Universal Truckload Services, Inc. — Q1 2013 Form 10-Q
Reporting period: Thirteen weeks ended March 30, 2013. The filing is by Universal Truckload Services, Inc.; the request metadata names Universal Logistics Holdings, Inc. Financial results are unaudited and the 2012 comparative figures include LINC on a retroactively restated basis following the companies’ common-control combination.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Operating revenue | $248.1 million | $256.0 million |
| Operating income | $19.3 million; 7.8% margin | $17.4 million; 6.8% margin |
| Income before tax | $18.3 million | $17.1 million |
| Income tax provision / effective rate | $6.9 million / 37.8% | $2.7 million / 15.6% |
| Net income | $11.4 million; 4.6% margin | $14.4 million; 5.6% margin |
| Diluted EPS | $0.38 | $0.48 reported; $0.35 pro forma for C-corporation taxes |
| Operating cash flow | $14.2 million | $11.6 million |
| Capital expenditures | $2.7 million | $2.6 million |
Revenue mix in 2013 was transportation $166.9 million, value-added services $47.8 million, and intermodal services $33.4 million. Separately identified fuel surcharges were $29.0 million, versus $27.6 million a year earlier.
Financial position and liquidity
- At March 30, 2013, cash was $4.8 million, marketable securities $10.4 million, total assets $331.1 million, and shareholders’ equity $69.6 million. Cash and securities together were $15.2 million.
- Total debt was $136.0 million, down from $146.0 million at December 31, 2012. The balance included $54.0 million on the revolver, $32.0 million on the equipment facility, and $50.0 million on the term loan.
- Credit-agreement excess availability was $45.5 million; there were no letters of credit outstanding. The separate UBS securities-backed line was undrawn, with $5.0 million available. The company reported compliance with its debt covenants.
- Operating cash flow was $14.2 million; investing activities used $2.1 million and financing activities used $10.0 million, primarily for net debt repayment. Cash increased $2.3 million from year-end.
Material changes and management commentary
- Revenue fell 3.1% year over year. Transactional-segment revenue declined $10.7 million (6.1%), partly offset by contractual-segment growth of $2.8 million (3.5%).
- Transportation revenue decreased $18.5 million. Management attributed lower transportation volumes to exiting certain underperforming sales channels, delayed specialized-load demand in wind energy, and unfavorable first-quarter weather. Transportation loads fell to approximately 151,000 from 171,000; revenue per loaded mile excluding fuel surcharges edged down to $2.31 from $2.34.
- Intermodal revenue rose $8.1 million, supported by more loads, higher revenue per loaded mile, domestic container activity, and an acquisition. Intermodal loads increased to approximately 78,000 from 75,000; revenue per loaded mile excluding fuel surcharges increased to $3.55 from $3.42. Value-added revenue grew $2.5 million, and locations increased to 44 from 39.
- Operating income improved despite lower revenue: purchased transportation and equipment rent declined as a share of revenue to 54.2% from 56.7%, while operating expenses overall were 92.2% of revenue versus 93.2%. Higher direct personnel, other operating expenses, SG&A, and depreciation partly offset lower insurance and claims expense.
- Net income declined despite higher operating income, largely reflecting the higher tax provision and higher interest expense. The 2012 comparison is affected by LINC’s former S-corporation tax status; the filing’s pro forma 2012 EPS after C-corporation taxes is $0.35.
Outlook, risks, and other notable items
- Management expected 2013 capital expenditures, excluding acquisitions, to be 2%–3% of operating revenue and stated that operating cash flow, working capital, and available borrowings should meet needs for at least the next twelve months, assuming continued profitability. No earnings or revenue guidance was provided.
- The company noted typical trucking-industry seasonality, with first-quarter results generally lower than those in the second, third, and fourth quarters. It continued to evaluate potential acquisitions but gave no assurance any would be completed.
- Debt carries variable LIBOR-linked rates and is secured by substantially all assets, with leverage and fixed-charge coverage covenants. Credit terms can limit dividends; management said the company was compliant at quarter-end.
- Available-for-sale equity securities totaled $10.4 million. The company deemed $0.2 million of unrealized losses temporary, but warned continued or worsening market declines could result in impairment charges.
- About 49% of employees in the United States, Mexico, and Canada were covered by collective bargaining agreements; 2.1% were under contracts expiring in 2013. The company reported ordinary-course claims and litigation and did not expect their resolution to have a material effect.
- Related-party transactions included $13.5 million of affiliate-provided services during the quarter, and amounts due to affiliates were $6.2 million. The filing describes controlling-shareholder relationships and affiliate-provided insurance, benefits, real estate, and operating services.
- The filing reported no material changes to risk factors or market risk, no off-balance-sheet arrangements, and effective disclosure controls as of March 30, 2013.
Important facts for investors to verify
- How much of revenue and operating-income performance reflects sustainable growth in contractual, value-added, and intermodal services versus weakness in transactional transportation?
- Whether the elevated tax rate and cash taxes paid ($5.3 million versus $0.7 million) normalize, and how the LINC tax-status change affects year-over-year comparisons.
- Debt repayment capacity, covenant headroom, variable-rate exposure, and the availability and terms of borrowing facilities.
- The performance and valuation of the equity-securities portfolio, including whether currently temporary unrealized losses remain so.
- The economics and governance of affiliate transactions, including affiliate services, leases, insurance, and balances payable.