ULH

Business Context and Reporting Period

Company: Universal Truckload Services, Inc. (UTSI)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: April 3, 2010 (Thirteen weeks)
Business Overview: UTSI is an asset-light provider of transportation services, including truckload, brokerage, and intermodal support, primarily in the U.S. and parts of Canada. The company utilizes owner-operators and agents to minimize capital expenditure requirements.

Key Financial Metrics

Note: All figures in millions unless otherwise noted. Debt figures reflect the balance sheet; the company has a $20 million unsecured line of credit with no borrowings outstanding as of April 3, 2010.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 20.9% to $139.0 million, driven by a 20% increase in load volume (155,000 vs. 129,000) and higher fuel surcharges ($11.7M vs. $7.9M). Approximately $18.3 million of revenue is attributable to acquisitions made since Q3 2009.
• Profitability: Net income surged to $2.1 million from $0.1 million. This improvement was significantly aided by $1.8 million in gains from the sale of marketable securities, compared to $0.7 million in impairment losses in the prior year.
• Expense Trends: Purchased transportation expenses rose 22.4% to $105.4 million, increasing as a percentage of revenue to 75.8% due to fuel surcharge pass-throughs. Selling, general, and administrative expenses increased 7.7% primarily due to acquisition-related costs.
• Cash Flow: Net cash provided by operating activities decreased significantly to $0.8 million from $10.4 million, largely due to a $3.0 million increase in accounts receivable tied to revenue growth. Investing activities turned positive ($2.8 million) due to proceeds from the sale of marketable securities.

Outlook, Risks, and Management Commentary

• Capital Expenditures: Management expects to incur $4.75 million to $5.25 million in capital expenditures for real property and facilities, plus $1.0 million to $5.3 million for equipment through the end of 2010.
• Dividends: The company intends to retain future earnings to finance growth and does not anticipate paying cash dividends in the foreseeable future (no dividends were paid in Q1 2010).
• Liquidity: The company maintains a $20 million unsecured line of credit with KeyBank. As of April 3, 2010, there were no borrowings, but $665,000 in letters of credit were issued. Management believes working capital and available borrowings are sufficient for the next 12 months.
• Acquisitions: UTSI acquired Cavalry Transportation/Logistics and assets of TSD Transportation in early 2010 for a total cost of $3.4 million. These acquisitions are expected to contribute to future load volume.
• Risks: The company faces standard industry risks including fuel price volatility, seasonal trends (Q1 is typically lower), and market fluctuations affecting its portfolio of equity securities. Litigation related to personal injury and property damage is ongoing but believed to be adequately covered by insurance.

Investor Verification Checklist

• Revenue Quality: Verify the sustainability of the 20.9% revenue growth, noting that a significant portion ($18.3M) is from recent acquisitions and fuel surcharges.
• Non-Operating Income: Assess the impact of the $1.8 million gain on the sale of marketable securities on net income; this is a non-recurring item.
• Working Capital: Monitor the $3.0 million increase in accounts receivable to ensure collection rates remain healthy as revenue scales.
• Debt Covenants: Confirm continued compliance with the KeyBank line of credit covenants, specifically the tangible net worth requirement of at least $100 million.
• Investment Portfolio: Review the status of the $17.7 million marketable securities portfolio, noting $1.7 million is currently in an unrealized loss position deemed temporary.