What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-12 compared with 2021-11-12 · 105 added, 186 removed, 118 unchanged (71% of the section changed)

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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.

We are a leading asset-light provider of customized transportation and logistics solutions throughout the United States and in Mexico, Canada and Colombia.

We offer our customers a broad array of services across their entire supply chain, including truckload, brokerage, intermodal, dedicated and value-added services.

We 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.

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 a broad array 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.

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We also derive revenue from fuel surcharges, where separately identifiable, loading and unloading activities, equipment detention, container management and storage and other related services.

Operations in our intermodal, trucking and company-managed brokerage segments are associated with individual freight shipments coordinated by our agents and company-managed terminals.

In contrast, our contract logistics segment delivers value-added services and/or transportation services to specific customers on a dedicated basis, generally pursuant to contract terms of one year or longer.

Our segments are further distinguished by the amount of forward visibility we have into pricing and volumes, and also by the extent to which we dedicate resources and company-owned equipment.

Fees charged to customers by our full service international freight forwarding and customs house brokerage are based on the specific means of forwarding or delivering freight on a shipment-by-shipment basis.

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 regards 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, 2021 and the unaudited Consolidated Financial Statements and related notes contained in this Quarterly Report on Form 10-Q.

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Operating Revenues

We broadly group our services into the following categories:

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 associated with individual freight shipments coordinated by our agents and company-managed terminals, while our dedicated and value-added services to specific customers on a contractual basis, generally pursuant to contract terms of one year or longer .

The following table sets forth operating revenues resulting from each of these categories for the thirteen weeks and thirty-nine weeks ended October 2, 2021 and October 3, 2020, presented as a percentage of total operating revenues:

The following table sets forth operating revenues resulting from each of these categories for the thirteen weeks ended April 2, 2022 and April 3, 2021, presented as a percentage of total operating revenues:

Thirteen Weeks Ended

Thirty-nine Weeks Ended

Operating revenues:

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Results of Operations

The following table sets forth items derived from our consolidated statements of income for the thirteen weeks and thirty-nine weeks ended October 2, 2021 and October 3, 2020, presented as a percentage of operating revenues:

The following table sets forth items derived from our consolidated statements of income for the thirteen weeks ended April 2, 2022 and April 3, 2021, presented as a percentage of operating revenues:

Thirteen Weeks Ended

Thirty-nine Weeks Ended

Operating revenues:

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Income from operations

Interest and other non-operating income

(expense), net

Interest and other non-operating expense, net

Income before income taxes

Income tax expense

Thirteen Weeks Ended October 2, 2021 Compared to Thirteen Weeks Ended October 3, 2020

Thirteen Weeks Ended April 2, 2022 Compared to Thirteen Weeks Ended April 3, 2021

Operating revenues .

Operating revenues for the thirteen weeks ended October 2, 2021 increased $80.6 million, or 22.1%, to $445.6 million from $365.0 million for the thirteen weeks ended October 3, 2020.

Included in operating revenues are separately-identified fuel surcharges of $24.9 million for the thirteen weeks ended October 2, 2021 compared to $16.4 million for the thirteen weeks ended October 3, 2020.

Consolidated income from operations decreased $5.3 million, or 24.2%, to $16.7 million for the third quarter 2021 compared to $22.1 million during the same period last year.

Results for the thirteen weeks ended October 2, 2021 include $5.8 million in litigation related charges and $7.1 million of losses incurred in connection with a recent contract logistics program launch.

In the contract logistics segment, which includes value-added and dedicated services, operating revenues increased $29.2 million, or 22.9%, to $156.9 million in the third quarter 2021 compared to $127.7 million in the previous year.

At the end of the third quarter 2021, Universal managed 61 value-added programs, compared to 57 programs at the end of the third quarter 2020.

During the recently completed quarter, dedicated transportation load count decreased 14.7% to 137,127 from 160,694 in the third quarter 2020.

Income from operations in the contract logistics segment decreased $5.6 million to $6.0 million for the thirteen weeks ended October 2, 2021 compared to $11.6 million in the same period last year.

Third quarter 2021 results in the contract logistics segment include $7.1 million of losses incurred in connection with a previously announced program launch.

As a percentage of revenue, operating margin in the contract logistics segment for the third quarter 2021 was 3.8% compared to 9.1% during the same period last year.

Recent program awards were the primary drivers for increased revenue;

however, lost production due to chip shortages, labor constraints, and an unfavorable operating environment led to compressed margins during the third quarter 2021.

In the intermodal segment, operating revenues increased $26.5 million, or 28.0%, to $121.0 million in the third quarter 2021 compared to $94.5 million in the previous year.

Intermodal revenues for the thirteen weeks ended October 2, 2021 included $13.2 million in separately identified fuel surcharges, compared to $9.4 million in the same period last year.

During the third quarter 2021, Universal moved 159,428 intermodal loads compared to 182,803 in the third quarter 2020, a decrease of 12.8%, while its average operating revenue per load, excluding fuel surcharges, increased 20.9% to $537 from $444.

Additionally, other assessorial charges such as detention, demurrage and storage increased $13.4 million during the third quarter 2021.

Income from operations in the intermodal segment decreased $6.9 million to $1.9 million for the thirteen weeks ended October 2, 2021 compared to $8.8 million in the third quarter 2020.

Intermodal segment results included litigation related charges totaling $5.8 million in the third quarter 2021.

As a percentage of revenue, operating margin in the intermodal segment decreased to 1.6% compared to 9.4% in the third quarter of 2020.

In the trucking segment, which includes agent-based and company-managed trucking operations, operating revenues increased $24.2 million to $107.2 million in the third quarter 2021 compared to $82.9 million in the prior year period.

Included in trucking segment revenues for the third quarter 2021 were $6.5 million in separately identified fuel surcharges compared to $3.6 million during the third quarter 2020.

Income from operations in the trucking segment increased $2.1 million to $6.8 million for the third quarter 2021 compared to $4.8 million in the same period last year.

During the recently completed quarter, load volumes increased 12.4% to 72,549 loads compared to 64,552 during the same period last year.

Universal’s average operating revenue per load, excluding fuel surcharges, also increased 13.6% to $1,417 from $1,247 in the prior year period.

As a percentage of revenue, operating margin in the trucking segment for the third quarter 2021 was 6.4% compared to 5.8% for the third quarter 2020.

In the company-managed brokerage segment, operating revenues decreased $0.4 million, or 0.6%, to $59.2 million in the thirteen weeks ending October 2, 2021 compared to $59.6 million in the thirteen weeks ending October 3, 2020.

Income from operations in the company-managed brokerage segment increased $5.0 million to $1.8 million for the third quarter 2021 from an operating loss of $3.2 million for the third quarter 2020.

Average operating revenue per load, excluding fuel surcharges, increased 18.9% to $1,808 in the third quarter 2021 from $1,521 in the third quarter 2020.

Company-managed brokerage load volumes decreased 17.4% to 30,619 from 37,079.

As a percentage of revenue, operating margin for the company-managed brokerage segment was 3.0% for the third quarter 2021 compared to (5.4%) in the same period last year.

Operating revenues for the thirteen weeks ended April 2, 2022 increased $108.6 million, or 26.2%, to $523.9 million from $415.2 million for the thirteen weeks ended April 3, 2021.

Included in operating revenues are separately-identified fuel surcharges of $34.6 million for the thirteen weeks ended April 2, 2022 compared to $20.2 million for the thirteen weeks ended April 3, 2021.

Consolidated income from operations increased $26.7 million, or 85.7%, to $57.8 million for the first quarter 2022 compared to $31.2 million during the same period last year.

In the contract logistics segment, which includes value-added and dedicated services, operating revenues increased $46.7 million, or 30.1%, to $201.6 million in the first quarter 2022 compared to $154.9 million in the previous year.

Income from operations in the contract logistics segment increased $6.7 million, or 39.6%, to $23.5 million for the thirteen weeks ended April 2, 2022 compared to $16.8 million in the same period last year.

In the first quarter of 2022, Universal managed 63 value-added programs compared to 60 in the prior year period.

During the recently completed quarter, dedicated transportation load count increased 1.2% to 158,219 from 156,375 in the first quarter 2021.

Dedicated transportation also grew as the result of new business wins, including a major shuttle operation, as well as repricing existing customer contracts.

Also included in dedicated transportation revenue for the first quarter 2022 were $8.8 million in separately identified fuel surcharges, compared to $4.9 million in the same period last year.

As a percentage of revenue, operating margin in the contract logistics segment for the first quarter 2022 was 11.6% compared to 10.9% during the same period last year.

In the intermodal segment, operating revenues increased $53.9 million to $157.6 million in the first quarter 2022 compared to $103.7 million in the previous year.

Intermodal revenues for the thirteen weeks ended April 2, 2022 included $18.2 million in separately identified fuel surcharges, compared to $10.2 million in the same period last year.

During the first quarter 2022, Universal moved 154,207 intermodal loads compared to 179,905 in the first quarter 2021, a decrease of 14.3%, while its average operating revenue per load, excluding fuel surcharges increased 51.2% to $697 from $461.

Intermodal segment revenues also include accessorial charges such as detention, demurrage and storage which totaled $36.2 million during the first quarter 2022, compared to $11.0 million one year earlier.

Income from operations in the intermodal segment increased $14.5 million to $23.0 million for the thirteen weeks ended April 2, 2022 compared to $8.5 million in the first quarter 2021.

As a percentage of revenue, operating margin in the intermodal segment for the first quarter 2022 was 14.6%, compared to 8.2% during the same period last year.

In the trucking segment, operating revenues increased $2.6 million to $97.5 million in the first quarter 2022 compared to $94.9 million in the prior year period.

Included in trucking segment revenues for the first quarter 2022 were $7.5 million in separately identified fuel surcharges compared to $5.1 million during the first quarter 2021.

Income from operations in the trucking segment increased $2.2 million to $7.4 million for the first quarter 2022 compared to $5.2 million in the same period last year.

During the recently completed quarter, Universal’s average operating revenue per load, excluding fuel surcharges, increased 41.4% to $1,762 from $1,246 in the prior year period;

however, this increase was partially offset by a 30.1% decrease in load volumes.

During the first quarter 2022, Universal moved 50,860 loads compared to 72,744 during the same period last year.

As a percentage of revenue, operating margin in the trucking segment for the first quarter 2022 was 7.6%, compared to 5.5% during the same period last year.

In the company-managed brokerage segment, operating revenues increased $4.1 million, or 6.7%, to $65.2 million in the thirteen weeks ending April 2, 2022 compared to $61.1 million in the thirteen weeks ending April 3, 2021.

During the recently completed quarter, the average operating revenue per load increased 25.3% to $2,176 from $1,737 in the first quarter 2021;

however, load volumes fell 25.2% to 24,610 from 32,885.

As a percentage of revenue, operating margin for the company-managed brokerage segment was 5.9% for the first quarter 2022 compared to 0.7% in the same period last year.

Purchased transportation and equipment rent .

Purchased transportation and equipment rental costs for the third quarter 2021 increased $35.7 million, or 20.1%, to $212.9 million from $177.2 million during the same period last year.

Purchased transportation and equipment rent generally increases or decreases in proportion to the revenues generated through owner-operators and other third party providers, and is generally correlated with changes in demand for transportation-related services, which includes truckload, brokerage, intermodal and to a lesser extent, dedicated services, which uses a higher mix of company-drivers compared to owner-operators.

The absolute increase in purchased transportation and equipment rental costs was primarily the result of an increase in transportation-related service revenues.

Third quarter 2021 transportation-related service revenues increased 23.0% compared to the third quarter of 2020.

As a percentage of operating revenues, purchased transportation and equipment rent expense decreased to 47.8% compared to 48.6% during the same period last year.

The decrease was due to a decrease in the mix of brokerage services revenue, where the cost of transportation is typically higher than our other transportation businesses.

As a percentage of total revenues, brokerage services revenue decreased to 22.9% for the thirteen weeks ended October 2, 2021 compared to 24.8% in the same period last year.

Purchased transportation and equipment rental costs for the first quarter 2022 increased $42.8 million, or 22.6%, to $232.1 million from $189.3 million during the same period last year.

Purchased transportation and equipment rent generally increases or decreases in proportion to the revenues generated through owner-operators and other third party providers.

The increases or decreases are generally correlated with changes in demand for transportation-related services, which includes truckload, brokerage, intermodal and to a lesser extent, dedicated services, which uses a higher mix of company-drivers compared to owner-operators.

The absolute increase in purchased transportation and equipment rental costs was primarily the result of an overall increase in transportation-related services.

First quarter 2022 transportation-related service revenues increased 29.0% compared to the first quarter of 2021.

As a percentage of operating revenues, purchased transportation and equipment rent expense decreased to 44.3% compared to 45.6% during the same period last year was due to a decrease in the mix of brokerage services revenue, where the cost of transportation is typically higher than our other transportation businesses.

As a percentage of total revenues, brokerage services revenue decreased to 20.5% for 2021 compared to 23.3% in the same period last year.

Direct personnel and related benefits .

Direct personnel and related benefits for the thirteen weeks ended October 2 , 2021 increased by $29.5 million, or 33.2%, to $118.4 million compared to $88.9 million during the same period last year.

Trends in these expenses are generally correlated with changes in operating facilities and headcount requirements and, therefore, increase and decrease with the level of demand for our value-added services and staffing needs of our operations.

The increase was due to the launch of new business wins as well as the impact of temporary layoffs and furloughs in 2020 in response to the Covid-19 pandemic.

As a percentage of operating revenues, personnel and related benefits increased to 26.6% for the thirteen weeks ended October 2 , 2021, compared to 24.4% for the thirteen weeks ended October 3 , 2020.

Direct personnel and related benefits for the thirteen weeks ended April 2, 2022 increased by $29.1 million, or 27.1%, to $136.7 million compared to $107.6 million during the same period last year.

Trends in these expenses are generally correlated with changes in operating facilities and headcount requirements and, therefore, increase and decrease with the level of demand for our staffing needs in our contract logistics segment, which includes value-added services and dedicated transportation.

The increase was due to the launch of new business wins and robust volumes experienced at our contract logistics operations during the current quarter.

As a percentage of operating revenues, personnel and related benefits increased to 26.1% for the thirteen weeks ended April 2, 2022, compared to 25.9% for the thirteen weeks ended April 3, 2021.

The percentage is derived on an aggregate basis from both existing and new programs, and from customer operations at various stages in their lifecycles.

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Operating supplies and expenses .

Operating supplies and expenses increased by $12.8 million, or 41.3%, to $43.8 million for the thirteen weeks ended October 2, 2021 compared to $31.0 million for the thirteen weeks ended October 3, 2020.

Operating supplies and expenses increased by $5.0 million, or 13.6%, to $42.1 million for the thirteen weeks ended April 2, 2022 compared to $37.1 million for the thirteen weeks ended April 3, 2021.

These expenses include items such as fuel, maintenance, cost of materials, communications, utilities and other operating expenses, and generally relate to fluctuations in customer demand.

The main elements of the increase included increases of $8.7 million in fuel expense, $4.9 million in legal charges and professional fees, $2.0 million in vehicle and other maintenance, and $1.8 million in travel and entertainment.

The main elements driving the change were increases of $7.8 million in fuel expense on Company tractors and $2.6 million in professional fees.

These increases were partially offset by decreases of $2.7 million in operating supplies and material costs in operations supporting heavy truck programs and $3.3 million in other operating expenses.

Commission expense .

Commission expense for the third quarter 2021 increased by $2.3 million, or 34.5%, to $9.1 million from $6.8 million for the third quarter 2020.

Commission expense for the first quarter 2022 increased by $2.7 million, or 36.9%, to $10.0 million from $7.3 million for the first quarter 2021.

Commission expense increased due to increased revenue in the agency based truckload business.

As a percentage of operating revenues, commission expense increased to 2.0% for the thirteen weeks ending October 2, 2021, compared to 1.9% one year earlier.

As a percentage of operating revenues, commission expense increased to 1.9% for the thirteen weeks ending April 2, 2022, compared to 1.8% one year earlier.

Occupancy expense .

Occupancy expenses increased by $0.7 million, or 7.6%, to $9.3 million for the thirteen weeks ended October 2, 2021.

This compares to $8.7 million for the thirteen weeks ended October 3, 2020.

The increase was attributable to an increase in building rents and property taxes.

Occupancy expenses increased by $2.0 million, or 24.6%, to $10.2 million for the thirteen weeks ended April 2, 2022.

This compares to $8.2 million for the thirteen weeks ended April 3, 2021.

The increase was primarily attributable to an increase in building rents.

General and administrative .

General and administrative expense for the thirteen weeks ended October 2, 2021 increased by $2.4 million to $11.0 million from $8.6 million in the thirteen weeks ended October 3, 2020.

The increase was attributable to a $0.9 million increase in salaries, wages, and benefits, a $0.8 million increase in professional fees, and a $0.6 million increase in other general and administrative expenses.

As a percentage of operating revenues, general and administrative expense was 2.5% for the third quarter 2021 compared to 2.4% for the third quarter 2020.

General and administrative expense for the thirteen weeks ended April 2, 2022 increased by $0.9 million to $10.1 million from $9.2 million in the thirteen weeks ended April 3, 2021.

The increase was attributable to a $0.7 million increase in salaries and a $0.1 million increase in other general and administrative expenses.

As a percentage of operating revenues, general and administrative expense was 1.9% for the first quarter 2022 compared to 2.2% for the first quarter 2021.

Insurance and claims .

Insurance and claims expense for the third quarter 2021 increased by $3.0 million to $7.9 million from $4.9 million in the third quarter 2020.

The increase was attributable to an increase in auto liability premiums and cargo and service failure claims.

As a percentage of operating revenues, insurance and claims increased to 1.8% for the thirteen weeks ending October 2, 2021 compared to 1.3% for the third quarter 2020.

Insurance and claims expense for the first quarter 2022 increased by $2.2 million to $8.6 million from $6.3 million in the first quarter 2021.

As a percentage of operating revenues, insurance and claims increased to 1.6% for the thirteen weeks ending April 2, 2022 compared to 1.5% for the first quarter 2021.

The increase was attributable to a $2.8 million increase in cargo and service failure claims.

This was partially offset by a $0.5 million decrease in auto liability premiums and contractor insurance.

Depreciation and amortization .

Depreciation and amortization expense for the thirteen weeks ended October 2, 2021 decreased by $0.4 million, or 2.6%, to $16.5 million from $16.9 million for the third quarter 2020.

Depreciation and amortization expense for the thirteen weeks ended April 2, 2022 decreased by $2.9 million, or 15.0%, to $16.2 million from $19.1 million for 2021.

Depreciation expense decreased $3.0 million and amortization expense increased $0.1 million.

Interest expense, net .

Net interest expense was $3.0 million for the thirteen weeks ended October 2, 2021 compared to $3.5 million for the thirteen weeks ended October 3, 2020.

The decrease in net interest expense reflects a decrease in interest rates on our outstanding borrowings.

As of October 2, 2021, our outstanding borrowings totaled $444.8 million compared to $468.3 million at the same time last year.

Other non-operating income (expense) .

Other non-operating expense was $0.1 million for the third quarter 2021 compared to other non-operating expense of $0.5 million for the third quarter 2020.

Included in other non-operating income for the third quarter 2021 was a $0.1 million pre-tax holding loss on marketable securities due to changes in fair value recognized in income compared to a $0.5 million pre-tax holding loss on marketable securities in the third quarter 2020.

Income tax expense .

Income tax expense for the third quarter 2021 was $3.3 million, compared to $4.5 million for the third quarter 2020, based on an effective tax rate of 24.5% and 24.8% respectively.

The decrease in income taxes in 2021 is the result of a decrease in taxable income and our effective tax rate for the thirteen weeks ended October 2, 2021 compared to the thirteen weeks ended October 3, 2020.

Thirty-nine Weeks Ended October 2 , 2021 Compared to Thirty-nine Weeks Ended October 3 , 2020

Operating revenues .

Operating revenues for the thirty-nine weeks ended October 2, 2021 increased $278.5 million, or 27.7%, to $1,283.6 million from $1,005.1 million for the thirty-nine weeks ended October 3, 2020.

Included in operating revenues are separately-identified fuel surcharges of $68.0 million for the thirty-nine weeks ended October 2, 2021 compared to $51.9 million for the thirty-nine weeks ended October 3, 2020.

Consolidated income from operations increased $22.4 million, or 39.4%, to $79.2 million for the first three quarters of 2021 compared to $56.8 million during the same period last year.

Results for the thirty-nine weeks ended October 3, 2020 were negatively impacted by the Covid-19 pandemic which resulted in a substantial portion of our customers being shuttered.

Results for the thirty-nine weeks ended October 2, 2021 include a favorable legal settlement which resulted in a $5.7 million pre-tax gain, $7.6 million in legal charges, and $13.9 million of losses incurred in connection with a recent contract logistics program launch.

In the contract logistics segment, which includes value-added and dedicated services, operating revenues increased $140.1 million, or 42.9%, to $466.6 million in the thirty-nine weeks ended October 2, 2021 compared to $326.5 million in the previous year.

Income from operations in the contract logistics segment increased $14.7 million, or 61.3%, to $38.7 million for the thirty-nine weeks ended October 2, 2021 compared to $24.0 million in the same period last year.

In the thirty-nine weeks ended October 2, 2021, Universal managed 61 value-added programs compared to 57 in the prior year period.

During the thirty-nine weeks ended October 2, 2021, dedicated transportation load count increased 25.6% to 449,621 from 357,912 in the thirty-nine weeks ended October 3, 2020.

Results for the thirty-nine weeks ended October 2, 2021 in the contract logistics segment include approximately $13.9 million of losses incurred in connection with a recent program launch.

Results in the contract logistics segment for the thirty-nine weeks ended October 3, 2020 were negatively impacted by the Covid-19 pandemic which resulted in a substantial portion of our customers being shuttered As a percentage of revenue, operating margin for the contract logistics segment for the thirty-nine weeks ended October 2, 2021 was 8.3% compared to 7.4% during the same period last year.

In the intermodal segment, operating revenues increased $43.6 million to $331.3 million in the thirty-nine weeks ending October 2, 2021 compared to $287.7 million in the previous year.

Intermodal revenues for the thirty-nine weeks ended October 2, 2021 included $35.2 million in separately identified fuel surcharges, compared to $31.2 million in the same period last year.

During the thirty-nine weeks ending October 2, 2021, Universal moved 508,352 intermodal loads compared to 537,365 in the thirty-nine weeks ending October 3, 2020, a decrease of 5.4%, while its average operating revenue per load, excluding fuel surcharges increased 7.8% to $500 from $464.

In the thirty-nine weeks ending October 2, 2021 other accessorial charges such as detention, demurrage and storage increased $29.3 million from the same period last year.

Income from operations in the intermodal segment decreased $6.0 million to $16.6 million for the thirty-nine weeks ended October 2, 2021 compared to $22.6 million in the thirty-nine weeks ending October 3, 2020.

Intermodal segment results included litigation related charges totaling $7.6 million in the third quarter 2021.

As a percentage of revenue, operating margin in the intermodal segment was 5.0% in the thirty-nine weeks ended October 2, 2021 compared to 7.8% in the prior year period.

In the trucking segment, which includes agent-based and company-managed trucking operations, operating revenues increased $64.3 million to $301.8 million in the thirty-nine weeks ending October 2, 2021 compared to $237.5 million in the prior year period.

Included in trucking segment revenues for the thirty-nine weeks ending October 2, 2021 were $17.6 million in separately identified fuel surcharges compared to $12.4 million during the thirty-nine weeks ending October 3, 2020.

Income from operations in the trucking segment increased $5.6 million to $18.5 million for the thirty-nine weeks ended October 2, 2021 compared to $12.9 million in the same period last year.

During the thirty-nine weeks ended October 2, 2021, load volumes increased 15.1% to 220,938 loads compared to 191,990 in the thirty-nine weeks ending October 3, 2020.

Average operating revenue per load, excluding fuel surcharges, also increased 8.8% to $1,319 from $1,212 in the prior year period.

As a percentage of revenue, operating margin in the trucking segment was 6.1% in the thirty-nine weeks ending October 2, 2021 compared to 5.4% in the same period last year.

In the company-managed brokerage segment, operating revenues increased $28.5 million, or 18.7%, to $180.8 million in the thirty-nine weeks ending October 2, 2021 compared to $152.3 million in the thirty-nine weeks ending October 3, 2020.

Company-managed brokerage load volumes decreased 15.3% to 94,510 from 111,622.

However, average operating revenue per load, excluding fuel surcharges, increased 40.7% to $1,807 in the thirty-nine weeks ending October 2, 2021 from $1,284 in the thirty-nine weeks ending October 3, 2020.

As a percentage of revenue, operating margin for the company-managed brokerage segment was 2.6% for the thirty-nine weeks ending October 2, 2021 compared to (1.9%) in the same period last year.

Purchased transportation and equipment rent .

Purchased transportation and equipment rental costs for the thirty-nine weeks ending October 2 , 2021 increased $113.6 million, or 23.3%, to $600.3 million from $486.7 million during the same period last year.

The absolute increase in purchased transportation and equipment rental costs was primarily the result of an increase in transportation-related service revenues.

In the thirty-nine weeks ended October 2 , 2021, transportation-related service revenues increased 26.0% compared to the thirty-nine weeks ended October 3 , 2020.

As a percentage of operating revenues, purchased transportation and equipment rent expense decreased to 46.8% compared to 48.4% during the same period last year.

The decrease was due to a decrease in the mix of transportation-related service revenue.

As a percentage of total revenues, transportation-related service revenue decreased to 75.3% for the thirty-nine weeks ended October 2 , 2021 compared to 76.4% in the same period last year.

Direct personnel and related benefits .

Direct personnel and related benefits for the thirty-nine weeks ended October 2, 2021 increased by $93.1 million, or 38.2%, to $336.9 million compared to $243.9 million during the same period last year.

The increase was due to the launch of new business wins and robust volumes in our contract logistics segment in 2021, as well as the impact of temporary layoffs and furloughs in 2020 in response to the Covid-19 pandemic.

As a percentage of operating revenues, personnel and related benefits increased to 26.2% for the thirty-nine weeks ended October 2, 2021, compared to 24.3% for the thirty-nine weeks ended October 3, 2020.

The percentage is derived on an aggregate basis from both existing and new programs, and from customer operations at various stages in their lifecycles.

Individual operations may be impacted by additional production shifts or by overtime at selected operations.

While generalizations about the impact of personnel and related benefits costs as a percentage of total revenue are difficult, we manage compensation and staffing levels, including the use of contract labor, to maintain target economics based on near-term projections of demand for our services.

Operating supplies and expenses .

Operating supplies and expenses increased by $35.0 million, or 44.4%, to $113.6 million for the thirty-nine weeks ended October 2, 2021 compared to $78.7 million for the thirty-nine weeks ended October 3, 2020.

These expenses include items such as fuel, maintenance, cost of materials, communications, utilities and other operating expenses, and generally relate to fluctuations in customer demand.

The main elements of the increase included increases of $19.9 million in fuel expense, $6.6 million in legal charges and professional fees, $6.6 million in vehicle and other maintenance, $3.8 million in travel and entertainment, and $1.2 million in operating supplies and material costs in operations supporting heavy-truck programs.

Commission expense .

Commission expense for the thirty-nine weeks ended October 2, 2021 increased by $6.0 million, or 31.8%, to $25.0 million from $19.0 million for the thirty-nine weeks ended October 3, 2020.

Commission expense increased due to increased revenue in the agency based truckload business.

As a percentage of operating revenues, commission expense was unchanged at 1.9% for both the thirty-nine weeks ending October 2, 2021 and October 3, 2020.

Occupancy expense .

Occupancy expenses increased by $0.4 million, or 1.6%, to $26.9 million for the thirty-nine weeks ended October 2, 2021.

This compares to $26.5 million for the thirty-nine weeks ended October 3, 2020.

The increase was primarily attributable to an increase in property taxes.

General and administrative .

General and administrative expense for the thirty-nine weeks ended October 2, 2021 increased by $5.8 million to $29.9 million from $24.1 million in the thirty-nine weeks ended October 3, 2020.

The increase was attributable to a $4.1 million increase in salaries, wages, and benefits and a $1.4 million increase in professional fees.

As a percentage of operating revenues, general and administrative expense was 2.3% for the thirty-nine weeks ended October 2, 2021 compared to 2.4% for the thirty-nine weeks ended October 3, 2020.

Insurance and claims .

Insurance and claims expense for the thirty-nine weeks ended October 2, 2021 increased by $5.3 million to $20.0 million from $14.7 million in the thirty-nine weeks ended October 3, 2020.

The increase was attributable to increases of $4.0 million in cargo and service failure claims and $1.4 million in auto liability premiums and claims.

As a percentage of operating revenues, insurance and claims increased to 1.6% for the thirty-nine weeks ending October 2, 2021 compared to 1.5% for the thirty-nine weeks ended October 3, 2020.

Depreciation and amortization .

Depreciation and amortization expense for the thirty-nine weeks ended October 2, 2021 decreased by $3.1 million, or 5.6%, to $51.9 million from $54.9 million for 2020.

Depreciation expense decreased $2.1 million and amortization expense decreased $0.9 million.

Interest expense, net .

Net interest expense was $9.1 million for the thirty-nine weeks ended October 2, 2021 compared to $11.2 million for the thirty-nine weeks ended October 3, 2020.

The decrease in net interest expense reflects a decrease in interest rates on our outstanding borrowings.

As of October 2, 2021, our outstanding borrowings totaled $444.8 million compared to $468.3 million at the same time last year.

Net interest expense was $2.4 million for the thirteen weeks ended April 2, 2022 compared to $3.2 million for the thirteen weeks ended April 3, 2021.

The decrease in net interest expense reflects a decrease in our outstanding borrowings as well as a decrease in interest rates on our outstanding borrowings.

As of April 3, 2022, our outstanding borrowings totaled $402.7 million compared to $430.5 million at the same time last year.

Other non-operating income (expense) .

Other non-operating income was $7.0 million for the thirty-nine weeks ended October 2, 2021 compared to $3.3 million of other non-operating expense for the thirty-nine weeks ended October 3, 2020.

Other non-operating income for thirty-nine weeks ended October 2, 2021 includes a $5.7 million pre-tax gain from a favorable legal settlement.

Other non-operating income for the thirty-nine weeks ended October 2, 2021 also includes a $1.2 million pre-tax holding gain on marketable securities due to changes in fair value recognized in income compared to a pre-tax holding loss of $3.0 million in the thirty-nine weeks ended October 3, 2020.

Other non-operating income was $1.0 million for the first quarter 2022, unchanged from the prior year.

Other non-operating income for the first quarter 2022 includes a $0.9 million pre-tax holding gain on marketable securities due to changes in fair value recognized in income compared $1.0 million in the first quarter 2021.

Income tax expense .

Income tax expense for the thirty-nine weeks ended October 2, 2021 was $19.5 million, compared to $10.5 million for the thirty-nine weeks ended October 3, 2020, based on an effective tax rate of 25.3% and 24.7% respectively.

The increase in income taxes in 2021 is the result of an increase in taxable income and our effective tax rate for the thirty-nine weeks ended October 2, 2021 compared to the thirty-nine weeks ended October 3, 2020.

Income tax expense for the first quarter 2022 was $14.4 million, compared to $7.3 million for the first quarter 2021, based on an effective tax rate of 25.5% and 25.3% respectively.

The increase in income taxes in 2022 is the result of an increase in taxable income and our effective tax rate for the thirteen weeks ended April 2, 2022 compared to the thirteen weeks ended April 3, 2021.

Liquidity and Capital Resources

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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 thirty-nine weeks ended October 2, 2021, our capital expenditures totaled $26.2 million.

During the thirteen weeks ended April 2, 2022, our capital expenditures totaled $6.0 million.

These expenditures primarily consisted of transportation equipment and investments in support of our value-added service operations.

Our asset-light 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.

Due to widespread shortages, production backlogs, and limited availability of transportation equipment, our expenditures were somewhat lower than our customary capital expenditures.

Our asset-light business model depends largely on the customized solutions we implement for specific customers.

As a result, our capital expenditures will also depend on specific new contracts and the overall age and condition of our owned transportation equipment.

Through the remainder of 2022, exclusive of any acquisitions of businesses and strategic real estate purchases, we expect our capital expenditures to be in the range of 5% to 6% of operating revenues.

We expect to make these capital expenditures for the acquisition of transportation equipment, to support our new and existing value-added service operations, and for improvements to our existing terminal yard and container facilities.

Due to widespread shortages, production backlogs, and limited availability of transportation equipment in 2021, our expenditures have been, and are projected to be, somewhat lower than the customary range of 4% to 5% of our operating revenues.

If equipment manufacturers identify and implement solutions enabling them to overcome these supply-side constraints, then we would expect to return to a normalized level of capital expenditures in future periods.

In such an event, our capital expenditures in 2022 would likely be somewhat higher than those experienced in the current and previous periods.

We have a cash dividend policy that anticipates a regular dividend of $0.42 per share of common stock, payable in quarterly increments of $0.105 per share of common stock.

After taking into account the regular quarterly dividends made during the year, our Board of Directors also evaluates the potential declaration of an annual special dividend payable in the first quarter of each year.

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 2022.

On October 28, 2021, our Board of Directors declared the regular quarterly cash dividend of $0.105 per share of common stock payable December 6, 2021 to shareholders of record at the close of business January 4, 2022.

During the first half of 2020, our Board of Directors temporarily suspended the Company’s cash dividend policy due to the uncertainty caused by the Covid-19 pandemic.

The policy has since been reinstated.

On May 5, 2022, our Board of Directors declared a quarterly cash dividend of $0.105 per share of common stock, which is payable to shareholders of record at the close of business on June 6, 2022 and is expected to be paid on July 5, 2022.

During the year ended December 31, 2021, we paid a total of $0.42 per common share, or $11.3 million.

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Our Credit Facility includes an accordion feature which allows us to increase availability by up to $100 million upon our request.

At October 2, 2021, we were in compliance with all covenants under the Credit Facility, and $27.8 million was available for borrowing.

At April 2, 2022, we were in compliance with all covenants under the Credit Facility, and $51.0 million was available for borrowing.

A wholly-owned subsidiary issued a series of promissory notes in order to finance transportation equipment (the “Equipment Financing”).

The notes issued in connection with the Equipment Financing, which are secured by liens on specific titled vehicles, include certain affirmative and negative covenants, are generally payable in 60 monthly installments and bear interest at fixed rates ranging from 2.25% to 5.13%.

25 % to 5.13%.

A wholly-owned subsidiary issued a series of promissory notes in order to finance certain purchases of real property (the “Real Estate Financing”).

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Each of the notes bears interest at variable rates ranging from LIBOR plus 1.85% to LIBOR plus 2.25%.

At October 2, 2021, we were in compliance with all covenants.

At April 2, 2022, we were in compliance with all covenants.

We also maintain a short-term line of credit secured by our portfolio of marketable securities (the “Margin Facility”).

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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 October 2, 2021, and the maximum available borrowings were $4.2 million.

We did not have any amounts advanced against the line as of April 2, 2022, and the maximum available borrowings were $4.4 million.

On April 29, 2022, the Company executed a credit agreement and related security and mortgage agreement with a syndicate of lenders, and Fifth Third Bank, N.A., as administrative agent.

The credit agreement provided for a $165.4 million term loan facility, the full amount of which was advanced on April 29, 2022.

The facility matures on April 29, 2032.

Under the terms of the credit agreement, the Company used proceeds (a) to repay approximately $116.4 million of aggregate principal amount outstanding under the term loan portion of the Credit Facility, (b) to repay in full approximately $39.5 million of aggregate principal amount outstanding under the Real Estate Financing, and (c) to pay transaction-related fees and expenses.

The obligations under the facility are 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 credit agreement 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 SOFR, plus an applicable margin equal to 2.12%.

Discussion of Cash Flows

At October 2, 2021, we had cash and cash equivalents of $13.1 million compared to $8.8 million at December 31, 2020.

Operating activities provided $53.7 million in net cash, and we used $21.1 million in investing activities and $28.2 million in financing activities.

The $53.7 million in net cash provided by operations was primarily attributed to $57.5 million of net income, which reflects non-cash depreciation and amortization, noncash lease expense, gain on marketable equity securities, gains on equipment sales, amortization of debt issuance costs, stock-based compensation, and provisions for doubtful accounts totaling $74.2 million, net.

At April 2, 2022, we had cash and cash equivalents of $14.9 million compared to $13.9 million at December 31, 2021.

Operating activities provided $41.1 million in net cash, and we used $36.7 million in financing activities and $3.4 million in investing activities.

The $41.1 million in net cash provided by operations was primarily attributed to $42.0 million of net income, which reflects non-cash depreciation and amortization, noncash lease expense, amortization of debt issuance costs, gains on marketable equity securities and equipment sales, stock-based compensation, provisions for doubtful accounts and a change in deferred income taxes totaling $23.4 million, net.

Net cash provided by operating activities also reflects an aggregate increase in net working capital totaling $24.3 million.

The primary drivers behind the increase in working capital were principal reductions in operating lease liabilities during the period, an increase in trade and other accounts receivable, an increase in prepaid expenses and other assets, and a decrease in income taxes payable.

These were partially offset by increases in accruals for insurance and claims, trade accounts payable, and accrued expenses and other current liabilities.

Affiliate transactions decreased net cash provided by operating activities by $1.8 million.

The decrease in net cash resulted from a decrease in accounts payable to affiliates of $2.1 million and a decrease in accounts receivable from affiliates of $0.2 million.

The $21.1 million in net cash used in investing activities consisted of $26.2 million in capital expenditures and $0.1 million in marketable securities purchases.

These uses were partially offset by $5.1 million in proceeds from the sale of equipment and $0.1 million in proceeds from the sale of marketable securities.

We used $28.2 million in financing activities during the thirty-nine weeks ended October 2, 2021.

During the period we paid cash dividends of $11.3 million.

We had outstanding borrowings totaling $444.8 million at October 2, 2021 compared to $461.7 million at December 31, 2020.

During the period we had net borrowings on our revolving lines of credit totaling $20.9 million and borrowed an additional $8.3 million for new equipment.

We also made term loan, and equipment and real estate note payments totaling $46.1 million during the period.

The primary drivers behind the increase in working capital were principal reductions in operating lease liabilities during the period, increases in trade and other accounts receivable and in prepaid expenses and other assets, and a decrease in other long-term liabilities.

These were partially offset by increases in accruals for insurance and claims, trade accounts payable, accrued expenses and other current liabilities, and income taxes payable.

Affiliate transactions decreased net cash provided by operating activities by $2.5 million due to an increase in accounts receivable from affiliates of $0.8 million and a decrease accounts payable to affiliates of $1.7 million.

The $3.4 million in net cash used in investing activities consisted of $6.0 million in capital expenditures, partially offset by $2.6 million in proceeds from the sale of equipment.

We used $36.7 million in financing activities during the thirteen weeks ended April 2, 2022.

During the period we paid cash dividends of $5.6 million and purchased $5.3 million of our common stock.

We had outstanding borrowings totaling $402.7 million at April 2, 2022 compared to $428.4 million at December 31, 2021.

During the period, we made net repayments on our revolving lines of credit totaling $14.2 million and term loan, and equipment and real estate note payments totaling $15.9 million.

We also borrowed $4.3 million for new equipment during the period.

Off Balance Sheet Arrangements

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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, 2021.

There have been no changes in our accounting policies during the thirteen weeks ended October 2, 2021.

There have been no changes in our accounting policies during the thirteen weeks ended April 2, 2022.

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.

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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 October 2, 2021.

There have not been any material changes to the Company’s market risk during the thirteen weeks ended April 2, 2022.

For additional information, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis