UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021March 31, 2022
OR
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-38054
Schneider National, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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| Wisconsin | | | | | | 39-1258315 |
| (State of Incorporation) | | | | | | (IRS Employer Identification No.) |
| | | | |
| | 3101 South Packerland Drive | | |
| | Green Bay | Wisconsin | 54313 | | |
| | (Address of Registrant’s Principal Executive Offices and Zip Code) | | |
(920) 592-2000
(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 |
| Class B common stock, no par value | | SNDR | | New 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.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
| | | |
| Non-accelerated filer | | ☐ | | Smaller��Smaller reporting company | | ☐ |
| | | |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of OctoberApril 22, 2021,2022, the registrant had 83,029,500 shares of Class A common stock, no par value, outstanding and 94,626,74094,892,655 shares of Class B common stock, no par value, outstanding.
SCHNEIDER NATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2021March 31, 2022
TABLE OF CONTENTS
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| ITEM 1. | | | |
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| Note 1 | | | |
| Note 2 | | | |
| Note 3 | | | |
| Note 34 | | | |
| Note 45 | | | |
| Note 56 | | | |
| Note 7 | | | |
| Note 6 | | | |
| Note 78 | | | |
| Note 89 | | | |
| Note 910 | | | |
| Note 1011 | | | |
| Note 1112 | | | |
| Note 1213 | | | |
| ITEM 2. | | | |
| ITEM 3. | | | |
| ITEM 4. | | | |
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| ITEM 1. | | | |
| ITEM 1A. | | | |
| ITEM 2. | | | |
| ITEM 3. | | | |
| ITEM 4. | | | |
| ITEM 5. | | | |
| ITEM 6. | | | |
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GLOSSARY OF TERMS
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| 3PL | 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 |
CARESChemDirect | Coronavirus Aid, Relief, and Economic SecurityFortem Invenio, Inc. |
| CODM | Chief Operating Decision Maker |
| COVID-19 | Coronavirus disease 2019, including its variants |
| |
FTFMFASB | First to Final Mile operating segmentFinancial Accounting Standards Board |
| GAAP | United States Generally Accepted Accounting Principles |
IRSIPO | Internal Revenue ServiceInitial 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. |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
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 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 economic and business risks inherent in the truckload and transportation industry, including inflation and competitive pressures pertaining to pricing, capacity, and service;
•Our our ability to effectively manage tight truck capacity brought about by driver shortages and successfully execute our yield management strategies;
•Our 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 volatility in the market valuation of our investments in strategic partners and technologies;
•Our our ability to manage and effectively implement our growth and diversification strategies and cost saving initiatives;
•Our 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 risks related to demand for our service offerings;
•Risks risks associated with the loss of a significant customer or customers;
•Capital capital investments that fail to match customer demand or for which we cannot obtain adequate funding;
•Fluctuations fluctuations in the price or availability of fuel, the volume and terms of diesel fuel purchase agreements, and our ability to recover fuel costs through our fuel surcharge programs;
•Ourprograms, 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 our reliance on owner-operators to provide a portion of our truck fleet;
•Our our dependence on railroads in the operation of our intermodal business;
•Service 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 changes in the outsourcing practices of our third-party logistics customers;
•Difficulty difficulty in obtaining material, equipment, goods, and services from our vendors and suppliers;
•Variability variability in insurance and claims expenses and the risks of insuring claims through our captive insurance company;
•The 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, political, economic, and other risks from cross-border operations and operations in multiple countries;
•Risks risks associated with financial, credit, and equity markets, including our ability to service indebtedness and fund capital expenditures and strategic initiatives;
•Negative negative seasonal patterns generally experienced in the trucking industry during traditionally slower shipping periods and winter months;
•Risks risks associated with severe weather and similar events;
•Significant significant systems disruptions, including those caused by cybersecurity events;
•Exposureevents and firmware defects; exposure to claims and lawsuits in the ordinary course of business;
•Our our ability to adapt to new technologies and new participants in the truckload and transportation industry; and
•Those 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;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,”Operations” and (b) Part I, Item 1. “Financial Statements: Note 11,12, Commitments and Contingencies,” and (c) Part II, Item 1A. “Risk Factors;” 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.investors.schneider.com.www.schneider.com. Information disclosed or available on our website shall not be deemed incorporated into, or to be a part of, this Report.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHNEIDER NATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in millions, except per share data)
| | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, | |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | |
| Operating revenues | Operating revenues | $ | 1,444.5 | | | $ | 1,135.7 | | | $ | 4,033.9 | | | $ | 3,287.6 | | Operating revenues | $ | 1,620.5 | | | $ | 1,228.6 | | |
| Operating expenses: | Operating expenses: | | | | | | | | Operating expenses: | | | | |
| Purchased transportation | Purchased transportation | 692.3 | | | 501.0 | | | 1,900.4 | | | 1,417.7 | | Purchased transportation | 740.1 | | | 558.5 | | |
| Salaries, wages, and benefits | Salaries, wages, and benefits | 290.2 | | | 259.2 | | | 832.9 | | | 771.4 | | Salaries, wages, and benefits | 337.5 | | | 267.1 | | |
| Fuel and fuel taxes | Fuel and fuel taxes | 70.3 | | | 49.5 | | | 204.1 | | | 152.5 | | Fuel and fuel taxes | 110.2 | | | 63.8 | | |
| Depreciation and amortization | Depreciation and amortization | 74.2 | | | 74.2 | | | 220.5 | | | 216.3 | | Depreciation and amortization | 83.8 | | | 73.1 | | |
| Operating supplies and expenses | 108.7 | | | 144.6 | | | 362.0 | | | 395.7 | | |
| Operating supplies and expenses—net | | Operating supplies and expenses—net | 89.5 | | | 136.1 | | |
| Insurance and related expenses | Insurance and related expenses | 19.3 | | | 17.4 | | | 60.7 | | | 74.9 | | Insurance and related expenses | 26.4 | | | 24.4 | | |
| Other general expenses | Other general expenses | 35.8 | | | 26.0 | | | 97.6 | | | 78.0 | | Other general expenses | 97.9 | | | 29.4 | | |
| | Restructuring—net | — | | | 0.5 | | | — | | | (0.5) | | |
| | Total operating expenses | Total operating expenses | 1,290.8 | | | 1,072.4 | | | 3,678.2 | | | 3,106.0 | | Total operating expenses | 1,485.4 | | | 1,152.4 | | |
| Income from operations | Income from operations | 153.7 | | | 63.3 | | | 355.7 | | | 181.6 | | Income from operations | 135.1 | | | 76.2 | | |
| Other expenses (income): | Other expenses (income): | | | | | | | | Other expenses (income): | | | | |
| Interest income | Interest income | (0.6) | | | (0.6) | | | (1.8) | | | (2.9) | | Interest income | (0.4) | | | (0.8) | | |
| Interest expense | Interest expense | 3.3 | | | 3.4 | | | 9.7 | | | 10.5 | | Interest expense | 2.8 | | | 3.4 | | |
| Other expense (income)—net | 4.0 | | | 0.4 | | | (14.8) | | | (7.1) | | |
| Total other expenses (income)—net | 6.7 | | | 3.2 | | | (6.9) | | | 0.5 | | |
| Other expense—net | | Other expense—net | 9.2 | | | 0.8 | | |
| Total other expenses—net | | Total other expenses—net | 11.6 | | | 3.4 | | |
| Income before income taxes | Income before income taxes | 147.0 | | | 60.1 | | | 362.6 | | | 181.1 | | Income before income taxes | 123.5 | | | 72.8 | | |
| Provision for income taxes | Provision for income taxes | 37.0 | | | 15.6 | | | 91.3 | | | 46.3 | | Provision for income taxes | 31.4 | | | 18.0 | | |
| Net income | Net income | 110.0 | | | 44.5 | | | 271.3 | | | 134.8 | | Net income | 92.1 | | | 54.8 | | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | | |
| Foreign currency translation gains (losses)—net | (0.1) | | | 0.5 | | | 0.1 | | | (0.2) | | |
| Net unrealized gains (losses) on marketable securities—net of tax | (0.2) | | | (0.1) | | | (0.6) | | | 0.1 | | |
| Total other comprehensive income (loss)—net | (0.3) | | | 0.4 | | | (0.5) | | | (0.1) | | |
| Foreign currency translation adjustment—net | | Foreign currency translation adjustment—net | 0.1 | | | (0.1) | | |
| Net unrealized losses on marketable securities—net of tax | | Net unrealized losses on marketable securities—net of tax | (1.6) | | | (0.6) | | |
| Total other comprehensive loss—net | | Total other comprehensive loss—net | (1.5) | | | (0.7) | | |
| Comprehensive income | Comprehensive income | $ | 109.7 | | | $ | 44.9 | | | $ | 270.8 | | | $ | 134.7 | | Comprehensive income | $ | 90.6 | | | $ | 54.1 | | |
| | Weighted average shares outstanding | Weighted average shares outstanding | 177.7 | | | 177.3 | | | 177.5 | | | 177.2 | | Weighted average shares outstanding | 177.7 | | | 177.4 | | |
| Basic earnings per share | Basic earnings per share | $ | 0.62 | | | $ | 0.25 | | | $ | 1.53 | | | $ | 0.76 | | Basic earnings per share | $ | 0.52 | | | $ | 0.31 | | |
| | Weighted average diluted shares outstanding | Weighted average diluted shares outstanding | 177.9 | | | 177.7 | | | 177.8 | | | 177.5 | | Weighted average diluted shares outstanding | 178.5 | | | 177.8 | | |
| Diluted earnings per share | Diluted earnings per share | $ | 0.62 | | | $ | 0.25 | | | $ | 1.53 | | | $ | 0.76 | | Diluted earnings per share | $ | 0.52 | | | $ | 0.31 | | |
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except share data)
| | | | | | | | | | | |
| | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| Assets | | | |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 272.6 | | | $ | 244.8 | |
| Marketable securities | 48.5 | | | 49.3 | |
Trade accounts receivable—net of allowance of $6.6 million and $5.2 million, respectively | 754.4 | | | 705.4 | |
| Other receivables | 59.2 | | | 35.9 | |
Current portion of lease receivables—net of allowance of $1.2 million and $1.1 million, respectively | 111.9 | | | 110.6 | |
| Inventories | 31.3 | | | 27.4 | |
| Prepaid expenses and other current assets | 119.4 | | | 75.1 | |
| Total current assets | 1,397.3 | | | 1,248.5 | |
| Noncurrent Assets: | | | |
| Property and equipment: | | | |
| Transportation equipment | 3,119.0 | | | 3,056.2 | |
| Land, buildings, and improvements | 208.1 | | | 215.7 | |
| Other property and equipment | 176.9 | | | 175.1 | |
| Total property and equipment | 3,504.0 | | | 3,447.0 | |
| Less accumulated depreciation | 1,455.9 | | | 1,396.0 | |
| Net property and equipment | 2,048.1 | | | 2,051.0 | |
| Lease receivables | 161.0 | | | 160.1 | |
| Internal use software and other noncurrent assets | 235.2 | | | 237.2 | |
| Goodwill | 245.0 | | | 240.5 | |
| Total noncurrent assets | 2,689.3 | | | 2,688.8 | |
| Total Assets | $ | 4,086.6 | | | $ | 3,937.3 | |
| Liabilities and Shareholders’ Equity | | | |
| Current Liabilities: | | | |
| Trade accounts payable | $ | 400.2 | | | $ | 331.7 | |
| Accrued salaries, wages, and benefits | 67.4 | | | 104.5 | |
| Claims accruals—current | 85.9 | | | 83.9 | |
| Current maturities of debt and finance lease obligations | 1.8 | | | 61.4 | |
| | | |
| Other current liabilities | 170.6 | | | 108.7 | |
| Total current liabilities | 725.9 | | | 690.2 | |
| Noncurrent Liabilities: | | | |
| Long-term debt and finance lease obligations | 209.9 | | | 208.9 | |
| Claims accruals—noncurrent | 94.6 | | | 88.5 | |
| Deferred income taxes | 480.2 | | | 451.0 | |
| Other noncurrent liabilities | 71.1 | | | 74.9 | |
| Total noncurrent liabilities | 855.8 | | | 823.3 | |
| Total Liabilities | 1,581.7 | | | 1,513.5 | |
| Commitments and Contingencies (Note 12) | | | |
| Shareholders’ Equity: | | | |
| Preferred shares, no par value, 50,000,000 shares authorized, no shares issued or outstanding | — | | | — | |
| Class A common shares, no par value, 250,000,000 shares authorized, 83,029,500 shares issued and outstanding | — | | | — | |
| Class B common shares, no par value, 750,000,000 shares authorized, 95,641,086 and 95,701,868 shares issued, and 94,890,562 and 94,626,740 shares outstanding, respectively | — | | | — | |
| Additional paid-in capital | 1,571.4 | | | 1,566.0 | |
| Retained earnings | 935.0 | | | 857.8 | |
| Accumulated other comprehensive loss | (1.5) | | | — | |
| Total Shareholders’ Equity | 2,504.9 | | | 2,423.8 | |
| Total Liabilities and Shareholders’ Equity | $ | 4,086.6 | | | $ | 3,937.3 | |
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
CONSOLIDATED BALANCE SHEETSSTATEMENTS OF CASH FLOWS (Unaudited)
(in millions, except share data)millions)
| | | | | | | | | | | |
| | | |
| September 30, | | December 31, |
| 2021 | | 2020 |
| Assets | | | |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 504.2 | | | $ | 395.5 | |
| Marketable securities | 45.7 | | | 47.1 | |
Trade accounts receivable—net of allowance of $4.3 million and $3.7 million, respectively | 650.5 | | | 537.7 | |
| Other receivables | 23.2 | | | 20.8 | |
Current portion of lease receivables—net of allowance of $0.9 million and $0.8 million, respectively | 109.7 | | | 96.8 | |
| Inventories | 25.1 | | | 44.9 | |
| Prepaid expenses and other current assets | 96.9 | | | 77.9 | |
| Total current assets | 1,455.3 | | | 1,220.7 | |
| Noncurrent Assets: | | | |
| Property and equipment: | | | |
| Transportation equipment | 2,900.9 | | | 2,880.2 | |
| Land, buildings, and improvements | 204.6 | | | 202.3 | |
| Other property and equipment | 169.3 | | | 166.8 | |
| Total property and equipment | 3,274.8 | | | 3,249.3 | |
| Less accumulated depreciation | 1,386.4 | | | 1,417.4 | |
| Net property and equipment | 1,888.4 | | | 1,831.9 | |
| Lease receivables | 166.1 | | | 131.3 | |
| Capitalized software and other noncurrent assets | 232.0 | | | 204.2 | |
| Goodwill | 128.3 | | | 128.1 | |
| Total noncurrent assets | 2,414.8 | | | 2,295.5 | |
| Total Assets | $ | 3,870.1 | | | $ | 3,516.2 | |
| Liabilities and Shareholders’ Equity | | | |
| Current Liabilities: | | | |
| Trade accounts payable | $ | 356.7 | | | $ | 245.7 | |
| Accrued salaries, wages, and benefits | 89.2 | | | 110.7 | |
| Claims accruals—current | 61.6 | | | 36.4 | |
| Current maturities of debt and finance lease obligations | 100.7 | | | 40.4 | |
| | | |
| Other current liabilities | 107.8 | | | 101.4 | |
| Total current liabilities | 716.0 | | | 534.6 | |
| Noncurrent Liabilities: | | | |
| Long-term debt and finance lease obligations | 207.0 | | | 266.4 | |
| Claims accruals—noncurrent | 100.6 | | | 129.9 | |
| Deferred income taxes | 471.8 | | | 450.4 | |
| Other noncurrent liabilities | 75.6 | | | 79.4 | |
| Total noncurrent liabilities | 855.0 | | | 926.1 | |
| Total Liabilities | 1,571.0 | | | 1,460.7 | |
| Commitments and Contingencies (Note 11) | | | |
| Shareholders’ Equity: | | | |
| Class A common shares, no par value, 250,000,000 shares authorized, 83,029,500 shares issued and outstanding | — | | | — | |
| Class B common shares, no par value, 750,000,000 shares authorized, 95,699,819 and 95,159,635 shares issued, and 94,624,691 and 94,311,653 shares outstanding, respectively | — | | | — | |
| Additional paid-in capital | 1,562.6 | | | 1,552.2 | |
| Retained earnings | 736.2 | | | 502.5 | |
| Accumulated other comprehensive income | 0.3 | | | 0.8 | |
| Total Shareholders’ Equity | 2,299.1 | | | 2,055.5 | |
| Total Liabilities and Shareholders’ Equity | $ | 3,870.1 | | | $ | 3,516.2 | |
| | | | | | | | | | | |
| | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Operating Activities: | | | |
| Net income | $ | 92.1 | | | $ | 54.8 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 83.8 | | | 73.1 | |
| Gains on sales of property and equipment—net | (60.9) | | | (1.9) | |
| Proceeds from lease receipts | 20.5 | | | 17.1 | |
| Deferred income taxes | 29.7 | | | 7.7 | |
| Long-term incentive and share-based compensation expense | 5.8 | | | 5.2 | |
| Losses on investments in equity securities—net | 8.4 | | | — | |
| | | |
| Other noncash items | (6.4) | | | 1.4 | |
| Changes in operating assets and liabilities: | | | |
| Receivables | (77.8) | | | (22.8) | |
| Other assets | (52.6) | | | (51.8) | |
| Payables | 56.1 | | | 28.7 | |
| Claims reserves and other receivables—net | 9.1 | | | — | |
| Other liabilities | 27.8 | | | (10.4) | |
| Net cash provided by operating activities | 135.6 | | | 101.1 | |
| Investing Activities: | | | |
| 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 | |
| Proceeds from sale of off-lease inventory | 5.1 | | | 4.4 | |
| Purchases of lease equipment | (21.0) | | | (11.3) | |
| Proceeds from marketable securities | 2.2 | | | 6.1 | |
| Purchases of marketable securities | (3.6) | | | (9.5) | |
| Investments in equity securities | (4.0) | | | (5.0) | |
| Acquisition of business | (3.2) | | | — | |
| Net cash used in investing activities | (34.4) | | | (11.9) | |
| Financing Activities: | | | |
| Payments of debt and finance lease obligations | (60.4) | | | (0.2) | |
| Dividends paid | (12.9) | | | (12.3) | |
| Other financing activities | (0.1) | | | — | |
| Net cash used in financing activities | (73.4) | | | (12.5) | |
| Net increase in cash and cash equivalents | 27.8 | | | 76.7 | |
| Cash and Cash Equivalents: | | | |
| Beginning of period | 244.8 | | | 395.5 | |
| End of period | $ | 272.6 | | | $ | 472.2 | |
| Additional Cash Flow Information: | | | |
| Noncash investing and financing activity: | | | |
| Transportation and lease equipment purchases in accounts payable | $ | 25.2 | | | $ | 22.0 | |
| Dividends declared but not yet paid | 16.0 | | | 13.8 | |
| Cash paid during the period for: | | | |
| Interest | 4.2 | | | 4.2 | |
| Income taxes—net of refunds | 16.7 | | | 1.1 | |
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
| | | | | | | | | | | |
| | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
| Operating Activities: | | | |
| Net income | $ | 271.3 | | | $ | 134.8 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 220.5 | | | 216.3 | |
| (Gains) losses on sales of property and equipment—net | (48.0) | | | 5.4 | |
| Proceeds from lease receipts | 54.7 | | | 53.2 | |
| Deferred income taxes | 21.6 | | | (2.8) | |
| Long-term incentive and share-based compensation expense | 11.3 | | | 5.4 | |
| Gains on investment in equity securities—net | (17.1) | | | (8.8) | |
| Noncash restructuring—net | — | | | (0.6) | |
| Other noncash items | 0.6 | | | 6.3 | |
| Changes in operating assets and liabilities: | | | |
| Receivables | (112.3) | | | (17.2) | |
| Other assets | (53.3) | | | (32.9) | |
| Payables | 68.0 | | | 49.6 | |
| Claims reserves and other receivables—net | 1.1 | | | 16.6 | |
| Other liabilities | (22.4) | | | 43.8 | |
| Net cash provided by operating activities | 396.0 | | | 469.1 | |
| Investing Activities: | | | |
| Purchases of transportation equipment | (296.9) | | | (131.7) | |
| Purchases of other property and equipment | (33.4) | | | (38.7) | |
| Proceeds from sale of property and equipment | 145.2 | | | 55.5 | |
| Proceeds from sale of off-lease inventory | 13.2 | | | 17.9 | |
| Purchases of lease equipment | (72.8) | | | (63.3) | |
| Proceeds from marketable securities | 11.7 | | | 19.2 | |
| Purchases of marketable securities | (11.6) | | | (16.9) | |
| Investment in equity securities | (5.0) | | | (5.0) | |
| Net cash used in investing activities | (249.6) | | | (163.0) | |
| Financing Activities: | | | |
| Payments of debt and finance lease obligations | (0.5) | | | (55.5) | |
| Dividends paid | (37.2) | | | (33.7) | |
| Net cash used in financing activities | (37.7) | | | (89.2) | |
| Net increase in cash and cash equivalents | 108.7 | | | 216.9 | |
| Cash and Cash Equivalents: | | | |
| Beginning of period | 395.5 | | | 551.6 | |
| End of period | $ | 504.2 | | | $ | 768.5 | |
| Additional Cash Flow Information: | | | |
| Noncash investing and financing activity: | | | |
| Equipment and inventory purchases in accounts payable | $ | 43.7 | | | $ | 50.2 | |
| Dividends declared but not yet paid | 14.0 | | | 11.8 | |
| Cash paid during the period for: | | | |
| Interest | 10.0 | | | 11.3 | |
| Income taxes—net of refunds | 77.7 | | | 45.5 | |
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
(in millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Total |
| Balance—December 31, 2019 | | $ | — | | | $ | 1,542.7 | | | $ | 693.6 | | | $ | 0.1 | | | $ | 2,236.4 | |
| Net income | | — | | | — | | | 43.8 | | | — | | | 43.8 | |
| Other comprehensive loss | | — | | | — | | | — | | | (1.1) | | | (1.1) | |
| Share-based compensation expense | | — | | | 1.9 | | | — | | | — | | | 1.9 | |
| Dividends declared at $0.065 per share of Class A and Class B common shares | | — | | | — | | | (11.7) | | | — | | | (11.7) | |
| Share issuances | | — | | | 0.1 | | | — | | | — | | | 0.1 | |
| Shares withheld for employee taxes | | — | | | (0.9) | | | — | | | — | | | (0.9) | |
| Balance—March 31, 2020 | | — | | | 1,543.8 | | | 725.7 | | | (1.0) | | | 2,268.5 | |
| Net income | | — | | | — | | | 46.5 | | | — | | | 46.5 | |
| Other comprehensive income | | — | | | — | | | — | | | 0.6 | | | 0.6 | |
| Share-based compensation expense | | — | | | 1.1 | | | — | | | — | | | 1.1 | |
| Dividends declared at $0.065 per share of Class A and Class B common shares | | — | | | — | | | (11.4) | | | — | | | (11.4) | |
| Share issuances | | — | | | 0.1 | | | — | | | — | | | 0.1 | |
| Exercise of employee stock options | | — | | | 0.4 | | | — | | | — | | | 0.4 | |
| Balance—June 30, 2020 | | — | | | 1,545.4 | | | 760.8 | | | (0.4) | | | 2,305.8 | |
| Net income | | — | | | — | | | 44.5 | | | — | | | 44.5 | |
| Other comprehensive income | | — | | | — | | | — | | | 0.4 | | | 0.4 | |
| Share-based compensation expense | | — | | | 2.2 | | | — | | | — | | | 2.2 | |
| Dividends declared at $0.065 per share of Class A and Class B common shares | | — | | | — | | | (11.6) | | | — | | | (11.6) | |
| | | | | | | | | | |
| Exercise of employee stock options | | — | | | 1.2 | | | — | | | — | | | 1.2 | |
| Balance—September 30, 2020 | | $ | — | | | $ | 1,548.8 | | | $ | 793.7 | | | $ | — | | | $ | 2,342.5 | |
| | | | | | | | | | |
| | | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Total | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total |
| Balance—December 31, 2020 | Balance—December 31, 2020 | | $ | — | | | $ | 1,552.2 | | | $ | 502.5 | | | $ | 0.8 | | | $ | 2,055.5 | | Balance—December 31, 2020 | | $ | — | | | $ | 1,552.2 | | | $ | 502.5 | | | $ | 0.8 | | | $ | 2,055.5 | |
| Net income | Net income | | — | | | — | | | 54.8 | | | — | | | 54.8 | | Net income | | — | | | — | | | 54.8 | | | — | | | 54.8 | |
| Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | (0.7) | | | (0.7) | | Other comprehensive loss | | — | | | — | | | — | | | (0.7) | | | (0.7) | |
| Share-based compensation expense | Share-based compensation expense | | — | | | 4.5 | | | — | | | — | | | 4.5 | | Share-based compensation expense | | — | | | 4.5 | | | — | | | — | | | 4.5 | |
| Dividends declared at $0.07 per share of Class A and Class B common shares | Dividends declared at $0.07 per share of Class A and Class B common shares | | — | | | — | | | (12.6) | | | — | | | (12.6) | | Dividends declared at $0.07 per share of Class A and Class B common shares | | — | | | — | | | (12.6) | | | — | | | (12.6) | |
| Share issuances | Share issuances | | — | | | 0.1 | | | — | | | — | | | 0.1 | | Share issuances | | — | | | 0.1 | | | — | | | — | | | 0.1 | |
| Exercise of employee stock options | Exercise of employee stock options | | — | | | 0.7 | | | — | | | — | | | 0.7 | | Exercise of employee stock options | | — | | | 0.7 | | | — | | | — | | | 0.7 | |
| Shares withheld for employee taxes | Shares withheld for employee taxes | | — | | | (2.4) | | | — | | | — | | | (2.4) | | Shares withheld for employee taxes | | — | | | (2.4) | | | — | | | — | | | (2.4) | |
| Balance—March 31, 2021 | Balance—March 31, 2021 | | — | | | 1,555.1 | | | 544.7 | | | 0.1 | | | 2,099.9 | | Balance—March 31, 2021 | | $ | — | | | $ | 1,555.1 | | | $ | 544.7 | | | $ | 0.1 | | | $ | 2,099.9 | |
| Net income | | — | | | — | | | 106.5 | | | — | | | 106.5 | | |
| Other comprehensive income | | — | | | — | | | — | | | 0.5 | | | 0.5 | | |
| Share-based compensation expense | | — | | | 3.3 | | | — | | | — | | | 3.3 | | |
| Dividends declared at $0.07 per share of Class A and Class B common shares | | — | | | — | | | (12.5) | | | — | | | (12.5) | | |
| Share issuances | | — | | | 0.7 | | | — | | | — | | | 0.7 | | |
| | Balance—June 30, 2021 | | — | | | 1,559.1 | | | 638.7 | | | 0.6 | | | 2,198.4 | | |
| | | | Balance—December 31, 2021 | | Balance—December 31, 2021 | | $ | — | | | $ | 1,566.0 | | | $ | 857.8 | | | $ | — | | | $ | 2,423.8 | |
| Net income | Net income | | — | | | — | | | 110.0 | | | — | | | 110.0 | | Net income | | — | | | — | | | 92.1 | | | — | | | 92.1 | |
| Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | (0.3) | | | (0.3) | | Other comprehensive loss | | — | | | — | | | — | | | (1.5) | | | (1.5) | |
| Share-based compensation expense | Share-based compensation expense | | — | | | 3.4 | | | — | | | — | | | 3.4 | | Share-based compensation expense | | — | | | 5.4 | | | — | | | — | | | 5.4 | |
| Dividends declared at $0.07 per share of Class A and Class B common shares | | — | | | — | | | (12.5) | | | — | | | (12.5) | | |
| Dividends declared at $0.08 per share of Class A and Class B common shares | | Dividends declared at $0.08 per share of Class A and Class B common shares | | — | | | — | | | (14.9) | | | — | | | (14.9) | |
| Share issuances | Share issuances | | — | | | 0.1 | | | — | | | — | | | 0.1 | | Share issuances | | — | | | 0.1 | | | — | | | — | | | 0.1 | |
| Exercise of employee stock options | | Exercise of employee stock options | | — | | | 2.3 | | | — | | | — | | | 2.3 | |
| Shares withheld for employee taxes | | Shares withheld for employee taxes | | — | | | (2.4) | | | — | | | — | | | (2.4) | |
| Balance—March 31, 2022 | | Balance—March 31, 2022 | | $ | — | | | $ | 1,571.4 | | | $ | 935.0 | | | $ | (1.5) | | | $ | 2,504.9 | |
| | Balance—September 30, 2021 | | $ | — | | | $ | 1,562.6 | | | $ | 736.2 | | | $ | 0.3 | | | $ | 2,299.1 | | |
|
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
Nature of Operations
WeSchneider National, Inc. and its subsidiaries (together “Schneider,” the “Company,” “we,” “us,” or “our”) are one ofamong the largest providers of surface transportation and logistics solutions in North America. Schneider National, Inc. isWe offer a publicly held holding companymultimodal portfolio of services and possess an array of capabilities and resources that through its wholly owned subsidiaries, provides safe, reliable,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 group of customerscustomer base throughout the continental United States, Canada, and Mexico. Unless otherwise indicated by the context, “we,” “us,” “our,” “ours,” the “Company,” and “Schneider” referMexico, thus adding value to Schneider National, Inc. and its consolidated subsidiaries.their supply chains.
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, 2020.2021. 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.
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 $60.9 million and $1.9 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.
Accounting Standards Recently Adopted
AsIn 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 January 1, 2021, we adoptedthe transaction, as well as the amounts and specific financial statement line items affected by the transaction. ASU 2019-12, Simplifying the Accounting2021-10 is effective for Income Taxes, which reduces complexity in accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740 and clarifying and amending existing guidance to improve consistent application among reporting entities. We used the modified retrospective or prospective approach, which was based on the specific amendment implemented, when adopting this standard.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 related disclosures.
2. ACQUISITION
We entered into a Securities Purchase Agreement, dated December 31, 2021 (“Acquisition Date”), to acquire 100% 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 $274.5 million inclusive of certain cash and net working capital adjustments and a deferred payment of $3.2 million made in January 2022. Proceeds from the total purchase consideration were used to settle $26.9 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 $1.9 million and were included in other general expenses in the Company’s consolidated statements of comprehensive income for the year ended December 31, 2021.
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) | | December 31, 2021
Opening Balance Sheet | | Adjustments | | Adjusted December 31, 2021 Opening Balance Sheet |
| Trade accounts receivable—net of allowance | | $ | 18.6 | | | $ | (5.9) | | | $ | 12.7 | |
| Other receivables | | 0.9 | | | 1.4 | | | 2.3 | |
| Prepaid expenses and other current assets | | 1.6 | | | — | | | 1.6 | |
| Net property and equipment | | 148.9 | | | (2.3) | | | 146.6 | |
| Internal use software and other noncurrent assets | | — | | | 1.7 | | | 1.7 | |
| Goodwill | | 122.7 | | | 4.5 | | | 127.2 | |
| Total assets acquired | | 292.7 | | | (0.6) | | | 292.1 | |
| | | | | | |
| Trade accounts payable | | 1.8 | | | 1.8 | | | 3.6 | |
| Accrued salaries, wages, and benefits | | 1.7 | | | 1.0 | | | 2.7 | |
| Claims accruals—current | | 7.5 | | | — | | | 7.5 | |
| | | | | | |
| Other current liabilities | | 7.2 | | | (3.7) | | | 3.5 | |
| | | | | | |
| Other noncurrent liabilities | | — | | | 0.3 | | | 0.3 | |
| Total liabilities assumed | | 18.2 | | | (0.6) | | | 17.6 | |
| | | | | | |
| Net assets acquired | | $ | 274.5 | | | $ | — | | | $ | 274.5 | |
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 $1,280.0 million during the three months ended March 31, 2021, and our earnings for that period would not have been materially different.
3. LEASES
As Lessee
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.
Additional information related to our leases is as follows:
| | | Nine Months Ended
September 30, | | Three Months Ended
March 31, |
| (in millions) | (in millions) | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities | Cash paid for amounts included in the measurement of lease liabilities | | | | | Cash paid for amounts included in the measurement of lease liabilities | | | | |
| Operating cash flows for operating leases | Operating cash flows for operating leases | | $ | 23.3 | | | $ | 26.3 | | Operating cash flows for operating leases | | $ | 8.3 | | | $ | 7.8 | |
| Operating cash flows for finance leases | | — | | | 0.1 | | |
| | Financing cash flows for finance leases | Financing cash flows for finance leases | | 0.5 | | | 0.5 | | Financing cash flows for finance leases | | 0.3 | | | 0.2 | |
| | Right-of-use assets obtained in exchange for new lease liabilities | Right-of-use assets obtained in exchange for new lease liabilities | | Right-of-use assets obtained in exchange for new lease liabilities | |
| Operating leases | Operating leases | | $ | 23.7 | | | $ | 21.6 | | Operating leases | | $ | 4.3 | | | $ | 14.6 | |
| Finance leases | Finance leases | | 1.2 | | | 0.8 | | Finance leases | | 1.8 | | | 1.2 | |
8As of March 31, 2022, we had signed leases that had not yet commenced totaling $3.5 million. These leases will commence during the remainder of 2022 and have lease terms of one to seven years.
As Lessor
We finance various types of transportation-related equipment for independent third parties under lease contracts which are generally for one to three 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.
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, investments in lease receivables were as follows:
| | (in millions) | (in millions) | | September 30, 2021 | | December 31, 2020 | (in millions) | | March 31, 2022 | | December 31, 2021 |
| Future minimum payments to be received on leases | Future minimum payments to be received on leases | | $ | 201.6 | | | $ | 159.0 | | Future minimum payments to be received on leases | | $ | 194.2 | | | $ | 193.9 | |
| Guaranteed residual lease values | Guaranteed residual lease values | | 123.3 | | | 107.6 | | Guaranteed residual lease values | | 125.4 | | | 123.3 | |
| Total minimum lease payments to be received | Total minimum lease payments to be received | | 324.9 | | | 266.6 | | Total minimum lease payments to be received | | 319.6 | | | 317.2 | |
| Unearned income | Unearned income | | (49.1) | | | (38.5) | | Unearned income | | (46.7) | | | (46.5) | |
| Net investment in leases | Net investment in leases | | $ | 275.8 | | | $ | 228.1 | | Net investment in leases | | $ | 272.9 | | | $ | 270.7 | |
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 September 30, 2021March 31, 2022 was $38.1$31.8 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 September 30, 2021,March 31, 2022, our lease payments past due were $2.8$3.1 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 expensesexpenses—net in the consolidated statements of comprehensive income, respectively.
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, | |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | |
| Revenue | Revenue | | $ | 57.2 | | | $ | 50.8 | | | $ | 169.8 | | | $ | 150.2 | | Revenue | | $ | 42.3 | | | $ | 58.8 | | |
| Cost of goods sold | Cost of goods sold | | (49.0) | | | (45.8) | | | (146.1) | | | (135.5) | | Cost of goods sold | | (36.0) | | | (50.4) | | |
| Operating profit | Operating profit | | $ | 8.2 | | | $ | 5.0 | | | $ | 23.7 | | | $ | 14.7 | | Operating profit | | $ | 6.3 | | | $ | 8.4 | | |
| | Interest income on lease receivable | Interest income on lease receivable | | $ | 8.5 | | | $ | 6.5 | | | $ | 23.6 | | | $ | 19.7 | | Interest income on lease receivable | | $ | 8.7 | | | $ | 7.3 | | |
|
3.4. REVENUE 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. The following table summarizes our revenues by type of service.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
Disaggregated Revenues (in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| Transportation | | $ | 1,326.3 | | | $ | 1,036.5 | | | $ | 3,700.4 | | | $ | 3,015.9 | |
| Logistics Management | | 56.4 | | | 41.3 | | | 149.7 | | | 102.2 | |
| Other | | 61.8 | | | 57.9 | | | 183.8 | | | 169.5 | |
| Total operating revenues | | $ | 1,444.5 | | | $ | 1,135.7 | | | $ | 4,033.9 | | | $ | 3,287.6 | |
9 | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
Disaggregated Revenues (in millions) | | 2022 | | 2021 | | | | |
| Transportation | | $ | 1,499.2 | | | $ | 1,118.6 | | | | | |
| Logistics Management | | 75.7 | | | 46.5 | | | | | |
| Other | | 45.6 | | | 63.5 | | | | | |
| Total operating revenues | | $ | 1,620.5 | | | $ | 1,228.6 | | | | | |
Quantitative Disclosure
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.
| | | | | | | | |
Remaining Performance Obligations (in millions) | | September 30, 2021March 31, 2022 |
| Expected to be recognized within one year | | |
| Transportation | | $ | 15.317.1 | |
| Logistics Management | | 10.911.9 | |
| Expected to be recognized after one year | | |
| Transportation | | 40.237.3 | |
| Logistics Management | | 9.54.8 | |
| Total | | $ | 75.971.1 | |
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).
The following table provides information related to contract balances associated with our contracts with customers as of the dates shown.
| | | | | | | | | | | | | | |
Contract Balances (in millions) | | September 30, 2021 | | December 31, 2020 |
| Other current assets - Contract assets | | $ | 35.7 | | | $ | 21.5 | |
| Other current liabilities - Contract liabilities | | 2.5 | | | 0.7 | |
| | | | | | | | | | | | | | |
Contract Balances (in millions) | | March 31, 2022 | | December 31, 2021 |
| Other current assets—Contract assets | | $ | 44.5 | | | $ | 33.8 | |
| Other current liabilities—Contract liabilities | | 3.1 | | | 3.2 | |
We generally receive payment within 40 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.
4.5. FAIR 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.
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.
| | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value |
| (in millions) | | Level in Fair
Value Hierarchy | | September 30, 2021 | | December 31, 2020 |
Equity investment in TuSimple (1) | | 1 | | $ | 13.1 | | | $ | — | |
Marketable securities (2) | | 2 | | 45.7 | | | 47.1 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value |
| (in millions) | | Level in Fair
Value Hierarchy | | March 31, 2022 | | December 31, 2021 |
Equity investment in TuSimple (1) | | 1 | | $ | 4.3 | | | $ | 12.7 | |
Marketable securities (2) | | 2 | | 48.5 | | | 49.3 | |
(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 5,6, 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 5,6, Investments, for additional information.
The fair value of the Company’s debt was $318.5$206.2 million and $316.9$276.7 million as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. The carrying value of the Company’s debt was $305.0$205.0 million and $265.0 million as of September 30, 2021March 31, 2022 and December 31, 2020.2021, 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.
Our investments in PSIAs part of the acquisition of MLS on December 31, 2021, certain assets acquired and MLSI discussed in Note 5, Investments, do not have readily determinableliabilities assumed were recorded at their fair values and were accounted for using the measurement alternative in ASC 321-10-35-2 as of September 30, 2021.the acquisition date. Refer to Note 2, Acquisition, for further details.
5.6. INVESTMENTS
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 0tnot have an allowance for credit losses on our marketable securities as of September 30, 2021March 31, 2022 or December 31, 2020.2021. Cost basis is determined using the specific identification method.
The following table presents the maturities and values of our marketable securities as of the dates shown.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2021 | | December 31, 2020 |
| (in millions, except maturities in months) | | Maturities | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| U.S. treasury and government agencies | | 26 to 113 | | $ | 15.9 | | | $ | 15.8 | | | $ | 12.6 | | | $ | 12.7 | |
| | | | | | | | | | |
| Corporate debt securities | | 1 to 72 | | 20.2 | | | 20.5 | | | 21.4 | | | 22.2 | |
| State and municipal bonds | | 1 to 54 | | 9.1 | | | 9.4 | | | 11.9 | | | 12.2 | |
| | | | | | | | | | |
| Total marketable securities | | | | $ | 45.2 | | | $ | 45.7 | | | $ | 45.9 | | | $ | 47.1 | |
Excluded from the amortized cost basis disclosures above is the accrued interest on marketable securities. As of September 30, 2021 and December 31, 2020, accrued interest receivable associated with marketable securities was not material and included within other receivables on the consolidated balance sheets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2022 | | December 31, 2021 |
| (in millions, except maturities in months) | | Maturities | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| U.S. treasury and government agencies | | 20 to 107 | | $ | 19.9 | | | $ | 18.6 | | | $ | 19.9 | | | $ | 19.6 | |
| | | | | | | | | | |
| Corporate debt securities | | 1 to 66 | | 19.1 | | | 18.5 | | | 20.3 | | | 20.4 | |
| State and municipal bonds | | 10 to 120 | | 11.6 | | | 11.4 | | | 9.1 | | | 9.3 | |
| | | | | | | | | | |
| Total marketable securities | | | | $ | 50.6 | | | $ | 48.5 | | | $ | 49.3 | | | $ | 49.3 | |
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, and MLSI, a transportation technology development company.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 September 30, 2021March 31, 2022 and December 31, 20202021 were $31.3$40.2 million and $22.3$36.2 million, respectively. During the three months ended September 30, 2021, a remeasurement event occurred, andIf the Company recognized a $9.0 million pre-tax gain. Our updated investmentidentifies observable price changes for identical or similar securities of the same issuer, the equity security is measured at fair value was determinedas of the date the observable transaction occurred using the backsolve method, a valuation approach that uses an option pricing model to value shares based on the price paid for recently issued shares. No gains or losses were recorded in the three months ended September 30, 2020. In the nine months ended September 30, 2021 and 2020, the Company recognized $9.0 million and $8.8 million in pre-tax gains, respectively. As of September 30, 2021 our cumulative pre-tax gains totaled $21.3 million.Level 3 inputs.
| | | | | | | | | | | | | | |
| | Three Months Ended
March 31, |
| (in millions) | | 2022 | | 2021 |
| Investment in equity securities | | $ | 4.0 | | | $ | — | |
| | | | |
| | | | |
| | | | |
Equity Investments with Readily Determinable Fair Values
On January 12,In 2021, the Company purchased a $5.0 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 and nine months ended September 30, 2021,March 31, 2022, the Company recognized a pre-tax net loss of $12.1$8.4 million and a pre-tax net gain of $8.1 million, respectively, on its investment in TuSimple. See Note 4,5, 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 (income)—expense—net on the consolidated statements of comprehensive income.
6.7. GOODWILL
Goodwill represents the excess of the purchase price of acquisitions over the fair value of the identifiable net assets acquired. The following table shows changes to our goodwill balances by segment during the period ended September 30, 2021.March 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Truckload | | Logistics | | Other | | Total |
| Balance at December 31, 2020 | | $ | 103.6 | | | $ | 14.2 | | | $ | 10.3 | | | $ | 128.1 | |
| | | | | | | | |
| Foreign currency translation gain | | — | | | — | | | 0.2 | | | 0.2 | |
| Balance at September 30, 2021 | | $ | 103.6 | | | $ | 14.2 | | | $ | 10.5 | | | $ | 128.3 | |
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Truckload | | Logistics | | Total |
| Balance at December 31, 2021 | | $ | 226.3 | | | $ | 14.2 | | | $ | 240.5 | |
| Acquisition adjustments (see Note 2) | | 4.5 | | | — | | | 4.5 | |
| | | | | | |
| Balance at March 31, 2022 | | $ | 230.8 | | | $ | 14.2 | | | $ | 245.0 | |
At September 30, 2021March 31, 2022 and December 31, 2020,2021, we had accumulated goodwill impairment charges of $42.6$53.2 million, which consisted of $34.6 million and $8.0$18.6 million in our Truckload segment and Other, respectively.
During the period ended March 31, 2022, we made measurement period adjustments related to the December 31, 2021 acquisition of MLS which were recorded within the Truckload segment. Refer to Note 2, Acquisition, for further details.
7.
8. DEBT AND CREDIT FACILITIES
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, debt included the following:
| | (in millions) | (in millions) | | September 30, 2021 | | December 31, 2020 | (in millions) | | March 31, 2022 | | December 31, 2021 |
| Unsecured senior notes: principal maturities ranging from 2021 through 2025; interest payable in semiannual installments through the same timeframe; weighted average interest rate of 3.53% and 3.64% for 2021 and 2020, respectively | | $ | 305.0 | | | $ | 305.0 | | |
| Unsecured senior notes: principal maturities ranging from 2023 through 2025; interest payable in semiannual installments through the same timeframe; weighted average interest rate of 3.80% and 3.61% for 2022 and 2021, respectively | | Unsecured senior notes: principal maturities ranging from 2023 through 2025; interest payable in semiannual installments through the same timeframe; weighted average interest rate of 3.80% and 3.61% for 2022 and 2021, respectively | | $ | 205.0 | | | $ | 265.0 | |
| | Current maturities | Current maturities | | (100.0) | | | (40.0) | | Current maturities | | — | | | (60.0) | |
| Debt issuance costs | | — | | | (0.2) | | |
| | Long-term debt | Long-term debt | | $ | 205.0 | | | $ | 264.8 | | Long-term debt | | $ | 205.0 | | | $ | 205.0 | |
Our Credit Agreement (the “2018 Credit Facility”) provides borrowing capacity of $250.0 million and allows us to request an increase in total commitment up to $150.0 million, for a total potential commitment of $400.0 million through August 2023. The agreement also provides a sublimit of $100.0 million to be used for the issuance of letters of credit. We had no outstanding borrowings under this agreement as of September 30, 2021March 31, 2022 or December 31, 2020.2021. Standby letters of credit under this agreement amounted to $3.9 million at September 30, 2021March 31, 2022 and December 31, 20202021 and were primarily related to the requirements of certain of our real estate leases.
On July 30, 2021, we entered into Amendment No. 3 to our Amended and RestatedWe 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 $150.0 million and provides for the issuance of standby letters of credit through July 2024. We had no outstanding borrowings under this facility at September 30, 2021March 31, 2022 or December 31, 2020.2021. At September 30, 2021March 31, 2022 and December 31, 2020,2021, standby letters of credit under this agreement amounted to $73.3 million and $70.3 million, respectively, and were primarily related to the requirements of certain of our insurance obligations.
8.9. INCOME TAXES
Our effective income tax rate was 25.2%25.4% and 26.0%24.7% for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively, and 25.2% and 25.6% for the nine months ended September 30, 2021 and 2020, 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.
On March 27, 2020, President Trump signed the CARES Act into U.S. federal law aimed at providing emergency assistance and health care for individuals, families, and businesses affected by COVID-19 and generally supporting the U.S. economy. The CARES Act included a provision for the deferment of the employer portion of social security taxes through December 31, 2020, among other things, which the Company elected. As of September 30, 2021, the deferred employer social security taxes have been paid, which totaled $30.7 million at December 31, 2020.
9.10. COMMON EQUITY
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30,March 31, 2022 and 2021, and 2020, respectively.
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, | |
| (in millions, except per share data) | (in millions, except per share data) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions, except per share data) | | 2022 | | 2021 | |
| Numerator: | Numerator: | | | | | | | | | Numerator: | | | | | |
| Net income available to common shareholders | Net income available to common shareholders | | $ | 110.0 | | | $ | 44.5 | | | $ | 271.3 | | | $ | 134.8 | | Net income available to common shareholders | | $ | 92.1 | | | $ | 54.8 | | |
| | Denominator: | Denominator: | | Denominator: | | |
| Weighted average common shares outstanding | Weighted average common shares outstanding | | 177.7 | | | 177.3 | | | 177.5 | | | 177.2 | | Weighted average common shares outstanding | | 177.7 | | | 177.4 | | |
| Dilutive effect of share-based awards and options outstanding | Dilutive effect of share-based awards and options outstanding | | 0.2 | | | 0.3 | | | 0.3 | | | 0.3 | | Dilutive effect of share-based awards and options outstanding | | 0.8 | | | 0.4 | | |
Weighted average diluted common shares outstanding (1) | Weighted average diluted common shares outstanding (1) | | 177.9 | | | 177.7 | | | 177.8 | | | 177.5 | | Weighted average diluted common shares outstanding (1) | | 178.5 | | | 177.8 | | |
| | Basic earnings per common share | Basic earnings per common share | | $ | 0.62 | | | $ | 0.25 | | | $ | 1.53 | | | $ | 0.76 | | Basic earnings per common share | | $ | 0.52 | | | $ | 0.31 | | |
| Diluted earnings per common share | Diluted earnings per common share | | 0.62 | | | 0.25 | | | 1.53 | | | 0.76 | | Diluted earnings per common share | | 0.52 | | | 0.31 | | |
(1)Weighted average diluted common shares outstanding may not sum due to rounding.
The calculation of diluted earnings per share excluded 0.8 million share-based awards and options that had an anti-dilutive effect for the three and nine months ended September 30, 2021 and 0.5 million and 0.6 million share-based awards and options that had an anti-dilutive effect for the three and nine months ended September 30, 2020, respectively.March 31, 2022 and 2021.
Subsequent Event - Dividends Declared
In OctoberApril of 2021,2022, the Board of Directors declared a quarterly cash dividend for the fourthsecond fiscal quarter of 20212022 in the amount of $0.07$0.08 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 DecemberJune 10, 20212022 and will be paid on January 10,July 11, 2022.
10.11. SHARE-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 consisthave 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 will beis 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 $3.1$5.1 million and $1.9$4.2 million for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively, and $10.2 million and $4.4 million for the nine months ended September 30, 2021 and 2020, respectively. We recognize share-based compensation expense over the awards’ vesting period. As of September 30, 2021,March 31, 2022, we had $22.0$35.5 million of pre-tax unrecognized compensation cost related to outstanding share-based compensation awards expected to be recognized over a weighted average period of 2.32.4 years.
13
Equity-based awards granted during the first quarter of 2022 had a grant date fair value of $16.5 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 | | 315,184 | | | $ | 25.91 | |
| PSUs | | 219,713 | | | 28.43 | |
| Non-qualified stock options | | 287,841 | | | 7.40 | |
| Total grants | | 822,738 | | | |
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.
11.12. COMMITMENTS 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 September 30, 2021,March 31, 2022, our firm commitments to purchase transportation equipment totaled $365.0$408.7 million.
In March 2022, the Company recorded a $5.2 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 has filed a lawsuit in the Delaware Court of Chancery which primarily allegesalleging that we havedid not fulfilledfulfill certain obligations under the purchase and sale agreement related to the post-closing operations of the business, and as a result,claiming that the former owners claim they areof WSL were entitled to damages including an additional payment of $40.0 million under an earn-out arrangement which was a component of the purchase price in the transaction.arrangement. The Delaware Court of Chancery completedconducted a remote trial in January 2021. Post trial briefs have been filed,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 $40.0 million in compensatory damages, plus prejudgment interest and the Court’s decisionformer owners’ attorneys’ fees. We estimate that prejudgment interest and attorneys’ fees will amount to approximately $19.0 million, for a total of $59.0 million in damages, interest, and fees. We are evaluating all options for appealing this judgment. The $59.0 million is pending.A judgment byincluded within other current liabilities in the Court against usconsolidated balance sheets and other general expenses in this matter could have a material adverse effect on our operating results. We believe we have presented strong defenses to this claim.
In 2020, the Company recorded $12.8 millionconsolidated statements of expensecomprehensive income as of and paid $13.7 million as a result of an adverse tax ruling in a dispute with the IRS over the applicability of excise taxes on certain tractors refurbished during tax years 2011 through 2013 and no longer in service. In December 2020, the Company filed an appeal with the U.S. Court of Appeals for the Seventh Circuit, and in August 2021, the Seventh Circuit reversed the District Court and ruled in the Company’s favor on all matters. A final resolution is expected in the fourth quarter of 2021.three months ended March 31, 2022, respectively.
12.13. SEGMENT REPORTING
We have 3 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.
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 $16.0$19.5 million and $11.9$18.0 million for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively, and $46.1 million and $59.1 million for the nine months ended September 30, 2021 and 2020, respectively.
| | | | | | | | | | | | | | | | | | |
| Revenues by Segment | | Three Months Ended
March 31, | | |
| (in millions) | | 2022 | | 2021 | | | | |
| Truckload | | $ | 548.4 | | | $ | 451.7 | | | | | |
| Intermodal | | 302.1 | | | 255.8 | | | | | |
| Logistics | | 545.7 | | | 355.9 | | | | | |
| Other | | 85.3 | | | 98.4 | | | | | |
| Fuel surcharge | | 166.0 | | | 90.2 | | | | | |
| Inter-segment eliminations | | (27.0) | | | (23.4) | | | | | |
| Operating revenues | | $ | 1,620.5 | | | $ | 1,228.6 | | | | | |
| | Revenues by Segment | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | |
| Income (Loss) from Operations by Segment | | Income (Loss) from Operations by Segment | | Three Months Ended
March 31, | |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | |
| Truckload | Truckload | | $ | 484.4 | | | $ | 460.2 | | | $ | 1,411.3 | | | $ | 1,380.7 | | Truckload | | $ | 119.4 | | | $ | 38.3 | | |
| Intermodal | Intermodal | | 295.7 | | | 248.4 | | | 825.5 | | | 705.4 | | Intermodal | | 38.9 | | | 20.0 | | |
| Logistics | Logistics | | 474.6 | | | 284.4 | | | 1,261.2 | | | 754.9 | | Logistics | | 41.9 | | | 15.9 | | |
| Other | Other | | 98.0 | | | 85.5 | | | 284.9 | | | 274.7 | | Other | | (65.1) | | | 2.0 | | |
| Fuel surcharge | | 114.4 | | | 73.0 | | | 314.8 | | | 244.7 | | |
| Inter-segment eliminations | | (22.6) | | | (15.8) | | | (63.8) | | | (72.8) | | |
| Operating revenues | | $ | 1,444.5 | | | $ | 1,135.7 | | | $ | 4,033.9 | | | $ | 3,287.6 | | |
| Income from operations | | Income from operations | | $ | 135.1 | | | $ | 76.2 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (Loss) from Operations by Segment | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| Truckload | | $ | 85.1 | | | $ | 45.6 | | | $ | 197.0 | | | $ | 122.7 | |
| Intermodal | | 45.7 | | | 23.0 | | | 100.6 | | | 50.3 | |
| Logistics | | 22.1 | | | 9.1 | | | 55.0 | | | 21.5 | |
| Other | | 0.8 | | | (14.4) | | | 3.1 | | | (12.9) | |
| Income from operations | | $ | 153.7 | | | $ | 63.3 | | | $ | 355.7 | | | $ | 181.6 | |
| | Depreciation and Amortization by Segment | Depreciation and Amortization by Segment | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | Depreciation and Amortization by Segment | | Three Months Ended
March 31, | |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | |
| Truckload | Truckload | | $ | 52.1 | | | $ | 53.6 | | | $ | 157.1 | | | $ | 157.1 | | Truckload | | $ | 57.1 | | | $ | 52.6 | | |
| Intermodal | Intermodal | | 12.4 | | | 11.9 | | | 35.5 | | | 34.4 | | Intermodal | | 13.7 | | | 11.5 | | |
| Logistics | Logistics | | 0.1 | | | 0.1 | | | 0.2 | | | 0.1 | | Logistics | | — | | | — | | |
| Other | Other | | 9.6 | | | 8.6 | | | 27.7 | | | 24.7 | | Other | | 13.0 | | | 9.0 | | |
| Depreciation and amortization | Depreciation and amortization | | $ | 74.2 | | | $ | 74.2 | | | $ | 220.5 | | | $ | 216.3 | | Depreciation and amortization | | $ | 83.8 | | | $ | 73.1 | | |
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, 2020.2021.
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’ varied transportation needs.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. OurFurthermore, 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 dedicatednetwork or networkdedicated 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 partners.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
COVID-19Acquisition
COVID-19 was declared a pandemic by the World Health Organization in March 2020. In response to the pandemic,On December 31, 2021, the Company has taken stepscompleted 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 mitigate the potential risks it poses.Note 2, Acquisition, for additional details.
We have taken additional measures to keepAdverse Legal Judgment
On April 25, 2022, in connection with our associates safelitigation against the former owners of WSL, the Delaware Superior Court entered judgment in favor of the former owners, awarding $59.0 million in damages, interest, and minimize unnecessary risk of exposure to COVID-19, including taking precautions for our associates and owner-operators, implementing work from home policies, and imposing travel limitations on employees, where appropriate, as we’ve continued to provide an essential service. Associates who worked remotely during the pandemic are being transitioned to a primarily on-premise work environment, and physical and cyber-security measures implemented to ensure our systems are capable of serving our operational needs and providing uninterrupted service to our customers remain in place.attorneys’ fees. This judgment has
Schneider continues to monitor the situation, including the proposed federal vaccine mandate, and will take further actions as may be required by federal, state, or local governmental authorities, or that we determine arebeen recognized in the best interests of our associates, customers, and shareholders.
Additional information concerning the impact COVID-19 may have to our future business and results of operations is provided in Part I, Item 1A. “Risk Factors” offor the Company's 2020 Annual Report on Form 10-K.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 fuel pricesuch 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.
| | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | Three Months Ended
March 31, | |
| (in millions, except ratios) | (in millions, except ratios) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions, except ratios) | | 2022 | | 2021 | |
| Operating revenues | Operating revenues | | $ | 1,444.5 | | | $ | 1,135.7 | | | $ | 4,033.9 | | | $ | 3,287.6 | | Operating revenues | | $ | 1,620.5 | | | $ | 1,228.6 | | |
Revenues (excluding fuel surcharge) (1) | Revenues (excluding fuel surcharge) (1) | | 1,330.1 | | | 1,062.7 | | | 3,719.1 | | | 3,042.9 | | Revenues (excluding fuel surcharge) (1) | | 1,454.5 | | | 1,138.4 | | |
| Income from operations | Income from operations | | 153.7 | | | 63.3 | | | 355.7 | | | 181.6 | | Income from operations | | 135.1 | | | 76.2 | | |
Adjusted income from operations (2) | Adjusted income from operations (2) | | 153.7 | | | 76.9 | | | 355.7 | | | 194.2 | | Adjusted income from operations (2) | | 148.4 | | | 76.2 | | |
| Operating ratio | Operating ratio | | 89.4 | % | | 94.4 | % | | 91.2 | % | | 94.5 | % | Operating ratio | | 91.7 | % | | 93.8 | % | |
Adjusted operating ratio (3) | Adjusted operating ratio (3) | | 88.4 | % | | 92.8 | % | | 90.4 | % | | 93.6 | % | Adjusted operating ratio (3) | | 89.8 | % | | 93.3 | % | |
| Net income | Net income | | $ | 110.0 | | | $ | 44.5 | | | $ | 271.3 | | | $ | 134.8 | | Net income | | $ | 92.1 | | | $ | 54.8 | | |
Adjusted net income (4) | Adjusted net income (4) | | 110.0 | | | 54.6 | | | 271.3 | | | 144.2 | | Adjusted net income (4) | | 102.1 | | | 54.8 | | |
(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.”
Revenues (excluding fuel surcharge)
| | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | Three Months Ended
March 31, | |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | |
| Operating revenues | Operating revenues | | $ | 1,444.5 | | | $ | 1,135.7 | | | $ | 4,033.9 | | | $ | 3,287.6 | | Operating revenues | | $ | 1,620.5 | | | $ | 1,228.6 | | |
| Less: Fuel surcharge revenues | Less: Fuel surcharge revenues | | 114.4 | | | 73.0 | | | 314.8 | | | 244.7 | | Less: Fuel surcharge revenues | | 166.0 | | | 90.2 | | |
| Revenues (excluding fuel surcharge) | Revenues (excluding fuel surcharge) | | $ | 1,330.1 | | | $ | 1,062.7 | | | $ | 3,719.1 | | | $ | 3,042.9 | | Revenues (excluding fuel surcharge) | | $ | 1,454.5 | | | $ | 1,138.4 | | |
Adjusted income from operations
| | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | Three Months Ended
March 31, | |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | |
| Income from operations | Income from operations | | $ | 153.7 | | | $ | 63.3 | | | $ | 355.7 | | | $ | 181.6 | | Income from operations | | $ | 135.1 | | | $ | 76.2 | | |
Litigation (1) | | — | | | 13.1 | | | — | | | 13.1 | | |
Litigation and audit assessments (1) (2) | | Litigation and audit assessments (1) (2) | | 64.2 | | | — | | |
| Restructuring—net (2) | | — | | | 0.5 | | | — | | | (0.5) | | |
| Property gain—net (3) | | Property gain—net (3) | | (50.9) | | | — | | |
| Adjusted income from operations | Adjusted income from operations | | $ | 153.7 | | | $ | 76.9 | | | $ | 355.7 | | | $ | 194.2 | | Adjusted income from operations | | $ | 148.4 | | | $ | 76.2 | | |
(1)Contested prior period federal excise taxes, including court awarded costs and interest, as a result of an adverse tax rulingIncludes $5.2 million in 2020charges related to an IRS dispute over the applicability of excise taxesadverse audit assessment for prior period state sales tax on certain tractors refurbished during tax years 2011 through 2013 and no longer in service. Refer to Note 11, Commitments and Contingencies, for more information.rolling stock equipment used within that state.
(2)Activity associatedIncludes a $59.0 million adverse judgment related to a lawsuit with former owners of WSL, inclusive of prejudgment interest and the shutdownformer owners’ attorneys’ fees.
(3)Net gain on the sale of the FTFM service offering.our Canadian facility due to a change in approach to servicing Canada.
Adjusted operating ratio
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, | |
| (in millions, except ratios) | (in millions, except ratios) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions, except ratios) | | 2022 | | 2021 | |
| Total operating expenses | Total operating expenses | | $ | 1,290.8 | | | $ | 1,072.4 | | | $ | 3,678.2 | | | $ | 3,106.0 | | Total operating expenses | | $ | 1,485.4 | | | $ | 1,152.4 | | |
| Divide by: Operating revenues | Divide by: Operating revenues | | 1,444.5 | | | 1,135.7 | | | 4,033.9 | | | 3,287.6 | | Divide by: Operating revenues | | 1,620.5 | | | 1,228.6 | | |
| Operating ratio | Operating ratio | | 89.4 | % | | 94.4 | % | | 91.2 | % | | 94.5 | % | Operating ratio | | 91.7 | % | | 93.8 | % | |
| | Total operating expenses | Total operating expenses | | $ | 1,290.8 | | | $ | 1,072.4 | | | $ | 3,678.2 | | | $ | 3,106.0 | | Total operating expenses | | $ | 1,485.4 | | | $ | 1,152.4 | | |
| Adjusted for: | Adjusted for: | | Adjusted for: | | |
| Fuel surcharge revenues | Fuel surcharge revenues | | (114.4) | | | (73.0) | | | (314.8) | | | (244.7) | | Fuel surcharge revenues | | (166.0) | | | (90.2) | | |
| Litigation | | — | | | (13.1) | | | — | | | (13.1) | | |
| Litigation and audit assessments | | Litigation and audit assessments | | (64.2) | | | — | | |
| | Restructuring—net | | — | | | (0.5) | | | — | | | 0.5 | | |
| | Property gain—net | | Property gain—net | | 50.9 | | | — | | |
| Adjusted total operating expenses | Adjusted total operating expenses | | $ | 1,176.4 | | | $ | 985.8 | | | $ | 3,363.4 | | | $ | 2,848.7 | | Adjusted total operating expenses | | $ | 1,306.1 | | | $ | 1,062.2 | | |
| | Operating revenues | Operating revenues | | $ | 1,444.5 | | | $ | 1,135.7 | | | $ | 4,033.9 | | | $ | 3,287.6 | | Operating revenues | | $ | 1,620.5 | | | $ | 1,228.6 | | |
| Less: Fuel surcharge revenues | Less: Fuel surcharge revenues | | 114.4 | | | 73.0 | | | 314.8 | | | 244.7 | | Less: Fuel surcharge revenues | | 166.0 | | | 90.2 | | |
| Revenues (excluding fuel surcharge) | Revenues (excluding fuel surcharge) | | $ | 1,330.1 | | | $ | 1,062.7 | | | $ | 3,719.1 | | | $ | 3,042.9 | | Revenues (excluding fuel surcharge) | | $ | 1,454.5 | | | $ | 1,138.4 | | |
| | Adjusted operating ratio | Adjusted operating ratio | | 88.4 | % | | 92.8 | % | | 90.4 | % | | 93.6 | % | Adjusted operating ratio | | 89.8 | % | | 93.3 | % | |
Adjusted net income
| | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | Three Months Ended
March 31, | |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | |
| Net income | Net income | | $ | 110.0 | | | $ | 44.5 | | | $ | 271.3 | | | $ | 134.8 | | Net income | | $ | 92.1 | | | $ | 54.8 | | |
| Litigation | | — | | | 13.1 | | | — | | | 13.1 | | |
| Litigation and audit assessments | | Litigation and audit assessments | | 64.2 | | | — | | |
| | Restructuring—net | | — | | | 0.5 | | | — | | | (0.5) | | |
| | Property gain—net | | Property gain—net | | (50.9) | | | — | | |
Income tax effect of non-GAAP adjustments (1) | Income tax effect of non-GAAP adjustments (1) | | — | | | (3.5) | | | — | | | (3.2) | | Income tax effect of non-GAAP adjustments (1) | | (3.3) | | | — | | |
| Adjusted net income | Adjusted net income | | $ | 110.0 | | | $ | 54.6 | | | $ | 271.3 | | | $ | 144.2 | | Adjusted net income | | $ | 102.1 | | | $ | 54.8 | | |
(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.
Three Months Ended September 30, 2021March 31, 2022 Compared to Three Months Ended September 30, 2020March 31, 2021
Enterprise Results Summary
Enterprise net income increased $65.5$37.3 million, approximately 147%68%, in the thirdfirst quarter of 20212022 compared to the same quarter in 2020,2021, primarily due to a $90.4$58.9 million increase in income from operations, partially offset by the corresponding increase in income taxes.taxes and a pre-tax equity investment loss of $8.4 million during three months ended March 31, 2022.
Adjusted net income increased $55.4$47.3 million, approximately 101%86%.
Components of Enterprise Net Income
Enterprise Revenues
Enterprise operating revenues increased $308.8$391.9 million, approximately 27%32%, in the thirdfirst quarter of 20212022 compared to the same quarter in 2020.2021.
Factors contributing to the increase were as follows:
•a $190.2$189.8 million increase in Logistics segment revenues (excluding fuel surcharge) driven by increased revenue per order, volume growth within our brokerage business, and volume growth;incremental port dray revenues;
•a $47.3$96.7 million increase in IntermodalTruckload 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 an improvementdriver capacity constraints and reduced productivity resulting from COVID-19 disruptions early in revenue per order and an increase in orders despite network fluidity constraints;the quarter;
•a $41.4$75.8 million increase in fuel surcharge revenues resulting from an increase in fuel prices in the thirdfirst quarter of 20212022 compared to the same quarter in 20202021 (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 38%44% between such periods), partially offset by a decrease in Truckload volumes;as well as fuel surcharge revenues from the recent acquisition of MLS; and
•a $24.2$46.3 million increase in TruckloadIntermodal segment revenues (excluding fuel surcharge) resulting from improveddue to improvement in revenue per truck per week, partially offset by lower volumes due to driver capacity constraints.order and an increase in orders despite continued network fluidity challenges.
Enterprise revenues (excluding fuel surcharge) increased $267.4$316.1 million, approximately 25%28%.
Enterprise Income from Operations and Operating Ratio
Enterprise income from operations increased $90.4$58.9 million, approximately 143%77%, in the thirdfirst quarter of 20212022 compared to the same quarter in 2020,2021, 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 largely driven by strong freight market conditions, and effective network and revenue management.management, and contracted rate renewals. A $33.6net gain on sale of $50.9 million improvement in equipment dispositions and $13.1 millionconnection with the sale of costs incurredour Canadian facility due to a change in 2020 relatedapproach to an adverse tax rulingservicing Canada also contributed to improved income from operations.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 due to industry-wide capacity constraints, as well asand an increase in company drivers, and higher rail costs.
19purchased transportation costs within Intermodal.
Adjusted income from operations increased $76.8$72.2 million, approximately 100%95%.
Enterprise operating ratio improved on both a GAAP and adjusted basis when compared to the thirdfirst quarter of 2020.2021. 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 $191.3$181.6 million, or 38%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 resulting fromdriven by an increase in both rail costs and orderscost per mile within Intermodal.
•Salaries, wages, and benefits increased $31.0$70.4 million, or 12%26%, quarter over quarter, primarily due to increases inhigher Truckload and Intermodal driver pay Logistics salaries and wages, and performance-based incentive compensation. The increases in driver pay were largely the result ofresulting from pay increases and actions to address driver capacity constraints while the increase in Logistics salaries and wages was primarily due to an increase in sales commissionscompany drivers. The recent acquisition of MLS, an increase in headcount across the organization, and headcount.incremental healthcare costs added to the remaining increase quarter over quarter.
•Fuel and fuel taxes for company trucks increased $20.8$46.4 million, or 42%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 expensesexpenses—net decreased $35.9$46.6 million, or 25%34%, quarter over quarter, largely a result of a $33.6 million favorable change in equipment dispositions driven by a strong used equipment market and the strength of our nationwide maintenance network in facilitating equipment sales and $13.1 million of costs incurred in 2020 relateddue to an adverse tax ruling.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 constraints.challenges and increased container count.
•Other general expenses increased $9.8$68.5 million, or 38%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. The remaining increase was largely related to costs associated with software developmentlevels and professional services.the hiring of additional company drivers in 2022.
Total Other Expenses (Income)
Total other expense increased $3.5$8.2 million, approximately 109%241%, in the thirdfirst quarter of 20212022 compared to the same quarter in 2020.2021. This change mainly resulted from a $3.1was driven by an $8.4 million pre-tax net loss on our equity investments in the thirdfirst quarter of 2021.2022. See Note 5,6, Investments, for more information on our equity investments.
Income Tax Expense
Our provision for income taxes increased $21.4$13.4 million, approximately 137%74%, in the thirdfirst quarter of 20212022 compared to the same quarter in 20202021 primarily due to higher taxable income. The effective income tax rate was 25.2%25.4% for the three months ended September 30, 2021March 31, 2022 compared to 26.0%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.
Revenues and Income (Loss) from Operations by Segment
The following tables summarize revenues and income (loss) from operations by segment.
| | | Three Months Ended
September 30, | | Three Months Ended
March 31, |
Revenues by Segment (in millions) | Revenues by Segment (in millions) | | 2021 | | 2020 | Revenues by Segment (in millions) | | 2022 | | 2021 |
| Truckload | Truckload | | $ | 484.4 | | | $ | 460.2 | | Truckload | | $ | 548.4 | | | $ | 451.7 | |
| Intermodal | Intermodal | | 295.7 | | | 248.4 | | Intermodal | | 302.1 | | | 255.8 | |
| Logistics | Logistics | | 474.6 | | | 284.4 | | Logistics | | 545.7 | | | 355.9 | |
| Other | Other | | 98.0 | | | 85.5 | | Other | | 85.3 | | | 98.4 | |
| Fuel surcharge | Fuel surcharge | | 114.4 | | | 73.0 | | Fuel surcharge | | 166.0 | | | 90.2 | |
| Inter-segment eliminations | Inter-segment eliminations | | (22.6) | | | (15.8) | | Inter-segment eliminations | | (27.0) | | | (23.4) | |
| Operating revenues | Operating revenues | | $ | 1,444.5 | | | $ | 1,135.7 | | Operating revenues | | $ | 1,620.5 | | | $ | 1,228.6 | |
| | | | | | | | | | | | | | |
| | Three Months Ended
March 31, |
Income (Loss) from Operations by Segment (in millions) | | 2022 | | 2021 |
| Truckload | | $ | 119.4 | | | $ | 38.3 | |
| Intermodal | | 38.9 | | | 20.0 | |
| Logistics | | 41.9 | | | 15.9 | |
| Other | | (65.1) | | | 2.0 | |
| Income from operations | | 135.1 | | | 76.2 | |
| Adjustments: | | | | |
| Litigation and audit assessments | | 64.2 | | | — | |
| | | | |
| | | | |
| Property gain—net | | (50.9) | | | — | |
| Adjusted income from operations | | $ | 148.4 | | | $ | 76.2 | |
| | | | | | | | | | | | | | |
| | Three Months Ended
September 30, |
Income (Loss) from Operations by Segment (in millions) | | 2021 | | 2020 |
| Truckload | | $ | 85.1 | | | $ | 45.6 | |
| Intermodal | | 45.7 | | | 23.0 | |
| Logistics | | 22.1 | | | 9.1 | |
| Other | | 0.8 | | | (14.4) | |
| Income from operations | | 153.7 | | | 63.3 | |
| Adjustments: | | | | |
| Litigation | | — | | | 13.1 | |
| | | | |
| Restructuring—net | | — | | | 0.5 | |
| Adjusted income from operations | | $ | 153.7 | | | $ | 76.9 | |
We monitor and analyze a number of KPIs in order to manage our business and evaluate our financial and operating performance. Below are our KPIs by segment.
Truckload
The following table presents the KPIs for 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.
| | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, |
| | | 2021 | | 2020 |
| Dedicated | | | | |
Revenues (excluding fuel surcharge) (1) | | $ | 204.0 | | | $ | 177.8 | |
Average trucks (2) (3) | | 4,240 | | | 3,944 | |
Revenue per truck per week (4) | | $ | 3,706 | | | $ | 3,483 | |
| Network | | | | |
Revenues (excluding fuel surcharge) (1) | | $ | 279.9 | | | $ | 281.5 | |
Average trucks (2) (3) | | 4,942 | | | 6,108 | |
Revenue per truck per week (4) | | $ | 4,364 | | | $ | 3,561 | |
| Total Truckload | | | | |
Revenues (excluding fuel surcharge) (5) | | $ | 484.4 | | | $ | 460.2 | |
Average trucks (2) (3) | | 9,182 | | | 10,052 | |
Revenue per truck per week (4) | | $ | 4,060 | | | $ | 3,530 | |
Average company trucks (3) | | 6,875 | | | 7,250 | |
Average owner-operator trucks (3) | | 2,307 | | | 2,802 | |
Trailers (6) | | 36,434 | | | 36,672 | |
Operating ratio (7) | | 82.4 | % | | 90.1 | % |
(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 $24.2 million, approximately 5%, in the third quarter of 2021 compared to the same quarter in 2020, driven by price improvements, largely offset by a 12% decline in volume. Revenue per truck per week increased $530, or 15%, quarter over quarter, as a result of a 22% increase in rate per loaded mile driven by favorable price conditions and network management, partially offset by lower productivity largely resulting from freight mix. Despite strong market demand, freight volumes decreased quarter over quarter mainly due to continued driver capacity constraints.
Truckload income fromBeginning in 2022, MLS impacts are included within dedicated operations increased $39.5 million, approximately 87%, in the third quarter of 2021 compared to the same quarter in 2020, primarily due to a favorable price environment and network management, in addition to a $30.3 million favorable change in equipment dispositions. These items were partially offset by the earnings impact of reduced volumes, noted above, and an increase in driver-related costs as a result of pay increases and actions taken to attract and retain drivers in response to industry-wide driver capacity constraints.below.
Intermodal
The following table presents the KPIs for our Intermodal segment for the periods indicated.
| | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, |
| | | 2021 | | 2020 |
Orders (1) | | 111,801 | | | 110,633 | |
| Containers | | 23,796 | | | 21,744 | |
Trucks (2) | | 1,569 | | | 1,582 | |
Revenue per order (3) | | $ | 2,624 | | | $ | 2,194 | |
Operating ratio (4) | | 84.5 | % | | 90.7 | % |
(1)Based on delivered rail orders.
(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 $47.3 million, approximately 19%, in the third quarter of 2021 compared to the same quarter in 2020, primarily due to a $430, or 20%, improvement in revenue per order. Strong market conditions favorably impacted revenue per order and allowed for improvements in price and increased premium opportunities, which were partially offset by growth in the East, which has a shorter length of haul and therefore, typically lower revenue per order. Despite continued challenges related to supply chain inefficiencies resulting in extended container dwell times and rail network disruptions, orders increased 1%.
Intermodal income from operations increased $22.7 million, approximately 99%, in the third quarter of 2021 compared to the same quarter in 2020, driven by the factors impacting revenue discussed above, partially offset by higher rail and driver-related costs mainly due to network fluidity challenges and actions taken to attract and retain drivers to mitigate industry-wide driver capacity constraints.
Logistics
The following table presents the KPI for our Logistics segment for the periods indicated.
| | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, |
| | | 2021 | | 2020 |
Operating ratio (1) | | 95.3 | % | | 96.8 | % |
| | | | |
(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 $190.2 million, approximately 67%, in the third quarter of 2021 compared to the same quarter in 2020. This increase was primarily driven by an increase in revenue per order and 24% volume growth within our brokerage business due to supportive market conditions, in addition to the expansion of our Power Only offering and digital platform.
Logistics income from operations increased $13.0 million, approximately 143%, in the third quarter of 2021 compared to the same quarter in 2020. Contributing to the increase in income from operations quarter over quarter were both net revenue per order improvements within our brokerage business and the volume growth cited above.
Other
Included in Other was income from operations of $0.8 million in the third quarter of 2021 compared to a loss of $14.4 million in the same quarter in 2020. Factors contributing to the change include $13.1 million of costs incurred in 2020 as a result of an adverse tax ruling, in addition to an increase in income from operations within our leasing business, partially offset by an increase in performance-based incentive compensation quarter over quarter.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Enterprise Results Summary
Enterprise net income increased $136.5 million, approximately 101%, in the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to a $174.1 million increase in income from operations, partially offset by the corresponding increase in income taxes. In addition, the nine months ended September 30, 2021 and 2020 included pre-tax net investment gains of $17.1 million and $8.8 million, respectively.
Adjusted net income increased $127.1 million, approximately 88%.
Components of Enterprise Net Income
Enterprise Revenues
Enterprise operating revenues increased $746.3 million, approximately 23%, in the nine months ended September 30, 2021 compared to the same period in 2020.
Factors contributing to the increase were as follows:
•a $506.3 million increase in Logistics segment revenues (excluding fuel surcharge) due to an increase in revenue per order and volume growth;
•a $120.1 million increase in Intermodal segment revenues (excluding fuel surcharge) driven by an improvement in revenue per order and an increase in orders despite network fluidity constraints;
•a $70.1 million increase in fuel surcharge revenues resulting from an increase in fuel prices in the first nine months of 2021 compared to the same period in 2020 (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 20% between such periods) and an increase in Intermodal volumes, partially offset by a decrease in Truckload volumes; and
•a $30.6 million increase in Truckload segment revenues (excluding fuel surcharge) driven by improved revenue per truck per week, partially offset by lower volumes due to driver capacity constraints.
Enterprise revenues (excluding fuel surcharge) increased $676.2 million, approximately 22%.
Enterprise Income from Operations and Operating Ratio
Enterprise income from operations increased $174.1 million, approximately 96%, in the nine months ended September 30, 2021 compared to the same period in 2020, 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 largely driven by strong freight market conditions compared to the unfavorable impacts of COVID-19 in the prior year and effective network and revenue management. A $53.4 million improvement in equipment dispositions, a reduction in insurance costs due to a decrease in claims severity and frequency, and $13.1 million of costs incurred in 2020 related to an adverse tax ruling also contributed to improved income from operations. The above factors were partially offset by an increase in driver costs and a reduction in Truckload freight volumes resulting from additional costs incurred to attract and retain drivers and industry-wide driver capacity constraints, respectively, as well as higher rail costs.
Adjusted income from operations increased $161.5 million, approximately 83%.
Enterprise operating ratio improved on both a GAAP and adjusted basis when compared to the same period of 2020. 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 costs increased $482.7 million, or 34%, period over period, primarily resulting from increased third party carrier costs due to higher purchased transportation costs per order and volume growth within Logistics, as well as higher rail purchased transportation resulting from an increase in both rail costs and orders in Intermodal. These items were partially offset by reduced owner-operator costs within Truckload largely due to fewer owner-operators despite an increase in owner-operator pay.
•Salaries, wages, and benefits increased $61.5 million, or 8%, period over period, primarily due to increases in Truckload and Intermodal driver pay, Logistics salaries and wages, and performance-based incentive compensation. The increases in driver pay were largely the result of pay increases and actions to address driver capacity constraints, while the increase in Logistics salaries and wages was primarily due to an increase in headcount and sales commissions.
•Fuel and fuel taxes for company trucks increased $51.6 million, or 34%, period over period, driven primarily by an increase in cost per gallon, partially offset by a decrease in company driver miles resulting from industry-wide capacity constraints. A significant portion of fuel costs are recovered through our fuel surcharge programs.
•Operating supplies and expenses decreased $33.7 million, or 9%, period over period, a result of a $53.4 million favorable change in equipment dispositions driven by a strong used equipment market and the strength of our nationwide maintenance network in facilitating equipment sales and $13.1 million of costs incurred in 2020 related to an adverse tax ruling. These factors were partially offset by an increase in equipment rental expense due to port congestion and higher customer dwell times, additional rail storage expenses caused by network fluidity constraints, and an increase in a variety of other operating-related areas that were individually immaterial.
•Insurance and related expenses decreased $14.2 million, or 19%, period over period, primarily due to favorability in auto liability resulting from a decrease in claims severity and frequency.
•Other general expenses increased $19.6 million, or 25%, period over period, primarily due to an increase in costs associated with software development and professional services. The remaining increase is attributable to higher driver onboarding costs resulting from increased costs to attract and retain drivers due to constrained industry-wide capacity levels compared to favorable driver turnover in 2020 during the pandemic.
Total Other Expenses (Income)
Total other income increased $7.4 million in the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to an $8.3 million increase in pre-tax net gains on our equity investments. In the nine months ended September 30, 2021 we recorded a $17.1 million pre-tax net gain on investments compared to an $8.8 million pre-tax gain on investments in the same period in 2020. See Note 5, Investments, for more information on our equity investments.
Income Tax Expense
Our provision for income taxes increased $45.0 million, approximately 97%, in the nine months ended September 30, 2021 compared to the same period in 2020 due to higher taxable income. The effective income tax rate was 25.2% for the nine months ended September 30, 2021 compared to 25.6% for the same period last year. Our provision for income taxes may fluctuate in future periods to the extent there are changes to tax laws and regulations.
Revenues and Income (Loss) from Operations by Segment
The following tables summarize revenues and income (loss) from operations by segment.
| | | | | | | | | | | | | | |
| | Nine Months Ended
September 30, |
Revenues by Segment (in millions) | | 2021 | | 2020 |
| Truckload | | $ | 1,411.3 | | | $ | 1,380.7 | |
| Intermodal | | 825.5 | | | 705.4 | |
| Logistics | | 1,261.2 | | | 754.9 | |
| Other | | 284.9 | | | 274.7 | |
| Fuel surcharge | | 314.8 | | | 244.7 | |
| Inter-segment eliminations | | (63.8) | | | (72.8) | |
| Operating revenues | | $ | 4,033.9 | | | $ | 3,287.6 | |
| | | | | | | | | | | | | | |
| | Nine Months Ended
September 30, |
Income (Loss) from Operations by Segment (in millions) | | 2021 | | 2020 |
| Truckload | | $ | 197.0 | | | $ | 122.7 | |
| Intermodal | | 100.6 | | | 50.3 | |
| Logistics | | 55.0 | | | 21.5 | |
| Other | | 3.1 | | | (12.9) | |
| Income from operations | | 355.7 | | | 181.6 | |
| Adjustments: | | | | |
| Litigation | | — | | | 13.1 | |
| | | | |
| Restructuring—net | | — | | | (0.5) | |
| Adjusted income from operations | | $ | 355.7 | | | $ | 194.2 | |
We monitor and analyze a number of KPIs in order to manage our business and evaluate our financial and operating performance. Below are our KPIs by segment.
Truckload
The following table presents the KPIs for our Truckload segment 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.
| | | | | Nine Months Ended
September 30, | | | Three Months Ended
March 31, |
| | | | 2021 | | 2020 | | | 2022 | | 2021 |
| Dedicated | Dedicated | | | | | Dedicated | | | | |
Revenues (excluding fuel surcharge) (1) | Revenues (excluding fuel surcharge) (1) | | $ | 587.3 | | | $ | 526.1 | | Revenues (excluding fuel surcharge) (1) | | $ | 280.1 | | | $ | 184.8 | |
Average trucks (2) (3) | Average trucks (2) (3) | | 4,182 | | | 3,912 | | Average trucks (2) (3) | | 5,720 | | | 4,143 | |
Revenue per truck per week (4) | Revenue per truck per week (4) | | $ | 3,643 | | | $ | 3,478 | | Revenue per truck per week (4) | | $ | 3,861 | | | $ | 3,506 | |
| Network | Network | | Network | |
Revenues (excluding fuel surcharge) (1) | Revenues (excluding fuel surcharge) (1) | | $ | 821.6 | | | $ | 852.6 | | Revenues (excluding fuel surcharge) (1) | | $ | 266.7 | | | $ | 264.9 | |
Average trucks (2) (3) | Average trucks (2) (3) | | 5,159 | | | 6,242 | | Average trucks (2) (3) | | 4,582 | | | 5,396 | |
Revenue per truck per week (4) | Revenue per truck per week (4) | | $ | 4,133 | | | $ | 3,533 | | Revenue per truck per week (4) | | $ | 4,591 | | | $ | 3,859 | |
| Total Truckload | Total Truckload | | Total Truckload | |
Revenues (excluding fuel surcharge) (5) | Revenues (excluding fuel surcharge) (5) | | $ | 1,411.3 | | | $ | 1,380.7 | | Revenues (excluding fuel surcharge) (5) | | $ | 548.4 | | | $ | 451.7 | |
Average trucks (2) (3) | Average trucks (2) (3) | | 9,341 | | | 10,154 | | Average trucks (2) (3) | | 10,302 | | | 9,539 | |
Revenue per truck per week (4) | Revenue per truck per week (4) | | $ | 3,914 | | | $ | 3,512 | | Revenue per truck per week (4) | | $ | 4,186 | | | $ | 3,706 | |
Average company trucks (3) | Average company trucks (3) | | 6,960 | | | 7,298 | | Average company trucks (3) | | 8,224 | | | 7,067 | |
Average owner-operator trucks (3) | Average owner-operator trucks (3) | | 2,381 | | | 2,856 | | Average owner-operator trucks (3) | | 2,078 | | | 2,472 | |
Trailers (6) | Trailers (6) | | 36,434 | | | 36,672 | | Trailers (6) | | 40,480 | | | 36,823 | |
Operating ratio (7) | Operating ratio (7) | | 86.0 | % | | 91.1 | % | Operating ratio (7) | | 78.2 | % | | 91.5 | % |
(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 $30.6$96.7 million, approximately 2%21%, in the nine months ended September 30, 2021 compared to the same period in 2020 as an improvement in price was largely offset by an 11% decline in volume. Revenue per truck per week increased $402, or 11%, period over period, due to a 16% increase in rate per loaded mile driven by higher contract and spot rates, partially offset by reduced productivity largely due to weather in the first quarter of 2021 and freight mix. While growth was experienced within our dedicated business,2022 compared to the overall reductionsame quarter in order volumes2021. The increase was primarily driventhe 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 $74.3$81.1 million, approximately 61%212%, in the nine months ended September 30, 2021first quarter of 2022 compared to the same periodquarter in 2020, primarily attributable2021. Factors contributing to contract renewalsthe 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 spot market opportunities, in addition to a $47.5 million favorable change in equipment dispositionsnetwork management, and a reduction in auto liability costs.the acquisition of MLS. These items were partially offset by the earnings impact of reduced volumes noted above,within network and an increase in driver-related costs as a result ofresulting largely from pay increases and actions taken to attract and retain drivers in responsedue to constrained industry-wide driver capacity constraints.
Intermodal
The following table presents the KPIs for our Intermodal segment for the periods indicated.
| | | | | Nine Months Ended
September 30, | | | Three Months Ended
March 31, |
| | | | 2021 | | 2020 | | | 2022 | | 2021 |
Orders (1) | Orders (1) | | 334,480 | | | 315,582 | | Orders (1) | | 110,227 | | | 108,785 | |
| Containers | Containers | | 23,796 | | | 21,744 | | Containers | | 27,423 | | | 21,795 | |
Trucks (2) | Trucks (2) | | 1,569 | | | 1,582 | | Trucks (2) | | 1,596 | | | 1,628 | |
Revenue per order (3) | Revenue per order (3) | | $ | 2,442 | | | $ | 2,172 | | Revenue per order (3) | | $ | 2,679 | | | $ | 2,300 | |
Operating ratio (4) | Operating ratio (4) | | 87.8 | % | | 92.9 | % | Operating ratio (4) | | 87.1 | % | | 92.2 | % |
(1)Based on delivered rail orders.
(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 $120.1$46.3 million, approximately 17%18%, in the nine months ended September 30, 2021first quarter of 2022 compared to the same periodquarter in 2020. Contributing2021, primarily due to the increase was a $270,$379, or 12%16%, improvement in revenue per order driven primarilyand a 1% increase in orders. Intermodal also grew its container count by strong5,628, or 26%, quarter over quarter, which helped drive the increase in order count despite fluidity challenges. Strong market conditions leading tofavorably impacted revenue per order and allowed for improvements in price, and increased premium opportunities,which were partially offset by growth in the East, which has a shorter length of haul and therefore, typically lower revenue per order. Orders also increased 6% due to favorable market demand conditions, despite challenges related to supply chain inefficiencies resulting in extended container dwell times and rail network disruptions.
Intermodal income from operations increased $50.3$18.9 million, approximately 100%95%, in the nine months ended September 30, 2021first quarter of 2022 compared to the same periodquarter in 2020,2021. This increase was mainly due to the result of factors impacting revenuesrevenue discussed above, partially offset by the impact of network fluidityhigher rail-related and capacity challenges on rail and driver-relateddray execution costs.
Logistics
The following table presents the KPI for our Logistics segment for the periods indicated.
| | | | | | | | | | | | | | |
| | | Nine Months Ended
September 30, |
| | | 2021 | | 2020 |
Operating ratio (1) | | 95.6 | % | | 97.2 | % |
| | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | 2022 | | 2021 |
Operating ratio (1) | | 92.3 | % | | 95.5 | % |
| | | | |
(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 $506.3$189.8 million, approximately 67%53%, in the nine months ended September 30, 2021first quarter of 2022 compared to the same periodquarter in 2020. This increase was mainly the result of2021, due to an increase in revenue per order and 20%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 growth within our brokerage business, driven by supportive market conditions, in additiondue to both further leveraging our digital platform and continued expansion of our Power Only offering, and digital platform.in addition to incremental port dray revenues.
Logistics income from operations increased $33.5$26.0 million, approximately 156%164%, in the nine months ended September 30, 2021first quarter of 2022 compared to the same periodquarter in 2020, primarily due to2021. Expanded net revenue per order improvements within our brokerage business, andin addition to volume growth as cited above.above, both contributed to the increase in income from operations quarter over quarter.
Other
Included in Other was incomea loss from operations of $3.1$65.1 million in the nine months ended September 30, 2021,first quarter of 2022 compared to a lossincome of $12.9$2.0 million in the same periodquarter in 2020. The2021. This change was primarily driven by an increase in income from operations within our leasing business duethe result of a $59.0 million adverse judgment related to increased lease activitya lawsuit with former owners of WSL and $13.1$5.2 million of costs incurred in 2020 as a result ofexpense related to an adverse tax ruling, partially offset by an increase in performance-based incentive compensation periodaudit assessment over period.the applicability of state sales tax.
LIQUIDITY AND CAPITAL RESOURCES
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 September 30, 2021March 31, 2022 was $325.8$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.
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2021 | | December 31, 2020 |
| Cash and cash equivalents | | $ | 504.2 | | | $ | 395.5 | |
| Marketable securities | | 45.7 | | | 47.1 | |
| Total cash, cash equivalents, and marketable securities | | $ | 549.9 | | | $ | 442.6 | |
| | | | |
| Debt: | | | | |
| Senior notes | | $ | 305.0 | | | $ | 305.0 | |
| Finance leases | | 2.7 | | | 2.0 | |
Total debt (1) | | $ | 307.7 | | | $ | 307.0 | |
(1)Debt on the consolidated balance sheets is presented net of deferred financing costs. | | | | | | | | | | | | | | |
| (in millions) | | March 31, 2022 | | December 31, 2021 |
| Cash and cash equivalents | | $ | 272.6 | | | $ | 244.8 | |
| Marketable securities | | 48.5 | | | 49.3 | |
| 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 September 30, 2021,March 31, 2022, we were in compliance with all financial covenants under our credit agreements and the agreements governing our senior notes. See Note 7,8, 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.
| | | | | | | | | | | | | | | | | |
| | | Nine Months Ended
September 30, |
| (in millions) | | 2021 | | 2020 |
| Cash provided by operating activities | | $ | 396.0 | | | $ | 469.1 | |
| Cash used in investing activities | | (249.6) | | | (163.0) | |
| Cash used in financing activities | | (37.7) | | | (89.2) | |
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| (in millions) | | 2022 | | 2021 |
| Net cash provided by operating activities | | $ | 135.6 | | | $ | 101.1 | |
| Net cash used in investing activities | | (34.4) | | | (11.9) | |
| Net cash used in financing activities | | (73.4) | | | (12.5) | |
NineThree Months Ended September 30, 2021March 31, 2022 Compared to NineThree Months Ended September 30, 2020March 31, 2021
Operating Activities
CashNet cash provided by operating activities decreased $73.1increased $34.5 million, approximately 16%34%, in the first ninethree months of 20212022 compared to the same period in 2020.2021. The decreaseincrease was thea result of an increase in cash used for working capital, partially offset by an increase in net income adjusted for various noncash charges.charges and a decrease in cash used for working capital. Working capital changes which decreased net cash providedwere driven by operating activities were drivenan 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 proportionateproportionately to revenue growth, and a decrease in other liabilities primarily related to the $30.7 million payment of payroll taxes deferred under the CARES Act during the nine months ended September 30, 2021.growth.
Investing Activities
CashNet cash used in investing activities increased $86.6$22.5 million, approximately 53%189%, in the first ninethree months of 20212022 compared to the same period in 2020.2021. 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.
| | | | | Nine Months Ended
September 30, | | | Three Months Ended
March 31, |
| (in millions) | (in millions) | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Transportation equipment | | $ | 296.9 | | | $ | 131.7 | | |
| Other property and equipment | | 33.4 | | | 38.7 | | |
| Purchases of transportation equipment | | Purchases of transportation equipment | | $ | 60.3 | | | $ | 19.0 | |
| Purchases of other property and equipment | | Purchases of other property and equipment | | 14.4 | | | 9.8 | |
| Proceeds from sale of property and equipment | Proceeds from sale of property and equipment | | (145.2) | | | (55.5) | | Proceeds from sale of property and equipment | | (64.8) | | | (32.2) | |
| Net capital expenditures | Net capital expenditures | | $ | 185.1 | | | $ | 114.9 | | Net capital expenditures | | $ | 9.9 | | | $ | (3.4) | |
Net capital expenditures increased $70.2$13.3 million in the first ninethree months of 20212022 compared to the same period in 2020.2021. The increase was driven by a $165.2$41.3 million increase in purchases of transportation equipment mainly due to replacementgrowth capital and reduced fleet age,higher costs of new equipment, partially offset by an $89.7a $32.6 million increase in proceeds from the sale of property and equipment primarily resulting from higher proceeds per unit and increased tractor and trailer sales.related to the sale of our Canadian facility in the first quarter of 2022.
Financing Activities
CashNet cash used in financing activities decreased $51.5increased $60.9 million, approximately 58%487%, in the first ninethree months of 20212022 compared to the same period in 2020.2021. The main driversdriver of the decreaseincrease in net cash used werewas the $25.0$60.0 million and $30.0 million repaymentsrepayment of a private placement notesnote in March and September of 2020, respectively.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 initial public offeringIPO 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 inwithin other incomeexpense—net on the consolidated statements of comprehensive income. In the three and nine months ended September 30, 2021,March 31, 2022, the Company recognized a pre-tax net loss of $12.1 million and a pre-tax net gain of $8.1$8.4 million on its investment in TuSimple, respectively.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.
COVID-19
Despite disruptions in the financial markets due to COVID-19, we have been able to fund our liquidity needs to date. We believe we are in a strong liquidity position with a cash, cash equivalents, and marketable securities balance of $549.9 million and $325.8 million of unused credit capacity as of September 30, 2021. Our outstanding debt as of the end of the quarter was $307.7 million, of which $100.7 million is short-term in nature. We are compliant with all financial covenants under our credit agreements and do not anticipate the need to seek additional capital as a result of COVID-19.
Factors that Could Result in a Goodwill Impairment
Goodwill is tested for impairment at least annually using the discounted cash flow guideline public company, and guideline merged and acquiredpublic 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, 2021,2022, 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 September 30, 2021,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.
Contractual Obligations
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, 20202021 for our contractual obligations as of December 31, 2020.2021. There were no material changes to our contractual obligations during the ninethree months ended September 30, 2021.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, 20202021 are still current and that there have been no significant changes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Other than as described below, ourOur 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, 20202021 as filed with the SEC on February 19, 2021.
Equity Price Risk
Our equity investment in TuSimple is susceptible to market price risk arising from uncertainties in the future market value, and a fluctuation in TuSimple’s share price could have an adverse impact on the fair value of our investment and results of operations. At September 30, 2021 the fair value of our investment in TuSimple was $13.1 million. A hypothetical 10% decrease in TuSimple’s share price would reduce the value of our equity investment by approximately $1.3 million.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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to various lawsuits in the ordinary course of its business. For information relating to legal proceedings, see Note 11,12, Commitments and Contingencies, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There arehave been no material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020, other than the risk described below.
Risks Related to Our Business, Industry, and Strategy
The valuation of the Company’s investments in strategic partners and technologies is subject to volatility.
The market valuation of our strategic investments, especially as it relates to our investment in TuSimple which is publicly traded, may experience substantial price volatility which, when accounted for under GAAP, could have a material adverse affect on the Company’s financial condition and results of operations. Refer to Note 5, Investments, to our consolidated financial statements for information on our strategic investments. Those investments can be negatively affected by market and economic factors including liquidity, credit deterioration, financial results, interest rate fluctuations, or other factors. As a result, future fluctuations in their value could result in significant losses and could have a material adverse impact on the Company’s financial condition and results of operations.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 September 30, 2021.March 31, 2022.
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| 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 |
| July 1, 2021 - July 31, 2021 | | 39 | | | $ | 21.39 | | | — | | | $ | — | |
| August 1, 2021 - August 31, 2021 | | — | | | — | | | — | | | — | |
| September 1, 2021 - September 30, 2021 | | 10 | | | 22.38 | | | — | | | — | |
| Total | | 49 | | | | | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
| January 1, 2022 - January 31, 2022 | | 1,762 | | | $ | 26.80 | | | — | | | $ | — | |
| February 1, 2022 - February 28, 2022 | | — | | | — | | | — | | | — | |
| March 1, 2022 - March 31, 2022 | | 90,359 | | | 25.65 | | | — | | | — | |
| Total | | 92,121 | | | | | — | | | $ | — | |
(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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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Exhibit Number | | Exhibit Description |
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10.110.1*+ | | Amendment No. 3 to Amended and Restated Receivables Purchase Agreement dated asForm of March 31, 2011, as amended as of December 17, 2013 and as further amended and restated as of September 5, 2018, among Schneider Receivables Corporation, as seller, Schneider National, Inc., as the servicer, Wells Fargo Bank, N.A., as administrative agent, and the purchasers party thereto. (incorporated herein by reference to Exhibit 10.1 Restricted Stock Unit Award Agreement (2022) |
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| 10.2*+ | | |
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| 10.3*+ | | |
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| 10.4*+ | | |
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| 31.1* | | |
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| 31.2* | | |
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| 32.1** | | |
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| 32.2** | | |
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| 101.INS* | | XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. |
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| 101.SCH* | | XBRL Taxonomy Extension Schema Document |
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| 101.CAL* | | XBRL Taxonomy Calculation Linkbase Document |
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| 101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB* | | XBRL Taxonomy Extension Labels Linkbase Document |
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| 101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
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| 104* | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021,March 31, 2022, formatted in Inline XBRL |
* Filed herewith.
** Furnished herewith.
+ Constitutes a management contract or compensatory plan or arrangement.
SIGNATURE
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.
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| | SCHNEIDER NATIONAL, INC. |
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| Date: | October 28, 2021April 29, 2022 | /s/ Stephen L. Bruffett |
| | Stephen L. Bruffett |
| | Executive Vice President and Chief Financial Officer |
| | (Duly Authorized Officer and Principal Financial Officer) |