Ryder(R) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company presents its unaudited condensed consolidated financial statements for the period ending September 30, 2021 Condensed Consolidated Statements of Earnings Profitability increased significantly in Q3 and the first nine months of 2021, driven by 14% revenue growth and gains on used vehicle sales Consolidated Earnings Highlights (in thousands, except per share amounts) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $2,459,049 | $2,150,575 | $7,062,908 | $6,207,163 | | Earnings (loss) from continuing operations | $138,659 | $45,085 | $339,811 | $(137,749) | | Used vehicle sales, net | $(69,303) | $(12,919) | $(149,788) | $17,253 | | Net earnings (loss) | $138,054 | $35,834 | $337,984 | $(147,878) | | Diluted EPS from continuing operations | $2.58 | $0.85 | $6.33 | $(2.64) | Condensed Consolidated Balance Sheets Total assets remained stable at $12.9 billion, while lower liabilities led to an increase in shareholders' equity to $2.51 billion Balance Sheet Summary (in thousands) | Metric | Sept 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $12,896,112 | $12,931,954 | | Total Liabilities | $10,382,461 | $10,676,397 | | Total Shareholders' Equity | $2,513,651 | $2,255,557 | Condensed Consolidated Statements of Cash Flows Operating cash flow remained strong at $1.68 billion, while increased capital expenditures drove higher cash usage in investing activities Cash Flow Summary - Nine Months Ended Sept 30 (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,684,891 | $1,696,589 | | Net cash used in investing activities | $(860,910) | $(484,419) | | Net cash provided by (used in) financing activities | $(768,054) | $(603,715) | | Increase in cash and cash equivalents | $51,442 | $610,664 | Notes to Condensed Consolidated Financial Statements Notes detail revenue disaggregation, a significant increase in gains from used vehicle sales, and new share repurchase programs - The company reports across three business segments: Fleet Management Solutions (FMS), Supply Chain Solutions (SCS), and Dedicated Transportation Solutions (DTS)[24] - Total debt decreased to $6.0 billion as of September 30, 2021, from $6.6 billion at year-end 2020[53] - In October 2021, the Board authorized two new share repurchase programs: a 2.0 million share discretionary program and a 2.5 million share anti-dilutive program[57] - Subsequent to the quarter end, on October 27, 2021, Ryder entered into a definitive agreement to acquire Midwest Warehouse & Distribution System for approximately $275 million[82] Gains on Used Vehicle Sales (in thousands) | Period | 2021 | 2020 | | :--- | :--- | :--- | | Q3 | $73,865 | $14,852 | | Nine Months | $160,458 | $17,204 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes a 14% revenue increase and profitability turnaround, noting segment margin pressures and lower free cash flow - The increase in EBT was primarily due to higher gains on used vehicles sold and a declining impact of depreciation expense from prior residual value estimate changes, totaling a positive impact of $316 million for the nine months[94] - Global supply chain disruptions and labor shortages created mixed impacts: increased demand and pricing for rental and used vehicles, but also decreased demand from automotive customers and higher labor and subcontracted transportation costs for SCS and DTS[95][96] - The debt-to-equity ratio improved to 238% at Sept 30, 2021, from 293% at Dec 31, 2020, due to increased earnings and free cash flow[99] Financial Highlights - Nine Months Ended Sept 30 | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $7,062.9M | $6,207.2M | +14% | | Operating Revenue (Non-GAAP) | $5,723.0M | $5,184.7M | +10% | | EBT | $457.0M | $(153.6)M | NM | | Comparable EPS (Non-GAAP) | $6.05 | $(1.11) | NM | Consolidated Results Lease & Rental gross margin increased significantly due to strong pricing, while Services margin fell on higher labor and transport costs - Lease & related maintenance and rental gross margin percentage increased from 19% in Q3 2020 to 28% in Q3 2021, driven by lower depreciation and higher rental revenue[102][104] - Services gross margin percentage decreased from 17% in Q3 2020 to 12% in Q3 2021, reflecting the impact of higher labor and subcontracted transportation costs[105][108] - Interest expense decreased 16% for the nine-month period due to lower average outstanding debt[117] Used Vehicle Proceeds Per Unit Change (Q3 2021 vs Q3 2020) | Vehicle Type | Proceeds Change YoY | | :--- | :--- | | Tractors | +100% | | Trucks | +103% | Operating Results by Business Segment FMS segment EBT surged over 1000% in Q3, while SCS and DTS EBT declined over 50% due to rising operational costs - FMS EBT growth was driven by higher gains on used vehicles sold, a declining impact of depreciation, and strong commercial rental results, with rental power fleet utilization increasing to 83% from 71% YoY[136][137] - SCS EBT decreased primarily due to lower earnings in the automotive sector (impacted by supply chain disruptions), higher labor costs, and strategic investments[149] - DTS EBT decreased due to higher labor costs from driver shortages, increased insurance costs, and strategic investments[153] Segment EBT (in thousands) | Segment | Q3 2021 | Q3 2020 | Change | | :--- | :--- | :--- | :--- | | Fleet Management Solutions (FMS) | $186,391 | $16,152 | +1054% | | Supply Chain Solutions (SCS) | $22,161 | $57,848 | -62% | | Dedicated Transportation Solutions (DTS) | $11,324 | $24,728 | -54% | Financial Resources and Liquidity Liquidity remains strong with stable operating cash flow, though free cash flow decreased due to higher capital expenditures in the rental fleet - Gross capital expenditures increased to $1.5 billion for the nine months of 2021, up from $765 million in 2020, reflecting higher planned investments in the rental fleet[161][162] - As of September 30, 2021, the company had $1.2 billion available under its global revolving credit facility and $300 million under its trade receivables financing program[169] Free Cash Flow (Non-GAAP, in thousands) | Period | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,684,891 | $1,696,589 | | Cash paid for purchases of property and revenue earning equipment | $(1,427,684) | $(879,400) | | Free cash flow | $828,970 | $1,217,874 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposures since the end of the previous fiscal year - There have been no material changes to Ryder's exposures to market risks since December 31, 2020[201] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls in Q3 2021 - Management, including the CEO and CFO, concluded that Ryder's disclosure controls and procedures were effective as of the end of the third quarter of 2021[203] - There were no changes in Ryder's internal control over financial reporting during Q3 2021 that have materially affected or are reasonably likely to materially affect such controls[204] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is defending a securities class action lawsuit concerning its vehicle depreciation policy and residual value estimates - Ryder is a defendant in a putative class action lawsuit filed in May 2020, alleging misrepresentations of its depreciation policy and residual value estimates for its vehicles between July 2015 and February 2020[72] - Several related shareholder derivative complaints have also been filed in both state and federal courts, which have been stayed pending the outcome of a Motion to Dismiss in the primary securities class action[73][74][75] - The company believes the claims asserted in the complaints are without merit and intends to defend against them vigorously[76] Item 1A. Risk Factors The company reports no material changes to the risk factors previously disclosed in its 2020 Annual Report on Form 10-K - There have been no material changes in the risk factors described in the company's Form 10-K for the year ended December 31, 2020[209] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 97,671 shares of its common stock during Q3 2021 under its anti-dilutive repurchase program - The share repurchases are part of a program authorized in December 2019 intended to mitigate the dilutive impact of shares issued under employee stock plans[211] Share Repurchases - Q3 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2021 | 30,115 | $76.45 | | August 2021 | 67,426 | $77.08 | | September 2021 | 130 | $80.80 | | Total Q3 | 97,671 | $76.89 | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including required CEO/CFO certifications and interactive data files - The exhibits filed include certifications from CEO Robert E. Sanchez and CFO John J. Diez pursuant to SEC rules[213] - Interactive Data Files (XBRL documents) are also included as exhibits to comply with SEC reporting requirements[213] Signature The report was officially signed on October 27, 2021, by the company's Principal Financial and Accounting Officers - The report was duly signed on October 27, 2021, by John J. Diez (Principal Financial Officer) and Cristina Gallo-Aquino (Principal Accounting Officer)[217]