Item 2. Management’s Discussion and Analysis
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 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 customers with a broad array of services across their entire supply chain, including value-added, dedicated, intermodal and trucking 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 both our company-managed operations and through a network of agents who solicit freight business directly from shippers. 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 contract logistics segment deliver value-added and/or dedicated transportation services to support in-bound logistics to industrial customers 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.
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.
21
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 thirty-nine weeks ended September 28, 2024 and September 30, 2023, presented as a percentage of total operating revenues:
Thirteen Weeks Ended
Thirty-nine Weeks Ended
September 28,
2024
September 30,
2023
September 28,
2024
September 30,
2023
Operating revenues:
Truckload services
14.9
%
16.5
%
12.5
%
13.2
%
Brokerage services
9.9
13.5
11.3
14.6
Intermodal services
17.7
20.6
16.7
22.8
Dedicated services
20.5
20.6
19.3
20.3
Value-added services
37.0
28.8
40.2
29.1
Total operating revenues
100.0
%
100.0
%
100.0
%
100.0
%
Results of Operations
Thirteen Weeks Ended September 28, 2024 Compared to Thirteen Weeks Ended September 30, 2023
The following table sets forth items derived from our consolidated statements of income for the thirteen weeks ended September 28, 2024 and September 30, 2023:
Thirteen Weeks Ended
September 28,
2024
September 30,
2023
Percent Change in Dollar Amount
(Dollars in millions)
$
%
$
%
%
Operating revenues
$
426,833
100.0
%
$
421,251
100.0
%
1.3
%
Operating expenses:
Purchased transportation and equipment rent
120,700
28.3
147,470
35.0
(18.2
)
Direct personnel and related benefits
132,081
30.9
134,866
32.0
(2.1
)
Operating supplies and expenses
60,532
14.2
43,060
10.2
40.6
Commission expense
6,985
1.6
8,334
2.0
(16.2
)
Occupancy expense
11,179
2.6
10,913
2.6
2.4
General and administrative
13,037
3.1
13,633
3.2
(4.4
)
Insurance and claims
5,681
1.3
6,828
1.6
(16.8
)
Depreciation and amortization
30,284
7.1
19,386
4.6
56.2
Impairment expense
3,720
0.9
—
—
n/m
Total operating expenses
384,199
90.0
384,490
91.3
(0.1
)
Income from operations
42,634
10.0
36,761
8.7
16.0
Interest income (expense), net
(7,416
)
(1.7
)
(6,495
)
(1.5
)
14.2
Other non-operating income
4
0.0
588
0.1
(99.3
)
Income before income taxes
35,222
8.3
30,854
7.3
14.2
Income tax expense
8,682
2.1
7,807
1.8
11.2
Net income
$
26,540
6.2
%
$
23,047
5.5
%
15.2
%
22
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 $21.9 million in the third quarter 2024, compared to $28.2 million in the third quarter 2023. Also included in operating revenues were other accessorial charges such as detention, demurrage and storage, which totaled $8.9 million during the third quarter 2024 compared to $9.9 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 third quarter 2024, transactional transportation-related service revenues decreased 14.8% 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 third quarter 2024 was due to a decrease in headcount in our intermodal 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 revenue in our agency-based truckload business.
Occupancy expense . The increase in occupancy expense was attributable to an increase in building rents and property taxes.
General and administrative . The decrease in general and administrative expense was primarily due to a decrease in salaries, wages, and benefits as well as professional fees.
Insurance and claims . The decrease in insurance and claims expense was primarily due to a decrease in cargo claims expense.
Depreciation and amortization . The increase in depreciation and amortization expense resulted from a $9.3 million increase in depreciation expense and a $1.6 million increase in amortization expense.
Impairment expense . The increase in impairment expense primarily relates to the goodwill impairment charges resulting from the closure of our company-managed brokerage operations.
Interest expense, net . The increase in net interest expense reflects an increase in our outstanding borrowings. As of September 28, 2024, our outstanding borrowings were $561.2 million compared to $392.0 million at September 30, 2023.
Other non-operating income . Other non-operating income decreased by $0.6 million in third quarter 2024.
Income tax expense . Our effective income tax rate was 24.6% in the third quarter 2024 compared to 25.3% in the third quarter 2023. The increase in income taxes is primarily the result of an increase in taxable income.
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Thirty-nine Weeks Ended September 28, 2024 Compared to Thirty-nine Weeks Ended September 30, 2023
The following table sets forth items derived from our consolidated statements of income for the thirty-nine weeks ended September 28, 2024 and September 30, 2023:
Thirty-nine Weeks Ended
September 28,
2024
September 30,
2023
Percent Change in Dollar Amount
(Dollars in millions)
$
%
$
%
%
Operating revenues
$
1,380,904
100.0
%
$
1,271,219
100.0
%
8.6
%
Operating expenses:
Purchased transportation and equipment rent
382,628
27.7
443,434
34.9
(13.7
)
Direct personnel and related benefits
408,381
29.6
412,004
32.4
(0.9
)
Operating supplies and expenses
216,914
15.7
130,351
10.3
66.4
Commission expense
22,485
1.6
24,149
1.9
(6.9
)
Occupancy expense
32,189
2.3
33,106
2.6
(2.8
)
General and administrative
41,242
3.0
38,967
3.1
5.8
Insurance and claims
20,722
1.5
20,795
1.6
(0.4
)
Depreciation and amortization
87,795
6.4
57,061
4.5
53.9
Impairment expense
3,720
0.3
—
—
n/m
Total operating expenses
1,216,076
88.1
1,159,867
91.2
4.8
Income from operations
164,828
11.9
111,352
8.8
48.0
Interest income (expense), net
(20,378
)
(1.5
)
(16,590
)
(1.3
)
22.8
Other non-operating income
2,007
0.1
885
(0.0
)
126.8
Income before income taxes
146,457
10.5
95,647
7.5
53.1
Income tax expense
36,726
2.6
24,159
1.9
52.0
Net income
$
109,731
7.9
%
$
71,488
5.6
%
53.5
%
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 $71.1 million in the thirty-nine weeks ended September 28, 2024, compared to $90.7 million in the thirty-nine weeks ended September 30, 2023. Also included in operating revenues were other accessorial charges such as detention, demurrage and storage, which totaled $23.3 million during the thirty-nine weeks ended September 28, 2024, compared to $47.5 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 thirty-nine weeks ended September 28, 2024, transactional transportation-related service revenues decreased 13.1% 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 thirty-nine weeks ended September 28, 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 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.
24
Insurance and claims . The decrease in insurance and claims expense was primarily due to an increase in auto liability claims expense.
Depreciation and amortization . The increase in depreciation and amortization expense resulted from a $26.0 million increase in depreciation expense and a $4.8 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.
Impairment expense . The increase in impairment expense primarily relates to the goodwill impairment charges resulting from the closure of our company-managed brokerage operations.
Interest expense, net . The increase in net interest expense reflects an increase in our outstanding borrowings. As of September 28, 2024, our outstanding borrowings were $561.2 million compared to $392.0 million at September 30, 2023.
Other non-operating income . Other non-operating income increased by $1.1 million in the thirty-nine weeks ended September 28, 2024 and includes a $0.9 million pre-tax holding gain on marketable securities due to changes in fair value recognized in income.
Income tax expense . Our effective income tax rate was 25.1% in thirty-nine weeks ended September 28, 2024, compared to 25.3% in the thirty-nine weeks ended September 30, 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 three distinct reportable segments: contract logistics, intermodal and trucking, 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 thirty-nine week periods ended September 28, 2024 and September 30, 2023 (in thousands):
Operating Revenues
Thirteen Weeks Ended
Thirty-nine Weeks Ended
September 28,
2024
September 30,
2023
September 28,
2024
September 30,
2023
Contract logistics
$
245,194
$
208,129
$
822,301
$
628,228
Intermodal
77,632
87,974
235,649
295,736
Trucking
87,047
97,085
248,142
258,043
Other
16,960
28,063
74,812
89,212
Total operating revenues
$
426,833
$
421,251
$
1,380,904
$
1,271,219
Income from Operations
Thirteen Weeks Ended
Thirty-nine Weeks Ended
September 28,
2024
September 30,
2023
September 28,
2024
September 30,
2023
Contract logistics
$
45,623
$
35,103
$
179,990
$
95,673
Intermodal
(1,127
)
(4,470
)
(18,058
)
2,568
Trucking
7,122
6,558
15,175
14,770
Other
(8,984
)
(430
)
(12,279
)
(1,659
)
Total income from operations
$
42,634
$
36,761
$
164,828
$
111,352
Thirteen Weeks Ended September 28, 2024 Compared to Thirteen Weeks Ended September 30, 2023
In the contract logistics segment, which includes our value-added and dedicated services, operating revenues increased 17.8%. The increase in operating revenues was primarily due to our recently awarded specialty development project. At the end of the third quarter 2024, we managed 70 value-added programs compared to 73 in the third quarter 2023. Included in contract logistics segment revenues for the thirteen weeks ended September 28, 2024, were $7.0 million in separately identified fuel surcharges from dedicated transportation services, compared to $9.1 million in the same period last year. Income from operations increased $10.5 million and operating margin, as a percentage of revenue was 18.6% for the third quarter 2024, compared to 16.9% in the third quarter 2023.
25
Operating revenues in the intermodal segment decreased 11.8% primarily due to a decrease in the number of loads hauled. Included in intermodal segment revenues for the third quarter 2024 were $10.0 million in separately identified fuel surcharges, compared to $12.7 million in the same period last year. Intermodal segment revenues also include other accessorial charges such as detention, demurrage and storage, which totaled $8.9 million during the third quarter 2024 compared to $9.9 million in the third quarter 2023. Load volumes declined 13.2%, while the average operating revenue per load, excluding fuel surcharges, increased 1.8% on a year-over-year basis. As a percentage of revenue, operating margin in the intermodal segment for the third quarter 2024 was (1.5)%, compared to (5.1)% one year earlier.
In the trucking segment, operating revenues decreased 10.3% primarily due to a decrease in the number of loads hauled. Third quarter 2024 trucking segment revenues included $24.3 million of brokerage services compared to $28.8 million during the same period last year. Also included in our trucking segment revenues were $4.8 million in separately identified fuel surcharges during the third quarter 2024 compared to $6.3 million in fuel surcharges in the third quarter 2023. On a year-over-year basis, load volumes declined 16.1%; however, the average operating revenue per load, excluding fuel surcharges, increased 9.3%, supported by our specialty, heavy-haul wind business. As a percentage of revenue, operating margin in the trucking segment for the thirteen weeks ended September 28, 2024, was 8.2% compared to 6.8% for the thirteen weeks ended September 30, 2023.
Thirty-nine Weeks Ended September 28, 2024 Compared to Thirty-nine Weeks Ended September 30, 2023
In the contract logistics segment, which includes our value-added and dedicated services, operating revenues increased 30.9%. The increase in operating revenues was primarily due to our recently awarded specialty development project. At the end of the third quarter 2024, we managed 70 value-added programs compared to 73 in the prior year. Included in contract logistics segment revenues for the thirty-nine weeks ended September 28, 2024, were $23.7 million in separately identified fuel surcharges from dedicated transportation services, compared to $27.4 million in the same period last year. Income from operations increased $84.3 million and operating margin, as a percentage of revenue was 21.9% for the thirty-nine weeks ended September 28, 2024, compared to 15.2% in the thirty-nine weeks ended September 30, 2023.
Operating revenues in the intermodal segment decreased 20.3% 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 thirty-nine weeks ended September 28, 2024 were $31.5 million in separately identified fuel surcharges, compared to $43.4 million in the same period last year. Intermodal segment revenues also include other accessorial charges such as detention, demurrage and storage, which totaled $23.3 million during the thirty-nine weeks ended September 28, 2024 compared to $47.5 million in the thirty-nine weeks ended September 30, 2023. Load volumes declined 10.6%, while the average operating revenue per load, excluding fuel surcharges, fell 1.4% on a year-over-year basis. As a percentage of revenue, operating margin in the intermodal segment for the thirty-nine weeks ended September 28, 2024 was (7.7)%, compared to 0.9% one year earlier.
In the trucking segment, operating revenues decreased 3.8% primarily due to a decrease in the number of loads hauled. Trucking segment revenues included $78.4 million of brokerage services compared to $94.2 million during the same period last year. Also included in our trucking segment revenues were $15.9 million in separately identified fuel surcharges during the thirty-nine weeks ended September 28, 2024 compared to $19.9 million in fuel surcharges in the thirty-nine weeks ended September 30, 2023. On a year-over-year basis, load volumes declined 11.4%; however, the average operating revenue per load, excluding fuel surcharges, increased 10.1%, supported by our specialty, heavy-haul wind business. As a percentage of revenue, operating margin in the trucking segment for the thirty-nine weeks ended September 28, 2024, was 6.1% compared to 5.7% for the thirty-nine weeks ended September 30, 2023.
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.
26
During the thirty-nine weeks ended September 28, 2024, our capital expenditures totaled $210.8 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 $105 million to $120 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 October 24, 2024, our Board of Directors did declare the regular quarterly cash dividend of $0.105 per share of common stock payable January 2, 2025 to shareholders of record at the close of business on December 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.
On September 30, 2024, we acquired all of the outstanding shares of Parsec, LLC, OB Leasing, LLC, and Parsec Intermodal of Canada Ltd. (collectively, “Parsec”). The cash purchase price was $193.6 million, subject to customary post-closing adjustments. We borrowed funds from our existing Revolving Credit Facility to finance the acquisition. After giving effect to the borrowings under the credit facility, the Company’s subsidiaries were in compliance with all of the facility’s covenants and approximately $81.7 million was available for borrowing on the revolver.
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 September 28, 2024, we were in compliance with all its covenants, and $291.0 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 September 28, 2024, we were in compliance with all its covenants, and $5.0 million was available for borrowing.
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 September 28, 2024, we were in compliance with all covenants under the facility.
27
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 September 28, 2024, and the maximum available borrowings were $5.9 million.
Discussion of Cash Flows
At September 28, 2024, we had cash and cash equivalents of $11.8 million compared to $12.5 million at December 31, 2023. Operating activities provided $52.6 million in net cash, financing activities provided an additional $166.4 million, and we used $219.0 million in investing activities.
The $52.6 million in net cash provided by operations was primarily attributed to $109.7 million of net income, which reflects non-cash depreciation and amortization, impairment expense, noncash lease expense, gains on marketable equity securities, losses on equipment sales, amortization of debt issuance costs, stock-based compensation, provisions for credit losses totaling, and a change in deferred income taxes totaling $141.1 million, net. Net cash provided by operating activities also reflects an aggregate increase in net working capital totaling $198.2 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 $2.8 million. The decrease in net cash resulted from a decrease in accounts payable to affiliates of $2.2 million and an increase in accounts receivable from affiliates of $0.6 million.
The $219.0 million in net cash used in investing activities primarily consisted of $210.8 million in capital expenditures and $10.0 million for the acquisition of East Texas Heavy Haul. These expenditures were partially offset by $1.8 million in proceeds from the sale of equipment.
Financing activities provided $166.4 million in net cash during the period. We had outstanding borrowings totaling $561.2 million at September 28, 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 $79.9 million, borrowed $162.7 million for new equipment and had net borrowings on our revolving lines of credit totaling $92.1 million. During the period, we also paid cash dividends of $8.3 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 September 28, 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.
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 September 28, 2024. For additional information, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.