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 August 1, 2023 , the Company completed the acquisition of M&M, a privately held truckload carrier based in West Bridgewater, Massachusetts. M&M is a dedicated carrier that complements our growing dedicated operations. The results of M&M are reported in dedicated operations as part of our Truckload segment beginning in the third quarter of 2023. Refer to Note 2, Acquisitions, for additional details on our recent acquisitions.
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 by 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, greater stability through freight/market cycles, potentially more resilient 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 certain 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.
As an asset-based intermodal provider, we have more control over our equipment, perform most of our own drays, and retain strong contractual and differentiated rail relationships across the western, eastern, and southern/Mexico-based portions of our network. 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 continued 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 via our Power Only offering. We believe shippers see the value of working with providers like us that have scale, capacity, and lane density. Brokerage serves as an asset-light innovation hub for Schneider, particularly in the areas of predictive analytics, process automation, and new customer relationship generation.
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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. 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.
Our technology platform facilitates the application, screening, and onboarding of top talent. As an industry leader with both 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.
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RESULTS OF OPERATIONS
A discussion regarding our financial condition and results of operations for fiscal 2023 compared to fiscal 2022 is presented below. A discussion regarding our financial condition and results of operations for fiscal 2022 compared to fiscal 2021 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, 2022, which was filed with the SEC on February 17, 2023 and is available on the SEC’s website, 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 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) 2023 2022
Operating revenues $ 5,498.9 $ 6,604.4
Revenues (excluding fuel surcharge) (1)
4,814.6 5,741.9
Income from operations 296.4 600.4
Adjusted income from operations (2)
302.9 617.0
Operating ratio 94.6 % 90.9 %
Adjusted operating ratio (3)
93.7 % 89.3 %
Net income $ 238.5 $ 457.8
Adjusted net income (4)
243.4 471.5
(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.
(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.”
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Revenues (excluding fuel surcharge)
Year Ended December 31,
(in millions) 2023 2022
Operating revenues $ 5,498.9 $ 6,604.4
Less: Fuel surcharge revenues 684.3 862.5
Revenues (excluding fuel surcharge) $ 4,814.6 $ 5,741.9
Adjusted income from operations
Year Ended December 31,
(in millions) 2023 2022
Income from operations $ 296.4 $ 600.4
Litigation and audit assessments (1) (2)
2.9 62.2
Acquisition-related costs (3)
0.9 0.3
Property gain—net (4)
— (50.9)
Amortization of intangible assets (5)
2.7 —
Sale of business (6)
— 5.0
Adjusted income from operations $ 302.9 $ 617.0
(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 $2.9 million and $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 years ended December 31, 2023 and December 31, 2022, respectively.
(3) Advisory, legal, and accounting costs related to the Company’s acquisitions. Refer to Note 2, Acquisitions , for additional details.
(4) Net gain on the sale of our Canadian facility due to a change in approach to servicing Canada for the year ended December 31, 2022.
(5) Amortization expense related to intangible assets acquired through recent business acquisitions. Refer to Note 6, Goodwill and Other Intangible Assets , for additional details. As we finalized our purchase accounting adjustments related to intangible assets, and to better reflect our ongoing operations, we made the decision to exclude the related amortization expense from non-GAAP income beginning in the fourth quarter of 2023. Amortization expense for 2022 was $1.0 million and overall not material to the organization.
(6) Loss from the 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) 2023 2022
Total operating expenses $ 5,202.5 $ 6,004.0
Divide by: Operating revenues 5,498.9 6,604.4
Operating ratio 94.6 % 90.9 %
Total operating expenses $ 5,202.5 $ 6,004.0
Adjusted for:
Fuel surcharge revenues (684.3) (862.5)
Litigation and audit assessments (2.9) (62.2)
Acquisition-related costs (0.9) (0.3)
Property gain—net — 50.9
Amortization of intangible assets (2.7) —
Sale of business — (5.0)
Adjusted total operating expenses $ 4,511.7 $ 5,124.9
Operating revenues $ 5,498.9 $ 6,604.4
Less: Fuel surcharge revenues 684.3 862.5
Revenues (excluding fuel surcharge) $ 4,814.6 $ 5,741.9
Adjusted operating ratio 93.7 % 89.3 %
Adjusted net income
Year Ended December 31,
(in millions) 2023 2022
Net income $ 238.5 $ 457.8
Litigation and audit assessments 2.9 62.2
Acquisition-related costs 0.9 0.3
Property gain—net — (50.9)
Amortization of intangible assets 2.7 —
Sale of business — 5.0
Income tax effect of non-GAAP adjustments (1)
(1.6) (2.9)
Adjusted net income $ 243.4 $ 471.5
(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.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
Enterprise Results Summary
Enterprise net income decreased $219.3 million, approximately 48%, in the year ended December 31, 2023 compared to 2022, primarily due to a $304.0 million decrease in income from operations, partially offset by the corresponding decrease in the provision for income taxes, and a $6.1 million favorable change in total other income—net primarily related to our equity investments. Pre-tax equity investment net gains were $19.7 million and $13.7 million for 2023 and 2022, respectively.
Adjusted net income decreased $228.1 million, approximately 48%.
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Components of Enterprise Net Income
Enterprise Revenues
Enterprise operating revenues decreased $1,105.5 million, approximately 17%, in the year ended December 31, 2023 compared to 2022.
Factors contributing to the decrease were as follows:
• a $562.5 million decrease in Logistics segment revenues (excluding fuel surcharge) driven by decreased revenue per order due to a softer demand environment, a decline in brokerage volumes, and a reduction in port dray revenues;
• a $236.7 million decrease in Intermodal segment revenues (excluding fuel surcharge) due to a decrease in revenue per order and orders;
• a $178.2 million decrease in fuel surcharge revenues resulting from decreased fuel prices in 2023 compared to 2022; and
• an $80.9 million decrease in Truckload segment revenues (excluding fuel surcharge) driven by a decline in revenue per truck per week within our network business, partially offset by an increase in dedicated volumes due to organic growth and the M&M acquisition and revenue per truck per week.
Enterprise revenues (excluding fuel surcharge) decreased $927.3 million, approximately 16%.
Enterprise Income from Operations and Operating Ratio
Enterprise income from operations decreased $304.0 million, approximately 51%, in the year ended December 31, 2023 compared to 2022, primarily due to a decrease in net revenue per order in Logistics, revenue per order in Intermodal, and revenue per truck per week in our Truckload network business. A net gain on sale of $50.9 million in 2022 in connection with the sale of our Canadian facility, the revenue impacts of volume declines within our brokerage business and Intermodal, and incremental equipment depreciation costs also contributed to the decrease. These factors were partially offset by a $57.0 million adverse judgment related to a lawsuit with former owners of WSL in 2022 and an increase in Truckload volumes attributable to organic dedicated growth and the M&M acquisition in the third quarter of 2023, as well as revenue per truck per week within the Truckload dedicated business. Lower rail and owner-operator purchased transportation costs, equipment rental expense, performance-based incentive compensation, and rail storage expense in 2023 also partially offset the decreases in income from operations discussed above.
Adjusted income from operations decreased $314.1 million, approximately 51%.
Enterprise operating ratio (operating expenses as a percentage of operating revenues) increased on both a GAAP and adjusted basis when compared to the same period in 2022.
Enterprise Operating Expenses
Key operating expense fluctuations are described below.
• Purchased transportation decreased $718.4 million, or 25%, year over year, primarily resulting from decreased third-party carrier costs within Logistics due to lower purchased transportation costs per order and brokerage volumes, as well as lower rail purchased transportation resulting from a decrease in both rail cost per mile and orders in Intermodal. Owner-operator purchased transportation costs also declined due to lower pay per mile and a reduction in owner-operator capacity within Truckload.
• Salaries, wages, and benefits decreased $16.9 million, or 1%, year over year, largely due to a decrease in performance-based incentive compensation, office salaries and wages driven by lower headcount, and healthcare costs as a result of claims favorability and lower plan utilization. These factors were partially offset by higher driver salaries, wages, and benefits as a result of the M&M acquisition and organic dedicated growth.
• Fuel and fuel taxes for company trucks decreased $83.6 million, or 16%, year over year, driven by a decrease in cost per gallon, partially offset by an increase in company driver miles within Truckload. A significant portion of fuel costs are recovered through our fuel surcharge programs.
• Depreciation and amortization increased $32.5 million, or 9%, year over year, mainly due to additional depreciation expense resulting from trailer growth within Truckload, inflationary unit cost increases for new equipment, a reduction in tractor age of fleet, and incremental depreciation and amortization expense related to the M&M acquisition.
• Operating supplies and expenses—net increased $42.0 million, or 8%, year over year, driven by a $50.9 million net gain in 2022 related to the sale of the Company’s Canadian facility and higher cost of goods sold in our leasing business due to lease mix and an increase in lease activity in 2023. These factors were partially offset by a decrease in equipment rental expense as a result of improved port fluidity, lower port dray volumes, and an increase in the percentage of dray moves performed by company drivers in 2023; lower rail storage expense due to improved yard fluidity; and an increase in gains on sales of equipment due to a higher quantity of units sold.
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• Insurance and related expenses increased $11.3 million, or 11%, year over year, primarily due to an increase in auto liability insurance costs relating to unfavorable claims severity largely related to two recent claims, as well as higher cargo and collision losses in 2023 compared to 2022.
• Other general expenses decreased $68.4 million, or 32%, year over year, primarily due to a $57.0 million adverse settlement related to a lawsuit with former owners of WSL in 2022, lower professional service fees, and a decrease in driver onboarding costs due to lower cost per hire and fewer driver hires due to market conditions. These items were partially offset by an increase in bad debt expense.
Total Other Expenses (Income)
Total other income increased $6.1 million in the year ended December 31, 2023 compared to 2022, driven primarily by pre-tax net gains on our equity investments of $19.7 million in 2023 compared to $13.7 million in 2022 and an increase in interest income of $4.1 million due to higher interest rates. These factors were partially offset by an increase in interest expense of $4.6 million due to higher debt balances in 2023 compared to 2022. See Note 5, Investments , for more information on our equity investments.
Income Tax Expense
Our provision for income taxes decreased $78.6 million, approximately 54%, in the year ended December 31, 2023 compared to 2022 due to lower taxable income and a lower effective income tax rate. Our effective income tax rate was 22.1% for the year ended December 31, 2023 compared to 24.2% in 2022 with the decrease driven by valuation allowance changes and increases in tax credits for new electric vehicles and qualified research and development costs. While we anticipate that our ongoing effective tax rate will be 24.0% - 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)
2023 2022
Truckload $ 2,155.7 $ 2,236.6
Intermodal 1,050.7 1,287.4
Logistics 1,393.7 1,956.2
Other 333.4 364.0
Fuel surcharge 684.3 862.5
Inter-segment eliminations (118.9) (102.3)
Operating revenues $ 5,498.9 $ 6,604.4
Year Ended December 31,
Income (Loss) from Operations by Segment (in millions)
2023 2022
Truckload $ 170.7 $ 352.2
Intermodal 71.0 165.1
Logistics 45.9 141.2
Other 8.8 (58.1)
Income from operations 296.4 600.4
Adjustments:
Litigation and audit assessments 2.9 62.2
Acquisition-related costs 0.9 0.3
Property gain—net — (50.9)
Amortization of intangible assets 2.7 —
Sale of business — 5.0
Adjusted income from operations $ 302.9 $ 617.0
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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.
M&M and deBoer impacts are included within dedicated operations beginning in the third quarters of 2023 and 2022, respectively.
Year Ended December 31,
2023 2022
Dedicated
Revenues (excluding fuel surcharge) (1)
$ 1,272.0 $ 1,190.4
Average trucks (2) (3)
6,233 5,915
Revenue per truck per week (4)
$ 4,011 $ 3,948
Network
Revenues (excluding fuel surcharge) (1)
$ 884.5 $ 1,045.1
Average trucks (2) (3)
4,374 4,534
Revenue per truck per week (4)
$ 3,974 $ 4,522
Total Truckload
Revenues (excluding fuel surcharge) (5)
$ 2,155.7 $ 2,236.6
Average trucks (2) (3)
10,607 10,449
Revenue per truck per week (4)
$ 3,996 $ 4,197
Average company trucks (3)
8,695 8,438
Average owner-operator trucks (3)
1,912 2,011
Trailers (6)
47,460 43,950
Operating ratio (7)
92.1 % 84.3 %
(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.
(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.
T ruckload revenues (excluding fuel surcharge) decreased $80.9 million , approximately 4%, for the year ended December 31, 2023 compared to 2022. Rate per loaded mile decreased 7% due to market conditions, which was partially offset by a 3% increase in volume largely driven by increased volume within dedicated due to organic and acquisitive growth.
Truckload income from operations decreased $181.5 million, approximately 52%, in the year ended December 31, 2023 compared to 2022. Factors contributing to the decrease in income from operations included a $50.9 million net gain related to the sale of the Company’s Canadian facility in 2022, higher driver pay due to additional drivers in dedicated as a result of new business growth and the M&M acquisition, and incremental depreciation due to business growth, inflationary cost pressures on equipment, and M&M. Additional bad debt expense and higher claims costs due to an increase in severity also contributed to the decrease. These items were partially offset by lower owner-operator and third-party carrier costs and higher gains on equipment sales, primarily due to an increase in the number of units sold.
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Intermodal
The following table presents the KPIs for our Intermodal segment for the periods indicated.
Year Ended December 31,
2023 2022
Orders (1)
415,095 453,218
Containers 26,991 28,035
Trucks (2)
1,485 1,588
Revenue per order (3)
$ 2,530 $ 2,845
Operating ratio (4)
93.2 % 87.2 %
(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) decreased $236.7 million, approximately 18%, in the year ended December 31, 2023 compared to 2022. This was driven by a decrease in revenue per order of $315, or 11%, primarily due to a decrease in price and a change in mix. Additionally, orders decreased 8% driven by market conditions.
Intermodal income from operations decreased $94.1 million, approximately 57%, in the year ended December 31, 2023 compared to 2022 mainly due to factors impacting revenues discussed above, partially offset by lower rail-related costs and dray execution costs resulting from the mix of company driver drays.
Logistics
The following table presents the KPI for our Logistics segment for the periods indicated.
Year Ended December 31,
2023 2022
Operating ratio (1)
96.7 % 92.8 %
(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.
Logistics revenues (excluding fuel surcharge) decreased $562.5 million, approximately 29%, in the year ended December 31, 2023 compared to 2022. This was mainly the result of a decrease in revenue per order and volume within our brokerage business. Port dray revenues decreased as well due to reduced freight volume and improved port fluidity in 2023.
Logistics income from operations decreased $95.3 million, approximately 67%, in the year ended December 31, 2023 compared to 2022. Net revenue per order decreased primarily due to the factors related to revenue discussed above, partially offset by a decrease in third-party transportation costs as both volume and per order costs decreased.
Other
Included in Other was income from operations of $8.8 million in the year ended December 31, 2023 compared to a loss of $58.1 million in 2022. The change was primarily due to a $57.0 million adverse settlement related to a lawsuit with former owners of WSL in 2022, a decrease in performance-based incentive compensation expense, $5.2 million of expense related to an adverse audit assessment over the applicability of state sales tax in 2022, and a $5.0 million loss related to the sale of the Asia business in 2022. This was partially offset by lower income from operations in our leasing business and $2.9 million of additional interest and penalties related to the sales tax audit assessment. See Note 13, Commitments and Contingencies , for more information.
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LIQUIDITY AND CAPITAL RESOURCES
Our primary uses of cash are working capital requirements, capital expenditures, dividend payments, share repurchases, 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 maturing in November 2027 and a $150.0 million receivables purchase agreement maturing in July 2024, for which our combined available capacity as of December 31, 2023 was $213.2 million. Our revolving credit facility also allows us to request an additional increase in total commitment by up to $150.0 million. We had maximum borrowings under the facilities of $141.0 million during the year ended December 31, 2023. We anticipate that cash generated from operations, together with amounts available under our credit and receivables purchase agreement, 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 and finance lease obligations as of the dates shown.
(in millions) December 31, 2023 December 31, 2022
Cash and cash equivalents $ 102.4 $ 385.7
Marketable securities 57.2 45.9
Total cash, cash equivalents, and marketable securities $ 159.6 $ 431.6
Debt:
Senior notes $ 185.0 $ 205.0
Receivables purchase agreement 60.0 —
Credit agreement 45.0 —
Finance leases 12.1 10.1
Total debt and finance lease obligations $ 302.1 $ 215.1
Debt
At December 31, 2023, 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) 2023 2022
Net cash provided by operating activities $ 680.0 $ 856.4
Net cash used in investing activities (907.6) (598.8)
Net cash used in financing activities (55.7) (116.7)
Operating Activities
Net cash provided by operating activities decreased $176.4 million, approximately 21%, during 2023 compared to 2022. The decrease was a result of a decrease in net income adjusted for various noncash charges and an increase in cash used for working capital. Working capital changes were driven by an increase in cash used for other liabilities largely related to the decrease in accrued performance-based incentive compensation along with a decrease in cash provided by other receivables, partially offset by a decrease in cash used for other assets and payables and an increase in cash provided by trade accounts receivable which corresponds with the decrease in revenues.
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Investing Activities
Net cash used in investing activities increased $308.8 million, approximately 52%, during 2023 compared to 2022. The increase was primarily driven by an increase in cash used for acquisitions related to the 2023 acquisition of M&M and an increase in net capital expenditures.
Net Capital Expenditures
The following table sets forth our net capital expenditures for the periods indicated.
Year Ended December 31,
(in millions) 2023 2022
Purchases of transportation equipment $ 660.1 $ 535.1
Purchases of other property and equipment 42.3 52.9
Proceeds from sale of property and equipment (128.6) (126.3)
Net capital expenditures $ 573.8 $ 461.7
Net capital expenditures increased $112.1 million in 2023 compared to 2022. The increase was driven by a $125.0 million increase in purchases of transportation equipment driven by replacement equipment reducing tractor age of fleet, growth capital, and higher costs for new equipment. Proceeds from the sale of property and equipment were comparable year over year as 2023 had more proceeds from equipment sales compared to 2022 which included the proceeds from the sale of the Canada property. The year over year increase in proceeds from equipment sales was largely due to the increased quantity of units sold.
We currently anticipate 2024 net capital expenditures to be $400.0 - $450.0 million.
Financing Activities
Net cash used in financing activities decreased $61.0 million, approximately 52%, during 2023 compared to 2022 primarily due to $105.0 million of net proceeds from our revolving credit agreements and $50.0 million of proceeds from long-term debt in 2023, partially offset by $66.9 million of treasury stock repurchases, $10.0 million of additional private placement note repayments in 2023, and an additional $7.9 million of dividend payments.
Off-Balance Sheet Arrangements
As of December 31, 2023, 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, 2023, we had contractual obligations related to our long-term debt, inclusive of our credit and receivables purchase agreement, of $290.0 million and $20.8 million for principal borrowings and interest, respectively, which become due through 2027. 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 management to 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.
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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 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, 2023 and 2022, we had an accrual of $178.4 million and $164.9 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, 2023 and 2022 was $331.7 million and $228.2 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, and reporting units can be aggregated to the extent they share similar economic characteristics. 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 values of our reporting units are 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.
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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.
The Company acquired M&M in 2023 and deBoer in 2022. As a result of these acquisitions, we recorded additions to our goodwill of $103.5 million and $6.1 million, respectively, within the VTL-Dedicated reporting unit.
Prior to the fourth quarter of 2023, the Company had three reporting units with goodwill subject to impairment testing: MLS, VTL-Dedicated, and Import/Export. Quantitative goodwill impairment tests were performed for all three reporting units as of October 31, 2023, and their fair values were substantially in excess of their respective carrying values.
With the expansion of our dedicated business through recent acquisition, we reorganized the operating segments within Truckload into Dedicated; Van Network; and Bulk during the fourth quarter of 2023. As a result of this segment reorganization, we aggregated the MLS and VTL-Dedicated components, as they share similar economic characteristics, and tested the goodwill at the Dedicated operating segment level. The fair value of the Dedicated operating segment goodwill was also substantially in excess of its carrying value. Going forward, our goodwill impairment test will be performed at the Dedicated operating segment level.
There were no triggering events identified from the date of our assessment through December 31, 2023 that would require an update to our annual impairment test. If future operating performance of our Dedicated 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 acquisition 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. The assistance of an independent third-party valuation firm was used to determine the estimated fair values and useful lives of finite-lived intangible assets including customer relationships and trademarks. Valuation methods used were based on income-based approaches including the multi-period excess earnings method and relief from royalty method for customer relationships and trademarks, respectively. Non-compete agreements were recorded based on amounts paid at closing. Assumptions used in the intangible valuations include forecasted revenue growth rates, future cash flows, useful lives of intangible assets acquired, and our cost of capital.
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