10-KPeriod: FY2022

EXPEDITORS INTERNATIONAL OF WASHINGTON INC Annual Report, Year Ended Dec 31, 2022

Filed March 1, 2023For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) is a global logistics services provider. In 2022, the company experienced a significant cyber-attack in February, which disrupted operations for approximately three weeks and resulted in $65 million in net expenses and unquantifiable revenue loss. Despite this, overall revenues saw a modest 3% increase, driven by higher average buy and sell rates, particularly in ocean freight services. However, operating income and net earnings declined by 4% due to increased overhead expenses, including those related to the cyber-attack and inflationary pressures. Volumes across most services softened in 2022 due to a slowdown in the global economy and inventory buildup by retail customers, leading to a progressive decline in average rates throughout the year. The company continued to return capital to shareholders through dividends and significant share repurchases. Management expects continued pressure on rates and potential for further declines in 2023 as supply chain disruptions ease and global demand softens. A material weakness in internal control over financial reporting related to IT general controls was identified, which the company is actively working to remediate.

Financial Highlights

44 data points
Beta

Revenue

$17.07B

Net Income

$1.36B

8.0% Net Margin

EPS (Diluted)

$8.26

Total Assets

$5.59B

Cash & Equivalents

$2.03B

Free Cash Flow

$2.13B

Financial Statements
Beta
Revenue$17.07B
Operating Expenses$15.25B
Operating Income$1.82B
Interest Expense$23.28M
Net Income$1.36B
EPS (Basic)$8.33
EPS (Diluted)$8.26
Shares Outstanding (Basic)163.01M
Shares Outstanding (Diluted)164.43M

Key Highlights

  • 1Incurred $65 million in net expenses and unquantifiable revenue loss due to a significant cyber-attack in February 2022, which temporarily halted global operations.
  • 2Overall revenues increased by 3% to $15.07 billion in 2022, primarily driven by higher average freight rates, especially in ocean freight, which saw an 18% revenue increase.
  • 3Operating income and net earnings decreased by 4% to $1.82 billion and $1.36 billion, respectively, impacted by higher overhead expenses, including cyber-attack costs, and inflationary pressures.
  • 4Volume across most services declined in 2022 due to global economic slowdown and retail inventory build-up, leading to a downward trend in average buy and sell rates throughout the year.
  • 5The company returned $1.8 billion to shareholders through common stock repurchases ($1.3 billion) and dividends ($0.5 billion).
  • 6Identified a material weakness in internal control over financial reporting related to IT general controls, with remediation expected by the end of 2023.
  • 7The company expects continued downward pressure on rates in 2023 due to softening demand and normalizing supply chains.

Frequently Asked Questions

The cyber-attack in February 2022 caused significant disruption, forcing Expeditors to shut down most of its global systems for approximately three weeks. This resulted in limited ability to conduct operations, leading to $65 million in net expenses (after recoveries) and an unquantifiable loss of revenue. While core systems were back online by the second quarter, the incident impacted operations and contributed to increased overhead expenses.

Expeditors anticipates continued pressure on its rates and potential declines in revenues and operating income in 2023. This outlook is based on softening customer demand, a slowdown in the global economy, and the normalization of supply chains which has led to increased carrier capacity. Average buy and sell rates have been declining since the second half of 2022 and are expected to continue this trend.

Expeditors identified a material weakness in IT general controls related to database changes that support financial reporting. Management is implementing enhancements to strengthen IT program change management processes and conducting supplemental reviews of database changes. These remediation efforts are expected to be completed by the end of 2023.

Airfreight services revenue and expenses decreased by 13% and 14%, respectively, due to lower tonnage, though average rates saw a slight increase. Ocean freight and ocean services revenue and expenses increased by 18% and 19%, respectively, driven by higher rates despite a decrease in container volume. Customs brokerage and other services saw a 10% revenue and 15% expense increase, partly due to higher charges related to supply chain congestion and cyber-attack costs.