Landstar System, Inc. — Q1 2022 Form 10-Q
Reporting period: Thirteen weeks ended March 26, 2022; comparison is the thirteen weeks ended March 27, 2021. Landstar is an asset-light transportation management provider using independent sales agents and third-party capacity providers.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $1,970.6 million | $1,287.5 million | +53% |
| Operating income | $162.8 million | $103.3 million | +58% |
| Net income | $124.8 million | $77.2 million | +62% |
| Diluted EPS | $3.34 | $2.01 | +66% |
| Operating cash flow | $95.0 million | $69.9 million | +$25.1 million |
| Capital expenditures | $3.6 million | $4.1 million | -$0.5 million |
- Revenue growth reflected approximately 28% higher revenue per load and 20% more loads. Truck revenue per load rose about 22%; multimode revenue per load rose about 112%, amid tight truck capacity and global supply-chain disruptions.
- Gross profit was $214.6 million, with a 10.9% margin versus $147.1 million and 11.4%. Variable contribution, a non-GAAP measure, was $270.5 million and its margin was 13.7%, versus $189.2 million and 14.7%. Operating margin was approximately 8.3%, compared with 8.0%.
- Purchased transportation increased to 78.7% of revenue from 77.5%, reflecting a larger mix of brokerage and multimode activity and higher brokerage carrier rates. Operating income benefited from scaling fixed infrastructure across higher volume.
- At March 26, cash and cash equivalents were $146.0 million; working capital was $588.2 million and the current ratio was 1.6:1. Operating cash flow was partly offset by working-capital needs and financing uses.
- Total debt, including current maturities, was $172.3 million, including $70.0 million drawn on the revolving facility and $102.3 million of finance lease liabilities. The company reported $146.8 million available for future borrowing under the facility and compliance with its covenants.
- Shareholders’ equity was $856.1 million, or 83% of total capitalization, versus $862.0 million and 89% at year-end 2021. The decline reflected repurchases, dividends and stock-compensation tax payments, partly offset by earnings.
Material changes, outlook and risks
- Insurance and claims expense rose $9.3 million. It included $4.3 million of net unfavorable prior-year claims development, compared with $0.3 million favorable development in the prior-year quarter; current-year claim severity and insurance premiums also increased.
- Landstar repurchased 693,550 shares for $109.3 million at an average $157.64 per share and paid $0.25 per share in dividends. Up to 2,306,450 shares remained authorized for purchase.
- Management anticipated approximately $81 million of operating-property purchases or lease financing for the remainder of fiscal 2022, primarily trailers and IT equipment. It stated operating cash flow and borrowing capacity should be adequate for debt service, growth, dividends, repurchases and working capital. No earnings or revenue guidance was provided.
- Management described demand as broad-based and truck capacity as tight. The filing notes seasonality: truckload shipments in the March quarter are typically lower than in the June, September and December quarters.
- Key exposures include severe or more frequent accidents, unfavorable claims development, rising or less available excess insurance, dependence on agents and third-party carriers, economic demand, cyber and system disruptions, and geopolitical developments. A major agent had administrative operations in eastern Ukraine that were disrupted by Russia’s invasion; management said load volumes for the affected agencies had been less impacted to date than initially anticipated, but future disruption remained uncertain.
- Available-for-sale investments had $6.5 million of net unrealized losses, which management attributed primarily to rising interest rates rather than credit deterioration; no losses were recognized in earnings. Pending claims and litigation were not expected to materially affect financial condition, though they could materially affect results in a quarter or year.
Important facts for investors to verify
- Whether freight demand, load counts and elevated revenue per load persist as comparisons become more challenging and capacity conditions change.
- Developments in insurance premiums, claim severity and prior-year claims reserves, including the company’s retained exposure above insured layers.
- Operational effects of the Ukraine conflict on major sales agencies and any resulting revenue or service disruption.
- Cash conversion and working-capital needs as revenue grows, alongside the pace of buybacks, dividends and planned capital spending.
- Revolving-credit availability, interest-rate sensitivity and continued compliance with debt covenants.