Schneider National(US:SNDR)2025-02-21 21:40Part I - Business and Risk Factors Business Overview Schneider National is a leading North American multimodal transportation and logistics provider, expanding through acquisitions and ESG initiatives - Schneider operates as a major provider of multimodal surface transportation and logistics in North America, with a history dating back to 1935 and an IPO in 201724 - The company's operations are categorized into three reportable segments: Truckload, Intermodal, and Logistics, offering a complementary portfolio of services2528 - In 2024, the company served approximately 7,850 customers, with 22 of its top 25 customers utilizing services from all three reportable segments37 - Completed the acquisition of Cowan Systems, a truckload carrier, on December 2, 2024, to complement its dedicated and logistics services31 - The company has deployed nearly 100 Class 8 Battery-Electric Vehicles (BEVs) in its Intermodal fleet to reduce emissions and improve fleet efficiency5457 Transportation Equipment Fleet as of December 31, 2024 | Transportation Equipment Type | Approximate Number of Units | | :----------------------------------------------------- | :-------------------------- | | Over-the-road sleeper cab tractors | 8,000 | | Day cab tractors | 4,100 | | Other tractors (yard, straight trucks, training) | 400 | | Trailers | 54,400 | | Containers | 27,000 | | Chassis | 23,900 | Risk Factors The company faces significant operational, financial, and regulatory risks, including economic sensitivity, competition, and rising claims costs - Business operations are sensitive to economic conditions, tariffs, and geopolitical issues that impact shipping volumes, freight demand, and operating costs like driver wages, fuel, and maintenance73 - The company operates in a highly competitive and fragmented industry, facing intense price competition from numerous carriers and logistics providers, which could limit growth and reduce profitability74 - A significant portion of revenue comes from major customers, and the loss of one or more could materially harm the business, as most relationships are not based on long-term contracts with volume guarantees75 - The trucking industry faces persistent difficulty in attracting and retaining qualified drivers, which could lead to increased compensation costs, reliance on third-party carriers, or idling of equipment76 - The company is exposed to significant insurance and claims expenses, with a trend of increasing "nuclear verdicts" and rising insurance premiums, which could exceed coverage limits and reduce earnings9899 - Voting control is concentrated with a Voting Trust for the Schneider family, representing approximately 94% of total voting power, which limits other shareholders' influence on major corporate transactions101 - The company is subject to evolving federal and state regulations regarding independent contractor classification, which could lead to reclassification of owner-operators as employees, adversely affecting operations and profitability115117118 - Extensive environmental regulations, particularly from the EPA and CARB regarding GHG emissions and the transition to Zero-Emission Vehicles (ZEVs), are increasing equipment and operating costs120123125 Cybersecurity Schneider manages cybersecurity risks through a dedicated team, ERM framework, and Board oversight, with no material incidents reported - The company manages cyber risks through a dedicated information security team and a framework integrated into its overall Enterprise Risk Management (ERM) process140141 - The cybersecurity risk management methodology involves four core tasks: risk identification, analysis, evaluation, and mitigation, often in partnership with a Managed Security Service Provider (MSSP)140142 - The Board's Audit Committee has primary oversight of cybersecurity risks, receiving semiannual updates from the management team, including the CITO and SDIS144 - Management's cybersecurity team is led by the CITO, with 20 years of information security experience, and the SDIS, with 32 years in IT and 14 years leading information security teams145 - While attempted cyberattacks have been identified, none have had a material impact on the company as of the filing date of this report128 Properties As of December 31, 2024, Schneider operates approximately 280 owned or leased properties across 40 states and Mexico - The company's property network consists of approximately 280 owned or leased locations across 40 states and Mexico as of year-end 2024147 - The network includes approximately 61 operating centers, 7 distribution warehouses, 20 offices, and over 180 drop yards, with about half of the 47 central properties being owned147148 Part II - Financial Information Market for Common Equity and Related Matters Schneider's Class B stock trades on NYSE; the company pays quarterly dividends and did not repurchase shares in Q4 2024 - The company has a dual-class stock structure: Class B (SNDR) is publicly traded on the NYSE, while Class A is held by the Schneider family's Voting Trust and is not publicly traded154 - The company maintains a policy of paying quarterly cash dividends, but the declaration and amount are at the discretion of the Board of Directors156 - No equity securities were repurchased by the company during the three months ended December 31, 2024157 Cumulative Total Shareholder Return Comparison (2019-2024) | Index | 12/31/2019 | 12/31/2024 | | :-------------------------- | :--------- | :--------- | | Schneider National, Inc. | $100.00 | $156.87 | | S&P 500 - Total Returns | $100.00 | $197.02 | | Dow Jones Transportation | $100.00 | $156.71 | | Peer Group | $100.00 | $209.31 | Management's Discussion and Analysis (MD&A) Schneider's 2024 financial performance declined due to challenging freight markets, despite strong cash flow and strategic acquisitions Results of Operations In 2024, net income fell 51% to $117.0 million and operating revenues decreased 4% due to market and cost pressures Enterprise Financial Summary (FY 2024 vs. FY 2023) | Financial Metric (in millions) | 2024 | 2023 | % Change | | :----------------------------- | :-------- | :-------- | :------- | | Operating revenues | $5,290.5 | $5,498.9 | (3.8%) | | Income from operations | $165.2 | $296.4 | (44.3%) | | Net income | $117.0 | $238.5 | (51.0%) | | Adjusted income from operations | $172.2 | $302.9 | (43.1%) | | Adjusted EBITDA | $580.2 | $699.6 | (17.1%) | - Operating revenues decreased by $208.4 million (4%), primarily due to a $112.4 million drop in Logistics segment revenues, a $108.1 million decrease in fuel surcharge revenues, and a $9.5 million decline in Intermodal revenues197198199 - Income from operations fell by $131.2 million (44%), impacted by lower net revenue per order in Logistics, reduced rates and volume in the Network business, higher insurance premiums, increased depreciation, and reduced gains on equipment sales200 - Insurance and related expenses increased by $37.2 million (33%) year-over-year, mainly due to higher auto liability insurance costs from increased premiums and claims development from prior periods203 Income from Operations by Segment (FY 2024 vs. FY 2023) | Segment (in millions) | 2024 | 2023 | % Change | | :-------------------- | :----- | :------ | :------- | | Truckload | $89.1 | $170.7 | (47.8%) | | Intermodal | $54.5 | $71.0 | (23.2%) | | Logistics | $32.7 | $45.9 | (28.8%) | | Other | $(11.1) | $8.8 | N/A | Liquidity and Capital Resources Schneider maintained strong liquidity with $686.1 million operating cash flow, reduced capital expenditures, and debt for acquisitions - Primary liquidity sources are cash from operations, a $250.0 million revolving credit facility, and a $200.0 million receivables purchase agreement. Combined available capacity was $281.8 million at year-end 2024224 Cash Flow Summary (FY 2024 vs. FY 2023) | Cash Flow Activity (in millions) | 2024 | 2023 | | :------------------------------- | :-------- | :-------- | | Net cash from operating activities | $686.1 | $680.0 | | Net cash used in investing activities | $(791.5) | $(907.6) | | Net cash from financing activities | $120.6 | $(55.7) | - Net capital expenditures decreased to $380.3 million in 2024 from $573.8 million in 2023, with a forecast of $400.0 million to $450.0 million for 2025233234 - Financing activities were a source of cash primarily due to $300.0 million in proceeds from long-term debt used to partially fund the Cowan Systems acquisition235327 Critical Accounting Estimates Critical accounting estimates include claims accruals, goodwill impairment, and business combinations, all requiring significant judgment - Claims Accruals are a critical estimate due to the judgment required to assess the severity and cost of claims. The net accrual for claims was $236.6 million as of December 31, 2024, up from $178.4 million in 2023241242 - Goodwill was $377.9 million as of December 31, 2024. The annual impairment test in October 2024 indicated no impairment charge247249 - Accounting for business combinations requires significant judgment; the purchase price allocation for the December 2024 Cowan Systems acquisition is preliminary251248332 Financial Statements and Supplementary Data Audited financial statements show $117.0 million net income on $5.29 billion revenue, with claims accruals as a critical audit matter - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion and identified claims accruals as a Critical Audit Matter259264 Consolidated Statements of Comprehensive Income Highlights (in millions) | Line Item | 2024 | 2023 | 2022 | | :--------------------- | :-------- | :-------- | :-------- | | Operating revenues | $5,290.5 | $5,498.9 | $6,604.4 | | Income from operations | $165.2 | $296.4 | $600.4 | | Net income | $117.0 | $238.5 | $457.8 | | Diluted earnings per share | $0.66 | $1.34 | $2.56 | Consolidated Balance Sheets Highlights (in millions) | Line Item | Dec 31, 2024 | Dec 31, 2023 | | :--------------------------------- | :----------- | :----------- | | Total current assets | $1,115.3 | $1,110.9 | | Net property and equipment | $2,869.4 | $2,581.7 | | Goodwill | $377.9 | $331.7 | | Total Assets | $4,933.7 | $4,557.2 | | Total current liabilities | $704.5 | $606.2 | | Total noncurrent liabilities | $1,242.3 | $994.2 | | Total Liabilities | $1,946.8 | $1,600.4 | | Total Shareholders' Equity | $2,986.9 | $2,956.8 | - The acquisition of Cowan Systems on December 2, 2024, was for approximately $398.6 million, financed by cash and a new $400.0 million delayed-draw term loan facility327 - The company's effective tax rate for 2024 was 23.1%, compared to 22.1% in 2023415 Part III - Corporate Governance Directors, Executive Officers, and Corporate Governance Information on executive officers and corporate governance is largely incorporated by reference from the 2025 Proxy Statement - Most information for this section is incorporated by reference from the 2025 Annual Meeting Proxy Statement485 - Mark B. Rourke, 60, has served as President and CEO since April 2019 and joined the company in 1987487 - Darrell G. Campbell, 46, has served as Executive Vice President and CFO since September 2023488 Executive Compensation All executive compensation information is incorporated by reference from the company's 2025 Annual Meeting Proxy Statement - All information required by this item is incorporated by reference from the company's 2025 Proxy Statement495 Security Ownership and Equity Compensation Plans As of December 31, 2024, 2,212,996 securities were issuable under equity plans, with 2,530,065 available for future issuance - In January 2023, the Board approved a share repurchase program of up to $150.0 million. As of December 31, 2024, $95.5 million had been repurchased under this program426 Equity Compensation Plan Information as of December 31, 2024 | Plan Category | Number of Securities to be Issued Upon Exercise | Weighted Average Exercise Price of Outstanding Options | Number of Securities Remaining Available for Future Issuance | | :------------------------------------------- | :---------------------------------------------- | :----------------------------------------------------- | :----------------------------------------------------------- | | Equity compensation plans approved by security holders | 2,212,996 | $22.79 | 2,530,065 |