Schneider National, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Schneider provides truckload, intermodal, and logistics services across North America. Amounts are in millions of dollars except per-share data, ratios, and operating statistics.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Operating revenue | $1,352.0 | $1,675.3 | $4,127.2 | $5,042.7 |
| Revenue excluding fuel surcharge | $1,179.4 | $1,441.8 | $3,619.8 | $4,394.2 |
| Income from operations | $46.7 | $145.4 | $265.1 | $457.1 |
| Adjusted income from operations | $47.6 | $145.5 | $268.9 | $468.7 |
| Net income | $35.6 | $125.8 | $211.1 | $347.7 |
| Adjusted net income | $36.3 | $125.9 | $214.0 | $356.4 |
| Diluted EPS | $0.20 | $0.70 | $1.18 | $1.95 |
| Operating ratio | 96.5% | 91.3% | 93.6% | 90.9% |
| Adjusted operating ratio | 96.0% | 89.9% | 92.6% | 89.3% |
Q3 revenue fell 19%, and net income fell approximately 72% year over year. Management cited weaker freight demand, lower pricing and volumes in Logistics and Intermodal, lower network Truckload revenue per truck, inflationary cost pressures, and lower gains on equity investments. For the first nine months, operating cash flow was $486.1, versus $578.3 in 2022.
Segments and material changes
- Truckload: Q3 segment revenue was $535.3 and operating income $24.5, compared with $571.2 and $83.2 in Q3 2022. Network revenue per truck per week declined to $3,795 from $4,514; dedicated revenue grew, including contribution from M&M. Segment operating ratio increased to 95.4% from 85.4%.
- Intermodal: Q3 revenue was $263.0 and operating income $11.1, versus $334.7 and $31.1. Orders declined 9%, revenue per order fell 16%, and operating ratio rose to 95.8% from 90.7%.
- Logistics: Q3 revenue was $326.0 and operating income $8.5, versus $464.2 and $27.9. Brokerage volume declined 11%; management also cited lower brokerage revenue per order and reduced port dray revenue. Operating ratio increased to 97.4% from 94.0%.
For the first nine months, reported income from operations was affected by 2022 comparison items: a $57.0 WSL lawsuit settlement charge and a $50.9 gain on sale of the Canadian facility. 2023 included $2.9 of additional interest and penalties related to a state sales-tax assessment and $0.9 of M&M acquisition costs. Non-GAAP adjustments exclude these and other identified items; the company cautions that its non-GAAP measures have limitations and are not substitutes for GAAP results.
Cash, debt, and liquidity
- At September 30, cash and cash equivalents were $58.5 and marketable securities $56.4, totaling $114.9, compared with $431.6 at December 31, 2022.
- Total debt, including finance leases, was $289.0, compared with $215.1 at year-end 2022. Debt included $185.0 of senior notes, $66.0 under the receivables purchase agreement, $25.0 under the revolving credit agreement, and $13.0 of finance leases.
- Combined available capacity under the credit and receivables facilities was $227.5. The company reported compliance with financial covenants.
- Nine-month cash flows: operating activities provided $486.1; investing activities used $776.8; financing activities used $36.5. Investing outflows included $239.5 for acquisitions and net capital expenditures of $428.3. Transportation-equipment purchases were $500.6.
- Management expects operating cash flow and available credit capacity to meet foreseeable requirements. The filing does not provide numerical forward guidance for revenue or earnings.
Acquisition, contingencies, and risks
- On August 1, 2023, Schneider acquired dedicated carrier M&M for $243.1. The preliminary allocation included $104.6 of goodwill; valuation estimates remain subject to adjustment. M&M added nearly 500 tractors and 1,900 trailers, and its results are included in Truckload from the acquisition date.
- Firm commitments to purchase transportation equipment were $232.5 at September 30. The company reported no material off-balance-sheet arrangements.
- A state sales-tax assessment appeal remained pending after an adverse ruling; $2.9 of additional interest and penalties was recorded in 2023. Management reported no expectation that ordinary-course legal matters would materially affect the business or financial statements.
- The company identified freight-cycle and pricing pressure, demand and customer risks, fuel and equipment-cost volatility, driver availability, rail and third-party capacity dependence, claims, regulatory exposure, and cybersecurity/system disruption among its risks. Annual goodwill impairment testing was planned for October 31, 2023.
- A new ERP system began implementation in May 2023 and was substantially complete during the quarter, with completion anticipated in Q4. The filing identifies implementation, data-quality, control, and cybersecurity issues as potential risks; management reported disclosure controls were effective at quarter-end.
Important facts for investors to verify
- Whether freight demand, pricing, and operating ratios in Logistics, Intermodal, and Truckload stabilize or continue to weaken.
- Whether M&M’s final purchase accounting, integration, and dedicated growth deliver expected benefits.
- Cash generation, equipment spending, debt levels, and remaining facility capacity as cash declined materially from year-end.
- Outcome of the state sales-tax appeal and results of the planned annual goodwill impairment review.
- Successful completion of the ERP rollout and any subsequent disclosures of system, control, or cybersecurity issues.