What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-17 compared with 2022-02-18 · 153 added, 144 removed, 294 unchanged (50% of the section changed)

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Company Overview

We are a transportation and logistics services company providing a broad portfolio of truckload, intermodal, and logistics solutions and operating one of the largest for-hire trucking fleets in North America.

We are a transportation and logistics services company providing a multimodal portfolio of truckload, intermodal, and logistics solutions.

Our diversified portfolio of complementary service offerings combines truckload services with intermodal and logistics offerings, enabling us to serve our customers’ varied transportation needs.

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and complements our growing dedicated operations.

Because the acquisition closed on December 31, 2021 , MLS did not have an impact on our consolidated results of operations for the year ended December 31, 2021.

MLS financial results will be reported in dedicated operations as part of our Truckload segment beginning in the first quarter of 2022.

Refer to Note 2, Acquisition, for additional details.

Schneider continues to monitor the COVID-19 pandemic and take steps to mitigate the potential risks it poses.

The health and safety of our associates and owner operators remains our top priority, and we have taken additional precautions to minimize the unnecessary risk of exposure to COVID-19.

We have implemented additional safety measures and flexible work arrangements, placed travel limitations on associates where appropriate, and taken physical and cybersecurity measures to ensure our systems are capable of serving our operational needs while providing uninterrupted service to our customers.

COVID-19 has led to labor shortages for Schneider and many of its suppliers and customers.

The labor shortages have contributed to supply chain disruptions and delays in the delivery of products and materials.

We continue to work with our suppliers to understand delivery timelines and challenges, and plan for delays that may impact our operations.

Many of the products we purchase, as well as our labor and certain other operating costs, have experienced price increases driven by supply chain constraints and other inflationary impacts.

We have been successful in finding alternatives where available and in exercising contractual rights as appropriate to limit the overall impact on our results.

Our efforts will continue, and we will take further actions as may be required by federal, state, or local governmental authorities, or that we determine are in the best interests of our associates, customers, and stakeholders.

Additional information concerning the impact COVID-19 may have to our future business and results of operations is provided in Part I, Item 1A “Risk Factors”.

Our goals are to grow revenue and profitability, drive strong and consistent return on capital, and increase stakeholder value resiliently through economic cycles.

We believe our competitive strengths position us to pursue our goals by way of the following strategies:

Leverage core strengths to drive organic growth and maintain or improve market position

In 2022, MLS financial results are reported in dedicated operations as part of our Truckload segment.

On June 7, 2022 , the Company completed the acquisition of deBoer, which provided us the opportunity to expand our company driver capacity, as well as our tractor and trailer fleet primarily within our dedicated Truckload operations.

During the second half of 2022, the Company successfully transitioned equipment and employees from deBoer to Schneider, deBoer operations ceased, and equipment and drivers were deployed primarily within Truckload.

Refer to Note 2, Acquisitions, for additional details on our recent acquisitions.

Adverse Legal Judgment

On April 25, 2022, in connection with the litigation with the former owners of WSL, the Delaware Superior Court entered judgment in favor of the former owners, awarding $ 40.0 million in compensatory damages plus interest and attorneys’ fees.

A final settlement in the amount of $ 57.0 million was reached and recognized in our results of operations for the year ended December 31, 2022.

Refer to Note 13, Commitments and Contingencies , for additional details.

We seek to deliver a superior portfolio of services that enables our business to grow revenue, profitability, and shareholder returns and perform resiliently through economic and freight cycles.

We believe our competitive strengths position us to pursue our strategy as follows:

Leverage core strengths to drive organic growth and advance our market position

We intend to drive organic growth through leveraging our existing customer relationships, as well as expanding our customer base.

We believe our broad portfolio of services, with different asset intensities, and our North American footprint allow for supply chain alternatives, which enable new and existing customer growth.

We also plan to drive revenue growth by increasing

our marketing to customers that seek to outsource their transportation services.

We also plan to drive revenue growth by increasing our marketing to customers that seek to outsource their transportation services.

Our growth decisions are based on our “Value Triangle,” which represents profitable growth while balancing the needs of our customers, associates, and shareholders.

Our integrated technology platform serves as an instrumental factor, which drives profitability as it enables real-time, data-driven decision support science on every load/order and assists our associates in proactively managing our services across our network.

Together with our highly incentivized and proactive sales organization, we believe that our platform will continue to provide better service and foster organic growth in each of our reportable segments.

Expand capabilities in the specialty equipment and dedicated freight markets and continue growing our asset-light and non-asset businesses

We believe that our specialty freight capabilities position us to grow in the specialty equipment and dedicated markets, which have higher barriers to entry, potentially higher margins, and lasting customer relationships.

Together with our highly incentivized and proactive sales organization, we believe that our platform will continue to provide a high level of service and foster organic growth in each of our reportable segments.

Expand capabilities in the specialty and dedicated freight markets and continue growing our asset-light and non-asset businesses

We believe that our capabilities position us to grow in the specialty and dedicated freight markets, which have higher barriers to entry, potentially higher margins, and lasting customer relationships.

The complexity and time-sensitivity of the loads often require increased collaboration with, and greater understanding of, our customers’ business needs and processes.

The transportation of specialty equipment freight requires specially trained drivers with appropriate licenses and special hauling permits, as well as equipment that can handle items with unique requirements in terms of temperature, freight treatment, size, and shape.

As such, there are few carriers that have comparable network scale and capabilities in the specialty equipment market, which we believe will allow us to grow profitably in that business.

We believe that opportunities identified within our intermodal product offering allow us to profitably grow services and compete in the intermodal marketplace.

As an asset-based provider, we have more control over our equipment to include containers and chassis, perform most of our own drays, and have strong contractual rail relationships.

The transportation of specialty freight requires specially trained drivers with appropriate licenses and special hauling permits, as well as equipment that can handle items with unique requirements in terms of temperature, freight treatment, size, and shape.

As such, there are few carriers that have comparable scale and capabilities in the specialty and dedicated markets, which we believe will allow us to grow profitably.

We believe that opportunities identified within our intermodal product offering allow us to profitably grow our services and compete in the intermodal marketplace.

As an asset-based provider, we have more control over our equipment, perform most of our own drays, and retain strong contractual and differentiated rail relationships.

We believe our integrated technology platform will enable us to experience certain benefits of complete end-to-end control, including increased pick-up and delivery predictability, better visibility, and the ability to source and retain capacity.

Freight brokerage, which is a significant part of our Logistics segment, is a business that is expected to be a driver of growth into the future.

As shippers increasingly consolidate their business with fewer freight brokers, we continue to be well-positioned due to our customer service, innovative technology, and an established, dense network of qualified third-party carriers and access to trailer network.

Freight brokerage, which is a significant part of our Logistics segment, is a business that is expected to be a driver of future growth.

As shippers increasingly consolidate their business with fewer freight brokers, we continue to be well-positioned due to our customer service, Schneider FreightPower® digital marketplace, an established, dense network of qualified third-party carriers, and access to our sizable trailer network.

We believe shippers see the value of working with providers like us that have scale, capacity, and lane density.

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We continue to benefit from our technology and business transformation by improving the effectiveness with which we use data to increase revenue and lower costs.

Full visibility into each driver’s profile allows us to increase driver satisfaction and retention by matching drivers to loads and routes that better fit their individual needs.

Visibility into each driver’s profile allows us to increase driver satisfaction and retention by matching drivers to loads and routes that better fit their individual needs.

We can improve our customer service, retain drivers, lower costs, and generate business by anticipating our customers’ and drivers’ needs and preferences in a dynamic network.

We believe the implementation of simple and intuitive customer interfaces will also enable a stronger connection with our customers through increased interaction and an enhanced user experience.

Our Schneider FreightPower® online marketplace, for example, digitally connects the benefits of Quest with the strength of our trailer network and carrier relationships to service our customers.

Additionally, through our investment in MLSI, with which we are collaborating to develop a Transportation Management System using MLSI’s SaaS technology, we aim to further complement our technology platform and enable enhanced decision making, resource allocation, and visibility with our supply chain partners.

Our Schneider FreightPower® online marketplace, for example, digitally connects our asset based network capabilities with the strength of our trailer network and carrier relationships to service our customers.

Additionally, through our investment in MLSI, with which we are collaborating to develop a TMS using MLSI’s SaaS technology, we aim to further complement our technology platform and enable enhanced decision making, resource allocation, and visibility with our supply chain partners.

We expect additional margin improvement as we continue to leverage data analytics within our integrated technology platform.

Along with our revenue management discipline, the strong foundation we have established with our Quest transformation and integration of technology and systems through leading third-party providers will allow us to continue to incorporate new technologies and build additional capabilities into the platform over time, maintaining our competitive edge and setting the foundation for future growth.

Allocate capital across businesses to maximize return on capital and selectively pursue opportunistic acquisitions

Our broad portfolio of services provides us with a greater opportunity to allocate capital within our portfolio of services in a manner that maximizes returns across all market cycles and economic conditions.

Along with our revenue management discipline, our integration of technology and systems through leading, third-party providers will allow us to continue to incorporate new technologies and build additional capabilities into the platform over time, maintaining our competitive edge and setting the foundation for future growth.

Allocate capital across businesses to maximize return on capital while pursuing strategic organic and inorganic growth opportunities

Our broad portfolio of services provides us with a greater opportunity to allocate capital within our portfolio in a manner that maximizes returns across all market cycles and economic conditions.

For example, we can efficiently move our equipment between services and regions when we see opportunities to maximize our return on capital.

We continually monitor our performance and market conditions to ensure appropriate allocation of capital and resources to grow our businesses, while optimizing returns across reportable segments.

Furthermore, our strong balance sheet enables us to carry out an acquisition strategy that strengthens our overall portfolio.

Furthermore, our strong balance sheet and financial position enable us to carry out an acquisition strategy that strengthens our overall portfolio.

We are positioned to leverage our scalable platform and experienced operations team to acquire high-quality businesses that meet our disciplined selection criteria to enhance our service offerings and broaden our customer base.

Attract and retain top talent at all levels to ensure sustainable growth

Create a differentiated driver and associate experience that enables us to attract and retain top talent at all levels

Our people are our strongest assets, and we believe they are key to growing our customer base and driving our performance.

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attract, develop, engage, and retain the best talent in the industry.

We strive for a high-performance culture with operational excellence that seeks individuals who are passionate about our business and fit our culture, and fosters a collaborative environment which promotes diversity, equality, and inclusion.

We strive for a high-performance culture that seeks individuals who are passionate about our business and fit our culture, and that promotes diversity, equality, and inclusion through a collaborative environment.

We value the direct relationship we have with our associates, and we intend to continue working together to provide professional growth and a quality work environment without third-party representation.

Our compensation structure is performance-based and aligns with our strategic objectives.

In today’s driver constrained environment, we seek to maintain our reputation as a preferred carrier of choice within the driver community through our continued focus on improving the driver experience and to attract and retain high-quality, safe drivers that meet or exceed our qualification standards.

We invest in the well-being of our associates through our commitment to ensure a differentiated driver experience and efforts to improve the quality of drivers’ touchpoints.

We provide mandatory physical check-ups which cover sleep apnea and hair follicle or urine-based drug testing, among other things.

We seek to maintain our reputation as a preferred carrier of choice within the driver community through our continued focus on improving the driver experience and to attract and retain high-quality, safe drivers that meet or exceed our qualification standards.

We invest in the well-being of our associates through our commitment to ensure a differentiated driver experience and efforts to improve time-at-home, pay stability, and the quality of drivers’ touchpoints.

We provide mandatory physical check-ups which cover sleep apnea and hair or urine-based drug testing, among other things.

We believe that investing in the health of our associates helps maintain a high-quality driver base.

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Income from operations $ 600.4 $ 533.7

Litigation (1)

Litigation and audit assessments (1) (2) (3)

Acquisition-related costs (4)

Goodwill impairment (5)

Restructuring—net (4)

Property gain—net (6)

Sale of business (7)

Adjusted income from operations $ 617.0 $ 532.7

(1) In 2020, we recorded expense for prior period federal excise taxes, including court awarded costs and interest, as a result of an adverse tax ruling which we disputed.

In 2021, after a favorable ruling in the U.S.

Court of Appeals, we recorded a recovery of such taxes and interest upon confirmation from the IRS of the refund amount.

(1) Includes a $57.0 million charge for an adverse settlement related to a lawsuit with former owners of WSL, inclusive of prejudgment interest and the former owners’ attorneys’ fees, for the year ended December 31, 2022.

Refer to Note 13, Commitments and Contingencies , for more information.

(2) Advisory, legal, and accounting costs related to the December 31, 2021 acquisition of MLS.

Refer to Note 2, Acquisition , for additional details.

(3) Goodwill impairment charge recorded for our Asia reporting unit in the fourth quarter of 2021.

Refer to Note 6, Goodwill, for more information.

(4) Activity associated with the shutdown of the FTFM service offering.

Refer to Note 16, Restructuring , for additional details.

(2) Includes $5.2 million in charges related to an adverse audit assessment for prior period state sales tax on rolling stock equipment used within that state, for the year ended December 31, 2022.

(3) In 2021, we recorded a $13.5 million recovery of an adverse tax ruling from 2020 related to prior period federal excise taxes as a result of a favorable ruling in the U.S.

Court of Appeals.

(4) Advisory, legal, and accounting costs related to the Company’s acquisitions.

Refer to Note 2, Acquisitions , for additional details.

(5) Goodwill impairment charge recorded for our Asia reporting unit during the year ended December 31, 2021.

Refer to Note 6, Goodwill and Other Intangible Assets, for more information.

(6) Net gain on the sale of our Canadian facility due to a change in approach to servicing Canada.

(7) Loss from sale of our China-based logistics operations.

See Note 1, Summary of Significant Accounting Policies, for additional details.

Adjusted operating ratio

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Fuel surcharge revenues (862.5) (444.8)

Litigation 13.5 (12.8)

Litigation and audit assessments (62.2) 13.5

Acquisition-related costs (0.3) (1.9)

Goodwill impairment — (10.6)

Restructuring—net — (1.0)

Property gain—net 50.9 —

Sale of business (5.0) —

Adjusted total operating expenses $ 5,124.9 $ 4,631.2

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Net income $ 457.8 $ 405.4

Litigation (13.5) 12.8

Litigation and audit assessments 62.2 (13.5)

Acquisition-related costs 0.3 1.9

Goodwill impairment — 10.6

Restructuring—net — 1.0

Property gain—net (50.9) —

Sale of business 5.0 —

Income tax effect of non-GAAP adjustments (1)

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Due to differences in the tax treatment of items excluded from non-GAAP income, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP items may differ from our GAAP tax rate and from our actual tax liabilities.

The Asia goodwill impairment in 2021 was not subject to taxes.

There were no income tax effects related to the sale of business in 2022 or the goodwill impairment in 2021.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Enterprise Results Summary

Enterprise net income increased $193.7 million, approximately 91%, in the year ended December 31, 2021 compared to 2020, primarily due to a $247.0 million increase in income from operations, partially offset by the corresponding increase in income taxes.

Enterprise net income increased $52.4 million, approximately 13%, in the year ended December 31, 2022 compared to 2021, primarily due to a $66.7 million increase in income from operations, partially offset by the corresponding increase in the provision for income taxes.

In addition, net income in 2022 and 2021 included pre-tax equity investment net gains of $13.7 million and $21.6 million, respectively.

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Factors contributing to the increase were as follows:

• a $679.4 million increase in Logistics segment revenues (excluding fuel surcharge) due to an increase in revenue per order and volume growth;

• a $168.4 million increase in Intermodal segment revenues (excluding fuel surcharge) driven by improvement in revenue per order and an increase in orders despite network fluidity constraints;

• a $126.5 million increase in fuel surcharge revenues resulting from an increase in fuel prices in 2021 compared to 2020 (for example, based on information reported by the U.S.

Department of Energy, the average diesel price per gallon in the U.S.

increased by 27% between such periods) and an increase in Intermodal volumes, partially offset by a decrease in Truckload volumes;

• an $83.9 million increase in Truckload segment revenues (excluding fuel surcharge) driven by improved revenue per truck per week, partially offset by lower volumes due to driver capacity constraints.

• a $417.7 million increase in fuel surcharge revenues resulting from increased fuel prices in 2022 compared to 2021, as well as fuel surcharge revenues from the acquisition of MLS;

• a $301.7 million increase in Truckload segment revenues (excluding fuel surcharge) driven by the addition of revenues (excluding fuel surcharge) from the acquisition of MLS, improved revenue per truck per week, and increased dedicated volumes, partially offset by lower network volumes due to driver capacity constraints, reduced network productivity, and moderating market demand;

• a $147.5 million increase in Logistics segment revenues (excluding fuel surcharge) resulting from volume growth within our brokerage business (including our Power Only offering) and incremental port dray revenues from port congestion and supply chain constraints, partially offset by decreased revenue per order within our brokerage business;

• a $144.3 million increase in Intermodal segment revenues (excluding fuel surcharge) due to an increase in revenue per order.

Enterprise revenues (excluding fuel surcharge) increased $578.0 million, approximately 11%.

Enterprise Income from Operations and Operating Ratio

Enterprise income from operations increased $247.0 million, approximately 86%, in the year ended December 31, 2021 compared to 2020, primarily due to increases in revenue per truck per week in Truckload, revenue per order in Intermodal, and net revenue per order in Logistics largely driven by strong freight market conditions and effective network and revenue management.

A $70.6 million improvement in equipment dispositions and a $26.3 million favorable change related to a 2020 adverse tax ruling that was overturned in 2021 also contributed to improved income from operations.

The above factors were partially offset by an increase in driver costs resulting from additional costs incurred to attract and retain drivers, a reduction in Truckload freight volumes due to industry-wide capacity constraints, and higher rail costs.

Enterprise income from operations increased $66.7 million, approximately 12%, in the year ended December 31, 2022 compared to 2021, primarily due to an increase in revenue per order in Intermodal, revenue per truck per week in Truckload, and net revenue per order in Logistics driven by strong freight market conditions in the first half of 2022, in addition to effective network and revenue management.

A net gain on sale of $50.9 million in connection with the sale of our Canadian facility due to a change in approach to servicing Canada also contributed to the increase.

Volumes grew in dedicated Truckload with the acquisition of MLS and new business start-ups, while our brokerage business experienced an 8% increase in order volume driven by leveraging our Schneider FreightPower® digital platform and the expansion of our Power Only offering.

The above factors were partially offset by an increase in driver-related costs resulting from pay increases, costs incurred to attract and retain an increased number of company drivers in 2022;

higher rail purchased transportation costs within Intermodal;

a $57.0 million adverse settlement related to a lawsuit with former owners of WSL;

fewer equipment sales resulting in lower gains;

and higher maintenance costs due to inflationary cost pressures.

Adjusted income from operations increased $84.3 million, approximately 16%.

Enterprise operating ratio improved on both a GAAP and adjusted basis when compared to the same period of 2020.

Enterprise operating ratio (operating expenses as a percentage of operating revenues) increased on a GAAP basis but improved on an adjusted basis when compared to the same period in 2021.

Among other factors, our operating ratio can be negatively impacted by changes in portfolio mix when our higher operating ratio, less asset-focused Logistics segment grows faster than our lower operating ratio, capital-intensive Truckload segment.

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Key operating expense fluctuations are described below.

• Purchased transportation increased $659.9 million, or 33%, year over year, primarily resulting from increased third party carrier costs due to higher purchased transportation costs per order and volume growth within Logistics, as well as higher rail purchased transportation resulting from an increase in both rail costs and orders in Intermodal.

• Salaries, wages, and benefits increased $103.0 million, or 10%, year over year, driven by increases in Truckload and Intermodal driver pay, Logistics salaries and wages, performance-based incentive compensation, and healthcare costs.

The increases in driver pay were largely the result of pay increases and actions to address driver capacity constraints, while the increase in Logistics salaries and wages was primarily due to an increase in headcount and sales commissions.

Healthcare costs increased 17% when compared to the prior year mainly resulting from an increase in the severity and frequency of claims in 2021.

• Fuel and fuel taxes increased $77.0 million, or 38%, year over year, driven primarily by an increase in cost per gallon, partially offset by a decrease in company driver miles resulting from industry-wide capacity constraints.

• Purchased transportation increased $245.2 million, or 9%, year over year, mainly related to higher rail purchased transportation resulting from an increase in rail costs in Intermodal.

Third-party carrier costs also increased due to volume growth and purchased transportation costs recorded related to the acquisition of MLS, partially offset by lower purchased transportation costs per order within Logistics.

• Salaries, wages, and benefits increased $226.5 million, or 20%, year over year, largely due to higher driver pay within Truckload and Intermodal resulting from pay increases and actions taken to address driver capacity constraints, in addition to an increase in company drivers.

The acquisition of MLS, an increase in headcount across the organization, and incremental healthcare costs contributed to the remaining increase year over year.

• Fuel and fuel taxes for company trucks increased $239.6 million, or 85%, year over year, driven by an increase in cost per gallon and additional fuel expense recorded related to the acquisition of MLS.

A significant portion of fuel costs are recovered through our fuel surcharge programs.

• Depreciation and amortization increased $5.7 million, or 2%, year over year, primarily driven by an increase in internal use software amortization.

• Operating supplies and expenses decreased $70.6 million, or 13%, year over year, a result of a $70.1 million favorable

change in equipment dispositions driven by a strong used equipment market and the strength of our nationwide maintenance network in facilitating equipment sales, a $26.3 million favorable change related to a $12.8 million adverse tax ruling in 2020 and its reversal (plus interest) in 2021, and a decrease in cost of goods sold in our leasing business as a result of reduced lease activity.

These factors were partially offset by an increase in equipment rental expense due to port congestion and higher customer dwell times, additional rail storage expenses caused by network fluidity constraints, and an increase in a variety of other operating-related areas that were individually immaterial.

• Insurance and related expenses decreased $3.7 million, or 4%, year over year, primarily due to favorability in auto liability resulting from a decrease in claims severity and frequency.

• Other general expenses increased $28.0 million, or 26%, year over year, primarily due to higher driver onboarding costs as the costs to attract and retain drivers increased as a result of constrained industry-wide capacity levels, which we expect to continue into 2022, compared to favorable driver turnover in 2020 during the onset of the COVID-19 pandemic.

The remaining increase is attributable to increased software development and professional services costs, including $1.9 million of acquisition-related costs associated with the acquisition of MLS in 2021.

• Goodwill impairment charges increased $10.6 million year over year, due to the full impairment recorded for our Asia reporting unit in 2021.

• Depreciation and amortization increased $53.8 million, or 18%, year over year, largely due to the acquisition of MLS, which accounted for nearly half of the increase.

The remaining increase was driven by additional depreciation expense resulting from truck and trailer growth within Truckload and container growth within Intermodal.

• Operating supplies and expenses—net increased $71.6 million, or 15%, year over year, driven by lower gains from equipment sales period over period, higher maintenance costs due to inflationary cost pressures and the MLS acquisition, an increase in equipment rental expense largely due to port congestion , an increase in operating taxes resulting from the $13.5 million recovery of prior period federal excise taxes in 2021 and the $5.2 million in expense in 2022 related to an adverse audit assessment over the applicability of state sales tax, as well as additional rail storage expenses caused by network fluidity challenges.

These factors were partially offset by the gain relating to the sale of the Company’s Canadian facility in the first quarter of 2022 and lower cost of goods sold in our leasing business due to a reduction in lease activity.

• Insurance and related expenses increased $20.6 million, or 25%, year over year, primarily due to increases in auto liability insurance costs relating to favorable claims frequency and severity in 2021 compared to 2022, as well as the additional insurance premium costs for MLS in 2022.

• Other general expenses increased $82.3 million, or 61%, year over year, primarily due to a $57.0 million adverse settlement related to a lawsuit with former owners of WSL.

The remaining increase is attributable to increased professional services expense, higher driver onboarding costs resulting from increased costs to attract and retain drivers, and the hiring of company drivers in 2022.

• Goodwill impairment charges decreased $10.6 million year over year, due to the full impairment recorded for our Asia reporting unit in 2021.

Total Other Expenses (Income)

Total other income increased $12.1 million in the year ended December 31, 2021 compared to 2020, primarily due to a $12.8 million increase in pre-tax equity investment net gains as we recorded a pre-tax net gain of $21.6 million in 2021 compared to an $8.8 million pre-tax gain in 2020.

Total other income decreased $4.7 million in the year ended December 31, 2022 compared to 2021, primarily due to a $7.9 million decrease in pre-tax equity investment net gains as we recorded $13.7 million in pre-tax net gains in 2022 compared to $21.6 million in 2021.

See Note 5, Investments , for more information on our equity investments.

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Our provision for income taxes increased $9.6 million, approximately 7%, in the year ended December 31, 2022 compared to 2021 due to higher taxable income.

Our effective income tax rate was 25.2% for the years ended December 31, 2021 and 2020.

Our effective income tax rate was 24.2% for the year ended December 31, 2022 and 25.2% in 2021.

While we anticipate that our ongoing effective tax rate will be 24.5% - 25.0%, our provision for income taxes may fluctuate in future periods to the extent there are changes to tax laws and regulations.

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Income from operations 600.4 533.7

Litigation (13.5) 12.8

Litigation and audit assessments 62.2 (13.5)

Acquisition-related costs 0.3 1.9

Goodwill impairment — 10.6

Restructuring—net — 1.0

Property gain—net (50.9) —

Sale of business 5.0 —

Adjusted income from operations $ 617.0 $ 532.7

We monitor and analyze a number of KPIs in order to manage our business and evaluate our financial and operating performance.

The following table presents the KPIs for our Truckload segment for the periods indicated, consistent with how revenues and expenses are reported internally for segment purposes.

The Truckload KPIs below do not contemplate the impacts of our acquisition of MLS on December 31, 2021.

As of December 31, 2021, MLS operated approximately 900 tractors and 3,600 trailers.

Descriptions of the two operations that make up our Truckload segment are as follows:

The following table presents our Truckload segment KPIs for the periods indicated, consistent with how revenues and expenses are reported internally for segment purposes.

The two operations that make up our Truckload segment are as follows:

• Dedicated - Transportation services with equipment devoted to customers under long-term contracts.

• Network - Transportation services of one-way shipment.

• Network - Transportation services of one-way shipments.

MLS and deBoer impacts are included within dedicated operations beginning in the first and third quarters of 2022, respectively.

The Truckload KPIs for the year ended December 31, 2021, do not contemplate the impacts of our acquisition of MLS on December 31, 2021.

As of December 31, 2021, MLS operated approximately 900 tractors and 3,600 trailers.

Year Ended December 31,

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(7) Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.

Truckload revenues (excluding fuel surcharge) increased $83.9 million, approximately 5%, in the year ended December 31, 2021 compared to 2020, resulting from price improvements being largely offset by a 10% decline in volume.

Revenue per truck per week increased $467, or 13%, year over year, due to a 17% increase in rate per loaded mile driven by higher contract and spot rates in an inflationary market, partially offset by reduced productivity due to network disruptions.

While our dedicated business experienced growth year over year as a result of new business wins, overall Truckload order volumes declined primarily driven by driver capacity constraints within our network business.

Truckload income from operations increased $96.9 million, approximately 52%, in the year ended December 31, 2021 compared to 2020, primarily due to the impact of contract renewals and favorable spot market pricing, in addition to a $58.1 million favorable change in equipment dispositions.

These items were partially offset by an increase in driver-related costs as a result of pay increases and actions taken to attract and retain drivers in response to industry-wide driver capacity constraints, in addition to the earnings impact of reduced volumes, noted above.

Truckload revenues (excluding fuel surcharge) increased $301.7 million, approximately 16%, in the year ended December 31, 2022 compared to 2021 due to an 8% increase in rate per loaded mile realized in response to the impacts of inflation on operating costs and challenges at customer locations resulting in longer dwell times, partially offset by reduced network productivity, and a 7% increase in volume driven by the acquisition of MLS and new business start-ups within dedicated, partially offset by lower network volume mainly due to driver capacity constraints and moderating market demand.

Truckload income from operations increased $67.5 million, approximately 24%, in the year ended December 31, 2022 compared to 2021.

Factors contributing to the increase in income from operations include favorable pricing conditions, a $50.9 million net gain related to the sale of the Company’s Canadian facility, and additional dedicated volumes inclusive of the MLS acquisition.

These items were partially offset by lower volumes within network;

an increase in driver-related costs resulting from pay increases, actions taken to attract and retain drivers, and an increase in company drivers within dedicated;

lower gains from equipment sales;

higher maintenance costs due to inflationary cost pressures;

and additional depreciation expense incurred as a result of truck and trailer growth.

The following table presents the KPIs for our Intermodal segment for the periods indicated.

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Intermodal revenues (excluding fuel surcharge) increased $144.3 million, approximately 13%, in the year ended December 31, 2022 compared to 2021.

Revenue per order increased $318, or 14%, driven primarily by strong market conditions resulting in improvements in price and increased premium opportunities, partially offset by shorter length of haul due to growth in the East which typically has a lower revenue per order.

Orders also increased 4% due to favorable market demand conditions, despite supply chain inefficiencies resulting in extended container dwell times and rail network disruptions.

Intermodal income from operations increased $80.2 million, approximately 107%, in the year ended December 31, 2021 compared to 2020, mainly due to factors impacting revenues discussed above and a $12.1 million favorable change in equipment dispositions, partially offset by the impact of network fluidity and capacity challenges on rail and driver-related costs.

Revenue per order increased $319, or 13%, and orders increased 1% driven primarily by strong but moderating market conditions during 2022.

This was partially offset by shorter length of haul due to growth in the East which typically has a lower length of haul and revenue per order.

Intermodal income from operations increased $9.9 million, approximately 6%, in the year ended December 31, 2022 compared to 2021 mainly due to factors impacting revenues discussed above, partially offset by higher rail-related costs largely related to the impact of network fluidity issues, increased fuel expenses, and increased driver-related costs to attract and retain drivers.

The following table presents the KPI for our Logistics segment for the periods indicated.

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Logistics revenues (excluding fuel surcharge) increased $147.5 million, approximately 8%, in the year ended December 31, 2022 compared to 2021.

This increase was mainly the result of an increase in revenue per order and 20% volume growth within our brokerage business driven by supportive market conditions, in addition to expansion of our Power Only offering and digital platform.

This increase was mainly the result of 8% volume growth within our brokerage business driven by supportive market conditions during the first half of 2022, expansion of our Power Only offering and Schneider FreightPower® digital platform, and additional port dray revenues in the first half of 2022.

This was partially offset by a decrease in revenue per order.

Logistics income from operations increased $48.8 million, approximately 53%, in the year ended December 31, 2022 compared to 2021, primarily due to net revenue per order improvements within our brokerage business and volume growth, as cited above.

Included in Other was income from operations of $1.4 million in the year ended December 31, 2021 compared to a loss from operations of $19.2 million in 2020.

The fluctuation was primarily driven by a $26.3 million favorable change related to a 2020 adverse tax ruling that was subsequently overturned in 2021 and an increase in income from operations within our leasing business driven by a decrease in cost of goods sold.

These factors were partially offset by an increase in performance-based incentive compensation year over year, in addition to a $10.6 million goodwill impairment charge for our Asia reporting unit in 2021.

Included in Other was a loss from operations of $58.1 million in the year ended December 31, 2022 compared to income of $1.4 million in 2021.

The change was primarily due to a $57.0 million adverse settlement related to a lawsuit with former owners of WSL, a $5.2 million expense related to an adverse audit assessment over the applicability of state sales tax, and a $5.0 million loss related to the sale of the Asia business in 2022.

In 2021, we received a refund of $13.5 million for excise taxes paid in a 2020 audit assessment that was subsequently overturned, partially offset by a $10.6 million goodwill impairment recorded for our Asia reporting unit.

LIQUIDITY AND CAPITAL RESOURCES

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Total debt $ 215.1 $ 270.3

$ 270.3 $ 307.0

(1) Debt on the consolidated balance sheets is presented net of deferred financing costs.

At December 31, 2022, we were in compliance with all financial covenants under our credit agreements and the agreements governing our senior notes.

See Note 7, Debt and Credit Facilities , for more information about our short-term and long-term financing arrangements.

The following table summarizes the changes to our cash flows provided by (used in) operating, investing, and financing activities for the periods indicated.

See Note 7, Debt and Credit Facilities , for information about our financing arrangements.

The following table summarizes the changes to our net cash flows provided by (used in) operating, investing, and financing activities for the periods indicated.

Year Ended December 31,

(in millions) 2022 2021

Cash provided by operating activities $ 566.1 $ 618.2

Cash used in investing activities (626.4) (318.7)

Cash used in financing activities (90.4) (455.6)

Net cash provided by operating activities $ 856.4 $ 566.1

Net cash used in investing activities (598.8) (626.4)

Net cash used in financing activities (116.7) (90.4)

Operating Activities

Cash provided by operating activities decreased $52.1 million, approximately 8%, during 2021 compared to 2020.

The decrease was the result of an increase in cash used for working capital, partially offset by an increase in net income adjusted for various noncash charges.

Working capital changes decreasing net cash provided by operating activities were driven by an increase in trade accounts receivable, which increased proportionate to revenue growth, and a decrease in other liabilities primarily related to the $30.7 million payment of payroll taxes deferred under the CARES Act during 2021, in comparison to the ending 2020 accrual.

Net cash provided by operating activities increased $290.3 million, approximately 51%, during 2022 compared to 2021.

The increase was a result of an increase in net income adjusted for various noncash charges and a decrease in cash used for working capital.

Working capital changes were driven by an increase in cash provided by trade accounts receivable, primarily resulting from a decrease in trade accounts receivable during 2022 compared to an increase in 2021, as well as prior year’s $30.7 million payment of payroll taxes deferred under the CARES Act, partially offset by a decrease in accounts payable.

Investing Activities

Cash used in investing activities increased $307.7 million, approximately 97%, during 2021 compared to 2020.

The increase in cash used was primarily driven by the Company’s acquisition of 100% of the outstanding equity of MLS for $271.3 million on December 31, 2021, as well as a $34.0 million increase in net capital expenditures.

Capital Expenditures

Net cash used in investing activities decreased $27.6 million, approximately 4%, during 2022 compared to 2021.

The decrease in cash used relates primarily to a $239.6 million decrease in amounts used for acquisitions and sale of business, net of cash, partially offset by an increase in net capital expenditures and additional investments in equity securities in 2022.

Net Capital Expenditures

The following table sets forth our net capital expenditures for the periods indicated.

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Net capital expenditures increased $190.6 million in 2022 compared to 2021.

The increase was driven by a $124.6 million increase in purchases of transportation equipment mainly due to replacement capital and to reduce the age of our tractor fleet, partially offset by a $90.4 million increase in proceeds from the sale of property and equipment primarily resulting from higher proceeds per unit and increased tractor and trailer sales.

The higher proceeds per unit in 2021 were driven by the current supply and demand environment, and we expect to see this trend persist as long as there are shortages in the supply chain.

We currently anticipate net capital expenditures in 2022 to be approximately $450.0 million.

The increase was driven by a $135.7 million increase in purchases of transportation equipment mainly due to growth capital and higher costs for new equipment and a $51.5 million decrease in proceeds from the sale of property and equipment.

The decrease in proceeds is primarily due to fewer equipment sales, partially offset by the sale of our Canadian facility in the first quarter of 2022.

We currently anticipate 2023 net capital expenditures to be $525.0 - $575.0 million.

Financing Activities

Cash used in financing activities decreased $365.2 million, approximately 80%, during 2021 compared to 2020.

The main drivers of the decrease in cash used were a $350.4 million decrease in dividend payments primarily the result of the 2020 special dividend of $2.00 per share, and the $25.0 million and $30.0 million repayments of private placement notes in March and September of 2020, respectively;

partially offset by the $40.0 million repayment of private placement notes in November 2021.

Net cash used in financing activities increased $26.3 million, approximately 29%, during 2022 compared to 2021.The main driver of the increase in net cash used was a $60.0 million repayment of a private placement note in 2022 compared to 2021’s $40.0 million repayment of a private placement note.

Other Considerations That Could Affect Our Results, Liquidity, and Capital Resources

Investment in TuSimple

On January 12, 2021, the Company purchased a $5.0 million non-controlling interest in TuSimple.

Upon completion of its initial public offering in April 2021, our investment in TuSimple was converted into Class A common shares and is being accounted for under ASC 321, Investments - Equity Securities , with subsequent changes in share price recorded within other expense (income)—net on the consolidated statements of comprehensive income.

In the year ended December 31, 2021, the Company recognized a pre-tax net gain of $7.7 million on its investment in TuSimple.

Due to the volatility of the global markets and the potential for high volatility of public equity prices of technology-related companies, we expect the value of our investment to fluctuate which could materially affect our financial condition and results of operations.

While the ongoing COVID-19 pandemic creates potential liquidity risks, we have been able to fund our liquidity needs to date.

We believe we are in a strong liquidity position with a cash, cash equivalents, and marketable securities balance of $294.1 million and $325.8 million of unused credit capacity as of December 31, 2021.

Our outstanding debt at the end of 2021 was $270.3 million, of which $61.4 million is short-term in nature.

We are compliant with all financial covenants under our credit agreements and do not anticipate the need to seek additional capital as a result of COVID-19.

Off-Balance Sheet Arrangements

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The primary claims arising for the Company consist of accident-related claims for personal injury, collision, and comprehensive compensation, in addition to workers’ compensation, property damage, cargo, and wage and benefit claims.

We maintain self-insurance levels for these various areas of risk and have established reserves to cover self-insured liabilities.

We maintain self-insurance levels for these various areas

of risk and have established reserves to cover self-insured liabilities.

The amounts of self-insurance change from time to time based on measurement dates, policy expiration dates, policy exhaustion, and claim type.

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In the quantitative impairment evaluation, the carrying value of a reporting unit, including goodwill, is compared with its fair value.

We base our fair value estimation on a valuation, which uses a combination of (1) an income approach based on the present value of estimated future cash flows and (2) a market approach based on market price data of shares of our company and others in our industry to value our reporting units.

We base our fair value estimation on a valuation, which uses a combination of (1) an income approach based on the present value of estimated future cash flows and (2) market approaches based on EBITDA valuation multiples of comparable companies and transactions.

If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recorded equal to that excess.

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These assumptions could be adversely impacted by certain risks discussed earlier in this document.

We completed the required annual goodwill impairment assessment for all three of our reporting units with goodwill as of October 31, 2021.

A qualitative goodwill assessment was performed for our VTL/Dedicated Services reporting unit, and quantitative assessments were performed for our Import/Export and Asia reporting units.

The fair value of the Import/Export reporting unit was significantly in excess of its carrying value, while our Asia reporting unit had a carrying value in excess of its fair value requiring full impairment of its remaining goodwill of $10.6 million.

The long-term earnings growth rate used in the 2021 goodwill valuation decreased from the prior year’s valuation as a result of lower profitability in the terminal period, causing the Asia reporting unit’s carrying value to exceed its fair value at October 31, 2021.

The Company acquired MLS on December 31, 2021 and deBoer on June 7, 2022.

As a result of these acquisitions, the Company recorded additions to our goodwill of $104.3 million and $6.1 million, respectively.

Goodwill recorded as a result of the Company’s acquisition of MLS represents its own reporting unit, while goodwill recorded as a result of the deBoer acquisition is included in our VTL/Dedicated Services reporting unit as drivers and assets were deployed within this business and deBoer operations ceased.

We completed the required annual goodwill impairment assessment for our three reporting units with goodwill as of October 31, 2022 using quantitative assessments.

The fair values of our VTL/Dedicated Services and Import/Export reporting units were substantially in excess of their respective carrying value.

The fair value of our MLS reporting unit exceeded its carrying value by less than 5%.

The determination of fair value of MLS was based on the discounted cash flow, guideline public company, and guideline transaction methods using key assumptions included in the table below.

An increase in the discount rate, decrease in the long-term growth rate or projected profitability if future financial performance doesn't meet management's expectations, or reduction in market multiples for comparable companies may result in the carrying value of this reporting unit exceeding its fair value which would result in an impairment of goodwill recorded for the MLS reporting unit.

MLS’s operating performance has exceeded expectations since acquisition, and recent new business wins have made a positive impact on future projections.

MLS Goodwill Key Assumptions October 31, 2022

Discount rate (1)

Long-term revenue growth rate (2)

Valuation multiples (3)

(1) The discount rate is based on the Company’s Weighted Average Cost of Capital.

(2) The long-term revenue growth rate applied to the terminal period in our discounted cash flow was 3.0%.

In the forecasted periods leading up to the terminal period, the revenue growth rates ranged from approximately 3.0% to 17.0% based on our current estimates for growth in those periods.

Securing a significant new customer in early 2023 resulted in forecasted revenue growth of 17% for 2023.

(3) The EBITDA valuation multiples were selected considering the size, profitability, and growth of comparative public companies.

There were no triggering events identified from the date of our assessment through December 31, 2022 that would require an update to our annual impairment test.

If future operating performance of our VTL/Dedicated Services or Import/Export reporting units is below our expectations or there are changes to forecasted growth rates or our cost of capital, a decline in the fair value of the reporting units could result, and we may be required to record a goodwill impairment charge.

See Note 6, Goodwill, for more information.

Additionally, as a result of the Company’s acquisition of MLS on December 31, 2021, $122.7 million of goodwill was recorded representing the excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed.

See Note 2, Acquisition, for more information.

If future operating performance of our VTL/Dedicated Services, MLS, or Import/Export reporting units is below our expectations, or there are changes to forecasted growth rates or our cost of capital, a decline in the fair value of the reporting units could result, and we may be required to record a goodwill impairment charge.

See Note 6, Goodwill and Other Intangible Assets, for more information.

Business Combinations

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During the measurement period, which is up to one year from the acquisition date, we may adjust provisional amounts that were recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date.

Determining the fair value of assets acquired and liabilities assumed requires significant judgment, including the selection of valuation methodologies such as the income, sales comparison, and market approaches.

For the MLS acquisition, fair value estimates of acquired property and equipment were based on an independent appraisal, giving consideration to the highest and best use of the assets.

Key assumptions used in the transportation equipment appraisals were based on the market approach,

while key assumptions used in the land, buildings, and improvements and other property and equipment appraisals were based on a combination of the income (direct capitalization) and sales comparison approaches, as appropriate.

Our determination of the fair value of these assets involved the use of significant estimates and assumptions including recent selling prices of similar equipment, asset condition, and current and anticipated market trends.

Determining the fair value of assets acquired and liabilities assumed requires significant judgment, including the selection of valuation methodologies.

For our recent acquisitions, fair value estimates of acquired property and equipment were based on independent appraisals that gave consideration to the highest and best use of the assets.

The transportation equipment;

land, buildings, and improvements;

and other property and equipment appraisals used one, or a combination, of the market, income (direct capitalization), or sales comparison approaches.

Significant estimates and assumptions, including recent sales prices of similar equipment, asset condition, and current and anticipated market trends, were used in determining the fair values of these assets.

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-K

Item 7. Management’s Discussion and Analysis