Universal Logistics Holdings, Inc. — Q1 2020 Form 10-Q
Business context and reporting period
Unaudited results cover the thirteen weeks ended April 4, 2020, compared with the thirteen weeks ended March 30, 2019. Universal provides asset-light transportation and logistics services in the U.S., Mexico, Canada and Colombia through transportation and logistics segments. Amounts below are in millions of dollars unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Operating revenue | $382.2 | $377.4 | +1.3% |
| Income from operations | $23.9 | $26.5 | -9.8% |
| Operating margin | 6.3% | 7.0% | -0.7 percentage points |
| Net income | $12.2 | $17.3 | -29.7% |
| Diluted EPS | $0.45 | $0.61 | Down $0.16 |
| Operating cash flow | $25.2 | $47.8 | Down $22.6 |
Net margin was 3.2%, versus 4.6%. Operating expenses were 93.7% of revenue, compared with 93.0%. A $3.4 million unrealized loss on marketable securities drove other non-operating expense of $3.6 million, versus $1.0 million of non-operating income a year earlier. The effective tax rate was 24.4%, versus 25.1%.
Service revenue was $58.9 million in truckload (down 10.3%), $85.9 million in brokerage (flat), $110.3 million in intermodal (up 21.0%), $31.6 million in dedicated (down 14.7%), and $95.5 million in value-added (down 2.3%). Intermodal included $28.0 million from acquisitions. Transportation-segment revenue rose 3.2% to $254.7 million, while operating income fell 3.4% to $12.1 million. Logistics-segment revenue fell 2.6% to $127.0 million and operating income fell 15.4% to $11.7 million.
Cash and cash equivalents were $8.0 million at April 4, 2020; marketable securities were $6.3 million. Current assets were $276.0 million and current liabilities $243.6 million. Total debt was reported as $478.8 million on the balance sheet, net of debt issuance costs; management cited outstanding borrowings of $480.8 million, up from $459.7 million at December 31, 2019. The company had $41.7 million available on its $200 million revolver and was compliant with credit-facility covenants. It had no margin-facility borrowings; maximum availability was $3.9 million.
Capital expenditures were $32.8 million; investing activities used $30.9 million. Financing activities provided $10.4 million, including net borrowings, while the company paid $5.7 million in dividends and repurchased $4.9 million of stock. Cash increased by $0.3 million during the quarter. Management expects 2020 capital expenditures, excluding acquisitions, of 4%–5% of revenue and deferred some discretionary spending.
Material changes, outlook and risks
- COVID-19 disrupted supply chains and slowed Chinese manufacturing early in the quarter; the expected post-Chinese New Year import-volume increase did not occur. North American automotive and heavy-truck shutdowns in late March affected dedicated and value-added operations. These sectors represent approximately 30% of company revenue.
- Management expected the largest pandemic impact in Q2 2020 and anticipated supported automotive and heavy-truck operations would resume in the following weeks, while emphasizing that timing and production recovery were uncertain. A further outbreak, restrictions, reduced demand, or disruption to agents and owner-operators could impair service, earnings, liquidity and debt-service capacity.
- Cost actions included furloughing much of the direct labor force, unpaid time off for salaried employees, travel restrictions and lower discretionary spending. Management believed available cash, operating cash flow and credit facilities could fund near-term needs over the next twelve months, but said prolonged disruption or weaker cash flow could require additional financing.
- On April 30, 2020, the board temporarily suspended the regular quarterly dividend because of pandemic uncertainty. Future dividends are at the board’s discretion.
- The Dalton Logistics litigation judgment was upheld on appeal. The company paid the $5.7 million judgment plus $0.8 million accrued interest on March 6, 2020; it had recorded a $2.9 million pretax charge in Q4 2019. Management said other ordinary-course claims were not expected to materially affect results, but uninsured or underestimated claims could be material.
- Management assessed goodwill, indefinite-lived intangible assets and other long-lived assets after the pandemic-related triggering event and found no impairment as of April 4; the assessment depends on uncertain forecasts. The company also plans to use available payroll-tax and income-tax deferral programs under the CARES Act.
- Approximately 29% of employees in the U.S., Canada and Colombia and 86% in Mexico were covered by collective bargaining agreements; 37% of those agreements were due to expire in 2020.
Important facts for investors to verify
- How Q2 automotive and heavy-truck production recovery, pandemic-related demand and the company’s cost reductions affected subsequent revenue, margins and cash generation.
- Revolver availability, covenant compliance, debt levels and the company’s capacity to meet obligations if operating cash flow weakens.
- Whether marketable-security losses, receivable collectability and impairment assumptions changed after quarter-end.
- Whether the dividend remains suspended and whether planned capital spending or tax deferrals changed.
- Any developments in litigation, insurance and claims reserves, or collective bargaining negotiations.