Overview
Universal Logistics Holdings, Inc. is a holding company that owns subsidiaries
engaged in providing a variety of customized transportation and logistics
solutions throughout the United States, and in Mexico, Canada and Colombia. Our
operating subsidiaries provide a comprehensive suite of transportation and
logistics solutions that allow our customers to reduce costs and manage their
global supply chains more efficiently. We market our services through a direct
sales and marketing network focused on selling our portfolio of services to
large customers in specific industry sectors, through company-managed facilities
and full-service freight forwarding and customs house brokerage offices, and
through a contract network of agents who solicit freight business directly from
shippers.
We operate, manage or provide services at 114 logistics locations in the United
States, Mexico, Canada and Colombia and through our network of agents and
owner-operators located throughout the United States and in Ontario, Canada.
Thirty-six of our value-added service operations are located inside customer
plants or distribution operations; the other facilities are generally located
close to our customers' plants to optimize the efficiency of their component
supply chains and production processes. Our facilities and services are often
directly integrated into the production processes of our customers and represent
a critical piece of their supply chains. To support our flexible business model,
we generally coordinate the duration of real estate leases associated with our
value-added services with the end date of the related customer contract
associated with such facility, or use month-to-month leases, in order to
mitigate exposure to unrecovered lease costs.
We offer our customers a wide range of transportation services by utilizing a
diverse fleet of tractors and trailing equipment provided by us, our
owner-operators and third-party transportation companies. Our owner-operators
provided us with 2,207 tractors and 1,043 trailers. We own 2,091 tractors, 4,139
trailers, 3,372 chassis and 129 containers. Our agents and owner-operators are
independent contractors who earn a fixed commission calculated as a percentage
of the revenue or gross profit they generate for us and who bring an
entrepreneurial spirit to our business. Our transportation services are provided
through a network of both union and non-union employee drivers, owner-operators,
contract drivers, and third-party transportation companies.
As of December 31, 2022, we employed 8,646 people in the United States, Mexico,
Canada, and Colombia, including 3,588 employees subject to collective bargaining
agreements. We also engaged contract staffing vendors to supply an average of
1,326 additional personnel on a full-time-equivalent basis.
Our use of agents, owner-operators, third-party providers and contract staffing
vendors allows us to maintain both a highly flexible cost structure and a
scalable business operation, while reducing investment requirements. These
benefits are passed on to our customers in the form of cost savings and
increased operating efficiency, while enhancing our cash generation and the
returns on our invested capital and assets.
We believe that our flexible business model also offers us substantial
opportunities to grow through a mixture of organic growth and acquisitions. We
intend to continue our organic growth by recruiting new agents and
owner-operators, expanding into new industry verticals and targeting further
penetration of our key customers. We believe our integrated suite of
transportation and logistics services, our network of facilities in the United
States, Mexico, Canada, and Colombia, our long-term customer relationships and
our reputation for operational excellence will allow us to capitalize on these
growth opportunities. We also expect to continue to make strategic acquisitions
of companies that complement our business model, as well as companies that
derive a portion of their revenues from asset based operations.
We report our financial results in four distinct reportable segments, contract
logistics, intermodal, trucking, and company-managed brokerage. Operations
aggregated in our contract logistics segment deliver value-added and/or
dedicated transportation services to support in-bound logistics to original
equipment manufacturers (OEMs) and major retailers on a contractual basis,
generally pursuant to terms of one year or longer. Our intermodal segment is
associated with local and regional drayage moves predominately coordinated by
company-managed terminals using a mix of owner-operators, company equipment and
third-party capacity providers (broker carriers). Operations aggregated in our
trucking segment are associated with individual freight shipments coordinated by
our agents and company-managed terminals using a mix of owner-operators, company
equipment and broker carriers. Our company-managed brokerage segment provides
for the pick-up and delivery of individual freight shipments using broker
carriers, coordinated by our company-managed operations.
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Impact of COVID-19 and Current Economic Conditions
The ultimate magnitude of COVID-19, including the extent of its impact on the
Company's financial and operating results, which could be material, will be
determined by the length of time the pandemic continues, its severity,
government regulations imposed in response to the pandemic, and to its general
effect on the economy and transportation demand. Additionally, a prolonged
period of inflationary pressures could cause interest rates, equipment,
maintenance, labor and other operating costs to continue to increase. If the
Company is unable to offset rising costs through corresponding customer rate
increases, such increases could adversely affect our results of operations.
While operating cash flows may be negatively impacted by the pandemic and
inflation-driven cost increases, the Company believes we will be able to finance
our near term needs for working capital over the next twelve months, as well as
any planned capital expenditures during such period, with cash balances, cash
flows from operations, and loans and extensions of credit under our credit
facilities and on margin against our marketable securities. Should the impact of
the COVID-19 pandemic and/or inflation-driven cost increases last longer than
anticipated, and/or our cash flow from operations decline more than expected, we
may need to obtain additional financing. The Company's ability to fund future
operating expenses and capital expenditures, as well as its ability to meet
future debt service obligations or refinance indebtedness will depend on future
operating performance, which will be affected by general economic, financial,
and other factors beyond our control.
Factors Affecting Our Revenues
Operating Revenues. We generate substantially all of our revenues through fees
charged to customers for the transportation of freight and for the customized
logistics services we provide. We also derive revenue from fuel surcharges,
where separately identifiable, loading and unloading activities, equipment
detention, container management and storage and other related services.
Operations in our intermodal, trucking and company-managed brokerage segments
are associated with individual freight shipments coordinated by our agents and
company-managed terminals. In contrast, our contract logistics segment delivers
value-added services and/or transportation services to specific customers on a
dedicated basis, generally pursuant to contract terms of one year or longer. Our
segments are further distinguished by the amount of forward visibility we have
into pricing and volumes, and also by the extent to which we dedicate resources
and company-owned equipment. Fees charged to customers by our full service
international freight forwarding and customs house brokerage are based on the
specific means of forwarding or delivering freight on a shipment-by-shipment
basis.
Our truckload, intermodal and brokerage revenues are primarily influenced by
fluctuations in freight volumes and shipping rates. The main factors that affect
these are competition, available truck capacity, and economic market conditions.
Our value-added and dedicated transportation business is substantially driven by
the level of demand for outsourced logistics services. Major factors that affect
our revenues include changes in manufacturing supply chain requirements,
production levels in specific industries, pricing trends due to levels of
competition and resource costs in logistics and transportation, and economic
market conditions.
We recognize revenue as control of the promised goods or services is transferred
to our customers, in an amount that reflects the consideration the Company
expects to receive in exchange for its services. For our transportation services
businesses, which include truckload, brokerage, intermodal and dedicated
services, revenue is recognized over time as the performance obligations on the
in-transit services are completed. For the Company's value-added service
businesses, we have elected to use the "right to invoice" practical expedient,
reflecting that a customer obtains the benefit associated with value-added
services as they are provided. For additional information on revenue
recognition, see Item 8, Note 3 to the Consolidated Financial Statements.
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Factors Affecting Our Expenses
Purchased transportation and equipment rent. Purchased transportation and
equipment rent represents the amounts we pay to our owner-operators or other
third party equipment providers to haul freight and, to the extent required to
deliver certain logistics services, the cost of equipment leased under
short-term contracts from third parties. The amount of the purchased
transportation we pay to our owner-operators is primarily based on a
contractually agreed-upon rates for each load hauled, net of any rental income
we receive by leasing our trailers to owner-operators. The expense also includes
the amount of fuel surcharges, where separately identifiable, that we receive
from our customers and pass through to our owner-operators. Our strategy is to
maintain a highly flexible business model that employs a cost structure that is
mostly variable in nature. As a result, purchased transportation and equipment
rent is the largest component of our costs and increases or decreases
proportionately with changes in the amount of revenue generated by our
owner-operators and other third party providers and with the production volumes
of our customers. We recognize purchased transportation and equipment rent as
the services are provided.
Direct personnel and related benefits. Direct personnel and related benefits
include the salaries, wages and fringe benefits of our employees, as well as
costs related to contract labor utilized in selling and operating activities.
These costs are a significant component of our cost structure and increase or
decrease proportionately with the expansion, addition or closing of operating
facilities. As of December 31, 2022, approximately 39% of our employees in the
United States, Canada and Colombia, and 80% of our employees in Mexico were
subject to collective bargaining agreements. Any changes in union agreements
will affect our personnel and related benefits cost. The operations in the
United States, Mexico and Canada that are subject to collective bargaining
agreements have separate, individualized agreements with several different
unions that represent employees in these operations. While there are some
facilities with multiple unions, each collective bargaining agreement with each
union covers a single facility for that union. Such agreements have expiration
dates that are generally independent of other collective bargaining agreements
and include economics and operating terms tailored to the specific operational
requirements of a customer. Our operation in Mexico provides competitive
compensation within the Mexican statutory framework for managerial and
supervisory personnel.
Operating supplies and expenses. These expenses include items such as fuel,
tires and parts repair items primarily related to the maintenance of company
owned and leased tractors, trailers and lift equipment, as well as licenses,
dock supplies, communication, utilities, operating taxes and other general
operating expenses. Because we maintain a flexible business model, our operating
expenses generally relate to equipment utilization, fluctuations in customer
demand and the related impact on our operating capacity. Our transportation
services provided by company owned equipment depend on the availability and
pricing of diesel fuel. Although we often include fuel surcharges in our billing
to customers to offset increases in fuel costs, other operating costs have been,
and may continue to be, impacted by fluctuating fuel prices. We recognize these
expenses as they are incurred and the related income as it is earned.
Commission expense. Commission expense represents the amount we pay our agents
for generating shipments on our behalf. The commissions we pay to our agents are
generally established through informal oral agreements and are based on a
percentage of revenue or gross profit generated by each load hauled.
Traditionally, commission expense increases or decreases in proportion to the
revenues generated through our agents. We recognize commission expense at the
time we recognize the associated revenue.
Occupancy expense. Occupancy expense includes all costs related to the lease and
tenancy of terminals and operating facilities, except utilities, unless such
costs are otherwise covered by our customers. Although occupancy expense is
generally related to fluctuations in overall customer demand, our contracting
and pricing strategies help mitigate the cost impact of changing production
volumes. To minimize potential exposure to inactive or underutilized facilities
that are dedicated to a single customer, we strive where possible to enter into
lease agreements that are coterminous with individual customer contracts, and we
seek contract pricing terms that recover fixed occupancy costs, regardless of
production volume. Occupancy expense may also include certain lease termination
and related occupancy costs that are accelerated for accounting purposes into
the fiscal year in which such a decision was implemented.
General and administrative expense. General and administrative expense includes
the salaries, wages and benefits of administrative personnel, related support
costs, taxes (other than income and property taxes), adjustments due to foreign
currency transactions, bad debt expense, and other general expenses, including
gains or losses on the sale or disposal of assets. These expenses are generally
not directly related to levels of operating activity and may contain other
expenses related to general business operations. We recognize general and
administrative expense when it is incurred.
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Insurance and claims. Insurance and claims expense represents our insurance
premiums and the accruals we make for claims within our self-insured retention
amounts. Our insurance premiums are generally calculated based on a mixture of a
percentage of line-haul revenue and the size of our fleet. Our accruals have
primarily related to cargo and property damage claims. We may also make accruals
for personal injuries and property damage to third parties, physical damage to
our equipment, general liability and workers' compensation claims if we
experience a claim in excess of our insurance coverage. To reduce our exposure
to non-trucking use liability claims (claims incurred while the vehicle is being
operated without a trailer attached or is being operated with an attached
trailer which does not contain or carry any cargo), we require our
owner-operators to maintain non-trucking use liability coverage, which the
industry refers to as deadhead bobtail coverage, of $2.0 million per occurrence.
Our exposure to liability associated with accidents incurred by other third
party providers who haul freight on our behalf is reduced by various factors
including the extent to which they maintain their own insurance coverage. Our
insurance expense varies primarily based upon the frequency and severity of our
accident experience, insurance rates, our coverage limits and our self-insured
retention amounts.
Depreciation and amortization. Depreciation and amortization expense relates
primarily to the depreciation of owned tractors, trailers, computer and
operating equipment, and buildings as well as the amortization of the intangible
assets recorded for our acquired customer contracts and customer and agent
relationships. We estimate the salvage value and useful lives of depreciable
assets based on current market conditions and experience with past dispositions.
Operating Revenues
We broadly group our services into the following categories: truckload services,
brokerage services, intermodal services, dedicated services and value-added
services. Our truckload, brokerage and intermodal services associated with
individual freight shipments coordinated by our agents and company-managed
terminals, while our dedicated and value-added services to specific customers on
a contractual basis, generally pursuant to contract terms of one year or longer.
The following table sets forth operating revenues resulting from each of these
service categories for the years ended December 31, 2022, 2021 and 2020,
presented as a percentage of total operating revenues:
Years ended December 31,
2022 2021 2020
Operating revenues:
Truckload services 11.4 % 14.2 % 14.5 %
Brokerage services 18.3 22.9 24.2
Intermodal services 29.4 27.0 28.3
Dedicated services 16.1 11.7 9.2
Value-added services 24.8 24.2 23.8
Total operating revenues 100.0 % 100.0 % 100.0 %
Results of Operations
The following table sets forth items derived from our Consolidated Statements of
Income for the years ended December 31, 2022, 2021 and 2020, presented as a
percentage of operating revenues:
Years ended December 31,
2022 2021 2020
Operating revenues 100.0 % 100.0 % 100.0 %
Operating expenses:
Purchased transportation and equipment rent 42.0 47.1 48.5
Direct personnel and related benefits 25.9 26.1 24.3
Operating supplies and expenses 8.8 8.5 8.0
Commission expense 2.0 1.9 1.9
Occupancy expense 2.0 2.1 2.5
General and administrative 2.3 2.3 2.4
Insurance and claims 1.1 2.2 1.4
Depreciation and amortization 3.8 3.9 5.3
Total operating expenses 88.1 94.1 94.2
Income from operations 11.9 5.9 5.8
Interest and other non-operating income
(expense), net (0.7 ) (0.3 ) (1.2 )
Income before for income taxes 11.2 5.6 4.6
Income tax (benefit) expense 2.8 1.4 1.1
Net income 8.4 % 4.2 % 3.5 %
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2022 Compared to 2021
Operating revenues. Operating revenues for 2022 increased $264.5 million, or
15.1%, to $2,015.5 million from $1,751.0 million for 2021. Included in operating
revenues are separately-identified fuel surcharges of $168.6 million for 2022
compared to $96.9 million for 2021. Consolidated income from operations
increased $137.5 million, or 133.5%, to $240.4 million for 2022 compared to
$103.0 million during the same period last year. Results for 2022 include $9.7
million in additional depreciation expense due to revised useful lives and
salvage values of certain equipment and a $3.0 million credit to insurance and
claims expense resulting from the favorable settlement of certain auto liability
claims during the period. Results for 2021 include $25.0 million in pre-tax
charges related to previously disclosed items.
In the contract logistics segment, which includes value-added and dedicated
services, operating revenues increased $196.7 million, or 31.4%, to $823.9
million in 2022 compared to $627.2 million in the previous year. Income from
operations in the contract logistics segment increased $73.6 million, or 164.3%,
to $118.4 million for 2022 compared to $44.8 million in the same period last
year. In 2022, Universal managed 63 value-added programs, unchanged from the
prior year period. During 2022, dedicated transportation load count increased
4.2% to 619,673 from 594,798 in 2021. Also included in dedicated transportation
revenue for 2022 were $41.7 million in separately identified fuel surcharges,
compared to $21.2 million in the same period last year. Contract logistics
segment results for 2021 included $18.9 million of losses incurred in connection
with a previously announced program launch. As a percentage of revenue,
operating margin in the contract logistics segment for 2022 was 14.4% compared
to 7.1% during the same period last year.
In the intermodal segment, operating revenues increased $118.9 million, or
25.1%, to $591.9 million in 2022 compared to $473.1 million in the previous
year. Intermodal revenues for 2022 included $92.3 million in separately
identified fuel surcharges, compared to $51.2 million in the same period last
year. During 2022, Universal moved 552,398 intermodal loads compared to 665,088
in 2021, a decrease of 16.9%, while its average operating revenue per load,
excluding fuel surcharges increased 34.5% to $702 from $522. Intermodal segment
revenues also include accessorial charges such as detention, demurrage and
storage which totaled $123.6 million in 2022, compared to $84.9 million one year
earlier. Income from operations in the intermodal segment increased $53.3
million to $83.6 million for the 2022 compared to $30.4 million in 2021.
Intermodal segment results included litigation related charges totaling $5.8
million in 2021. As a percentage of revenue, operating margin in the intermodal
segment for 2022 was 14.1%, compared to 6.4% during the same period last year.
In the trucking segment, operating revenues decreased $10.7 million to $392.6
million in 2022 compared to $403.3 million in the prior year period. Included in
trucking segment revenues for 2022 were $34.7 million in separately identified
fuel surcharges compared to $24.4 million during 2021. Income from operations in
the trucking segment increased $8.0 million to $27.6 million for 2022 compared
to $19.6 million in the same period last year. Trucking segment results also
included $6.0 million in previously disclosed pre-tax charges in 2021. During
2022, Universal's average operating revenue per load, excluding fuel surcharges,
increased 33.3% to $1,807 from $1,356 in the prior year period; however, this
increase was offset by a 30.7% decrease in load volumes as we rationalized
underperforming operations in this segment. During 2022, Universal moved 199,712
loads compared to 288,378 during the same period last year. As a percentage of
revenue, operating margin in the trucking segment for 2022 was 7.0%, compared to
4.9% during the same period last year.
In the company-managed brokerage segment, operating revenues decreased $42.3
million, or 17.4%, to $200.5 million in 2022 compared to $242.8 million in 2021.
During 2022, the average operating revenue per load increased 2.6% to $1,893
from $1,845 in 2021; however, load volumes fell 25.8% to 90,432 from 121,944. As
a percentage of revenue, operating margin for the company-managed brokerage
segment was 5.0% for 2022 compared to 2.9% last year.
Purchased transportation and equipment rent. Purchased transportation and
equipment rental costs for 2022 increased $22.6 million, or 2.7%, to $847.4
million from $824.8 million last year. Purchased transportation and equipment
rent generally increases or decreases in proportion to the revenues generated
through owner-operators and other third party providers. The increases or
decreases are generally correlated with changes in demand for
transportation-related services, which includes truckload, brokerage, intermodal
and to a lesser extent, dedicated services, which uses a higher mix of
company-drivers compared to owner-operators. The absolute increase in purchased
transportation and equipment rental costs was primarily the result of an overall
increase in transportation-related services. In 2022, transportation-related
service revenues increased 14.2% compared to 2021. As a percentage of operating
revenues, purchased transportation and equipment rent expense decreased to 42.0%
compared to 47.1% during the same period last year due to a decrease in the mix
of brokerage services revenue, where the cost of transportation is typically
higher than our other transportation businesses. As a percentage of total
revenues, brokerage services revenue decreased to 18.3% for 2022 compared to
22.9% in the same period last year.
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Direct personnel and related benefits. Direct personnel and related benefits for
2022 increased $66.0 million, or 14.5%, to $522.7 million compared to $456.6
million during the same period last year. Trends in these expenses are generally
correlated with changes in operating facilities and headcount requirements and,
therefore, increase and decrease with the level of demand for our staffing needs
in our contract logistics segment, which includes value-added services and
dedicated transportation. The increase was due to the launch of new business
wins and robust volumes experienced at our contract logistics operations during
2022. As a percentage of operating revenues, personnel and related benefits
decreased to 25.9%, compared to 26.1% for 2021. The percentage is derived on an
aggregate basis from both existing and new programs, and from customer
operations at various stages in their lifecycles. Individual operations may be
impacted by additional production shifts or by overtime at selected operations.
While generalizations about the impact of personnel and related benefits costs
as a percentage of total revenue are difficult, we manage compensation and
staffing levels, including the use of contract labor, to maintain target
economics based on near-term projections of demand for our services.
Operating supplies and expenses. Operating supplies and expenses increased by
$28.0 million, or 18.8%, to $177.4 million for 2022 compared to $149.4 million
for 2021. These expenses include items such as fuel, maintenance, cost of
materials, communications, utilities and other operating expenses, and generally
relate to fluctuations in customer demand. The main elements driving the change
were increases of $25.4 million in fuel expense on company tractors, $6.8
million in vehicle and other maintenance, and $3.5 million in bad debt expense.
These increases were partially offset by decreases of $4.8 million in
professional fees including legal charges and $1.9 million in travel and
entertainment expense.
Commission expense. Commission expense for 2022 increased by $6.4 million, or
18.9%, to $40.3 million from $33.9 million for 2021. Commission expense
increased due to increased revenue from both our agency based truckload business
and our intermodal agents. As a percentage of operating revenues, commission
expense increased to 2.0% for 2022, compared to 1.9% in the same period last
year.
Occupancy expense. Occupancy expenses increased by $4.0 million, or 10.7%, to
$41.3 million for 2022. This compares to $37.3 million for 2021. The increase
was attributable to an increase in building rents and property taxes.
General and administrative. General and administrative expense for 2022
increased by $6.9 million to $46.5 million from $39.6 million in 2021. The
increase was primarily attributable to an increase in salaries, wages, and
benefits. As a percentage of operating revenues, general and administrative
expense was 2.3% for 2022 unchanged from the previous year.
Insurance and claims. Insurance and claims expense for 2022 decreased by $16.1
million to $22.7 million from $38.8 million in 2021. As a percentage of
operating revenues, insurance and claims decreased to 1.1% for 2022 compared to
2.2% for 2021. The decrease was attributable to decreases in auto liability
insurance premiums and claims expense and in cargo and service failure claims.
Our 2022 insurance and claims also included a $3.0 million credit resulting from
the favorable settlement of certain auto liability claims during the period.
Depreciation and amortization. Depreciation and amortization expense for 2022
increased by $9.1 million, or 13.5%, to $76.7 million from $67.5 million for
2021. Depreciation expense increased $8.6 million and amortization expense
increased $0.5 million. During 2022, Universal revised the estimated useful life
and salvage value of certain equipment, and these adjustments resulted in
additional depreciation expense of $9.7 million during the period.
Interest expense, net. Net interest expense was $16.2 million for 2022 compared
to $11.6 million for 2021. The increase in net interest expense reflects an
increase in interest rates on our outstanding borrowings. As of December 31,
2022, our outstanding borrowings totaled $382.9 million compared to $428.4
million at the same time last year.
Other non-operating income (expense). Other non-operating income was $1.1
million for 2022 compared to $7.2 million in the prior year. Other non-operating
income for 2022 includes a $1.0 million pre-tax holding gain on marketable
securities due to changes in fair value recognized in income. Other
non-operating income for 2021 includes a $5.7 million pre-tax gain from a
favorable legal settlement and a $1.5 million pre-tax holding gain on marketable
securities due to changes in fair value recognized in income.
Income tax expense. Income tax expense for 2022 was $56.8 million, compared to
$24.8 million for 2021, based on an effective tax rate of 25.2% in both periods.
The increase in income taxes in 2022 is the result of an increase in taxable
income for 2022 compared 2021.
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2021 Compared to 2020
Operating revenues. Operating revenues for 2021 increased $359.9 million, or
25.9%, to $1,751.0 million from $1,391.1 million in 2020. Included in operating
revenues are separately-identified fuel surcharges of $96.9 million for 2021
compared to $67.9 million in 2020. Consolidated income from operations increased
$22.6 million, or 28.1%, to $103.0 million for 2021 compared to $80.4 million
during the same period last year. Overall results for 2020 were negatively
impacted by the COVID-19 pandemic which resulted in a substantial portion of our
customers being shuttered. Results for 2021 include a favorable legal settlement
which resulted in a $5.7 million pre-tax gain recorded in other non-operating
income, as well as $6.0 million in charges for auto liability claims expected to
settle in excess of policy limits, $5.8 million in charges for on-going legal
matters, and $18.9 million of losses incurred in connection with a recent
contract logistics program launch.
In the contract logistics segment, which includes value-added and dedicated
services, operating revenues increased $167.6 million, or 36.5%, to $627.2
million in 2021 compared to $459.7 million in the previous year. Income from
operations in the contract logistics segment increased $8.8 million, or 24.6%,
to $44.8 million for 2021 compared to $36.0 million in the same period last
year. In 2022, Universal managed 63 value-added programs compared to 58 in the
prior year period. During 2021, dedicated transportation load count increased
20.5% to 594,748 from 493,733 in 2020. Results for 2021 in the contract
logistics segment include approximately $18.9 million of losses incurred in
connection with a recent program launch. Results in the contract logistics
segment for 2020 were negatively impacted by the COVID-19 pandemic, which caused
a substantial portion of our customers to temporarily suspend operations. As a
percentage of revenue, operating margin for the contract logistics segment for
2021 was 7.1% compared to 7.8% during the same period last year. The launch
losses recorded in 2021 adversely impacted this segment's operating margin by
310 basis points.
In the intermodal segment, operating revenues increased $79.4 million, or 20.2%,
to $473.1 million in 2021 compared to $393.6 million in the previous year.
Intermodal revenues for 2021 included $51.2 million in separately identified
fuel surcharges, compared to $40.1 million in the same period last year. During
2021, Universal moved 665,088 intermodal loads compared to 719,947 in 2020, a
decrease of 7.6%, while its average operating revenue per load, excluding fuel
surcharges increased 13.2% to $522 from $461. In 2021, other accessorial charges
such as detention, demurrage and storage increased $45.0 million to $84.9
million compared to $39.9 million one year earlier. Income from operations in
the intermodal segment was unchanged at $30.4 million in both 2021 and 2020.
Included in intermodal segment results were litigation related charges totaling
$5.8 million in 2021. As a percentage of revenue, operating margin in the
intermodal segment was 6.4% in 2021 compared to 7.7% in the prior year period.
The litigation related charges recorded in 2021 adversely impacted this
segment's operating margin by 120 basis points.
In the trucking segment, which includes agent-based and company-managed trucking
operations, operating revenues increased $84.9 million to $403.3 million in 2021
compared to $318.4 million in the prior year. Included in trucking segment
revenues for 2021 were $24.4 million in separately identified fuel surcharges
compared to $16.1 million during 2020. Income from operations in the trucking
segment increased $3.2 million to $19.6 million for 2021 compared to $16.4
million in the same period last year. During 2021, load volumes increased 12.0%
to 288,378 loads compared to 257,562 in 2020. Average operating revenue per
load, excluding fuel surcharges, also increased 11.3% to $1,356 from $1,218 in
the prior year period. 2021 trucking segment results also included a $6.0
million charge for auto liability claims expected to settle in excess of policy
limits. As a percentage of revenue, operating margin in the trucking segment was
4.9% in 2021 compared to 5.2% in the same period last year. The claim charges
recorded in 2021 adversely impacted the trucking segment's operating margin by
140 basis points.
In the company-managed brokerage segment, operating revenues increased $24.7
million, or 11.3%, to $242.8 million in 2021 compared to $218.1 million in 2020.
Company-managed brokerage load volumes decreased 16.3% to 121,944 in 2021 from
145,655 during the same period last year. However, average operating revenue per
load, excluding fuel surcharges, increased 31.5% to $1,845 in 2021 from $1,403
in 2020. As a percentage of revenue, operating margin for the company-managed
brokerage segment was 2.9% for 2021 compared to a negative 1.2% in the same
period last year.
Purchased transportation and equipment rent. Purchased transportation and
equipment rental costs for 2021 increased $150.6 million, or 22.3%, to $824.8
million from $674.1 million during the same period last year. Purchased
transportation and equipment rent generally increases or decreases in proportion
to the revenues generated through owner-operators and other third party
providers and is generally correlated with changes in demand for
transportation-related services, which includes truckload, brokerage, intermodal
and to a lesser extent, dedicated services, which uses a higher mix of
company-drivers compared to owner-operators. The absolute increase in purchased
transportation and equipment rental costs was primarily the result of an
increase in transportation-related service revenues. In 2021,
transportation-related service revenues increased 25.4% over the same period
last year. As a percentage of operating revenues, purchased transportation and
equipment rent expense decreased to 47.1% compared to 48.5% during the same
period last year. The decrease was due to a decrease in the mix of brokerage
services revenue, where the cost of transportation is typically higher than our
other transportation businesses. As a percentage of total revenues, brokerage
services revenue decreased to 22.9% for 2021 compared to 24.2% in the same
period last year.
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Direct personnel and related benefits. Direct personnel and related benefits for
2021 increased by $119.0 million, or 35.3%, to $456.6 million compared to $337.6
million during the same period last year. Trends in these expenses are generally
correlated with changes in operating facilities and headcount requirements and,
therefore, increase and decrease with the level of demand for our value-added
services and staffing needs of our operations. The increase was due to the
launch of new business wins and robust volumes in our contract logistics segment
in 2021, as well as the impact of temporary layoffs and furloughs in 2020 in
response to the COVID-19 pandemic. As a percentage of operating revenues,
personnel and related benefits increased to 26.1% for 2021, compared to 24.3% in
2020. The percentage is derived on an aggregate basis from both existing and new
programs, and from customer operations at various stages in their lifecycles.
Individual operations may be impacted by additional production shifts or by
overtime at selected operations. While generalizations about the impact of
personnel and related benefits costs as a percentage of total revenue are
difficult, we manage compensation and staffing levels, including the use of
contract labor, to maintain target economics based on near-term projections of
demand for our services.
Operating supplies and expenses. Operating supplies and expenses increased by
$38.3 million, or 34.5%, to $149.4 million for 2021 compared to $111.1 million
for 2020. These expenses include items such as fuel, maintenance, cost of
materials, communications, utilities and other operating expenses, and generally
relate to fluctuations in customer demand. The main elements of the increase
included increases of $16.5 million in fuel expense, $5.3 million in legal
charges and professional fees, $8.2 million in vehicle and other maintenance,
$4.0 million in travel and entertainment, and $3.3 million in other operating
expenses.
Commission expense. Commission expense for 2021 increased by $7.2 million, or
27.1%, to $33.9 million from $26.7 million in 2020. Commission expense increased
due to increased revenue in the agency based truckload business. As a percentage
of operating revenues, commission expense was unchanged at 1.9% for both 2021
and 2020.
Occupancy expense. Occupancy expenses increased by $2.7 million, or 7.8%, to
$37.3 million for 2021. This compares to $34.6 million in 2020. The increase was
primarily attributable to an increase in building rents and property taxes.
General and administrative. General and administrative expense for 2021
increased by $6.4 million to $39.6 million from $33.3 million in 2020. The
increase was attributable to a $4.1 million increase in salaries, wages, and
benefits and a $2.5 million increase in professional fees. As a percentage of
operating revenues, general and administrative expense was 2.3% in 2021 compared
to 2.4% for 2020.
Insurance and claims. Insurance and claims expense for 2021 increased by $19.6
million to $38.8 million from $19.3 million in 2020. The increase was
attributable to increases of $11.1 million in cargo and service failure claims
and $8.5 million in auto liability premiums and claims. Included in insurance
and claims expense were $6.0 million in charges for auto liability claims
expected to settle in excess of policy limits. As a percentage of operating
revenues, insurance and claims increased to 2.2% for 2021 compared to 1.4% in
2020.
Depreciation and amortization. Depreciation and amortization expense for 2021
decreased by $6.6 million, or 8.9%, to $67.5 million from $74.1 million for
2020. Depreciation expense decreased $5.3 million and amortization expense
decreased $1.3 million. The decrease in depreciation expense is attributable to
the limited availability of transportation equipment for purchase in 2021. If
equipment manufacturers implement solutions to overcome production issues,
depreciation expense is expected to increase as capital expenditures return to
normalized levels.
Interest expense, net. Net interest expense was $11.6 million for 2021 compared
to $14.6 million for 2020. The decrease in net interest expense reflects a
decrease in outstanding borrowings and a decrease in interest rates on our debt.
As of December 31, 2021, our outstanding borrowings totaled $428.4 million
compared to $461.7 million at the same time last year.
Other non-operating income (expense). Other non-operating income was $7.2
million for 2021 compared to $1.9 million of other non-operating expense for
2020. Other non-operating income for 2021 includes a $5.7 million pre-tax gain
from a favorable legal settlement. Other non-operating income in 2021 also
includes a $1.5 million pre-tax holding gain on marketable securities due to
changes in fair value recognized in income compared to a pre-tax holding loss of
$1.6 million in 2020.
Income tax expense. Income tax expense for 2021 was $24.8 million, compared to
$15.8 million for 2020, based on an effective tax rate of 25.2% and 24.7%
respectively. The increase in income taxes in 2021 is the result of an increase
in taxable income and our effective tax rate for 2021 compared to 2020.
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Liquidity and Capital Resources
Our primary sources of liquidity are funds generated by operations, loans and
extensions of credit under our credit facilities, on margin against our
marketable securities and from installment notes, and proceeds from the sales of
marketable securities. We use secured, asset lending to fund a substantial
portion of purchases of tractors, trailers and material handling equipment.
We employ a flexible operating strategy which we believe lowers our capital
expenditure requirements. In general, our facilities used in our value-added
services are leased on terms that are either substantially matched to our
customer's contracts, are month-to-month or are provided to us by our customers.
We also utilize owner-operators and third-party carriers to provide a
significant portion of our transportation and specialized services. A
significant portion of the tractors and trailers used in our business are
provided by our owner-operators. In addition, our use of agents reduces our
overall need for large terminals. As a result, our capital expenditure
requirements are limited in comparison to most large transportation and
logistics service providers, which maintain significant properties and sizable
fleets of owned tractors and trailers.
In 2022, our capital expenditures totaled $117.1 million. These expenditures
primarily consisted of transportation equipment and investments in support of
our value-added service operations. Our flexible business model depends largely
on the customized solutions we implement for specific customers. As a result,
our capital expenditures will also depend on specific new contracts and the
overall age and condition of our owned transportation equipment. Due to
shortages, production backlogs, and limited availability of transportation
equipment, our expenditures are projected to be somewhat higher than the
customary range of 4% to 5% of our operating revenues. In 2023, exclusive of
acquisitions of businesses or strategic real estate, we expect our capital
expenditures to be in the range of 7% to 8% of operating revenues. We expect to
make these capital expenditures for the acquisition of transportation equipment,
to support our new and existing value-added service operations, and for
improvements to our existing terminal yard and container facilities. As
equipment manufacturers identify and implement solutions enabling them to
overcome supply-side constraints, we would expect to return to a normalized
level of capital expenditures in future periods.
We have a cash dividend policy that anticipates a regular dividend of $0.42 per
share of common stock, payable in quarterly increments of $0.105 per share of
common stock. After considering the regular quarterly dividends made during the
year, the Board of Directors also evaluates the potential declaration of an
annual special dividend payable in the first quarter of each year. The Board of
Directors did not declare a special dividend in the first quarter of 2023.
During the year ended December 31, 2022, we paid a total of $0.42 per common
share, or $11.1 million. Future dividend policy and the payment of dividends, if
any, will be determined by the Board of Directors in light of circumstances then
existing, including our earnings, financial condition and other factors deemed
relevant by the Board of Directors.
On May 13, 2022, the Company commenced a "Dutch auction" tender offer to
repurchase up to 100,000 shares of the Company's outstanding common stock at a
price of not greater than $28.00 nor less than $25.00 per share. Following
expiration of the tender offer on June 15, 2022, we accepted 164,189 shares,
including 64,189 oversubscribed shares tendered, of our common stock for
purchase at $28.00 per share, for a total purchase price of approximately $4.6
million, excluding fees and expenses related to the offer. We paid for the
accepted shares with available cash and funds borrowed under our existing line
of credit.
We expect that our cash flow from operations, working capital and available
borrowings will be sufficient to meet our capital commitments, to fund our
operational needs for at least the next twelve months, and to fund mandatory
debt repayments. Based on the availability of borrowings under our credit
facilities, against our marketable security portfolio and other financing
sources, and assuming the continuation of our current level of profitability, we
do not expect that we will experience any liquidity constraints in the
foreseeable future.
We continue to evaluate business development opportunities, including potential
acquisitions that fit our strategic plans. There can be no assurance that we
will identify any opportunities that fit our strategic plans or will be able to
execute any such opportunities on terms acceptable to us. Depending on
prospective consideration to be paid for an acquisition, any such opportunities
would be financed first from available cash and cash equivalents and
availability of borrowings under our credit facilities.
Revolving Credit, Promissory Notes and Term Loan Agreements
Our revolving credit facility (the "Revolving Credit Facility") provides for a
$400 million revolver at a variable rate of interest based on index-adjusted
SOFR or a base rate and matures on September 30, 2027. The Revolving Credit
Facility, which is secured by cash, deposits, accounts receivable, and selected
other assets of the applicable borrowers, includes customary affirmative and
negative covenants and events of default, as well as financial covenants
requiring minimum fixed charge coverage and leverage ratios, and customary
mandatory prepayments provisions. Our Revolving Credit Facility includes an
accordion feature which allows us to increase availability by up to $200 million
upon our request. At December 31, 2022, we were in compliance with all its
covenants, and $400.0 million was available for borrowing.
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Our UACL Credit and Security Agreement (the "UACL Credit Agreement") provides
for maximum borrowings of $90 million in the form of an $80 million term loan
and a $10 million revolver at a variable rate of interest based on
index-adjusted SOFR or a base rate and matures on September 30, 2027. The UACL
Credit Agreement, which is secured by cash, deposits, accounts receivable, and
selected other assets of the applicable borrowers, includes customary
affirmative and negative covenants and events of default, as well as financial
covenants requiring minimum fixed charge coverage and leverage ratios, and
customary mandatory prepayments provisions. Our UACL Credit Agreement includes
an accordion feature which allows us to increase availability by up to $30
million upon our request. At December 31, 2022, we were in compliance with all
its covenants, and $10.0 million was available for borrowing.
A wholly owned subsidiary issued a series of promissory notes in order to
finance transportation equipment (the "Equipment Financing"). The notes issued
in connection with the Equipment Financing, which are secured by liens on
specific titled vehicles, are generally payable in 60 monthly installments and
bear interest at fixed rates ranging from 2.25% to 7.27%.
Certain wholly owned subsidiaries entered into a $165.4 million term loan
facility to repay outstanding balances under a then-existing term loan and
certain other real estate notes (the "Real Estate Facility"). The Real Estate
Facility matures on April 29, 2032 and is secured by first-priority mortgages on
specific parcels of real estate owned by the Company, including all land and
real property improvements, and first-priority assignments of rents and related
leases of the loan parties. The Real Estate Facility includes customary
affirmative and negative covenants, and principal and interest is payable on the
facility on a monthly basis, based on an annual amortization of 10%. The
facility bears interest at Term SOFR, plus an applicable margin equal to 2.12%.
At December 31, 2022, we were in compliance with all covenants under the
facility.
We also maintain a short-term line of credit secured by our portfolio of
marketable securities. It bears interest at Term SOFR plus 1.10%. The amount
available under the margin facility is based on a percentage of the market value
of the underlying securities. We did not have any amounts advanced against the
line as of December 31, 2022, and the maximum available borrowings were $5.1
million.
Discussion of Cash Flows
At December 31, 2022, we had cash and cash equivalents of $47.2 million compared
to $13.9 million at December 31, 2021. Operating activities provided $213.4
million in net cash, and we used $103.7 million in investing activities and
$78.2 million in financing activities.
The $213.4 million in net cash provided by operations was primarily attributed
to $168.6 million of net income, which reflects non-cash depreciation and
amortization, noncash lease expense, amortization and write-off of debt issuance
costs, gains on marketable equity securities and equipment sales, stock-based
compensation, provisions for doubtful accounts and a change in deferred income
taxes totaling $118.9 million, net. Net cash provided by operating activities
also reflects an aggregate increase in net working capital totaling $74.1
million. The primary drivers behind the increase in working capital were
principal reductions in operating lease liabilities during the period, an
increase in trade accounts receivable, and decreases in trade accounts payable,
accruals for insurance and claims, and in accrued expenses and other current
liabilities. These were partially offset by decreases in other receivables and
in prepaid expenses and other assets, and increases in income taxes payable and
other long-term liabilities. Affiliate transactions increased net cash provided
by operating activities by $2.6 million. The increase in net cash resulted from
an increase in accounts payable to affiliates of $2.8 million, partially offset
by an increase in accounts receivable from affiliates of $0.2 million.
The $103.7 million in net cash used in investing activities consisted of $117.1
million in capital expenditures and $0.9 million in marketable securities
purchases. These uses were partially offset by $14.3 million in proceeds from
the sale of equipment.
We used $78.2 million in financing activities. During the year we paid cash
dividends of $13.9 million, $14.3 million for purchases of common stock and $4.4
million in capitalized financing costs. We had outstanding borrowings totaling
$382.9 million at December 31, 2022 compared to $428.4 million at December 31,
2021. During the year also we made net repayments on our revolving lines of
credit totaling $163.3 million and term loan, and equipment and real estate note
payments totaling $221.9 million. We also borrowed $339.6 million during the
period to repay outstanding balances under a then-existing term loan and certain
other real estate notes, and for new equipment.
Contractual Obligations
As of December 31, 2022, we had contractual obligations related to our long-term
debt of $316.8 million and $59.4 million for principal borrowings and interest,
respectively, which become due through 2032. See Item 8, Note 8 to the
Consolidated Financial Statements for additional information regarding our debt
obligations. We also have contractual obligations for operating leases
commitments and purchase commitments related to agreements to purchase
equipment. See Item 8, Note 12 and Note 15, respectively, to the Consolidated
Financial Statements for additional information regarding lease obligations and
purchase commitments.
Off-Balance Sheet Arrangements
None.
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Legal Matters
We are subject to various legal proceedings and other contingencies, the
outcomes of which are subject to significant uncertainty. We accrue for
estimated losses if it is probable that an asset has been impaired or a
liability has been incurred and the amount of the loss can be reasonably
estimated. We use judgment and evaluate, with the assistance of legal counsel,
whether a loss contingency arising from litigation should be disclosed or
recorded. The outcome of legal proceedings is inherently uncertain, so typically
a loss cannot be precisely estimated. Accordingly, if the outcome of legal
proceedings is different than is anticipated by us, we would have to record the
matter at the actual amount at which it was resolved, in the period resolved,
impacting our results of operations and financial position for the period. See
Item 8, Note 15 to the Consolidated Financial Statements.
Critical Accounting Policies
Our financial statements have been prepared in accordance with U.S. generally
accepted accounting principles. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, operating revenues and operating expenses.
Critical accounting policies are those that are both (1) important to the
portrayal of our financial condition and results of operations and (2) require
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain. As the number of variables and assumptions affecting the possible
future resolution of the uncertainties increase, those judgments become even
more subjective and complex. In order to provide an understanding about how our
management forms its judgments about future events, including the variables and
assumptions underlying the estimates, and the sensitivity of those judgments to
different circumstances, we have identified our critical accounting policies
below.
Insurance and Claim Costs
We maintain auto liability, workers compensation and general liability insurance
with licensed insurance carriers. We are self-insured for all cargo and
equipment damage claims. Insurance and claims expense represents premiums paid
by us and the accruals made for claims within our self-insured retention
amounts. A liability is recognized for the estimated cost of all self-insured
claims including an estimate of incurred but not reported claims based on
historical experience and for claims expected to exceed our policy limits. In
addition, legal expenses related to auto liability claims are covered under our
policy. We are responsible for all other legal expenses related to claims.
We establish reserves for anticipated losses and expenses related to cargo and
equipment damage claims and auto liability claims. The reserves consist of
specific reserves for all known claims and an estimate for claims incurred but
not reported, and losses arising from known claims ultimately settling in excess
of insurance coverage using loss development factors based upon industry data
and past experience. In determining the reserves, we specifically review all
known claims and record a liability based upon our best estimate of the amount
to be paid. In making our estimate, we consider the amount and validity of the
claim, as well as our past experience with similar claims. In establishing the
reserve for claims incurred but not reported, we consider our past claims
history, including the length of time it takes for claims to be reported to us.
Based on our past experience, the time between when a claim occurs and when it
is reported to us is short. As a result, we believe that the number of incurred
but not reported claims at any given point in time is small. These reserves are
periodically reviewed and adjusted to reflect our experience and updated
information relating to specific claims. As of December 31, 2022 and 2021, we
had accruals of $14.3 million and $23.0 million, respectively, for estimated
claims net of insurance receivables. If we experience claims that are not
covered by our insurance or that exceed our estimated claim reserve, it could
increase the volatility of our earnings and have a materially adverse effect on
our financial condition, results of operations or cash flows. Based on our 2022
reserve for claims incurred but not reported, a 10% increase in claims incurred
but not reported, would increase our insurance and claims expense by
approximately $0.5 million.
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Valuation of Long-Lived Assets, including Goodwill and Intangible Assets
At both December 31, 2022 and 2021, our goodwill balance was $170.7 million. We
are required to test goodwill for impairment annually or more frequently,
whenever events occur or circumstances change that would more likely than not
reduce the fair value of a reporting unit with goodwill below its carrying
amount. We annually test goodwill impairment during the third quarter. Goodwill
represents the excess purchase price over the fair value of assets acquired in
connection with our acquisitions. We continually assess whether any indicators
of impairment exist, which requires a significant amount of judgment. Such
indicators may include a sustained significant decline in our share price and
market capitalization; a decline in our expected future cash flows; a
significant adverse change in legal factors or in the business climate;
unanticipated competition; overall weaknesses in our industry; and slower growth
rates. Adverse changes in these factors could have a significant impact on the
recoverability of goodwill and could have a material impact on our consolidated
financial statements. The Company has the option to first assess qualitative
factors such as current performance and overall economic conditions to determine
whether or not it is necessary to perform a quantitative goodwill impairment
test. If we choose that option, then we would not be required to perform a
quantitative goodwill impairment test unless we determine that, based on a
qualitative assessment, it is more likely than not that the fair value of a
reporting unit is less than its carrying value. If we determine that it is more
likely than not, or if we choose not to perform a qualitative assessment, we
then proceed with the quantitative assessment. Under the quantitative test, if
the fair value of a reporting unit exceeds its carrying amount, then goodwill of
the reporting unit is considered to not be impaired. If the carrying amount of
the reporting unit exceeds its fair value, then an impairment loss is recognized
in an amount equal to the excess, up to the value of the goodwill.
During each of the third quarters of 2022 and 2021, we completed our goodwill
impairment testing by performing a quantitative assessment using the income
approach for each of our reporting units with goodwill. The determination of the
fair value of the reporting units requires us to make estimates and assumptions
related to future revenue, operating income and discount rates. Based on the
results of this test, no impairment loss was recognized. There were no
triggering events identified from the date of our assessment through December
31, 2022 that would require an update to our annual impairment test.
We evaluate the carrying value of long-lived assets, other than goodwill, for
impairment by analyzing the operating performance and anticipated future cash
flows for those assets, whenever events or changes in circumstances indicate
that the carrying amounts of such assets may not be recoverable. We evaluate the
need to adjust the carrying value of the underlying assets if the sum of the
expected cash flows is less than the carrying value. Our projection of future
cash flows, the level of actual cash flows, the methods of estimation used for
determining fair values and salvage values can impact impairment. Any changes in
management's judgments could result in greater or lesser annual depreciation and
amortization expense or impairment charges in the future. Depreciation and
amortization of long-lived assets is calculated using the straight-line method
over the estimated useful lives of the assets.
Recently Issued Accounting Pronouncements Not Currently Effective
See Item 8: Note 2 to the Consolidated Financial Statements for discussion of
new accounting pronouncements.
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