Universal Logistics Holdings, Inc. — Q3 2020 Form 10-Q
Reporting period: 13 weeks ended October 3, 2020; year-to-date period covers 39 weeks. Comparative periods ended September 28, 2019. Unless otherwise noted, amounts below are in millions of dollars.
Financial performance
| Metric | Q3 2020 | Q3 2019 | 39 weeks 2020 | 39 weeks 2019 |
|---|---|---|---|---|
| Revenue | $365.0 | $375.5 | $1,005.1 | $1,136.1 |
| Operating income (loss) | $22.1 | $(7.4) | $56.8 | $49.9 |
| Net income (loss) | $13.6 | $(8.4) | $31.9 | $28.8 |
| Diluted EPS | $0.50 | $(0.30) | $1.18 | $1.02 |
| Operating margin | 6.0% | (2.0%) | 5.7% | 4.4% |
| Net margin | 3.7% | (2.2%) | 3.2% | 2.5% |
- Revenue mix, Q3: Truckload $52.2 (down 16.6%); brokerage $90.6 (down 4.1%); intermodal $94.5 (up 1.6%); dedicated $39.4 (up 20.3%); value-added $88.3 (down 4.7%).
- Cash flow, 39 weeks: Operating cash flow was $77.7 versus $132.0 a year earlier. Investing used $71.5, including $72.8 of capital expenditures. Operating cash flow less capital expenditures was approximately $4.9, an arithmetic measure rather than a reported company metric. Cash rose to $8.7 from $7.7 at year-end 2019.
- Liquidity and debt: Current assets were $315.2 and current liabilities $273.3. Total borrowings were reported as $468.3, versus $459.7 at December 31, 2019; balance-sheet debt, net of issuance costs, was $466.6. The company had $50.2 of revolver availability and no margin-facility borrowing; it reported compliance with debt covenants.
- Other balance-sheet items: Total assets were $1,056.9 and shareholders’ equity $227.6. Operating lease liabilities totaled $96.8.
Material changes and management commentary
- Q3 revenue declined 2.8%, but operating income improved by $29.4 and the company returned to profitability. Management attributed much of the year-over-year earnings improvement to the absence of $27.0 of prior-year litigation-related charges, including a $24.8 legal settlement charge and $2.2 in general and administrative expense.
- Management reported a rebound in transportation and manufacturing-support demand during Q3 and a more normalized level of activity. Logistics revenue and operating income increased year over year, partly reflecting stronger automotive production compared with the prior-year General Motors strike period.
- For the first 39 weeks, revenue fell 11.5%. COVID-19-related automotive and heavy-truck plant shutdowns affected dedicated and value-added operations; those segments’ operating income declined year over year. Transportation segment operating income rose, principally reflecting the prior-year litigation charges not recurring.
- YTD truckload and brokerage revenues declined; intermodal revenue increased on higher load counts, while average revenue per intermodal load fell. Dedicated and value-added revenue also declined over the YTD period.
- YTD capital expenditures were $72.8. Management expected remaining-2020 capital expenditures, excluding acquisitions, to be 5%–7% of operating revenue, with some spending deferred to Q4. Management believed near-term working capital and planned capital needs could be funded from cash, operating cash flow and available credit, but said prolonged pandemic effects or weaker cash flow could require additional financing.
Outlook, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Management cautioned that the duration and effects of COVID-19 remained uncertain and could materially affect operations, cash flow and liquidity. The company has significant exposure to automotive and heavy-truck customers and relies on agents, owner-operators and third-party carriers.
- The cash dividend policy, suspended during the first half of 2020, was reinstated. On October 29, the board declared $0.105 per share, payable January 4, 2021 to shareholders of record December 7; future dividends remain subject to board review.
- Marketable securities were valued at $6.7 versus a $9.7 cost basis, with a $3.0 unrealized loss at October 3. YTD other non-operating expense included $3.0 of holding losses on securities.
- A June 2020 ransomware attack affected certain network systems. The investigation, including the scope of any data transfer or extraction and the incident’s financial effects, was ongoing; the filing identifies $0.5 of related service claims.
- Ordinary-course litigation and claims were not expected by management to materially affect the company, but uninsured claims or amounts above reserves could materially harm results. Related-party costs totaled $49.5 YTD, including insurance and benefits, rent and administrative services; the company leases 26 facilities from related parties.
Important facts for investors to verify
- Whether the Q3 demand rebound and improved margins continued after the reporting period, particularly in automotive-related logistics.
- How collections and receivables evolve: receivables increased to $249.0 from $210.5, and YTD operating cash flow declined substantially year over year.
- Capital spending, borrowing levels, revolver availability and covenant headroom, given $468.3 of reported borrowings and planned Q4 expenditures.
- The ultimate operational, financial and data-related effects of the ransomware incident, and whether further costs or disclosures arise.
- The valuation and volatility of marketable securities, the level of insurance and claims reserves, and the terms and oversight of significant related-party arrangements.