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2: EX-10.1 Material Contract HTML 62K
3: EX-10.2 Material Contract HTML 81K
4: EX-10.3 Material Contract HTML 60K
5: EX-10.4 Material Contract HTML 45K
6: EX-31.1 Certification -- §302 - SOA'02 HTML 27K
7: EX-31.2 Certification -- §302 - SOA'02 HTML 27K
8: EX-32.1 Certification -- §906 - SOA'02 HTML 24K
9: EX-32.2 Certification -- §906 - SOA'02 HTML 24K
15: R1 Cover Page HTML 79K
16: R2 Consolidated Statements of Comprehensive Income HTML 115K
(Unaudited)
17: R3 Consolidated Balance Sheets (Unaudited) HTML 197K
18: R4 Consolidated Statements of Cash Flows (Unaudited) HTML 122K
19: R5 Consolidated Statements Shareholders' Equity HTML 67K
20: R6 General HTML 28K
21: R7 Business Combinations and Asset Acquisitions HTML 53K
22: R8 Leases (Notes) HTML 116K
23: R9 Revenue Recognition HTML 46K
24: R10 Fair Value HTML 36K
25: R11 Investments HTML 46K
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Acquisition Details (Details)
46: R32 Business Combinations and Assets Acquisitions- HTML 29K
Consideration Transferred (Details)
47: R33 Business Combinations and Asset Acquisitions- HTML 25K
Acquisition-Related Costs (Details)
48: R34 Business Combinations and Asset Acquisitions- HTML 64K
Assets Acquired and Liabilities Assumed (Details)
49: R35 Business Combinations and Asset Acquisitions- Pro HTML 25K
Forma Disclosures (Details)
50: R36 Leases - Narrative (Details) HTML 43K
51: R37 Leases - Schedule of Lease Information (Details) HTML 31K
52: R38 Leases - Summary of Investment in Lease HTML 31K
Receivables (Details)
53: R39 Leases - Schedule of Sales-type Lease Income HTML 30K
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54: R40 Revenue Recognition - Disaggregation of Revenue HTML 36K
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55: R41 Revenue Recognition - Revenue Remaining HTML 32K
Performance Obligation (Details)
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57: R43 Revenue Recognition- Additional Information HTML 23K
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(Address
of Registrant’s Principal Executive Offices and Zip Code)
(i920) i592-2000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section
12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
iClass
B common stock, no par value
iSNDR
iNew York Stock Exchange
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.
iYes☒ 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).
iYes☒ 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.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
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 i☐ No ☒
As
of April 22, 2022, the registrant had i83,029,500 shares of Class A common stock, no par value, outstanding and i94,892,655
shares of Class B common stock, no par value, outstanding.
Provider of outsourced logistics services. In logistics and supply chain management, it means a company’s use of third-party businesses, the 3PL(s), to outsource elements of the company’s distribution, fulfillment, and supply chain management services.
ASC
Accounting Standards Codification
ASU
Accounting Standards
Update
ChemDirect
Fortem Invenio, Inc.
CODM
Chief Operating Decision Maker
COVID-19
Coronavirus disease 2019, including its variants
FASB
Financial Accounting Standards Board
GAAP
United States Generally Accepted Accounting Principles
IPO
Initial Public Offering
KPI
Key
Performance Indicator
LIBOR
London InterBank Offered Rate
MLS
Midwest Logistics Systems, Ltd. and affiliated entities holding assets comprising substantially all of its business.
MLSI
Mastery Logistics Systems, Inc.
NASDAQ
National Association of Securities Dealers Automated Quotations
PSI
Platform Science, Inc.
SEC
United
States Securities and Exchange Commission
TuSimple
TuSimple Holdings, Inc. (formerly TuSimple (Cayman) Limited)
U.S.
United States
WSL
Watkins and Shepard Trucking, Inc. and Lodeso, Inc. These businesses were acquired simultaneously in June 2016.
This report contains forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the Company’s current expectations, beliefs, plans, or forecasts with respect to, among other things, future events and financial performance and trends in the business and industry. The words “may,”“will,”“could,”“should,”“would,”“anticipate,”“estimate,”“expect,”“project,”“intend,”“plan,”“believe,”“prospects,”“potential,”“budget,”“forecast,”“continue,”“predict,”“seek,”“objective,”“goal,”“guidance,”“outlook,”“effort,”“target,” and similar words, expressions, terms, and phrases among others, generally identify forward-looking statements, which speak only as of the date the statements were made. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks, and uncertainties. Readers are cautioned that a forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement.
The risks, uncertainties, and other factors that could cause or contribute to actual results differing materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following: our ability to successfully manage the demand, supply, and operational challenges and disruptions (including the impact of reduced freight volumes) associated
with the COVID-19 pandemic and the associated responses of federal, state, and local governments and businesses; economic and business risks inherent in the truckload and transportation industry, including inflation and competitive pressures pertaining to pricing, capacity, and service; our ability to effectively manage tight truck capacity brought about by driver shortages and successfully execute our yield management strategies; our ability to maintain key customer and supply arrangements (including dedicated arrangements) and to manage disruption of our business due to factors outside of our control, such as natural disasters, acts of war or terrorism, disease outbreaks, or pandemics; volatility in the market valuation of our investments in strategic partners and technologies; our ability to manage and effectively implement our growth and diversification strategies and cost saving initiatives; our dependence on our reputation and the Schneider brand and the potential
for adverse publicity, damage to our reputation, and the loss of brand equity; risks related to demand for our service offerings; risks associated with the loss of a significant customer or customers; capital investments that fail to match customer demand or for which we cannot obtain adequate funding; fluctuations in the price or availability of fuel, the volume and terms of diesel fuel purchase agreements, our ability to recover fuel costs through our fuel surcharge programs, and potential changes in customer preferences (e.g. truckload vs. intermodal services) driven by diesel fuel prices; our ability to attract and retain qualified drivers and owner-operators; our reliance on owner-operators to provide a portion of our truck fleet; our dependence on railroads in the operation of our intermodal business; our ability to successfully transition from Burlington Northern Santa Fe Railway Company to Union Pacific Railroad Company as our primary intermodal rail service
provider by January 2023; potential port congestion or interruptions that may result from contract negotiations between the International Longshore and Warehouse Union and west coast port owners; potential volatility in the value of our investments in strategic partners, especially as it relates to our investment in TuSimple; service instability and/or increased costs from third-party capacity providers used by our business; changes in the outsourcing practices of our third-party logistics customers; difficulty in obtaining material, equipment, goods, and services from our vendors and suppliers; variability in insurance and claims expenses and the risks of insuring claims through our captive insurance company; the impact of laws and regulations that apply to our business, including those that relate to the environment, taxes, associates, owner-operators, and our captive insurance
company; changes to those laws and regulations; and the increased costs of compliance with existing or future federal, state, and local regulations; political, economic, and other risks from cross-border operations and operations in multiple countries; risks associated with financial, credit, and equity markets, including our ability to service indebtedness and fund capital expenditures and strategic initiatives; negative seasonal patterns generally experienced in the trucking industry during traditionally slower shipping periods and winter months; risks associated with severe weather and similar events; significant systems disruptions, including those caused by cybersecurity events and firmware defects; exposure to claims and lawsuits in the ordinary course of business; our ability to adapt to new technologies and new participants in the truckload and transportation industry; and those risks and uncertainties discussed in (1) our most recently filed Annual Report on
Form 10-K in (a) Part I, Item 1A. “Risk Factors,” (b) Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and (c) Part II, Item 8. “Financial Statements and Supplementary Data: Note 14, Commitments and Contingencies,” (2) this Quarterly Report on Form 10-Q in (a) Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (b) Part I, Item 1. “Financial Statements: Note 12, Commitments and Contingencies,” and (3) other factors discussed in filings with the SEC by the Company.
The Company undertakes no obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances
after the date of this Report.
WHERE TO FIND MORE INFORMATION
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information that the Company files electronically with the SEC. These documents are also available to the public from commercial document retrieval services and at the “Investors” section of our website at www.schneider.com.
Information disclosed or available on our website shall not be deemed incorporated into, or to be a part of, this Report.
Trade
accounts receivable—net of allowance of $i6.6 million and $i5.2
million, respectively
i754.4
i705.4
Other
receivables
i59.2
i35.9
Current
portion of lease receivables—net of allowance of $i1.2 million and $i1.1 million, respectively
i111.9
i110.6
Inventories
i31.3
i27.4
Prepaid
expenses and other current assets
i119.4
i75.1
Total
current assets
i1,397.3
i1,248.5
Noncurrent
Assets:
Property and equipment:
Transportation equipment
i3,119.0
i3,056.2
Land,
buildings, and improvements
i208.1
i215.7
Other
property and equipment
i176.9
i175.1
Total
property and equipment
i3,504.0
i3,447.0
Less
accumulated depreciation
i1,455.9
i1,396.0
Net
property and equipment
i2,048.1
i2,051.0
Lease
receivables
i161.0
i160.1
Internal
use software and other noncurrent assets
i235.2
i237.2
Goodwill
i245.0
i240.5
Total
noncurrent assets
i2,689.3
i2,688.8
Total
Assets
$
i4,086.6
$
i3,937.3
Liabilities
and Shareholders’ Equity
Current Liabilities:
Trade accounts payable
$
i400.2
$
i331.7
Accrued
salaries, wages, and benefits
i67.4
i104.5
Claims
accruals—current
i85.9
i83.9
Current
maturities of debt and finance lease obligations
i1.8
i61.4
Other
current liabilities
i170.6
i108.7
Total
current liabilities
i725.9
i690.2
Noncurrent Liabilities:
Long-term
debt and finance lease obligations
i209.9
i208.9
Claims
accruals—noncurrent
i94.6
i88.5
Deferred
income taxes
i480.2
i451.0
Other
noncurrent liabilities
i71.1
i74.9
Total
noncurrent liabilities
i855.8
i823.3
Total Liabilities
i1,581.7
i1,513.5
Commitments
and Contingencies (Note 12)
Shareholders’ Equity:
Preferred shares, iino/
par value, ii50,000,000/ shares
authorized, iiiino///
shares issued or outstanding
i—
i—
Class
A common shares, iino/
par value, ii250,000,000/ shares authorized,
iiii83,029,500///
shares issued and outstanding
i—
i—
Class
B common shares, iino/
par value, ii750,000,000/ shares authorized,
i95,641,086 and i95,701,868 shares issued, and i94,890,562
and i94,626,740 shares outstanding, respectively
i—
i—
Additional
paid-in capital
i1,571.4
i1,566.0
Retained
earnings
i935.0
i857.8
Accumulated
other comprehensive loss
(i1.5)
i—
Total
Shareholders’ Equity
i2,504.9
i2,423.8
Total
Liabilities and Shareholders’ Equity
$
i4,086.6
$
i3,937.3
See
notes to consolidated financial statements (unaudited).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. iGENERAL
iNature
of Operations
Schneider National, Inc. and its subsidiaries (together “Schneider,” the “Company,”“we,”“us,” or “our”) are among the largest providers of surface transportation and logistics solutions in North America. We offer a multimodal portfolio of services and possess an array of capabilities and resources that leverage artificial intelligence, data science, and analytics to provide innovative solutions that coordinate the movement of customer products timely, safely, and effectively. The Company offers truckload, intermodal, and logistics services to a diverse customer base throughout the continental United States, Canada, and Mexico, thus adding value to their supply chains.
i
Principles
of Consolidation and Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in conformity with GAAP and the rules and regulations of the SEC applicable to quarterly reports on Form 10-Q. Therefore, these consolidated financial statements and footnotes do not include all disclosures required by GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021. Financial results for an interim period are not necessarily indicative of the results for a full year. All intercompany transactions have been eliminated in consolidation.
In the opinion of management, these statements reflect all adjustments (consisting
only of normal, recurring adjustments) necessary for the fair presentation of our financial results for the interim periods presented.
i
Property and Equipment
Gains and losses on property and equipment are recognized at the time of sale or disposition and are classified in operating supplies and expenses—net in the consolidated statements of comprehensive income. For the three months ended March 31, 2022 and 2021,
we recognized $i60.9 million and $i1.9 million of net gains on the sale of property and equipment,
respectively. Net gains in 2022 were primarily related to the sale of the Company’s Canadian facility.
/
iAccounting Standards Recently Adopted
In November 2021, the FASB issued ASU 2021-10, Government
Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This standard requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy (for example, International Financial Reporting Standards guidance in International Accounting Standards 20 or guidance on contributions for not-for-profit entities in ASC 958-605), including information about the nature and significant terms and conditions of the transaction, as well as the amounts and specific financial statement line items affected by the transaction. ASU 2021-10 is effective for us beginning with our December 31, 2022 financial statements. The adoption of this standard did not have a material impact on our consolidated financial statements or disclosures.
2.
iACQUISITION
We entered into a Securities Purchase Agreement, dated iDecember 31,
2021 (“Acquisition Date”), to acquire i100% of the outstanding equity of MLS, a dedicated trucking company based in Celina, OH, and certain affiliated entities holding assets comprising substantially all of MLS’s business (the “Acquisition”). MLS is a premier dedicated carrier in the central U.S. that we believe complements our growing dedicated operations.
The aggregate purchase price of the Acquisition was approximately $i274.5
million inclusive of certain cash and net working capital adjustments and a deferred payment of $i3.2 million made in January 2022. Proceeds from the total purchase consideration were used to settle $i26.9
million of MLS’s outstanding debt as of the Acquisition Date. The purchase price is subject to certain customary purchase price adjustments.
The acquisition of MLS was accounted for under the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized on the consolidated balance sheets at their fair values as of the Acquisition Date. These inputs represent Level 3 measurements in the fair value hierarchy and required significant judgments and estimates at the time of
valuation. Fair value estimates of acquired property and
equipment were based on an independent appraisal, giving consideration to the highest and best use of the assets. Key assumptions used in the transportation equipment appraisals were based on the market approach, while key assumptions used in the land, buildings and improvements, and other property and equipment appraisals were based on a combination of the income (direct capitalization) and sales comparison approaches, as appropriate.
The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed was recorded as goodwill within the Truckload reporting segment. The goodwill is attributable to expected synergies and growth opportunities within our dedicated business and is expected to be deductible for tax purposes.
Acquisition-related costs, which consisted of fees incurred for advisory, legal, and accounting services, were
$i1.9 million and were included in other general expenses in the Company’s consolidated statements of comprehensive income for the year ended December 31, 2021.
i
The
following table summarizes the preliminary purchase price allocation for MLS, including any adjustments during the measurement period:
Recognized amounts of identifiable assets acquired and liabilities assumed (in millions)
The
above adjustments made during the period were primarily related to working capital, property and equipment, and leases. No material statement of comprehensive income effects were identified with these adjustments.
During the measurement period, which is up to one year from the Acquisition Date, we may continue to adjust provisional amounts that were recognized at the Acquisition Date to reflect new information about facts and circumstances that existed as of the Acquisition Date. Amounts that are still considered provisional include working capital and intangibles. We anticipate finalizing the determination of fair value by December 31, 2022.
Combined unaudited pro forma operating revenues of the
Company and MLS would have been approximately $i1,280.0 million during the three months ended March 31, 2021, and our earnings for that period would not have been materially different.
We lease real estate and equipment under operating and finance leases. Our real estate operating leases include operating centers, distribution warehouses, offices, and drop yards. Our non-real estate operating leases and finance leases include transportation, office, yard, and warehouse equipment, in addition to truck washes. The majority of our leases include an option to extend the lease, and a small number include an option to terminate the lease early, which may include a termination payment.
i
Additional information
related to our leases is as follows:
Three Months Ended March 31,
(in millions)
2022
2021
Cash paid for amounts included in the measurement of lease liabilities
Operating
cash flows for operating leases
$
i8.3
$
i7.8
Financing
cash flows for finance leases
i0.3
i0.2
Right-of-use
assets obtained in exchange for new lease liabilities
Operating leases
$
i4.3
$
i14.6
Finance
leases
i1.8
i1.2
/
As
of March 31, 2022, we had signed leases that had not yet commenced totaling $i3.5 million. These leases will commence during the remainder of 2022 and have lease terms of one to iseven
years.
As Lessor
We finance various types of transportation-related equipment for independent third parties under lease contracts which are generally for one to ithree years and are accounted for as sales-type leases with fully guaranteed residual values. Our leases contain an option for the lessee to return, extend, or purchase the equipment at the end of the lease term for
the guaranteed contract residual amount. This contract residual amount is estimated to approximate the fair value of the equipment. Lease payments primarily include base rentals and guaranteed residual values.
Prior
to entering a lease contract, we assess the credit quality of the potential lessee using credit checks and other relevant factors, ensuring that the inherent credit risk is consistent with our existing lease portfolio. Given our leases have fully guaranteed residual values and we can take possession of the transportation-related equipment in the event of default, we do not categorize net investment in leases by different credit quality indicators upon origination. We monitor our lease portfolio weekly by tracking amounts past due, days past due, and outstanding maintenance account balances, including performing subsequent credit checks as needed. Our net investment in leases with any portion past due as of March 31, 2022 was $i31.8
million, which includes both current and future lease payments.
Lease payments are generally due on a weekly basis and are classified as past due when the weekly payment is not received by its due date. As of March 31, 2022, our lease payments past due were $i3.1 million.
The table below provides additional information on our sales-type leases. Revenue and cost of goods sold are recorded in operating revenues and operating supplies and expenses—net in the consolidated statements of comprehensive income, respectively.
Three
Months Ended March 31,
(in millions)
2022
2021
Revenue
$
i42.3
$
i58.8
Cost
of goods sold
(i36.0)
(i50.4)
Operating
profit
$
i6.3
$
i8.4
Interest
income on lease receivable
$
i8.7
$
i7.3
/
4.
iREVENUE RECOGNITION
Disaggregated Revenues
The majority of our revenues are related to transportation and have similar characteristics. Beginning in 2022, MLS revenues are included within Transportation revenues, consistent with the remainder of our Truckload segment. iThe
following table summarizes our revenues by type of service.
The following table provides information related to transactions and expected timing of revenue recognition for performance obligations that are fixed in nature and relate to contracts with terms greater than one year as of the date shown.
This
disclosure does not include revenue related to performance obligations that are part of a contract with an original expected duration of one year or less, nor does it include expected consideration related to performance obligations for which the Company elects to recognize revenue in the amount it has a right to invoice (e.g., usage-based pricing terms).
i
The following
table provides information related to contract balances associated with our contracts with customers as of the dates shown.
We generally receive payment within i40 days of completion of performance obligations. Contract assets in the table above relate to revenue in transit at the end of the reporting period. Contract liabilities relate to amounts that customers paid in advance of the associated services.
5.
iFAIR VALUE
Fair value is the estimated price that would be received to sell an asset or paid to transfer a liability. Inputs to valuation techniques used to measure fair value fall into three broad levels (Levels 1, 2, and 3) as follows:
Level 1—Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that we have the ability to access at the measurement date.
Level 2—Observable
inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities.
Level 3—Unobservable inputs reflecting the reporting entity’s estimates of the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
i
The
table below sets forth the Company’s financial assets that are measured at fair value on a recurring, monthly basis in accordance with ASC 820.
(1)Our
equity investment in TuSimple is classified as Level 1 in the fair value hierarchy as shares of TuSimple’s Class A common stock are traded on the NASDAQ. See Note 6, Investments, for additional information.
(2)Marketable securities are classified as Level 2 in the fair value hierarchy as they are valued based on quoted prices for similar assets in active markets or quoted prices for identical or similar assets in markets that are not active. See Note 6, Investments, for additional information.
/
The fair value of the
Company’s debt was $i206.2 million and $i276.7 million as of March 31, 2022 and December 31,
2021, respectively. The carrying value of the Company’s debt was $i205.0 million and $i265.0 million as of March 31,
2022 and December 31, 2021, respectively. The fair value of our debt was calculated using a fixed rate debt portfolio with similar terms and maturities, which is based on the borrowing rates available to us in the applicable year. This valuation used Level 2 inputs.
The recorded values of cash, trade accounts receivable, lease receivables, and trade accounts payable approximate fair values.
As part of the acquisition of MLS on iDecember 31,
2021, certain assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. Refer to Note 2, Acquisition, for further details.
6. iINVESTMENTS
Marketable Securities
Our marketable securities are classified as
available-for-sale and carried at fair value in current assets on the consolidated balance sheets. While our intent is to hold our securities to maturity, sudden changes in the market or our liquidity needs may cause us to sell certain securities in advance of their maturity date.
Any unrealized gains and losses, net of tax, are included as a component of accumulated other comprehensive income on the consolidated balance sheets, unless we determine that the amortized cost basis is not recoverable. If we determine that the amortized cost basis of the impaired security is not recoverable, we recognize the credit loss by increasing the allowance for those losses. We did iino/t
have an allowance for credit losses on our marketable securities as of March 31, 2022 or December 31, 2021. Cost basis is determined using the specific identification method.
Equity
Investments without Readily Determinable Fair Values
The Company’s strategic equity investments without readily determinable fair values include PSI, a provider of telematics and fleet management tools, MLSI, a transportation technology development company, and ChemDirect, a business to business digital marketplace for the chemical industry. These investments are being accounted for under ASC 321, Investments - Equity Securities, using the measurement alternative, and their combined values as of March 31, 2022 and December 31, 2021 were $i40.2
million and $i36.2 million, respectively. If the Company identifies observable price changes for identical or similar securities of the same issuer, the equity security is measured at fair value as of the date the observable transaction occurred using Level 3 inputs.
i
As
of March 31, 2022, our cumulative upward adjustments were $i26.2 million. The following table summarizes the activity related to these equity investments during the periods presented.
Three
Months Ended March 31,
(in millions)
2022
2021
Investment in equity securities
$
i4.0
$
i—
/
Equity
Investments with Readily Determinable Fair Values
In 2021, the Company purchased a $i5.0 million non-controlling interest in TuSimple, a global self-driving technology company. Upon completion of its initial public offering in April 2021, our investment in TuSimple was converted into Class A common shares and is now being accounted for under ASC 321, Investments - Equity Securities.
In the three months ended March 31, 2022, the Company recognized a pre-tax loss of $i8.4 million on its investment in TuSimple. See Note 5, Fair Value, for additional information on the fair value of our investment in TuSimple.
All of our equity investments are included in other noncurrent assets on the
consolidated balance sheets with subsequent gains or losses recognized within other expense—net on the consolidated statements of comprehensive income.
7. iGOODWILL
Goodwill represents the excess of the purchase price of acquisitions over the fair value of the identifiable net assets acquired. iThe
following table shows changes to our goodwill balances by segment during the period ended March 31, 2022.
At
March 31, 2022 and December 31, 2021, we had accumulated goodwill impairment charges of $ii53.2/
million, which consisted of $ii34.6/
million and $ii18.6/
million in our Truckload segment and Other, respectively.
During the period ended March 31, 2022, we made measurement period adjustments related to the iDecember 31, 2021 acquisition of MLS which were recorded within the Truckload segment. Refer to Note 2, Acquisition, for further details.
Unsecured senior notes: principal maturities ranging from i2023
through i2025; interest payable in isemiannual installments through the same timeframe; weighted average interest rate of i3.80%
and i3.61% for 2022 and 2021, respectively
$
i205.0
$
i265.0
Current
maturities
i—
(i60.0)
Long-term
debt
$
i205.0
$
i205.0
/
Our
Credit Agreement (the “2018 Credit Facility”) provides borrowing capacity of $i250.0 million and allows us to request an increase in total commitment up to $i150.0
million, for a total potential commitment of $i400.0 million through August 2023. The agreement also provides a sublimit of $i100.0
million to be used for the issuance of letters of credit. We had iino/ outstanding borrowings under this agreement as of March 31,
2022 or December 31, 2021. Standby letters of credit under this agreement amounted to $ii3.9/
million at March 31, 2022 and December 31, 2021 and were primarily related to the requirements of certain of our real estate leases.
We also have a Receivables Purchase Agreement (the “2021 Receivables Purchase Agreement”), which allows us to borrow funds against qualifying trade receivables at rates based on one-month LIBOR up to $i150.0 million and provides for the
issuance of standby letters of credit through July 2024. We had iino/ outstanding borrowings under this facility at March 31,
2022 or December 31, 2021. At March 31, 2022 and December 31, 2021, standby letters of credit under this agreement amounted to $i73.3 million and $i70.3
million, respectively, and were primarily related to the requirements of certain of our insurance obligations.
9. iINCOME TAXES
Our effective income tax rate was i25.4%
and i24.7% for the three months ended March 31, 2022 and 2021, respectively. In determining the quarterly provision for income taxes, we use an estimated annual effective tax rate adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, and best estimates of nontaxable and nondeductible income and expense items.
10.
iCOMMON EQUITY
Earnings Per Share
i
The following table
sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2022 and 2021, respectively.
Three Months Ended March 31,
(in millions, except per share
data)
2022
2021
Numerator:
Net income available to common shareholders
$
i92.1
$
i54.8
Denominator:
Weighted
average common shares outstanding
i177.7
i177.4
Dilutive
effect of share-based awards and options outstanding
i0.8
i0.4
Weighted
average diluted common shares outstanding (1)
i178.5
i177.8
Basic
earnings per common share
$
i0.52
$
i0.31
Diluted
earnings per common share
i0.52
i0.31
(1)Weighted
average diluted common shares outstanding may not sum due to rounding.
The calculation of diluted earnings per share excluded ii0.6/
million share-based awards and options that had an anti-dilutive effect for the three months ended March 31, 2022 and 2021.
In April of 2022, the Board of Directors declared a quarterly cash dividend for the second fiscal quarter of 2022 in the
amount of $ii0.08/ per share to holders of
our Class A and Class B common stock. The dividend is payable to shareholders of record at the close of business on June 10, 2022 and will be paid on July 11, 2022.
11. iSHARE-BASED COMPENSATION
We
grant various equity-based awards relating to Class B common stock to employees under our 2017 Omnibus Incentive Plan (“the Plan”). These awards have historically consisted of restricted shares, restricted stock units (“RSUs”), performance-based restricted shares (“performance shares”), performance-based restricted stock units (“PSUs”), and non-qualified stock options. Performance shares and PSUs granted prior to 2021 are earned based on attainment of threshold performance of earnings and return on capital targets. Beginning with grants in 2021, in addition to achievement of earnings and return on capital targets, a multiplier is applied to performance share and PSU achievement based on relative total shareholder return (“rTSR”) against peers over the performance period.
Share-based compensation expense was $i5.1
million and $i4.2 million for the three months ended March 31, 2022 and 2021, respectively. We recognize share-based compensation expense over the awards’ vesting period. As of March 31, 2022, we had $i35.5
million of pre-tax unrecognized compensation cost related to outstanding share-based compensation awards expected to be recognized over a weighted average period of i2.4 years.
i
Equity-based
awards granted during the first quarter of 2022 had a grant date fair value of $i16.5 million and are included in the table below. No restricted or performance shares were granted during the first quarter of 2022.
2022
Grants
Number of Awards Granted
Weighted Average Grant Date Fair Value
RSUs
i315,184
$
i25.91
PSUs
i219,713
i28.43
Non-qualified
stock options
i287,841
i7.40
Total
grants
i822,738
/
The
Black-Scholes valuation model is used by the Company to determine the grant date fair value of non-qualified stock options, while the Monte-Carlo valuation model is used by the Company to determine the grant date fair value of PSUs that include a rTSR component. The Company uses its stock price on the grant date as the fair value assigned to RSUs.
12. iCOMMITMENTS
AND CONTINGENCIES
In the ordinary course of conducting our business, we become involved in certain legal matters and investigations including liability claims, taxes other than income taxes, contract disputes, employment, and other litigation matters. We accrue for anticipated costs to resolve matters that are probable and estimable. We believe the outcomes of these matters will not have a material impact on our business or our consolidated financial statements.
We record liabilities for claims against the Company based on our best estimate of expected losses. The primary claims arising for the
Company through its trucking, intermodal, and logistics operations consist of accident-related claims for personal injury, collision, and comprehensive compensation, in addition to workers’ compensation, property damage, cargo, and wage and benefit claims. We maintain excess liability insurance with licensed insurance carriers for liability in excess of amounts we self-insure, which serves to largely offset the Company’s liability associated with these claims, with the exception of wage and benefit claims for which we self-insure. We review our accruals periodically to ensure that the aggregate amounts of our accruals are appropriate at any period after consideration of available insurance coverage. Although we expect that our claims accruals will continue to vary based on future developments, assuming that we are able to continue to obtain and maintain excess liability insurance
coverage for such claims, we do not anticipate that such accruals will, in any period, materially impact our operating results.
At March 31, 2022, our firm commitments to purchase transportation equipment totaled $i408.7 million.
In March 2022, the Company recorded a $i5.2
million charge as a result of an adverse audit assessment by a state jurisdiction over the applicability of sales tax for prior periods on rolling stock equipment used within that state. The charge is included
within operating supplies and expenses—net on the consolidated statements of comprehensive income for the three months ended March 31, 2022. The Company plans to appeal the audit assessment.
Subsequent Event
As
previously disclosed, a representative of the former owners of WSL filed a lawsuit in the Delaware Court of Chancery alleging that we did not fulfill certain obligations under the purchase and sale agreement and claiming that the former owners of WSL were entitled to damages including an additional payment of $i40.0 million under an earn-out arrangement. The Delaware Court of Chancery conducted a remote trial in January 2021. In September 2021, the Delaware Chancery Court transferred the proceedings to Delaware Superior Court to ensure there were no
jurisdictional deficiencies prior to entry of a final ruling. On April 25, 2022, the Delaware Superior Court entered judgment in favor of the former owners of WSL, awarding $i40.0 million in compensatory damages, plus prejudgment interest and the former owners’ attorneys’ fees. We estimate that prejudgment interest and attorneys’ fees will amount to approximately $i19.0
million, for a total of $ii59.0/
million in damages, interest, and fees. We are evaluating all options for appealing this judgment. The $ii59.0/
million is included within other current liabilities in the consolidated balance sheets and other general expenses in the consolidated statements of comprehensive income as of and for the three months ended March 31, 2022, respectively.
13. iSEGMENT REPORTING
We have ithree
reportable segments – Truckload, Intermodal, and Logistics – which are based primarily on the services each segment provides.
As of December 31, 2021, our operating segments within the Truckload reportable segment were VTL and Bulk. The operating results of MLS, a standalone operating segment, have been aggregated into the Truckload reportable segment as of March 31, 2022 as it shares similar economic characteristics with our other Truckload operating segments and meets the other aggregation criteria described in ASC 280. VTL delivers truckload quantities over irregular routes and customer freight with dedicated contracts using dry van and specialty trailers. Bulk transports key inputs to manufacturing processes, such
as specialty chemicals, using specialty trailers. MLS provides dedicated truckload services focusing primarily on freight with consistent routes.
The CODM reviews revenues for each segment without the inclusion of fuel surcharge revenues. For segment purposes, any fuel surcharge revenues earned are recorded as a reduction of the segment’s fuel expenses. Income from operations at the segment level reflects the measure presented to the CODM for each segment.
Separate balance sheets are not prepared by segment, and as a result, assets are not separately identifiable by segment. All transactions between reportable segments are eliminated in consolidation.
Substantially all of our revenues and assets were generated or located within the U.S.
i
The
following tables summarize our segment information. Inter-segment revenues were immaterial for all segments, with the exception of Other, which included revenues from insurance premiums charged to other segments for workers’ compensation, auto, and other types of insurance. Inter-segment revenues included in Other revenues below were $i19.5 million and $i18.0
million for the three months ended March 31, 2022 and 2021, respectively.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes and our Annual Report on Form 10-K for the year ended December 31, 2021.
INTRODUCTION
Company Overview
We are a transportation and logistics services company providing a broad portfolio of truckload, intermodal, and logistics solutions and operating one of the
largest for-hire trucking fleets in North America. Our diversified portfolio of complementary service offerings combines truckload services with intermodal and logistics offerings, enabling us to serve the varied needs of our customers. Our broad portfolio of services provides us with a greater opportunity to allocate capital within our portfolio of services in a manner designed to maximize returns across all market cycles and economic conditions. We continually monitor our performance and market conditions to ensure appropriate allocation of capital and resources to grow our businesses, while optimizing returns across reportable segments. Furthermore, our strong balance sheet enables us to carry out an acquisition strategy that strengthens our overall portfolio. We are positioned to leverage our scalable platform and experienced operations team to acquire high-quality businesses that meet our disciplined selection criteria to enhance our service offerings and broaden
our customer base.
Our truckload services consist of freight transported and delivered by our company-employed drivers in company trucks and by owner-operators. These services are executed through either network or dedicated contracts and include standard long-haul and regional shipping services primarily using dry van, bulk, temperature-controlled, and flat-bed equipment, as well as cross dock and customized solutions for high-value and time-sensitive loads with coverage throughout North America.
Our intermodal service consists of door-to-door container on flat car (“COFC”) service through a combination of rail and dray transportation, in association with our rail
carrier providers. Our intermodal service uses company-owned containers, chassis, and trucks with primarily company dray drivers, augmented by third-party dray capacity.
Our logistics services consist of freight brokerage (including Power Only which leverages our nationwide trailer pools to match capacity with demand), supply chain (including 3PL), warehousing, and import/export services. Our logistics business provides value-added services using both our assets and third-party capacity, augmented by our trailing assets, to manage and move our customers’ freight.
Our success depends on our ability to balance our transportation network and efficiently and effectively manage our resources in the delivery of truckload, intermodal, and logistics services to our customers. Resource requirements vary with customer demand, which may be subject to seasonal
or general economic conditions. We believe that our ability to properly select freight and adapt to changes in customer transportation needs allows us to efficiently deploy resources and make capital investments in trucks, trailers, containers, and chassis or obtain qualified third-party capacity at a reasonable price.
Consistent with the transportation industry, our business is seasonal across each of our segments which generally translates to our reported revenues being the lowest in the first quarter and highest in the fourth quarter. Operating expenses tend to be higher in the winter months, primarily due to colder weather, which causes higher maintenance expense and higher fuel consumption from increased idle time.
Recent Developments
Acquisition
On
December 31, 2021, the Company completed the acquisition of MLS, a privately held truckload carrier based in Celina, OH. MLS is a dedicated carrier that primarily serves the central U.S. and complements our growing dedicated operations. Beginning in the first quarter of 2022, MLS financial results are reported in dedicated operations as part of our Truckload segment. Refer to Note 2, Acquisition, for additional details.
Adverse Legal Judgment
On April 25, 2022, in connection with our litigation against the former owners of WSL, the Delaware Superior Court entered judgment in favor of the former owners, awarding $ii59.0/
million in damages, interest, and attorneys’ fees. This judgment has
been recognized in our results of operations for the three months ended March 31, 2022. Refer to Note 12, Commitments and Contingencies, for additional details.
RESULTS OF OPERATIONS
Non-GAAP Financial
Measures
In this section of our report, we present the following non-GAAP financial measures: (1) revenues (excluding fuel surcharge), (2) adjusted income from operations, (3) adjusted operating ratio, and (4) adjusted net income. We also provide reconciliations of these measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Management believes the use of each of these non-GAAP measures assists investors in understanding our business by (1) removing the impact of items from our operating results that, in our opinion, do not reflect our core operating performance, (2) providing investors with the same information our management uses internally to assess our core operating performance, and (3) presenting comparable financial results between periods. In addition, in the case of revenues (excluding
fuel surcharge), we believe the measure is useful to investors because it isolates volume, price, and cost changes directly related to industry demand and the way we operate our business from the external factor of fluctuating fuel prices and the programs we have in place to manage such fluctuations. Fuel-related costs and their impact on our industry are important to our results of operations, but they are often independent of other, more relevant factors affecting our results of operations and our industry.
Although we believe these non-GAAP measures are useful to investors, they have limitations as analytical tools and may not be comparable to similar measures disclosed by other companies. You should not consider the non-GAAP measures in this report in isolation or as substitutes for, or alternatives to, analysis of our results as reported under GAAP. The exclusion of unusual or infrequent items or other
adjustments reflected in the non-GAAP measures should not be construed as an inference that our future results will not be affected by unusual or infrequent items or by other items similar to such adjustments. Our management compensates for these limitations by relying primarily on our GAAP results in addition to using the non-GAAP measures.
Enterprise Summary
The following table includes key GAAP and non-GAAP financial measures for the consolidated enterprise. Adjustments to arrive at non-GAAP measures are made at the enterprise level, with the exception of fuel surcharge revenues, which are not included in segment revenues.
(1)We define “revenues (excluding fuel surcharge)” as operating revenues less fuel surcharge revenues, which are excluded from revenues at the segment level. Included below is a reconciliation of operating revenues, the most closely comparable GAAP financial measure, to revenues (excluding fuel surcharge).
(2)We
define “adjusted income from operations” as income from operations, adjusted to exclude material items that do not reflect our core operating performance. Included below is a reconciliation of income from operations, which is the most directly comparable GAAP measure, to adjusted income from operations. Excluded items for the periods shown are explained in the table and notes below.
(3)We define “adjusted operating ratio” as operating expenses, adjusted to exclude material items that do not reflect our core operating performance, divided by revenues (excluding fuel surcharge). Included below is a reconciliation of operating ratio, which is the most directly comparable GAAP measure, to adjusted operating ratio. Excluded items for the periods shown are explained below under our explanation of “adjusted income from operations.”
(4)We define “adjusted net income” as net income, adjusted to exclude material items that do not reflect our core operating performance. Included below is a reconciliation of net income, which is the most directly comparable GAAP measure, to adjusted net income. Excluded items for the periods shown are explained below under our explanation of “adjusted income from operations.”
(1)Includes $5.2 million
in charges related to an adverse audit assessment for prior period state sales tax on rolling stock equipment used within that state.
(2)Includes a $59.0 million adverse judgment related to a lawsuit with former owners of WSL, inclusive of prejudgment interest and the former owners’ attorneys’ fees.
(3)Net gain on the sale of our Canadian facility due to a change in approach to servicing Canada.
(1)Our
estimated tax rate on non-GAAP items is determined annually using the applicable consolidated federal and state effective tax rate, modified to remove the impact of tax credits and adjustments that are not applicable to the specific items. Due to differences in the tax treatment of items excluded from non-GAAP income, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP items may differ from our GAAP tax rate and from our actual tax liabilities.
Enterprise net income increased $37.3 million, approximately 68%,
in the first quarter of 2022 compared to the same quarter in 2021, primarily due to a $58.9 million increase in income from operations, partially offset by the corresponding increase in income taxes and a pre-tax equity investment loss of $8.4 million during three months ended March 31, 2022.
Adjusted net income increased $47.3 million, approximately 86%.
Components of Enterprise Net Income
Enterprise Revenues
Enterprise operating revenues increased $391.9 million, approximately 32%, in the first quarter of 2022 compared to the same quarter in 2021.
Factors
contributing to the increase were as follows:
•a $189.8 million increase in Logistics segment revenues (excluding fuel surcharge) driven by increased revenue per order, volume growth within our brokerage business, and incremental port dray revenues;
•a $96.7 million increase in Truckload segment revenues (excluding fuel surcharge) resulting from improved revenue per truck per week and the addition of revenues (excluding fuel surcharge) from the recent acquisition of MLS, partially offset by lower network volumes due to driver capacity constraints and reduced productivity resulting from COVID-19 disruptions early in the quarter;
•a $75.8 million increase in fuel surcharge revenues resulting from an increase in fuel prices in the first quarter of 2022 compared to the same
quarter in 2021 (for example, based on information reported by the U.S. Department of Energy, the average diesel price per gallon in the U.S. increased by 44% between such periods), as well as fuel surcharge revenues from the recent acquisition of MLS; and
•a $46.3 million increase in Intermodal segment revenues (excluding fuel surcharge) due to improvement in revenue per order and an increase in orders despite continued network fluidity challenges.
Enterprise revenues (excluding fuel surcharge) increased $316.1 million, approximately 28%.
Enterprise Income from Operations and Operating Ratio
Enterprise income from operations increased $58.9 million, approximately 77%, in the first quarter of 2022 compared to the same
quarter in 2021, primarily due to an increase in revenue per truck per week in Truckload, revenue per order in Intermodal, and net revenue per order in Logistics driven by strong freight market conditions, effective network and revenue management, and contracted rate renewals. A net gain on sale of $50.9 million in connection with the sale of our Canadian facility due to a change in approach to servicing Canada also contributed to the increase. Our brokerage business experienced a 24% increase in order volume driven by the leveraging of our digital platform, in addition to the continued expansion of our Power Only offering. The above factors were partially offset by a $59.0 million adverse judgment related to a lawsuit with former owners of
WSL, an increase in driver costs resulting from additional costs incurred to attract and retain drivers and an increase in company drivers, and higher rail purchased transportation costs within Intermodal.
Adjusted income from operations increased $72.2 million, approximately 95%.
Enterprise operating ratio improved on both a GAAP and adjusted basis when compared to the first quarter of 2021. Among other factors, our operating ratio can be negatively impacted by changes in portfolio mix when our higher operating ratio, less asset-focused Logistics segment grows faster than our lower operating ratio, capital-intensive Truckload segment.
Enterprise Operating Expenses
Key
operating expense fluctuations are described below.
•Purchased transportation increased $181.6 million, or 33%, quarter over quarter, primarily resulting from increased third party carrier costs attributable to higher purchased transportation costs per order and volume growth within Logistics, as well as higher rail purchased transportation driven by an increase in rail cost per mile within Intermodal.
•Salaries, wages, and benefits increased $70.4 million, or 26%, quarter over quarter, primarily due to higher Truckload driver pay resulting from pay increases and actions to address driver capacity constraints and an increase in company drivers. The recent acquisition of MLS, an increase in headcount across the organization, and incremental healthcare costs added to the remaining increase quarter over quarter.
•Fuel
and fuel taxes for company trucks increased $46.4 million, or 73%, quarter over quarter, driven primarily by additional fuel expense recorded related to the recent acquisition of MLS and an increase in cost per gallon. A significant portion of fuel costs are recovered through our fuel surcharge programs.
•Depreciation and amortization increased $10.7 million, or 15%, quarter over quarter, primarily due to the recent acquisition of MLS which contributed approximately half of the increase. The remaining increase was mainly due to additional depreciation expense incurred as a result of container and truck growth within Intermodal and Truckload, respectively.
•Operating supplies and expenses—net decreased $46.6 million, or 34%, quarter over quarter, largely due to an increase in gains on sales of property and equipment primarily relating
to the sale of the Company’s Canadian facility in the first quarter of 2022. Lower cost of goods sold in our leasing business due to a reduction in lease activity also contributed to the decrease in operating supplies and expenses—net quarter over quarter. These factors were partially offset by an increase in equipment rental expense due to port congestion and higher customer dwell time, a $5.2 million increase in expense related to an adverse audit assessment over the applicability of state sales tax, higher maintenance costs due to the recent MLS acquisition and inflationary cost pressures, and additional rail storage expenses caused by network fluidity challenges and increased container count.
•Other general expenses increased $68.5 million, or 233%, quarter over quarter, primarily due to a $59.0 million adverse
judgment related to a lawsuit with former owners of WSL and higher driver onboarding costs resulting from increased costs to attract and retain drivers due to constrained industry-wide capacity levels and the hiring of additional company drivers in 2022.
Total Other Expenses
Total other expense increased $8.2 million, approximately 241%, in the first quarter of 2022 compared to the same quarter in 2021. This change was driven by an $8.4 million pre-tax loss on our equity investments in the first quarter of 2022. See Note 6, Investments, for more information on our equity investments.
Income Tax Expense
Our provision for income taxes increased $13.4 million, approximately 74%,
in the first quarter of 2022 compared to the same quarter in 2021 primarily due to higher taxable income. The effective income tax rate was 25.4% for the three months ended March 31, 2022 compared to 24.7% for the same quarter last year. Our provision for income taxes may fluctuate in future periods to the extent there are changes to tax laws and regulations.
We monitor
and analyze a number of KPIs in order to manage our business and evaluate our financial and operating performance.
Truckload
The following table presents our Truckload segment KPIs for the periods indicated, consistent with how revenues and expenses are reported internally for segment purposes.
Descriptions of the two operations that make up our Truckload segment are as follows:
•Dedicated - Transportation services with equipment devoted to customers under long-term contracts.
•Network - Transportation services of
one-way shipments.
Beginning in 2022, MLS impacts are included within dedicated operations below.
(1)Revenues (excluding fuel surcharge), in millions, exclude revenue in transit.
(2)Includes company and owner-operator trucks.
(3)Calculated
based on beginning and end of month counts and represents the average number of trucks available to haul freight over the specified timeframe.
(4)Calculated excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes, using weighted workdays.
(5)Revenues (excluding fuel surcharge), in millions, include revenue in transit at the operating segment level and, therefore does not sum with amounts presented above.
(6)Includes entire fleet of owned trailers, including trailers with leasing arrangements between Truckload and Logistics.
(7)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue
in transit and related expenses at the operating segment level.
Truckload revenues (excluding fuel surcharge) increased $96.7 million, approximately 21%, in the first quarter of 2022 compared to the same quarter in 2021. The increase was primarily the result of a favorable change in price and a 5% increase in volume inclusive of the MLS acquisition. Strong pricing conditions and continued network management success drove a $480, or 13%, increase in revenue per truck per week over the same period in 2021, which was partially offset by lower productivity largely resulting from COVID-19 related disruptions early in the quarter. While volume grew within dedicated with the acquisition of MLS and new business startups, network volumes decreased mainly due to continued driver capacity constraints.
Truckload income from operations increased $81.1 million,
approximately 212%, in the first quarter of 2022 compared to the same quarter in 2021. Factors contributing to the increase in income from operations include a $50.9 million net gain related to the sale of the Company’s Canadian facility, favorable pricing conditions and network management, and the acquisition of MLS. These items were partially offset by reduced volumes within network and an increase in driver-related costs resulting largely from pay increases and actions taken to attract and retain drivers due to constrained industry-wide capacity levels.
(2)Includes company and owner-operator trucks at the end of the period.
(3)Calculated using rail revenues excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes.
(4)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Intermodal revenues (excluding fuel surcharge) increased $46.3 million, approximately 18%, in the first quarter of 2022 compared to the same quarter in 2021, primarily due to a $379, or 16%, improvement in revenue per order and a 1% increase in orders. Intermodal also grew its container
count by 5,628, or 26%, quarter over quarter, which helped drive the increase in order count despite fluidity challenges. Strong market conditions favorably impacted revenue per order and allowed for improvements in price, which were partially offset by growth in the East, which has a shorter length of haul and therefore, typically lower revenue per order.
Intermodal income from operations increased $18.9 million, approximately 95%, in the first quarter of 2022 compared to the same quarter in 2021. This increase was mainly due to the factors impacting revenue discussed above, partially offset by higher rail-related and dray execution costs.
Logistics
The following table presents the KPI for our Logistics segment for the periods indicated.
(1)Calculated as segment operating expenses
divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Logistics revenues (excluding fuel surcharge) increased $189.8 million, approximately 53%, in the first quarter of 2022 compared to the same quarter in 2021, due to an increase in revenue per order resulting from the impacts of upward rate pressures, as well as elevated fuel prices. Also contributing to the increase in Logistics revenues was a 24% increase in volume within our brokerage business, due to both further leveraging our digital platform and continued expansion of our Power Only offering, in addition to incremental port dray revenues.
Logistics income from operations increased $26.0 million, approximately 164%, in the first quarter of 2022 compared to the same quarter in 2021. Expanded net revenue
per order within our brokerage business, in addition to volume growth cited above, both contributed to the increase in income from operations quarter over quarter.
Other
Included in Other was a loss from operations of $65.1 million in the first quarter of 2022 compared to income of $2.0 million in the same quarter in 2021. This change was primarily the result of a $59.0 million adverse judgment related to a lawsuit with former owners of WSL and $5.2 million of expense related to an adverse audit assessment over the applicability of state sales tax.
Our primary uses of cash are working capital requirements, capital expenditures, dividend payments, and debt service requirements. Additionally, we may use cash for acquisitions and other investing and financing activities. Working capital is required principally to ensure we are able to run the business and have sufficient funds to satisfy maturing short-term debt and operational expenses. Our capital expenditures consist primarily of transportation equipment and information technology.
Historically, our primary source of liquidity has been cash flow from operations. In addition, we have a $250.0 million revolving credit facility and a $150.0 million accounts receivable facility, for which our available capacity as of March 31,
2022 was $322.8 million. We anticipate that cash generated from operations, together with amounts available under our credit facilities, will be sufficient to meet our requirements for the foreseeable future. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that we will obtain these funds through additional borrowings, equity offerings, or a combination of these potential sources of liquidity. Our ability to fund future operating expenses and capital expenditures, as well as our ability to meet future debt service obligations or refinance our indebtedness, will depend on our future operating performance, which will be affected by general economic, financial, and other factors beyond our control.
The following table presents our cash and cash equivalents, marketable securities, and outstanding debt as of the
dates shown.
Total cash, cash equivalents, and marketable securities
$
321.1
$
294.1
Debt:
Senior
notes
$
205.0
$
265.0
Finance leases
6.7
5.3
Total debt
$
211.7
$
270.3
Debt
At
March 31, 2022, we were in compliance with all financial covenants under our credit agreements and the agreements governing our senior notes. See Note 8, Debt and Credit Facilities, for information about our financing arrangements.
Cash Flows
The following table summarizes the changes to our net cash flows provided by (used in) operating, investing, and financing activities for the periods indicated.
Net cash provided by operating activities increased $34.5 million, approximately 34%, in the first three months of 2022 compared to the same period in 2021. The increase was a result of an increase in net income adjusted for various noncash charges and a decrease in cash used for working capital. Working capital changes
were driven by an increase in other liabilities, primarily the result of a $59.0 million adverse judgment related to a lawsuit with former owners of WSL, partially offset by an increase in trade accounts receivable, which increased proportionately to revenue growth.
Net cash used in investing activities increased $22.5 million, approximately 189%, in the first three months of 2022 compared to the same period in 2021. The increase in cash used was primarily driven by an increase in net capital expenditures and purchases of lease equipment.
Capital
Expenditures
The following table sets forth our net capital expenditures for the periods indicated.
Three Months Ended March 31,
(in millions)
2022
2021
Purchases
of transportation equipment
$
60.3
$
19.0
Purchases of other property and equipment
14.4
9.8
Proceeds from sale of property and equipment
(64.8)
(32.2)
Net
capital expenditures
$
9.9
$
(3.4)
Net capital expenditures increased $13.3 million in the first three months of 2022 compared to the same period in 2021. The increase was driven by a $41.3 million increase in purchases of transportation equipment mainly due to growth capital and higher costs of new equipment, partially offset by a $32.6 million increase in proceeds from the sale of property and equipment primarily related to the sale of our Canadian facility in the first quarter of 2022.
Financing Activities
Net
cash used in financing activities increased $60.9 million, approximately 487%, in the first three months of 2022 compared to the same period in 2021. The main driver of the increase in net cash used was the $60.0 million repayment of a private placement note in March 2022.
Other Considerations that Could Affect Our Results, Liquidity, or Capital Resources
Investment in TuSimple
On January 12, 2021, the Company purchased a $5.0 million non-controlling interest in TuSimple. Upon completion of its IPO in April 2021, our investment in TuSimple was converted into Class A common shares and is being accounted for under ASC 321, Investments
- Equity Securities, with subsequent changes in share price recorded within other expense—net on the consolidated statements of comprehensive income. In the three months ended March 31, 2022, the Company recognized a pre-tax loss of $8.4 million on its investment in TuSimple. Due to the volatility of the global markets and the potential for high volatility of public equity prices of technology-related companies, we expect the value of our investment to fluctuate, which could materially affect our financial condition and results of operations.
Factors that Could Result in a Goodwill Impairment
Goodwill is tested for impairment at least annually using the discounted cash flow and guideline
public company methods in calculating the fair values of our reporting units. Key inputs used in the discounted cash flow approach include growth rates for sales and operating profit, perpetuity growth assumptions, and discount rates. As interest rates rise, the calculated fair values of our reporting units will decrease, which could impact the results of our goodwill impairment tests.
We will perform our annual evaluation of goodwill for impairment as of October 31, 2022, with such analysis expected to be finalized during the fourth quarter. As part of our annual process of updating our goodwill impairment evaluation, we will assess the impact of current operating results and our resulting management actions to determine whether they have an impact on the long-term valuation of reporting units and the related recoverability of our goodwill.
Off-Balance
Sheet Arrangements
As of March 31, 2022, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.
See the disclosure under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2021 for our contractual obligations as of December 31, 2021. There were no material changes to our contractual obligations during the three months ended March 31, 2022.
CRITICAL ACCOUNTING ESTIMATES
We have reviewed our critical accounting policies and considered whether new critical accounting estimates or other significant changes to our accounting policies require additional disclosures. We have found that the disclosures made in our Annual Report on Form 10-K for
the year ended December 31, 2021 are still current and that there have been no significant changes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risks have not changed significantly from the market risks discussed in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with the SEC on February 18, 2022.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this report. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934, as amended) during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The
Company is party to various lawsuits in the ordinary course of its business. For information relating to legal proceedings, see Note 12, Commitments and Contingencies, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021.
ITEM 2. UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth information regarding the purchases of our equity securities made by or on behalf of us or any affiliated purchaser (as defined in Exchange Act Rule 10b-18) during the three months ended March 31, 2022.
Period
Total
Number of Shares Purchased (1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
(1)Represents
shares of common stock that employees surrendered to satisfy withholding taxes related to the vesting of restricted stock.
(2)The Company is not currently participating in a share repurchase program.
Limitation Upon Payment of Dividends
The 2018 Credit Facility includes covenants limiting our ability to pay dividends or make distributions on our capital stock if a default exists under the 2018 Credit Facility or would be caused by giving effect to such dividend.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant, Schneider National, Inc., has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.