The condensed consolidated financial statements include the accounts of
Logistics Group, Inc.
subsidiaries. References in this report to “we,” “us,” “our,” the “Company,” and
similar expressions refer to
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
This report contains certain statements that may be considered forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of
1933, as amended (the “Securities Act”) and such statements are subject to the
safe harbor created by those sections and the Private Securities Litigation
Reform Act of 1995, as amended. All statements, other than statements of
historical or current fact, are statements that could be deemed forward-looking
statements, including without limitation: any projections of earnings, revenues,
or other financial items; any statement of plans, strategies, and objectives of
management for future operations; any statements concerning proposed new
services or developments; any statements regarding future economic conditions or
performance; and any statements of belief and any statements of assumptions
underlying any of the foregoing. In this Form 10-Q, statements relating to
future impact of accounting standards, future third-party transportation
provider expenses, future tax rates, expenses, and deductions, expected freight
demand, capacity, and volumes and trucking industry conditions, potential
results of a default and testing of our fixed charge covenant under the Credit
Facility or other debt agreements, the anticipated impact of transitioning from
LIBOR to SOFR under the Credit Facility, expected sources, as well as adequacy,
of working capital and liquidity (including our mix of debt, finance leases, and
operating leases as means of financing revenue equipment), future stock
repurchases and dividends, if any, expected capital expenditures, allocations,
and requirements, future customer relationships, future interest expense, future
driver market conditions, future use of independent contractors, expected cash
flows, future investments in and growth of our segments and services, future
margins of our segments, future market share, future rates and prices, future
depreciation and amortization, future salaries, wages, and related expenses,
including driver compensation, expected net fuel costs, strategies for managing
fuel costs, the effectiveness and impact of, and cash flows relating to, our
fuel surcharge programs, future fluctuations in operations and maintenance
expenses, expected effects and mix of our solo and team operations, future fleet
size, management, and upgrades, availability of tractors and trailers, the
market value of used equipment, the anticipated impact of our investment in TEL,
the future impact of our strategic plan and other strategic initiatives,
anticipated levels of and fluctuations relating to insurance and claims
expenses, including the erosion of available limits in our aggregate insurance
policies, our disposition of the assets of TFS, including any future
indemnification obligations related to the TFS Portfolio, the expected total
purchase price of AAT, and the anticipated impact of the COVID-19 outbreak or
other similar outbreaks, among others, are forward-looking statements.
Forward-looking statements may be identified by the use of terms or phrases such
as “believe,” “may,” “could,” “would,” “will,” “expects,” “estimates,”
“projects,” “anticipates,” “plans,” ” outlook,” “focus,” “seek,” “potential,”
“continue,” “goal,” “target,” “objective,” “intends,” derivations thereof, and
similar terms and phrases. Such statements are based on currently available
operating, financial, and competitive information. Forward-looking statements
are inherently subject to risks and uncertainties, some of which cannot be
predicted or quantified, which could cause future events and actual results to
differ materially from those set forth in, contemplated by, or underlying the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the section
entitled “Item 1A. Risk Factors,” set forth in our Form 10-K for the year ended
“Item 1A. Risk Factors,” set forth in our Form 10-K for the year ended
31, 2021
reports, and other filings with the
All such forward-looking statements speak only as of the date of this Form 10-
You
statements. We expressly disclaim any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in our expectations with regard thereto or any
change in the events, conditions, or circumstances on which any such statement
is based.
Executive Overview
For the first quarter of 2022, we had diluted earnings per share of
is the highest earnings for any quarter in the Company’s history. In addition to
record earnings for such quarter, we acquired
stock and initiated the payment of the Company’s first dividend payment during
the quarter. The first quarter yielded strong results from each of our four
operating segments, including sequential improvement in our Dedicated truckload
segment. Despite economic indicators pointing to a slowing freight economy, the
first quarter’s freight environment remained robust as a result of strong
economic activity, low inventories, and supply chain disruptions, accompanied by
constrained capacity due to a national driver and equipment shortage.
Our asset-based segments, Expedited and Dedicated, contributed approximately 64%
of total revenue in the quarter and performed well in an environment
characterized by strong freight demand, an extremely competitive driver market,
workforce volatility due to the resurgence of the COVID-19 pandemic through the
omicron variants early in the quarter, and rising costs. Our Expedited segment
grew revenue and improved adjusted margins compared to the first quarter last
year. The addition of AAT and improved pricing were able to overcome a smaller
fleet, and significant cost increases from driver pay, fuel, parts and
maintenance. Our Dedicated segment improved year-over-year and sequentially by
producing higher revenue and better adjusted margins, continued progress towards
our targeted returns.
Our asset-light segments, Managed Freight and Warehousing, contributed
approximately 36% of total revenue in the quarter and combined to generate
favorable margins and returns. Managed Freight continued to exceed expectations
as a result of strong execution and effective coordination with our Expedited
and Dedicated segments. Warehousing was able to grow revenue but had diminished
margins primarily as a result of labor inefficiencies associated with the
resurgences and variant developments in the COVID-19 pandemic and a competitive
labor market.
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Table of Contents
Additional items of note for the first quarter of 2022 include the following:
? Total revenue of$291.6 million , an increase of 32.0% compared with the first quarter of 2021, and freight revenue (which excludes revenue from fuel surcharges) of$257.6 million , an increase of 28.4% compared with the first quarter of 2021; ? Operating income of$23.8 million , compared with$10.5 million in the first quarter of 2021; ? Net income of$22.2 million , or$1.32 per diluted share, compared with$11.1 million , or$0.65 per diluted share, in the first quarter of 2021. Net income from continuing operations of$22.2 million , or$1.32 per diluted share, compared to$8.6 million or$0.50 per diluted share, in the first quarter of 2020. Net income from discontinued operations of$0.0 million , or$0.00 per diluted share, compared to$2.6 million , or$0.15 per diluted share, in the first quarter of 2021. ? 34% of consolidated total revenue was in our more volatile Expedited reportable segment, as compared to 36% in the first quarter of 2021; ? Our Managed Freight reportable segment's total revenue increased to$86.2 million in the 2022 quarter from$51.4 million in the 2021 quarter and the segment had an operating income of$10.8 million in the 2022 quarter compared to$4.9 million in the 2021 quarter; ? Our equity investment in TEL provided$6.8 million of pre-tax earnings in the first quarter of 2022 compared to$3.0 million in the first quarter of 2021; ? We distributed a total of$1.0 million to stockholders through dividends; ? SinceDecember 31, 2021 , total indebtedness, comprised of total debt and finance leases, net of cash, increased by$22.1 million to$50.6 million , and with available borrowing capacity of$61.7 million under our Credit Facility atMarch 31, 2022 , primarily due to repurchasing$14.8 million of our outstanding Class A Common Stock under the stock repurchase program and the net cash payment related to the acquisition of AAT for$37.1 million . We do not expect to be required to test our fixed charge covenant in the foreseeable future; ? Leverage ratio (ending total indebtedness, comprised of debt and finance leases, net of cash, divided by the sum of operating income, depreciation and amortization, gain on disposition of property and equipment, net, and impairment of long lived property and equipment) was 0.39; ? Stockholders' equity atMarch 31, 2022 , was$358.9 million ; and ? Tangible book value atMarch 31, 2022 , was$266.8 million . Outlook
We are optimistic about continuing to make operational progress during 2022. For
at least the first half of 2022, we anticipate a strong freight market
accompanied by constrained capacity due to a national driver and equipment
shortage. During this period, we expect a continuation of significant increases
in pricing and operating costs, and we expect to continue to improve the margin
expectation in certain Dedicated contracts and the duration of fleet commitments
in certain Expedited contracts. Later in the year, we expect demand to become
more balanced as supply chains gain fluidity, economic growth potentially slows,
and consumer spending on services rebounds.
We expect cost pressure to persist even if freight demand moderates. From wages
and insurance, to equipment and parts, to fuel prices and interest rates, the
costs of our business is increasing. Overall, absent a substantial, near-term
deterioration in market forces, we expect a combination of pricing gains,
improvement in our Dedicated segment, revenue growth, and continued focus on
cost control, to support 2022 operating results in excess of 2021, although the
timing of various market factors and the speed of our execution could cause a
range of possible results. Regardless of the outside variables at play, we are
committed to remaining disciplined and focused on the operational activities
which we can influence and control. With diligent execution and teamwork we
believe the power of our operating model will speak for itself throughout
economic and freight market cycles.
For the longer term, we intend to steadily and intentionally grow the percentage
of our revenue generated by Dedicated, Managed Freight, and Warehousing
segments, while selectively investing to optimize the Expedited segment to
remain a leader in that sector. At the same time, we will continue to diligently
pursue reducing unnecessary overhead, improving our safety, service, and
productivity, diversifying our customer base with less seasonal and cyclical
exposure, improving customer contracts, and investing in systems, technology,
and people to support the growth of these previously under-invested areas.
Over time, we expect Expedited and Dedicated to generate high single-digit to
low double-digit operating margins, and Managed Freight and Warehousing to
generate mid-to-high single-digit operating margins. Based on our expected asset
intensity, these operating margins should produce double-digit returns on
invested capital.
With diligence and accountability, we expect to grow our market share
organically, continue to improve our operations, and be a stronger, more
profitable, and more predictable business with the opportunity for significant
and sustained value creation. Based on our anticipated cash flow generation
profile, we anticipate being able to continue our dividend program and evaluate
a full range of capital allocation alternatives, including debt paydown, organic
growth, acquisition and disposition opportunities, and stock repurchases.
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Table of Contents Non-GAAP Reconciliation
In addition to operating ratio, we use “adjusted operating ratio” as a key
measure of profitability. Adjusted operating ratio is not a substitute for
operating ratio measured in accordance with GAAP. There are limitations to using
non-GAAP financial measures. Adjusted operating ratio means operating expenses,
net of fuel surcharge revenue, excluding amortization of intangibles, and
significant unusual items, divided by total revenue, less fuel surcharge
revenue. We believe the use of adjusted operating ratio allows us to more
effectively compare periods, while excluding the potentially volatile effect of
changes in fuel prices, amortization of intangibles, and significant unusual
items. Our Board and management focus on our adjusted operating ratio as an
indicator of our performance from period to period. We believe our presentation
of adjusted operating ratio is useful because it provides investors and
securities analysts the same information that we use internally to assess our
core operating performance. Although we believe that adjusted operating ratio
improves comparability in analyzing our period-to-period performance, it could
limit comparability to other companies in our industry, if those companies
define adjusted operating ratio differently. Because of these limitations,
adjusted operating ratio should not be considered a measure of income generated
by our business or discretionary cash available to us to invest in the growth of
our business. Management compensates for these limitations by primarily relying
on GAAP results and using non-GAAP financial measures on a supplemental basis.
Operating Ratio
Three Months Ended March 31,
GAAP Operating Ratio: 2022 OR % 2021 OR %
Total revenue $ 291,585 $ 220,889
Total operating expenses 267,738 91.8 % 210,380 95.2 %
Operating income $ 23,847 $ 10,509
Adjusted Operating Ratio: 2022 Adj. OR % 2021 Adj. OR %
Total revenue $ 291,585 $ 220,889
Fuel surcharge revenue (33,971 ) (20,201 )
Freight revenue (total revenue,
excluding fuel surcharge) 257,614 200,688
Total operating expenses 267,738 210,380
Adjusted for:
Fuel surcharge revenue (33,971 ) (20,201 )
Amortization of intangibles (588 ) (1,152 )
Adjusted operating expenses 233,179 90.5 % 189,027 94.2 %
Adjusted operating income $ 24,435 $ 11,661
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Table of Contents Revenue and Expenses
We focus on targeted markets throughout
service standards can provide a competitive advantage. We are a major carrier
for transportation companies such as parcel freight forwarders,
less-than-truckload carriers, and third-party logistics providers that require a
high level of service to support their businesses, as well as for traditional
truckload customers such as manufacturers, retailers, and food and beverage
shippers.
We have four reportable segments, which include:
? Expedited: The Expedited segment primarily provides truckload services to
customers with high service freight and delivery standards, such as 1,000
miles in 22 hours, or 15-minute delivery windows. Expedited services generally
require two-person driver teams on equipment either owned or leased by the
Company.
? Dedicated: The Dedicated segment provides customers with committed truckload
capacity over contracted periods with the goal of three to five years in
length. Equipment is either owned or leased by the Company. Many of our
Dedicated contract customers are automotive companies or shippers of produce,
where the nature of the product we ship requires high service standards.
? Managed Freight: The Managed Freight segment includes our brokerage and
transport management services ("TMS"). Brokerage services provide logistics
capacity by outsourcing the carriage of customers' freight to third parties.
TMS provides comprehensive logistics services on a contractual basis to
customers who prefer to outsource their logistics needs.
? Warehousing: The Warehousing segment provides day-to-day warehouse management
services to customers who have chosen to outsource this function. We also
provide shuttle and switching services related to shuttling containers and
trailers in or around freight yards and to/from warehouses.
In our Expedited and Dedicated reportable segments, we primarily generate
revenue by transporting freight for our customers. Generally, we are paid a
predetermined rate per mile for our truckload services. We enhance our truckload
revenue by charging for tractor and trailer detention, loading and unloading
activities, and other specialized services, as well as through the collection of
fuel surcharges to mitigate the impact of increases in the cost of fuel. AAT’s
results are reported within our Expedited reportable segment. The main factors
that could affect our Expedited and Dedicated revenue are the revenue per mile
we receive from our customers, the percentage of miles for which we are
compensated, and the number of shipments and miles we generate. These factors
relate, among other things, to the general level of economic activity in
United States
in the trucking industry, and driver availability.
The main expenses that impact the profitability of our Expedited and Dedicated
reportable segments are the variable costs of transporting freight for our
customers. These costs include fuel expenses, driver-related expenses, such as
wages, benefits, training, and recruitment, and purchased transportation
expenses, which primarily include compensating independent contractors. Expenses
that have both fixed and variable components include maintenance and tire
expense and our total cost of insurance and claims. These expenses generally
vary with the miles we travel, but also have a controllable component based on
safety, self-insured retention versus insurance premiums, fleet age, efficiency,
and other factors. Historically, our main fixed costs include rentals and
depreciation of long-term assets, such as revenue equipment and terminal
facilities, and the compensation of non-driver personnel.
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Within our Expedited and Dedicated reportable segments, we operate tractors
driven by a single driver and also tractors assigned to two-person driver teams.
Our single driver tractors generally operate in shorter lengths of haul,
generate fewer miles per tractor, and experience more non-revenue miles, but the
lower productive miles are expected to be offset by generally higher revenue per
loaded mile and the reduced employee expense of compensating only one driver. In
contrast, our two-person driver tractors generally operate in longer lengths of
haul, generate greater miles per tractor, and experience fewer non-revenue
miles, but we typically receive lower revenue per loaded mile and incur higher
employee expenses of compensating both drivers. We expect operating statistics
and expenses to shift with the mix of single and team operations.
Within our Managed Freight reportable segment, we derive revenue from
arranging transportation services, directly and through agents, who are paid a
commission for the freight they provide, for customers on both an ad-hoc and a
contractual basis. We provide these services directly and through relationships
with thousands of third-party carriers and integration with our Expedited
reportable segment. We also utilize technology and process management to provide
detailed visibility into a customer’s movement of freight – inbound and outbound
– throughout the customer’s network and can provide focused customer support
through multiyear contracts. The main factors that impact profitability in terms
of expenses are the variable costs of outsourcing the transportation freight for
our customers and managing fixed costs, including salaries, and selling,
general, and administrative expenses.
Within our Warehousing reportable segment, we empower customers to outsource
warehousing management, including moving containers and trailers in or around
freight yards. The main factors that impact profitability in terms of expenses
are fixed costs, including salaries, facility warehousing costs, and selling,
general, and administrative expenses.
In
equipment leasing company and used equipment reseller. We have accounted for our
investment in TEL using the equity method of accounting and thus our financial
results include our proportionate share of TEL’s net income since
Our main measures of profitability are operating ratio and adjusted operating
ratio. We define adjusted operating ratio as operating expenses, net of fuel
surcharge revenue, excluding amortization of intangibles, and significant
unusual items, divided by total revenue, less fuel surcharge revenue. See page
24 for the uses and limitations associated with adjusted operating ratio.
Revenue Equipment
At
tractors, 1,604 were owned, 590 were financed under operating leases, and 124
were provided by independent contractors, who provide and drive their own
tractors. Of such trailers, 4,965 were owned, 376 were financed under finance
type leases, and 114 were held under short-term operating leases. We finance a
small portion of our trailer fleet and larger portion of our tractor fleet with
operating leases, which generally run for a period of three to five years for
tractors and five to seven years for trailers. At
an average tractor age of 2.3 years and an average trailer age of 5.3 years.
Independent contractors provide a tractor and a driver and are responsible for
all operating expenses in exchange for a fixed payment per mile. We do not have
the capital outlay of purchasing or leasing the tractor. The payments to
independent contractors and the financing of equipment under operating leases
are recorded in revenue equipment rentals and purchased transportation. Expenses
associated with owned equipment, such as interest and depreciation, and expenses
associated with employee drivers, including driver compensation, fuel, and other
expenses, are not incurred with respect to independent contractors. Obtaining
equipment from independent contractors and under operating leases effectively
shifts financing expenses from interest to “above the line” operating expenses,
and as such, we evaluate our efficiency using net income margin, as well as
operating ratio.
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RESULTS OF CONSOLIDATED OPERATIONS
COMPARISON OF three months ended
2021
The following tables set forth the percentage relationship of certain items to
total revenue and freight revenue (total revenue less fuel surcharge revenue)
for the periods indicated, where applicable (dollars in thousands):
Revenue
Three Months Ended
March 31,
2022 2021
Revenue:
Freight revenue $ 257,614 $ 200,688
Fuel surcharge revenue 33,971 20,201
Total revenue $ 291,585 $ 220,889
The increase in total revenue primarily resulted from a
million
Dedicated, and Warehousing freight revenue, respectively, for the three months
ended
See results of segment operations section for discussion of fluctuations.
For comparison purposes in the discussion below, we use total revenue and
freight revenue (total revenue less fuel surcharge revenue) when discussing
changes as a percentage of revenue.
For each expense item discussed below, we have provided a table setting forth
the relevant expense first as a percentage of total revenue, and then as a
percentage of freight revenue.
Salaries, wages, and related expenses
Three Months Ended
March 31,
2022 2021
Salaries, wages, and related expenses $ 95,338 $ 82,586
% of total revenue 32.7 % 37.4 %
% of freight revenue 37.0 % 41.2 %
Salaries, wages, and related expenses for the three months ended
2022
non-driver pay increases since the first quarter of 2021 partially offset by
lower total miles compared to the 2021 quarter. The decreases on a percentage
basis are due to increased revenue over which to spread those costs.
We believe salaries, wages, and related expenses will continue to increase going
forward as a result of driver pay changes put in place in the tight freight
market. Additionally, we expect salaries, wages, and related expenses to
continue to increase as the result of wage inflation, higher healthcare
costs, and, in certain periods, increased incentive compensation due to better
performance. We have continued to put driver pay increases in place as necessary
to address driver market pressure. If freight market rates increase further, we
would expect to, as we have historically, pass a portion of those rate increases
on to our professional drivers. Salaries, wages, and related expenses will
fluctuate to some extent based on the percentage of revenue generated by
independent contractors and our Managed Freight segment, for which payments are
reflected in the purchased transportation line item.
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Fuel expense
Three Months Ended
March 31,
2022 2021
Fuel expense $ 35,502 $ 22,822
% of total revenue 12.2 % 10.3 %
% of freight revenue 13.8 % 11.4 %
We receive a fuel surcharge on our loaded miles from most shippers; however,
this does not cover the entire cost of fuel for several reasons, including the
following: surcharges cover only loaded miles we operate; surcharges do not
cover miles driven out-of-route by our drivers; and surcharges typically do not
cover refrigeration unit fuel usage or fuel burned by tractors while idling.
Moreover, most of our business relating to shipments obtained from freight
brokers does not carry a fuel surcharge. Finally, fuel surcharges vary in the
percentage of reimbursement offered, and not all surcharges fully compensate for
fuel price increases even on loaded miles.
The rate of fuel price changes also can have an impact on results. Most fuel
surcharges are based on the average fuel price as published by the
Energy
customers in the current week based on the previous week’s applicable index.
Therefore, in times of increasing fuel prices, we do not recover as much as we
are currently paying for fuel. In periods of declining prices, the opposite is
true. Fuel prices as measured by the
higher for the quarter ended
2021.
To measure the effectiveness of our fuel surcharge program, we subtract fuel
surcharge revenue (other than the fuel surcharge revenue we reimburse to
independent contractors and other third parties which is included in purchased
transportation) from our fuel expense. The result is referred to as net fuel
expense. Our net fuel expense as a percentage of freight revenue is affected by
the cost of diesel fuel net of fuel surcharge revenue, the percentage of miles
driven by company tractors, our fuel economy, our percentage of deadhead miles,
for which we do not receive material fuel surcharge revenues, and the net impact
of fuel hedging gains and losses.
Net fuel expense is shown below:
Three Months Ended
March 31,
2022 2021
Total fuel surcharge $ 33,971 $ 20,201
Less: Fuel surcharge revenue reimbursed to owner
operators and other third parties 2,222 1,651
Company fuel surcharge revenue $ 31,749 $ 18,550
Total fuel expense $ 35,502 $ 22,822
Less: Company fuel surcharge revenue 31,749 18,550
Net fuel expense $ 3,753 $ 4,272
% of freight revenue 1.5 % 2.1 %
Net fuel expense for the three months ended
due to higher fuel surcharge recovery, partially offset by higher fuel prices
and fewer total miles. There were no diesel fuel hedge gains or losses for the
quarter compared to
31, 2022
We expect to continue managing our idle time and tractor speeds, investing in
more fuel-efficient tractors to improve our miles per gallon, locking in fuel
hedges when deemed appropriate, and partnering with customers to adjust fuel
surcharge programs that are inadequate to recover a fair portion of fuel costs.
Going forward, our net fuel expense is expected to fluctuate as a percentage of
revenue based on factors such as diesel fuel prices, percentage recovered from
fuel surcharge programs, percentage of uncompensated miles, percentage of
revenue generated by team-driven tractors (which tend to generate higher miles
and lower revenue per mile, thus proportionately more fuel cost as a percentage
of revenue), percentage of revenue generated from independent contractors, and
the success of fuel efficiency initiatives.
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Operations and maintenance
Three Months Ended
March 31,
2022 2021
Operations and maintenance $ 17,936 $ 14,719
% of total revenue 6.2 % 6.7 %
% of freight revenue 7.0 % 7.3 %
The increase in operations and maintenance on a dollar basis for the three
months ended
costs, including parts and labor, as compared to the prior year quarter as a
result of the global supply chain disruptions. Additionally, as a result of the
tight driver market, recruitment and onboarding of drivers has increased when
compared to the prior year quarter. These increases are partially offset by
having a smaller fleet in 2022.
Going forward, we believe this category will increase based on several factors,
including the condition of the driver market and our ability to hire and retain
drivers, our continued ability to maintain a relatively young fleet, accident
severity and frequency, weather, the reliability of new and untested revenue
equipment models, and the global disruption of the supply chain. For 2022, due
to the relatively new age of our tractor fleet and remaining unexpired warranty
coverage for most of our tractors, we do not expect the percentage of our
equipment being operated outside of warranty coverage to increase in any
material respect even if delays occur; however, operations and maintenance costs
may increase regardless due to wage and parts inflation.
Revenue equipment rentals and purchased transportation
Three Months Ended
March 31,
2022 2021
Revenue equipment rentals and purchased transportation $ 83,661 $ 57,236
% of total revenue 28.7 % 25.9 %
% of freight revenue 32.5 % 28.5 %
The increases in revenue equipment rentals and purchased transportation for the
three months ended
competitive market for sourcing third-party capacity and growth in the Managed
Freight reportable segment, partially offset by a reduction in the percentage of
the total miles run by independent contractors from 8.9% for the three months
ended
We expect revenue equipment rentals to decrease going forward as we transition
from tractors held under operating leases to owned equipment in 2022. However,
we expect purchased transportation to fluctuate as volumes in our Managed
Freight reportable segment may be volatile. In addition, if fuel prices
increase, it would result in a further increase in what we pay third party
carriers and independent contractors. However, this expense category will
fluctuate with the number and percentage of loads hauled by independent
contractors, loads handled by Managed Freight, and tractors, trailers, and other
assets financed with operating leases. In addition, factors such as the cost to
obtain third party transportation services and the amount of fuel surcharge
revenue passed through to the third party carriers and independent contractors
will affect this expense category. If industry-wide trucking capacity continues
to tighten in relation to freight demand, we may need to increase the amounts we
pay to third-party transportation providers and independent contractors, which
could increase this expense category on an absolute basis and as a percentage of
freight revenue absent an offsetting increase in revenue. If we were to recruit
more independent contractors, we would expect this line item to increase as a
percentage of revenue.
Operating taxes and licenses
Three Months Ended
March 31,
2022 2021
Operating taxes and licenses $ 2,740 $ 2,585
% of total revenue 0.9 % 1.2 %
% of freight revenue 1.1 % 1.3 %
For the period presented, the change in operating taxes and
licenses is insignificant both as a percentage of total revenue and freight
revenue.
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Insurance and claims
Three Months Ended
March 31,
2022 2021
Insurance and claims $ 9,179 $ 7,838
% of total revenue 3.1 % 3.5 %
% of freight revenue 3.6 % 3.9 %
Insurance and claims per mile cost increased to
three months ended
2021 quarter. The increase is primarily a result of increased fixed premium
expense due to an extremely difficult insurance market for the industry.
Our insurance program includes multi-year policies with specific insurance
limits that may be eroded over the course of the policy term. If that occurs, we
will be operating with less liability coverage insurance at various levels of
our insurance tower. For the policy period that ran from
31, 2021
excess of
accruals. We replaced our
new
2021
million
and
1, 2021
industry, our insurance renewal terms include a higher fixed premium expense of
approximately
set in place during the prior renewal cycle. Due to these developments, we may
experience additional expense accruals, increased insurance and claims expenses,
and greater volatility in our insurance and claims expenses, which could have a
material adverse effect on our business, financial condition, and results of
operations.
We expect insurance and claims expense to continue to be volatile over the
long-term. Recently the trucking industry has experienced a decline in the
number of carriers and underwriters that write insurance policies or that are
willing to provide insurance for trucking companies.
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Communications and utilities
Three Months Ended
March 31,
2022 2021
Communications and utilities $ 1,170 $ 1,247
% of total revenue 0.4 % 0.6 %
% of freight revenue 0.5 % 0.6 %
For the period presented, the change in communications and utilities are
insignificant both as a percentage of total revenue and freight revenue.
General supplies and expenses
Three Months Ended
March 31,
2022 2021
General supplies and expenses $ 8,934 $ 8,183
% of total revenue 3.1 % 3.7 %
% of freight revenue 3.5 % 4.1 %
The decreases in general supplies and expenses as a percentage of total revenue
and freight revenue for the three months ended
increased revenue over which to spread those costs.
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Depreciation and amortization
Three Months Ended
March 31,
2022 2021
Depreciation and amortization $ 13,445 $ 14,087
% of total revenue 4.6 % 6.4 %
% of freight revenue 5.2 % 7.0 %
Depreciation and amortization consists primarily of depreciation of tractors,
trailers, and other capital assets, as well as amortization of intangible
assets.
Depreciation expense remained consistent at
ended
by increased costs on new equipment. Amortization of intangible assets was
million
period. The decrease is a result of the completion of the amortization of the
of 2021.
We expect depreciation and amortization to increase going forward as the cost of
new equipment increases and as we transition from revenue equipment held under
operating leases to more owned revenue equipment, especially during the second
half of 2022. Additionally, changes in the used tractor market could cause us to
adjust residual values, increase depreciation, hold assets longer than planned,
or experience increased losses on sale.
Gain on disposition of property and equipment, net
Three Months Ended
March 31,
2022 2021
Gain on disposition of property and equipment, net $ (167 ) $ (923 )
% of total revenue (0.1 %) (0.4 %)
% of freight revenue (0.1 %) (0.5 %)
The decreases in gain on disposition of property and equipment, net for the
three months ended
the sale of used equipment compared to the 2021 quarter.
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Interest expense, net
Three Months Ended
March 31,
2022 2021
Interest expense, net $ 555 $ 743
% of total revenue 0.2 % 0.3 %
% of freight revenue 0.2 % 0.4 %
For the period presented, the change in interest expense, net is insignificant
both as a percentage of total revenue and freight revenue.
This line item will fluctuate based on our decision with respect to purchasing
revenue equipment with balance sheet debt versus operating leases, as well as
our ability to continue to generate profitable results and reduce our leverage.
Income from equity method investment
Three Months Ended
March 31,
2022 2021
Income from equity method investment
We have accounted for our investment in TEL using the equity method of
accounting and thus our financial results include our proportionate share of
TEL’s net income or loss. The increase in TEL’s contributions to our results for
the three months ended
equipment capacity in the transportation market that increased income from both
equipment sales and leasing.
Income tax expense
Three Months Ended
March 31,
2022 2021
Income tax expense$ 7,910 $ 4,145 % of total revenue 2.7 % 1.9 % % of freight revenue 3.1 % 2.1 %
The changes in income tax expense were primarily related to the
million
compared to the same 2021 period, resulting from the increases in operating
income and earnings on investment in TEL.
The effective tax rate is different from the expected combined tax rate due
primarily to state tax expense and permanent differences, such as executive
compensation disallowance in 2021. The nondeductible effect of the per diem
payments is temporarily suspended for 2021 and 2022 in accordance with
guidance issued during the quarter ended
these items will fluctuate in future periods as income fluctuates.
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Table of Contents RESULTS OF SEGMENT OPERATIONS
We have four reportable segments, Expedited, Dedicated, Managed Freight, and
Warehousing, each as described above.
COMPARISON OF three months ended
2021
The following table summarizes financial and operating data by reportable
segment:
(in thousands) Three Months Ended
March 31,
2022 2021
Revenues:
Expedited $ 98,797 $ 78,481
Dedicated 88,947 75,446
Managed Freight 86,151 51,397
Warehousing 17,690 15,565
Total revenues $ 291,585 $ 220,889
Operating Income (Loss):
Expedited $ 9,331 $ 6,237
Dedicated 2,641 (1,770 )
Managed Freight 10,831 4,887
Warehousing 1,044 1,155
Total operating income $ 23,847 $ 10,509
The increase in Expedited revenue for the three months ended
relates to an increase in average freight revenue per tractor per week of
18.7% and an
the 2021 quarter, partially offset by a 17 (or 1.9%) average tractor decrease.
The increase in average freight revenue per tractor per week for the quarter
ended
in average rate per total mile partially offset by a 0.4% decrease in average
miles per unit compared to the 2021 quarter. Expedited team-driven tractors
averaged 867 tractors in the first quarter of 2022, a decrease of approximately
1.0% from the average of 875 tractors in the first quarter of 2021.
The increase in Dedicated revenue relates to an increase in average freight
revenue per tractor per week compared to the 2021 quarter as the result of
a
mile compared to the 2021 quarter, a
revenue, and a 0.3% increase in average miles per unit. Average
tractors decreased 201 tractors, or 12.3% as compared to the three months ended
Managed Freight total revenue increased as a result of a robust freight market
and executing various spot rate opportunities in the quarter, as well as
handling overflow freight from both Expedited and Dedicated truckload
operations.
Warehousing total revenue for the quarter increased as a result of new customer
business since the first quarter of 2021 as well as rate increases with existing
customers.
In addition to the changes in revenue described above for the three months ended
31, 2022
million
operating expenses, respectively.
The increase in Expedited and Dedicated operating expenses for the three months
ended
increases since the 2021 quarter and an increase in maintenance costs, including
parts and labor, as compared to the prior year quarter as a result of the global
supply chain disruptions. Additionally, as a result of the tight driver
market, recruitment and onboarding of drivers has increased when compared to the
prior year quarter.
The increase in Managed Freight operating expenses is the result of increased
revenue driving an increase in variable expenses, primarily purchased
transportation. Additionally, operating expenses for both Managed Freight and
Warehousing increased as a result of non-driver pay increases since the 2021
quarter.
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LIQUIDITY AND CAPITAL RESOURCES
Our business requires significant capital investments over the short-term and
the long-term. Recently, we have financed our capital requirements with
borrowings under our Credit Facility, cash flows from operations, long-term
operating leases, finance leases, secured installment notes with finance
companies, and proceeds from the sale of our used revenue equipment. Going
forward, we expect revenue equipment acquisitions through purchases and
finance leases to increase as a percentage of our fleet as we decrease our use
of operating leases for revenue equipment. Further, we expect to increase our
capital allocation toward our Dedicated, Managed Freight, and Warehousing
reportable segments to become the go-to partner for our customers’ most critical
transportation and logistics needs. We had working capital (total current assets
less total current liabilities) of
2022
day can vary significantly due to the timing of collections and cash
disbursements. Based on our expected financial condition, net capital
expenditures, results of operations, related net cash flows, installment notes,
and other sources of financing, we believe our working capital and sources of
liquidity will be adequate to meet our current and projected needs, and we do
not expect to experience material liquidity constraints in the foreseeable
future.
With an average fleet age of 2.3 years at
flexibility to manage our fleet, and we plan to regularly evaluate our tractor
replacement cycle, new tractor purchase requirements, and purchase options. If
we were to grow our independent contractor fleet, our capital requirements would
be reduced.
As of
million
following:
?$23.1 million and no outstanding borrowings under the Credit Facility, respectively; ? No outstanding borrowings under the Draw Note; ?$3.4 million and$4.5 million in revenue equipment installment notes, respectively; ?$21.2 million and$21.5 million in real estate notes, respectively; ? No deferred loan costs (which reduce long-term debt) as ofMarch 31, 2022 andDecember 31, 2021 ; ?$10.0 million and$10.8 million of the principal portion of financing lease obligations, respectively; and ?$32.6 million and$37.4 million of the operating lease obligations, respectively.
The decrease in operating lease obligations was primarily due to our transition
from tractors held under operating leases to owned equipment in 2022, as well as
amortization of the operating lease liability.
As of
letters of credit outstanding of approximately
borrowing capacity of
had
Triumph which is available solely to fund any indemnification owed to Triumph in
relation to the TFS Settlement. Fluctuations in the outstanding balance and
related availability under our Credit Facility are driven primarily by cash
flows from operations and the timing and nature of property and equipment
additions that are not funded through notes payable, as well as the nature and
timing of collection of accounts receivable, payments of accrued expenses, and
receipt of proceeds from disposals of property and equipment. Refer to Note 7,
“Debt” and Note 15, “Subsequent Events” of the accompanying condensed
consolidated financial statements for further information about material debt
agreements.
Our net capital expenditures for the three months ended
totaled
for the prior year period. In the three months ended
delivery of approximately 31 new tractors and no new trailers, while disposing
of approximately 94 used tractors and 10 used trailers. Our current fleet plan
for fiscal 2022 includes the delivery of an additional 529 new company
replacement tractors and no additional new trailer deliveries. Net gains on
disposal of equipment and real estate in the three months ended
2022
Global supply chain disruptions could impact the availability of tractors and
trailers and lead to increased pricing.
We distributed a total of
of 2022 through dividends.
For the balance of 2022 we are planning for a sizable increase in net capital
expenditures as we return to a more normalized equipment replacement cycle. This
replacement effort is anticipated to occur against a backdrop of substantial
price increases for new equipment, strong prices for used equipment, and
industry-wide order cutbacks and deferrals by equipment manufacturers. The
timing, cost, and projected fleet net capital expenditures will depend on how
these factors play out. Our baseline expectation for the remainder of 2022 fleet
net capital expenditures is a range of
We believe we have sufficient liquidity to satisfy our cash needs, however we
continue to evaluate and act, as necessary, to maintain sufficient liquidity to
ensure our ability to operate during these unprecedented times. The extent to
which COVID-19 and its variants could impact our operations, financial
condition, liquidity, results of operations, and cash flows is highly
uncertain and will depend on future developments. We will continue to evaluate
the nature and extent of the potential short-term and long-term impacts to our
business.
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Table of Contents Cash Flows
Net cash flows provided by operating activities increased to
the three months ended
same 2021 period, primarily due decreases in receivables and driver advances as
a result of the timing of collections and an
income, partially offset by decreases to non-cash expenses compared to the prior
year period.
Net cash flows used by investing activities were
months ended
period. The change in net cash flows used by investing activities was primarily
the result of the
the timing of our trade cycle whereby we took delivery of approximately 31 new
company tractors and disposed of approximately 94 used tractors in the
2022 period compared to delivery and disposal of approximately 6 new company
tractors and 82 used tractors, respectively in the same 2021 period.
Net cash flows provided by financing activities were approximately
for the three months ended
same 2021 period. The change in net cash flows provided by financing
activities was primarily a function of net proceeds relating to notes payable,
the Draw Note, and our Credit Facility of
compared to net repayments of
between net proceeds and repayments was partially offset by the repurchase of
compared to
approximately
On
million
repurchased 0.5 million shares of our Class A common stock for
during the three months ended
increased such authorization to
approximately
2022
million
repurchase program authorizing the purchase of up to
A common stock. Under such authorization, we repurchased 0.7 million shares of
our Class A common stock for
31, 2022
stock through
Our cash flows may fluctuate depending on capital expenditures, future stock
repurchases, dividends, strategic investments or divestitures, any
indemnification calls related to the TFS Settlement, and the extent of future
income tax obligations and refunds.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the
estimates, assumptions, and factors we consider as relevant to the
circumstances. Such decisions include the selection of applicable accounting
principles and the use of judgment in their application, the results of which
impact reported amounts and disclosures. Changes in future economic conditions
or other business circumstances may affect the outcomes of our estimates and
assumptions. Accordingly, actual results could differ from those anticipated.
There have been no material changes to our most critical accounting policies and
estimates during the three months ended
disclosed in Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” included in our Form 10-K for the year
ended
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