UNIVERSAL LOGISTICS HOLDINGS, INC. 10-Q

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Some of the statements and assumptions in this Form 10-Q are forward-looking statements. These statements identify prospective information. Important factors could cause actual results to differ, possibly materially, from those in the forward-looking statements. In some cases you can identify forward-looking statements by words such as “anticipate,” “expect,” “believe,” “targets,” “could,” “estimate,” “plan,” “intend,” “may,” “should,” “will” and “would” or other similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other “forward-looking” information. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. The factors listed in the section captioned “Risk Factors” in Part I, Item 1A in our Form 10-K for the year ended December 31, 2023 and Part II, Item 1A of this Form 10-Q, as well as any other cautionary language in these filings, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Forward-looking statements speak only as of the date the statements are made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements. Overview Universal Logistics Holdings, Inc. is a holding company whose subsidiaries provide a variety of customized transportation and logistics solutions throughout the United States and in Mexico, Canada and Colombia. Our operating subsidiaries provide customers a broad scope of services across their entire supply chain, including truckload, brokerage, intermodal, dedicated and value-added services. Our operating subsidiaries provide a comprehensive suite of transportation and logistics solutions that allow our customers and clients 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 a network of agents who solicit freight business directly from shippers, and through company-managed facilities and full-service freight forwarding and customs house brokerage offices. We believe our flexible business model is highly scalable and will continue to support our growth with comparatively modest capital expenditure requirements. Our business model, combined with a disciplined approach to contract structuring and pricing, creates a highly flexible cost structure that allows us to expand and contract quickly in response to changes in demand from our customers. 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 aggregated in our transportation segment are associated with individual freight shipments coordinated by our agents, company-managed terminals and specialized services operations. In contrast, operations aggregated in our logistics segment deliver value-added services and transportation services to specific customers on a dedicated basis, generally pursuant to contract terms of one year or longer. Our segments are distinguished by the amount of forward visibility we have in regard to pricing and volumes, and also by the extent to which we dedicate resources and Company-owned equipment. The following discussion of the Company’s financial condition and results of operations should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 and the unaudited Consolidated Financial Statements and related notes contained in this Quarterly Report on Form 10-Q. Current Economic Conditions 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. 20 While operating cash flows may be negatively impacted by 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 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. Operating Revenues For financial reporting, 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 are associated with individual freight shipments coordinated by our agents and company-managed terminals, while our dedicated and value-added services are specific to 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 categories for the thirteen weeks and twenty-six weeks ended June 29, 2024 and July 1, 2023, presented as a percentage of total operating revenues: Thirteen Weeks Ended Twenty-six Weeks Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Operating revenues: Truckload services 14.5 % 12.6 % 11.4 % 11.6 % Brokerage services 11.6 14.6 11.9 15.2 Intermodal services 16.9 22.2 16.2 23.8 Dedicated services 19.6 20.9 18.8 20.2 Value-added services 37.4 29.7 41.7 29.2 Total operating revenues 100.0 % 100.0 % 100.0 % 100.0 % Results of Operations Thirteen Weeks Ended June 29, 2024 Compared to Thirteen Weeks Ended July 1, 2023 The following table sets forth items derived from our consolidated statements of income for the thirteen weeks ended June 29, 2024 and July 1, 2023, presented as a percentage of operating revenues: Thirteen Weeks Ended June 29, 2024 July 1, 2023 Percent Change in Dollar Amount (Dollars in millions) $ % $ % % Operating revenues $ 462,164 100.0 % $ 412,572 100.0 % 12.0 % Operating expenses: Purchased transportation and equipment rent 137,295 29.7 139,879 33.9 (1.8 ) Direct personnel and related benefits 135,495 29.3 138,046 33.5 (1.8 ) Operating supplies and expenses 63,558 13.8 41,101 10.0 54.6 Commission expense 8,890 1.9 7,643 1.9 16.3 Occupancy expense 10,442 2.3 11,041 2.7 (5.4 ) General and administrative 14,699 3.2 13,418 3.3 9.5 Insurance and claims 7,873 1.7 5,889 1.4 33.7 Depreciation and amortization 36,809 8.0 19,160 4.6 92.1 Total operating expenses 415,061 89.8 376,177 91.2 10.3 Income from operations 47,103 10.2 36,395 8.8 29.4 Interest expense, net (6,883 ) (1.5 ) (5,121 ) (1.2 ) 34.4 Other non-operating income 898 0.2 284 0.1 216.2 Income before income taxes 41,118 8.9 31,558 7.7 30.3 Income tax expense 10,384 2.2 7,992 2.0 29.9 Net income $ 30,734 6.7 % $ 23,566 5.7 % 30.4 % 21 Operating revenues . The overall increase in operating revenues was primarily due to an increase in our contract logistics segment revenues. This increase was partially offset by decreases in our transactional transportation-related services. The primary driver in our contract logistics segment was the recently awarded specialty development project. Operating revenues included separately-identified fuel surcharges of $24.5 million in the second quarter 2024, compared to $28.6 million in the second quarter 2023. Also included in operating revenues were other accessorial charges such as detention, demurrage and storage, which totaled $8.1 million during the second quarter 2024 compared to $13.4 million one year earlier. Purchased transportation and equipment rent . Purchased transportation and equipment rent generally increases or decreases in proportion to the revenues generated through owner-operators and other third party providers. These fluctuations are generally correlated with changes in demand for transactional transportation-related services. The absolute decrease in purchased transportation and equipment rental costs was primarily the result of an overall decrease in transactional transportation-related services. In the second quarter 2024, transactional transportation-related service revenues decreased 2.5% compared to the prior year. Direct personnel and related benefits. Trends in direct personnel and benefit costs are generally correlated with changes in operating facilities and headcount requirements and, therefore, fluctuate correspondingly with the level of demand for our staffing needs in our contract logistics segment, which includes value-added services and dedicated transportation, as well as the use of employee drivers in certain of our intermodal operations. The decrease in the second quarter 2024 was due to a decrease in headcount in our intermodal and value-added businesses. While generalizations about the impact of personnel and related benefits costs 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 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 element driving the change was an increase in the expenses incurred in connection with the recently awarded contract logistics specialty development project. Commission expense . Commission expense increased due to increased revenue in our agency-based truckload business. Occupancy expense . The decrease in occupancy expense was attributable to a decrease in building rents. This was partially offset by an increase in property taxes. General and administrative . The increase in general and administrative expense was primarily due to an increase in salaries, wages, and benefits as well as professional fees. Insurance and claims . The increase in insurance and claims expense was primarily due to an increase in auto liability premiums as well as an increase in cargo claims expense. Depreciation and amortization . The increase in depreciation and amortization expense resulted from a $16.1 million increase in depreciation expense and a $1.6 million increase in amortization expense. During the second quarter 2024, Universal revised the estimated useful life and salvage value of certain equipment, and these adjustments resulted in additional depreciation expense of $11.3 million during the period. Interest expense, net . The increase in net interest expense reflects an increase in our outstanding borrowings. As of June 29, 2024, our outstanding borrowings were $487.8 million compared to $382.0 million at July 1, 2023. Other non-operating income . Other non-operating income increased by $0.6 million in second quarter 2024 and includes a $0.8 million favorable legal settlement. Income tax expense . Our effective income tax rate was 25.3% in both the second quarter 2024 and 2023. The increase in income taxes is primarily the result of an increase in taxable income. 22 Twenty-six Weeks Ended June 29, 2024 Compared to Thirteen Weeks Ended July 1, 2023 The following table sets forth items derived from our consolidated statements of income for the twenty-six weeks ended June 29, 2024 and July 1, 2023, presented as a percentage of operating revenues: Twenty-six Weeks Ended June 29, 2024 July 1, 2023 Percent Change in Dollar Amount (Dollars in millions) $ % $ % % Operating revenues $ 954,070 100.0 % $ 849,968 100.0 % 12.2 % Operating expenses: Purchased transportation and equipment rent 261,928 27.5 295,964 34.8 (11.5 ) Direct personnel and related benefits 276,300 29.0 277,138 32.6 (0.3 ) Operating supplies and expenses 156,382 16.4 87,290 10.3 79.2 Commission expense 15,500 1.6 15,815 1.9 (2.0 ) Occupancy expense 21,010 2.2 22,193 2.6 (5.3 ) General and administrative 28,205 3.0 25,334 3.0 11.3 Insurance and claims 15,041 1.6 13,968 1.6 7.7 Depreciation and amortization 57,510 6.0 37,675 4.4 52.6 Total operating expenses 831,876 87.2 775,377 91.2 7.3 Income from operations 122,194 12.8 74,591 8.8 63.8 Interest expense, net (12,962 ) (1.4 ) (10,096 ) (1.2 ) 28.4 Other non-operating income 2,003 0.2 299 0.0 569.9 Income before income taxes 111,235 11.6 64,794 7.6 71.7 Income tax expense 28,044 2.9 16,352 1.9 71.5 Net income $ 83,191 8.7 % $ 48,442 5.7 % 71.7 % Operating revenues . The overall increase in operating revenues was primarily due to an increase in our contract logistics segment revenues. This increase was partially offset by decreases in our transactional transportation-related services. The primary driver in our contract logistics segment was the recently awarded specialty development project. Operating revenues included separately-identified fuel surcharges of $49.3 million in the first half 2024, compared to $62.6 million in the first half 2023. Also included in operating revenues were other accessorial charges such as detention, demurrage and storage, which totaled $16.6 million during the first half 2024 compared to $39.4 million one year earlier. Purchased transportation and equipment rent . Purchased transportation and equipment rent generally increases or decreases in proportion to the revenues generated through owner-operators and other third party providers. These fluctuations are generally correlated with changes in demand for transactional transportation-related services. The absolute decrease in purchased transportation and equipment rental costs was primarily the result of an overall decrease in transactional transportation-related services. In the first half 2024, transactional transportation-related service revenues decreased 12.3% compared to the prior year. Direct personnel and related benefits . Trends in direct personnel and benefit costs are generally correlated with changes in operating facilities and headcount requirements and, therefore, fluctuate correspondingly with the level of demand for our staffing needs in our contract logistics segment, which includes value-added services and dedicated transportation, as well as the use of employee drivers in certain of our intermodal operations. The decrease in the first half 2024 was due to a decrease in headcount in our value-added business. While generalizations about the impact of personnel and related benefits costs 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 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 element driving the change was an increase in the expenses incurred in connection with the recently awarded contract logistics specialty development project. Commission expense . Commission expense decreased due to decreased brokerage revenue in our agency-based truckload business. Occupancy expense . The decrease in occupancy expense was attributable to a decrease in building rents. This was partially offset by an increase in property taxes. General and administrative . The increase in general and administrative expense was primarily due to an increase in salaries, wages, and benefits as well as professional fees. Insurance and claims . The increase in insurance and claims expense was primarily due to an increase in auto liability premiums as well as an increase in cargo claims expense. This was partially offset by a decrease in auto liability claims expense. 23 Depreciation and amortization . The increase in depreciation and amortization expense resulted from a $16.6 million increase in depreciation expense and a $3.2 million increase in amortization expense. During the first half 2024, Universal revised the estimated useful life and salvage value of certain equipment, and these adjustments resulted in additional depreciation expense of $11.3 million during the period. Interest expense, net . The increase in net interest expense reflects an increase in our outstanding borrowings. As of June 29, 2024, our outstanding borrowings were $487.8 million compared to $382.0 million at July 1, 2023. Other non-operating income . Other non-operating income increased by $1.7 million in first half 2024 and includes a $0.8 million pre-tax holding gain on marketable securities due to changes in fair value recognized in income and a $0.8 million favorable legal settlement. Income tax expense . Our effective income tax rate was 25.2% in both the first half 2024 and 2023. The increase in income taxes is primarily the result of an increase in taxable income. Segment Financial Results We report our financial results in four distinct reportable segments: contract logistics, intermodal, trucking, and company-managed brokerage, which are based primarily on the services each segment provides. This presentation reflects the manner in which management evaluates our operating segments, including an evaluation of economic characteristics and applicable aggregation criteria. The following tables summarize information about our reportable segments for the thirteen week and twenty-six week periods ended June 29, 2024 and July 1, 2023 (in thousands): Operating Revenues Thirteen Weeks Ended Twenty-six Weeks Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Contract logistics $ 263,558 $ 208,802 $ 577,106 $ 420,098 Intermodal 78,069 91,585 154,784 202,611 Trucking 91,440 81,243 161,095 160,958 Company-managed brokerage 28,142 29,595 59,142 63,551 Other 955 1,347 1,943 2,750 Total operating revenues $ 462,164 $ 412,572 $ 954,070 $ 849,968 Income from Operations Thirteen Weeks Ended Twenty-six Weeks Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Contract logistics $ 52,901 $ 32,789 $ 134,367 $ 60,570 Intermodal (8,301 ) (246 ) (16,347 ) 6,565 Trucking 4,384 4,423 8,053 8,212 Company-managed brokerage (2,237 ) (786 ) (4,725 ) (1,160 ) Other 356 215 846 404 Total income from operations $ 47,103 $ 36,395 $ 122,194 $ 74,591 Thirteen Weeks Ended June 29, 2024 Compared to Thirteen Weeks Ended July 1, 2023 In the contract logistics segment, which includes our value-added and dedicated services, operating revenues increased 26.2%.The increase in operating revenues was primarily due to our recently awarded specialty development project. At the end of the second quarter 2024, we managed 68 value-added programs, unchanged from the second quarter 2023. Included in contract logistics segment revenues for the thirteen weeks ended June 29, 2024, were $8.0 million in separately identified fuel surcharges from dedicated transportation services, compared to $8.6 million in the same period last year. Income from operations increased $20.1 million and operating margin, as a percentage of revenue was 20.1% for the second quarter 2024, compared to 15.7% in the second quarter 2023. Operating revenues in the intermodal segment decreased 14.8% primarily due to a decrease in the average operating revenue per load and the number of loads hauled. Included in intermodal segment revenues for the second quarter 2024 were $10.9 million in separately identified fuel surcharges, compared to $13.6 million in the same period last year. Intermodal segment revenues also include other accessorial charges such as detention, demurrage and storage, which totaled $8.1 million during the second quarter 2024 compared to $13.4 million in the second quarter 2023. Load volumes declined 4.1%, while the average operating revenue per load, excluding fuel surcharges, fell 5.9% on a year-over-year basis. As a percentage of revenue, operating margin in the intermodal segment for the second quarter 2024 was (10.6)%, compared to (0.3)% one year earlier. 24 In the trucking segment, operating revenues increased 12.6% primarily due to an increase in the average revenue per load, excluding fuel surcharges. Second quarter 2024 trucking segment revenues included $25.5 million of brokerage services compared to $30.7 million during the same period last year. Also included in our trucking segment revenues were $5.7 million in separately identified fuel surcharges during the second quarter 2024 compared to $6.4 million in fuel surcharges in the second quarter 2023. On a year-over-year basis, load volumes declined 11.1%; however, the average operating revenue per load, excluding fuel surcharges, increased 28.5%, supported by our specialty, heavy-haul wind business. As a percentage of revenue, operating margin in the trucking segment for the thirteen weeks ended June 29, 2024, was 4.8% compared to 5.4% for the thirteen weeks ended July 1, 2023. Operating revenues in the company-managed brokerage segment decreased 4.9% primarily due to a decrease in the average operating revenue per load. On a year-over-year basis, average operating revenue per load in the company-managed brokerage segment decreased 21.9%. This was partially offset by a 20.1% increase in load volumes. As a percentage of revenue, operating margin for the second quarter 2024 was (7.9)% compared to (2.7)% during the same period last year. Twenty-six Weeks Ended June 29, 2024 Compared to Twenty-six Weeks Ended July 1, 2023 In the contract logistics segment, which includes our value-added and dedicated services, operating revenues increased 37.4%.The increase in operating revenues was primarily due to our recently awarded specialty development project. At the end of the first half 2024, we managed 68 value-added programs, unchanged from the first half 2023. Included in contract logistics segment revenues for the twenty-six weeks ended June 29, 2024, were $16.6 million in separately identified fuel surcharges from dedicated transportation services, compared to $18.3 million in the same period last year. Income from operations increased $73.8 million and operating margin, as a percentage of revenue was 23.3% for the first half 2024, compared to 14.4% in the first half 2023. Operating revenues in the intermodal segment decreased 23.6% primarily due to a decrease in the average operating revenue per load and the number of loads hauled. Included in intermodal segment revenues for the first half 2024 were $21.5 million in separately identified fuel surcharges, compared to $30.7 million in the same period last year. Intermodal segment revenues also include other accessorial charges such as detention, demurrage and storage, which totaled $16.6 million during the first half 2024 compared to $39.4 million in the first half 2023. Load volumes declined 9.3%, while the average operating revenue per load, excluding fuel surcharges, fell 3.1% on a year-over-year basis. As a percentage of revenue, operating margin in the intermodal segment for the first half 2024 was (10.6)%, compared to (3.2)% one year earlier. In the trucking segment, operating revenues increased 0.1% primarily due to an increase in the average revenue per load, excluding fuel surcharges. First half 2024 trucking segment revenues included $54.1 million of brokerage services compared to $65.4 million during the same period last year. Also included in our trucking segment revenues were $11.1 million in separately identified fuel surcharges during the first half 2024 compared to $13.5 million in fuel surcharges in the first half 2023. On a year-over-year basis, load volumes declined 9.1%; however, the average operating revenue per load, excluding fuel surcharges, increased 11.1%, supported by our specialty, heavy-haul wind business. As a percentage of revenue, operating margin in the trucking segment for the twenty-six weeks ended June 29, 2024, was 5.0% compared to 5.1% for the twenty-six weeks ended July 1, 2023. Operating revenues in the company-managed brokerage segment decreased 6.9% primarily due to a decrease in the average operating revenue per load. On a year-over-year basis, average operating revenue per load in the company-managed brokerage segment decreased 20.3%. This was partially offset by a 13.7% increase in load volumes. As a percentage of revenue, operating margin for the first half 2024 was (8.0)% compared to (1.8)% during the same period last year. 25 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. During the twenty-six weeks ended June 29, 2024, our capital expenditures totaled $145.7 million. These expenditures primarily consisted of transportation equipment, investments in support of our value-added service operations and the expansion of our terminal network. Our flexible business model depends somewhat on the customized solutions we implement for specific customers. As a result, our capital expenditures will depend on specific new contracts and the overall age and condition of our owned transportation equipment. Through the remainder of 2024, we expect our capital expenditures to be in the range of $170 million to $185 million. We expect to make these capital expenditures for the acquisition of transportation equipment, to support new and existing value-added service operations, to expand our owned terminal network, and for improvements to our existing terminal yard and container facilities. 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 2024. On July 25, 2024, our Board of Directors did declare the regular quarterly cash dividend of $0.105 per share of common stock payable October 1, 2024 to shareholders of record at the close of business on September 2, 2024. During the year ended December 31, 2023, we paid a total of $0.42 per common share, or $11.0 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. We continually evaluate our liquidity requirements and capital structure in light of our operating needs, growth initiatives and capital resources. The availability of financing or equity capital will depend upon our financial condition and results of operations as well as prevailing market conditions. If such additional borrowing, lease financing, or equity capital is not available at the time we need it, then we may need to borrow more under the Revolving Credit Facility (if not then fully drawn), extend the maturity of then-outstanding debt, or rely on alternative financing arrangements. There can be no assurance that we will be able to obtain additional debt under our existing financial arrangements to satisfy our ongoing capital requirements. However, we believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months. We also continually 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 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 June 29, 2024, we were in compliance with all its covenants, and $337.0 million was available for borrowing. Our 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 June 29, 2024, we were in compliance with all its covenants, and $5.0 million was available for borrowing. 26 A wholly owned subsidiary issued a series of promissory notes in order to finance transportation equipment. The notes 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 7.31%. 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 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 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 June 29, 2024, 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 June 29, 2024, and the maximum available borrowings were $5.8 million. Discussion of Cash Flows At June 29, 2024, we had cash and cash equivalents of $7.5 million compared to $12.5 million at December 31, 2023. Operating activities provided $46.4 million in net cash, financing activities provided an additional $95.8 million, and we used $144.6 million in investing activities. The $46.4 million in net cash provided by operations was primarily attributed to $83.2 million of net income, which reflects non-cash depreciation and amortization, noncash lease expense, gains on marketable equity securities, gains on equipment sales, amortization of debt issuance costs, stock-based compensation, provisions for credit losses totaling, and a change in deferred income taxes totaling $93.2 million, net. Net cash provided by operating activities also reflects an aggregate increase in net working capital totaling $129.9 million. The primary drivers behind the increase in working capital were principal reductions in operating lease liabilities during the period, increases in contract assets, trade and other receivables, and decreases in other long-term liabilities and income taxes payable. These were partially offset increases in trade accounts payable, accrued expenses and other current liabilities, and accruals for insurance and claims. Affiliate transactions decreased net cash provided by operating activities by $0.4 million. The decrease in net cash resulted from a decrease in accounts payable to affiliates of $0.3 million and an increase in accounts receivable from affiliates of $0.1 million. The $144.6 million in net cash used in investing activities consisted of $145.7 million in capital expenditures, which was partially offset by $1.1 million in proceeds from the sale of equipment. Financing activities provided $95.8 million in net cash during the twenty-six weeks ended June 29, 2024. We had outstanding borrowings totaling $487.8 million at June 29, 2024 compared to $386.4 million at December 31, 2023. During the period, we made payments on term loan and equipment and real estate notes totaling $59.6 million, borrowed $115.0 million for new equipment and had net borrowings on our revolving lines of credit totaling $46.1 million. During the period, we also paid cash dividends of $5.5 million and purchased $0.1 million of treasury stock. Off Balance Sheet Arrangements None. Critical Accounting Policies A summary of critical accounting policies is presented in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies,” of our Form 10-K for the year ended December 31, 2023. There have been no changes in our accounting policies during the thirteen weeks ended June 29, 2024. Seasonality Generally, demand for our value-added services delivered to existing customers increases during the second calendar quarter of each year as a result of the automotive industry’s spring selling season. Conversely, such demand generally decreases during the third quarter of each year due to the impact of scheduled OEM customer plant shutdowns in July for vacations and changeovers in production lines for new model years. Our value-added services business is also impacted in the fourth quarter by plant shutdowns during the December holiday period. Prolonged adverse weather conditions, particularly in winter months, can also adversely impact margins due to productivity declines and related challenges meeting customer service requirements. Additionally, our transportation services business, excluding dedicated transportation tied to specific customer supply chains, is generally impacted by decreased activity during the post-holiday winter season and, in certain states during hurricane season, because some shippers reduce their shipments and inclement weather impedes trucking operations or underlying customer demand. 27 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have not been any material changes to the Company’s market risk during the thirteen weeks ended June 29, 2024. For additional information, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.