Old Dominion Freight Line(ODFL) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents unaudited condensed financial statements, including balance sheets, statements of operations, changes in shareholders' equity, and cash flows, for the periods ended September 30, 2022, and December 31, 2021 Condensed Balance Sheets Total assets slightly decreased to $4,811,393 thousand by September 30, 2022, driven by lower cash and short-term investments, while liabilities increased and equity decreased Condensed Balance Sheet Summary (in thousands) | Metric (in thousands) | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :-------------------- | :----------------------- | :----------- | | Cash and cash equivalents | $216,727 | $462,564 | | Short-term investments | $158,829 | $254,433 | | Total current assets | $1,111,197 | $1,383,787 | | Net property and equipment | $3,491,511 | $3,215,686 | | Total assets | $4,811,393 | $4,821,544 | | Total current liabilities | $639,327 | $464,234 | | Total long-term liabilities | $613,896 | $677,503 | | Total liabilities | $1,253,223 | $1,141,737 | | Total shareholders' equity | $3,558,170 | $3,679,807 | Condensed Statements of Operations Revenue from operations increased 14.5% for the quarter and 24.0% for the nine months ended September 30, 2022, driving significant growth in net income and EPS Condensed Statements of Operations Summary (in thousands, except per share) | Metric (in thousands, except per share) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | YoY Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | YoY Change (%) | | :------------------------------------ | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Revenue from operations | $1,603,690 | $1,400,046 | 14.5% | $4,768,418 | $3,845,970 | 24.0% | | Total operating expenses | $1,107,610 | $1,016,636 | 8.9% | $3,358,015 | $2,826,859 | 18.8% | | Operating income | $496,080 | $383,410 | 29.4% | $1,410,403 | $1,019,111 | 38.4% | | Net income | $377,401 | $286,634 | 31.7% | $1,053,230 | $755,569 | 39.4% | | Basic EPS | $3.38 | $2.48 | 36.3% | $9.32 | $6.52 | 42.9% | | Diluted EPS | $3.36 | $2.47 | 36.0% | $9.26 | $6.48 | 42.9% | | Dividends declared per share | $0.30 | $0.20 | 50.0% | $0.90 | $0.60 | 50.0% | Condensed Statements of Changes in Shareholders' Equity Total shareholders' equity decreased to $3,558,170 thousand by September 30, 2022, primarily due to share repurchases and cash dividends, partially offset by net income Condensed Statements of Changes in Shareholders' Equity (in thousands) | Metric (in thousands) | Balance as of Dec 31, 2021 | 9 Months Ended Sep 30, 2022 | Balance as of Sep 30, 2022 | | :-------------------- | :------------------------- | :-------------------------- | :------------------------- | | Common Stock | $11,501 | $(409) | $11,095 | | Capital in Excess of Par Value | $174,445 | $62,345 | $240,790 | | Retained Earnings | $3,493,861 | $(187,076) | $3,306,285 | | Total Shareholders' Equity | $3,679,807 | $(121,637) | $3,558,170 | - Share repurchases totaled $(977,301) thousand for the nine months ended September 30, 2022[17] - Cash dividends declared amounted to $(101,414) thousand for the nine months ended September 30, 2022[17] Condensed Statements of Cash Flows Net cash provided by operating activities increased to $1,330,234 thousand for the nine months ended September 30, 2022, while increased investing and financing outflows led to a $245,837 thousand decrease in cash and cash equivalents Condensed Statements of Cash Flows Summary (in thousands) | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | YoY Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Net cash provided by operating activities | $1,330,234 | $872,615 | $457,619 | | Net cash used in investing activities | $(388,835) | $(261,182) | $(127,653) | | Net cash used in financing activities | $(1,187,236) | $(673,102) | $(514,134) | | Decrease in cash and cash equivalents | $(245,837) | $(61,669) | $(184,168) | | Cash and cash equivalents at end of period | $216,727 | $339,761 | $(123,034) | Notes to the Condensed Financial Statements This section details significant accounting policies, business operations, stock repurchase programs, EPS calculations, long-term debt, commitments, contingencies, and fair value measurements Note 1. Significant Accounting Policies Old Dominion Freight Line, Inc. is a major North American LTL carrier, with revenue primarily from LTL services, and operates an active $2.0 billion stock repurchase program - Old Dominion Freight Line, Inc. is one of the largest North American less-than-truckload (LTL) motor carriers, offering a range of transportation and logistics services[22] Revenue by Service Type (in thousands) | Revenue Source (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | LTL services | $1,582,952 | $1,378,339 | $4,703,392 | $3,787,721 | | Other services | $20,738 | $21,707 | $65,026 | $58,249 | | Total revenue from operations | $1,603,690 | $1,400,046 | $4,768,418 | $3,845,970 | - The $2.0 billion 2021 Repurchase Program for common stock began in January 2022 and has no expiration date[27] Note 2. Earnings Per Share Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding, excluding unvested restricted stock, while diluted EPS includes the impact of unvested restricted stock and other dilutive securities Weighted Average Shares Outstanding | Weighted Average Shares Outstanding | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic | 111,569,260 | 115,411,032 | 113,011,703 | 115,905,834 | | Dilutive effect of share-based awards | 725,678 | 750,523 | 735,184 | 749,670 | | Diluted | 112,294,938 | 116,161,555 | 113,746,887 | 116,655,504 | Note 3. Long-Term Debt Long-term debt includes $100.0 million Series B Senior Notes at 3.10% interest, maturing May 2027, and a $250.0 million revolving credit facility, with the company in compliance with all debt covenants Long-Term Debt (in thousands) | Long-Term Debt (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :---------------------------- | :----------- | :----------- | | Senior notes | $99,959 | $99,947 | | Revolving credit facility | — | — | | Total long-term debt | $99,959 | $99,947 | | Less: Current maturities | $(20,000) | — | | Total maturities due after one year | $79,959 | $99,947 | - The $100.0 million Series B Notes bear 3.10% interest, mature on May 4, 2027, and require annual principal payments of $20.0 million starting May 4, 2023[37] - The Credit Agreement provides a $250.0 million senior unsecured revolving line of credit, with an accordion feature allowing total borrowing capacity up to $400.0 million[38] Note 4. Commitments and Contingencies The company is involved in various legal proceedings and claims in the ordinary course of business, including collective and class-action allegations, which management does not believe will have a material adverse effect on its financial position, results of operations, or cash flows - The company is involved in various legal proceedings, claims, and governmental inquiries, including collective and/or class-action allegations[42] - Management anticipates no material adverse effect on the company's financial position, results of operations, or cash flows from the resolution of these matters[42] Note 5. Fair Value Measurements Short-term investments and long-term debt are measured at fair value using Level 2 inputs, with the Series B Notes' fair value estimated at $89.6 million versus a $100.0 million carrying value as of September 30, 2022 Short-term Investments (in thousands) | Short-term Investments (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :---------------------------------- | :----------- | :----------- | | Certificates of deposit | $15,034 | $40,014 | | Commercial paper | $143,795 | $214,419 | | Total | $158,829 | $254,433 | Long-term Debt Fair Value (in thousands) | Long-term Debt (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :---------------------------- | :----------- | :----------- | | Carrying value | $100,000 | $99,900 | | Estimated fair value | $89,600 | $104,500 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section analyzes Old Dominion Freight Line, Inc.'s financial performance, liquidity, and capital resources for the three and nine months ended September 30, 2022, highlighting revenue and net income growth, improved operating ratio, and strategic investments Overview Old Dominion Freight Line, Inc. is a leading North American LTL carrier, with over 98% of revenue from LTL services, focusing on density, asset utilization, and yield management, while monitoring key LTL metrics - Old Dominion Freight Line, Inc. is one of the largest North American less-than-truckload (LTL) motor carriers, with over 98% of revenue from LTL shipments[47] - The company focuses on increasing density to maximize asset utilization and labor productivity[49] - Key revenue metrics include LTL Revenue Per Hundredweight, LTL Weight Per Shipment, Average Length of Haul, and LTL Revenue Per Shipment, influenced by pricing, competition, fuel surcharges, and freight mix[48][49][50] Results of Operations The company achieved double-digit growth in revenue, net income, and diluted EPS for Q3 and the first nine months of 2022, driven by increased LTL revenue per hundredweight and improved operating ratio, despite a slight Q3 decrease in LTL tons Key Operating Results | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | YoY Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Revenue (in thousands) | $1,603,690 | $1,400,046 | 14.5% | $4,768,418 | $3,845,970 | 24.0% | | Operating ratio | 69.1% | 72.6% | (3.5) pts | 70.4% | 73.5% | (3.1) pts | | Net income (in thousands) | $377,401 | $286,634 | 31.7% | $1,053,230 | $755,569 | 39.4% | | Diluted earnings per share | $3.36 | $2.47 | 36.0% | $9.26 | $6.48 | 42.9% | | LTL tons (in thousands) | 2,556 | 2,625 | (2.6)% | 7,881 | 7,555 | 4.3% | | LTL revenue per hundredweight | $30.90 | $26.31 | 17.4% | $29.93 | $25.17 | 18.9% | | LTL revenue per hundredweight (excl. fuel surcharges) | N/A | N/A | 7.2% (Q3) | N/A | N/A | 8.7% (9M) | - LTL tons decreased 2.6% in Q3 2022 due to a 4.1% decrease in LTL shipments, but increased 4.3% for the first nine months of 2022[55][57] - In October 2022, revenue per day increased 9.1% year-over-year, while LTL tons per day decreased 6.5%, and LTL revenue per hundredweight rose 16.9% (8.4% excluding fuel surcharges)[59] Operating Costs and Other Expenses Operating costs rose due to increased salaries and a 64.6% (Q3) and 76.5% (9M) surge in diesel fuel costs, while purchased transportation expenses decreased, and the effective tax rate for Q3 2022 was 23.9% Operating Expenses (in thousands) | Expense Category (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | YoY Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | YoY Change (%) | | :------------------------------ | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Salaries, wages and benefits | $675,084 | $649,685 | 3.9% | $2,060,983 | $1,806,862 | 14.1% | | Operating supplies and expenses | $217,260 | $146,509 | 48.3% | $645,329 | $408,242 | 58.1% | | Depreciation and amortization | $68,347 | $65,160 | 4.9% | $203,997 | $193,094 | 5.6% | | Purchased transportation | $34,453 | $52,037 | (33.8)% | $129,634 | $130,678 | (0.8)% | - The average cost per gallon of diesel fuel increased 64.6% in Q3 2022 and 76.5% for the first nine months of 2022, significantly impacting operating supplies and expenses[64] - The effective tax rate was 23.9% for Q3 2022 and 25.3% for the first nine months of 2022[67] Liquidity and Capital Resources Primary liquidity sources include cash flows from operations, existing cash, short-term investments, and available borrowings, with net cash from operations increasing to $1,330,234 thousand for the nine months ended September 30, 2022, despite increased investing and financing outflows Cash Flow Summary (in thousands) | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | YoY Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Net cash provided by operating activities | $1,330,234 | $872,615 | $457,619 | | Net cash used in investing activities | $(388,835) | $(261,182) | $(127,653) | | Net cash used in financing activities | $(1,187,236) | $(673,102) | $(514,134) | | Decrease in cash and cash equivalents | $(245,837) | $(61,669) | $(184,168) | | Cash and cash equivalents at end of period | $216,727 | $339,761 | $(123,034) | - Primary liquidity sources include cash flows from operations, existing cash and cash equivalents, short-term investments, and available borrowings under the Credit Agreement and Note Agreement[69] Capital Expenditures Net capital expenditures for property and equipment increased to $477,238 thousand for the nine months ended September 30, 2022, with estimated full-year 2022 capital expenditures of approximately $720 million for facilities, equipment, and technology Capital Expenditures by Category (in thousands) | Capital Expenditure Category (in thousands) | 9 Months Ended Sep 30, 2022 | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :---------------------------------------- | :-------------------------- | :---------------------- | :---------------------- | | Land and structures | $219,696 | $252,155 | $181,221 | | Tractors | $81,073 | $130,772 | $17,518 | | Trailers | $116,846 | $140,595 | $2,151 | | Technology | $26,987 | $17,139 | $11,925 | | Other equipment and assets | $52,680 | $25,450 | $12,266 | | Proceeds from sales | $(20,044) | $(19,548) | $(3,690) | | Total | $477,238 | $546,563 | $221,391 | - Estimated capital expenditures for full-year 2022 are approximately $720 million, allocated to $300 million for service centers, $350 million for tractors and trailers, and $70 million for technology and other assets[71] Stock Repurchase Program The company's active $2.0 billion stock repurchase program, approved in July 2021, had $879.0 million remaining authorized as of September 30, 2022 - A new $2.0 billion stock repurchase program (2021 Repurchase Program) was approved in July 2021, commenced in January 2022, and has no expiration date[72] - As of September 30, 2022, $879.0 million remained authorized under the 2021 Repurchase Program[74] Dividends to Shareholders The Board declared a $0.30 per share cash dividend for each quarter of 2022, an increase from $0.20 per share in 2021, with future dividends subject to Board approval and debt covenants Cash Dividends Declared per Share | Dividend per Share | 2022 (per quarter) | 2021 (per quarter) | YoY Change (%) | | :----------------- | :----------------- | :----------------- | :------------- | | Cash dividend | $0.30 | $0.20 | 50.0% | - Future quarterly cash dividends are subject to Board approval, state law limitations, and covenants under the Credit Agreement and Note Agreement[76] Financing Agreements Financing includes a Senior Note Agreement for up to $350.0 million, with $100.0 million Series B Notes at 3.10% interest, and a $250.0 million revolving credit facility, with $211.2 million available and all debt covenants in compliance as of September 30, 2022 - The Senior Note Agreement provides for up to $350.0 million in senior promissory notes, including $100.0 million Series B Notes issued at 3.10% interest, maturing May 2027[77][78] - The Credit Agreement provides a $250.0 million senior unsecured revolving line of credit, expandable to $400.0 million with an accordion feature[79] Credit Agreement Availability (in thousands) | Credit Agreement (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------ | :----------- | :----------- | | Facility limit | $250,000 | $250,000 | | Outstanding letters of credit | $(38,754) | $(39,169) | | Available borrowing capacity | $211,246 | $210,831 | - The company was in compliance with all covenants in its outstanding debt instruments as of September 30, 2022[83] Critical Accounting Policies The company applied the same critical accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2021, which affect judgments and estimates in financial statements Seasonality The company's tonnage levels and revenue mix are subject to seasonal trends, with revenue and operating margins typically lower in the first and fourth quarters due to reduced shipments during winter months - Revenue and operating margins are typically lower in the first and fourth quarters due to reduced shipments during winter months[87] - Harsh weather conditions and natural disasters can adversely impact performance by reducing demand and increasing operating expenses[87] Environmental Regulation The company is subject to various environmental regulations, and management does not anticipate material adverse effects on operations or financial condition from compliance costs for 2022 or 2023 - The company is subject to federal, state, and local environmental laws concerning hazardous waste, fuel storage, and vehicle accidents[88] - Management does not believe future compliance costs with current environmental laws will materially adversely affect operations or financial condition for 2022 or 2023[88] Forward-Looking Information This section contains forward-looking statements subject to risks and uncertainties, including those related to growth strategy, public health, customer relationships, operational costs, seasonality, economic factors, and regulatory compliance - Forward-looking statements are subject to risks and uncertainties, including those related to growth strategy execution, public health epidemics, customer relationships, and various operational and economic factors[90][91] - Significant risks include equipment and diesel fuel costs, fuel surcharge effectiveness, seasonal trends, capital availability, economic downturns, labor costs, technology adoption, regulatory compliance, and legal proceedings[91][93] Item 3. Quantitative and Qualitative Disclosures about Market Risk No material changes to the company's market risk exposures have occurred since the fiscal year ended December 31, 2021, as discussed in the Annual Report on Form 10-K - No material changes to market risk exposures have occurred since the fiscal year ended December 31, 2021[94] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2022, and concluded they were effective, with no material changes in internal control over financial reporting during the last fiscal quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2022[95] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[96] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, including class-action allegations, which are not expected to materially affect financial position or operations, with no environmental proceedings requiring disclosure - The company is involved in various legal proceedings and claims, including collective and/or class-action allegations, which are not expected to have a material adverse effect on financial position, results of operations, or cash flows[99] - No environmental legal proceedings with potential monetary sanctions of $1.0 million or more are required to be disclosed for the three months ended September 30, 2022[100] Item 1A. Risk Factors No material changes to the risk factors identified in the Annual Report on Form 10-K for the year ended December 31, 2021, have occurred, but readers should consider all potential risks - No material changes to the risk factors identified in the Annual Report on Form 10-K for the year ended December 31, 2021, have occurred[102] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q3 2022, the company repurchased 1,282,098 shares at an average price of $269.47 per share, with approximately $879.0 million remaining authorized under the 2021 Repurchase Program as of September 30, 2022 Common Stock Repurchases (Q3 2022) | Month (2022) | Total Shares Purchased | Average Price Paid per Share | Approximate Dollar Value Remaining Under Programs | | :----------- | :--------------------- | :--------------------------- | :------------------------------------------------ | | July | 434,739 | $262.95 | $1,110,104,905 | | August | 303,056 | $299.92 | $1,019,233,710 | | September | 544,303 | $257.73 | $878,967,599 | | Total (Q3) | 1,282,098 | $269.47 | N/A | - The $2.0 billion 2021 Repurchase Program began in January 2022 and has no expiration date[104] Item 6. Exhibits This section lists the exhibits filed as part of the report, including amended bylaws, an employment agreement termination, certifications (Sarbanes-Oxley Act Section 302 and 906), and financial information formatted in iXBRL - Exhibits include Amended and Restated Bylaws, an employment agreement termination, Sarbanes-Oxley Act Certifications (Sections 302 and 906), and financial information in iXBRL format[108] SIGNATURES Signatures The report was duly signed on November 3, 2022, by Adam N. Satterfield, Senior Vice President - Finance and Chief Financial Officer, and Kimberly S. Maready, Vice President - Accounting and Finance - The report was signed on November 3, 2022, by Adam N. Satterfield (SVP - Finance and CFO) and Kimberly S. Maready (VP - Accounting and Finance)[112]