Universal Logistics Holdings, Inc. — Q1 2021 Form 10-Q
Reporting period: Thirteen weeks ended April 3, 2021; comparisons are with the thirteen weeks ended April 4, 2020. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context
Universal is an asset-light transportation and logistics provider operating in the United States, Mexico, Canada and Colombia. Its services include truckload, brokerage, intermodal, dedicated transportation and value-added logistics. The company reports four segments: contract logistics, intermodal, trucking and company-managed brokerage.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $415.2 | $382.2 | +8.7% |
| Income from operations | $31.2 | $23.9 | +30.3% |
| Operating margin | 7.5% | 6.3% | +1.2 percentage points |
| Income before taxes | $29.0 | $16.1 | +80.2% |
| Net income | $21.7 | $12.2 | +78.0% |
| Net margin | 5.2% | 3.2% | +2.0 percentage points |
| Diluted earnings per share | $0.80 | $0.45 | — |
| Dividend declared per share | $0.105 | $0.105 | Unchanged |
Separately identified fuel surcharges were $20.2 million, versus $23.1 million. Other non-operating income was $1.0 million, compared with a $3.6 million expense in the prior period; the 2021 amount included an approximately $0.9 million pre-tax unrealized holding gain on marketable securities, versus an approximately $3.4 million holding loss in 2020. Net interest expense declined to $3.2 million from $4.2 million.
Segments and material changes
| Segment | Revenue, Q1 2021 | Revenue change | Operating income, Q1 2021 |
|---|---|---|---|
| Contract logistics | $154.9 | +21.9% | $16.8, up 43.9% |
| Intermodal | $103.7 | Down $6.6 million | $8.5, versus $9.0 |
| Trucking | $94.9 | Up $3.3 million | $5.2, versus $4.5 |
| Company-managed brokerage | $61.1 | +15.8% | $0.4, versus a $1.4 loss |
Management attributed contract logistics growth to new business launches and strong volumes; dedicated loads rose 12.1%, and value-added programs increased to 60 from 56. Intermodal loads fell 9.0% and revenue per load excluding fuel surcharges fell 6.5%. Trucking loads declined 4.6%, partly offset by a 7.1% increase in revenue per load excluding fuel surcharges. Brokerage loads fell 20.8%, while revenue per load excluding fuel surcharges increased 42.4%.
Operating expenses increased 7.2%, slower than revenue growth. Purchased transportation and equipment rent declined to 45.6% of revenue from 47.3%; direct personnel costs increased to 25.9% of revenue from 25.5%. Operating supplies rose 20.8%, including higher heavy-truck program materials, professional fees and vehicle maintenance. Insurance and claims expense increased by $1.5 million, primarily due to cargo and service-failure claims.
Cash flow, debt and liquidity
- Operating cash flow was $43.1 million, up from $25.2 million. Investing activities used $4.2 million, including $4.9 million of capital expenditures; financing activities used $36.9 million, including $5.7 million of dividends and net debt repayments.
- Cash and cash equivalents were $10.8 million at April 3, 2021, versus $8.8 million at year-end 2020. Marketable securities were $7.5 million.
- Debt outstanding was approximately $430.5 million, down from $461.7 million at December 31, 2020. The balance sheet reported $60.0 million current and $369.0 million long-term debt, net of issuance costs.
- The revolving credit facility had $67.5 million available; the company reported covenant compliance. The facility matures November 26, 2023. The separate margin facility was undrawn, with up to $4.2 million available.
- Current assets were $329.9 million and current liabilities were $278.9 million. Operating lease liabilities totaled $97.1 million on a present-value basis.
Outlook, risks and unusual matters
Management expects capital expenditures for the remainder of 2021, excluding acquisitions and strategic real estate purchases, to equal 5%–6% of operating revenue. It stated that cash, operating cash flow and available borrowing capacity should fund near-term working capital and planned capital expenditures over the next 12 months, but prolonged COVID-19 effects or weaker cash generation could require additional financing. The company gave no specific revenue or earnings guidance.
COVID-19’s future effects remain uncertain, including possible disruption to customer demand and normal automotive seasonality. Management noted that automotive plant shutdowns and production cycles may not follow typical seasonal patterns. Other disclosed risks include potential employee reclassification of independent contractors, including developments concerning California law; operations in Mexico; insurance claims exceeding reserves or coverage; and labor agreements, with 40% of employees covered by collective bargaining agreements subject to contracts expiring in 2021.
The company reported a material weakness in internal control over financial reporting related to insufficient formal controls for tracking and reviewing facility lease obligations and modifications. Remediation was underway but incomplete, and management concluded disclosure controls and procedures were not effective as of April 3, 2021. Management nevertheless stated that the financial statements fairly present the company’s financial position and results in all material respects. Ordinary-course claims and litigation were not expected by management to have a material effect, though uninsured or under-reserved claims could adversely affect results. Related-party transactions included $14.7 million of affiliate-provided services and expenses during the quarter.
The board declared a regular $0.105-per-share dividend on April 29, 2021, payable July 6, 2021. No special dividend was declared in Q1.
Important facts for investors to verify
- Progress and testing of remediation for the facility-lease control weakness, and whether the weakness is fully remediated.
- Whether contract logistics growth and brokerage profitability are sustainable, given lower loads in intermodal, trucking and brokerage.
- Debt repayment, covenant headroom and refinancing needs before the credit facility’s November 2023 maturity.
- Trends in insurance and claims expense, self-insured reserves, and upcoming collective bargaining contract expirations.
- COVID-19 and automotive production effects on demand, the stated 2021 capital expenditure range, and the board’s future dividend decisions.