Universal Logistics Holdings, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with FY 2021. This is an annual report, not a standalone fourth-quarter report. The company provides transportation and logistics services across the United States, Mexico, Canada and Colombia.
Financial performance
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Operating revenue | $2,015.5 million | $1,751.0 million |
| Income from operations | $240.4 million; 11.9% margin | $103.0 million; 5.9% margin |
| Net income | $168.6 million | $73.7 million |
| Diluted EPS | $6.37 | $2.74 |
| Cash from operating activities | $213.4 million | $83.3 million |
| Capital expenditures | $117.1 million | $38.8 million |
| Cash and cash equivalents at year-end | $47.2 million | $13.9 million |
| Outstanding borrowings at year-end | $382.9 million | $428.4 million |
FY 2022 net margin was 8.4%, versus 4.2% in FY 2021. Operating cash flow less capital expenditures was approximately $96.3 million. Current assets were $459.7 million and current liabilities $286.9 million at year-end. Separately, marketable securities were valued at $10.0 million.
Revenue and segment trends
- By service category, intermodal generated $591.9 million (29.4% of revenue), value-added $499.3 million (24.8%), brokerage $368.9 million (18.3%), dedicated $324.6 million (16.1%) and truckload $230.7 million (11.4%).
- Contract logistics revenue rose 31.4% to $823.9 million; operating income increased to $118.4 million from $44.8 million. Dedicated load count increased 4.2%.
- Intermodal revenue grew 25.1% to $591.9 million and operating income rose to $83.6 million. Loads declined 16.9%, while average revenue per load excluding fuel surcharges increased 34.5%; accessorial charges also increased.
- Trucking revenue declined to $392.6 million, while operating income rose to $27.6 million. Load volumes fell 30.7% as the company rationalized underperforming operations.
- Company-managed brokerage revenue declined 17.4% to $200.5 million, with loads down 25.8%; operating margin improved to 5.0% from 2.9%.
Material changes and drivers
- Revenue increased 15.1%; separately identified fuel surcharges rose to $168.6 million from $96.9 million.
- Operating margin improved substantially. Purchased transportation and equipment rent fell to 42.0% of revenue from 47.1%, partly because brokerage’s share of revenue declined. Insurance and claims fell to 1.1% of revenue from 2.2%.
- Interest expense increased to $16.3 million from $11.6 million as borrowing rates rose, although year-end borrowings were lower.
- Management reported that 2021 included $25.0 million of pre-tax charges, including $18.9 million in contract-logistics program launch losses, $5.8 million in intermodal litigation-related charges and $6.0 million in trucking auto-liability claims, partly offset by other items. FY 2022 included a $3.0 million favorable insurance-claims settlement credit.
- A change in equipment useful-life and salvage-value estimates increased FY 2022 depreciation by $9.7 million ($7.2 million after tax, or $0.27 per diluted share). The company also reported a $1.0 million pre-tax holding gain on marketable securities.
Liquidity, debt and capital allocation
At December 31, 2022, the company reported $382.9 million in outstanding borrowings. Its $400 million revolving facility and $10 million UACL revolver were undrawn and available, and the company was in compliance with its debt covenants. A separate $5.1 million margin facility secured by marketable securities was also undrawn. Floating-rate borrowings totaled $234.7 million; management estimated that a 100-basis-point rate increase would add approximately $2.3 million to annual interest expense, before considering hedging. An interest-rate swap covered an amortizing notional amount of $93.3 million through April 2027.
Capital expenditures were $117.1 million in 2022. Management projected 2023 capital expenditures, excluding acquisitions and strategic real estate, at 7%–8% of operating revenue, citing equipment shortages and investment needs. The company’s stated regular dividend policy anticipates $0.42 per share annually; no special dividend was declared in the first quarter of 2023. It also repurchased shares through a 2022 tender offer and reported $14.3 million of treasury-stock purchases in cash flows.
Outlook, risks and unusual items
- Management said cash, operating cash flow and available financing were expected to fund near-term working capital, planned capital expenditures and debt service for at least the next 12 months, assuming continued profitability. It cautioned that prolonged inflation, pandemic effects or weaker cash flow could require additional financing.
- Key exposures include automotive-sector and major-customer concentration: automotive customers accounted for 36% of revenue among customers generating more than $100,000 annually; General Motors represented 16% of total revenue, and the top 10 customers 42%.
- Other material risks include driver and labor availability, union negotiations, fuel and other cost inflation, rate competition, interest-rate exposure, insurance and litigation claims, customer production disruptions, independent-contractor classification, regulation and environmental requirements, cyber incidents, and economic or geopolitical disruption.
- Legal proceedings arise in the ordinary course of business. Management stated that currently known matters were not expected to have a material effect, but uninsured claims or amounts exceeding reserves could materially affect results. The company is self-insured for certain risks.
- Approximately 39% of employees in the United States, Canada and Colombia and 80% in Mexico were unionized; some collective bargaining agreements expired or were under negotiation in 2023. Goodwill impairment testing recorded no impairment, but the auditor identified contract-logistics and intermodal goodwill valuations as a critical audit matter due to sensitivity to forecasts and discount rates.
Important facts for investors to verify
- Reconcile the filing’s cash-flow statement, which reports $13.9 million of 2022 dividends paid, with the equity statement and MD&A figures of approximately $11.1 million; confirm the applicable cash-flow and dividend presentation.
- Review the 2023 capital-spending outlook against the 7%–8% revenue projection, equipment availability, and resulting financing needs.
- Assess the sustainability of the 2022 margin expansion, including the effects of elevated intermodal accessorial revenue and the $3.0 million insurance settlement credit.
- Monitor automotive and General Motors concentration, customer contract renewals, and 2023 union negotiations.
- Confirm goodwill balances and disclosure consistency: the balance sheet reports $170.7 million, while the auditor’s critical-audit-matter discussion cites $170.1 million.