Heartland Express(HTLD) - 2022 Q4 - Annual Report

Financial Performance - In 2022, the company generated operating revenues of $968.0 million, a 59.4$607.3 million in 2021, with a net income of $133.6 million compared to$79.3 million in the previous year[189]. - The company achieved an operating ratio of 80.5% for 2022, improving from 82.6% in 2021, and a net margin of 13.8%, up from 13.1% in 2021[189]. - Operating revenue increased by $360.7 million (59.4$968.0 million for the year ended December 31, 2022, compared to $607.3 million in 2021[204]. - Operating income margin improved to 19.5$194.7 million, representing 20.1% of operating revenues, slightly down from 20.3% in 2021[192]. - Operating cash flow for 2022 was $194.7 million, an increase from$123.4 million in 2021, representing 20.1% of operating revenues[234]. - The company had $375.0 million outstanding on the Term Facility and no outstanding under the Revolving Facility as of December 31, 2022[229]. - The company intends to pay down debt incurred from recent acquisitions while maintaining regular quarterly dividends[233]. - The company has a maximum net leverage ratio of 2.75 to 1.00 and a minimum interest coverage ratio of 3.00 to 1.00 under the Credit Facilities[226]. Acquisitions and Growth Strategy - The company completed two significant acquisitions in 2022: Smith Transport on May 31 and CFI on August 31, which added dry van truckload capacity and increased revenues[186][188]. - The company expects operating revenue growth in 2023, primarily from the Smith and CFI acquisitions, despite a weaker freight market[205]. - The company plans to focus on paying down debt incurred from acquisitions in 2022, with no significant acquisitions expected in the near term[196][197]. Operating Expenses - Fuel expense rose by$95.0 million (95.4%), totaling $194.6 million for the year ended December 31, 2022, primarily due to increased miles driven and a 51.8$96.3 million (38.5%), amounting to $346.3 million for the year ended December 31, 2022, driven by a higher number of drivers and support staff following acquisitions[209]. - Depreciation and amortization expenses increased by$28.9 million (27.8%), totaling $133.0 million for the year ended December 31, 2022, due to ongoing fleet replacement strategies[211]. - Rent and purchased transportation expenses increased by$50.5 million, totaling $54.3 million for the year ended December 31, 2022, largely due to the acquisition of CFI[208]. - The company experienced significant inflation impacts on operating expenses, particularly in driver compensation and equipment costs[219]. Asset Management - Total assets at the end of 2022 were$1.7 billion, with total stockholders' equity of $855.5 million, reflecting a return on assets of 9.8$382.4 million in outstanding debt and $30.6 million in finance lease liabilities as of December 31, 2022, totaling$413.0 million, with $375.0 million subject to variable interest rates[253]. Market Conditions and Challenges - The trucking industry is facing a qualified driver shortage, but driver availability has begun to improve in early 2023 due to changing market conditions[194]. - Freight demand is expected to remain challenged in the first half of 2023, influenced by supply chain issues and economic conditions[193]. - A 1.0$3.8 million in annual interest expense based on current variable rate debt[253]. - The company is exposed to commodity price risk, particularly in fuel and rubber purchases, with a $1.00 increase in average fuel price per gallon potentially decreasing income before taxes by approximately$9.3 million[254]. - A 10% increase in tire prices is expected to raise tire purchase expenses by $2.0 million, leading to a corresponding decrease in income before taxes[255]. Management and Estimates - Management believes that changes in revenue equipment markets could affect the estimates of depreciable life or salvage value, but such changes will not significantly impact the long-term financial condition of the company[245]. - The purchase price of acquired businesses is allocated to the estimated fair values of assets and liabilities, with significant judgment required in determining these values[247]. - The company has not recorded a valuation allowance against deferred tax assets, believing it is more likely than not that remaining deferred tax assets will be utilized[249]. - Management's estimates for income tax provisions and unrecognized tax benefits are based on historical patterns and state-specific regulations[250].