Universal Logistics Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Thirteen weeks ended October 2, 2021; year-to-date figures cover thirty-nine weeks. Comparisons are with the periods ended October 3, 2020. Universal provides asset-light transportation and logistics services, including truckload, brokerage, intermodal, dedicated and value-added services. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | 39 weeks 2021 | 39 weeks 2020 |
|---|---|---|---|---|
| Revenue | $445.6 | $365.0 | $1,283.6 | $1,005.1 |
| Operating income | $16.7 | $22.1 | $79.2 | $56.8 |
| Operating margin | 3.8% | 6.0% | 6.2% | 5.7% |
| Net income | $10.3 | $13.6 | $57.5 | $31.9 |
| Diluted EPS | $0.38 | $0.50 | $2.14 | $1.18 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $53.7 | $77.7 |
Q3 revenue grew 22.1%, but operating income fell 24.2% and net income fell 24.3%. Year-to-date revenue rose 27.7%, operating income 39.4%, and net income 80.3%. The prior-year year-to-date period was affected by COVID-related customer shutdowns; 2021 results also include a $5.7 million settlement gain and significant litigation and program-launch costs.
Q3 operating expenses were 96.2% of revenue, versus 94.0% a year earlier; net margin was 2.3%, versus 3.7%. For the year to date, operating expenses were 93.8% of revenue, versus 94.3%, and net margin was 4.5%, versus 3.2%. Revenue included separately identified fuel surcharges of $24.9 million in Q3 and $68.0 million year to date.
Segment results
| Q3 segment | Revenue | Operating income | Notable comparison |
|---|---|---|---|
| Contract logistics | $156.9 | $6.0 | Revenue +22.9%; operating income down from $11.6 million, including $7.1 million of program-launch losses |
| Intermodal | $121.0 | $1.9 | Revenue +28.0%; operating income down from $8.8 million, including $5.8 million of litigation charges |
| Trucking | $107.2 | $6.8 | Revenue increased from $82.9 million; operating income increased from $4.8 million |
| Company-managed brokerage | $59.2 | $1.8 | Revenue down 0.6%; recovered from a $3.2 million operating loss |
Management cited chip shortages, labor constraints and an unfavorable operating environment as pressure on contract logistics margins. Intermodal load count fell 12.8%, while average revenue per load excluding fuel surcharges rose 20.9%; trucking loads rose 12.4%. Brokerage loads fell 17.4%, while average revenue per load excluding surcharges increased 18.9%.
Cash, debt and liquidity
- At October 2, cash and cash equivalents were $13.0 million and marketable securities were $7.8 million. Current assets were $396.1 million and current liabilities $286.4 million.
- Year-to-date operating cash flow of $53.7 million was below $77.7 million in the prior-year period, despite higher net income. A $74.0 million increase in trade and other receivables was a significant cash use.
- Year-to-date capital expenditures were $26.2 million. Investing activities used $21.1 million; financing activities used $28.2 million, including $11.3 million of dividends paid.
- Outstanding borrowings were approximately $444.8 million, down from $461.7 million at December 31, 2020. The balance sheet reports $443.6 million of debt net of issuance costs, including $60.6 million current and $383.0 million long-term.
- The $200 million revolver had $27.8 million available; the company reported compliance with credit-facility covenants. The separate securities-backed margin facility was undrawn, with maximum available borrowing of $4.2 million.
- Operating lease liabilities totaled $115.2 million. Cash and marketable securities are not equivalent to immediately available revolver capacity; verify facility terms and borrowing availability.
Outlook, risks and unusual items
- Management expected remaining-2021 capital expenditures, excluding acquisitions and strategic real estate purchases, of 1%–2% of revenue, below the customary 4%–5% range because of transportation-equipment shortages and production backlogs. It said 2022 spending could be higher if supply constraints ease.
- Management believed cash, operating cash flow and available credit could fund near-term working capital and planned capital needs over the next twelve months, but warned that a prolonged pandemic or weaker cash generation could require additional financing. No earnings or revenue guidance was provided.
- The October 2021 NLRB ruling related to a 2019 California terminal closure requires reinstatement of terminated drivers and back pay. Universal intends to appeal; estimated exposure is $4.3 million–$7.2 million, and $5.8 million was accrued.
- A settlement with a former agent and other parties provided for $6.0 million in three installments. The first two $2.0 million payments were received; the final installment was due December 31, 2021. A $5.7 million gain was recorded in Q2.
- Management identified COVID-19 uncertainty, labor and equipment availability, automotive production disruptions, insurance and claims costs, and potential worker reclassification as risks. It also discussed uncertainty about California’s AB5 law and risks in Mexican operations.
- Disclosure controls were deemed ineffective as of October 2, 2021 because of a previously identified material weakness in formal controls over facility lease status and modifications. Remediation was ongoing and had not been validated as effective.
- Transactions with entities affiliated with the controlling shareholder included $45.6 million of costs year to date; the company also leases 28 facilities from related parties and obtains insurance and employee benefits through an affiliate.
Most important facts for investors to verify
- Whether the $7.1 million contract-logistics program-launch losses are temporary and whether the program achieves target economics.
- The appeal status, final back-pay calculation and ultimate cost of the NLRB matter.
- Receivables collection, working-capital trends and the sustainability of operating cash flow.
- Revolver availability, covenant headroom, debt maturities and the effect of variable interest rates.
- Progress and independent validation of remediation for the material weakness in lease controls.
- Equipment supply, labor availability, customer production levels and the resulting capital-spending and margin outlook.