Universal Logistics Holdings, Inc. — Q3 2019 Form 10-Q
Reporting period: Thirteen weeks ended September 28, 2019; year-to-date figures cover the thirty-nine weeks ended that date. Comparisons are with the corresponding 2018 periods. Amounts are in millions except per-share data.
Financial performance
| Metric | Q3 2019 | Q3 2018 | 39 weeks 2019 | 39 weeks 2018 |
|---|---|---|---|---|
| Revenue | $375.5 | $374.3 | $1,136.1 | $1,075.3 |
| Operating income (loss) | $(7.4) | $22.5 | $49.9 | $65.9 |
| Net income (loss) | $(8.4) | $15.1 | $28.8 | $43.2 |
| Diluted EPS | $(0.30) | $0.53 | $1.02 | $1.52 |
| Operating margin | (2.0)% | 6.0% | 4.4% | 6.1% |
| Net margin | (2.2)% | 4.0% | 2.5% | 4.0% |
- Q3 revenue was nearly flat year over year despite $34.6 million of incremental acquisition revenue. For the first 39 weeks, revenue rose 5.6%, mainly due to acquisitions, while operating income fell 24.3%.
- Q3 service-line changes: truckload revenue declined 21.9% to $62.6 million; brokerage fell 4.4% to $94.4 million; intermodal rose 41.6% to $93.0 million; dedicated fell to $32.7 million; and value-added eased to $92.7 million.
- Transportation segment Q3 operating loss was $17.2 million versus $11.9 million of income a year earlier; logistics operating income was $9.8 million versus $10.5 million. The filing attributes logistics weakness partly to the General Motors UAW strike, estimated to reduce revenue by $5.1 million and operating income by $4.0 million.
Cash flow, balance sheet and liquidity
- For the first 39 weeks, operating cash flow was $132.0 million, investing cash outflow was $77.1 million, and financing cash outflow was $54.2 million. Operating cash flow compared with $73.9 million in 2018; the filing cites working-capital movements, including higher insurance and other accruals, as important contributors.
- Cash was $6.5 million and marketable securities $9.1 million at September 28. Current assets were $266.8 million versus current liabilities of $292.3 million.
- Total debt was reported as $386.6 million net of issuance costs, including $59.9 million current; management reported borrowings of $388.8 million. The $200 million revolving facility had $134.4 million available. The company was in compliance with its debt covenants.
- Capital expenditures were $60.8 million year to date. Management expected remaining-2019 capital expenditures, excluding acquisitions, to be 4%–5% of operating revenue and said cash flow, working capital and borrowing availability should meet needs for at least 12 months, assuming continued profitability.
- Operating lease adoption added $88.8 million of assets and corresponding liabilities on January 1, 2019; management said adoption did not materially affect results or cash flows. At quarter-end, operating lease assets were $79.6 million and liabilities totaled $81.3 million.
Material developments, outlook and risks
- Litigation charge and payment: The Denton settlement resulted in a $24.8 million pretax Q3 charge. The company paid $36.0 million on October 23, 2019, using cash and revolver borrowings. A separate Dalton case remains on appeal; the estimated exposure is $0–$5.7 million, with $4.0 million accrued.
- Acquisitions and capital returns: The company acquired Michael’s Cartage in April for a stated cash purchase price of $22.0 million. On November 5, after quarter-end, it acquired Roadrunner Intermodal businesses for $54.9 million, subject to adjustment, funded with cash and revolver borrowings. During Q3, it repurchased 1,101,597 shares at $22.50 each for approximately $24.8 million. The quarterly dividend was $0.105 per share; the board declared the same amount for Q4.
- Management described the business as asset-light and said it continues to evaluate acquisitions; it provided no revenue or earnings guidance. It identified seasonality, customer production levels, plant shutdowns, weather and labor disruptions as relevant operating factors. The filing warns that uninsured or under-reserved claims could adversely affect results; it reported no material change to previously disclosed risk factors.
Most important facts for investors to verify
- How much of the operating and net income decline reflects the Denton settlement and other litigation costs, versus underlying operating trends.
- Whether transportation profitability recovers, given falling truckload activity and the Q3 transportation segment loss; monitor intermodal growth and acquisition contributions.
- The cash and debt impact of the $36.0 million Denton payment and the post-quarter $54.9 million Roadrunner Intermodal acquisition, including remaining revolver capacity.
- Whether cash generation is sustainable: operating cash flow benefited from working-capital changes, including increased accrued liabilities.
- Insurance and claims exposure, the Dalton appeal, and the effects of labor disruptions and customer production levels.