Schneider National, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Schneider provides truckload, intermodal, and logistics services across North America. Financial statements are unaudited.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Operating revenue | $1,428.7 million | $1,620.5 million | Down 12% |
| Revenue excluding fuel surcharge | $1,249.5 million | $1,454.5 million | Down 14% |
| Income from operations | $114.6 million | $135.1 million | Down 15% |
| Net income | $98.0 million | $92.1 million | Up 6% |
| Adjusted net income (non-GAAP) | $98.0 million | $102.1 million | Down 4% |
| Diluted EPS | $0.55 | $0.52 | Up $0.03 |
| Operating ratio | 92.0% | 91.7% | Worsened 0.3 percentage points |
| Adjusted operating ratio (non-GAAP) | 90.8% | 89.8% | Worsened 1.0 percentage point |
| Cash from operations | $183.1 million | $135.6 million | Up $47.5 million |
Net income rose despite lower operating income, principally because other income improved by $26.3 million, largely reflecting a $17.6 million gain on equity investments in Q1 2023 versus an $8.4 million loss in Q1 2022. Adjusted net income excludes specified material items; the company cautions that its non-GAAP measures have limitations and are not substitutes for GAAP results.
Margins and segment results: Truckload operating income was $62.6 million versus $119.4 million; its operating ratio was 88.3% versus 78.2%. Intermodal operating income was $30.0 million versus $38.9 million, with an 88.7% operating ratio versus 87.1%. Logistics operating income was $18.5 million versus $41.9 million, with a 95.2% operating ratio versus 92.3%. Other reported operating income of $3.5 million versus a $65.1 million loss, reflecting prior-year unusual charges and higher 2023 leasing income.
Cash, debt, and liquidity: At March 31, 2023, cash and cash equivalents were $389.8 million and marketable securities were $53.3 million, totaling $443.1 million. Debt was $205.0 million of senior notes plus $9.6 million of finance leases, or $214.6 million total. The company had no borrowings under its revolving credit or receivables facilities and reported $322.4 million of combined available capacity. It was in compliance with financial covenants.
Operating cash flow was $183.1 million. Investing cash outflow was $156.5 million, including $120.9 million of net capital expenditures and a $10.0 million note receivable investment. Financing cash outflow was $22.5 million, including $15.7 million of dividends paid. Net capital expenditures rose from $9.9 million to $120.9 million, mainly due to higher transportation-equipment purchases and lower proceeds from asset sales.
Material changes and management commentary
- Logistics revenue excluding fuel surcharge fell $163.5 million, about 30%, due to lower brokerage revenue per order and volume amid moderating market conditions, and reduced port dray revenue.
- Intermodal revenue excluding fuel surcharge declined $36.0 million, about 12%, as orders fell 9% and revenue per order decreased 2%.
- Truckload revenue excluding fuel surcharge decreased $11.4 million, about 2%. Lower network rates and volumes were partly offset by dedicated business growth; dedicated average trucks increased by about 230.
- Management cited moderating market conditions, revenue and volume pressure, equipment inflation, and higher depreciation. It also noted the usual seasonal pattern of lower first-quarter revenue and higher winter operating costs.
- The 2022 comparison included a $50.9 million gain on sale of the Canadian facility and $64.2 million of litigation and audit-assessment charges, including a $59.0 million charge related to the WSL dispute and a $5.2 million state sales-tax assessment. The WSL matter was later settled for $57.0 million in 2022.
Outlook, risks, and other notable items
The filing provides no quantified financial guidance for future periods. Management said cash generated from operations and available credit facilities are expected to meet requirements for the foreseeable future. Firm commitments to purchase transportation equipment were $358.2 million at quarter-end.
Risks highlighted include economic and freight-market weakness, pricing and capacity competition, fuel-price and surcharge dynamics, driver recruitment and retention, customer concentration or loss, equipment values and capital investment, rail and third-party capacity dependence, claims and insurance costs, regulation, cybersecurity and systems disruptions, and volatility in strategic investments. The company plans its annual goodwill impairment assessment for October 31, 2023; it noted that higher interest rates or lower comparable-company valuation multiples could reduce estimated reporting-unit fair values. Management reported no material change in risk factors from the 2022 Form 10-K.
Ordinary-course legal matters were not expected by management to materially affect the business or consolidated financial statements. The company reported no material off-balance-sheet arrangements and no material change in contractual obligations during the quarter. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting.
The board authorized a share repurchase program of up to $150 million in January; no shares were repurchased under the program during Q1. The 244,277 shares shown as purchased in the quarter were employee shares withheld for taxes. In April, the board declared a $0.09-per-share quarterly dividend. Also in April, the company adopted an executive change-of-control severance plan with severance periods of 18 to 30 months for qualifying terminations.
Important facts for investors to verify
- Whether weak brokerage and intermodal demand, lower pricing, and operating-ratio pressure persist beyond the seasonally weaker first quarter.
- How much reported earnings depend on equity-investment valuations and gains; Q1 net income increased while adjusted net income declined year over year.
- Whether the elevated equipment investment and $358.2 million of purchase commitments align with demand and future cash generation.
- Liquidity-facility availability, debt maturities, covenant compliance, and the company’s ability to sustain dividends and any future repurchases.
- Progress and assumptions in the scheduled goodwill impairment review, and developments in legal, insurance, and other contingent exposures.