BUSINESS ACQUISITIONS

12 Months Ended

Dec. 31, 2022

Business Combination and Asset Acquisition [Abstract]

2022 Business Acquisitions

ReedTMS Acquisition

On November 5, 2022, we acquired 100% of the equity interests in Reed Transport Services, Inc. and RTS-TMS, Inc., doing business as ReedTMS Logistics (“ReedTMS”), for a total purchase price of $109.2 million after including the impacts of working capital adjustments, cash acquired, net present value of future insurance payments, and contingent consideration. The contingent consideration arrangement, also referred to as earnout, requires us to pay the former owners of ReedTMS an additional amount in cash if ReedTMS achieves certain performance financial goals over a one-year period beginning January 1, 2023. The potential undiscounted future contingent earnout payment that we could be required to make is between $0 and $7.5 million. On a pro forma basis (unaudited), operating revenues for ReedTMS for the year ended December 31, 2022 was $368.5 million and operating revenues for ReedTMS for the year ended December 31, 2021 was $339.8 million. We financed the transaction through existing credit facilities. ReedTMS, based in Tampa, Florida, is an asset-light logistics provider and dedicated truckload carrier that offers a comprehensive suite of freight brokerage and truckload solutions to a diverse customer base. The acquisition further strengthens our freight brokerage capabilities and elevates our logistics portfolio with new customers.

The results of operations for ReedTMS are included in our consolidated financial statements beginning November 5, 2022. Freight brokerage and truckload revenues generated by ReedTMS are reported in our Werner Logistics segment and in Dedicated within our Truckload Transportation Services (“TTS”) segment, respectively. We incurred transaction costs related to the acquisition, such as legal and professional fees, of $0.7 million for the year ended December 31, 2022, which is included in other operating expenses on the consolidated statements of income.

Baylor Acquisition

On October 1, 2022, we acquired 100% of the equity interests in FAB9, Inc., doing business as Baylor Trucking, Inc. (“Baylor”), for a final total purchase price of $89.0 million after including the impacts of working capital adjustments, cash acquired, and contingent consideration. The contingent consideration arrangement requires us to pay the former owner of Baylor an additional amount in cash if Baylor achieves certain performance financial goals over a three-year period beginning on November 1, 2022. The potential undiscounted future contingent earnout payment that we could be required to make is between $0 and $15.0 million. We financed the transaction through existing credit facilities. Baylor, based in Milan, Indiana, operates 200 trucks and 980 trailers in the east central and south central United States. The acquisition expands our terminal, fleet, and professional driver presence in these geographic truckload markets and adds two terminals to our network.

The results of operations for Baylor are included in our consolidated financial statements beginning October 1, 2022. Revenues generated by Baylor are reported in One-Way Truckload within our TTS segment. We incurred transaction costs related to the acquisition, such as legal and professional fees, of $0.4 million for the year ended December 31, 2022, which is included in other operating expenses on the consolidated statements of income.

Purchase Price Allocations

We accounted for the ReedTMS and Baylor purchases using the acquisition method of accounting under U.S. generally accepted accounting principles (GAAP). The purchase price of each acquisition has been allocated to the assets acquired and liabilities assumed using market data and valuation techniques. The estimated fair values of the assets acquired and liabilities assumed are considered provisional for ReedTMS and Baylor, pending the completion of acquired tangible assets valuations, independent valuations of certain acquired intangible assets, and calculations of deferred taxes based upon the underlying tax basis of assets acquired and liabilities assumed. The determination of estimated fair values requires management to make significant estimates and assumptions. We believe that the information available provides a reasonable basis for estimating the values of assets acquired and liabilities assumed in the ReedTMS and Baylor acquisitions; however, these provisional estimates may be adjusted upon the availability of new information regarding facts and circumstances which existed at the acquisition dates, and such adjustments may impact future earnings. We expect to finalize the valuation of assets and liabilities for ReedTMS and Baylor as soon as practicable, but not later than one year from the respective acquisition dates. Any adjustments to the initial estimates of the fair value of the acquired assets and liabilities assumed in the ReedTMS and Baylor acquisitions will be recorded as adjustments to the respective assets and liabilities, with the residual amounts allocated to goodwill.

The provisional purchase price allocations for ReedTMS and Baylor as of December 31, 2022 are summarized as follows (in thousands):


	ReedTMS			Baylor
Purchase Price
Cash consideration paid	$	116,989	(1)	$	90,150	(2)
Cash and cash equivalents acquired	(12,120)			(10,150)
Contingent consideration arrangement	5,000		(3)	8,400		(3)
Working capital surplus (deficiency)	(689)			643
Total purchase price (fair value of consideration)	109,180			89,043
Purchase Price Allocation
Current assets	52,531			11,371
Property and equipment	35,000			54,639
Intangible assets	12,000			20,300
Other non-current assets	7,927			556
Total assets acquired	107,458			86,866
Current liabilities	(45,497)			(2,993)
Other long-term liabilities	(5,622)			(302)
Total liabilities assumed	(51,119)			(3,295)

Goodwill	$	52,841		$	5,472

(1) Includes $0.9 million related to the net present value of future insurance payments. At closing, $11.5 million of the cash consideration was placed in escrow to secure certain indemnification obligations of the sellers and to cover post-closing adjustments.

(2) At closing, $8.5 million of the cash consideration was placed in escrow to secure certain indemnification obligations of the sellers and to cover post-closing adjustments.

(3) The estimated fair value of the ReedTMS and Baylor contingent consideration arrangements was based upon probability-adjusted inputs for each acquired entity and are recorded in other long-term liabilities on the consolidated balance sheet as of December 31, 2022.

Goodwill and Intangible Assets

Goodwill associated with the ReedTMS and Baylor business acquisitions was primarily attributable to acquiring and retaining each of the companies’ existing networks and the anticipated synergies from combining the operations of the Company and the acquired companies. The goodwill associated with the acquisitions above is expected to be deductible for income tax purposes.

We have allocated a total of $32.3 million of the purchase prices above to finite-lived intangible assets, consisting of customer relationships and trade names. The estimated fair values of the intangible assets were determined, with the assistance of an

independent third-party valuation firm, using the multi-period excess earnings method for customer relationships and the relief-from-royalty method for trade names. All methods are forms of the income approach, which require a forecast of all the expected future cash flows.

The following table summarizes the major classes of intangible assets and the respective weighted-average estimated amortization periods:


	Estimated Fair Value (in thousands)		Weighted-Average Estimated Amortization Period (Years)
Customer relationships	$	24,700	10
Trade names	7,600		12
Total intangible assets	$	32,300

2021 Business Acquisitions

NEHDS Acquisition

On November 22, 2021, we acquired 100% of the equity interests in NEHDS Logistics, LLC (“NEHDS”). In first quarter 2022, post-closing net working capital changes of $0.7 million decreased the purchase price, resulting in a final total purchase price of $62.3 million after including the impacts of contingent consideration and net working capital changes. We financed the transaction through a combination of cash on hand and existing credit facilities. NEHDS is a final mile residential delivery provider serving customers primarily in the Northeast and Midwest United States 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. Revenues generated by NEHDS are reported in Final Mile within our Werner Logistics (“Logistics”) segment. The contingent earnout liability was $0 and $2.5 million as of December 31, 2022 and 2021, respectively. The contingent earnout period related to the NEHDS acquisition ended on December, 31, 2022 and did not result in any additional cash payments, as the financial performance goals were not achieved. This favorable change to the contingent earnout liability was recorded in other operating expense on the consolidated statements of income for the year ended December 31, 2022. We incurred transaction costs related to the acquisition, such as legal and professional fees, of $0.6 million for the year ended December 31, 2021, which is included in other operating expenses on the consolidated statements of income.

ECM Acquisition

On July 1, 2021, we acquired an 80% ownership interest in ECM Associated, LLC ("ECM”) for a final total purchase price of $141.3 million after net working capital changes and net of cash acquired. We have an exclusive option to purchase the remaining 20% ownership interest in ECM upon the occurrence of certain events or after a period of five years following transaction close, based on a fixed multiple of ECM’s average annual adjusted earnings before interest, taxes, depreciation and amortization. The noncontrolling interest holder also has an option to put the remaining 20% ownership interest to us on the same terms. We record the 20% remaining interest in temporary equity – redeemable noncontrolling interest in the consolidated balance sheets.

ECM provides regional truckload carrier services in the Mid-Atlantic, Ohio, and Northeast regions of the United States. We financed the cash transaction through a combination of cash on hand, existing credit facilities, and the addition of a $100.0 million unsecured fixed-rate term loan commitment with BMO Harris Bank N.A. on June 30, 2021. For more information regarding our debt, see Note 8 – Debt and Credit Facilities.

The results of operations for ECM are included in our consolidated financial statements beginning July 1, 2021. Revenues generated by ECM are reported in our TTS segment. We incurred transaction costs related to the ECM acquisition, such as legal and professional fees, of $1.0 million for the year ended December 31, 2021, which is included in other operating expenses on the consolidated statements of income.