UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________ .
Commission File Number: 0-19582
OLD DOMINION FREIGHT LINE, INC.
(Exact name of registrant as specified in its charter)
Virginia
56-0751714
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
500 Old Dominion Way
Thomasville, North Carolina
27360
(Address of principal executive offices)
(Zip Code)
(336) 889-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock ($0.10 par value)
ODFL
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 3, 2024 there were 217,285,082 shares of the registrant’s Common Stock ($0.10 par value) outstanding.
INDEX
Part I – FINANCIAL INFORMATION
1
Item 1
Financial Statements
Condensed Balance Sheets – March 31, 2024 and December 31, 2023
Condensed Statements of Operations – For the three months ended March 31, 2024 and 2023
3
Condensed Statements of Changes in Shareholders’ Equity – For the three months ended March 31, 2024 and 2023
4
Condensed Statements of Cash Flows – For the three months ended March 31, 2024 and 2023
5
Notes to the Condensed Financial Statements
6
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
9
Item 3
Quantitative and Qualitative Disclosures about Market Risk
17
Item 4
Controls and Procedures
Part II – OTHER INFORMATION
19
Legal Proceedings
Item 1A
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
20
Item 6
Exhibits
Exhibit Index
21
Signatures
22
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED BALANCE SHEETS
March 31,
2024
December 31,
(In thousands, except share and per share data)
(Unaudited)
2023
ASSETS
Current assets:
Cash and cash equivalents
$
580,974
433,799
Customer receivables, less allowances of $10,137 and $10,405, respectively
582,209
578,885
Income taxes receivable
—
18,554
Other receivables
21,320
17,884
Prepaid expenses and other current assets
79,157
94,211
Total current assets
1,263,660
1,143,333
Property and equipment:
Revenue equipment
2,578,067
2,590,770
Land and structures
3,110,076
3,021,447
Other fixed assets
642,377
623,164
Leasehold improvements
14,534
14,436
Total property and equipment
6,345,054
6,249,817
Accumulated depreciation
(2,216,953
)
(2,154,412
Net property and equipment
4,128,101
4,095,405
Other assets
259,595
273,655
Total assets
5,651,356
5,512,393
Note: The Condensed Balance Sheet at December 31, 2023 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.
The accompanying notes are an integral part of these condensed financial statements.
(CONTINUED)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
97,689
112,774
Compensation and benefits
232,502
278,953
Claims and insurance accruals
62,839
63,346
Other accrued liabilities
60,930
69,585
Income taxes payable
76,714
Current maturities of long-term debt
20,000
Total current liabilities
550,674
544,658
Long-term liabilities:
Long-term debt
59,980
59,977
Other non-current liabilities
275,933
286,815
Deferred income taxes
363,132
Total long-term liabilities
699,045
709,924
Total liabilities
1,249,719
1,254,582
Commitments and contingent liabilities
Shareholders’ equity:
Common stock - $0.10 par value, 280,000,000 shares authorized, 217,598,722 and 217,930,932 shares outstanding at March 31, 2024 and December 31, 2023, respectively
21,760
21,793
Capital in excess of par value
225,497
231,449
Retained earnings
4,154,380
4,004,569
Total shareholders’ equity
4,401,637
4,257,811
Total liabilities and shareholders’ equity
2
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
(In thousands, except per share data)
Revenue from operations
1,460,073
1,442,136
Operating expenses:
Salaries, wages and benefits
668,390
652,075
Operating supplies and expenses
172,472
192,384
General supplies and expenses
45,576
39,545
Operating taxes and licenses
35,838
36,701
Insurance and claims
18,194
16,028
Communications and utilities
10,995
11,017
Depreciation and amortization
84,531
75,947
Purchased transportation
30,710
30,615
Miscellaneous expenses, net
6,941
4,775
Total operating expenses
1,073,647
1,059,087
Operating income
386,426
383,049
Non-operating (income) expense:
Interest expense
37
200
Interest income
(7,372
(2,811
Other expense, net
879
1,511
Total non-operating income
(6,456
(1,100
Income before income taxes
392,882
384,149
Provision for income taxes
100,578
99,111
Net income
292,304
285,038
Earnings per share:
Basic
1.34
1.30
Diluted
1.29
Weighted average shares outstanding:
217,594
219,912
218,808
221,358
Dividends declared per share
0.26
0.20
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Three Months Ended March 31, 2024 and 2023
Capital in
Common Stock
Excess of
Retained
Shares
Amount
Par Value
Earnings
Total
Balance as of December 31, 2023
217,931
Share repurchases
(422
(42
(85,910
(85,952
Cash dividends declared ($0.26 per share)
(56,583
Share-based compensation and share issuances, net of forfeitures
133
13
3,321
3,334
Taxes paid in exchange for shares withheld
(43
(4
(9,273
(9,277
Balance as of March 31, 2024
217,599
Balance as of December 31, 2022
220,446
22,045
233,086
3,397,786
3,652,917
(861
(86
(142,814
(142,900
Cash dividends declared ($0.20 per share)
(43,994
124
12
3,784
3,796
(47
(5
(8,353
(8,358
Balance as of March 31, 2023
219,662
21,966
228,517
3,496,016
3,746,499
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
84,534
75,951
Loss (Gain) on disposal of property and equipment
726
(4,345
Other, net
7,732
8,390
Changes in operating assets and liabilities, net
38,597
50,333
Net cash provided by operating activities
423,893
415,367
Cash flows from investing activities:
Purchase of property and equipment
(119,511
(234,736
Proceeds from sale of property and equipment
1,559
10,283
Proceeds from maturities of short-term investments
24,578
Net cash used in investing activities
(117,952
(199,875
Cash flows from financing activities:
Payments for share repurchases
(85,280
(141,666
Dividends paid
(56,633
(44,052
Other financing activities, net
(16,853
(8,462
Net cash used in financing activities
(158,766
(194,180
Increase in cash and cash equivalents
147,175
21,312
Cash and cash equivalents at beginning of period
186,312
Cash and cash equivalents at end of period
207,624
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Significant Accounting Policies
Business
We are one of the largest North American less-than-truckload (“LTL”) motor carriers. We provide regional, inter-regional and national LTL services through a single integrated, union-free organization. Our service offerings, which include expedited transportation, are provided through an expansive network of service centers located throughout the continental United States. Through strategic alliances, we also provide LTL services throughout North America. In addition to our core LTL services, we offer a range of value-added services including container drayage, truckload brokerage and supply chain consulting. We have one operating segment and the composition of our revenue is summarized below:
LTL services
1,446,733
1,424,372
Other services
13,340
17,764
Total revenue from operations
Basis of Presentation
The accompanying unaudited, interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and, in management’s opinion, contain all adjustments (consisting of normal recurring items) necessary for a fair presentation, in all material respects, of the financial position and results of operations for the periods presented. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.
The preparation of condensed financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Our operating results are subject to seasonal trends; therefore, the results of operations for the interim period ended March 31, 2024 are not necessarily indicative of the results that may be expected for the subsequent quarterly periods or the year ending December 31, 2024.
The condensed financial statements should be read in conjunction with the financial statements and related notes, which appear in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes in the accounting principles and policies, long-term contracts or estimates inherent in the preparation of the condensed financial statements of Old Dominion Freight Line, Inc. as previously described in our Annual Report on Form 10-K for the year ended December 31, 2023, other than those disclosed in this Form 10-Q.
Certain amounts in prior years have been reclassified to conform prior years’ financial statements to the current presentation.
Unless the context requires otherwise, references in these Notes to “Old Dominion,” the “Company,” “we,” “us” and “our” refer to Old Dominion Freight Line, Inc.
Common Stock Split
On February 16, 2024, we announced that our Board of Directors approved a two-for-one split of our common stock for shareholders of record as of the close of business on the record date of March 13, 2024. On March 27, 2024, those shareholders received one additional share of common stock for every share owned.
All references in this report to shares outstanding, weighted average shares outstanding, earnings per share, and dividends per share amounts have been restated retroactively to reflect this stock split.
Stock Repurchase Program
On July 28, 2021, we announced that our Board of Directors had approved a stock repurchase program authorizing us to repurchase up to an aggregate of $2.0 billion of our outstanding common stock (the “2021 Repurchase Program”). The 2021 Repurchase Program, which does not have an expiration date, began after the completion of our prior repurchase program in January 2022. At March 31, 2024, we had $140.2 million remaining authorized under the 2021 Repurchase Program. On July 26, 2023, we announced that our Board of Directors had approved a new stock repurchase program authorizing us to repurchase up to an aggregate of $3.0 billion of our outstanding common stock. The new repurchase program, which does not have an expiration date, will be effective upon the completion of our 2021 Repurchase Program.
Under our repurchase programs, we may repurchase shares from time to time in open market purchases or through privately negotiated transactions. Shares of our common stock repurchased under our repurchase programs are canceled at the time of repurchase and are classified as authorized but unissued shares of our common stock.
Note 2. Earnings Per Share
Basic earnings per share is computed by dividing net income by the daily weighted average number of shares of our common stock outstanding for the period, excluding unvested restricted stock. Unvested restricted stock is included in common shares outstanding on our Condensed Balance Sheets.
Diluted earnings per share is computed using the treasury stock method. The denominator used in calculating diluted earnings per share includes the impact of unvested restricted stock and other dilutive, non-participating securities under our equity award agreements. The denominator excludes contingently-issuable shares under performance-based award agreements when the performance target has not yet been deemed achieved.
The following table provides a reconciliation of the number of shares of common stock used in computing basic and diluted earnings per share:
Weighted average shares outstanding - basic
Dilutive effect of share-based awards
1,214
1,446
Weighted average shares outstanding - diluted
Note 3. Long-Term Debt
Long-term debt, net of unamortized debt issuance costs, consisted of the following:
March 31,2024
December 31,2023
Senior notes
79,980
79,977
Revolving credit facility
Total long-term debt
Less: Current maturities
(20,000
Total maturities due after one year
Note Agreement
On May 4, 2020, we entered into a Note Purchase and Private Shelf Agreement with PGIM, Inc. (“Prudential”) and certain affiliates and managed accounts of Prudential (as subsequently amended on March 22, 2023, the “Note Agreement”). The Note Agreement, which is uncommitted and subject to Prudential’s sole discretion, provides for the issuance of senior promissory notes with an aggregate principal amount of up to $350.0 million through March 22, 2026. On May 4, 2020, we issued $100.0 million aggregate principal amount of senior promissory notes (the “Series B Notes”). Borrowing availability under the Note Agreement is reduced by the outstanding amount of the existing Series B Notes, and all other senior promissory notes issued pursuant to the Note Agreement.
7
The Series B Notes bear interest at 3.10% per annum and mature on May 4, 2027, unless prepaid. The first principal payment of $20.0 million was paid on May 4, 2023. The remaining $80.0 million will be paid in four equal annual installments of $20.0 million through May 4, 2027. The Series B Notes are senior unsecured obligations and rank pari passu with borrowings under our third amended and restated credit agreement, dated March 22, 2023, with Wells Fargo Bank, National Association serving as administrative agent for the lenders (the “Credit Agreement”) or other senior promissory notes issued pursuant to the Note Agreement.
Credit Agreement
The Credit Agreement provides for a five-year, $250.0 million senior unsecured revolving line of credit and a $150.0 million accordion feature, which if fully exercised and approved, would expand the total borrowing capacity up to an aggregate of $400.0 million. Of the $250.0 million line of credit commitments under the Credit Agreement, up to $100.0 million may be used for letters of credit.
At our option, borrowings under the Credit Agreement bear interest at either: (i) the Secured Overnight Financing Rate (SOFR) plus the Term SOFR Adjustment, as defined in the Credit Agreement, equal to 0.100%, plus an applicable margin that ranges from 1.000% to 1.375%; or (ii) a Base Rate, as defined in the Credit Agreement, plus an applicable margin that ranges from 0.000% to 0.375%. The applicable margin for each of the foregoing options is dependent upon our consolidated debt to consolidated total capitalization ratio. Letter of credit fees equal to the applicable margin for SOFR loans are charged quarterly in arrears on the daily average aggregate stated amount of all letters of credit outstanding during the quarter. Commitment fees ranging from 0.090% to 0.175% (based upon our consolidated debt to total consolidated capitalization ratio) are charged quarterly in arrears on the aggregate unutilized portion of the Credit Agreement.
For periods covered under the Credit Agreement, the applicable margin on SOFR loans and letter of credit fees were 1.000% and commitment fees were 0.090%.
The Credit Agreement replaced our previous five-year, $250.0 million senior unsecured revolving credit agreement dated as of November 21, 2019 (the “Prior Credit Agreement”). For periods in 2023 covered under the Prior Credit Agreement, the applicable margin on LIBOR loans and letter of credit fees was 1.000% and commitment fees were 0.100%.
There were $38.1 million and $40.0 million of outstanding letters of credit at March 31, 2024 and December 31, 2023, respectively.
General Debt Provisions
The Credit Agreement and Note Agreement contain customary covenants, including financial covenants that require us to observe a maximum ratio of debt to total capital and a minimum fixed charge coverage ratio. The Credit Agreement and Note Agreement also include a provision limiting our ability to make restricted payments, including dividends and payments for share repurchases, unless, among other conditions, no defaults or events of default are ongoing (or would be caused by such restricted payment).
Note 4. Commitments and Contingencies
We are involved in or addressing various legal proceedings and claims, governmental inquiries, notices and investigations that have arisen in the ordinary course of our business and have not been fully adjudicated, some of which may be covered in whole or in part by insurance. Certain of these matters include collective and/or class-action allegations. We do not believe that the resolution of any of these matters will have a material adverse effect upon our financial position, results of operations or cash flows.
Note 5. Fair Value Measurements
Long-term Debt
The carrying value of our total long-term debt, including current maturities, was $80.0 million at each of March 31, 2024 and December 31, 2023, respectively. The estimated fair value of our total long-term debt, including current maturities, was $74.5 million and $75.4 million at March 31, 2024 and December 31, 2023, respectively. The fair value measurement of our Series B Notes was determined using a discounted cash flow analysis that factors in current market yields for comparable borrowing arrangements under our credit profile. Since this methodology is based upon market yields for comparable arrangements, the measurement is categorized as Level 2 under the three-level fair value hierarchy as established by the Financial Accounting Standards Board.
8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are one of the largest North American less-than-truckload (“LTL”) motor carriers. We provide regional, inter-regional and national LTL services through a single integrated, union-free organization. Our service offerings, which include expedited transportation, are provided through an expansive network of service centers located throughout the continental United States. Through strategic alliances, we also provide LTL services throughout North America. In addition to our core LTL services, we offer a range of value-added services including container drayage, truckload brokerage and supply chain consulting. More than 98% of our revenue has historically been derived from transporting LTL shipments for our customers, whose demand for our services is generally tied to industrial production and the overall health of the U.S. domestic economy.
In analyzing the components of our revenue, we monitor changes and trends in our LTL volumes and LTL revenue per hundredweight. While LTL revenue per hundredweight is a yield measurement, it is also a commonly-used indicator for general pricing trends in the LTL industry. This yield metric is not a true measure of price, however, as it can be influenced by many other factors, such as changes in fuel surcharges, weight per shipment and length of haul. As a result, changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates. LTL revenue per hundredweight and the key factors that can impact this metric are described in more detail below:
Our primary revenue focus is to increase density, which is shipment and tonnage growth within our existing infrastructure. Increases in density allow us to maximize our asset utilization and labor productivity, which we measure over many different functional areas of our operations including linehaul load factor, pickup and delivery (“P&D”) stops per hour, P&D shipments per hour, platform pounds handled per hour and platform shipments per hour. In addition to our focus on density and operating efficiencies, it is critical for us to obtain an appropriate yield, which is measured as revenue per hundredweight, on the shipments we handle. We focus on the profitability of each customer account and generally seek to obtain an appropriate yield to offset our cost inflation and support our ongoing investments in capacity and technology. We believe the continued execution of this
yield-management philosophy, continued increases in density, and ongoing improvements in operating efficiencies are the key components of our ability to produce further improvement in our operating ratio and long-term profitable growth.
Our primary cost elements are direct wages and benefits associated with the movement of freight, operating supplies and expenses, which include diesel fuel, and depreciation of our equipment fleet and service center facilities. We gauge our overall success in managing costs by monitoring our operating ratio, a measure of profitability calculated by dividing total operating expenses by revenue, which also allows for industry-wide comparisons with our competition.
We regularly upgrade our technological capabilities to improve our customer service and lower our operating costs. Our technology provides our customers with visibility of their shipments throughout our network, increases the productivity of our workforce, and provides key metrics that we use to monitor and enhance our processes.
Results of Operations
The following table sets forth, for the periods indicated, expenses and other items as a percentage of revenue from operations:
100.0
%
45.8
45.2
11.8
13.3
3.1
2.7
2.5
2.6
1.2
1.1
0.7
0.8
5.8
5.3
2.1
0.5
0.3
73.5
73.4
26.5
26.6
Interest income, net
(0.5
(0.2
0.1
0.2
26.9
6.9
6.8
20.0
19.8
10
Key financial and operating metrics for the three-month periods ended March 31, 2024 and 2023 are presented below:
%Change
Work days
64
Revenue (in thousands)
Operating ratio
Net income (in thousands)
Diluted earnings per share
3.9
LTL tons (in thousands)
2,264
2,339
(3.2
)%
LTL tonnage per day
35,380
36,540
LTL shipments (in thousands)
3,004
3,018
LTL shipments per day
46,931
47,155
LTL weight per shipment (lbs.)
1,508
1,550
(2.7
LTL revenue per hundredweight
31.98
30.71
4.1
LTL revenue per shipment
482.24
475.88
1.3
Average length of haul (miles)
919
925
(0.6
All references in this report to shares outstanding, weighted average shares outstanding, earnings per share, and dividends per share amounts have been restated retroactively to reflect the two-for-one stock split effected in March 2024.
Our financial results for the first quarter of 2024 include growth in revenue, net income and earnings per diluted share despite continued softness in the domestic economy. We improved our financial results for the quarter by continuing to execute our long-term strategic plan, which is centered on our ability to provide customers with superior service at a fair price. We also maintained our focus on operating efficiently and controlling our discretionary spending. Our operating ratio increased by 10 basis point to 73.5% for the first quarter, however, due primarily to an increase in our overhead expenses as a percent of revenue. We were still able to increase our net income and diluted earnings per share by 2.5% and 3.9%, respectively, for the first quarter of 2024 as compared to the same period last year.
Revenue
Our revenue in the first quarter of 2024 increased $17.9 million, or 1.2%, when compared to the first quarter of 2023 as the 4.1% increase in our LTL revenue per hundredweight sufficiently offset the 3.2% decrease in our LTL tons per day. Excluding fuel surcharges, LTL revenue per hundredweight increased 6.7% in the first quarter of 2024 as compared to the first quarter of 2023. We believe this yield improvement reflects our continued focus on revenue quality and our consistent, long-term approach to pricing, which is designed to offset our cost inflation and support our continued investments in capacity and technology. The decline in our LTL tons per day was primarily due to the decrease in our LTL weight per shipment, which generally reflects the softness in the domestic economic environment.
April 2024 Update
Revenue per day increased 6.3% in April 2024 compared to the same month last year. LTL tons per day increased 2.3%, due to a 3.3% increase in LTL shipments per day, partially offset by a 1.0% decrease in LTL weight per shipment. LTL revenue per hundredweight increased 4.2% as compared to the same month last year. LTL revenue per hundredweight, excluding fuel surcharges, increased 4.7% as compared to the same month last year.
Operating Costs and Other Expenses
Salaries, wages, and benefits increased $16.3 million, or 2.5%, in the first quarter of 2024 as compared to the first quarter of 2023, due primarily to a $16.9 million, or 3.5%, increase in salaries and wages resulting from the annual wage increase provided to employees in September 2023. Our average number of active full-time employees remained consistent between the comparable periods.
Our productive labor costs, which include wages for drivers, platform employees, and fleet technicians, increased as a percent of revenue to 24.1% in the first quarter of 2024 as compared to 23.8% in the first quarter of 2023. This slight increase reflects our commitment to delivering superior service while also operating efficiently despite the decrease in volumes during the quarter. Our P&D shipments per hour increased during the first quarter of 2024 as compared to the first quarter of 2023. We had decreases,
11
however, in our platform productivity metrics and our linehaul laden load factor. These metrics were negatively impacted by the ongoing expansion of our service center network as well as the decrease in our LTL weight per shipment. We were still able to reduce our total intercity miles, which allowed us to manage our linehaul costs as a percent of revenue while also reducing the number of gallons of diesel fuel consumed during the quarter. Our other salaries and wages as a percent of revenue increased to 9.7% in the first quarter of 2024 as compared to 9.2% in the first quarter of 2023.
The costs attributable to employee benefits remained relatively consistent in the first quarter of 2024 as compared to the same prior year period. Our employee benefit costs decreased as a percent of salaries and wages to 35.6% in the first quarter of 2024 from 37.0% in the first quarter of 2023.
Operating supplies and expenses decreased $19.9 million, or 10.4%, in the first quarter of 2024 as compared to the first quarter of 2023. The cost of diesel fuel, excluding fuel taxes, represents the largest component of operating supplies and expenses, and can vary based on both average price per gallon and consumption. Our average cost per gallon of diesel fuel decreased 12.1% in the first quarter of 2024 as compared to the first quarter of 2023. We do not use diesel fuel hedging instruments; therefore, our costs are subject to market price fluctuations. Our gallons consumed decreased 4.4% in the first quarter of 2024 as compared to the first quarter of 2023 due primarily to a decrease in miles driven as well as an improvement in our miles per gallon. Our other operating supplies and expenses also decreased as a percent of revenue between the periods compared, due primarily to lower maintenance and repair costs, as we improve the average age of our fleet by consistently executing our capital expenditure programs.
Depreciation and amortization costs increased $8.6 million, or 11.3%, in the first quarter of 2024 as compared to the first quarter of 2023, due primarily to the increases in depreciation and amortization costs of the assets acquired as part of our 2023 and 2024 capital expenditure programs. We believe depreciation costs will continue to increase in future periods based on our 2024 capital expenditure plan. While our investments in real estate, equipment, and technology can increase our costs in the short-term, we believe these investments are necessary to support our continued long-term growth and strategic initiatives.
Our effective tax rate for the first quarter of 2024 was 25.6% as compared to 25.8% for the first quarter of 2023. Our effective tax rate generally exceeds the federal statutory rate due to the impact of state taxes and, to a lesser extent, certain other discrete or non-deductible items.
Liquidity and Capital Resources
A summary of our cash flows is presented below:
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
The change in our cash flows provided by operating activities during the first quarter of 2024 as compared to the first quarter of 2023 was due primarily to increases in net income and depreciation, as well as fluctuations in certain working capital accounts.
The decline in our cash flows used in investing activities during the first quarter of 2024 as compared to the first quarter of 2023 was due primarily to fluctuations in the timing of our expenditures under our capital expenditure programs. Capital expenditures for tractors and trailers were higher in the first quarter of 2023, due to delivery delays under our 2022 capital expenditure program. The majority of our equipment is generally delivered during the second and third quarters, and our deliveries under our 2024 capital expenditure program are in line with our historical trend. Changes in our capital expenditures are more fully described below in “Capital Expenditures.”
The decrease in our cash flows used in financing activities during the first quarter of 2024 as compared to the first quarter of 2023 was due primarily to lower repurchases of our common stock, the impact of which was partially offset by higher cash utilized for dividend payments to our shareholders. Our return of capital to shareholders is more fully described below under “Stock Repurchase Program” and “Dividends to Shareholders.”
We have four primary sources of available liquidity: cash flows from operations, our existing cash and cash equivalents, available borrowings under our third amended and restated credit agreement with Wells Fargo Bank, National Association serving as administrative agent for the lenders, dated March 22, 2023 (the “Credit Agreement”), and our Note Purchase and Private Shelf Agreement with PGIM, Inc. (“Prudential”) and certain affiliates and managed accounts of Prudential, as amended by the First Amendment dated March 22, 2023 (as amended, the “Note Agreement”). The Credit Agreement and the Note Agreement are described in more detail below under “Financing Arrangements.” We believe we also have sufficient access to debt and equity markets to provide other sources of liquidity, if needed.
Capital Expenditures
The table below sets forth our net capital expenditures for property and equipment for the three-month period ended March 31, 2024 and the years ended December 31, 2023 and 2022:
2022
91,965
291,070
299,529
Tractors
8,681
203,417
148,719
Trailers
1,473
181,534
216,697
Technology
7,224
44,358
33,783
Other equipment and assets
10,169
36,930
68,920
Proceeds from sales
(1,559
(48,637
(22,096
117,953
708,672
745,552
Our capital expenditures vary based upon the change in the number and size of our service center facilities necessary to support our plan for long-term growth, our planned tractor and trailer replacement cycle, and forecasted tonnage and shipment growth. Expenditures for land and structures can be dependent upon the availability of land in the geographic areas where we are looking to expand. We historically spend 10% to 15% of our revenue on capital expenditures each year. We expect to continue to maintain a high level of capital expenditures in order to support our long-term plan for market share growth.
We currently estimate capital expenditures will be approximately $750 million for the year ending December 31, 2024. Approximately $350 million is allocated for the purchase of service center facilities, construction of new service center facilities or expansion of existing service center facilities, subject to the availability of suitable real estate and the timing of construction projects; approximately $325 million is allocated for the purchase of tractors and trailers; and approximately $75 million is allocated for investments in technology and other assets. We expect to fund these capital expenditures primarily through cash flows from operations, our existing cash and cash equivalents and, if needed, borrowings available under our Credit Agreement or Note Agreement. We believe our current sources of liquidity will be sufficient to satisfy our expected capital expenditures.
On July 28, 2021, we announced that our Board of Directors had approved a stock repurchase program authorizing us to repurchase up to an aggregate of $2.0 billion of our outstanding common stock (the “2021 Repurchase Program”). The 2021 Repurchase Program, which does not have an expiration date, began after completion of our prior repurchase program in January 2022. At March 31, 2024, our 2021 Repurchase Program had $140.2 million remaining authorized.
On July 26, 2023, we announced that our Board of Directors had approved a new stock repurchase program authorizing us to repurchase up to an aggregate of $3.0 billion of our outstanding common stock. The new repurchase program, which does not have an expiration date, will be effective upon the completion of our 2021 Repurchase Program.
Dividends to Shareholders
All references in this report to dividend amounts have been restated retroactively to reflect this stock split.
Our Board of Directors also declared a cash dividend of $0.26 per share for the first quarter of 2024, and declared a cash dividend of $0.20 per share for each quarter of 2023.
Although we intend to pay a quarterly cash dividend on our common stock for the foreseeable future, the declaration and amount of any future dividend is subject to approval by our Board of Directors, and is restricted by applicable state law limitations on distributions to shareholders as well as certain covenants under our Credit Agreement and Note Agreement. We anticipate that any future quarterly cash dividends will be funded through cash flows from operations, our existing cash and cash equivalents, short-term investments, and, if needed, borrowings under our Credit Agreement or Note Agreement.
Financing Agreements
The Note Agreement, which is uncommitted and subject to Prudential’s sole discretion, provides for the issuance of senior promissory notes with an aggregate principal amount of up to $350.0 million through March 22, 2026. On May 4, 2020, we issued $100.0 million aggregate principal amount of senior promissory notes (the “Series B Notes”). Borrowing availability under the Note Agreement is reduced by the outstanding amount of the existing Series B Notes, and all other senior promissory notes issued pursuant to the Note Agreement.
The Series B Notes bear interest at 3.10% per annum and mature on May 4, 2027, unless prepaid. Our first principal payment of $20.0 million was paid on May 4, 2023. The remaining $80.0 million will be paid in four equal annual installments of $20.0 million through May 4, 2027. The Series B Notes are senior unsecured obligations and rank pari passu with borrowings under the Credit Agreement or other senior promissory notes issued pursuant to the Note Agreement.
At our option, borrowings under the Credit Agreement bear interest at either: (i) the Secured Overnight Financing Rate (SOFR) plus the Term SOFR Adjustment, as defined in the Credit Agreement, equal to 0.100%, plus an applicable margin that ranges from 1.000% to 1.375%; or (ii) a Base Rate, as defined in the Credit Agreement, plus an applicable margin that ranges from 0.000% to 0.375%. The applicable margin for each of the foregoing options is dependent upon our consolidated debt to consolidated total capitalization ratio. Letter of credit fees equal to the applicable margin for SOFR loans are charged quarterly in arrears on the daily average aggregate stated amount of all letters of credit outstanding during the quarter. Commitment fees ranging from 0.090% to 0.175% (based upon our consolidated debt to consolidated total capitalization ratio) are charged quarterly in arrears on the aggregate unutilized portion of the Credit Agreement.
For periods covered under the Credit Agreement, the applicable margin on SOFR loans and letter of credit fees were 1.000% and commitment fees were 0.09%.
The amounts outstanding and available borrowing capacity under the Credit Agreement are presented below:
Facility limit
250,000
Line of credit borrowings
Outstanding letters of credit
(38,106
(39,966
Available borrowing capacity
211,894
210,034
The Credit Agreement and Note Agreement contain customary covenants, including financial covenants that require us to observe a maximum ratio of debt to total capital and a minimum fixed charge coverage ratio. The Credit Agreement and Note
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Agreement also include a provision limiting our ability to make restricted payments, including dividends and payments for share repurchases, unless, among other conditions, no defaults or events of default are ongoing (or would be caused by such restricted payment). We were in compliance with all covenants in our outstanding debt instruments for the period ended March 31, 2024.
We do not anticipate financial performance that would cause us to violate any such covenants in the future, and we believe the combination of our existing Credit Agreement and Note Agreement along with our additional borrowing capacity will be sufficient to meet foreseeable seasonal and long-term capital needs.
The interest rate is fixed on the Series B Notes. Therefore, short-term exposure to fluctuations in interest rates is limited to our Credit Agreement. We do not currently use interest rate derivative instruments to manage exposure to interest rate changes.
Critical Accounting Policies
In preparing our condensed financial statements, we applied the same critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2023 that we believe affect our judgments and estimates of amounts recorded in certain assets, liabilities, revenue and expenses.
Seasonality
Our tonnage levels and revenue mix are subject to seasonal trends common in our industry, although other factors, such as macroeconomic changes, could cause variation in these trends. Our revenue and operating margins in the first and fourth quarters are typically lower than those during the second and third quarters due to reduced shipments during the winter months. We believe seasonal trends will continue to impact our business. Harsh winter weather, hurricanes, tornadoes, floods and other natural disasters can also adversely impact our performance by reducing demand and increasing operating expenses.
Environmental Regulation
We are subject to various federal, state and local environmental laws and regulations that focus on, among other things: the disposal, emission and discharge of hazardous waste, hazardous materials, or other materials into the environment or their presence at our properties or in our vehicles; fuel storage tanks; transportation of certain materials; and the discharge or retention of storm water. Under specific environmental laws, we could also be held responsible for any costs relating to contamination at our past or present facilities and at third-party waste disposal sites, as well as costs associated with clean-up of accidents involving our vehicles. We do not believe that the cost of future compliance with current environmental laws or regulations will have a material adverse effect on our operations, financial condition, competitive position or capital expenditures for fiscal year 2024. However, future changes to laws or regulations may adversely affect our operations and could result in unforeseen costs to our business.
Forward-Looking Information
Forward-looking statements appear in this report, including, but not limited to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in other written and oral statements made by or on behalf of us. These forward-looking statements include, but are not limited to, statements relating to our goals, strategies, expectations, competitive environment, regulation, availability of resources, future events and future financial performance. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements typically can be identified by such words as “anticipate,” “estimate,” “forecast,” “project,” “intend,” “expect,” “believe,” “should,” “could,” “may” or other similar words or expressions. We caution readers that such forward-looking statements involve risks and uncertainties, including, but not limited to, the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023 and in other reports and statements that we file with the Securities and Exchange Commission (“SEC”). Such forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied herein, including, but not limited to, the following:
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Our forward-looking statements are based upon our beliefs and assumptions using information available at the time the statements are made. We caution the reader not to place undue reliance on our forward-looking statements as (i) these statements are neither a prediction nor a guarantee of future events or circumstances; and (ii) the assumptions, beliefs, expectations and projections about future events may differ materially from actual results. We undertake no obligation to publicly update any forward-looking statement to reflect developments occurring after the statement is made, except as otherwise required by law.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to our market risk exposures since our most recent fiscal year end. For a discussion of our exposure to market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Item 4. Controls and Procedures
As of the end of the period covered by this quarterly report, our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), conducted an evaluation of the effectiveness of our disclosure controls and procedures in accordance with Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this quarterly report, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure, and (b) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Consistent with SEC Regulation S-K Item 103, we have elected to disclose any environmental legal proceedings with a governmental authority if management reasonably believes that the proceedings may involve potential monetary sanctions of $1.0 million or more. Applying this threshold, there are no such unresolved proceedings to disclose for the three months ended March 31, 2024.
Item 1A. Risk Factors
In addition to the other information set forth in this report and in our other reports and statements that we file with the SEC, including our quarterly reports on Form 10-Q, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial condition and future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.
There have been no material changes to the risk factors identified in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding our repurchases of our common stock during the first quarter of 2024:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of Shares Purchased (1)
Average Price Paid per Share (2)
Total Number of Shares Purchased as Part of Publicly Announced Programs
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
January 1-31, 2024
252,044
195.22
240,948
178,481,387
February 1-28, 2024
146,730
209.08
117,516
154,096,030
March 1-31, 2024
66,618
220.29
63,292
140,156,843
465,392
203.18
421,756
On July 28, 2021, we announced that our Board of Directors had approved a stock repurchase program authorizing us to repurchase up to an aggregate of $2.0 billion of our outstanding common stock (the “2021 Repurchase Program”). The 2021 Repurchase Program, which does not have an expiration date, began after the completion of our prior repurchase program in January 2022. At March 31, 2024, our 2021 Repurchase Program had $140.2 million remaining authorized.
Item 6. Exhibits
The exhibits listed in the accompanying Exhibit Index are filed as a part of this report.
EXHIBIT INDEX
TO QUARTERLY REPORT ON FORM 10-Q
Exhibit No.
Description
31.1
Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
32.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
101
The following financial information from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, filed on May 7, 2024, formatted in iXBRL (Inline eXtensible Business Reporting Language) includes: (i) the Condensed Balance Sheets at March 31, 2024 and December 31, 2023, (ii) the Condensed Statements of Operations for the three months ended March 31, 2024 and 2023, (iii) the Condensed Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2024 and 2023, (iv) the Condensed Statements of Cash Flows for the three months ended March 31, 2024 and 2023, and (v) the Notes to the Condensed Financial Statements
104
The cover page from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in iXBRL
Our SEC file number reference for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 0-19582.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE:
May 7, 2024
/s/ ADAM N. SATTERFIELD
Adam N. Satterfield
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ KIMBERLY S. MAREADY
Kimberly S. Maready
Vice President - Accounting and Finance
(Principal Accounting Officer)