Heartland Express, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filed May 6, 2022. Heartland is a short-to-medium-haul truckload carrier, primarily providing asset-based dry-van services in the U.S. The filing reports one operating segment. Results are unaudited.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Operating revenue | $151.3 million | $152.4 million |
| Operating income | $22.4 million | $18.3 million |
| Net income | $16.8 million | $13.7 million |
| Diluted EPS | $0.21 | $0.17 |
| Operating ratio | 85.2% | 88.0% |
| Adjusted operating ratio (non-GAAP) | 82.4% | 86.5% |
| Operating cash flow | $37.6 million | $35.4 million |
Operating margin was 14.8%, versus 12.0%; net margin was 11.1%, versus 9.0%. The effective tax rate was 25.6%, compared with 25.4%. Fuel surcharge revenue rose to $24.0 million from $16.8 million; revenue excluding fuel surcharges was $127.3 million, down from $135.6 million.
Liquidity, debt and capital
- Cash and cash equivalents were $187.1 million at March 31, 2022; cash, cash equivalents and restricted cash totaled $202.9 million. Restricted and designated funds of $15.8 million are not generally available for business use.
- No debt was outstanding. The $25 million revolving credit facility had $16.5 million available after $8.5 million of letters of credit. The facility matures August 31, 2023; the company reported compliance with its covenants.
- Q1 investing cash flow was an $8.4 million use, including $22.0 million of property and equipment purchases and $13.6 million of sale proceeds. Management anticipated approximately $10–$15 million of net 2022 revenue-equipment capital expenditures, plus more significant terminal-property activity. Equipment purchase commitments were $22.3 million, extending through 2022 and into 2023.
- The company declared dividends of $0.02 per share. No open-market repurchases occurred in Q1 2022; 6.6 million shares remained authorized for repurchase.
Material changes and management commentary
- Revenue decreased 0.7%, while net income increased 22.1%. Management attributed improved operating ratios chiefly to higher average revenue per loaded mile and improved utilization, partly offset by higher fuel expense.
- Trucking and other revenue declined 6.1%, reflecting fewer total miles, partly offset by higher freight rates; fuel surcharge revenue increased 42.8%. Management said fewer available drivers constrained capacity and miles.
- Fuel expense rose 23.0%, primarily due to a 45.7% increase in average DOE diesel prices year over year. Fuel surcharges do not recover all fuel costs, including costs from empty and out-of-route miles and idling.
- Salaries, wages and benefits fell 9.5% with fewer drivers and miles, partly offset by higher driver compensation. Depreciation and amortization declined 13.4%, which management attributed to fleet replacement and fewer depreciated units.
- Management reported strong freight demand overall but sequentially lower demand in Q1 than the unusually high levels in the second half of 2021; demand after quarter-end was lower than in Q1. It expected volatile freight demand and diesel markets for the foreseeable future.
Outlook, risks and contingencies
- No earnings or revenue forecast was provided. Management cited ongoing driver shortages, recruiting and retention challenges, supply-chain disruption, fuel-price volatility, and uncertainty in freight demand. It said higher fuel prices can pressure operating income where surcharges do not fully offset costs.
- Management expected lower revenue-equipment trade activity in 2022 because of equipment price and availability challenges. It also cited higher parts and materials costs. The fleet’s average age was 1.5 years for tractors and 3.7 years for trailers at quarter-end.
- For market-risk sensitivity, the company estimated that a $1.00-per-gallon year-over-year fuel price increase would reduce 2022 pretax income by approximately $7.0 million under stated assumptions; a 10% tire-price increase would raise tire expense by $1.1 million.
- Gross unrecognized tax benefits were $4.5 million at March 31, 2022. Management estimated a reasonably possible change over the next 12 months ranging from no change to an increase of $1.0 million. Routine litigation and claims were described as not likely to have a material adverse effect, based on management’s current knowledge.
- Management stated that liquidity was adequate for foreseeable needs. The company reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether driver availability and lower post-quarter freight demand continue to constrain miles, utilization and revenue.
- How fuel prices, surcharge recovery and empty-mile/idling exposure affect margins and the stated fuel sensitivity.
- Whether planned equipment and terminal spending, equipment commitments and used-equipment market conditions alter cash generation or capital needs.
- Progress on Millis Transfer cost reduction and freight optimization, and the sustainability of the improved operating ratio.
- Developments in uncertain state tax positions, routine claims and litigation, and the availability and terms of the revolving credit facility.