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Interview With Werner's Management Highlights New Capital Structure

FreightWaves

FreightWaves spoke with Werner's (NASDAQ: WERN) President and Chief Executive Officer Derek Leathers and Chief Financial Officer John Steele regarding the recent announcement in changes to the capital structure.

On May 14, 2019, WERN announced a $3.75 special cash dividend, a new stock repurchase program for up to five million shares (replacing the current authorization which had roughly two million shares remaining), that it had entered into two new unsecured revolving credit facilities and retained an existing credit facility totaling $575 million (replacing its three facilities which had $325 million in borrowing capacity) and its regular quarterly dividend of $0.09 per share.

Leathers said that the company performed exhaustive research and analysis on its capital structure and believes that the increase in share repurchases and the special dividend, while incurring a little debt leverage, are the best route for the carrier.

Leathers made note that the decision was "an adjustment of course and not a wholesale departure" from WERN's normal business strategy. The company believes that this is the best means of creating value for its shareholders and remains focused on operational execution. WERN plans to grow its fleet count at its guided 3 to 5 percent range, mostly in its dedicated business this year, while maintaining focus on margin improvement.

Even with the increased financing commitments due to the special dividend and potential share repurchase, the company seeks to maintain debt leverage of 0.5x to 1x debt-to-earnings before interest, taxes, depreciation and amortization (EBITDA). This is at the low-end of debt leverage for asset-based public truckload carriers. WERN's last 12 months of EBITDA was $475 million. With the expected increase in debt from the dividend, the company remains within this leverage target. Additionally, the company said that it expects to generate free cash flow (cash flow from operations less net capital expenditures) in excess of $100 million in 2019, which could bring the leverage rate lower if desired.

In 2019, the year is front-half loaded with approximately two-thirds of planned $275 million to $300 million in net capital expenditures occurring. Management said that it expects to have between $425 million to $450 million in debt outstanding when the dividends are paid ($575 million in total borrowing capacity). WERN operates a truck fleet with an average age of 1.8 years, which is in-line with large well-capitalized fleets and well below the industry average tractor age.

WERN last paid a special dividend of $1.50 per share in 2012. The company paid special dividends of $2.10 in 2008, $1.25 in 2009 and $1.60 in 2010. When the top-end of the capital gains tax rate increased to 20 percent (from 15 percent) in 2013, the company pursued other avenues for returning cash to its shareholders.

The $3.75 payout per share on WERN's 69.9 million common shares outstanding amounts to approximately $262 million.

The carrier showed cash and equivalents of $64.7 million and total debt of $125 million on its balance sheet in its first quarter 2019 10-Q filing with the U.S. Securities and Exchange Commission.

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