Heartland Express, Inc. — FY2021 Form 10-K
Business context and reporting period. This is an annual report for the fiscal year ended December 31, 2021, not a standalone fourth-quarter report. Heartland is a U.S.-focused, asset-based short-to-medium-haul truckload carrier operating as Heartland Express and Millis Transfer; approximately 99.9% of operating revenue comes from U.S. shipments. The 2019 Millis acquisition was included in both comparison years.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Operating revenue | $607.3 million | $645.3 million |
| Operating income | $105.4 million | $93.4 million |
| Net income | $79.3 million | $70.8 million |
| Diluted EPS | $1.00 | $0.87 |
| Operating ratio | 82.6% | 85.5% |
| Adjusted operating ratio (non-GAAP) | 80.2% | 84.0% |
| Net margin | 13.1% | 11.0% |
| Cash from operating activities | $123.4 million | $178.9 million |
- Revenue declined 5.9%; trucking and other revenue fell $52.4 million, partly offset by a $14.4 million increase in fuel-surcharge revenue. Management attributed the underlying decline primarily to fewer loaded miles from having fewer drivers, partly offset by higher rates per loaded mile and improved utilization.
- Operating income and net income increased despite lower revenue. Gains on property and equipment disposals rose to $37.4 million from $14.8 million, including a $4.2 million gain primarily from a terminal sale. This contributed materially to the lower operating ratio and improved earnings.
- Fuel expense increased to $99.6 million from $86.1 million as average DOE diesel prices rose 28.9%. Fuel-surcharge revenue was $76.1 million, up from $61.7 million; surcharges do not recover fuel used on empty, out-of-route, or idling miles.
- Operating cash flow fell by $55.4 million, mainly reflecting higher income-tax payments and payroll-tax deferrals from 2020 being repaid. Cash taxes paid, net of refunds, were $38.5 million versus $13.7 million.
- At year-end, cash and cash equivalents were $157.7 million; total assets were $928.5 million and stockholders’ equity was $727.1 million. Current assets were $233.2 million versus current liabilities of $71.6 million. There was no debt outstanding; the $25 million revolving facility had $16.5 million of borrowing availability after letters of credit.
- Investing cash use was $2.6 million: equipment purchases were $132.6 million and equipment-sale proceeds were $130.2 million. Financing cash use was $78.1 million, including $45.9 million in dividends and $32.0 million in share repurchases.
Material changes and management commentary
- Average employment declined to approximately 3,180 from 3,780, primarily due to driver recruiting and retention challenges and fleet/support-staff right-sizing. Driver shortages reduced capacity and remain a key operating constraint.
- The tractor fleet averaged 1.4 years of age and the trailer fleet 3.4 years, both younger than in 2020. Management expects both average ages to rise in 2022 because new equipment is scarce and expensive; it also expects 2022 depreciation of approximately $90–$100 million.
- Management expected freight demand to remain strong through 2022, based on January–February conditions and normal seasonality. It anticipated further driver compensation enhancements and continued pressure from driver shortages, rising fuel prices, inflation, and equipment supply constraints.
- Management’s long-term objectives include a low-80s operating ratio and a debt-free balance sheet. The adjusted operating ratio is a non-GAAP measure and should be considered alongside GAAP results.
Risks, contingencies, and unusual items
- Key business risks include cyclical freight demand and rates, driver availability and compensation, customer concentration, fuel and equipment costs, used-equipment resale values, and competition. The five largest customers generated approximately 36% of revenue; one customer represented 10.0%.
- The company self-insures significant portions of auto-liability and workers’ compensation exposure. Claim reserves require estimates of ultimate losses; the independent auditor identified these reserves as a critical audit matter. Heartland retains some exposure above insurance limits, and adverse claim development could affect earnings and liquidity.
- Ordinary-course litigation and administrative proceedings primarily involve personal injury, property damage, cargo, and workers’ compensation. Management stated that potential exposure is adequately provided for; the filing gives no clear quantified total exposure.
- Other uncertainties include changes to transportation, labor, environmental, and emissions regulations; potential independent-contractor reclassification; COVID-19 and related mandates; and legal or insurance-market developments. The company reported no outstanding tax litigation, but disclosed $5.5 million of obligations for unrecognized tax benefits, penalties, and interest.
- The 2021 special dividend was $0.50 per share, in addition to regular dividends. Management intends to continue quarterly dividends, subject to the Board’s assessment of financial and other factors; repurchases remain discretionary.
Most important facts for investors to verify
- How much of the 2021 earnings and operating-ratio improvement came from equipment-sale gains, and whether gains are sustainable as equipment replacement constraints limit sales.
- Whether strong freight demand and higher rates can offset driver shortages, wage increases, fuel costs, and other inflationary pressures.
- Actual 2022 capital spending, equipment deliveries and fleet age, alongside management’s depreciation estimate and expectations for net capital expenditures.
- Developments in self-insured claim reserves, insurance availability and premiums, and any material litigation or regulatory exposure.
- Customer concentration, operating cash conversion, and cash remaining after dividends, repurchases, taxes, and fleet investment.
Audit and controls. Grant Thornton issued an unqualified opinion on the financial statements and internal control over financial reporting as of December 31, 2021. Management also concluded disclosure controls and internal controls were effective.