Universal Logistics Holdings, Inc. — Q3 2022 Form 10-Q
Business context and period. Universal provides transportation and logistics services in the United States, Mexico, Canada and Colombia, including truckload, brokerage, intermodal, dedicated and value-added services. This unaudited report covers the 13 weeks ended October 1, 2022, and the 39 weeks ended that date; comparisons are with the periods ended October 2, 2021. Financial amounts below are in millions unless stated otherwise.
Key financial results
| Metric | Q3 2022 | Q3 2021 | 39 weeks 2022 | 39 weeks 2021 |
|---|---|---|---|---|
| Revenue | $505.7 | $445.6 | $1,556.7 | $1,283.6 |
| Operating income | $69.8 | $16.7 | $192.3 | $79.2 |
| Operating margin | 13.8% | 3.8% | 12.4% | 6.2% |
| Net income | $48.5 | $10.3 | $135.2 | $57.5 |
| Diluted EPS | $1.84 | $0.38 | $5.09 | $2.14 |
- Q3 revenue rose 13.5%; operating income increased $53.1 million. Net margin was 9.6%, versus 2.3% a year earlier. For the 39-week period, revenue rose 21.3% and net margin was 8.7%, versus 4.5%.
- Q3 separately identified fuel surcharges were $46.8 million, up from $24.9 million. For the 39 weeks, they were $127.5 million, versus $68.0 million.
- Growth and profitability were led by contract logistics and intermodal. Q3 contract logistics revenue was $209.5 million, up 33.5%, and segment operating margin was 16.9%, versus 3.8%. Intermodal revenue rose to $154.4 million, but loads fell 14.8%; revenue per load excluding fuel surcharges increased 35.2%. Trucking revenue fell 7.0%, with loads down 30.2%; company-managed brokerage revenue fell 31.4%, with loads down 31.0%.
- Q3 net interest expense was $4.5 million, up from $3.0 million, as borrowing rates increased. The effective tax rate was 25.2%.
Cash flow, balance sheet and debt
- For the 39 weeks, operating cash flow was $144.5 million, investing cash use was $76.4 million and financing cash use was $64.6 million. Capital expenditures were $85.8 million, compared with $26.2 million in the prior-year period; equipment-sale proceeds were $10.4 million.
- Cash at October 1 was $14.6 million, and marketable securities were $8.6 million. Current assets were $459.2 million and current liabilities $305.4 million. Accounts receivable was $384.1 million, up from $341.4 million at year-end; the doubtful-account allowance was $13.4 million, versus $7.8 million.
- Debt on the balance sheet was $389.2 million, net of unamortized issuance costs; management reported outstanding borrowings of $393.7 million. Borrowings included equipment financing of $138.5 million, a real estate term loan of $159.8 million and an $80.0 million UACL term loan. Long-term debt carrying value was $326.7 million. Operating lease liabilities totaled $110.3 million.
- On September 30, the company amended its revolving facility to a $400 million commitment, maturing in 2027; $384.6 million was available at quarter-end. The UACL facility had $10.0 million available, and the marketable-securities-backed margin line had up to $5.0 million available, with no balance drawn. The company reported covenant compliance. A $95.8 million amortizing interest-rate swap fixed part of variable-rate exposure at 2.88%; its quarter-end fair value was a $3.1 million asset.
Changes, outlook, risks and unusual items
- Prior-year comparisons benefited from unusual items: Q3 2021 included $5.8 million of litigation-related charges and $7.1 million of contract-launch losses. The 39-week 2021 period included a $5.7 million legal-settlement gain, $7.6 million of unrelated legal charges and $13.9 million of contract-launch losses. These items affect comparability.
- In 2022, the company recorded a $2.8 million credit from favorable auto-liability claim settlements. A June estimate change to equipment useful lives and salvage values added $9.7 million of depreciation during the 39-week period; $7.2 million after tax, or $0.27 per share, was recorded in the quarter ended July 2.
- Management expects cash, operating cash flow and available credit to fund working capital, planned capital expenditures and mandatory debt payments for at least the next 12 months, assuming current profitability continues. No specific revenue or earnings guidance was provided. For the remainder of 2022, excluding acquisitions and strategic real estate purchases, management expected capital expenditures of 7%–8% of operating revenue, above the customary 4%–5%, citing equipment costs and supply constraints.
- Management cited inflation in interest, equipment, maintenance and labor costs, and uncertainty around COVID-19 and transportation demand. It cautioned that cost inflation could pressure results if customer rate increases do not offset it. Other risks include seasonal and weather-related demand swings, self-insured or uninsured claims exceeding reserves, and potential reclassification of independent contractors as employees, including under California law.
- Related-party transactions are significant: costs for services and purchases from affiliates controlled by the controlling shareholder were $29.4 million in Q3 and $76.4 million year to date, including insurance, rent and administrative support. The company leases 33 facilities from related parties. An $8.3 million affiliate real-estate purchase was expected to close in Q4 2022.
- The company repurchased 164,189 shares through a Dutch auction tender offer for approximately $4.6 million, including oversubscribed shares. It paid $11.2 million in dividends during the 39-week period; the board subsequently declared a regular $0.105-per-share dividend payable January 3, 2023.
Most important facts for investors to verify
- How much of revenue and margin growth reflects sustainable pricing, operating performance and mix versus fuel surcharges, accessorial charges, and prior-year unusual costs?
- Whether lower intermodal and trucking load volumes and brokerage weakness persist, and whether higher revenue per load can continue to offset volume declines.
- Whether receivables, the increased doubtful-account allowance, and working-capital movements affect future cash conversion.
- Exposure to rising floating interest rates, debt amortization and covenant requirements; confirm available borrowing capacity and the protection provided by the interest-rate swap.
- Whether elevated capital spending, inflation, equipment availability and related-party transactions develop as management expected; also monitor claims, labor classification and other disclosed risks.