JB HUNT TRANSPORT SERVICES You should refer to the attached interim Condensed Consolidated Financial Statements and related notes and also to our Annual Report (Form 10-K) for the year endedDecember 31, 2020 , as you read the following discussion. We may make statements in this report that reflect our current expectation regarding future results of operations, performance, and achievements. These are "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995, and are based on our belief or interpretation of information currently available. When we use words like "may," "plan," "contemplate," "anticipate," "believe," "intend," "continue," "expect," "project," "goals," "strategy," "future," "predict," "seek," "estimate," "likely," "could," "should," "would," and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. Forward-looking statements are inherently uncertain, subject to risks, and should be viewed with caution. You should realize there are many risks and uncertainties that could cause actual results to differ materially from those described. Some of the factors and events that are not within our control and could have a significant impact on future operating results are general economic and business conditions; potential business or operational disruptions resulting from the ongoing effects of the novel coronavirus (COVID-19) pandemic, including any future spikes or outbreaks of the virus, as well as government actions taken in response to the pandemic; competition and competitive rate fluctuations; excess capacity in the intermodal or trucking industries; a loss of one or more major customers; cost and availability of diesel fuel; interference with or termination of our relationships with certain railroads; rail service delays; disruptions toU.S. port-of-call activity; ability to attract and retain qualified drivers, delivery personnel, independent contractors, and third-party carriers; retention of key employees; insurance costs and availability; litigation and claims expense; determination that independent contractors are employees; new or different environmental or other laws and regulations; volatile financial credit markets or interest rates; terrorist attacks or actions; acts of war; adverse weather conditions; disruption or failure of information systems; inability to keep pace with technological advances affecting our information technology platforms; operational disruption or adverse effects of business acquisitions; increased costs for new revenue equipment; increased tariffs assessed on or disruptions in the procurement of imported revenue equipment; decreases in the value of used equipment; and the ability of revenue equipment manufacturers to perform in accordance with agreements for guaranteed equipment trade-in values. Additionally, our business is somewhat seasonal with slightly higher freight volumes typically experienced during August through early November in our full-load transportation business. You should also refer to Part I, Item 1A of our Annual Report (Form 10-K) for the year endedDecember 31, 2020 , for additional information on risk factors and other events that are not within our control. Our future financial and operating results may fluctuate as a result of these and other risk factors as described from time to time in our filings with theSEC . GENERAL We are one of the largest surface transportation, delivery, and logistics companies inNorth America . We operate five distinct, but complementary, business segments and provide a wide range of reliable transportation, brokerage, and delivery services to a diverse group of customers and consumers throughout the continentalUnited States ,Canada , andMexico . Our service offerings include transportation of full-truckload containerized freight, which we directly transport utilizing our company-controlled revenue equipment and company drivers or independent contractors. We have arrangements with most of the major North American rail carriers to transport freight in containers or trailers, while we perform the majority of the pickup and delivery services. We also provide customized freight movement, revenue equipment, labor, systems, and delivery services that are tailored to meet individual customers' requirements and typically involve long-term contracts. These arrangements are generally referred to as dedicated services and may include multiple pickups and drops, freight handling, specialized equipment, and freight network design. In addition, we provide or arrange for local and home delivery services, generally referred to as final-mile delivery services, to customers through a network of cross-dock and other delivery system locations throughout the continentalUnited States . Utilizing thousands of reliable third-party carriers, we also provide comprehensive freight transportation brokerage and logistics services. In addition to dry-van, full-load operations, we also arrange for these unrelated outside carriers to provide flatbed, refrigerated, less-than-truckload (LTL), and other specialized equipment, drivers, and services. Also, we utilize a combination of company-owned and contracted power units to provide traditional over-the-road full truckload delivery services. Our customers, who include many Fortune 500 companies, have extremely diverse businesses. Many of them are served byJ.B. Hunt 360°®, an online platform that offers shippers and carriers greater access, visibility, and transparency to the supply chain. We account for our business on a calendar year basis, with our full year ending onDecember 31 and our quarterly reporting periods ending onMarch 31 ,June 30 , andSeptember 30 . The operation of each of our five business segments is described in Note 14, Segment Information, of our Annual Report (Form 10-K) for the year endedDecember 31, 2020 . 12
-------------------------------------------------------------------------------- Our operations continue to be impacted by the COVID-19 global pandemic. Due to the nature of our business and the large portion of our workforce consisting of drivers and other non-office personnel, fewer than 25% of our total employees have been able to work remotely; however, we remain committed to the safety of our workforce, suppliers, and customers while continuing to meet our customers' needs. In the first quarter 2020, we began our COVID-19 response activities which have been expanded and will continue as necessary until the risks related to COVID-19 dissipate. Our COVID-19 safety response activities at our home office campus and all other field locations throughoutNorth America include requiring remote working when possible, expanded health and safety policies, facility modifications, increased security coverage, and purchase and distribution of personal protective equipment and supplies. During the first quarter 2021, we committed to providing incremental paid time off for employees to eliminate any financial loss caused by their absence from work when receiving the COVID-19 vaccination. We also continue to work with local healthcare organizations to provide vaccination assistance under applicable area guidelines and procedures to all employees and their adult family members. We are reviewing and analyzing both external and internal COVID-related data on a daily basis in anticipation of the full return to work phase of our COVID-19 response. Thus far throughout the pandemic, we have been pleased with the continued performance of our employees, particularly our drivers, who have been consistently available to serve our customers.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity withU.S. GAAP requires us to make estimates and assumptions that impact the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. Therefore, the reported amounts of assets, liabilities, revenues, expenses, and associated disclosures of contingent liabilities are affected by these estimates. We evaluate these estimates on an ongoing basis, utilizing historical experience, consultation with experts, and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recognized in the accounting period in which the facts that give rise to the revision become known. Information regarding our Critical Accounting Policies and Estimates can be found in our Annual Report (Form 10-K). The critical accounting policies that we believe require us to make more significant judgments and estimates when we prepare our financial statements include those relating to self-insurance accruals, revenue equipment, revenue recognition and income taxes. We have discussed the development and selection of these critical accounting policies and estimates with the Audit Committee of our Board of Directors. In addition, Note 2, Summary of Significant Accounting Policies, to the financial statements in our Annual Report (Form 10-K) for the year endedDecember 31, 2020 , contains a summary of our critical accounting policies. There have been no material changes to the methodology we apply for critical accounting estimates as previously disclosed in our Annual Report on Form 10-K. RESULTS OF OPERATIONS Comparison of Three Months EndedMarch 31, 2021 to Three Months EndedMarch 31, 2020 Summary of Operating Segment Results For the Three Months Ended March 31, (in millions) Operating Revenues Operating Income/(Loss) 2021 2020 2021 2020 JBI$ 1,177 $ 1,150 $ 107.5 $ 102.2 DCS 580 542 74.3 72.9 ICS 525 335 7.3 (18.9 ) FMS 202 154 8.5 (3.3 ) JBT 150 105 10.2 1.8 Subtotal 2,634 2,286 207.8 154.7 Inter-segment eliminations (16 ) (5 ) (0.1 ) - Total$ 2,618 $ 2,281 $ 207.7 $ 154.7 13
-------------------------------------------------------------------------------- Total consolidated operating revenues increased to$2.62 billion for the first quarter 2021, a 15% increase from$2.28 billion in the first quarter 2020, and a 17% increase excluding fuel surcharge revenues. This increase in operating revenues was driven by increased revenues in ICS and JBT as both segments captured capacity in the Marketplace forJ.B. Hunt 360 °®, increased revenues in FMS related to new contractual business obtained, higher fleet utilization in DCS, and higher revenue per load, partially offset by decreased load volumes in JBI. All operating segments experienced weather-related volume disruptions in the first quarter 2021, with the most significant impact within JBI. JBI segment revenue increased 2% to$1.18 billion during the first quarter 2021, compared with$1.15 billion in 2020. Load volumes during the first quarter 2021 decreased 3% over the same period 2020. Transcontinental loads decreased 2% during the first quarter 2021, and eastern network load volume was down 3% compared to the first quarter 2020. Load volumes were heavily impacted by severe weather-related events during the first quarter 2021, in addition to existing challenges present as a result of rail congestion and service issues stemming from elevated demand levels and labor challenges across the supply chain. The overall decrease in load volume was offset by a 5% increase in revenue per load, which is determined by the combination of customer rates, fuel surcharges and freight mix. Revenue per load excluding fuel surcharge revenue increased 6% compared to the first quarter 2020. JBI segment operating income increased 5%, to$107.5 million in the first quarter 2021, from$102.2 million in 2020. Benefits from increased revenue were partially offset by severe weather-related disruptions in the current quarter that further deteriorated network fluidity and challenges already present, higher driver wages and recruiting costs, and higher salary and wages for non-driver personnel, when compared to the first quarter 2020. Furthermore, JBI operating income for the first quarter 2020 included an$8.2 million rail purchase transportation expense resulting from an adjusted calculation of the revenue divisions owed toBNSF Railway Company (BNSF) for 2019 related to the final award of our completed arbitration with BNSF issued in 2019 and JBI's$4.0 million portion of the one-time COVID-19 related bonus paid to employee drivers and other key field personnel. The current period ended with approximately 99,000 units of trailing capacity and 5,740 power units assigned to the dray fleet. DCS segment revenue increased 7% to$580 million in the first quarter 2021 from$542 million in 2020. Productivity, defined as revenue per truck per week, increased 6% when compared to 2020. Productivity excluding fuel surcharges increased 5%, primarily due to higher utilization of assets, contractual indexed rate increases, and less idle equipment during the current period. A net additional 203 revenue-producing trucks were in the fleet by the end of the first quarter 2021 compared to a year ago. DCS segment operating income increased 2% to$74.3 million in the first quarter 2021, from$72.9 million in 2020. The benefits of increased productivity were partially offset by higher driver wages and recruiting costs and higher salary and wages for non-driver personnel, when compared to the first quarter 2020. In addition, operating income for the prior period included DCS's$6.5 million portion of the one-time COVID-19 bonus paid in first quarter 2020. ICS segment revenue increased 56% to$525 million in the first quarter 2021, from$335 million in 2020. Overall volumes decreased 1% primarily due to changes in customer freight mix, while truckload volumes increased 10% compared to the first quarter 2020. Revenue per load increased 58%, primarily due to higher spot and contractual customer rates compared to first quarter 2020. Contractual business represented approximately 49% of total load volume and 35% of total revenue in the first quarter 2021, compared to 67% and 54%, respectively, in 2020. Approximately$359 million of first quarter 2021 ICS revenue was executed through the Marketplace forJ.B. Hunt 360° compared to$235 million in the first quarter 2020. ICS segment operating income increased to$7.3 million in the first quarter of 2021 compared to an operating loss of$18.9 million in 2020. Gross profit margin increased to 12.4% in the first quarter 2021, compared to 9.6% in 2020, primarily due to higher rates in our contractual business and a higher mix of spot business during the current period. First quarter 2021, operating results were further impacted by increased incentive compensation and technology spending, compared to a year ago. ICS's carrier base increased 24% compared to first quarter 2020. FMS segment revenue increased 31% to$202 million in the first quarter 2021 from$154 million in 2020. Stop count for the first quarter 2021 increased 37%, while productivity, defined as revenue per stop, decreased 4% compared to 2020. The reduction in productivity was primarily due to a shift in the mix between asset and asset-light operations resulting from the characteristics of new customer contracts. FMS segment operating income increased to$8.5 million in the first quarter of 2021 compared to an operating loss of$3.3 million in 2020, primarily due to increased revenues, partially offset by higher costs related to service quality performance controls, higher salary and wages for non-driver personnel, and increased third-party truck purchased transportation costs. In addition, the operating loss for the prior period included FMS's$1.3 million portion of the one-time COVID-19 bonus paid in first quarter 2020. 14 -------------------------------------------------------------------------------- JBT segment revenue totaled$150 million for the first quarter 2021, an increase of 43% from$105 million in first quarter 2020. Revenue excluding fuel surcharge increased 46% primarily due to a 6% increase in load volume, a 38% increase in revenue per load excluding fuel surcharge revenue, and an 8% increase in average length of haul compared to first quarter 2020. The growth in load count and the length of haul during the first quarter 2021, were primarily driven by the continued expansion ofJ.B. Hunt 360box™ which leverages the J.B. Hunt 360 platform. Revenue per loaded mile excluding fuel surcharge in first quarter 2021 increased 28%, while comparable contractual customer rates increased 14% compared to first quarter 2020. At the end of the first quarter 2021, the JBT fleet consisted of 1,716 tractors and 8,571 trailers, compared to 1,887 tractors and 7,391 trailers in 2020. JBT segment operating income increased to$10.2 million in 2021, compared with$1.8 million during first quarter 2020. Benefits from the higher load volume and increased revenue per load were partially offset by higher purchased transportation expense and higher salary and wages for non-driver personnel. In addition, operating income for the prior period included JBT's$0.5 million portion of the one-time COVID-19 bonus paid in first quarter 2020.
Consolidated Operating Expenses
The following table sets forth items in our Condensed Consolidated Statements of
Earnings as a percentage of operating revenues and the percentage increase or
decrease of those items as compared with the prior period.
Three Months Ended March 31,
Dollar Amounts as a Percentage Change
Percentage of Total of Dollar Amounts
Operating Revenues Between Quarters
2021 2020 2021 vs. 2020
Total operating revenues 100.0 % 100.0 % 14.8 %
Operating expenses:
Rents and purchased transportation 51.7 49.8 19.0
Salaries, wages and employee benefits 23.7 25.2 8.0
Depreciation and amortization 5.3 5.7 5.7
Fuel and fuel taxes 4.3 4.4 11.8
Operating supplies and expenses 3.1 3.8 (4.6 )
General and administrative expenses, net of
asset dispositions 1.7 1.9 (0.6 )
Insurance and claims 1.5 1.4 17.5
Operating taxes and licenses 0.5 0.6 3.8
Communication and utilities 0.3 0.4 13.9
Total operating expenses 92.1 93.2 13.4
Operating income 7.9 6.8 34.2
Net interest expense 0.4 0.5 (0.1 )
Earnings before income taxes 7.5 6.3 37.1
Income taxes 1.9 1.7 29.4
Net earnings 5.6 % 4.6 % 39.9 %
Total operating expenses increased 13.4%, while operating revenues increased
14.8%, during the first quarter 2021, from the comparable period 2020. Operating
income increased to $207.7 million during the first quarter 2021, from $154.7
million in 2020.
Rents and purchased transportation costs increased 19.0% in 2021 compared with
2020. This increase was primarily due to increased third-party truck purchased
transportation rates in ICS and an increase in the use of third-party truck
carriers by JBT and FMS during the current period.
Salaries, wages and employee benefit costs increased 8.0% in 2021 compared with
2020. This increase was primarily related to increases in driver pay and office
personnel compensation due to a tighter supply of qualified drivers, an increase
in the number of employees, and additional incentive compensation. This increase
was partially offset by first quarter 2020 including a $12.3 million one-time
COVID-19 related bonus paid to employee drivers and other key field personnel
and $3.4 million of additional stock compensation expense related to the
acceleration of equity award vesting for executive employee retirements.
15
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Depreciation and amortization expense increased 5.7% in 2021, primarily due to
the addition of tractors and specialized trailing equipment within JBI,
increased capital investments in information technology, and increased trailing
equipment within JBT. Fuel costs increased 11.8% in 2021, compared with 2020,
primarily due to an increase in the price of fuel and an increase in road miles.
Operating supplies and expenses decreased 4.6% in 2021, compared with 2020,
primarily due to reduced travel and entertainment expenses, partially offset by
increased tire expenses and higher weather-related towing costs. General and
administrative expenses for the current quarter were virtually flat compared
with 2020, primarily due to increased technology spend on the J.B. Hunt 360°
platform and legacy system upgrades, higher advertising costs, and increased
driver hiring expenses, being offset by decreased professional fees, lower bad
debt expenses, and decreased net loss from the sale or disposal of assets. Net
loss from sale or disposal of assets was $1.1 million in 2021, compared to a net
loss of $1.5 million in 2020. Insurance and claims expense increased 17.5% in
2021, compared with 2020, due to higher incident volume and higher insurance
policy premium expenses, partially offset by a decrease in accident severity.
Net interest expense for the current quarter was virtually flat compared with
2020. Income tax expense increased 29.4% in first quarter 2021, compared with
2020, primarily due to increased taxable earnings, partially offset by a higher
effective income tax rate in the prior period due to the impact of stock
compensation accelerations for executive employee retirements. Our effective
income tax rate was 25.1% for the first quarter 2021, compared to 26.5% in 2020.
Our annual tax rate for 2021 is expected to be between 24.0% and 25.0%. In
determining our quarterly provision for income taxes, we use an estimated annual
effective tax rate, adjusted for discrete items. This rate is based on our
expected annual income, statutory tax rates, best estimate of nontaxable and
nondeductible items of income and expense, and the ultimate outcome of tax
audits.
Liquidity and Capital Resources
Cash Flow Net cash provided by operating activities totaled$365 million during the first three months of 2021, compared with$249 million for the same period 2020. Operating cash flows increased due to the timing of general working capital activities and increased earnings. Net cash used in investing activities totaled$86 million in 2021, compared with$129 million in 2020. The decrease resulted from a decrease in equipment purchases, net of proceeds from the sale of equipment, during the current period. Net cash used in financing activities was$39 million in 2021, compared with$107 million in 2020. This decrease resulted primarily from a decrease in treasury stock purchases during the first quarter 2021. Debt and Liquidity Data December 31, March 31, 2021 2020 March 31, 2020 Working capital ratio 1.83 1.70 1.54 Total debt (millions)$ 1,301.4 $ 1,305.4 $ 1,302.8 Total debt to equity 0.48 0.50 0.57 Total debt as a percentage of total capital 32 % 33 % 36 % Liquidity Our need for capital has typically resulted from the acquisition of containers and chassis, trucks, tractors, and trailers required to support our growth and the replacement of older equipment as well as periodic business acquisitions. We are frequently able to accelerate or postpone a portion of equipment replacements or other capital expenditures depending on market and overall economic conditions. In recent years, we have obtained capital through cash generated from operations, revolving lines of credit and long-term debt issuances. We have also periodically utilized operating leases to acquire revenue equipment. 16
-------------------------------------------------------------------------------- We believe our liquid assets, cash generated from operations, and revolving line of credit will provide sufficient funds for our operating and capital requirements for the foreseeable future. Should COVID-19 related economic conditions warrant, we believe we have sufficient credit resources available to meet our near and long-term operating and capital needs. Throughout 2020 and the first quarter 2021, we paused or cancelled certain capital expenditures and other discretionary spending in response to the COVID-19 pandemic. As a result, atMarch 31, 2021 , we had a cash balance of$553 million and we had no outstanding balance on our senior revolving line of credit, which authorizes us to borrow up to$750 million and is supported by a credit agreement with a group of banks that expires inSeptember 2023 . This senior credit facility allows us to request an increase in the total commitment by up to$250 million and to request a one-year extension of the maturity date.
Our financing arrangements require us to maintain certain covenants and
financial ratios. At
We are continually evaluating the possible effects of current COVID-19 related economic conditions and reasonable and supportable economic forecasts on operational cash flows, including the risks of declines in the overall freight market and our customers' liquidity and ability to pay. We regularly monitor working capital and maintain frequent communication with our customers, suppliers, and service providers.
The following table summarizes our expected obligations and commitments as of
One Year One to Three to After
Total Or Less Three Years Five Years Five Years
Operating leases $ 136.3 $ 47.1 $ 57.5 $ 17.0 $ 14.7
Debt obligations 1,300.0 - 350.0 250.0 700.0
Interest payments on debt (1) 170.0 42.2 75.8 52.0 -
Commitments to acquire revenue
equipment and facilities 1,710.3 985.4 724.9 - -
Total $ 3,316.6 $ 1,074.7 $ 1,208.2 $ 319.0 $ 714.7 (1) Interest payments on debt are based on the debt balance and applicable
rate at
Our net capital expenditures were approximately$86 million during the first three months of 2021, compared with$129 million for the same period 2020. Our net capital expenditures include net additions to revenue equipment and non-revenue producing assets that are necessary to contribute to and support the future growth of our various business segments. Capital expenditures in 2021 were primarily for tractors, additional intermodal containers, and other trailing equipment. We are currently committed to spend approximately$1.7 billion during the years 2021 to 2023. In response to the COVID-19 pandemic, we previously paused or cancelled certain capital expenditures originally planned for 2020. Based on the current economic environment and our longer-term outlook, we have increased our anticipated net capital expenditures for 2021, which will primarily be driven by additional intermodal containers and trailers used in our 360box program. Accordingly, we now expect to spend in the range of$1.2 billion to$1.3 billion for net capital expenditures during 2021. Our ultimate capital expenditure levels could be affected by manufacturer production slowdowns resulting from the COVID-19 pandemic. The table above excludes$74.6 million of potential liabilities for uncertain tax positions, including interest and penalties, which are recorded on our Condensed Consolidated Balance Sheets. However, we are unable to reasonably estimate the ultimate timing of any settlements.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements, other than our net purchase
commitments of 1.7 billion, as of
Risk Factors You should refer to Part I, Item 1A of our Annual Report (Form 10-K) for the year endedDecember 31, 2020 , under the caption "Risk Factors" for specific details on the following factors and events that are not within our control and could affect our financial results. 17 -------------------------------------------------------------------------------- Risks Related to Our Industry ? Our business is significantly impacted by economic conditions, customer business cycles, and seasonal factors. ? Our business is significantly impacted by the effects of national or international health pandemics on general economic conditions and the
operations of our customers and third-party suppliers and service providers.
? Extreme or unusual weather conditions can disrupt our operations, impact
freight volumes, and increase our costs, all of which could have a material
adverse effect on our business results.
? Our operations are subject to various environmental laws and regulations,
including legislative and regulatory responses to climate change. Compliance
with environmental requirements could result in significant expenditures and
the violation of these regulations could result in substantial fines or
penalties.
? We depend on third parties in the operation of our business.
? Rapid changes in fuel costs could impact our periodic financial results.
? Insurance and claims expenses could significantly reduce our earnings.
? We operate in a regulated industry, and increased direct and indirect costs of
compliance with, or liability for violation of, existing or future regulations
could have a material adverse effect on our business.
? Difficulty in attracting and retaining drivers, delivery personnel andthird-party carriers could affect our profitability and ability to grow.
? We operate in a competitive and highly fragmented industry. Numerous factors
could impair our ability to maintain our current profitability and to compete
with other carriers and private fleets.
Risks Related to Our Business
? We derive a significant portion of our revenue from a few major customers, the
loss of one or more of which could have a material adverse effect on our
business.
? A determination that independent contractors are employees could expose us to
various liabilities and additional costs.
? We may be subject to litigation claims that could result in significant
expenditures.
? We rely significantly on our information technology systems, a disruption,
failure, or security breach of which could have a material adverse effect on
our business.
? Acquisitions or business combinations may disrupt or have a material adverse
effect on our operations or earnings.
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