Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes.
INTRODUCTION
Company Overview
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.
Recent Developments
Acquisitions
On December 31, 2021, the Company completed the acquisition of MLS, a privately held truckload carrier based in Celina, OH. MLS is a dedicated carrier that primarily serves the central U.S. and complements our growing dedicated operations. 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.
Strategy
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. 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 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 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.
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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 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. Brokerage serves as a non-asset innovation hub for Schneider, particularly in the areas of predictive analytics, process automation, and new customer relationship generation.
Continue to improve our operations and margins by leveraging benefits from investments in technology and business transformation
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. 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 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, 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 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.
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. Our goal is to be the employer of choice; attract, develop, engage, and retain the best talent in the industry. 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.
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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Our technology platform facilitates the application, screening, and onboarding of top talent. As an industry leader with a respected “safety first and always” culture and underlying core value, we believe that we will continue to be the employer of choice for both driving and non-driving associates.
RESULTS OF OPERATIONS
A discussion regarding our financial condition and results of operations for fiscal 2022 compared to fiscal 2021 is presented below. A discussion regarding our financial condition and results of operations for fiscal 2021 compared to fiscal 2020 can be found under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on the Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on February 18, 2022 and is available on the SEC’s website at www.sec.gov, as well as the “Investors” section of our website at www.schneider.com.
Non-GAAP Financial Measures
In this section of our report, we present the following non-GAAP financial measures: (1) revenues (excluding fuel surcharge), (2) adjusted income from operations, (3) adjusted operating ratio, and (4) adjusted net income. We also provide reconciliations of these measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Management believes the use of each of these non-GAAP measures assists investors in understanding our business by (1) removing the impact of items from our operating results that, in our opinion, do not reflect our core operating performance, (2) providing investors with the same information our management uses internally to assess our core operating performance, and (3) presenting comparable financial results between periods. In addition, in the case of revenues (excluding fuel surcharge), we believe the measure is useful to investors because it isolates volume, price, and cost changes directly related to industry demand and the way we operate our business from the external factor of fluctuating fuel prices and the programs we have in place to manage such fluctuations. Fuel-related costs and their impact on our industry are important to our results of operations, but they are often independent of other, more relevant factors affecting our results of operations and our industry.
Although we believe these non-GAAP measures are useful to investors, they have limitations as analytical tools and may not be comparable to similar measures disclosed by other companies. You should not consider the non-GAAP measures in this report in isolation or as substitutes for, or alternatives to, analysis of our results as reported under GAAP. The exclusion of unusual or infrequent items or other adjustments reflected in the non-GAAP measures should not be construed as an inference that our future results will not be affected by unusual or infrequent items or by other items similar to such adjustments. Our management compensates for these limitations by relying primarily on our GAAP results in addition to using the non-GAAP measures.
Enterprise Summary
The following table includes key GAAP and non-GAAP financial measures for the consolidated enterprise. Adjustments to arrive at non-GAAP measures are made at the enterprise level, with the exception of fuel surcharge revenues, which are not included in segment revenues.
Year Ended December 31,
(in millions, except ratios) 2022 2021
Operating revenues $ 6,604.4 $ 5,608.7
Revenues (excluding fuel surcharge) (1)
5,741.9 5,163.9
Income from operations 600.4 533.7
Adjusted income from operations (2)
617.0 532.7
Operating ratio 90.9 % 90.5 %
Adjusted operating ratio (3)
89.3 % 89.7 %
Net income $ 457.8 $ 405.4
Adjusted net income (4)
471.5 407.2
(1) We define “revenues (excluding fuel surcharge)” as operating revenues less fuel surcharge revenues, which are excluded from revenues at the segment level. Included below is a reconciliation of operating revenues, the most closely comparable GAAP financial measure, to revenues (excluding fuel surcharge).
(2) We define “adjusted income from operations” as income from operations, adjusted to exclude material items that do not reflect our core operating performance. Included below is a reconciliation of income from operations, which is the most directly comparable GAAP measure, to adjusted income from operations. Excluded items for the periods shown are explained in the table and notes below.
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(3) We define “adjusted operating ratio” as operating expenses, adjusted to exclude material items that do not reflect our core operating performance, divided by revenues (excluding fuel surcharge). Included below is a reconciliation of operating ratio, which is the most directly comparable GAAP measure, to adjusted operating ratio. Excluded items for the periods shown are explained below under our explanation of “adjusted income from operations.”
(4) We define “adjusted net income” as net income, adjusted to exclude material items that do not reflect our core operating performance. Included below is a reconciliation of net income, which is the most directly comparable GAAP measure, to adjusted net income. Excluded items for the periods shown are explained below under our explanation of “adjusted income from operations.”
Revenues (excluding fuel surcharge)
Year Ended December 31,
(in millions) 2022 2021
Operating revenues $ 6,604.4 $ 5,608.7
Less: Fuel surcharge revenues 862.5 444.8
Revenues (excluding fuel surcharge) $ 5,741.9 $ 5,163.9
Adjusted income from operations
Year Ended December 31,
(in millions) 2022 2021
Income from operations $ 600.4 $ 533.7
Litigation and audit assessments (1) (2) (3)
62.2 (13.5)
Acquisition-related costs (4)
0.3 1.9
Goodwill impairment (5)
— 10.6
Property gain—net (6)
(50.9) —
Sale of business (7)
5.0 —
Adjusted income from operations $ 617.0 $ 532.7
(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) 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.
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Adjusted operating ratio
Year Ended December 31,
(in millions, except ratios) 2022 2021
Total operating expenses $ 6,004.0 $ 5,075.0
Divide by: Operating revenues 6,604.4 5,608.7
Operating ratio 90.9 % 90.5 %
Total operating expenses $ 6,004.0 $ 5,075.0
Adjusted for:
Fuel surcharge revenues (862.5) (444.8)
Litigation and audit assessments (62.2) 13.5
Acquisition-related costs (0.3) (1.9)
Goodwill impairment — (10.6)
Property gain—net 50.9 —
Sale of business (5.0) —
Adjusted total operating expenses $ 5,124.9 $ 4,631.2
Operating revenues $ 6,604.4 $ 5,608.7
Less: Fuel surcharge revenues 862.5 444.8
Revenues (excluding fuel surcharge) $ 5,741.9 $ 5,163.9
Adjusted operating ratio 89.3 % 89.7 %
Adjusted net income
Year Ended December 31,
(in millions) 2022 2021
Net income $ 457.8 $ 405.4
Litigation and audit assessments 62.2 (13.5)
Acquisition-related costs 0.3 1.9
Goodwill impairment — 10.6
Property gain—net (50.9) —
Sale of business 5.0 —
Income tax effect of non-GAAP adjustments (1)
(2.9) 2.8
Adjusted net income $ 471.5 $ 407.2
(1) Our estimated tax rate on non-GAAP items is determined annually using the applicable consolidated federal and state effective tax rate, modified to remove the impact of tax credits and adjustments that are not applicable to the specific items. Due to differences in the tax treatment of items excluded from non-GAAP income, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP items may differ from our GAAP tax rate and from our actual tax liabilities. 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 $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.
Adjusted net income increased $64.3 million, approximately 16%.
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Components of Enterprise Net Income
Enterprise Revenues
Enterprise operating revenues increased $995.7 million, approximately 18%, in the year ended December 31, 2022 compared to 2021.
Factors contributing to the increase were as follows:
• 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; and
• 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 $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 (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.
Enterprise Operating Expenses
Key operating expense fluctuations are described below.
• 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 $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.
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• 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 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.
Income Tax Expense
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 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.
Revenues and Income (Loss) from Operations by Segment
The following tables summarize revenues and income (loss) from operations by segment.
Year Ended December 31,
Revenues by Segment (in millions)
2022 2021
Truckload $ 2,236.6 $ 1,934.9
Intermodal 1,287.4 1,143.1
Logistics 1,956.2 1,808.7
Other 364.0 365.3
Fuel surcharge 862.5 444.8
Inter-segment eliminations (102.3) (88.1)
Operating revenues $ 6,604.4 $ 5,608.7
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Year Ended December 31,
Income (Loss) from Operations by Segment (in millions)
2022 2021
Truckload $ 352.2 $ 284.7
Intermodal 165.1 155.2
Logistics 141.2 92.4
Other (58.1) 1.4
Income from operations 600.4 533.7
Adjustments:
Litigation and audit assessments 62.2 (13.5)
Acquisition-related costs 0.3 1.9
Goodwill impairment — 10.6
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.
Truckload
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 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,
2022 2021
Dedicated
Revenues (excluding fuel surcharge) (1)
$ 1,190.4 $ 818.3
Average trucks (2) (3)
5,915 4,265
Revenue per truck per week (4)
$ 3,948 $ 3,756
Network
Revenues (excluding fuel surcharge) (1)
$ 1,045.1 $ 1,115.0
Average trucks (2) (3)
4,534 5,059
Revenue per truck per week (4)
$ 4,522 $ 4,315
Total Truckload
Revenues (excluding fuel surcharge) (5)
$ 2,236.6 $ 1,934.9
Average trucks (2) (3)
10,449 9,324
Revenue per truck per week (4)
$ 4,197 $ 4,059
Average company trucks (3)
8,438 6,987
Average owner-operator trucks (3)
2,011 2,337
Trailers (6)
43,950 36,601
Operating ratio (7)
84.3 % 85.3 %
(1) Revenues (excluding fuel surcharge), in millions, exclude revenue in transit.
(2) Includes company and owner-operator trucks.
(3) Calculated based on beginning and end of month counts and represents the average number of trucks available to haul freight over the specified timeframe.
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(4) Calculated excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes, using weighted workdays.
(5) Revenues (excluding fuel surcharge), in millions, include revenue in transit at the operating segment level and, therefore does not sum with amounts presented above.
(6) Includes entire fleet of owned trailers, including trailers with leasing arrangements between Truckload and Logistics.
(7) Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Truckload revenues (excluding fuel surcharge) increased $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.
Intermodal
The following table presents the KPIs for our Intermodal segment for the periods indicated.
Year Ended December 31,
2022 2021
Orders (1)
453,218 448,568
Containers 28,035 25,187
Trucks (2)
1,588 1,602
Revenue per order (3)
$ 2,845 $ 2,526
Operating ratio (4)
87.2 % 86.4 %
(1) Based on delivered rail orders.
(2) Includes company and owner-operator trucks at the end of the period.
(3) Calculated using rail revenues excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes.
(4) Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Intermodal revenues (excluding fuel surcharge) increased $144.3 million, approximately 13%, in the year ended December 31, 2022 compared to 2021. 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.
Logistics
The following table presents the KPI for our Logistics segment for the periods indicated.
Year Ended December 31,
2022 2021
Operating ratio (1)
92.8 % 94.9 %
(1) Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
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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 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.
Other
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.
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LIQUIDITY AND CAPITAL RESOURCES
Our primary uses of cash are working capital requirements, capital expenditures, dividend payments, and debt service requirements. Additionally, we may use cash for acquisitions and other investing and financing activities. Working capital is required principally to ensure we are able to run the business and have sufficient funds to satisfy maturing short-term debt and operational expenses. Our capital expenditures consist primarily of transportation equipment and information technology.
Historically, our primary source of liquidity has been cash flow from operations. In addition, we have a $250.0 million revolving credit facility and a $150.0 million accounts receivable facility, for which our combined available capacity as of December 31, 2022 was $322.8 million. We anticipate that cash generated from operations, together with amounts available under our credit facilities, will be sufficient to meet our requirements for the foreseeable future. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that we will obtain these funds through additional borrowings, equity offerings, or a combination of these potential sources of liquidity. Our ability to fund future operating expenses and capital expenditures, as well as our ability to meet future debt service obligations or refinance our indebtedness, will depend on our future operating performance, which will be affected by general economic, financial, and other factors beyond our control.
The following table presents our cash and cash equivalents, marketable securities, and outstanding debt as of the dates shown.
(in millions) December 31, 2022 December 31, 2021
Cash and cash equivalents $ 385.7 $ 244.8
Marketable securities 45.9 49.3
Total cash, cash equivalents, and marketable securities $ 431.6 $ 294.1
Debt:
Senior notes $ 205.0 $ 265.0
Finance leases 10.1 5.3
Total debt $ 215.1 $ 270.3
Debt
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 information about our financing arrangements.
Cash Flows
The following table summarizes the changes to our net cash flows provided by (used in) operating, investing, and financing activities for the periods indicated.
Year Ended December 31,
(in millions) 2022 2021
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
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
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.
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Net Capital Expenditures
The following table sets forth our net capital expenditures for the periods indicated.
Year Ended December 31,
(in millions) 2022 2021
Purchases of transportation equipment $ 535.1 $ 399.4
Purchases of other property and equipment 52.9 49.5
Proceeds from sale of property and equipment (126.3) (177.8)
Net capital expenditures $ 461.7 $ 271.1
Net capital expenditures increased $190.6 million in 2022 compared to 2021. 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
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
Off-Balance Sheet Arrangements
As of December 31, 2022, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.
Contractual Obligations
As of December 31, 2022, we had contractual obligations related to our long-term debt of $205.0 million and $14.2 million for principal borrowings and interest, respectively, which become due through 2025. See Note 7, Debt and Credit Facilities , for additional information regarding our debt obligations. We also have contractual obligations for finance and operating leases and purchase commitments related to agreements to purchase transportation equipment. See Note 8, Leases , and Note 13, Commitments and Contingencies , respectively, for additional information regarding our lease and purchase commitment obligations.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements in accordance with GAAP requires that management make estimates and assumptions that impact the amounts reported in our consolidated financial statements and accompanying notes. Therefore, these estimates and assumptions affect reported amounts of assets, liabilities, revenue, expenses, and associated disclosures of contingent liabilities. Management evaluates these estimates on an ongoing basis, using historical experience, consultation with third parties, and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates. Any effects on our business, financial position, or results of operations resulting from revisions to these estimates are recognized in the accounting period in which the facts that give rise to the revision become known.
The estimates discussed below include the financial statement elements that are either the most judgmental or involve the selection or application of alternative accounting policies and are material to our consolidated financial statements. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board and with our independent registered public accounting firm.
Claims Accruals
Reserves are established based on estimated or expected losses for claims. 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
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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. We also maintain insurance to cover liabilities in excess of the self-insurance amounts to limit our exposure to catastrophic claim costs or damages. We are substantially self-insured for loss of and damage to our owned and leased equipment. The current claims settlement environment within the industry has resulted in excess insurance carriers decreasing coverage and increasing premiums. As a result of this trend, we may experience increases in our insurance and claims expense.
Our reserves represent accruals for the estimated self-insured and reinsured portions of pending claims, including adverse development of known claims, as well as incurred but not reported claims. Our estimates require judgments concerning the nature and severity of the claim, historical trends, advice from third-party administrators and insurers, consultation with actuarial experts, the specific facts of individual cases, the jurisdictions involved, estimates of future claims development, and the legal and other costs to settle or defend the claims. The actual cost to settle our self-insured claim liabilities can differ from our reserve estimates because of a number of uncertainties, including the inherent difficulty in estimating the severity of a claim and the potential amount to defend and settle a claim. At December 31, 2022 and 2021, we had an accrual of $164.9 million and $158.3 million, respectively, for estimated claims net of reinsurance receivables.
We have significant exposure to fluctuations in the number and severity of claims. If there is an increase in the frequency and/or severity of claims, we are required to accrue or pay additional amounts if the claims prove to be more severe than originally assessed or exceed the limits of our insurance coverage, and our profitability would be adversely affected. In addition to estimates within our self-insured retention, we also must make judgments concerning our coverage limits. If any claim were to exceed our coverage limits, we would have to accrue for the excess amount. Our critical estimates include evaluating whether a claim may exceed such limits and, if so, by how much. Currently, we are not aware of any such claims. If one or more claims were to exceed our effective coverage limits, our financial condition and results of operations could be materially and adversely affected.
Our claims accrual policy for all self-insured claims is to recognize a liability at the time of the incident based on our analysis of the nature and severity of the claims and analyses provided by third-party claims administrators or outside counsel, as well as legal, economic, and regulatory factors. Our insurance and claims personnel work directly with representatives from the insurance companies to provide updated estimates of the potential loss associated with each tendered claim. The ultimate cost of a claim is developed over time as additional information regarding the nature, timing, and extent of damages claimed becomes available.
Goodwill
To expand our business offerings, we have, on occasion, acquired other companies. In a business combination, the consideration is first assigned to identifiable assets and liabilities based on estimated fair values, with any excess recorded as goodwill. Determining fair value requires significant estimates and assumptions based on an evaluation of a number of factors, such as marketplace participants, history, future expansion and profitability expectations, amount and timing of future cash flows, and the discount rate applied to the cash flows. Goodwill is not amortized but is assessed for impairment at least annually and more frequently if a triggering event indicates that impairment may exist.
Our goodwill balance at December 31, 2022 and 2021 was $228.2 million and $240.5 million, respectively. Goodwill is evaluated for impairment annually at the reporting unit level, or more frequently if events or circumstances indicate the carrying value is not recoverable. A reporting unit can be a segment or business within a segment. When reviewing goodwill for impairment, we consider the amount of excess fair value over the carrying value of each reporting unit, the period of time since a reporting unit’s last quantitative test, the extent a reorganization or disposition changes the composition of one or more of our reporting units, and other factors to determine whether or not to first perform a qualitative test. When performing a qualitative test, we assess numerous factors to determine whether it is more likely than not that the fair value of our reporting units is less than their respective carrying values. Examples of qualitative factors that are assessed include our share price, financial performance, market and competitive factors in our industry, and other events specific to our reporting units. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative impairment test. 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) 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. Significant judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows. Assumptions used in impairment evaluations, such as forecasted growth rates and our cost of capital, are based on the best available market information and are consistent with our internal forecasts and operating plans. These assumptions could be adversely impacted by certain risks discussed earlier in this document.
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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)
11.0 %
Long-term revenue growth rate (2)
3.0 %
Valuation multiples (3)
5.0x - 6.0x
(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, 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
We record assets acquired and liabilities assumed in a business combination under the purchase method of accounting where consideration is first assigned to identifiable assets and liabilities based on estimated fair values, with any excess recorded as goodwill. 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. 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.
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