating results for first quarter 2022
to first quarter 2021, several industry-wide issues have caused, and could
continue to cause, costs to increase in future periods. These issues include
shortages of drivers or independent contractors, changing fuel prices,
compliance with new or proposed regulations and tightening of the commercial
truck liability insurance market. Our main fixed costs include depreciation
expense for tractors and trailers and equipment licensing fees (included in
taxes and licenses expense). The TTS segment requires substantial cash
expenditures for tractor and trailer purchases. We fund these purchases with net
cash from operations and financing available under our existing credit
facilities, as management deems necessary.
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We provide non-trucking services primarily through the three operating units
within our Werner Logistics segment (Truckload Logistics, Intermodal, and Final
Mile). In first quarter 2021, we completed the sale of the Werner Global
Logistics ("WGL") freight forwarding services for international ocean and air
shipments to Scan Global Logistics Group. WGL had annual revenues of $53 million
in 2020, and we realized a $1.0 million gain from the sale in first quarter
2021. At the end of the twelve month period, the full earnout was achieved.
Unlike our TTS segment, the Werner Logistics segment is less asset-intensive and
is instead dependent upon qualified associates, information systems and
qualified third-party capacity providers. The largest expense item related to
the Werner Logistics segment is the cost of purchased transportation we pay to
third-party capacity providers. This expense item is recorded as rent and
purchased transportation expense. Other operating expenses consist primarily of
salaries, wages and benefits, as well as depreciation and amortization, supplies
and maintenance, and other general expenses. We evaluate the Werner Logistics
segment's financial performance by reviewing operating expenses and operating
income expressed as a percentage of revenues. Purchased transportation expenses
as a percentage of revenues can be impacted by the rates charged to customers
and the costs of securing third-party capacity. We have a mix of contracted
long-term rates and variable rates for the cost of third-party capacity, and we
cannot assure that our operating results will not be adversely impacted in the
future if our ability to obtain qualified third-party capacity providers changes
or the rates of such providers increase.

COVID-19:

The COVID-19 pandemic continues to impact the U.S. and global economies and has
resulted in ongoing supply chain challenges. During the pandemic, the
transportation industry has been designated by the U.S. government as an
essential industry for keeping the U.S. supply chain moving. We are monitoring
and reacting to the evolving nature of the pandemic, governmental responses, and
their impacts on our business, including employee availability. We are working
hard to stay healthy while safely delivering our customers' freight on time.
Throughout our offices and terminal network, we are closely following the safety
guidelines set forth by the Centers for Disease Control and Prevention (CDC) and
World Health Organization (WHO).

Over the past several years, we have repositioned Werner to increase our ability
to execute through different macroeconomic environments. We believe our freight
base, which is heavily weighted toward customers delivering essential products
that are continually being restocked in today's economy, enabled us to more
effectively manage through the difficult economic environment created by the
pandemic. While there remain significant uncertainties related to COVID-19 and
its effect on the economy, we believe that demand for our services will continue
to be strong during the remainder of 2022.

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Results of Operations:

The following table sets forth the consolidated statements of income in dollars
and as a percentage of total operating revenues and the percentage increase or
decrease in the dollar amounts of those items compared to the prior year.

                                                             Three Months Ended (3ME)                               Percentage Change in
                                                                     March 31,                                         Dollar Amounts
                                                     2022                                   2021                            3ME
(in thousands)                                  $                 %                   $              %                       %
Operating revenues                    $     764,605              100.0          $   616,446         100.0                      24.0
Operating expenses:
Salaries, wages and benefits                241,996               31.6              204,853          33.2                      18.1
Fuel                                         88,421               11.6               50,838           8.2                      73.9
Supplies and maintenance                     57,025                7.5               46,147           7.5                      23.6
Taxes and licenses                           23,833                3.1               23,233           3.8                       2.6
Insurance and claims                         27,492                3.6               22,056           3.6                      24.6
Depreciation and amortization                67,229                8.8               63,951          10.4                       5.1
Rent and purchased transportation           185,237               24.2              146,493          23.8                      26.4
Communications and utilities                  3,926                0.5                3,022           0.5                      29.9
Other                                       (14,065)              (1.8)              (6,618)         (1.1)                    112.5
Total operating expenses                    681,094               89.1              553,975          89.9                      22.9
Operating income                             83,511               10.9               62,471          10.1                      33.7
Total other expense, net                     11,043                1.4                  583           0.1                   1,794.2
Income before income taxes                   72,468                9.5               61,888          10.0                      17.1
Income tax expense                           17,433                2.3               15,396           2.5                      13.2
Net income                                   55,035                7.2               46,492           7.5                      18.4
Net income attributable to
noncontrolling interest                      (1,286)              (0.2)                   -              N/A                          N/A
Net income attributable to Werner     $      53,749                7.0          $    46,492           7.5                      15.6




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The following tables set forth the operating revenues, operating expenses and
operating income for the TTS segment and certain statistical data regarding our
TTS segment operations, as well as statistical data for the One-Way Truckload
and Dedicated operating units within TTS.

                                                            Three Months Ended
                                                                March 31,
                                                     2022                       2021
TTS segment (in thousands)                       $            %             $            %
Trucking revenues, net of fuel surcharge    $ 472,361                  $ 

410,652

Trucking fuel surcharge revenues               79,815                     

47,459

Non-trucking and other operating revenues       6,241                      4,838
Operating revenues                            558,417       100.0        462,949       100.0
Operating expenses                            482,324        86.4        405,321        87.6
Operating income                            $  76,093        13.6      $  57,628        12.4



                                                                  Three Months Ended
                                                                       March 31,
TTS segment                                                     2022               2021              % Change
Average tractors in service                                     8,238              7,790                   5.8  %
Average revenues per tractor per week (1)                   $   4,411          $   4,055                   8.8  %

Total tractors (at quarter end)

 Company                                                        7,960              7,360                   8.2  %
 Independent contractor                                           265                375                 (29.3) %
 Total tractors                                                 8,225              7,735                   6.3  %
Total trailers (at quarter end)                                26,185             22,710                  15.3  %

One-Way Truckload
Trucking revenues, net of fuel surcharge (in 000's)         $ 186,760          $ 156,839                  19.1  %
Average tractors in service                                     3,064              2,856                   7.3  %
Total tractors (at quarter end)                                 3,040              2,815                   8.0  %
Average percentage of empty miles                               11.75  %           11.35  %                3.5  %
Average revenues per tractor per week (1)                   $   4,690          $   4,224                  11.0  %
Average % change in revenues per total mile (1)                  20.8  %             9.5  %
Average % change in total miles per tractor per week             (8.1) %            (7.7) %
Average completed trip length in miles (loaded)                   716                853                 (16.1) %

Dedicated

Trucking revenues, net of fuel surcharge (in 000’s) $ 285,601

    $ 253,813                  12.5  %
Average tractors in service                                     5,174              4,934                   4.9  %
Total tractors (at quarter end)                                 5,185              4,920                   5.4  %
Average revenues per tractor per week (1)                   $   4,247          $   3,957                   7.3  %


(1)Net of fuel surcharge revenues.

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The following tables set forth the Werner Logistics segment's revenues,
purchased transportation expense, other operating expenses (primarily salaries,
wages and benefits expense), total operating expenses, and operating income, as
well as certain statistical data regarding the Werner Logistics segment.

                                                          Three Months Ended
                                                              March 31,
                                                   2022                       2021
Werner Logistics segment (in thousands)        $            %             $            %
Operating revenues                        $ 189,008       100.0      $ 137,853       100.0
Operating expenses:
Purchased transportation expense            157,521        83.3        120,527        87.4
Other operating expenses                     22,806        12.1         12,752         9.3
Total operating expenses                    180,327        95.4        133,279        96.7
Operating income                          $   8,681         4.6      $   4,574         3.3



                                        Three Months Ended
                                            March 31,
Werner Logistics segment             2022                2021        % Change
Average tractors in service           53                  39           35.9  %
Total tractors (at quarter end)       54                  39           38.5 

%

Total trailers (at quarter end)    1,605               1,440           11.5 

%

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Operating Revenues

Operating revenues increased 24.0% for the three months ended March 31, 2022,
compared to the same period of the prior year. When comparing first quarter 2022
to first quarter 2021, TTS segment revenues increased $95.5 million, or 20.6%,
and Werner Logistics revenues increased $51.2 million, or 37.1%.

Our results in first quarter 2022 reflect strong freight market conditions in a
very challenging driver market. Our One-Way Truckload fleet experienced strong
freight demand in January and February, which then moderated in March from
strong to very good, relative to March freight demand over the last five years.
In our Dedicated fleet, freight demand remained strong in first quarter 2022.
Strong consumer demand, combined with several factors that are limiting industry
capacity, including a very competitive driver market and ongoing new tractor
production delays, resulted in a robust first quarter freight market. During
April, Dedicated freight demand remained strong and One-Way Truckload demand
remained very good.

Trucking revenues, net of fuel surcharge, increased 15.0% in first quarter 2022
compared to first quarter 2021 due to a 5.8% increase in the average number of
tractors in service and an 8.8% increase in average revenues per tractor per
week, net of fuel surcharge. The increase in average revenues per tractor was
due primarily to improved pricing in both Dedicated and One-Way Truckload,
offset by a decline in miles per tractor caused by fleet mix changes, tractors
down due to equipment parts shortages, more drivers unavailable to work due to
COVID quarantine protocols and other factors. We currently expect average
revenues per total mile, net of fuel surcharge, for the One-Way Truckload fleet
for the second quarter 2022 to increase in a range of 14% to 17% when compared
to second quarter 2021, and we currently expect Dedicated average revenues per
tractor per week, net of fuel surcharge, to increase in a range of 4% to 6% in
2022 compared to 2021.

The average number of tractors in service in the TTS segment increased 5.8% to
8,238 in first quarter 2022 from 7,790 in first quarter 2021, primarily
resulting from the nearly 500 tractors acquired in the ECM Associated, LLC
("ECM") acquisition. We ended first quarter 2022 with 8,225 tractors in the TTS
segment, a year-over-year increase of 490 tractors compared to the end of first
quarter 2021, and a sequential decrease of 115 tractors compared to the end of
fourth quarter 2021. Within TTS, our Dedicated unit ended first quarter 2022
with 5,185 tractors (or 63% of our total TTS segment tractors) compared to 4,920
tractors (or 64%) a year ago. We expect our tractor count at the end of 2022 to
be in a range of 2% to 5% higher when compared to the fleet size at year end
2021. We cannot predict whether future driver shortages, if any, will adversely
affect our ability to grow our fleet size. If such a driver shortage were to
occur, it could result in a fleet size reduction, and our results of operations
could be adversely affected.

Trucking fuel surcharge revenues increased 68.2% to $79.8 million in first
quarter 2022 from $47.5 million in first quarter 2021 due primarily to higher
average diesel fuel prices in first quarter 2022. These revenues represent
collections from customers for the increase in fuel and fuel-related expenses,
including the fuel component of our independent contractor cost (recorded as
rent and purchased transportation expense) and fuel taxes (recorded in taxes and
licenses expense), when diesel fuel prices rise.
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Conversely, when fuel prices decrease, fuel surcharge revenues decrease. To
lessen the effect of fluctuating fuel prices on our margins, we collect fuel
surcharge revenues from our customers for the cost of diesel fuel and taxes in
excess of specified base fuel price levels according to terms in our customer
contracts. Fuel surcharge rates generally adjust weekly based on an independent
U.S. Department of Energy fuel price survey which is released every Monday. Our
fuel surcharge programs are designed to (i) recoup higher fuel costs from
customers when fuel prices rise and (ii) provide customers with the benefit of
lower fuel costs when fuel prices decline. These programs generally enable us to
recover a majority, but not all, of the fuel price increases. The remaining
portion is generally not recoverable because it results from empty and
out-of-route miles (which are not billable to customers) and tractor idle time.
Fuel prices that change rapidly in short time periods also impact our recovery
because the surcharge rate in most programs only changes once per week.

Werner Logistics revenues are generated by its three operating units, following
the sale of its WGL freight forwarding services for international ocean and air
shipments in first quarter 2021. Werner Logistics revenues exclude revenues for
full truckload shipments transferred to the TTS segment, which are recorded as
trucking revenues by the TTS segment. Werner Logistics also recorded revenue and
brokered freight expense of $722 thousand in first quarter 2022 and $134
thousand in first quarter 2021 for Intermodal drayage movements performed by the
TTS segment (also recorded as trucking revenue by the TTS segment), and these
transactions between reporting segments are eliminated in consolidation. In
first quarter 2022, Werner Logistics revenues increased $51.2 million, or 37.1%.
Excluding WGL revenues from first quarter 2021, Logistics revenues in first
quarter 2022 increased 55%. Truckload Logistics revenues (67% of total Logistics
revenues) increased by 46% in first quarter 2022. Truckload Logistics volume
increased 19% in first quarter 2022, and revenues per shipment increased 24%.
Intermodal revenues (23% of Logistics revenues) increased 29% in first quarter
2022, due to 37% higher revenues per shipment, partially offset by a decrease in
volume of 6% due primarily to a decline in rail velocity, chassis shortages and
increased dwell throughout the rail and customer networks. Final Mile revenues
(10% of total Logistics revenues) increased $18.1 million in first quarter 2022,
primarily due to growth from the November 2021 acquisition of NEHDS Logistics,
LLC ("NEHDS"). The Werner Logistics operating margin percentage of 4.6% in first
quarter 2022 increased from 3.3%, while operating income increased to $8.7
million. We continue to expect our Werner Logistics segment to achieve inflated
growth through this capacity-constrained period.

Operating Expenses

Our operating ratio (operating expenses expressed as a percentage of operating
revenues) was 89.1% for the three months ended March 31, 2022 and 89.9% for the
three months ended March 31, 2021. Expense items that impacted the overall
operating ratio are described on the following pages. The tables on pages 19
through 21 show the consolidated statements of income in dollars and as a
percentage of total operating revenues and the percentage increase or decrease
in the dollar amounts of those items compared to the same quarter of the prior
year, as well as the operating ratios, operating margins, and certain
statistical information for our two reportable segments, TTS and Werner
Logistics.

Salaries, wages and benefits increased $37.1 million or 18.1% in first quarter
2022 compared to first quarter 2021 and decreased 1.6% as a percentage of
operating revenues to 31.6%. The higher dollar amount of salaries, wages and
benefits expense in the first quarter of 2022 was due primarily to increased
driver pay, including: (i) driver pay rate increases, (ii) incentive recruiting
bonuses, (iii) minimum pay guarantees, and (iv) the impact of 4.0 million more
company tractor miles in the first quarter of 2022. In January 2021, we
implemented driver pay increases of approximately $10 million annually in our
One-Way Truckload fleet, and another pay increase in August 2021 of
approximately $11 million annually. We continue to implement driver pay
increases as needed. The increase in salaries, wages and benefits was also due
to an increase in the number of non-driver employees and higher benefits.
Non-driver salaries, wages and benefits in our non-trucking Werner Logistics
segment increased 47.3% as a result of increased employees to support the 37%
growth of Logistics revenues and higher pay rates per employee.

We renewed our workers' compensation insurance coverage on April 1, 2022. Our
coverage levels are the same as the prior policy year. We continue to maintain a
self-insurance retention of $2.0 million per claim. Our workers' compensation
insurance premiums for the policy year beginning April 2022 are $0.4 million
higher than the premiums for the previous policy year.

Strong consumer demand combined with a severely constrained driver market is
presenting labor challenges for customers and carriers alike and remained
challenging in first quarter 2022, as the strong freight market caused increased
competition for the finite number of experienced drivers that meet our hiring
standards. Several ongoing market factors persisted including a declining number
of, and increased competition for, driver training school graduates, aging truck
driver demographics and increased truck safety regulations. We continue to take
significant actions to strengthen our driver recruiting and retention as we
strive to be the truckload employer of choice, including raising driver pay,
providing a modern tractor and trailer fleet with the latest safety equipment
and technology, investing and expanding our driver training school network and
offering a wide variety of driving positions including daily and weekly home
time opportunities. We are unable to predict whether we will experience future
driver shortages or maintain our current driver retention rates. If such a
driver shortage were to occur and additional
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driver pay rate increases became necessary to attract and retain drivers, our
results of operations would be negatively impacted to the extent that we could
not obtain corresponding freight rate increases.

Fuel increased $37.6 million or 73.9% in first quarter 2022 compared to first
quarter 2021 and increased 3.4% as a percentage of operating revenues to 11.6%
due to higher average diesel fuel prices and 4.0 million more company tractor
miles in first quarter 2022. Average diesel fuel prices were $1.27 per gallon
higher in first quarter 2022 than in first quarter 2021 and were 64 cents per
gallon higher than in fourth quarter 2021.

We continue to employ measures to improve our fuel mpg such as (i) limiting
tractor engine idle time, (ii) optimizing the speed, weight and specifications
of our equipment and (iii) implementing mpg-enhancing equipment changes to our
fleet including new tractors, more aerodynamic tractor features, idle reduction
systems, trailer tire inflation systems, trailer skirts and automated manual
transmissions to reduce our fuel gallons purchased. However, fuel savings from
mpg improvement is partially offset by higher depreciation expense and the
additional cost of diesel exhaust fluid. Although our fuel management programs
require significant capital investment and research and development, we intend
to continue these and other environmentally conscious initiatives, including our
active participation as an EPA SmartWay Transport Partner. The SmartWay
Transport Partnership is a national voluntary program developed by the EPA and
freight industry representatives to reduce greenhouse gases and air pollution
and promote cleaner, more efficient ground freight transportation.

For April 2022, the average diesel fuel price per gallon was approximately $1.98
higher than the average diesel fuel price per gallon in April 2021 and
approximately $1.85 higher than in second quarter 2021.

Shortages of fuel, increases in fuel prices and petroleum product rationing can
have a material adverse effect on our operations and profitability. We are
unable to predict whether fuel price levels will increase or decrease in the
future or the extent to which fuel surcharges will be collected from customers.
As of March 31, 2022, we had no derivative financial instruments to reduce our
exposure to fuel price fluctuations.

Supplies and maintenance increased $10.9 million or 23.6% in first quarter 2022
compared to first quarter 2021 and remained flat as a percentage of operating
revenues. Supplies and maintenance expense increased due to increases in tractor
and trailer parts and labor, tires, tolls, driving school costs, travel, and
driver advertising.

Insurance and claims increased $5.4 million or 24.6% in first quarter 2022
compared to first quarter 2021 and remained flat as a percentage of operating
revenues due primarily to a higher amount of unfavorable reserve development on
small dollar claims, higher liability insurance premiums of $1.9 million, and
increased claims. We also incurred insurance and claims expense of $1.3 million
in both first quarter 2022 and first quarter 2021 for accrued interest related
to a previously-disclosed adverse jury verdict rendered May 17, 2018, which we
are appealing (see Note 8 in the Notes to Consolidated Financial Statements
(Unaudited) set forth in Part I of this report). Interest is accrued at $0.4
million per month, until such time as the outcome of our appeal is finalized.
The majority of our insurance and claims expense results from our claim
experience and claim development under our self-insurance program; the remainder
results from insurance premiums for claims in excess of our self-insured limits.

We renewed our liability insurance policies on August 1, 2021 and are
responsible for the first $10.0 million per claim on all claims with an annual
$10.0 million aggregate for claims between $10.0 million and $15.0 million. For
the policy year that began August 1, 2020, we were responsible for the first
$10.0 million per claim with no aggregates. We maintain liability insurance
coverage with insurance carriers in excess of the $10.0 million per claim. Our
liability insurance premiums for the policy year that began August 1, 2021 are
$7.0 million higher than premiums for the previous policy year.

Depreciation and amortization expense increased $3.3 million or 5.1% in first
quarter 2022 compared to first quarter 2021 and decreased 1.6% as a percentage
of operating revenues due primarily to depreciation and amortization on tangible
and intangible assets recorded in the ECM and NEHDS acquisitions, partially
offset by the impact of a change in accounting estimate effective January 1,
2022, which decreased depreciation expense by $3.1 million in first quarter
2022. During the first quarter of 2022, we increased the estimated salvage value
of our trailers by $5,000 per trailer due to the ongoing stronger used trailer
market and the increasing cost of new trailers.

The average age of our tractor fleet was 2.3 years as of March 31, 2022, and the
average age of our trailers was 4.6 years. We are continuing to invest in new
tractors and trailers and our terminals in 2022 to improve our driver
experience, increase operational efficiency and more effectively manage our
maintenance, safety and fuel costs. During the remainder of 2022, we expect the
average age of our tractor and trailer fleet to remain at or near current
levels, subject to potential delays in receiving new equipment.

Rent and purchased transportation expense increased $38.7 million or 26.4% in
first quarter 2022 compared to first quarter 2021 and increased 0.4% as a
percentage of operating revenues. Rent and purchased transportation expense
consists mostly of

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payments to third-party capacity providers in the Werner Logistics segment and
other non-trucking operations and payments to independent contractors in the TTS
segment. The payments to third-party capacity providers generally vary depending
on changes in the volume of services generated by the Werner Logistics segment.
Werner Logistics rent and purchased transportation expense increased $37.0
million, and as a percentage of Werner Logistics revenues decreased to 83.3% in
first quarter 2022 from 87.4% in first quarter 2021.

Rent and purchased transportation expense for the TTS segment increased $1.5
million in first quarter 2022 compared to first quarter 2021 due primarily to an
increase in the per-mile settlement rate for certain independent contractors due
to higher average diesel fuel prices. The higher expense was mostly offset by
fewer independent contractor miles in first quarter 2022. Independent contractor
miles decreased approximately 4.1 million miles in first quarter 2022 and as a
percentage of total miles were 4.5% in first quarter 2022 compared to 6.7% in
first quarter 2021. Because independent contractors supply their own tractors
and drivers and are responsible for their operating expenses, the decrease in
independent contractor miles as a percentage of total miles shifted costs from
the rent and purchased transportation category to other expense categories,
including (i) salaries, wages and benefits, (ii) fuel, (iii) depreciation, (iv)
supplies and maintenance and (v) taxes and licenses.

Challenging operating conditions continue to make independent contractor
recruitment and retention difficult. Such conditions include inflationary cost
increases that are the responsibility of independent contractors and a shortage
of financing available to independent contractors for equipment purchases.
Historically we have been able to add company tractors and recruit additional
company drivers to offset any decrease in the number of independent contractors.
If a shortage of independent contractors and company drivers occurs, further
increases in per-mile settlement rates (for independent contractors) and driver
pay rates (for company drivers) may become necessary to attract and retain these
drivers. These rate increases could negatively affect our results of operations
to the extent that we would not be able to obtain corresponding freight rate
increases.

Other operating expenses decreased $7.4 million in first quarter 2022 compared
to first quarter 2021 and decreased 0.7% as a percentage of operating revenues.
Gains on sales of assets (primarily used tractors and trailers) are reflected as
a reduction of other operating expenses and are reported net of sales-related
expenses (which include costs to prepare the equipment for sale). Gains on sales
of assets were $20.5 million in first quarter 2022, compared to $10.5 million in
first quarter 2021. We realized substantially higher average gains per tractor
and trailer due to significantly improved pricing in the market for our used
equipment, which we believe is a temporary result of increased demand for
previously used equipment because of production delays limiting availability of
new equipment in the industry. We sold fewer tractors and trailers in first
quarter 2022 than in first quarter 2021.

Other Expense (Income)

Other net expenses increased $10.5 million in first quarter 2022 compared to
first quarter 2021 due primarily to a $9.8 million unrealized loss recognized on
our investments in equity securities (see Note 6 in the Notes to Consolidated
Financial Statements (Unaudited) set forth in Part I of this report) and a $0.6
million increase in interest expense. Interest expense increased due to higher
average debt outstanding, partially offset by a decrease in the average
effective interest rate incurred on our debt.

Income Tax Expense

Our effective income tax rate (income taxes expressed as a percentage of income
before income taxes) was 24.1% in first quarter 2022 compared to 24.9% in first
quarter 2021. The lower income tax rate in first quarter 2022 was attributed
primarily to a higher amount of favorable discrete income tax items in the first
quarter 2022 and the income tax effect of the noncontrolling interest.

Liquidity and Capital Resources:

We closely manage our liquidity and capital resources. Our liquidity
requirements depend on key variables, including the level of investment needed
to support business strategies, the performance of the business, capital
expenditures, borrowing arrangements, and working capital management. Capital
expenditures, stock repurchases, and dividend payments are components of our
cash flow and capital management strategy, which to a large extent, can be
adjusted in response to economic and other changes in the business environment.
Management's approach to capital allocation focuses on investing in key
priorities that support our business and growth strategies and providing
shareholder returns, while funding ongoing operations.

Management believes our financial position at March 31, 2022 is strong. As of
March 31, 2022, we had $125.9 million of cash and cash equivalents and over $1.3
billion of stockholders' equity. Cash is invested primarily in government
portfolio money market funds. In addition, we have two $300.0 million revolving
credit facilities, for which our total available borrowing capacity was $316.1
million as of March 31, 2022 (see Note 7 in the Notes to Consolidated Financial
Statements (Unaudited) set forth in Part I of this report for information
regarding our credit agreements). We believe our liquid assets, cash generated
from operating activities, and borrowing capacity under our existing credit
facilities will provide sufficient funds to meet our cash requirements and our
planned shareholder returns for the foreseeable future.
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Item 7 of Part II of our 2021 Form 10-K includes our disclosure of material cash
requirements as of December 31, 2021. On March 25, 2022, we entered into a new
credit agreement, replacing a previous credit agreement, and we amended an
existing credit agreement. These changes increased our borrowing capacity by
$200.0 million. See Note 7 in the Notes to Consolidated Financial Statements
(Unaudited) set forth in Part I of this report for further details regarding our
debt and the timing of expected future principal payments. Except for the
changes related to our credit agreements, there were no other material changes
in the nature of these items during the three months ended March 31, 2022.

Cash Flows

During the three months ended March 31, 2022, we generated cash flow from
operations of $155.0 million, a 14.1% or $19.1 million increase in cash flows
compared to the same three-month period a year ago. The increase in net cash
provided by operating activities was due primarily to increased cash flows from
working capital and higher net income. We were able to make net capital
expenditures, repay debt, pay dividends and repurchase company stock with the
net cash provided by operating activities and existing cash balances.

Net cash used in investing activities was $34.5 million for the three-month
period ended March 31, 2022 compared to $41.3 million during the same period in
2021. Net property additions (primarily revenue equipment) were $37.1 million
for the three-month period ended March 31, 2022, compared to $37.9 million
during the same period of 2021. We currently estimate net capital expenditures
(primarily revenue equipment) in 2022 to be in the range of $250 million to $300
million, compared to net capital expenditures in 2021 of $193.0 million. We
intend to fund these net capital expenditures through cash flow from operations
and financing available under our existing credit facilities, if necessary. As
of March 31, 2022, we were committed to property and equipment purchases of
approximately $182.3 million.

Net financing activities used $49.0 million during the three months ended
March 31, 2022, compared to $40.4 million during the same period in 2021. We had
net repayments on our debt of $1.3 million during the three months ended
March 31, 2022, reducing our outstanding debt at March 31, 2022 to $426.3
million, and repaid $25.0 million of debt during the same period in 2021. We
paid dividends of $7.9 million in the three-month period ended March 31, 2022
and $6.1 million during the same period in 2021. We currently plan to continue
paying our quarterly dividend, which we have paid quarterly since 1987.

Financing activities for the three months ended March 31, 2022, also included
common stock repurchases of 845,100 shares at a cost of $36.2 million. The
Company has repurchased, and may continue to repurchase, shares of the Company's
common stock. The timing and amount of such purchases depend upon economic and
stock market conditions and other factors. As of March 31, 2022, the Company had
purchased 1,822,986 shares pursuant to our current Board of Directors repurchase
authorization and had 4,177,014 shares remaining available for repurchase.

Regulations:

Item 1 of Part I of our 2021 Form 10-K includes a discussion of pending proposed
regulations that may have an effect on our operations if they become adopted and
effective as proposed. There have been no material changes in the status of the
proposed regulations previously disclosed in the 2021 Form 10-K.

Critical Accounting Estimates:

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires us to make estimates and assumptions that affect the (i) reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
(ii) reported amounts of revenues and expenses during the reporting period. We
evaluate these estimates on an ongoing basis as events and circumstances change,
utilizing historical experience, consultation with experts and other methods
considered reasonable in the particular circumstances. Actual results could
differ from those estimates and may significantly impact our results of
operations from period to period. It is also possible that materially different
amounts would be reported if we used different estimates or assumptions.

Information regarding our Critical Accounting Estimates can be found in our 2021
Form 10-K. Estimates of accrued liabilities for insurance and claims for bodily
injury, property damage and workers' compensation is a critical accounting
estimate that requires us to make significant judgments and estimates and
affects our financial statements.

There have been no material changes to this critical accounting estimate from
that discussed in our 2021 Form 10-K.

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