Universal Logistics Holdings, Inc. — 2019 Form 10-K
Business context and period. The company provides transportation and logistics services in the U.S., Mexico, Canada and Colombia, including truckload, brokerage, intermodal, dedicated and value-added services. This filing covers the fiscal year ended December 31, 2019; quarterly figures below compare Q4 2019 with Q4 2018. The company completed acquisitions of Michael’s Cartage and Roadrunner Intermodal in 2019.
Financial performance
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $1,512.0 million | $1,461.7 million | +3.4% |
| Operating income | $65.4 million | $83.8 million | -22.0% |
| Operating margin | 4.3% | 5.7% | -1.4 percentage points |
| Net income | $37.6 million | $52.2 million | -28.0% |
| Diluted EPS | $1.34 | $1.84 | -27.2% |
| Operating cash flow | $128.0 million | $94.9 million | +$33.1 million |
| Capital expenditures | $79.8 million | $66.6 million | +$13.2 million |
| Year-end debt | $459.7 million | $403.2 million | +$56.6 million |
| Year-end cash | $7.7 million | $5.7 million | +$2.0 million |
Adjusted EBITDA, a non-GAAP measure, was $172.0 million versus $147.4 million; adjusted operating margin was 6.3% in both years. These figures add back litigation charges, so they should be considered alongside GAAP results.
Q4: Revenue was $375.9 million versus $386.4 million (-2.7%); operating income was $15.5 million versus $17.9 million; net income was $8.7 million versus $9.0 million; diluted EPS was $0.32 in both periods.
Revenue mix: Intermodal revenue rose to $390.3 million from $251.1 million, including $150.4 million from recent acquisitions. Truckload fell to $251.6 million from $313.8 million, brokerage to $354.9 million from $367.6 million, dedicated to $138.7 million from $144.3 million, and value-added to $376.5 million from $384.9 million.
Liquidity and debt: Current assets were $271.8 million and current liabilities $251.6 million. The $350 million credit facility had $48.8 million available at year-end; the company reported compliance with its covenants. Variable-rate borrowings totaled $331.2 million; management estimated a 100-basis-point rate increase would add about $3.3 million in annual interest expense. Operating cash flow funded part of $143.1 million of investing outflows, including acquisitions and capital spending. Financing activities provided $16.7 million, including increased borrowings; the company also paid $15.0 million in dividends and $24.8 million for a share tender offer.
Material changes and management commentary
- Revenue growth was primarily acquisition-driven. Transportation-segment revenue increased 6.8%, but segment operating income fell 60.8%, affected by litigation charges and a soft transportation rate environment.
- Logistics-segment revenue decreased 2.7%, primarily due to the UAW strike at General Motors and reduced passenger-vehicle production. Segment operating income increased 53.2%, supported by improved dedicated operations and heavy-truck programs.
- The UAW strike materially adversely affected results in the third and fourth quarters. General Motors generated about 12% of 2019 revenue; the top 10 customers generated 39%, and automotive customers represented 27% of revenue from customers generating over $100,000 annually.
- Operating expenses included $30.0 million of 2019 litigation-related charges, compared with $9.0 million in 2018. Depreciation and amortization increased 37.4% to $74.8 million, reflecting fleet investment and acquired intangible assets.
Outlook, risks and unusual items
- Management expected 2020 capital expenditures, excluding acquisitions, of 4%–5% of operating revenue and stated that operating cash flow, working capital and available borrowings were expected to meet needs for at least 12 months, assuming current profitability continues. No revenue or earnings guidance was provided.
- The company settled the Denton litigation for $36.0 million cash in October 2019 and recorded a $24.8 million pretax charge. In January 2020, an appellate court upheld the Dalton judgment; the company had accrued $5.7 million plus $0.8 million interest and expected to pay it in Q1 2020.
- Key risks include automotive and major-customer concentration, labor disputes, pricing pressure, driver availability, fuel costs, insurance and claims exposure, acquisition integration, leverage and variable interest rates, and potential reclassification of owner-operators. The filing also identified the developing coronavirus situation as a potential supply-chain risk but said its extent was then unknown.
- Other notable matters: the company paid $0.53 per share in 2019 dividends, did not declare a special dividend in early 2020, and declared a regular $0.105-per-share quarterly dividend. The Moroun family controlled approximately 71% of shares. Related-party expenses totaled $69.9 million in 2019. The 2019 internal-control assessment excluded the companies acquired during the year; management and the auditor otherwise reported effective internal controls, and the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- How much of the 2019 revenue and intermodal growth is sustainable after separating acquisition contribution from organic growth.
- The ongoing impact of automotive production, the GM strike, customer concentration and any subsequent labor or production disruptions.
- The cash and earnings effects of litigation payments, insurance claims and other contingencies, including the Dalton judgment.
- Debt repayment capacity, revolver availability, covenant headroom, capital spending needs and sensitivity to interest-rate changes.
- Acquisition integration, final purchase-price allocations and the integration of acquired companies into internal controls.
- Related-party arrangements, dividend sustainability and governance implications of concentrated voting control.