Heartland Express(HTLD) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, highlighting improved net income and a strong debt-free balance sheet Consolidated Balance Sheets The balance sheet shows a strong liquidity position with increased cash to $180.4 million and no outstanding debt as of September 30, 2021 Balance Sheet Highlights (in thousands) | Balance Sheet Highlights (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $180,366 | $113,852 | | Property and equipment, net | $491,058 | $539,280 | | Total assets | $958,280 | $951,176 | | Liabilities & Equity | | | | Total current liabilities | $117,039 | $71,042 | | Total long-term liabilities | $132,425 | $155,800 | | Total stockholders' equity | $708,816 | $724,334 | - The company had no outstanding debt as of September 30, 2021, and December 31, 2020[45] Consolidated Statements of Comprehensive Income Despite a decrease in operating revenue, net income increased in Q3 2021 and for the nine-month period, primarily driven by higher gains on equipment disposal Income Statement (in thousands) | Income Statement (in thousands) | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Operating Revenue | $152,612 | $162,282 | $459,142 | $489,473 | | Operating Income | $33,273 | $27,339 | $78,903 | $69,654 | | Net Income | $24,466 | $20,714 | $58,942 | $53,134 | | Diluted EPS | $0.31 | $0.25 | $0.74 | $0.65 | - Gain on disposal of property and equipment significantly increased to $15.3 million in Q3 2021 from $5.7 million in Q3 2020, and to $27.3 million for the nine months of 2021 from $8.7 million in the prior year period[11] Consolidated Statements of Cash Flows Operating cash flow decreased to $95.7 million, while investing activities provided $5.0 million, and financing activities used $34.8 million, primarily for share repurchases and dividends Cash Flow Summary (in thousands) | Cash Flow Summary (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $95,694 | $132,987 | | Net cash provided by (used in) investing activities | $5,027 | $(112,279) | | Net cash used in financing activities | $(34,810) | $(17,593) | | Net increase in cash | $65,911 | $3,115 | Notes to Consolidated Financial Statements The notes detail accounting policies, single segment operations, a $0.50 per share special dividend, share repurchases, and an amended credit agreement - The company operates as a single segment, providing nationwide asset-based dry van truckload service for major shippers across the United States[18][22] - In Q3 2021, the Board of Directors declared a special dividend of $0.50 per share, totaling $39.5 million, in addition to the regular quarterly dividend[34] - During the nine months ended September 30, 2021, the company repurchased 1.8 million shares for $30.9 million[33] - On August 31, 2021, the company amended its credit agreement, extending the maturity to August 31, 2023, and reducing the unsecured revolving line of credit to $25.0 million[41][42] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting improved profitability despite revenue decline, driven by strong freight demand, favorable pricing, and equipment sales gains amidst driver shortages and rising costs Overview The company operates in a strong freight market with high demand and favorable pricing, but faces challenges from a qualified driver shortage and increased wage pressures - The freight market has been strong through the first nine months of 2021 with increased demand and a favorable pricing environment, which is expected to continue[61] - The trucking industry is facing a qualified driver shortage, which has intensified competition for drivers; the company has increased driver wages multiple times in the last twelve months to attract and retain drivers[64] Key Performance Metrics | Key Performance Metrics | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Operating Ratio | 82.8% | 85.8% | | Adjusted Operating Ratio (Non-GAAP) | 80.5% | 84.2% | Results of Operations Operating revenue decreased in Q3 and the nine-month period due to fewer miles, but net income significantly increased, primarily driven by higher gains on equipment disposal - Q3 2021 vs Q3 2020: Operating revenue decreased by $9.7 million (6.0%) due to a decrease in total miles, partially offset by higher freight rates; Net income increased by 18.1%, primarily due to higher gains on the sale of revenue equipment[72][73] - Nine Months 2021 vs 2020: Operating revenue decreased by $30.4 million (6.2%) due to lower miles driven; Net income increased by 10.9%, largely driven by an $18.6 million increase in gains on equipment disposal[85][96] - Fuel expense increased 19.0% in Q3 and 13.4% in the nine-month period, primarily due to a 38.4% and 22.5% increase in average diesel prices for the respective periods[77][90] Liquidity and Capital Resources The company maintains strong liquidity with $180.4 million cash and no debt, supported by operating cash flow, active share repurchases, and equipment purchase commitments - As of September 30, 2021, the company had $180.4 million in cash and cash equivalents, no outstanding debt, and $14.2 million available under its credit facility[98] - Cash flow from operating activities decreased to $95.7 million for the nine months of 2021 from $133.0 million in the prior year period[104] - The company has a stock repurchase program with 6.7 million shares remaining for repurchase; in Q3 2021, 1.0 million shares were repurchased[108] - Total estimated purchase commitments for tractors and trailers as of September 30, 2021, was $42.9 million, extending into 2022[103] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are commodity price changes for fuel and tires, with minimal interest rate risk due to no outstanding debt - The company is exposed to commodity price risk from fuel and tires; a hypothetical $1.00 increase in the average price of fuel per gallon would decrease income before income taxes by approximately $8.2 million[114] - A hypothetical 10% increase in the price of tires would increase tire purchase expense by $1.4 million, reducing pre-tax income by the same amount[114] - Interest rate risk is low, as the company had no debt outstanding at September 30, 2021[113] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[117] - No changes occurred in the company's internal control over financial reporting during the quarter ended September 30, 2021, that would have a material effect[119] PART II - OTHER INFORMATION This section provides other information, including legal proceedings, updated risk factors, equity security sales, and a list of exhibits Item 1. Legal Proceedings The company is involved in routine litigation incidental to its business, which is not expected to have a material adverse effect on its financial condition - The company is involved in routine litigation incidental to its business, which is not expected to have a material adverse effect on its financial condition[122] Item 1A. Risk Factors This section updates risk factors, including potential impacts from a proposed COVID-19 vaccination rule and risks from increased prices and decreased availability of new equipment due to supply chain shortages - A proposed new rule requiring mandatory COVID-19 vaccination could materially harm the business by causing unvaccinated employees, especially drivers, to leave the company, thereby worsening the driver shortage and increasing costs[124] - The company faces risks from increased prices and decreased availability of new tractors and trailers due to shortages of component parts like semiconductor chips; this could lead to higher maintenance costs and longer trade cycles[125][126] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, the company repurchased 987,627 shares of common stock and authorized an additional 3,000,000 shares for its repurchase plan Share Repurchases (Q3 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2021 | 349,523 | $16.60 | | August 2021 | 575,614 | $16.68 | | September 2021 | 62,490 | $15.97 | | Total Q3 2021 | 987,627 | | - On August 20, 2021, the company added 3,000,000 shares to its share repurchase plan authorization[129] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Second Amendment to the Credit Agreement and officer certifications - Key exhibits filed include the Second Amendment to the Credit Agreement with Wells Fargo and officer certifications pursuant to the Sarbanes-Oxley Act[133]