Heartland Express, Inc. (NASDAQ: HTLD) — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing also reports fourth-quarter results. Heartland is a short-to-medium-haul, primarily dry-van truckload carrier operating under the Heartland Express and Millis Transfer brands. Millis, acquired in August 2019, was included for a full year in 2020 versus only part of 2019, limiting year-over-year comparability.
Key financial results
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | $645.3 million | $596.8 million |
| Operating income | $93.4 million | $94.3 million |
| Net income | $70.8 million | $73.0 million |
| Diluted EPS | $0.87 | $0.89 |
| Operating ratio | 85.5% | 84.2% |
| Adjusted operating ratio (non-GAAP) | 84.0% | 81.9% |
| Net margin | 11.0% | 12.2% |
| Cash provided by operations | $178.9 million | $146.4 million |
Revenue rose 8.1%, reflecting higher loaded miles and average revenue per loaded mile, partly offset by lower fuel surcharge revenue. Lower fuel costs supported results, but higher driver compensation, depreciation, insurance and claims, and lower gains on equipment sales weighed on profitability. Fuel expense was $86.1 million versus $101.9 million; gains on equipment disposals were $14.8 million versus $31.3 million.
Fourth quarter: Revenue was $155.8 million, operating income $23.8 million, and net income $17.7 million, or $0.22 per diluted share. In fourth-quarter 2019, the corresponding amounts were $167.2 million, $17.7 million, and $12.8 million, or $0.16 per share.
Balance sheet, liquidity, and capital allocation
- At year-end, cash and cash equivalents were $113.9 million; cash, cash equivalents, and restricted cash totaled $131.1 million. Net working capital was $122.0 million and total assets were $951.2 million.
- No debt was outstanding. The company reported $88.5 million of available revolver capacity, net of letters of credit; the credit agreement was scheduled to mature in August 2021.
- Investing activities used $111.0 million, primarily reflecting $204.3 million of property and equipment purchases, partly offset by $93.2 million of sale proceeds. Financing activities used $32.7 million, including $25.7 million of share repurchases and $6.5 million of dividends.
- Working capital benefited in part from $8.9 million of employer Social Security tax payments deferred under the CARES Act, due in installments in 2021 and 2022.
Changes, outlook, and risks
- Freight demand weakened briefly early in the second quarter of 2020, then recovered; management described demand and pricing as favorable in the second half. Management expected second-half 2020 industry trends to likely continue into 2021, while driver recruiting and retention remained challenging.
- Millis contributed approximately 24% of 2020 revenue. Average employee headcount fell to about 3,780 from 4,050, primarily reflecting driver-market challenges and continued support-staff right-sizing after the acquisition.
- Management projected 2021 net capital expenditures of $80–$90 million, depreciation expense of $110–$120 million, and equipment-sale gains of approximately $20–$25 million. These estimates depend on equipment markets and planned fleet replacement. Management expected the 2021 effective tax rate to be comparable to 2020’s 24.9%.
- Material risks include the cyclical freight market, driver availability and pay, customer concentration and lack of guaranteed minimum volumes, fuel-price exposure, insurance and self-insured claims, regulatory and employment-law changes, and COVID-19 effects. The company self-insures significant claim exposures; the auditor identified estimation of auto-liability and workers’ compensation reserves as a critical audit matter.
- Purchase commitments, mainly for revenue equipment, totaled $121.9 million at year-end. The filing also reports $5.8 million of obligations for unrecognized tax benefits, with settlement timing uncertain.
Investor facts to verify
- Assess the quality and sustainability of earnings given the lower equipment-sale gains and the deterioration in operating and adjusted operating ratios.
- Check the status and terms of the revolving credit facility, which was due to mature in August 2021, and confirm liquidity after equipment purchases and subsequent repurchases.
- Track 2021 capital spending, fleet-refresh plans, equipment-sale proceeds, and whether the projected gains are realized.
- Monitor driver hiring and retention, wage costs, freight rates and volumes, and the concentration of revenue among major customers; no customer exceeded 10% of 2020 revenue, while the five largest generated approximately 34%.
- Review development of self-insured claims and insurance costs, as well as the equipment purchase commitments and uncertain tax positions.