Universal Truckload Services, Inc. — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012; comparisons are to the corresponding 2011 periods. The filing identifies the registrant as Universal Truckload Services, Inc., which differs from the company name in the request metadata.
Business context and financial results
The company provides asset-light truckload, brokerage, intermodal, and related transportation services. Most tractors and more than half of trailers are supplied by owner-operators. Unless otherwise noted, financial amounts below are in millions of dollars.
| Metric | Q2 2012 | Q2 2011 | First half 2012 | First half 2011 |
|---|---|---|---|---|
| Revenue | $185.1 | $180.0 | $360.9 | $337.6 |
| Operating income | $7.5 | $6.1 | $12.9 | $9.9 |
| Operating margin | 4.1% | 3.4% | 3.6% | 2.9% |
| Net income | $5.0 | $3.9 | $8.6 | $6.8 |
| Diluted EPS | $0.32 | $0.25 | $0.55 | $0.44 |
| Operating cash flow | Not separately stated | Not separately stated | $13.1 | $2.5 |
First-half gross cash generation was accompanied by $6.2 million of capital expenditures. Cash and cash equivalents were $0.2 million at June 30, down from $0.9 million at year-end 2011. Marketable securities totaled $14.2 million, compared with $16.1 million at year-end. Working capital was approximately $45.2 million.
Material changes versus prior periods
- First-half revenue rose 6.9%; management attributed the increase to higher load volumes, fuel surcharges, and revenue per loaded mile. Combined truckload, brokerage, and intermodal loads increased to 404,900 from 392,700.
- First-half brokerage revenue grew 17.0% and intermodal revenue grew 7.7%; truckload revenue grew 2.9%. In Q2, truckload revenue declined 0.7%, while brokerage revenue rose 9.2%.
- First-half operating margin improved to 3.6% from 2.9%, principally as purchased transportation fell to 76.7% of revenue from 77.0%, commissions fell to 5.7% from 6.1%, and insurance and claims fell to 2.2% from 2.5%. Other operating costs and SG&A increased as a share of revenue.
- First-half investing cash outflow was $3.6 million. Financing used $10.2 million, including a $15.5 million special cash dividend and $1.0 million of treasury-stock purchases, partly offset by $6.4 million of borrowing under the secured UBS facility.
Liquidity, debt, outlook, and risks
- At June 30, the company had $6.4 million outstanding under its securities-backed UBS line, which is callable at any time; reported remaining borrowing capacity was only $0.9 million. A decline in collateral value could require additional equity or allow UBS to call the facility.
- The separate unsecured KeyBank facility had no borrowings outstanding, a $20 million aggregate limit for borrowings and letters of credit, and a maturity date of October 23, 2012. The company reported compliance with its covenants. Verify the facility’s subsequent renewal or replacement.
- Management expected $9.9–$10.9 million of capital expenditures through year-end 2012, excluding acquisitions, and stated that working capital and available borrowing were expected to meet needs for at least 12 months, assuming continued profitability. The company did not anticipate cash dividends in the foreseeable future.
- In May, the company acquired certain assets of TFX Incorporated for approximately $1.1 million, including $0.55 million paid in cash and the balance accrued. The acquisition’s pro forma effect was deemed immaterial.
- After quarter-end, on July 26, the company announced a proposed merger with commonly controlled LINC Logistics Company. LINC shareholders were to receive 0.700 company shares per LINC share; approximately 14.53 million new shares were expected to be issued. The filing states that, if approved, the merger would be accounted for as a common-control transaction, with LINC’s financial statements reflected as if consolidated historically.
- The portfolio had $0.7 million of gross unrealized losses, which management considered temporary; further market declines could result in impairment charges. Ordinary-course injury and property-damage claims are primarily insured or provided for, but adverse outcomes beyond estimates could affect results. The business is seasonal, with first-quarter results typically lower than later quarters.
- No specific earnings guidance was provided. Management cited forward-looking risks and uncertainties and reported no material change to previously disclosed risk factors or market risks.
Important facts for investors to verify
- Confirm the registrant identity and the proposed LINC merger’s approval, completion, share issuance, and accounting treatment.
- Verify the status of the KeyBank facility after its October 23, 2012 maturity and the availability and collateral terms of the UBS line.
- Review the special dividend’s funding and the effect of the low cash balance and limited remaining UBS capacity on liquidity.
- Check the filing’s Q2 fuel-surcharge comparison: the MD&A reports $24.3 million for 2012 and $25.0 million for 2011, but its date wording is unclear and should be confirmed against the source filing.
- Monitor unrealized losses in marketable securities, claims and insurance costs, and execution of the stated capital spending plan.