Universal Logistics Holdings, Inc. — Q1 2016 Form 10-Q
Business context and reporting period. The company provides transportation, value-added logistics, and intermodal services in the U.S., Mexico, Canada, and Colombia. This unaudited report covers the 13 weeks ended April 2, 2016; comparisons are with the 13 weeks ended March 28, 2015, and balance-sheet comparisons are with December 31, 2015. Amounts below are U.S. dollars.
Key financial metrics
| Metric | Q1 2016 | Prior-year period / comparison |
|---|---|---|
| Operating revenue | $260.4 million | $263.6 million; down 1.2% |
| Operating income and margin | $13.9 million; 5.3% | $15.1 million; 5.7% |
| Net income and diluted EPS | $7.5 million; $0.26 | $8.2 million; $0.27 |
| Net cash from operations | $38.4 million | $11.6 million |
| Capital expenditures | $36.1 million | $2.2 million |
| Cash and cash equivalents | $11.7 million | $12.9 million at Dec. 31, 2015 |
| Marketable securities | $13.4 million | $13.4 million at Dec. 31, 2015 |
| Debt outstanding | $234.9 million gross principal | $234.9 million at Dec. 31, 2015 |
| Dividend declared | $0.07 per share | $0.07 per share in prior-year quarter |
Current assets were $196.6 million and current liabilities were $179.8 million at quarter-end. Cash plus marketable securities totaled $25.1 million. The company reported $29.6 million of availability under the PNC revolver and $9.0 million under the Comerica revolver; an additional UBS securities-backed line had $7.4 million of maximum availability and no balance outstanding.
Material changes and operating performance
- Transportation-services revenue fell $10.5 million, while value-added-services revenue rose $5.3 million and intermodal revenue rose $2.0 million. Reported category revenue was $149.9 million for transportation, $75.6 million for value-added services, and $34.9 million for intermodal.
- Management cited lower fuel surcharges, softer pricing and freight mix, and slower steel, metals, and energy markets. Fuel surcharges included in revenue declined to $11.8 million from $20.2 million.
- Transportation-segment revenue decreased 5.8% to $157.5 million and operating income decreased 7.8% to $5.9 million. Logistics-segment revenue increased 6.7% to $102.6 million, while operating income decreased 3.4% to $8.5 million.
- Transportation revenue per loaded mile, excluding fuel surcharges, decreased to $2.21 from $2.44; loads increased modestly to about 148,000 from 147,000. Intermodal revenue per loaded mile rose to $4.53 from $4.17 and loads increased to about 81,000 from 74,000.
- Direct personnel expense increased 24.3% to $64.0 million, or 24.6% of revenue versus 19.5%. Management attributed the increase to higher direct labor costs than planned to support extended implementations and higher-than-anticipated customer production schedules.
- Purchased transportation and equipment rent decreased 7.9% to $121.7 million; as a share of revenue, it fell to 46.7% from 50.1%. Other operating expenses declined, mainly due to lower company-truck fuel costs and warmer winter weather. Occupancy expense increased 13.2% to $7.7 million, attributed to more leased facilities.
Cash flow, debt, outlook and risks
- Operating cash flow of $38.4 million reflected, among other factors, a $24.6 million aggregate decrease in net working capital, primarily from increased accounts payable. Investing used $35.7 million, mainly for capital expenditures; financing used $3.8 million, including $2.0 million of dividends and debt and lease payments. Cash declined $1.2 million during the quarter.
- Quarterly capital expenditures were unusually high at $36.1 million. Management expects full-year 2016 capital expenditures, excluding acquisitions, of 5%–6% of revenue, for equipment, value-added operations, and real property and facility improvements.
- Management said operating cash flow, working capital, and available borrowing capacity should fund operating needs, capital commitments, and mandatory debt repayments for at least the next 12 months, assuming current profitability continues. The company also said it continues to evaluate acquisition opportunities; no specific acquisition guidance was provided.
- A $40 million unsecured Flagstar term loan is due on or before July 15, 2016. A potential refinancing into secured real-estate notes is subject to conversion conditions, including satisfactory appraisal, environmental, title, and insurance reviews. The company also entered into $18.9 million of equipment financing during the quarter. It reported compliance with applicable covenants at April 2, 2016; the first Key equipment-note covenant test was due in Q2 2016.
- Two forward interest-rate swaps, with a combined notional amount of $15.7 million, begin in October 2016; their quarter-end fair value was a $0.4 million liability. Available-for-sale equity securities had $1.2 million of unrealized losses, which management considered temporary; further market declines could result in impairment charges.
- The company reported no off-balance-sheet arrangements and no material changes to its previously disclosed risk factors. Ordinary-course claims and litigation were not expected by management to materially affect financial position, results, or cash flows. Collective bargaining agreements covered about 28% of employees in the U.S., Canada, and Colombia and 92% in Mexico; fewer than 10% of those agreements were due to expire in 2016.
- Seasonality includes typically stronger value-added demand in Q2 and customer plant shutdowns in Q3 and around the December holidays. Adverse winter weather can reduce productivity and pressure margins. The company declared a subsequent quarterly dividend of $0.07 per share, expected to be paid May 19, 2016.
Important facts for investors to verify
- Whether labor costs and customer implementation schedules improve sufficiently to support margins, particularly in value-added operations.
- Whether planned 2016 capital spending can be funded while maintaining liquidity and the stated dividend policy.
- How the $40 million Flagstar maturity will be repaid or refinanced by July 15, 2016, and the outcome of the Q2 equipment-note covenant test.
- Whether freight pricing, fuel surcharges, and demand in steel, metals, and energy markets stabilize or further affect transportation revenue.
- Whether the securities portfolio’s unrealized losses remain temporary, and whether related-party service and facility costs remain appropriate; affiliate costs totaled $16.8 million in the quarter.