Old Dominion Freight Line(ODFL) - 2021 Q2 - Quarterly Report

Part I Financial Information This section presents the company's unaudited condensed financial statements as of June 30, 2021, covering balance sheets, operations, equity changes, cash flows, and related notes Financial Statements This chapter presents the company's unaudited condensed financial statements as of June 30, 2021, along with detailed notes on key accounting policies and financial positions Condensed Balance Sheets – June 30, 2021 and December 31, 2020 As of June 30, 2021, the company's total assets and liabilities both increased, with a slight rise in shareholders' equity, reflecting business expansion and changes in financial position Condensed Balance Sheet Key Data (in thousand USD) | Indicator | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $484,204 | $401,430 | | Short-term investments | $165,254 | $330,274 | | Accounts receivable | $548,749 | $444,653 | | Net property and equipment | $2,998,727 | $2,914,031 | | Total assets | $4,534,446 | $4,369,410 | | Liabilities and Shareholders' Equity | | | | Accounts payable | $90,956 | $68,511 | | Compensation and benefits | $245,762 | $191,303 | | Total current liabilities | $482,018 | $373,130 | | Long-term debt | $99,939 | $99,931 | | Total liabilities | $1,132,068 | $1,043,122 | | Total shareholders' equity | $3,402,378 | $3,326,288 | | Total liabilities and shareholders' equity | $4,534,446 | $4,369,410 | Condensed Statements of Operations – For the three and six months ended June 30, 2021 and 2020 For the three and six months ended June 30, 2021, the company achieved significant growth in revenue, net income, and diluted earnings per share, indicating strong business performance and improved profitability Condensed Statements of Operations Key Data (in thousand USD, except per share data) | Indicator | Q2 2021 | Q2 2020 | YoY Change Q2 | Six Months 2021 | Six Months 2020 | YoY Change Six Months | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Operating revenue | $1,319,409 | $896,210 | +47.2% | $2,445,924 | $1,883,574 | +29.9% | | Operating expenses | $953,365 | $697,044 | +36.8% | $1,810,223 | $1,501,238 | +20.6% | | Operating income | $366,044 | $199,166 | +83.8% | $635,701 | $382,336 | +66.3% | | Net income | $269,576 | $147,805 | +82.4% | $468,935 | $280,982 | +66.9% | | Basic earnings per share | $2.33 | $1.26 | +84.9% | $4.04 | $2.37 | +70.5% | | Diluted earnings per share | $2.31 | $1.25 | +84.8% | $4.01 | $2.36 | +69.9% | | Dividends per share | $0.20 | $0.15 | +33.3% | $0.40 | $0.30 | +33.3% | Condensed Statements of Changes in Shareholders' Equity - For the three and six months ended June 30, 2021 and 2020 For the three and six months ended June 30, 2021, changes in shareholders' equity were primarily influenced by net income, stock repurchases, and cash dividend payments Condensed Statements of Changes in Shareholders' Equity Key Data (in thousand USD) | Indicator | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Common stock beginning balance | $11,596 | $11,813 | $11,706 | $11,953 | | Stock repurchases | $(16) | $(80) | $(129) | $(223) | | Additional paid-in capital beginning balance | $156,126 | $217,187 | $226,451 | $218,462 | | Accelerated share repurchase forward contract | $0 | $(37,500) | $(68,750) | $(37,500) | | Retained earnings beginning balance | $3,024,195 | $2,787,049 | $3,088,131 | $2,850,302 | | Net income | $269,576 | $147,805 | $468,935 | $280,982 | | Cash dividends | $(23,194) | $(17,598) | $(46,387) | $(35,877) | | Total shareholders' equity ending balance | $3,402,378 | $2,982,468 | $3,402,378 | $2,982,468 | Condensed Statements of Cash Flows – For the six months ended June 30, 2021 and 2020 For the six months ended June 30, 2021, operating cash flow slightly decreased, while investing cash outflow significantly reduced, and financing cash outflow increased, leading to a smaller net increase in cash and cash equivalents Condensed Statements of Cash Flows Key Data (in thousand USD) | Indicator | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $508,291 | $516,216 | | Net cash used in investing activities | $(25,490) | $(117,558) | | Net cash used in financing activities | $(400,027) | $(283,605) | | Increase in cash and cash equivalents | $82,774 | $115,053 | | Cash and cash equivalents at end of period | $484,204 | $518,624 | Notes to the Condensed Financial Statements This section provides detailed notes to the company's condensed financial statements, covering significant accounting policies, debt structure, and fair value measurements Note 1. Significant Accounting Policies This note outlines the company's core business, the basis of financial statement preparation, and updates on the stock repurchase program, including a newly approved $2 billion plan Business This section describes the company's primary operations as a leading less-than-truckload (LTL) motor carrier and its diversified service offerings - The company is one of North America's largest less-than-truckload (LTL) motor carriers, offering regional, inter-regional, and national LTL services, and North American LTL services through strategic alliances, along with value-added services like container drayage, truckload brokerage, and supply chain consulting[21] Operating Revenue Composition (in thousand USD) | Service Type | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | | LTL services | $2,409,382 | $1,858,500 | | Other services | $36,542 | $25,074 | | Total operating revenue | $2,445,924 | $1,883,574 | Basis of Presentation This section clarifies that the condensed financial statements are prepared under U.S. GAAP, involve management estimates, and are subject to seasonal variations - The condensed financial statements are prepared in accordance with U.S. GAAP, including management's necessary adjustments, and involve estimates and assumptions where actual results may differ[22] - Company operations are subject to seasonal trends, meaning interim results do not necessarily indicate full-year outcomes[23] Stock Repurchase Program This section details the company's existing and newly approved stock repurchase programs, including authorized amounts and shares repurchased - On May 1, 2020, the Board approved a two-year, total $700 million stock repurchase program (2020 Repurchase Program), with $275 million remaining available as of June 30, 2021, including $68.7 million deferred until the final settlement of an accelerated share repurchase agreement in Q3[26][29] - On July 28, 2021, the Board approved a new stock repurchase program authorizing up to $2 billion in common stock repurchases, effective upon completion of the 2020 program with no expiration date[30] - For the six months ended June 30, 2021, the company repurchased 1,286,517 shares of common stock for a total of $280.2 million under the 2020 Repurchase Program, including shares under the accelerated share repurchase agreement[29] Note 2. Earnings Per Share This note explains the calculation of basic and diluted earnings per share and provides the weighted-average shares used for these calculations Weighted-Average Shares Outstanding (in shares) | Indicator | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Basic weighted-average shares outstanding | 115,820,522 | 117,610,178 | 116,157,336 | 118,330,176 | | Dilutive effect of equity awards | 740,720 | 749,706 | 749,236 | 752,552 | | Diluted weighted-average shares outstanding | 116,561,242 | 118,359,884 | 116,906,572 | 119,082,728 | Note 3. Long-Term Debt This note details the company's long-term debt composition, primarily senior notes and a revolving credit facility, and outlines the terms and financial covenants of related agreements Senior Note Agreement This section describes the terms of the company's $100 million Senior Notes, including interest rate, maturity, and principal repayment schedule - On May 4, 2020, the company entered into a note purchase and private shelf agreement, issuing $100 million in Senior Notes (Series B Notes) with an annual interest rate of 3.10%, maturing on May 4, 2027, and requiring annual principal payments of $20 million starting May 4, 2023[35][36] Credit Agreement This section outlines the company's $250 million senior unsecured revolving credit facility, including its accordion feature and interest rate structure - On November 21, 2019, the company entered into a $250 million senior unsecured revolving credit facility agreement with an additional $150 million accordion feature, allowing for total borrowing capacity of up to $400 million[37] - Borrowings under the credit agreement bear interest at LIBOR plus an applicable margin (1.000% to 1.375%) or a base rate plus an applicable margin (0.000% to 0.375%)[38][39] General Debt Provisions This section highlights the customary covenants within the company's credit and note agreements, including financial ratios and restrictions on payments - The credit and note agreements contain customary covenants requiring the company to maintain a maximum debt-to-capital ratio and a minimum fixed charge coverage ratio, and restrict certain restricted payments (including dividends and stock repurchases) in the absence of default[40] Note 4. Commitments and Contingencies This note states that the company is involved in various legal proceedings and claims, but management believes their resolution will not materially adversely affect the company's financial condition, operating results, or cash flows - The company is involved in various legal proceedings and claims, including class action lawsuits, but the resolution of these matters is not expected to materially adversely affect financial condition, operating results, or cash flows[41] Note 5. Fair Value Measurements This note provides fair value measurement information for the company's short-term investments and long-term debt, categorized by fair value hierarchy Short-term Investments This section presents a breakdown of the fair value of the company's short-term investments by type and fair value hierarchy level Fair Value of Short-term Investments (June 30, 2021, in thousand USD) | Type | Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Certificates of deposit | $45,062 | $0 | $45,062 | $0 | | U.S. government securities | $50,211 | $50,211 | $0 | $0 | | Commercial paper | $69,981 | $0 | $69,981 | $0 | | Total | $165,254 | $50,211 | $115,043 | $0 | Long-term Debt This section provides the carrying value and estimated fair value of the company's long-term debt as of June 30, 2021 - As of June 30, 2021, the company's long-term debt had a carrying value of $99.9 million and an estimated fair value of $104 million[45] Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition and operating results as of June 30, 2021, focusing on revenue growth, cost control, liquidity, capital expenditures, stock repurchases, and dividend policy, while also addressing future operating environment and potential risks Overview As a leading North American LTL carrier, the company aims to optimize asset utilization and labor productivity by increasing freight density and yield, addressing rising costs, and supporting continuous investment in capacity and technology - The company is one of North America's largest less-than-truckload (LTL) motor carriers, providing regional, inter-regional, and national LTL services, with over 98% of revenue derived from LTL transportation[46] - The company focuses on increasing freight density (volume and tonnage growth within existing infrastructure) and achieving appropriate yield (revenue per hundredweight) to maximize asset utilization and labor productivity, offsetting cost inflation[48] - The company measures cost management effectiveness and performs industry comparisons by monitoring its operating ratio (total operating expenses divided by revenue)[51] Results of Operations The company achieved record revenue, net income, and diluted EPS in Q2 and the first six months of 2021, driven by strong domestic economic recovery, growth in LTL tonnage and revenue per hundredweight, and improved operating efficiency, significantly enhancing its operating ratio Key Financial and Operating Metrics (Q2 2021 vs. Q2 2020) | Indicator | Q2 2021 | Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Operating revenue (thousand USD) | $1,319,409 | $896,210 | 47.2% | | Operating ratio | 72.3% | 77.8% | -5.5 ppt | | Net income (thousand USD) | $269,576 | $147,805 | 82.4% | | Diluted EPS | $2.31 | $1.25 | 84.8% | | LTL tonnage (thousand tons) | 2,598 | 2,028 | 28.1% | | LTL revenue per hundredweight | $25.10 | $21.85 | 14.9% | Key Financial and Operating Metrics (Six Months 2021 vs. Six Months 2020) | Indicator | Six Months 2021 | Six Months 2020 | % Change | | :--- | :--- | :--- | :--- | | Operating revenue (thousand USD) | $2,445,924 | $1,883,574 | 29.9% | | Operating ratio | 74.0% | 79.7% | -5.7 ppt | | Net income (thousand USD) | $468,935 | $280,982 | 66.9% | | Diluted EPS | $4.01 | $2.36 | 69.9% | | LTL tonnage (thousand tons) | 4,930 | 4,181 | 17.9% | | LTL revenue per hundredweight | $24.56 | $22.28 | 10.2% | - The operating ratio improved by 550 and 570 basis points in Q2 and the first six months of 2021, respectively, reaching 72.3% and 74.0%[54] Revenue This section details the significant revenue growth in Q2 and the first six months of 2021, attributing it to increased LTL tonnage and revenue per hundredweight, including the impact of fuel surcharges - Revenue for Q2 and the first six months of 2021 increased by $423.2 million (47.2%) and $562.4 million (29.9%), respectively, primarily due to growth in LTL tonnage and LTL revenue per hundredweight[55] - LTL revenue per hundredweight grew by 14.9% in Q2 and 10.2% in the first six months of 2021, driven by the company's long-term yield management strategy, a decrease in LTL weight per shipment, and increased fuel surcharges[56] - In July 2021, daily revenue increased by 36.7%, LTL daily tonnage grew by 18.6%, and LTL revenue per hundredweight increased by approximately 14.8% (or 9.5% excluding fuel surcharge increases)[57] Operating Costs and Other Expenses This section analyzes changes in key operating expenses, including salaries, wages, benefits, operating supplies, fuel costs, depreciation, amortization, and purchased transportation, along with the effective tax rate - Salaries, wages, and benefits increased by $150.6 million (32.7%) and $171.8 million (17.4%) in Q2 and the first six months of 2021, respectively, primarily due to an increase in average full-time employees (20.7% in Q2) and annual wage increases[58][59] - Operating supplies and expenses increased by $62.2 million and $78.6 million in Q2 and the first six months of 2021, respectively, mainly due to higher diesel fuel costs (average cost per gallon up 97.5% in Q2) and increased consumption[62][63] - Depreciation and amortization costs slightly decreased, reflecting a planned reduction in revenue equipment capital expenditures in 2020 and delays in receiving some equipment in 2021[64] - Purchased transportation expenses increased by $24.9 million and $38.9 million in Q2 and the first six months of 2021, respectively, due to increased use of third-party transportation providers to meet service demand[65] - The effective tax rate for Q2 and the first six months of 2021 was 26.0%, slightly above the federal statutory rate, primarily influenced by state taxes and certain non-deductible items[66] Liquidity and Capital Resources The company maintains ample liquidity from operating cash flow, existing cash and short-term investments, and available borrowings under credit and note agreements, with planned capital expenditures of approximately $605 million in 2021 to support long-term growth - Cash flow provided by operating activities for the first six months of 2021 was $508.3 million, slightly lower than $516.2 million in the same period of 2020, primarily due to fluctuations in working capital accounts[67] - The company has five primary sources of liquidity: cash flow from operating activities, existing cash and cash equivalents, short-term investments, available borrowings under the credit agreement, and the note purchase and private shelf agreement[70] Capital Expenditures This section outlines the company's capital expenditure plans for 2021, detailing allocations for service center facilities, tractors, trailers, technology, and other assets Net Property and Equipment Capital Expenditures (in thousand USD) | Category | June 30, 2021 | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | :--- | | Land and buildings | $72,280 | $181,221 | $250,387 | | Tractors | $61,846 | $17,518 | $75,418 | | Trailers | $51,039 | $2,151 | $88,115 | | Technology | $8,922 | $11,925 | $30,424 | | Other equipment and assets | $12,022 | $12,266 | $34,981 | | Proceeds from sales | $(15,512) | $(3,690) | $(5,686) | | Total | $190,597 | $221,391 | $473,639 | - The company anticipates approximately $605 million in capital expenditures for 2021, with $275 million allocated to service center facilities, $290 million to tractors and trailers, and $40 million to technology and other assets[72] Stock Repurchase Program This section details the company's existing and newly approved stock repurchase programs, including authorized amounts and shares repurchased - On May 1, 2020, the Board approved a $700 million stock repurchase program, with $275 million remaining available as of June 30, 2021[73][74] - On July 28, 2021, the Board approved a new $2 billion stock repurchase program, effective upon completion of the 2020 program[74] Dividends to Shareholders This section reports the declared cash dividends for Q1 and Q2 2021 and notes that future dividends are subject to Board approval and covenant restrictions - The Board declared cash dividends of $0.20 per share for Q1 and Q2 2021, an increase from $0.15 per share quarterly in 2020[75] - Future quarterly cash dividends are subject to Board approval and limited by state law and covenants in the credit and note agreements[76] Financing Arrangements This section describes the company's senior note agreement and revolving credit facility, including their terms, borrowing capacity, and compliance with covenants - On May 4, 2020, the company entered into a Senior Note Agreement, issuing $100 million in Series B Senior Notes with an annual interest rate of 3.10%, maturing on May 4, 2027[77][78] - On November 21, 2019, the company entered into a $250 million senior unsecured revolving credit agreement with a $150 million accordion feature, allowing for total borrowing capacity of up to $400 million[79] Available Borrowing Capacity Under Credit Agreement (in thousand USD) | Indicator | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Line of credit limit | $250,000 | $250,000 | | Revolving credit borrowings | $0 | $0 | | Outstanding letters of credit | $(39,169) | $(42,134) | | Available borrowing capacity | $210,831 | $207,866 | - As of June 30, 2021, the company was in compliance with all covenants in its outstanding debt instruments[83] Critical Accounting Policies The company's critical accounting policies remain consistent with those described in its annual report on Form 10-K for December 31, 2020 - The company continued to apply the critical accounting policies described in its annual report on Form 10-K for December 31, 2020, when preparing the condensed financial statements[86] Seasonality The company's tonnage levels and revenue mix are influenced by industry seasonal trends, with lower revenue and operating margins typically in Q1 and Q4 due to reduced winter freight, though the 2020 COVID-19 pandemic impacted normal seasonality - The company's tonnage levels and revenue mix are affected by industry seasonal trends, with Q1 and Q4 typically having lower revenue and operating margins than Q2 and Q3[87] - The COVID-19 pandemic impacted the company's normal seasonal trends in 2020 and may continue to do so in future periods[87] Environmental Regulation The company complies with various federal, state, and local environmental laws and regulations, and anticipates that future compliance costs will not materially adversely affect its operations, financial condition, or capital expenditures in 2021 or 2022 - The company is subject to various federal, state, and local environmental laws and regulations, but the costs of future compliance are not expected to materially adversely affect operations, financial condition, or capital expenditures in 2021 or 2022[88] Forward-Looking Information This section contains forward-looking statements regarding the company's future objectives, strategies, expectations, and financial performance, cautioning readers that these statements involve risks and uncertainties that could cause actual results to differ materially, many of which are exacerbated by the COVID-19 pandemic - The report contains forward-looking statements regarding the company's objectives, strategies, expectations, competitive environment, resource availability, future events, and financial performance[89] - Forward-looking statements involve risks and uncertainties, including but not limited to risks related to executing growth strategies, public health epidemics (such as COVID-19), customer relationships, claims, equipment costs, diesel prices, seasonality, capital availability, economic downturns, competition, labor issues, cybersecurity, technology adaptation, and regulatory compliance[89][90][91][96] - The company cautions readers not to place undue reliance on forward-looking statements, as they are neither predictions nor guarantees of future events or circumstances, and assumptions, beliefs, expectations, and forecasts about future events may differ materially from actual results[92] Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in the company's market risk exposures since the end of the most recent fiscal year - There have been no material changes in the company's market risk exposures since the end of the fiscal year on December 31, 2020[93] Controls and Procedures Management has evaluated the effectiveness of disclosure controls and procedures, confirming their effectiveness as of June 30, 2021, with no significant changes in internal control over financial reporting during the quarter Evaluation of disclosure controls and procedures This section confirms that the company's management, including the CEO and CFO, assessed and deemed disclosure controls and procedures effective as of June 30, 2021 - As of June 30, 2021, the company's management, including the CEO and CFO, assessed and determined that disclosure controls and procedures were effective, ensuring timely accumulation and communication of required information[94] Changes in internal control over financial reporting This section states that no material changes occurred in the company's internal control over financial reporting during the most recent fiscal quarter - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected or are reasonably likely to materially affect these controls[95] Part II Other Information This section provides additional information including legal proceedings, risk factors, unregistered equity sales, and a list of exhibits Legal Proceedings The company is involved in various legal proceedings and claims, including a civil investigation regarding waste disposal, but management does not believe these matters will materially adversely affect the company's financial condition, operating results, or cash flows - The company is involved in various legal proceedings and claims, including class action lawsuits, but the resolution of these matters is not expected to materially adversely affect financial condition, operating results, or cash flows[98] - The company disclosed a civil investigation initiated on May 12, 2017, by the Orange County, California District Attorney's Office concerning waste handling practices, with a resolution currently under discussion[99][100] Risk Factors There have been no material changes to the risk factors identified by the company since its annual report on Form 10-K for December 31, 2020 - There have been no material changes to the risk factors identified by the company since its annual report on Form 10-K for December 31, 2020[102] Unregistered Sales of Equity Securities and Use of Proceeds This section provides details on common stock repurchases during Q2 2021, including quantities and amounts, and reiterates the company's existing and newly approved stock repurchase programs Stock Repurchase Information for Q2 2021 | Period | Total Shares Repurchased | Average Price Paid per Share | Total Shares Repurchased Under Publicly Announced Plans | Approximate Dollar Value of Shares that May Yet Be Repurchased Under the Plans | | :--- | :--- | :--- | :--- | :--- | | April 1-30, 2021 | - | $ - | - | $315,018,030 | | May 1-31, 2021 | - | $ - | - | $315,018,030 | | June 1-30, 2021 | 159,485 | $250.80 | 159,485 | $275,018,788 | | Total | 159,485 | $250.80 | 159,485 | | - On May 1, 2020, the company approved a $700 million stock repurchase program, with $275 million remaining available as of June 30, 2021[103][104] - On July 28, 2021, the Board approved a new $2 billion stock repurchase program, effective upon completion of the 2020 program[104] Exhibits This section lists all exhibits filed as part of this report, including the company's articles of incorporation, various certifications, and financial information provided in iXBRL format Exhibit Index This section provides an index of exhibits, including corporate governance documents, regulatory certifications, and financial data in iXBRL format - Exhibits include the Amended and Restated Articles of Incorporation, various certifications filed under Exchange Act Rule 302 and Sarbanes-Oxley Act Section 906, and financial information provided in iXBRL (Inline eXtensible Business Reporting Language) format[107] Signatures This report has been signed by authorized representatives of Old Dominion Freight Line, Inc., including the Senior Vice President and Chief Financial Officer, and the Vice President of Accounting and Finance - This report was signed on August 5, 2021, by Adam N. Satterfield, Senior Vice President and Chief Financial Officer, and Kimberly S. Maready, Vice President of Accounting and Finance, for Old Dominion Freight Line, Inc[111][112]