What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-03 compared with 2021-08-05 · 66 added, 57 removed, 212 unchanged (37% of the section changed)

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Our primary cost elements are direct wages and benefits associated with the movement of freight, operating supplies and expenses, which include diesel fuel, and depreciation of our equipment fleet and service center facilities.

We gauge our overall success

in managing costs by monitoring our operating ratio, a measure of profitability calculated by dividing total operating expenses by revenue, which also allows for industry-wide comparisons with our competition.

We gauge our overall success in managing costs by monitoring our operating ratio, a measure of profitability calculated by dividing total operating expenses by revenue, which also allows for industry-wide comparisons with our competition.

We regularly upgrade our technological capabilities to improve our customer service and lower our operating costs.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Revenue from operations

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Operating income

Interest expense (income), net

Other expense (income), net

Interest expense, net

Other expense, net

Income before income taxes

Provision for income taxes

Key financial and operating metrics for the three- and six-month periods ended June 30, 2021 and 2020 are presented below:

Key financial and operating metrics for the three- and nine-month periods ended September 30, 2021 and 2020 are presented below:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Revenue (in thousands)

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Average length of haul (miles)

Our financial results for the second quarter and first six months of 2021 include Company records in revenue, net income and earnings per diluted share.

We believe our consistent investments in our service center network have provided us with capacity to support additional revenue growth and the ability to provide superior service at a fair price to our customers.

Our results also benefited from the strengthening domestic economy and an upward trend in the pricing environment during a period of tightening industry capacity.

The increases in our density and yield contributed to a 550 and 570 basis-point improvement in our operating ratio to 72.3% and 74.0%, respectively, for the second quarter and first six months of 2021 as compared to the same periods last year.

Our net income and earnings per diluted share increased by 82.4% and 84.8%, respectively, for the second quarter of 2021 and 66.9% and 69.9%, respectively, for the first six months of 2021 as compared to the same periods last year.

Revenue increased $423.2 million, or 47.2%, and $562.4 million, or 29.9%, in the second quarter and first six months of 2021, respectively, as compared to the same periods of 2020, due to increases in both our LTL tonnage and LTL revenue per hundredweight.

The increased tonnage resulted from higher LTL shipments, which was partially offset by a decrease in LTL weight per shipment.

We believe the increase in LTL tonnage was driven by a strong economic environment and increased demand for the superior service that our outstanding team of employees continues to provide our customers.

Our LTL revenue per hundredweight increased 14.9% and 10.2% in the second quarter and first six months of 2021, respectively, as compared to the same periods in 2020.

We believe these increases in LTL revenue per hundredweight were driven by our ongoing commitment to our long-term yield management strategy, which is focused on obtaining price increases necessary to offset our cost inflation and support our regular investments in capacity and technology.

Our LTL revenue per hundredweight was also impacted by the positive effect on this metric of the decline in our LTL weight per shipment and increases in fuel surcharges.

Excluding fuel surcharges, LTL revenue per hundredweight increased 10.3% and 8.0% in the second quarter and first half of 2021, respectively, as compared to the same periods in 2020.

July 2021 Update

Revenue per day increased 36.7% in July 2021 compared to the same month last year.

Our financial results for the third quarter and first nine months of 2021 include Company records for revenue, net income and diluted earnings per share.

We believe our continued focus on delivering superior service at a fair price, while consistently investing in our service center network and OD Family of employees, provided us with the capital and available capacity to support the increased customer demand for our services.

Our revenue growth reflects higher shipment volumes and further improvements in our yield, both of which are supported by the strength of the domestic economy and a favorable pricing environment.

These factors led to increases in our density and yield that contributed to a 190 and 430 basis-point improvement in our operating ratio to 72.6% and 73.5%, respectively, for the third quarter and first nine months of 2021 as compared to the same periods last year.

Our net income and earnings per diluted share increased by 42.0% and 56.5%, respectively, for the third quarter of 2021 and 44.4% and 59.2%, respectively, for the first nine months of 2021 as compared to the same periods of 2020.

Revenue increased $341.9 million, or 32.3%, and $904.2 million, or 30.7%, in the third quarter and first nine months of 2021, respectively, as compared to the same periods of 2020, due to increases in both our LTL tonnage and LTL revenue per hundredweight.

The increase in tonnage resulted from higher LTL shipments that were partially offset by a decrease in LTL weight per shipment, which declined in part due to our continuing efforts to reduce the number of heavy-weighted shipments in our network.

We believe the increase in LTL tonnage was driven by the strength of the domestic economy and growth in our market share.

We continue to win market share due to a combination of our available network capacity and increased demand for the superior service that our outstanding team of employees continues to provide our customers.

Our LTL revenue per hundredweight increased 15.7% and 12.2% in the third quarter and first nine months of 2021, respectively, as compared to the same periods in 2020.

We believe these increases in LTL revenue per hundredweight were driven by the ongoing commitment to our long-term yield management process, which is focused on obtaining price increases necessary to offset our cost inflation and support our ongoing investments in capacity and technology.

The increase reflects the impact of changes in the mix of our freight as well as the higher fuel surcharges associated with the increase in diesel fuel prices.

Excluding fuel surcharges, LTL revenue per hundredweight increased 10.1% and 8.7% in the third quarter and first nine months of 2021, respectively, as compared to the same periods in 2020.

October 2021 Update

Revenue per day increased 35.7% in October 2021 compared to the same month last year.

LTL tons per day increased 16.4%, due primarily to a 19.4 % increase in LTL shipments per day that was partially offset by a 2.5% decrease in LTL weight per shipment.

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LTL revenue per hundredweight, excluding fuel surcharges, increased approximately 9.7 % as compared to the same month last year.

The fourth quarter of 2021 will include 61 workdays as compared to 62 workdays in the fourth quarter of 2020.

Operating Costs and Other Expenses

Salaries, wages and benefits increased $150.6 million, or 32.7%, in the second quarter of 2021 as compared to the second quarter of 2020, due primarily to a $106.3 million increase in salaries and wages and a $44.3 million increase in employee benefit costs.

Salaries, wages and benefits increased $171.8 million, or 17.4%, for the first six months of 2021 as compared to the same period of 2020, due primarily to a $119.9 million increase in salaries and wages and a $51.9 million increase in employee benefit costs.

The increases in salaries and wages for both the second quarter and first six months of 2021 was due primarily to increases in the average number of active full-time employees as compared to the same periods of 2020.

Our average number of active full-time employees increased 3,710, or 20.7%, and 2,120, or 11.2%, for the second quarter and first six months of 2021, respectively.

Salaries, wages and benefits increased $125.0 million, or 23.8%, in the third quarter of 2021 as compared to the third quarter of 2020, due primarily to a $86.2 million increase in salaries and wages and a $38.9 million increase in employee benefit costs.

Salaries, wages and benefits increased $296.8 million, or 19.7%, for the first nine months of 2021 as compared to the same period of 2020, due primarily to a $206.1 million increase in salaries and wages and a $90.7 million increase in employee benefit costs.

The increases in salaries and wages for both the third quarter and first nine months of 2021 was due primarily to increases in the average number of active full-time employees as compared to the same periods of 2020.

Our average number of active full-time employees increased 3,916, or 20.9%, and 2,719, or 14.4%, for the third quarter and first nine months of 2021, respectively.

We believe our full-time employee headcount will continue to increase as we hire employees to balance our workforce with growing demand and shipment trends.

Salaries and wages also increased as a result of an annual wage increase provided to our employees in September 2020, as well as higher performance-based compensation.

Our productive labor costs, which include wages for drivers, platform employees, and fleet technicians, improved as a percent of revenue to 24.8% and 25.5% in the second quarter and first half of 2021, respectively, from 27.5% and 28.3% for the same periods of 2020.

We increased the efficiency of our operations with improvements in our linehaul laden load average and P&D shipments per hour while our platform shipments per hour declined as we trained our new employees.

Our other salaries and wages as a percent of revenue also decreased to 9.4% and 9.7% of revenue in the second quarter and first half of 2021, respectively, from 10.9% and 11.0% of revenue for the same periods of 2020, respectively.

The increase in the costs attributable to employee benefits for both the second quarter and first half of 2021 was primarily due to increases in certain retirement benefit plan costs directly linked to our net income, as well as higher group health costs resulting from an increase in the number of claims per employee.

Our employee benefit costs were also higher due to our increased headcount.

As a result of these increases, our employee benefit costs, as a percent of salaries and wages, increased to 35.5% and 34.4% for the second quarter and first six months of 2021, respectively, from 33.6% and 33.0% for the comparable periods of 2020.

Operating supplies and expenses increased $62.2 million and $78.6 million in the second quarter and first six months of 2021, respectively, as compared to the same periods of 2020, due primarily to an increase in costs for diesel fuel used in our vehicles.

Our diesel fuel costs, excluding fuel taxes, represents the largest component of operating supplies and expenses, and can vary based on

both the average price per gallon and consumption.

Our average cost per gallon of diesel fuel increased 97.5% and 42.3% in the second quarter and first six months of 2021, respectively, as compared to the same periods last year.

In addition, our gallons consumed increased 25.7% and 14.1% in the second quarter and first six months of 2021, respectively, as compared to the same periods last year due to increase s in miles drive n .

Salaries and wages also increased as a result of the annual wage increases provided to our employees at the beginning of both September 2020 and 2021, as well as higher performance-based compensation associated with our record financial results.

Our productive labor costs, which include wages for drivers, platform employees, and fleet technicians, improved as a percent of revenue to 24.8% and 25.3% in the third quarter and first nine months of 2021, respectively, from 26.8% and 27.8% for the same periods of 2020.

The increased density within our network allowed us to maintain efficiencies in our linehaul and P&D operations.

We did, however, lose some productivity in our platform operations primarily due to the training requirements associated with onboarding our many new employees.

Our other salaries and wages as a percent of revenue also decreased to 9.0% and 9.4% of revenue in the third quarter and first nine months of 2021, respectively, from 9.8% and 10.6% of revenue for the same periods of 2020, respectively.

The increase in the costs attributable to employee benefits for both the third quarter and first nine months of 2021 was primarily due to increases in the number of full-time employees eligible for our benefits.

In addition, our employee benefit costs increased due to additional holiday pay benefits and increases in certain retirement benefit plan costs directly linked to our net income.

Group health and dental costs increased for both the quarter and year-to-date periods due to increases in claim volumes and cost per claim.

As a result of these increases, our employee benefit costs, as a percent of salaries and wages, increased to 37.2% and 35.4% for the third quarter and first nine months of 2021, respectively, from 35.5% and 33.8% for the comparable periods of 2020.

Operating supplies and expenses increased $56.2 million and $134.9 million in the third quarter and first nine months of 2021, respectively, as compared to the same periods of 2020, due primarily to an increase in costs for diesel fuel used in our vehicles and other petroleum-based products.

Our diesel fuel costs, excluding fuel taxes, represents the largest component of operating supplies and expenses, and can vary based on both the average price per gallon and consumption.

Our average cost per gallon of diesel fuel increased 76.4% and 53.3% in the third quarter and first nine months of 2021, respectively, as compared to the same periods last year.

In addition, our gallons consumed increased 14.0% and 14.1% in the third quarter and first nine months of 2021, respectively, as compared to the same periods last year due to increases in miles driven.

We do not use diesel fuel hedging instruments;

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Our other operating supplies and expenses remained relatively consistent as a percent of revenue between the periods compared.

Depreciation and amortization costs decreased slightly in the second quarter and first six months of 2021 as compared to the same periods in 2020.

These decreases reflect our planned reduction in capital expenditures for revenue equipment in 2020 as we balanced our fleet with volumes, as well as delays in receipt of certain revenue equipment included in our 2021 capital expenditure plan.

We believe depreciation costs will increase in future periods as we continue to execute our 2021 capital expenditure plan.

Depreciation and amortization costs were relatively consistent in the third quarter and first nine months of 2021, as compared to the same periods in 2020.

While our capital expenditures are higher in 2021 compared to the prior year, our 2021 depreciation and amortization costs were impacted by our planned reduction in capital expenditures for revenue equipment in 2020 as we balanced our fleet with volumes, as well as delays in receipt of certain revenue equipment included in our 2021 capital expenditure plan.

We believe depreciation costs will increase in future periods as we execute our 2021 capital expenditure plan.

While our investments in real estate, equipment, and technology can increase our costs in the short-term, we believe these investments are necessary to support our continued long-term growth and strategic initiatives.

Purchased transportation expense increased $24.9 million and $38.9 million in the second quarter and first six months of 2021, respectively, as compared to the same periods of 2020.

Purchased transportation expense increased $26.6 million and $65.5 million in the third quarter and first nine months of 2021, respectively, as compared to the same periods of 2020.

The increase in purchased transportation expense was due to an increase in our use of third-party transportation providers to supplement our workforce as demand for our services increased.

We expect to continue to purchase supplemental transportation until the capacity of our team can fully support our anticipated growth.

Our effective tax rate for both the second quarter and first six months of 2021 was 26.0%, as compared to 25.7% and 26.0%, respectively, for the same periods in 2020.

Our effective tax rate for the third quarter and first nine months of 2021 was 25.2% and 25.7%, as compared to 24.8% and 25.5%, respectively, for the same periods in 2020.

Our effective tax rate generally exceeds the federal statutory rate due to the impact of state taxes and, to a lesser extent, certain other non-deductible items.

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A summary of our cash flows is presented below:

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

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Financing activities

Increase in cash and cash equivalents

(Decrease) Increase in cash and cash equivalents

Cash and cash equivalents at end of period

The decrease in our cash flows provided by operating activities during the first six months of 2021 as compared to the first six months of 2020 was due to fluctuations in certain working capital accounts, primarily income taxes and accounts receivable, which were substantially offset by the increase in our net income.

The decrease in our cash flows used in investing activities during the first six months of 2021 as compared to the first six months of 2020 was due primarily to maturities of our short-term investments in excess of purchases, partially offset by fluctuations in our capital expenditure plans and the timing of these expenditures during the year.

The increase in our cash flows provided by operating activities during the first nine months of 2021 as compared to the first nine months of 2020 was due to the increase in net income that was partially offset by fluctuations in certain working capital accounts, primarily income taxes and accounts receivable.

The decrease in our cash flows used in investing activities during the first nine months of 2021 as compared to the first nine months of 2020 was due primarily to proceeds from the maturities of our short-term investments in excess of purchases, which were partially offset by increases in our capital expenditures in 2021 and the timing of these expenditures during the year.

Changes in our capital expenditures are more fully described below in “ Capital Expenditures ”.

The increase in our cash flows used in financing activities during the first six months of 2021 as compared to the first six months of 2020 was due primarily to reductions in proceeds from long-term debt issuances and higher cash dividends paid to shareholders.

The increase in our cash flows used in financing activities during the first nine months of 2021 as compared to the first nine months of 2020 was due primarily to increased share repurchases, reductions in proceeds from long-term debt issuances and higher cash dividends paid to shareholders.

Our financing arrangements are more fully described below under “ Financing Arrangements ”.

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Capital Expenditures

The table below sets forth our net capital expenditures for property and equipment for the six-month period ended June 30, 2021 and the years ended December 31, 2020 and 2019:

The table below sets forth our net capital expenditures for property and equipment for the nine-month period ended September 30, 2021 and the years ended December 31, 2020 and 2019:

September 30,

(In thousands)

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Shares of our common stock repurchased under our repurchase programs are canceled at the time of repurchase and are classified as authorized but unissued shares of our common stock.

On July 28, 2021, we announced that our Board of Directors had approved a new stock repurchase program authorizing us to repurchase up to an aggregate of $2.0 billion of our outstanding common stock.

The new repurchase program, which does not have an expiration date, will be effective upon the completion of our 2020 Repurchase Program.

At June 30, 2021, our 2020 Repurchase Program had $275.0 million remaining available, including $68.7 million that is deferred until the third quarter when the final settlement occurs on our current accelerated share repurchase agreement, leaving $206.3 million remaining available and uncommitted.

On July 28, 2021, we announced that our Board of Directors had approved a new stock repurchase program authorizing us to repurchase up to an aggregate of $2.0 billion of our outstanding common stock (the “2021 Repurchase Program”).

The 2021 Repurchase Program, which does not have an expiration date, will begin after the completion of the 2020 Repurchase Program.

At September 30, 2021, our stock repurchase programs had $2.02 billion remaining available, including $62.5 million that is deferred until final settlement occurs on our current accelerated share repurchase agreement, leaving $1.96 billion remaining available and uncommitted.

Dividends to Shareholders

Our Board of Directors declared a cash dividend of $0.20 per share for both the first and second quarters of 2021 and declared a cash dividend of $0.15 per share for each quarter of 2020.

Our Board of Directors declared a cash dividend of $0.20 per share for the first three quarters of 2021 and declared a cash dividend of $0.15 per share for each quarter of 2020.

Although we intend to pay a quarterly cash dividend on our common stock for the foreseeable future, the declaration and amount of any future dividend is subject to approval by our Board of Directors, and is restricted by applicable state law limitations on distributions to shareholders as well as certain covenants under our Credit Agreement and Note Agreement.

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The Note Agreement, which is uncommitted and subject to Prudential’s sole discretion, provides for the issuance of senior promissory notes with an aggregate principal amount of up to $350.0 million through May 4, 2023.

Pursuant to the Note Agreement, we issued $100.0 million aggregate principal amount of senior promissory notes (the “Series B Notes”) on May 4, 2020, the proceeds of which are available for capital expenditures, share repurchases, dividends, acquisitions, or general corporate purposes.

Pursuant to the Note Agreement, we issued $100.0 million aggregate principal amount of senior promissory notes (the “Series B Notes”) on May 4, 2020.

Borrowing availability under the Note Agreement is reduced by the outstanding amount of the existing Series B Notes, and all other senior promissory notes issued pursuant to the Note Agreement.

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Principal payments are required annually beginning on May 4, 2023 in equal installments of $20.0 million through May 4, 2027.

The Series B Notes are senior unsecured obligations and rank pari passu with borrowings under our Credit Agreement and Note Agreement.

The Series B Notes are senior unsecured obligations and rank pari passu with borrowings under our second amended and restated credit agreement with Wells Fargo Bank, National Association serving as administrative agent for the lenders, which we entered into on November 21, 2019 (the “Credit Agreement”) or Note Agreement..

Credit Agreement

On November 21, 2019, we entered into our Credit Agreement with Wells Fargo Bank, National Association serving as administrative agent for the lenders.

The Credit Agreement provides for a five-year, $250.0 million senior unsecured revolving line of credit and a $150.0 million accordion feature, which if fully exercised and approved, would expand the total borrowing capacity up to an aggregate of $400.0 million.

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(i) LIBOR (including applicable successor provisions) plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 1.000% to 1.375%;

or (ii) a Base Rate , as defined in the Credit Agreement, plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 0.000% to 0.375%.

or (ii) a Base Rate , as defined in the Credit Agreement, plus an applicable margin (based on our ratio of net debt-to-total capitalization) that

ranges from 0.000% to 0.375%.

Letter of credit fees equal to the applicable margin for LIBOR loans are charged quarterly in arrears on the daily average aggregate stated amount of all letters of credit outstanding during the quarter.

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The amounts outstanding and available borrowing capacity under the Credit Agreement are presented below:

September 30,

(In thousands)

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The Credit Agreement and Note Agreement also include a provision limiting our ability to make restricted payments, including dividends and payments for share repurchases, unless, among other conditions, no defaults or events of default are ongoing (or would be caused by such restricted payment).

We were in compliance with all covenants in our outstanding debt instruments for the period ended June 30, 2021.

We were in compliance with all covenants in our outstanding debt instruments for the period ended September 30, 2021.

The interest rate is fixed on the Note Agreement.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis