Universal Truckload Services, Inc. — Q3 2011 Form 10-Q
Issuer and period: The filing identifies the registrant as Universal Truckload Services, Inc. (not Universal Logistics Holdings, Inc.). Unaudited results cover the 13 and 39 weeks ended October 1, 2011; comparatives are the 13 and 39 weeks ended October 2, 2010. Dollar amounts below are in millions unless stated otherwise.
Business context
The company provides primarily asset-light truckload, brokerage and intermodal transportation services, using agents and owner-operators for much of its capacity. It also offers freight forwarding and customs brokerage. Management said approximately 86% of operating expenses were variable in the 2011 periods.
Financial performance
| Metric | 13 weeks 2011 | 13 weeks 2010 | 39 weeks 2011 | 39 weeks 2010 |
|---|---|---|---|---|
| Revenue | $187.5 | $156.5 | $525.1 | $449.8 |
| Operating income | $8.4 | $4.7 | $18.4 | $10.2 |
| Operating margin | 4.5% | 3.0% | 3.5% | 2.3% |
| Net income | $5.4 | $2.9 | $12.3 | $9.6 |
| Net margin | 2.9% | 1.9% | 2.3% | 2.1% |
| Diluted EPS | $0.35 | $0.18 | $0.79 | $0.60 |
- Quarterly revenue rose 19.9%; year-to-date revenue rose 16.7%. Truckload, brokerage and intermodal revenue all increased. Management attributed growth to more loads, higher fuel surcharges and higher revenue per loaded mile. Combined loads increased to 208,000 from 186,000 in the quarter and 601,000 from 555,000 year to date.
- For the 39-week period, truckload revenue was $319.0 million, brokerage $127.6 million and intermodal $78.6 million. Fuel surcharges included in revenue were $66.2 million versus $40.1 million.
- Purchased transportation rose to 77.0% of revenue year to date from 76.0%; management cited fuel surcharges passed through to owner-operators. Lower commission, SG&A, insurance and depreciation ratios helped improve operating margins overall.
- Other non-operating income fell to $1.4 million from $5.8 million year to date, mainly because gains on securities sales were $0.9 million versus $5.4 million. This tempered net-income growth relative to operating-income growth.
Cash flow, balance sheet and debt
- Year-to-date operating cash flow was $19.5 million, compared with $3.3 million a year earlier. Capital expenditures were $8.9 million; cash and cash equivalents declined to $1.4 million from $6.3 million at year-end 2010.
- Investing activities used $11.1 million and financing activities used $13.2 million. Financing outflows included a $15.6 million special dividend and $1.7 million of treasury-stock purchases, partly offset by $4.3 million borrowed against the UBS securities-backed facility.
- At October 1, current assets were $117.5 million and current liabilities $63.4 million (current ratio approximately 1.85). Marketable securities were $15.3 million. Accounts receivable increased to $87.4 million from $68.8 million at year-end.
- The balance sheet reports $4.3 million of line-of-credit borrowings. The notes identify this as the UBS facility secured by marketable securities; its maximum availability was $4.5 million and it is callable at any time. No borrowings were outstanding under the separate unsecured KeyBank facility; $0.65 million of letters of credit used its $20 million aggregate capacity. The company reported covenant compliance.
- After quarter-end, KeyBank extended the unsecured facility maturity to October 23, 2012, retaining the $20 million limit and stated covenants. Management said available liquidity and expected operating cash flow should fund operations and commitments for at least 12 months.
Outlook, risks and unusual items
- No earnings or revenue guidance was provided. Management expected $1.0–$1.5 million of additional 2011 spending on real property and facilities and $11.0–$11.5 million on tractors, trailers, containers, chassis and other equipment, excluding acquisitions. It planned to add 165 intermodal containers by year-end, following 135 added during the 39-week period.
- The company acquired certain Hart Transportation assets in March for approximately $1.4 million, including an estimated revenue-based earnout; the earnout liability was $0.3 million at October 1. The acquisition’s pro forma effect was deemed immaterial.
- A special one-time $1.00-per-share dividend was declared September 6 and paid during the period. The company said it did not expect to pay cash dividends in the foreseeable future and intended to retain future earnings.
- Available-for-sale equity securities had $1.2 million of gross unrealized losses, which management considered temporary; no other-than-temporary impairment was recorded. Further market declines could lead to impairment charges.
- Ordinary-course litigation primarily concerns personal injury and property damage claims. Management believed these matters were insured or provided for, while noting materially different outcomes could affect results or cash flows. The filing reported no material change in risk factors or market risk.
Important facts for investors to verify
- Confirm the registrant identity and distinguish the $4.3 million UBS securities-backed borrowing from the separate KeyBank revolver.
- Assess whether operating cash generation can continue to cover receivables growth, planned capital spending and any acquisitions after the special dividend.
- Review the securities portfolio’s exposure to market losses and the possibility of future impairment charges.
- Track purchased transportation costs, fuel-surcharge pass-throughs, load growth and revenue per loaded mile for evidence that margin improvement is sustainable.
- Monitor KeyBank covenant compliance and the UBS facility’s collateral requirements and callable status.