Universal(ULH) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1: Financial Statements The unaudited consolidated financial statements show a decrease in cash and cash equivalents to $16.8 million as of September 30, 2023, from $47.2 million at year-end 2022. Total assets increased to $1.26 billion. For the third quarter of 2023, total operating revenues fell to $421.3 million from $505.7 million year-over-year, leading to a significant drop in net income to $23.0 million from $48.5 million. Year-to-date results show a similar trend, with net income at $71.5 million compared to $135.2 million in the prior year period. The company continues to pay a quarterly dividend of $0.105 per share Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $16,811 | $47,181 | | Total current assets | $389,221 | $459,652 | | Total assets | $1,259,276 | $1,203,678 | | Total current liabilities | $286,947 | $286,901 | | Total liabilities | $749,121 | $756,748 | | Total shareholders' equity | $510,155 | $446,930 | Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $421,251 | $505,692 | $1,271,219 | $1,556,735 | | Income from operations | $36,761 | $69,771 | $111,352 | $192,270 | | Net income | $23,047 | $48,480 | $71,488 | $135,187 | | Diluted EPS | $0.88 | $1.84 | $2.72 | $5.09 | Consolidated Cash Flow Highlights (YTD, in thousands) | Cash Flow Activity | YTD Ended Sep 30, 2023 | YTD Ended Oct 1, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $161,208 | $144,497 | | Net cash used in investing activities | ($188,606) | ($76,369) | | Net cash used in financing activities | ($273) | ($64,603) | | Net (decrease) increase in cash | ($30,370) | $714 | - The company's services are grouped into five categories: truckload, brokerage, intermodal, dedicated, and value-added services. Revenue from transportation services is recognized over the transit period, while value-added services revenue is recognized as services are provided[22][26][30] - As of September 30, 2023, the company had total debt of $387.2 million, primarily consisting of equipment financing, a real estate facility, and borrowings under its revolving credit facilities. The company was in compliance with all debt covenants[40][41][43] - On October 26, 2023, the Board of Directors declared a quarterly cash dividend of $0.105 per share, payable on January 2, 2024[90] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant decline in Q3 and YTD 2023 revenue and profitability to decreased rates and volumes in transactional transportation services, particularly intermodal and brokerage. Operating revenues for Q3 2023 fell 16.7% to $421.3 million, and net income dropped 52.5% to $23.0 million year-over-year. The contract logistics segment showed resilience with stable revenues, while other segments faced significant headwinds. The company's liquidity remains sufficient, supported by cash from operations and credit facilities, despite higher-than-usual capital expenditures, including a major terminal purchase in California Results of Operations In Q3 2023, operating revenues decreased by 16.7% and net income fell by 52.5% compared to Q3 2022, driven by lower rates and volumes in transactional services. For the first nine months of 2023, revenues were down 18.3% and net income was down 47.1% year-over-year. The decline in revenue was partially offset by a 29.4% decrease in purchased transportation costs in Q3. However, direct personnel costs rose 6.1% due to the conversion of drivers in California to employees, and interest expense increased due to higher rates Q3 2023 vs Q3 2022 Performance (in thousands) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Operating revenues | $421,251 | $505,692 | (16.7)% | | Income from operations | $36,761 | $69,771 | (47.3)% | | Net income | $23,047 | $48,480 | (52.5)% | YTD 2023 vs YTD 2022 Performance (in thousands) | Metric | YTD 2023 | YTD 2022 | % Change | | :--- | :--- | :--- | :--- | | Operating revenues | $1,271,219 | $1,556,735 | (18.3)% | | Income from operations | $111,352 | $192,270 | (42.1)% | | Net income | $71,488 | $135,187 | (47.1)% | - The decrease in operating revenues was primarily due to decreased rates and volumes in transactional transportation-related services. Separately-identified fuel surcharges fell to $28.2 million in Q3 2023 from $46.8 million in Q3 2022[101] - Purchased transportation costs decreased 29.4% in Q3 2023, in line with the 28.0% decrease in transactional transportation service revenues[102] - Direct personnel costs increased 6.1% in Q3 2023, primarily due to an increase in the number of employee drivers in California intermodal operations[103] Segment Financial Results Segment performance varied significantly in Q3 2023. Contract Logistics remained stable with a 16.9% operating margin. In contrast, the Intermodal segment's revenue plummeted 43.9% and it posted an operating loss, with its margin falling to -5.0% from 18.2% YoY. The Trucking segment saw a slight revenue dip but improved its operating margin to 6.8%. The Company-managed Brokerage segment's revenue fell 30.8%, resulting in an operating loss and a negative margin of -3.8% Segment Operating Income (Loss) (in thousands) | Segment | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Contract logistics | $35,103 | $35,400 | $95,673 | $88,300 | | Intermodal | ($4,324) | $28,148 | $2,241 | $72,526 | | Trucking | $6,558 | $4,791 | $14,770 | $21,821 | | Company-managed brokerage | ($1,070) | $1,079 | ($2,230) | $9,097 | - Contract Logistics revenue was nearly flat YoY in Q3 2023, decreasing 0.7%. The number of managed value-added programs increased to 73 from 63 in the prior year[122] - Intermodal revenue decreased 43.9% in Q3 2023 due to a 24.7% decrease in average revenue per load (ex-fuel) and an 11.8% drop in load volumes. Operating margin was (5.0)% compared to 18.2% in Q3 2022[123] - Company-managed brokerage revenue decreased 30.8% in Q3 2023, with operating margin falling to (3.8)% from 2.7% in Q3 2022[125] Liquidity and Capital Resources The company's primary liquidity sources are cash from operations and credit facilities. Capital expenditures for the first nine months of 2023 were $192.1 million, significantly higher than usual due to strategic investments, including an $80.0 million terminal purchase in California. Full-year 2023 capex is projected to be around $235 million. The company maintains a regular quarterly dividend of $0.105 per share. Management believes existing liquidity is sufficient for the next 12 months - Net cash provided by operating activities was $161.2 million for the first nine months of 2023[142][143] - Capital expenditures totaled $192.1 million for the first nine months of 2023, including the $80.0 million purchase of a terminal in Compton, California. Full-year 2023 capex is expected to be approximately $235 million[132] - The company maintains a regular quarterly dividend of $0.105 per share, with the latest declared on October 26, 2023[133] - As of September 30, 2023, the company had $378.9 million available for borrowing on its main Revolving Credit Facility and $5.0 million on its UACL Credit Agreement revolver[136][137] Item 3: Quantitative and Qualitative Disclosures About Market Risk The company reports that there have been no material changes to its market risk during the third quarter of 2023. For further details, it refers to its Annual Report on Form 10-K for the year ended December 31, 2022 - There have not been any material changes to the Company's market risk during the thirteen weeks ended September 30, 2023[151] Item 4: Controls and Procedures Based on an evaluation as of September 30, 2023, the company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective. There were no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[152] - No changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls were identified during the quarter[153] PART II – OTHER INFORMATION Item 1A: Risk Factors The company highlights several key business risks. A significant risk is the potential negative impact from labor disputes involving major customers, such as the UAW strike against Ford, GM, and Stellantis. The company also faces risks from rising labor costs due to its own collective bargaining agreements, with 32% of its workforce unionized. Other noted risks include the potential for global supply chain disruptions from the conflict in the Middle East and the implications of being a "controlled company" due to a majority share ownership by the Moroun family trusts, which limits public shareholder influence and exempts the company from certain NASDAQ governance standards - A significant labor dispute involving a major customer, such as the UAW strike against Ford, General Motors, and Stellantis that began on September 15, 2023, could negatively impact the company's revenue and profitability[157] - As of September 30, 2023, approximately 32% of employees were subject to collective bargaining agreements. Renegotiation of these agreements could lead to significant increases in labor costs[89][158] - The conflict in the Middle East is identified as a risk that could lead to increased inflation, supply chain disruption, and higher energy prices, adversely impacting business[159] - The company is a "controlled company" under NASDAQ rules because the Moroun family trusts own over 50% of outstanding shares. This concentration of ownership limits public shareholders' influence and exempts the company from requirements like having a majority of independent directors[160][162] Item 5: Other Information During the third quarter of 2023, the company repurchased 4,221 shares of its common stock at an average price of $31.67 per share. These purchases were not part of a publicly announced program but were made by exercising a right of first refusal under restricted stock agreements with a director and an employee. As of September 30, 2023, 513,251 shares remain available for purchase under the company's open-market repurchase authorization Share Purchases in Q3 2023 | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | | 4,221 | $31.67 | - The share purchases were made by exercising the company's right of first refusal pursuant to restricted stock bonus award agreements with a director and an employee[169] - As of September 30, 2023, 513,251 shares remain available for repurchase under the company's 1,000,000 share authorization announced on July 29, 2021[168]