The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes and our Annual Report on Form 10-K for the year endedDecember 31, 2020 . INTRODUCTION
Company Overview
We are a transportation and logistics services company providing a broad portfolio of truckload, intermodal, and logistics solutions and operating one of the largest for-hire trucking fleets inNorth America . Our diversified portfolio of complementary service offerings combines truckload services with intermodal and logistics offerings, enabling us to serve our customers' varied transportation needs. Our broad portfolio of services provides us with a greater opportunity to allocate capital in a manner designed to maximize returns across all market cycles and economic conditions. We continually monitor our performance and market conditions to ensure appropriate allocation of capital and resources to grow our businesses, while optimizing returns across reportable segments. Our strong balance sheet enables us to carry out an acquisition strategy that strengthens our overall portfolio. We are positioned to leverage our scalable platform and experienced operations team to acquire high-quality businesses that meet our disciplined selection criteria to enhance our service offerings and broaden our customer base. Our truckload services consist of freight transported and delivered by our company-employed drivers in company trucks and by owner-operators. These services are executed through either dedicated or network contracts and include standard long-haul and regional shipping services primarily using dry van, bulk, temperature-controlled, and flat-bed equipment, as well as cross dock and customized solutions for high-value and time-sensitive loads with coverage throughoutNorth America . Our intermodal service consists of door-to-door container on flat car ("COFC") service through a combination of rail and dray transportation, in association with our rail carrier partners. Our intermodal service uses company-owned containers, chassis, and trucks with primarily company dray drivers, augmented by third-party dray capacity. Our logistics services consist of freight brokerage (including Power Only which leverages our nationwide trailer pools to match capacity with demand), supply chain (including 3PL), warehousing, and import/export services. Our logistics business provides value-added services using both our assets and third-party capacity, augmented by our trailing assets, to manage and move our customers' freight. Our success depends on our ability to balance our transportation network and efficiently and effectively manage our resources in the delivery of truckload, intermodal, and logistics services to our customers. Resource requirements vary with customer demand, which may be subject to seasonal or general economic conditions. We believe that our ability to properly select freight and adapt to changes in customer transportation needs allows us to efficiently deploy resources and make capital investments in trucks, trailers, containers, and chassis or obtain qualified third-party capacity at a reasonable price for our logistics segment. Consistent with the transportation industry, our business is seasonal across each of our segments which generally translates to our reported revenues being the lowest in the first quarter and highest in the fourth quarter. Operating expenses tend to be higher in the winter months, primarily due to colder weather, which causes higher maintenance expense and higher fuel consumption from increased idle time. Recent Developments COVID-19
COVID-19 was declared a pandemic by the
We have taken additional measures to keep our associates safe and minimize unnecessary risk of exposure to COVID-19 including taking precautions for our associates and owner-operators, implementing work from home policies, and imposing travel limitations on employees where appropriate as we've continued to provide an essential service. Associateswho worked remotely during the pandemic are being transitioned to a primarily on-premise work environment, and physical and cyber-security measures implemented to ensure our systems are capable of serving our operational needs and providing uninterrupted service to our customers remain in place. Schneider continues to monitor the situation and will take further actions as may be required by federal, state, or local governmental authorities, or that we determine are in the best interests of our associates, customers, and shareholders. 15
--------------------------------------------------------------------------------
Table of Contents RESULTS OF OPERATIONS Non-GAAP Financial Measures
In this section of our report, we present the following non-GAAP financial measures: (1) revenues (excluding fuel surcharge), (2) adjusted income from operations, (3) adjusted operating ratio, and (4) adjusted net income. We also provide reconciliations of these measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Management believes the use of each of these non-GAAP measures assists investors in understanding our business by (1) removing the impact of items from our operating results that, in our opinion, do not reflect our core operating performance, (2) providing investors with the same information our management uses internally to assess our core operating performance, and (3) presenting comparable financial results between periods. In addition, in the case of revenues (excluding fuel surcharge), we believe the measure is useful to investors because it isolates volume, price, and cost changes directly related to industry demand and the way we operate our business from the external factor of fluctuating fuel prices and the programs we have in place to manage fuel price fluctuations. Fuel-related costs and their impact on our industry are important to our results of operations, but they are often independent of other, more relevant factors affecting our results of operations and our industry. Although we believe these non-GAAP measures are useful to investors, they have limitations as analytical tools and may not be comparable to similar measures disclosed by other companies. You should not consider the non-GAAP measures in this report in isolation or as substitutes for, or alternatives to, analysis of our results as reported under GAAP. The exclusion of unusual or infrequent items or other adjustments reflected in the non-GAAP measures should not be construed as an inference that our future results will not be affected by unusual or infrequent items or by other items similar to such adjustments. Our management compensates for these limitations by relying primarily on our GAAP results in addition to using the non-GAAP measures.
Enterprise Summary
The following table includes key GAAP and non-GAAP financial measures for the consolidated enterprise. Adjustments to arrive at non-GAAP measures are made at the enterprise level, with the exception of fuel surcharge revenues, which are not included in segment revenues. Three Months Ended Six Months Ended June 30, June 30, (in millions, except ratios) 2021 2020 2021 2020 Operating revenues$ 1,360.8 $ 1,032.8 $ 2,589.4 $ 2,151.9 Revenues (excluding fuel surcharge) (1) 1,250.6 964.1 2,389.0 1,980.2 Income from operations 125.8 63.4 202.0 118.3 Adjusted income from operations (2) 125.8 63.6 202.0 117.3 Operating ratio 90.8 % 93.9 % 92.2 % 94.5 % Adjusted operating ratio (3) 89.9 % 93.4 % 91.5 % 94.1 % Net income$ 106.5 $ 46.5 $ 161.3 $ 90.3 Adjusted net income (4) 106.5 46.7 161.3 89.6 (1)We define "revenues (excluding fuel surcharge)" as operating revenues less fuel surcharge revenues, which are excluded from revenues at the segment level. Included below is a reconciliation of operating revenues, the most closely comparable GAAP financial measure, to revenues (excluding fuel surcharge). (2)We define "adjusted income from operations" as income from operations, adjusted to exclude material items that do not reflect our core operating performance. Included below is a reconciliation of income from operations, which is the most directly comparable GAAP measure, to adjusted income from operations. Excluded items for the periods shown are explained in the table and notes below. (3)We define "adjusted operating ratio" as operating expenses, adjusted to exclude material items that do not reflect our core operating performance, divided by revenues (excluding fuel surcharge). Included below is a reconciliation of operating ratio, which is the most directly comparable GAAP measure, to adjusted operating ratio. Excluded items for the periods shown are explained below under our explanation of "adjusted income from operations." (4)We define "adjusted net income" as net income, adjusted to exclude material items that do not reflect our core operating performance. Included below is a reconciliation of net income, which is the most directly comparable GAAP measure, to adjusted net income. Excluded items for the periods shown are explained below under our explanation of "adjusted income from operations." 16 -------------------------------------------------------------------------------- Table of Contents Revenues (excluding fuel surcharge) Three Months Ended Six Months Ended June 30, June 30, (in millions) 2021 2020 2021 2020 Operating revenues$ 1,360.8 $ 1,032.8 $ 2,589.4 $ 2,151.9 Less: Fuel surcharge revenues 110.2 68.7
200.4 171.7
Revenues (excluding fuel surcharge)
Adjusted income from operations
Three Months Ended Six Months Ended June 30, June 30, (in millions) 2021 2020 2021 2020 Income from operations$ 125.8 $ 63.4 $ 202.0 $ 118.3 Restructuring-net (1) - 0.2 - (1.0) Adjusted income from operations$ 125.8 $ 63.6 $
202.0
(1)Activity associated with the shutdown of the FTFM service offering.
Adjusted operating ratio Three Months Ended Six Months Ended June 30, June 30, (in millions, except ratios) 2021 2020 2021 2020 Total operating expenses$ 1,235.0 $ 969.4 $ 2,387.4 $ 2,033.6 Divide by: Operating revenues 1,360.8 1,032.8 2,589.4 2,151.9 Operating ratio 90.8 % 93.9 % 92.2 % 94.5 % Total operating expenses$ 1,235.0 $ 969.4 $ 2,387.4 $ 2,033.6 Adjusted for: Fuel surcharge revenues (110.2) (68.7) (200.4) (171.7) Restructuring-net - (0.2) - 1.0 Adjusted total operating expenses$ 1,124.8 $ 900.5 $ 2,187.0 $ 1,862.9 Operating revenues$ 1,360.8 $ 1,032.8 $ 2,589.4 $ 2,151.9 Less: Fuel surcharge revenues 110.2 68.7 200.4 171.7 Revenues (excluding fuel surcharge)$ 1,250.6 $ 964.1 $ 2,389.0 $ 1,980.2 Adjusted operating ratio 89.9 % 93.4 % 91.5 % 94.1 % Adjusted net income Three Months Ended Six Months Ended June 30, June 30, (in millions) 2021 2020 2021 2020 Net income$ 106.5 $ 46.5 $ 161.3 $ 90.3 Restructuring-net - 0.2 - (1.0) Income tax effect of non-GAAP adjustments (1) - - - 0.3 Adjusted net income$ 106.5 $ 46.7 $ 161.3 $ 89.6 (1)Our estimated tax rate on non-GAAP items is determined annually using the applicable consolidated federal and state effective tax rate, modified to remove the impact of tax credits and adjustments that are not applicable to the specific items. Due to differences in the tax treatment of items excluded from non-GAAP income, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP items may differ from our GAAP tax rate and from our actual tax liabilities. 17
--------------------------------------------------------------------------------
Table of Contents
Three Months Ended
Enterprise Results Summary
Enterprise net income increased$60.0 million , approximately 129%, in the second quarter of 2021 compared to the same quarter in 2020, primarily due to a$62.4 million increase in income from operations, partially offset by the corresponding increase in income taxes. In addition, the second quarter of 2021 included a$20.2 million pre-tax gain on our ownership interest in TuSimple compared to a$2.7 million pre-tax gain on our ownership interest in PSI in the second quarter of 2020.
Adjusted net income increased
Components of Enterprise Net Income
Enterprise Revenues
Enterprise operating revenues increased
Factors contributing to the increase were as follows: •a$199.8 million increase in Logistics segment revenues (excluding fuel surcharge) due to an increase in revenue per order and volume growth; •a$55.0 million increase in Intermodal segment revenues (excluding fuel surcharge) due to an improvement in revenue per order and an increase in orders despite network fluidity constraints; •a$41.5 million increase in fuel surcharge revenues resulting from an increase in fuel prices in the second quarter of 2021 compared to the same quarter in 2020 (for example, based on information reported by theU.S. Department of Energy , the average diesel price per gallon in theU.S. increased by 31% between such periods) and an increase in Intermodal volumes, partially offset by a decrease in Truckload volumes; and •a$24.1 million increase in Truckload segment revenues (excluding fuel surcharge) resulting from improved revenue per truck per week, partially offset by lower volumes due to driver capacity constraints.
Enterprise revenues (excluding fuel surcharge) increased
Enterprise Income from Operations and Operating Ratio
Enterprise income from operations increased$62.4 million , approximately 98%, in the second quarter of 2021 compared to the same quarter in 2020, primarily due to an increase in net revenue per order in Logistics, revenue per truck per week in Truckload, and revenue per order in Intermodal; as well as favorability in equipment dispositions and insurance costs. Increases in revenue per truck per week in Truckload and revenue per order in Intermodal resulted from favorable 2021 market conditions compared to the unfavorable impacts of COVID-19 in the prior year. The above factors were partially offset by an increase in driver costs and a reduction in Truckload freight volumes due to driver capacity constraints.
Adjusted income from operations increased
Enterprise operating ratio improved on both a GAAP and adjusted basis when compared to the second quarter of 2020. Among other factors, our operating ratio can be negatively impacted by changes in portfolio mix when our higher operating ratio, less asset-focused Logistics segment grows faster than our lower operating ratio, capital-intensive Truckload segment.
Enterprise Operating Expenses
Key operating expense fluctuations are described below. •Purchased transportation increased$212.5 million , or 49%, quarter over quarter, primarily due to increased third party carrier costs within Logistics attributable to higher purchased transportation per order and volume growth and, within Intermodal, higher rail purchased transportation resulting from an increase in both rail orders and costs. •Salaries, wages, and benefits increased$27.8 million , or 11%, quarter over quarter, primarily due to an increase in Logistics salaries and wages, driver pay, and performance-based incentive compensation. The increase in Logistics salaries and wages was primarily due to an increase in sales commissions and headcount, while the increase in driver pay was largely the result of pay increases and actions to mitigate driver capacity constraints. 18 -------------------------------------------------------------------------------- Table of Contents •Fuel and fuel taxes for company trucks increased$27.9 million , or 66%, quarter over quarter, driven primarily by an increase in cost per gallon. A significant portion of fuel costs are recovered through our fuel surcharge programs. •Operating supplies and expenses decreased$1.9 million , or 2%, quarter over quarter, largely a result of a$15.1 million favorable change in equipment dispositions driven by a strong used equipment market and the strength of our nationwide maintenance network in facilitating equipment sales. Favorability in equipment dispositions was partially offset by an increase in equipment rental expense due to port congestion, higher cost of goods sold as a result of increased lease activity by our leasing business, and additional rail storage expenses caused by network fluidity constraints. •Insurance and related expenses decreased$11.3 million , or 40%, quarter over quarter, primarily due to favorability in auto liability resulting from a decrease in claims severity and frequency. •Other general expenses increased$9.9 million , or 44%, quarter over quarter, primarily due to higher driver onboarding costs resulting from a constrained driver pool compared to favorable driver turnover in 2020 during the pandemic. The remaining increase was largely related to costs associated with software development and professional services.
Total Other Expenses (Income)
Total other income increased$17.7 million in the second quarter of 2021 compared to the same quarter in 2020, mainly resulting from a$20.2 million pre-tax gain on our ownership interest in TuSimple in the second quarter of 2021 compared to a$2.7 million pre-tax gain on our ownership interest in PSI in the second quarter of 2020. See Note 5, Investments, for more information on our investments in TuSimple and PSI.
Income Tax Expense
Our provision for income taxes increased$20.1 million , approximately 124%, in the second quarter of 2021 compared to the same quarter in 2020 due to higher taxable income. The effective income tax rate was 25.4% for the three months endedJune 30, 2021 compared to 25.8% for the same quarter last year. Our provision for income taxes may fluctuate in future periods to the extent there are changes to tax laws and regulations.
Revenues and Income from Operations by Segment
The following tables summarize revenues and income from operations by segment.
Three Months Ended June 30, Revenues by Segment (in millions) 2021 2020 Truckload$ 475.2 $ 451.1 Intermodal 274.0 219.0 Logistics 430.7 230.9 Other 88.5 89.8 Fuel surcharge 110.2 68.7 Inter-segment eliminations (17.8) (26.7) Operating revenues$ 1,360.8 $ 1,032.8 Three Months Ended June 30, Income from Operations by Segment (in millions) 2021 2020 Truckload$ 73.6 $ 40.5 Intermodal 34.9 11.0 Logistics 17.0 8.2 Other 0.3 3.7 Income from operations 125.8 63.4 Adjustments: Restructuring-net - 0.2 Adjusted income from operations$ 125.8 $ 63.6 19
--------------------------------------------------------------------------------
Table of Contents We monitor and analyze a number of KPIs in order to manage our business and evaluate our financial and operating performance. Below are our KPIs by segment.
Truckload
The following table presents the KPIs for our Truckload segment for the periods indicated, consistent with how revenues and expenses are reported internally for segment purposes. Descriptions of the two operations that make up our Truckload segment are as follows: •Dedicated - Transportation services with equipment devoted to customers under long-term contracts. •Network - Transportation services of one-way shipments. Three Months EndedJune 30, 2021 2020
Dedicated
Revenues (excluding fuel surcharge) (1)
4,156 3,891 Revenue per truck per week (4)$ 3,719 $ 3,448
Network
Revenues (excluding fuel surcharge) (1)
5,131 6,350 Revenue per truck per week (4)$ 4,201 $ 3,426
Total Truckload
Revenues (excluding fuel surcharge) (5)
9,287 10,241 Revenue per truck per week (4)$ 3,985 $ 3,434 Average company trucks (3) 6,930 7,366 Average owner-operator trucks (3) 2,357 2,875 Trailers (6) 36,519 36,141 Operating ratio (7) 84.5 % 91.0 % (1)Revenues (excluding fuel surcharge), in millions, exclude revenue in transit. (2)Includes company and owner-operator trucks. (3)Calculated based on beginning and end of month counts and represents the average number of trucks available to haul freight over the specified timeframe. (4)Calculated excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes, using weighted workdays. (5)Revenues (excluding fuel surcharge), in millions, include revenue in transit at the operating segment level and, therefore does not sum with amounts presented above. (6)Includes entire fleet of owned trailers, including trailers with leasing arrangements between Truckload and Logistics. (7)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level. Truckload revenues (excluding fuel surcharge) increased$24.1 million , approximately 5%, in the second quarter of 2021 compared to the same quarter in 2020. The increase was primarily due to an improvement in price, partially offset by an 8% decline in volume. Revenue per truck per week increased$551 , or 16%, quarter over quarter, as a result of a 16% increase in rate per loaded mile driven by higher spot and contracted rates. Volume decreased mainly due to continued driver capacity constraints within our network business, partially offset by growth within our dedicated business. Truckload income from operations increased$33.1 million , approximately 82%, in the second quarter of 2021 compared to the same quarter in 2020, primarily due to spot market opportunities and contract renewals, in addition to a$13.5 million favorable change in equipment dispositions and a reduction in auto liability costs. These items were partially offset by the earnings impact of reduced volume, noted above, and an increase in driver-related costs. 20 -------------------------------------------------------------------------------- Table of Contents Intermodal The following table presents the KPIs for our Intermodal segment for the periods indicated. Three Months Ended June 30, 2021 2020 Orders (1) 113,894 98,362 Containers 22,179 21,172 Trucks (2) 1,729 1,508 Revenue per order (3)$ 2,399 $ 2,145 Operating ratio (4) 87.3 % 95.0 % (1)Based on delivered rail orders. (2)Includes company and owner-operator trucks at the end of the period. (3)Calculated using rail revenues excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes. (4)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level. Intermodal revenues (excluding fuel surcharge) increased$55.0 million , approximately 25%, in the second quarter of 2021 compared to the same quarter in 2020. The increase was primarily due to a$254 , or 12%, improvement in revenue per order resulting mainly from favorable customer rate renewals and premium opportunities, partially offset by growth in the East, which has a shorter length of haul. Also contributing to the increase in revenues was a 16% increase in orders driven by favorable market demand conditions, despite capacity constraints and supply chain inefficiencies. Intermodal income from operations increased$23.9 million in the second quarter of 2021 compared to the same quarter in 2020, driven by the factors affecting revenue discussed above, partially offset by higher rail and driver-related costs mainly due to network fluidity and capacity challenges.
Logistics
The following table presents the KPI for our Logistics segment for the periods indicated. Three Months Ended June 30, 2021 2020 Operating ratio (1) 96.1 % 96.4 %
(1)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Logistics revenues (excluding fuel surcharge) increased$199.8 million , approximately 87%, in the second quarter of 2021 compared to the same quarter in 2020, primarily driven by an increase in revenue per order and volume growth of 23% within our brokerage business due to favorable market conditions and expansion of our digital platform. Logistics income from operations increased$8.8 million , approximately 107%, in the second quarter of 2021 compared to the same quarter in 2020. Net revenue per order improvements within our brokerage business and the volume growth cited above both contributed to the increase in income from operations quarter over quarter. Other Other income from operations decreased$3.4 million , approximately 92%, in the second quarter of 2021 compared to the same quarter in 2020. The decrease was primarily driven by an increase in performance-based incentive compensation, partially offset by an increase in income from operations from our leasing business due to increased lease activity quarter over quarter. 21 -------------------------------------------------------------------------------- Table of Contents Six Months EndedJune 30, 2021 Compared to Six Months EndedJune 30, 2020
Enterprise Results Summary
Enterprise net income increased$71.0 million , approximately 79%, in the six months endedJune 30, 2021 compared to the same period in 2020, primarily due to an$83.7 million increase in income from operations, partially offset by the corresponding increase in income taxes. In addition, the six months endedJune 30, 2021 included a$20.2 million pre-tax gain on our ownership interest in TuSimple compared to an$8.8 million pre-tax gain on our ownership interest in PSI in the six months endedJune 30, 2020 .
Adjusted net income increased
Components of Enterprise Net Income
Enterprise Revenues
Enterprise operating revenues increased
Factors contributing to the increase were as follows: •a$316.1 million increase in Logistics segment revenues (excluding fuel surcharge) due to an increase in revenue per order and volume growth; •a$72.8 million increase in Intermodal segment revenues (excluding fuel surcharge) due to an improvement in revenue per order and an increase in orders despite network fluidity constraints; •a$28.7 million increase in fuel surcharge revenues resulting from an increase in fuel prices in the first half of 2021 compared to the same period in 2020 (for example, based on information reported by theU.S. Department of Energy , the average diesel price per gallon in theU.S. increased by 13% between such periods) and an increase in Intermodal volumes, partially offset by a decrease in Truckload volumes; and •a$6.4 million increase in Truckload segment revenues (excluding fuel surcharge) resulting from improved revenue per truck per week, partially offset by lower volumes due to driver capacity constraints and first quarter weather conditions.
Enterprise revenues (excluding fuel surcharge) increased
Enterprise Income from Operations and Operating Ratio
Enterprise income from operations increased$83.7 million , approximately 71%, in the six months endedJune 30, 2021 compared to the same period in 2020, primarily due to an increase in net revenue per order in Logistics, revenue per truck per week in Truckload, and revenue per order in Intermodal; as well as favorability in equipment dispositions and insurance costs. Increases in revenue per truck per week in Truckload and revenue per order in Intermodal resulted from favorable 2021 market conditions compared to the unfavorable impacts of COVID-19 in the prior year. The above factors were partially offset by an increase in driver costs and a reduction in Truckload freight volumes due to driver capacity constraints and first quarter weather conditions.
Adjusted income from operations increased
Enterprise operating ratio improved on both a GAAP and adjusted basis when compared to the same period of 2020. Among other factors, our operating ratio can be negatively impacted by changes in portfolio mix when our higher operating ratio, less asset-focused Logistics segment grows faster than our lower operating ratio, capital-intensive Truckload segment.
Enterprise Operating Expenses
Key operating expense fluctuations are described below. •Purchased transportation costs increased$291.4 million , or 32%, period over period, primarily due to increased third party carrier costs within Logistics due to higher purchased transportation per order and volume growth and, in Intermodal, higher rail purchased transportation resulting from an increase in both rail orders and costs. These items were partially offset by reduced owner-operator costs within Truckload primarily resulting from fewer owner-operators. 22 -------------------------------------------------------------------------------- Table of Contents •Salaries, wages, and benefits increased$30.5 million , or 6%, period over period, primarily due to an increase in Logistics salaries and wages, performance-based incentive compensation, and driver pay. The increase in Logistics salaries and wages was primarily due to an increase in sales commissions and headcount, while the increase in driver pay was largely the result of pay increases and actions to mitigate driver capacity constraints. •Fuel and fuel taxes for company trucks increased$30.8 million , or 30%, period over period, driven primarily by an increase in cost per gallon. A significant portion of fuel costs are recovered through our fuel surcharge programs. •Depreciation and amortization increased$4.2 million , or 3%, period over period, primarily driven by an increase in amortization related to capitalized software. •Operating supplies and expenses increased$2.2 million , or 1%, period over period, driven by an increase in equipment rental expense due to port congestion, as well as higher rail storage and maintenance expenses resulting from network fluidity constraints and poor first quarter weather conditions. Higher cost of goods sold due to an increase in lease activity by our leasing business and immaterial increases in a variety of other operating-related areas also contributed to the increase in operating supplies and expenses period over period. These items were partially offset by favorability of$19.8 million in equipment dispositions due to a strong used equipment market and the strength of our nationwide maintenance network in facilitating equipment sales. •Insurance and related expenses decreased$16.1 million , or 28%, period over period, primarily due to favorability in auto liability resulting from a decrease in claims severity and frequency. •Other general expenses increased$9.8 million , or 19%, period over period, primarily due to an increase in costs associated with software development and professional services. The remaining increase is attributable to higher driver onboarding costs resulting from a constrained driver pool compared to favorable driver turnover in 2020 during the pandemic.
Total Other Expenses (Income)
Total other income increased$10.9 million in the six months endedJune 30, 2021 compared to the same period in 2020, primarily from a$20.2 million pre-tax gain on our ownership interest in TuSimple in the six months endedJune 30, 2021 compared to an$8.8 million pre-tax gain on our ownership interest in PSI in the six months endedJune 30, 2020 . See Note 5, Investments, for more information on our investments in TuSimple and PSI.
Income Tax Expense
Our provision for income taxes increased$23.6 million , approximately 77%, in the six months endedJune 30, 2021 compared to the same period in 2020 due to higher taxable income. The effective income tax rate was 25.2% for the six months endedJune 30, 2021 compared to 25.4% for the same period last year. Our provision for income taxes may fluctuate in future periods to the extent there are changes to tax laws and regulations.
Revenues and Income from Operations by Segment
The following tables summarize revenue and income from operations by segment.
Six Months Ended June 30, Revenues by Segment (in millions) 2021 2020 Truckload$ 926.9 $ 920.5 Intermodal 529.8 457.0 Logistics 786.6 470.5 Other 186.9 189.2 Fuel surcharge 200.4 171.7 Inter-segment eliminations (41.2) (57.0) Operating revenues$ 2,589.4 $ 2,151.9 23
--------------------------------------------------------------------------------
Table of Contents
Six Months Ended June 30, Income from Operations by Segment (in millions) 2021 2020 Truckload$ 111.9 $ 77.1 Intermodal 54.9 27.3 Logistics 32.9 12.4 Other 2.3 1.5 Income from operations 202.0 118.3 Adjustments: Restructuring-net - (1.0) Adjusted income from operations$ 202.0 $
117.3
We monitor and analyze a number of KPIs in order to manage our business and evaluate our financial and operating performance. Below are our KPIs by segment.
Truckload
The following table presents the KPIs for our Truckload segment for the periods indicated, consistent with how revenues and expenses are reported internally for segment purposes. Descriptions of the two operations that make up our Truckload segment are as follows: •Dedicated - Transportation services with equipment devoted to customers under long-term contracts. •Network - Transportation services of one-way shipments. Six Months EndedJune 30, 2021 2020
Dedicated
Revenues (excluding fuel surcharge) (1)
Average trucks (2) (3) 4,140 3,898 Revenue per truck per week (4)$ 3,622 $ 3,475
Network
Revenues (excluding fuel surcharge) (1)
Average trucks (2) (3) 5,272 6,325 Revenue per truck per week (4)$ 4,020 $ 3,511
Total Truckload
Revenues (excluding fuel surcharge) (5)$ 926.9 $ 920.5 Average trucks (2) (3) 9,412 10,223 Revenue per truck per week (4)$ 3,845 $ 3,497 Average company trucks (3) 6,995 7,339 Average owner-operator trucks (3) 2,417 2,884 Trailers (6) 36,519 36,141 Operating ratio (7) 87.9 % 91.6 % (1)Revenues (excluding fuel surcharge), in millions, exclude revenue in transit. (2)Includes company and owner-operator trucks. (3)Calculated based on beginning and end of month counts and represents the average number of trucks available to haul freight over the specified timeframe. (4)Calculated excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes, using weighted workdays. (5)Revenues (excluding fuel surcharge), in millions, include revenue in transit at the operating segment level and, therefore does not sum with amounts presented above. (6)Includes entire fleet of owned trailers, including trailers with leasing arrangements between Truckload and Logistics. (7)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level. 24
-------------------------------------------------------------------------------- Table of Contents Truckload revenues (excluding fuel surcharge) increased$6.4 million , approximately 1%, in the six months endedJune 30, 2021 compared to the same period in 2020 as an improvement in price was partially offset by a 10% decline in volume. Revenue per truck per week increased$348 , or 10%, period over period, due to a 13% improvement in rate per loaded mile driven by higher spot and contracted rates, partially offset by reduced productivity largely due to weather in the first quarter of 2021. While growth was experienced within our dedicated business, continued driver capacity constraints and weather contributed to the overall reduction in order volumes. Truckload income from operations increased$34.8 million , approximately 45%, in the six months endedJune 30, 2021 compared to the same period in 2020. The increase period over period was primarily due to spot market opportunities and contract renewals, in addition to a$17.3 million favorable change in equipment dispositions and a reduction in auto liability costs, despite the earnings impact of reduced volume noted above.
Intermodal
The following table presents the KPIs for our Intermodal segment for the periods indicated. Six Months Ended June 30, 2021 2020 Orders (1) 222,679 204,949 Containers 22,179 21,172 Trucks (2) 1,729 1,508 Revenue per order (3)$ 2,351 $ 2,160 Operating ratio (4) 89.6 % 94.0 % (1)Based on delivered rail orders. (2)Includes company and owner-operator trucks at the end of the period. (3)Calculated using rail revenues excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes. (4)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level. Intermodal revenues (excluding fuel surcharge) increased$72.8 million , approximately 16%, in the six months endedJune 30, 2021 compared to the same period in 2020. Contributing to the increase was a$191 , or 9%, improvement in revenue per order, driven primarily by customer rate renewals and premium opportunities, partially offset by growth in the East which has a shorter length of haul. Orders also increased 9% due to favorable market demand conditions, despite capacity constraints, supply chain inefficiencies, and weather impacts experienced in the first quarter of 2021. Intermodal income from operations increased$27.6 million , approximately 101%, in the six months endedJune 30, 2021 compared to the same period in 2020, mainly the result of factors affecting revenue discussed above, partially offset by the impact of network fluidity and capacity challenges on rail and driver-related costs.
Logistics
The following table presents the KPI for our Logistics segment for the periods indicated. Six Months Ended June 30, 2021 2020 Operating ratio (1) 95.8 % 97.4 %
(1)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Logistics revenues (excluding fuel surcharge) increased$316.1 million , approximately 67%, in the six months endedJune 30, 2021 compared to the same period in 2020, primarily resulting from an increase in revenue per order and volume growth of 17% within our brokerage business due to favorable market conditions and expansion of our digital platform. Logistics income from operations increased$20.5 million in the six months endedJune 30, 2021 compared to the same period in 2020, primarily due to net revenue per order improvements within our brokerage business and volume growth, as cited above. 25
-------------------------------------------------------------------------------- Table of Contents Other Other income from operations increased$0.8 million , approximately 53%, in the six months endedJune 30, 2021 , compared to the same period in 2020. The change was primarily driven by an increase in income from operations from our leasing business due to increased lease activity, partially offset by an increase in performance-based incentive compensation period over period. LIQUIDITY AND CAPITAL RESOURCES Our primary uses of cash are working capital requirements, capital expenditures, dividend payments, and debt service requirements. Additionally, we may use cash for acquisitions and other investing and financing activities. Working capital is required principally to ensure we are able to run the business and have sufficient funds to satisfy maturing short-term debt and operational expenses. Our capital expenditures consist primarily of transportation equipment and information technology. Historically, our primary source of liquidity has been cash flow from operations. In addition, we have a$250.0 million revolving credit facility and a$200.0 million accounts receivable facility, for which our available capacity as ofJune 30, 2021 was$375.8 million . We anticipate that cash generated from operations, together with amounts available under our credit facilities, will be sufficient to meet our requirements for the foreseeable future. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that we will obtain these funds through additional borrowings, equity offerings, or a combination of these potential sources of liquidity. Our ability to fund future operating expenses and capital expenditures, as well as our ability to meet future debt service obligations or refinance our indebtedness, will depend on our future operating performance, which will be affected by general economic, financial, and other factors beyond our control.
The following table presents our cash and cash equivalents, marketable securities, and outstanding debt as of the dates shown. (in millions)
June 30, 2021 December 31, 2020 Cash and cash equivalents$ 490.5 $ 395.5 Marketable securities 49.1 47.1 Total cash, cash equivalents, and marketable securities$ 539.6 $ 442.6 Debt: Senior notes$ 305.0 $ 305.0 Finance leases 2.9 2.0 Total debt (1)$ 307.9 $ 307.0
(1)Debt on the consolidated balance sheets is presented net of deferred financing costs.
Debt
AtJune 30, 2021 , we were in compliance with all financial covenants under our credit agreements and the agreements governing our senior notes. See Note 7, Debt and Credit Facilities, for information about our financing arrangements.
Cash Flows
The following table summarizes the changes to our cash flows provided by (used in) operating, investing, and financing activities for the periods indicated.
Six Months Ended June 30, (in millions) 2021 2020
Cash provided by operating activities
(134.9) (110.1) Cash used in financing activities (25.1) (47.5) 26 -------------------------------------------------------------------------------- Table of Contents Six Months EndedJune 30, 2021 Compared to Six Months EndedJune 30, 2020
Operating Activities
Cash provided by operating activities decreased$64.8 million , approximately 20%, in the first six months of 2021 compared to the same period in 2020. The decrease was driven by an increase in cash used for working capital, partially offset by an increase in net income adjusted for various noncash charges. Working capital changes which decreased net cash provided by operating activities were primarily an increase in trade accounts receivable, which increased proportionate to revenue growth, and a decrease in other liabilities primarily related to the timing of tax payments during the six months endedJune 30, 2021 compared to 2020. Investing Activities Cash used in investing activities increased$24.8 million , approximately 23%, in the first six months of 2021 compared to the same period in 2020. The increase in cash used was primarily driven by an increase in net capital expenditures.
Capital Expenditures
The following table sets forth our net capital expenditures for the periods indicated. Six Months Ended June 30, (in millions) 2021 2020 Transportation equipment$ 153.6 $ 83.3 Other property and equipment 22.5 25.0 Proceeds from sale of property and equipment (76.6) (29.6) Net capital expenditures$ 99.5 $ 78.7 Net capital expenditures increased$20.8 million in the first six months of 2021 compared to the same period in 2020. The increase was driven by a$70.3 million increase in purchases of transportation equipment mainly due to replacement capital and reduced fleet age, partially offset by a$47.0 million increase in proceeds from the sale of property and equipment primarily resulting from increased tractor and trailer sales and an increase in proceeds per unit.
Financing Activities
Cash used in financing activities decreased$22.4 million , approximately 47%, in the first six months of 2021 compared to the same period in 2020. The main driver of the decrease in cash used was the$25.0 million repayment of private placement notes inMarch 2020 .
Other Considerations that Could Affect Our Results, Liquidity, or Capital Resources
Investment in TuSimple
OnJanuary 12, 2021 , the Company purchased a$5.0 million non-controlling interest in TuSimple. Upon completion of its initial public offering inApril 2021 , our investment in TuSimple was converted into Class A common shares and is being accounted for under ASC 321, Investments -Equity Securities , with subsequent changes in share price recorded in other income on the consolidated statements of comprehensive income. In the three and six months endedJune 30, 2021 , the Company recognized pre-tax gains of$20.2 million on its investment in TuSimple. Due to the volatility of the global markets and the potential for high volatility of public equity prices of technology-related companies, we expect the value of our investment to fluctuate which could materially affect our financial condition and results of operations.
COVID-19
Despite disruptions in the financial markets due to COVID-19, we have been able to fund our liquidity needs to date. We believe we are in a strong liquidity position with a cash, cash equivalents, and marketable securities balance of$539.6 million and$375.8 million of unused credit capacity as ofJune 30, 2021 . Our outstanding debt as of the end of the quarter was$307.9 million , of which$100.7 million is short-term in nature. We are compliant with all financial covenants under our credit agreements and do not anticipate the need to seek additional capital as a result of COVID-19. 27 -------------------------------------------------------------------------------- Table of Contents Factors that Could Result in a Goodwill ImpairmentGoodwill is tested for impairment at least annually using the discounted cash flow, guideline public company, and guideline merged and acquired company methods in calculating the fair values of our reporting units. Key inputs used in the discounted cash flow approach include growth rates for sales and operating profit, perpetuity growth assumptions, and discount rates. As interest rates rise, the calculated fair values of our reporting units will decrease, which could impact the results of our goodwill impairment tests. We will perform our annual evaluation of goodwill for impairment as ofOctober 31, 2021 , with such analysis expected to be finalized during the fourth quarter. As part of our annual process of updating our goodwill impairment evaluation, we will assess the impact of current operating results and our resulting management actions to determine whether they have an impact on the long-term valuation of reporting units and the related recoverability of our goodwill. See further discussion in Note 6,Goodwill .
Off-Balance Sheet Arrangements
As of
Contractual Obligations
See the disclosure under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 for our contractual obligations as ofDecember 31, 2020 . There were no material changes to our contractual obligations during the six months endedJune 30, 2021 . CRITICAL ACCOUNTING ESTIMATES We have reviewed our critical accounting policies and considered whether new critical accounting estimates or other significant changes to our accounting policies require additional disclosures. We have found that the disclosures made in our Annual Report on Form 10-K for the year endedDecember 31, 2020 are still current and that there have been no significant changes.
© Edgar Online, source