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, 2024 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 incorporated in Nevada on May 1, 2025 and previously incorporated in Michigan on December 11, 2001. Our 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 with 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 company-managed facilities, and through a contract 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 in our intermodal and trucking 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. 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, 2024 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. New or increased tariffs on imported goods could also impose additional costs on our business or cause disruption in global supply chains. Such disruptions could lead to a decrease in shipping volumes, which would have an adverse impact on our revenues and results of operations. 19 While operating cash flows may be negatively impacted by inflation-driven cost increases or reductions in shipping volumes, 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 provided 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 categories for the thirteen weeks ended March 29, 2025 and March 30, 2024, presented as a percentage of total operating revenues: Thirteen Weeks Ended March 29, 2025 March 30, 2024 Operating revenues: Truckload services 9.9 % 8.5 % Brokerage services 5.3 12.1 Intermodal services 17.9 15.6 Dedicated services 22.2 18.0 Value-added services 44.7 45.8 Total operating revenues 100.0 % 100.0 % Results of Operations The following table sets forth items derived from our consolidated statements of income for the thirteen weeks ended March 29, 2025 and March 30, 2024: Thirteen Weeks Ended March 29, 2025 March 30, 2024 Percent Change in Dollar Amount (Dollars in millions) $ % $ % % Operating revenues $ 382,390 100.0 % $ 491,907 100.0 % (22.3 )% Operating expenses: Purchased transportation and equipment rent 79,743 20.9 124,633 25.3 (36.0 ) Direct personnel and related benefits 164,501 43.0 140,805 28.6 16.8 Operating supplies and expenses 51,328 13.4 92,824 18.9 (44.7 ) Commission expense 4,255 1.1 6,610 1.3 (35.6 ) Occupancy expense 11,253 2.9 10,568 2.1 6.5 General and administrative 13,177 3.4 13,507 2.7 (2.4 ) Insurance and claims 6,965 1.8 7,167 1.5 (2.8 ) Depreciation and amortization 35,488 9.3 20,701 4.2 71.4 Total operating expenses 366,710 95.9 416,815 84.7 (12.0 ) Income from operations 15,680 4.1 75,092 15.3 (79.1 ) Interest income (expense), net (8,224 ) (2.2 ) (6,079 ) (1.2 ) 35.3 Other non-operating income 578 0.2 1,104 0.2 (47.6 ) Income before income taxes 8,034 2.1 70,117 14.3 (88.5 ) Income tax expense 2,020 0.5 17,660 3.6 (88.6 ) Net income $ 6,014 1.6 % $ 52,457 10.7 % (88.5 )% 20 Thirteen Weeks Ended March 29, 2025 Compared to Thirteen Weeks Ended March 30, 2024 Operating revenues . The overall decrease in revenue was attributable to decreases in both our transportation and our logistics operations. Operating revenues in the first quarter 2025 included $56.4 million attributable to our recent acquisition of Parsec. First quarter 2024 revenues included $95.3 million attributable to our specialty development project in Stanton, TN, which was completed last year, and $29.4 million of revenue attributable to our now closed company-managed brokerage operation. First quarter 2025 operating revenues included separately-identified fuel surcharges of $20.9 million compared to $24.7 million in the first quarter 2024. Also included in operating revenues were other accessorial charges such as detention, demurrage and storage, which totaled $8.8 million during the first quarter 2025 compared to $8.5 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 first quarter 2025, transactional transportation-related service revenues decreased 29.1% 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 increase in the first quarter 2025 was due to an increase in headcount in our contract logistics business due to the acquisition of Parsec. 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 elements driving the decrease were expenses incurred in the prior year in connection with the contract logistics specialty development project, which was completed in 2024. 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. Insurance and claims . The decrease in insurance and claims expense was primarily due to a decrease in cargo claims. Depreciation and amortization . The increase in depreciation and amortization expense resulted from a $14.1 million increase in depreciation expense and a $0.7 million increase in amortization expense. Interest expense, net . The increase in net interest expense reflects an increase in our outstanding borrowings. As of March 29, 2025, our outstanding borrowings were $740.0 million compared to $418.4 million at March 30, 2024. Other non-operating income . Other non-operating income for the first quarter 2025 includes a $0.5 million pre-tax holding gain on marketable securities due to changes in fair value recognized in income compared to $1.0 million of pre-tax holding gains in the first quarter 2024. Income tax expense . Our effective income tax rate was 25.1% in the first quarter 2025 compared to 25.2% in the first quarter 2024. The decrease in income tax expense is primarily the result of a decrease in taxable income. 21 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 weeks ended March 29, 2025 and March 30, 2024 (in thousands): Operating Revenues Thirteen Weeks Ended March 29, 2025 March 30, 2024 Contract logistics $ 255,892 $ 313,548 Intermodal 70,697 78,363 Trucking 55,582 69,655 Other 219 30,341 Total operating revenues $ 382,390 $ 491,907 Income from Operations Thirteen Weeks Ended March 29, 2025 March 30, 2024 Contract logistics $ 23,859 $ 81,466 Intermodal (10,709 ) (8,292 ) Trucking 2,190 3,669 Other 340 (1,751 ) Total income from operations $ 15,680 $ 75,092 Thirteen Weeks Ended March 29, 2025 Compared to Thirteen Weeks Ended March 30, 2024 In the contract logistics segment, which includes our value-added and dedicated services, operating revenues decreased 18.4%. Operating revenues in the first quarter 2025 included $56.4 million from the recent acquisition of Parsec. First quarter 2024 revenues included $95.3 million attributable to our specialty development project in Stanton, TN, which was completed last year. At the end of the first quarter 2025, we managed 87 value-added programs, compared to 71 in the first quarter 2024. Included in contract logistics segment revenues for the thirteen weeks ended March 29, 2025, were $8.6 million in separately identified fuel surcharges from dedicated transportation services, unchanged from the same period last year. Income from operations decreased $57.6 million and operating margin, as a percentage of revenue was 9.3% for the first quarter 2025, compared to 26.0% in the first quarter 2024. Operating revenues in the intermodal segment decreased 9.8% primarily due to a decrease in the number of loads hauled and in the average operating revenue per load, excluding fuel surcharges. Included in intermodal segment revenues for the first quarter 2025 were $8.2 million in separately identified fuel surcharges, compared to $10.7 million in the same period last year. Intermodal segment revenues also include other accessorial charges such as detention, demurrage and storage, which totaled $8.8 million during the first quarter 2025 compared to $8.5 million in the first quarter 2024. Load volumes declined 3.4%, while the average operating revenue per load, excluding fuel surcharges, decreased 8.7% on a year-over-year basis. As a percentage of revenue, operating margin in the intermodal segment for the first quarter 2025 was (15.1)%, compared to (10.6)% one year earlier. In the trucking segment, operating revenues decreased 20.2% primarily due to a decrease in the number of loads hauled. This decrease was partially offset by an increase in the average operating revenue per load, excluding fuel surcharges. First quarter 2025 trucking segment revenues included $18.0 million of brokerage services compared to $28.6 million during the same period last year. Also included in our trucking segment revenues were $3.5 million in separately identified fuel surcharges during the first quarter 2025 compared to $5.4 million in fuel surcharges in the first quarter 2024. On a year-over-year basis, load volumes declined 31.3%; however, the average operating revenue per load, excluding fuel surcharges, increased 24.3%, supported by our specialty, heavy-haul wind business. As a percentage of revenue, operating margin in the trucking segment for the thirteen weeks ended March 29, 2025, was 3.9% compared to 5.3% for the thirteen weeks ended March 30, 2024. 22 Liquidity and Capital Resources Our primary uses of cash are working capital requirements, capital expenditures, dividend payments, share repurchases, and debt service requirements. Additionally, we may use cash for acquisitions and other investment and financing activities. Working capital is required principally to ensure we are able to run the business and have sufficient funds to satisfy maturing short-term debt and operational expenses. Our capital expenditures consist primarily of transportation equipment, investments in support of our value-added service operations and the expansion of our terminal network. Historically, our primary source of liquidity has been cash flow from operations. In addition, we have a $400 million revolving credit facility maturing in September 30, 2027, and we may increase the available capacity by $200 million upon our request. At March 29, 2025, $74.6 million was available for borrowing. Our UACL subsidiaries have credit facility maturing in September 30, 2027, which includes a $10 million revolver. At March 29, 2025, $10.0 million was available for borrowing. We also finance the purchase of transportation and certain operating equipment with promissory notes. The notes are secured by liens on the specific equipment and are generally payable in 60 to 72 monthly installments. We also have a $165.4 million term loan facility that matures in April 2032, and it is secured by first-priority mortgages on specific parcels of owned real estate. We also maintain a short-term line of credit secured by our portfolio of marketable securities. We did not have any amounts advanced against the line as of March 29, 2025, and the maximum available borrowings were $6.0 million. We anticipate that cash generated from operations, together with amounts available under our credit facilities, will be sufficient to meet our requirements for the foreseeable future. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that we will obtain these funds through additional borrowings, equity offerings, or a combination of these potential sources of liquidity. Our ability to fund future operating expenses and capital expenditures, as well as our ability to meet future debt service obligations or refinance our indebtedness, will depend on our future operating performance, which will be affected by general economic, financial, and other factors beyond our control. In the thirteen weeks ended March 29, 2025, our capital expenditures totaled $52.6 million. These expenditures primarily consisted of transportation equipment, investments in support of our value-added service operations and the expansion of our terminal network. Through the remainder of 2025, we expect our capital expenditures to be in the range of $100 million to $135 million. The following table presents our cash and cash equivalents, marketable securities, and outstanding debt and the present value of our operating lease liabilities as of March 29, 2025 and December 31, 2024 (in thousands): March 29, 2025 December 31, 2024 Cash and cash equivalents $ 20,602 $ 19,351 Marketable securities 11,989 11,590 Outstanding debt 740,049 762,641 Present value of operating lease liabilities 102,149 79,351 Debt At March 29, 2025, we were in compliance with all financial covenants under our credit agreements and the agreements governing our promissory notes. For additional information on our financing arrangements, see Item 1, Note 6 to the Unaudited Consolidated Financial Statements Discussion of Cash Flows At March 29, 2025, we had cash and cash equivalents of $20.6 million compared to $19.4 million at December 31, 2024. Operating activities provided $84.3 million in net cash while we used $51.5 million in investing activities and an additional $25.4 million in financing activities. 23 The $84.3 million in net cash provided by operations was primarily attributed to $6.0 million of net income, which reflects non-cash depreciation and amortization, noncash lease expense, gains on marketable equity securities, losses on equipment sales, amortization of debt issuance costs, stock-based compensation, provisions for credit losses, and a change in deferred income taxes totaling $40.9 million, net. Net cash provided by operating activities also reflects an aggregate decrease in net working capital totaling $37.4 million. The primary drivers behind the decrease in working capital were decreases in trade accounts receivable and contract assets, and increases in trade accounts payable, accruals for insurance and claims, and in income taxes payable. These were partially offset by principal reductions in operating lease liabilities during the period, increases in prepaid expenses and other receivables and decreases in accrued expenses and other current liabilities and in other long-term liabilities. Affiliate transactions increased net cash provided by operating activities by $1.2 million. The increase in net cash resulted from an increase in accounts payable to affiliates of $0.9 million and a decrease in accounts receivable from affiliates of $0.3 million. The $51.5 million in net cash used in investing activities consisted of $52.6 million in capital expenditures, which was partially offset by $0.9 million in proceeds from the sale of equipment and $0.1 million in proceeds from the sale of marketable securities. Financing activities used $25.4 million in net cash during the thirteen weeks ended March 29, 2025. We had outstanding borrowings totaling $740.0 million at March 29, 2025 compared to $762.6 million at December 31, 2024. During the period, we made payments on term loan and equipment and real estate notes totaling $42.4 million, borrowed $5.3 million for new equipment and had net borrowings on our revolving lines of credit totaling $14.5 million. During the period, we also paid cash dividends of $2.8 million. Off Balance Sheet Arrangements As of March 29, 2025, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources. 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, 2024. There have been no changes in our accounting policies during the thirteen weeks ended March 29, 2025. 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 March 29, 2025. For additional information, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.