Universal Logistics Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: The 13-week quarter ended July 3, 2021; comparisons are with the 13 weeks ended July 4, 2020. The filing also reports the 26-week first half. Amounts below are in millions of dollars except per-share data.
Business context and results
Universal provides asset-light transportation and logistics services across truckload, brokerage, intermodal, dedicated and value-added operations. Management attributed the strong year-over-year comparisons partly to the pandemic-related shutdowns affecting customers, particularly automotive and heavy-truck manufacturers, in Q2 2020.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Operating revenue | $422.8 | $258.0 | $838.0 | $640.1 |
| Operating income | $31.3 | $10.8 | $62.5 | $34.7 |
| Operating margin | 7.4% | 4.2% | 7.5% | 5.4% |
| Net income | $25.6 | $6.2 | $47.3 | $18.3 |
| Net margin | 6.1% | 2.4% | 5.6% | 2.9% |
| Diluted EPS | $0.95 | $0.23 | $1.75 | $0.68 |
Q2 revenue increased 63.9%; first-half revenue rose 30.9%. All five service lines grew in Q2. Notable Q2 gains included dedicated services, up to $50.4 million from $18.0 million, and value-added services, up to $104.4 million from $53.8 million. Separately identified fuel surcharges were $23.0 million in Q2 and $43.1 million in the first half.
Cash flow, debt and liquidity
- First-half operating cash flow was $53.5 million, down from $108.4 million a year earlier. The filing cites higher receivables and other working-capital needs among the drivers. Capital expenditures were $16.9 million; investing cash outflow was $13.1 million.
- Cash and cash equivalents were $13.1 million at July 3, 2021, versus $8.8 million at year-end 2020. Marketable securities were $7.9 million. Current assets of $359.2 million compared with current liabilities of $275.2 million.
- Debt outstanding was approximately $433.5 million before unamortized issuance costs, versus $461.7 million at December 31, 2020. The balance sheet reports $432.2 million net of issuance costs, including $60.0 million current and $372.1 million long-term.
- The $200 million revolving facility had $49.5 million available; the separate margin facility had $4.2 million of capacity and no borrowings. The company reported compliance with debt covenants. First-half cash dividends paid were $8.5 million.
- Net interest expense was $2.9 million in Q2 and $6.1 million in the first half, lower than the respective prior-year periods. Management cited lower interest rates.
Material changes, outlook and risks
- Unusual gain: Q2 and first-half results include a $5.7 million pretax gain from a legal settlement. The company is to receive $6.0 million in three $2.0 million installments; it received the first payment in June.
- Operating costs: Contract logistics included approximately $5.0 million of losses related to a recent program launch in Q2 and $6.8 million in the first half. Segment revenue and operating income nevertheless improved substantially; management cited program wins and a more stable operating environment. Q2 contract-logistics margin was 10.3%, compared with 1.0% a year earlier.
- Capital spending: For the remainder of 2021, excluding acquisitions and strategic real estate purchases, management expected capital expenditures of 3%–4% of revenue, below the customary 4%–5% range because of equipment shortages and production backlogs. It said 2022 spending could be higher if supply constraints ease. No earnings or revenue guidance was provided.
- COVID-19 and demand: Management said the pandemic’s future effects remained uncertain. It believed cash, operating cash flow and available credit could fund near-term working capital and planned capital spending, but warned that a prolonged impact or weaker cash flow could require additional financing. Seasonality, including expected third-quarter automotive plant shutdowns, may affect activity.
- Contingencies: An NLRB complaint concerning California terminal closures seeks reinstatement and back pay. The estimated exposure is $0.8 million–$5.9 million; the company accrued $1.9 million. Management disputes the allegations. The company also cautioned that uninsured or reserve-exceeding claims could adversely affect results.
- Controls and other risks: Disclosure controls were deemed ineffective because of a previously identified material weakness in controls over facility lease obligations; remediation was ongoing and not yet validated. The filing highlights potential independent-contractor reclassification costs, including uncertainty over California’s AB5 law, and risks associated with Mexican operations. Approximately 21% of employees covered by collective bargaining agreements had contracts expiring in 2021.
Important facts for investors to verify
- How much of the earnings improvement persists after excluding the $5.7 million settlement gain and considering the program-launch losses.
- Whether receivables and other working-capital requirements continue to constrain operating cash flow as revenue grows.
- Progress in remediating and validating the lease-control material weakness.
- The outcome and ultimate cost of the NLRB matter, and the timing and collection of the remaining settlement installments.
- Whether equipment availability, labor costs, customer demand and pandemic-related conditions alter the capital-spending outlook or operating margins.