Universal Logistics Holdings, Inc. — Q1 2019 Form 10-Q
Reporting period: Thirteen weeks ended March 30, 2019; comparisons are to the thirteen weeks ended March 31, 2018 unless stated otherwise. Amounts below are in millions of dollars, except per-share data and percentages.
Business context and results
Universal provides transportation and logistics services, including truckload, brokerage, intermodal, dedicated and value-added services. The company attributes much of its revenue growth to intermodal acquisitions completed in 2018 and higher brokerage revenue.
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Operating revenue | $377.4 | $335.1 | +12.6% |
| Operating income | $26.5 | $17.1 | +55.0% |
| Operating margin | 7.0% | 5.1% | +1.9 percentage points |
| Net income | $17.3 | $10.4 | +65.8% |
| Diluted EPS | $0.61 | $0.37 | +$0.24 |
| Net margin | 4.6% | 3.1% | +1.5 percentage points |
| Operating cash flow | $47.8 | $16.1 | +$31.7 |
| Capital expenditures | $10.8 | $7.3 | +$3.5 |
Revenue mix and operating drivers
- Intermodal: Revenue rose 95.7% to $91.2 million, including $40.6 million attributed to 2018 acquisitions. Loads increased 75.7%; average revenue per load, excluding fuel surcharges, rose 12.8%.
- Brokerage: Revenue increased 9.8% to $85.9 million; loads rose 16.5%, partly offset by a 7.1% decline in average revenue per load.
- Truckload: Revenue fell 14.9% to $65.7 million as loads declined 16.3%, partly offset by a 1.1% increase in average revenue per load, excluding fuel surcharges.
- Dedicated: Revenue increased to $37.0 million from $35.0 million. Value-added: Revenue edged down to $97.7 million from $98.1 million.
- Transportation-segment revenue rose 19.7% and operating income rose 23.9%. Logistics revenue grew 1.4%, while logistics operating income increased 85.9%, attributed to improved dedicated transportation and value-added performance, including heavy-truck programs.
Margins, cash flow, debt and liquidity
Operating expenses were 93.0% of revenue versus 94.9% a year earlier. Purchased transportation and equipment rent declined to 47.0% of revenue from 48.3%, which management primarily linked to a higher share of intermodal acquisition revenue. Depreciation and amortization increased 38.5% to $16.9 million, reflecting fleet investment and acquired intangible assets. Interest expense increased to $4.4 million from $2.6 million, reflecting higher borrowings. Other non-operating income included a $0.9 million gain on marketable securities.
Cash from operations was $47.8 million; management cited net income, noncash items and a $10.8 million working-capital decrease, with higher accounts payable the primary driver of that working-capital change. Investing activities used $10.3 million, principally capital expenditures. Financing activities used $37.1 million, including net debt repayments and $6.1 million of dividends. Cash ended the quarter at $6.3 million.
At March 30, 2019, current assets were $275.5 million and current liabilities were $264.2 million (current ratio approximately 1.04). Cash and marketable securities totaled $16.5 million. Debt carrying value, net of issuance costs, was $369.6 million; management reported outstanding borrowings of $372.2 million, down from $403.2 million at December 31, 2018. The $350 million credit facility had $145.1 million available on its revolver; the company reported compliance with its debt covenants. Total assets rose to $919.7 million from $843.1 million, in part because of adoption of the new lease standard.
Changes, outlook and notable items
- The company adopted ASC 842 leases on January 1, 2019. Adoption added $88.8 million of right-of-use assets and corresponding lease liabilities to the balance sheet; prior periods were not restated. Management said adoption did not materially affect results of operations or cash flows.
- Management expects 2019 capital expenditures, excluding acquisitions, to be 4%–5% of operating revenue. It stated that operating cash flow, working capital and available borrowing capacity should cover operating needs, capital commitments and mandatory debt repayments for at least the next twelve months, assuming current profitability continues. No earnings or revenue guidance was provided.
- On April 22, 2019, the company acquired Michael’s Cartage for $22.0 million in cash, subject to post-closing adjustments, funded with available cash and revolver borrowings.
- The board declared a $0.105 regular quarterly dividend and a $0.110 special dividend in February; both were paid in March. A further $0.105 quarterly dividend was declared in April. Future dividends remain subject to board approval.
- In the Denton litigation, a $54.2 million jury verdict is on appeal and enforcement is stayed. The company estimated possible exposure of $18.2–$53.2 million, net of insurance and before advances, and recorded an accrued liability of $18.2 million before accounting for a prior $7.0 million advance, which was recorded as a reduction of the liability. The company warned the ultimate outcome could materially affect its financial condition, results or cash flows.
- A separate appealed judgment against the company in the Dalton matter has a stated possible exposure of $0–$5.7 million; the company accrued $1.8 million and said it did not expect a material adverse effect. Other claims and self-insured risks may also affect earnings. Fourteen percent of employees covered by collective bargaining agreements had contracts expiring in 2019.
- Management noted seasonality in value-added services from automotive production cycles and plant shutdowns, and potential transportation disruption from winter weather and hurricane season. The filing reported no material changes to previously disclosed risk factors and no material changes in market risk.
Important facts for investors to verify
- How much of revenue and operating-income growth is sustainable apart from 2018 acquisitions, particularly in intermodal and logistics?
- Whether operating cash flow remains strong when payable timing and other working-capital movements normalize.
- Debt, lease obligations and post-quarter revolver usage following the $22.0 million Michael’s Cartage acquisition.
- Developments in the Denton and Dalton appeals, including any changes to accrued liabilities, exposure estimates or insurance recovery.
- Whether the stated 4%–5% capital expenditure outlook and dividend policy remain consistent with operating performance and financing needs.