What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-04 compared with 2021-11-03 · 70 added, 85 removed, 193 unchanged (45% 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

Nine Months Ended

September 30,

Revenue from operations

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Operating income

Interest expense, net

Interest (income) expense, net

Other expense, net

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Provision for income taxes

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

Key financial and operating metrics for the three-month periods ended March 31, 2022 and 2021 are presented below:

Three Months Ended

Nine Months Ended

September 30,

Revenue (in thousands)

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Average length of haul (miles)

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.

Our financial results for the first quarter of 2022 include Company record revenue and diluted earnings per share.

The 32.9% increase in revenue to $1.5 billion reflects higher shipment volumes and further improvements in our yield, both of which were supported by a favorable domestic economy.

We believe these increases were driven by the continued demand for our superior service at a fair price and our available network capacity.

The increased freight density and operating leverage created by our robust revenue growth, coupled with our ongoing focus on controlling discretionary spending, created a 320 basis-point improvement in our operating ratio to 72.9% for the first quarter of 2022 as compared to the first quarter of 2021.

As a result, our net income and diluted earnings per share increased by 50.4% and 52.9%, respectively, for the first quarter of 2022 as compared to the same quarter last year.

Revenue increased $370.8 million, or 32.9%, during the first quarter of 2022 as compared to the first quarter of 2021, due primarily to increases in LTL tons and LTL revenue per hundredweight.

The increase in LTL tons during the first quarter of 2022 was due to higher LTL shipment volumes that were partially offset by a slight decrease in LTL weight per shipment as compared to the first quarter of 2021.

We believe the increase in LTL tons was supported by a favorable domestic economy and our continued focus on providing our customers with superior service at a fair price.

LTL revenue per hundredweight increased 17.4% in the first quarter of 2022 as compared to the first quarter of 2021.

We believe this increase in LTL revenue per hundredweight was 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 and yield were also higher due to an increase in fuel surcharges resulting from higher diesel fuel prices in the first quarter of 2022 as compared to the same prior-year period.

Excluding fuel surcharges, LTL revenue per hundredweight increased 10.0% in the first quarter of 2022 compared to the first quarter of 2021.

April 2022 Update

Revenue per day increased 29.1% in April 2022 compared to the same month last year.

LTL tons per day increased 6.4 %, primarily due to a 6.4 % increase in LTL shipments per day, while LTL weight per shipment remained consistent as compared to the same month last year.

LTL revenue per hundredweight increased approximately 21.5 % as compared to the same month last year.

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 $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 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.

Salaries, wages and benefits increased $134.5 million, or 24.7%, in the first quarter of 2022 as compared to the first quarter of 2021, due to a $95.6 million, or 23.3%, increase in salaries and wages and a $38.9 million, or 28.6%, increase in employee benefit costs.

The increase in salaries and wages was primarily due to the 18.5% increase in the average number of full-time employees compared to the prior-year quarter.

We believe our full-time employee count will continue to increase as we hire additional 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 2021, as well as higher performance-based and discretionary bonus compensation.

Our productive labor costs, which include wages for drivers, platform employees, and fleet technicians, improved as a percent of revenue to 24.3% in the first quarter of 2022 as compared to 26.3% in the first quarter of 2021.

The improvement in our productive labor costs, as a percentage of revenue, reflects continued operating efficiencies provided by the increased freight density across our network of service centers, as well as the leveraging effect of the increases in yield.

While we operated with great efficiency during the first quarter, we experienced a decline in our platform shipments per hour as we continued to onboard and train our new employees.

Our other salaries and wages as a percent of revenue also decreased to 9.4% in the first quarter of 2022 as compared to 10.0% in the first quarter of 2021.

The increase in employee benefit costs reflects the impact of the increase in the number of full-time employees eligible for our benefits.

Our employee benefit costs increased due to increases in certain retirement benefits costs directly linked to our net income and higher costs per claim for employee group health benefits.

As a result of these cost increases, our employee benefit costs as a percent of salaries and wages increased to 34.6% in 2022 from 33.2% in 2021.

Operating supplies and expenses increased $67.2 million, or 54.1%, in the first quarter of 2022 as compared to the first quarter of 2021, due primarily to an increase in our costs for diesel fuel used in our vehicles, as well as 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.

Our average cost per gallon of diesel fuel increased 65.9% in the first quarter of 2022 as compared to the first quarter of 2021.

In addition, our gallons consumed increased 13.3% in the first quarter of 2022 as compared to the first quarter of 2021 due to a 13.2% increase in miles driven.

We do not use diesel fuel hedging instruments;

therefore, our costs are subject to market price fluctuations.

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

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.

Our other operating supplies and expenses decreased slightly as a percent of revenue between the periods compared.

Depreciation and amortization costs increas ed $3.

4 million, or 5.2%, in the first quarter of 2022 as compared to the first quarter of 202 1, due primarily to the assets acquired as part of our 2021 capital expenditure program.

We believe deprec i ation costs will increase in future periods based on our 202 2 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 $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 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.

Purchased transportation expense increased $17.8 million, or 51.2%, in the first quarter of 2022 as compared to the first quarter of 2021.

The increase in purchased transportation expense is due to higher utilization of third-party transportation providers in our domestic linehaul network to supplement our equipment and our workforce as demand for our services increased.

We expect to continue to utilize purchased transportation until the capacity of our workforce and our fleet can fully support our anticipated growth.

Our effective tax rate for both the first quarter of 2022 and first quarter of 2021 was 26.0%.

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:

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

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Financing activities

(Decrease) Increase in cash and cash equivalents

Decrease in cash and cash equivalents

Cash and cash equivalents at end of period

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.

The change in our cash flows provided by operating activities during the first quarter of 2022 as compared to the first quarter of 2021 was impacted by our increase in income before taxes of $135.8 million.

This increase was partially offset by fluctuations in certain working capital accounts, primarily accounts receivable and other liabilities.

The change in our cash flows used in investing activities during the first quarter of 2022 as compared to the first quarter of 2021 was impacted by the timing of maturities of short-term investments, as well as an increase in our capital expenditure plan for 2022 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 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 ”.

The change in our cash flows used in financing activities during the first quarter of 2022 as compared to the first quarter of 2021 was due primarily to increased payments under our share repurchase programs, as well as an increase in dividend payments to our shareholders.

Our return of capital to shareholders is more fully described below under “Stock Repurchase Program” and “Dividends to Shareholders”.

We have five primary sources of available liquidity:

cash flows from operations, our existing cash and cash equivalents, short-term investments, available borrowings under our second amended and restated credit agreement (the “Credit Agreement”), and our Note Purchase and Private Shelf Agreement (the “Note Agreement”).

Our Credit Agreement and the Note Agreement are described in more detail below under “ Financing Arrangements ”.

We believe we also have sufficient access to debt and equity markets to provide other sources of liquidity, if needed.

cash flows from operations, our existing cash and cash equivalents, short-term investments, available 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”), and our Note Purchase and Private Shelf Agreement with PGIM, Inc.

(“Prudential”) and certain affiliates and managed accounts of Prudential, which we entered into on May 4, 2020 (the “Note Agreement”).

Our Credit Agreement and the Note Agreement are described in more detail below under “Financing Arrangements.” We believe we also have sufficient access to debt and equity markets to provide other sources of liquidity, if needed.

Capital Expenditures

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,

The table below sets forth our net capital expenditures for property and equipment, including those obtained through noncash transactions, for the three-month period ended March 31, 2022 and the years ended December 31, 2021 and 2020:

(In thousands)

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The 2020 Repurchase Program became effective upon the termination of our $350.0 million repurchase program on May 29, 2020.

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, began after the completion of the 2020 Repurchase Program in January 2022.

Under our repurchase programs, we may repurchase shares from time to time in open market purchases or through privately negotiated transactions.

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 .

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.

At March 31, 2022, our stock repurchase program had $1.62 billion remaining available, including $100.0 million that was deferred until final settlement occurred on the February 2022 ASR Agreement in April 2022, leaving $1.52 billion remaining available and uncommitted.

Dividends to Shareholders

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.

Our Board of Directors declared a cash dividend of $0.30 per share for the first quarter of 2022 and declared a cash dividend of $0.20 per share for each quarter of 2021.

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.

We anticipate that any future quarterly cash dividends will be funded through cash flows from operations, our existing cash and cash equivalents, short-term investments, and, if needed, borrowings under our Credit Agreement and Note Agreement.

Financing Arrangements

Financing Agreements

Senior Note Agreement

On May 4, 2020, we entered into the Note Agreement with PGIM, Inc.

(“Prudential”) and certain affiliates and managed accounts of Prudential.

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.

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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 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..

The Series B Notes are senior unsecured obligations and rank pari passu with borrowings under our Credit Agreement or other senior promissory notes issued pursuant to the Note Agreement.

Credit Agreement

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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 September 30, 2021.

We were in compliance with all covenants in our outstanding debt instruments for the period ended March 31, 2022.

We do not anticipate financial performance that would cause us to violate any such covenants in the future, and we believe the combination of our existing Credit Agreement and Note Agreement along with our additional borrowing capacity will be sufficient to meet foreseeable seasonal and long-term capital needs.

The interest rate is fixed on the Note Agreement.

Therefore, short-term exposure to fluctuations in interest rates is limited to our Credit Agreement.

We do not currently use interest rate derivative instruments to manage exposure to interest rate changes.

We do not currently use interest rate derivative instruments to management exposure to interest rate changes.

Critical Accounting Policies

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Our revenue and operating margins in the first and fourth quarters are typically lower than those during the second and third quarters due to reduced shipments during the winter months;

however, the effects of the COVID-19 pandemic on the domestic economy impacted our normal seasonal trends during 2020 and may continue to impact our seasonal trends in future periods.

however, the effects of the COVID-19 pandemic on the domestic economy has impacted, and may continue to impact, our normal seasonal trends.

Harsh winter weather, hurricanes, tornadoes, floods and other natural disasters can also adversely impact our performance by reducing demand and increasing operating expenses.

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We caution readers that such forward-looking statements involve risks and uncertainties, including, but not limited to, the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021 and in other reports and statements that we file with the Securities and Exchange Commission (“SEC”).

Such forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied herein, including, but not limited to, the following, many of which are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the current COVID-19 pandemic:

the challenges associated with executing our growth strategy, and developing, marketing and consistently delivering high-quality services that meet customer expectations;

various risks related to public health epidemics, pandemics and similar outbreaks;

various risks related to public health epidemics, pandemics and similar outbreaks, including the continuing impact of the COVID-19 pandemic;

changes in our relationships with significant customers;

our exposure to claims related to cargo loss and damage, property damage, personal injury, workers’ compensation and healthcare, increased self-insured retention or deductible levels or premiums for insurance coverage, and claims in excess of insured coverage levels;

our exposure to claims related to cargo loss and damage, property damage, personal injury, workers’ compensation and healthcare, increased self-insured retention or deductible levels or premiums for excess coverage, and claims in excess of insured coverage levels;

the availability and cost of new equipment, including regulatory changes and supply constraints that could impact the cost of these assets;

the availability and cost of third-party transportation used to supplement our workforce and equipment needs;

the availability and price of diesel fuel and our ability to collect fuel surcharges and the effectiveness of those fuel surcharges in mitigating the impact of fluctuating prices for diesel fuel and other petroleum-based products;

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the negative impact of any unionization, or the passage of legislation or regulations that could facilitate unionization, of our employees;

increases in driver and maintenance technician compensation or difficulties attracting and retaining qualified drivers and maintenance technicians to meet freight demand and maintain our customer relationships;

increases in the cost of employee compensation and benefit packages used to address general labor market challenges and to attract or retain qualified employees, including drivers and maintenance technicians;

our ability to retain our key employees and continue to effectively execute our succession plan;

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the effects of legal, regulatory or market responses to climate change concerns;

the costs associated with healthcare legislation or rising healthcare costs;

the costs and potential liabilities related to litigation and governmental proceedings, inquiries, notices or investigations;

the increase in costs associated with healthcare legislation and other mandated benefits;

the costs and potential liabilities related to legal proceedings and claims, governmental inquiries, notices and investigations;

the impact of changes in tax laws, rates, guidance and interpretations;

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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