UNIVERSAL LOGISTICS HOLDINGS, INC. - Quarter Report: 2022 October (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 0-51142

UNIVERSAL LOGISTICS HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Michigan

38-3640097

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

12755 E. Nine Mile Road

Warren, Michigan 48089

(Address, including Zip Code of Principal Executive Offices)

(586) 920-0100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	ULH	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock, no par value, outstanding as of November 7, 2022, was 26,277,549.

PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except share data)

	October 1, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	14,646		$	13,932
Marketable securities		8,557			8,031
Accounts receivable – net of allowance for doubtful accounts of $13,426 and $7,841, respectively		384,075			341,398
Other receivables		21,718			26,318
Prepaid expenses and other		29,435			30,209
Due from affiliates		789			807
Total current assets		459,220			420,695
Property and equipment – net of accumulated depreciation of $358,511 and $333,833, respectively		377,191			345,583
Operating lease right-of-use asset		104,439			105,859
Goodwill		170,730			170,730
Intangible assets – net of accumulated amortization of $118,136 and $107,461, respectively		77,673			88,349
Deferred income taxes		2,060			2,060
Other assets		7,866			4,215
Total assets	$	1,199,179		$	1,137,491
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	107,539		$	117,837
Current portion of long-term debt		62,472			61,160
Current portion of operating lease liabilities		28,251			24,566
Accrued expenses and other current liabilities		41,897			43,627
Insurance and claims		31,055			43,357
Due to affiliates		22,723			17,839
Income taxes payable		11,466			4,323
Total current liabilities		305,403			312,709
Long-term liabilities:
Long-term debt, net of current portion		326,698			366,188
Operating lease liabilities, net of current portion		82,036			85,984
Deferred income taxes		61,250			61,250
Other long-term liabilities		8,783			9,150
Total long-term liabilities		478,767			522,572
Shareholders' equity:
Common stock, no par value. Authorized 100,000,000 shares; 30,996,205 and 30,986,702 shares issued; 26,278,020 and 26,919,455 shares outstanding, respectively		30,996			30,988
Paid-in capital		4,803			4,639
Treasury stock, at cost; 4,718,185 and 4,067,247 shares, respectively		(96,690	)		(82,385	)
Retained earnings		482,903			356,071
Accumulated other comprehensive (loss):
Interest rate swaps, net of income taxes of $778 and $(60), respectively		2,292			(178	)
Foreign currency translation adjustments		(9,295	)		(6,925	)
Total shareholders’ equity		415,009			302,210
Total liabilities and shareholders’ equity	$	1,199,179		$	1,137,491

See accompanying notes to consolidated financial statements.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Income

(In thousands, except per share data)

	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Operating revenues:
Truckload services	$	58,107		$	65,458		$	176,651		$	184,040
Brokerage services		83,687			102,229			292,789			301,680
Intermodal services		154,391			121,018			468,869			331,336
Dedicated services		86,613			51,742			241,551			150,099
Value-added services		122,894			105,147			376,875			316,453
Total operating revenues		505,692			445,594			1,556,735			1,283,608
Operating expenses:
Purchased transportation and equipment rent		208,870			212,910			668,216			600,273
Direct personnel and related benefits		127,721			118,371			391,723			336,923
Operating supplies and expenses		44,734			43,811			132,886			113,616
Commission expense		10,632			9,086			31,412			24,980
Occupancy expense		10,150			9,336			30,345			26,905
General and administrative		13,021			10,998			34,625			29,866
Insurance and claims		5,745			7,912			16,925			19,982
Depreciation and amortization		15,048			16,456			58,333			51,880
Total operating expenses		435,921			428,880			1,364,465			1,204,425
Income from operations		69,771			16,714			192,270			79,183
Interest income		10			8			16			41
Interest expense		(4,500	)		(3,008	)		(10,858	)		(9,130	)
Other non-operating income (expense)		(454	)		(112	)		(324	)		6,973
Income before income taxes		64,827			13,602			181,104			77,067
Income tax expense		16,347			3,329			45,917			19,534
Net income	$	48,480		$	10,273		$	135,187		$	57,533
Earnings per common share:
Basic	$	1.84		$	0.38		$	5.10		$	2.14
Diluted	$	1.84		$	0.38		$	5.09		$	2.14
Weighted average number of common shares outstanding:
Basic		26,278			26,919			26,533			26,918
Diluted		26,309			26,928			26,551			26,932
Dividends declared per common share	$	0.105		$	0.105		$	0.315		$	0.315

See accompanying notes to consolidated financial statements.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Comprehensive Income

(In thousands)

	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Net Income	$	48,480		$	10,273		$	135,187		$	57,533
Other comprehensive income (loss):
Unrealized changes in fair value of interest rate swaps, net of income taxes of $972, $17, $838 and $52, respectively		2,859			37			2,470			200
Foreign currency translation adjustments		(548	)		(1,573	)		(2,370	)		(1,172	)
Total other comprehensive income (loss)		2,311			(1,536	)		100			(972	)
Total comprehensive income	$	50,791		$	8,737		$	135,287		$	56,561

See accompanying notes to consolidated financial statements.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

	Thirty-nine Weeks Ended
	October 1, 2022			October 2, 2021
Cash flows from operating activities:
Net income	$	135,187		$	57,533
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		58,333			51,880
Noncash lease expense		21,898			19,557
Loss (gain) on marketable equity securities		399			(1,274	)
Gain on disposal of property and equipment		(4,237	)		(1,006	)
Amortization of debt issuance costs		356			360
Write-off of debt issuance costs		583			—
Stock-based compensation		172			162
Provision for doubtful accounts		7,740			4,610
Deferred income taxes		(838	)		(49	)
Change in assets and liabilities:
Trade and other accounts receivable		(47,098	)		(74,031	)
Prepaid expenses and other assets		192			(723	)
Principal reduction in operating lease liabilities		(20,543	)		(18,480	)
Accounts payable, accrued expenses and other current liabilities, insurance and claims, and income taxes payable		(12,183	)		16,131
Due to/from affiliates, net		4,903			(1,840	)
Other long-term liabilities		(367	)		918
Net cash provided by operating activities		144,497			53,748
Cash flows from investing activities:
Capital expenditures		(85,810	)		(26,235	)
Proceeds from the sale of property and equipment		10,366			5,116
Purchases of marketable securities		(925	)		(114	)
Proceeds from sale of marketable securities		—			117
Net cash used in investing activities		(76,369	)		(21,116	)
Cash flows from financing activities:
Proceeds from borrowing - revolving debt		398,552			303,078
Repayments of debt - revolving debt		(546,431	)		(282,220	)
Proceeds from borrowing - term debt		318,714			8,302
Repayments of debt - term debt		(205,535	)		(46,051	)
Dividends paid		(11,181	)		(11,305	)
Capitalized financing costs		(4,417	)		—
Purchases of treasury stock		(14,305	)		—
Net cash used in financing activities		(64,603	)		(28,196	)
Effect of exchange rate changes on cash and cash equivalents		(2,811	)		(189	)
Net increase in cash		714			4,247
Cash and cash equivalents – beginning of period		13,932			8,763
Cash and cash equivalents – end of period	$	14,646		$	13,010
Supplemental cash flow information:
Cash paid for interest	$	9,399		$	8,810
Cash paid for income taxes	$	39,593		$	29,423

See accompanying notes to consolidated financial statements.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Shareholders’ Equity

(In thousands, except per share data)

	Common stock		Paid-in capital		Treasury stock			Retained earnings			Accumulated other comprehensive income (loss)			Total
Balances – December 31, 2020	$	30,981	$	4,484	$	(82,385	)	$	293,643		$	(7,150	)	$	239,573
Net income		—		—		—			21,656			—			21,656
Comprehensive income (loss)		—		—		—			—			1,200			1,200
Dividends ($0.105 per share)		—		—		—			(2,826	)		—			(2,826	)
Stock based compensation		7		155		—			—			—			162
Balances - April 3, 2021		30,988		4,639		(82,385	)		312,473			(5,950	)		259,765
Net income		—		—		—			25,604			—			25,604
Comprehensive income (loss)		—		—		—			—			(636	)		(636	)
Dividends ($0.105 per share)		—		—		—			(2,825	)		—			(2,825	)
Balances - July 3, 2021		30,988		4,639		(82,385	)		335,252			(6,586	)		281,908
Net income		—		—		—			10,273			—			10,273
Comprehensive income (loss)		—		—		—			—			(1,536	)		(1,536	)
Dividends ($0.105 per share)		—		—		—			(2,826	)		—			(2,826	)
Balances – October 2, 2021	$	30,988	$	4,639	$	(82,385	)	$	342,699		$	(8,122	)	$	287,819

Balances – December 31, 2021	$	30,988	$	4,639	$	(82,385	)	$	356,071		$	(7,103	)	$	302,210
Net income		—		—		—			42,008			—			42,008
Comprehensive income (loss)		—		—		—			—			(2,593	)		(2,593	)
Purchases of treasury stock		—		—		(5,254	)		—			—			(5,254	)
Dividends ($0.105 per share)		—		—		—			(2,819	)		—			(2,819	)
Stock based compensation		7		155		—			—			—			162
Balances - April 2, 2022		30,995		4,794		(87,639	)		395,260			(9,696	)		333,714
Net income		—		—		—			44,699			—			44,699
Comprehensive income (loss)		—		—		—			—			382			382
Purchases of treasury stock		—		—		(9,051	)		—			—			(9,051	)
Dividends ($0.105 per share)		—		—		—			(2,777	)		—			(2,777	)
Balances - July 2, 2022		30,995		4,794		(96,690	)		437,182			(9,314	)		366,967
Net income		—		—		—			48,480			—			48,480
Comprehensive income (loss)		—		—		—			—			2,311			2,311
Dividends ($0.105 per share)		—		—		—			(2,759	)		—			(2,759	)
Stock based compensation		1		9		—			—			—			10
Balances – October 1, 2022	$	30,996	$	4,803	$	(96,690	)	$	482,903		$	(7,003	)	$	415,009

See accompanying notes to consolidated financial statements.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

(1)	Basis of Presentation

The accompanying unaudited consolidated financial statements of Universal Logistics Holdings, Inc. and its wholly-owned subsidiaries (“Universal”) have been prepared by the Company’s management. In these notes, the terms “us,” “we,” “our,” or the “Company” refer to Universal and its consolidated subsidiaries. In the opinion of management, the unaudited consolidated financial statements include all normal recurring adjustments necessary to present fairly the information required to be set forth therein. All intercompany transactions and balances have been eliminated in consolidation. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, should be read in conjunction with the consolidated financial statements as of December 31, 2021 and 2020 and for each of the years in the three-year period ended December 31, 2021 included in the Company’s Form 10-K filed with the Securities and Exchange Commission. The preparation of the consolidated financial statements requires the use of management’s estimates. Actual results could differ from those estimates.

Our fiscal year ends on December 31 and consists of four quarters, each with thirteen weeks.

In June 2022, the Company made a change in an accounting estimate to revise the estimated useful life and salvage values of certain equipment. The change resulted in additional depreciation expense of $9.7 million recorded during the quarter ended July 2, 2022 ($7.2 million net of tax, or $0.27 per basic and diluted share).

Impact of COVID-19 and Current Economic Conditions

The Company makes estimates and assumptions that affect reported amounts and disclosures included in its financial statements and accompanying notes and assesses certain accounting matters that require consideration of forecasted financial information. The Company's assumptions about future conditions important to these estimates and assumptions are subject to uncertainty, including the impacts of the COVID-19 pandemic.

Although we estimate COVID-19 had the largest impact on our business during the second quarter 2020, we are unable to predict with any certainty the future impact COVID-19 may have on our operational and financial performance. The Company will continue to monitor these conditions in future periods as new information becomes available and will update its analyses accordingly.

Additionally, inflationary pressures can have a negative impact on our operating costs. Prolonged periods of inflation 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, inflation-driven cost increases could adversely affect our results of operations.

(2)	Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Accounting for Credit Losses (Topic 326). ASU 2016-13 requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. The new standard will become effective for us beginning with the first quarter 2023. The Company is evaluating the new guidance but does not expect it to have a material impact on our consolidated financial statements.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

(3)	Revenue Recognition

Universal is a holding company that owns subsidiaries engaged in providing customized transportation and logistics services. For financial reporting, we broadly group the services provided by our consolidated subsidiaries into the following categories: truckload, brokerage, intermodal, dedicated and value-added. We disaggregate these categories and report our service lines separately on the Consolidated Statements of Income.

Truckload services include dry van, flatbed, heavy-haul and refrigerated operations. We transport a wide variety of general commodities, including automotive parts, machinery, building materials, paper, food, consumer goods, furniture, steel and other metals on behalf of customers in various industries.

To complement our available capacity, we provide customers freight brokerage services by utilizing third-party transportation providers to move freight. Brokerage services also include full-service domestic and international freight forwarding and customs brokerage.

Intermodal services include rail-truck, steamship-truck and support services. Our intermodal support services are primarily short- to medium-distance delivery of rail and steamship containers between the railhead or port and the customer.

Dedicated services are primarily provided in support of automotive and retail customers using van equipment. Our dedicated services are primarily short-run or round-trip moves within a defined geographic area.

Transportation services are short-term in nature; agreements governing their provision generally have a term of less than one year. They do not contain significant financing components. The Company recognizes revenue over the period transportation services are provided to the customer, including service performed as of the end of the reporting period for loads currently in-transit, in order to recognize the value that is transferred to a customer over the course of the transportation service.

We determine revenue in-transit using the input method, under which revenue is recognized based on the duration of time that has lapsed from the departure date (start of transportation services) to the arrival date (completion of transportation services). Measurement of revenue in-transit requires the application of significant judgment. We calculate the estimated percentage of an order’s transit time that is complete at period end, and we apply that percentage of completion to the order’s estimated revenue.

Value-added services, which are typically dedicated to individual customer requirements, include material handling, consolidation, sequencing, sub-assembly, cross-dock services, kitting, repacking, warehousing and returnable container management. Value-added revenues are substantially driven by the level of demand for outsourced logistics services. Major factors that affect value-added service revenue include changes in manufacturing supply chain requirements and production levels in specific industries, particularly the North American automotive and Class 8 heavy-truck industries.

Revenue is recognized as control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration the Company expects to receive in exchange for its services. We have elected to use the “right to invoice” practical expedient to recognize revenue, reflecting that a customer obtains the benefit associated with value-added services as they are provided. The contracts in our value-added services businesses are negotiated agreements, which contain both fixed and variable components. The variability of revenues is driven by volumes and transactions, which are known as of an invoice date. Value-added service contracts typically have terms that extend beyond one year, and they do not include financing components.

The following table provides information related to contract balances associated with our contracts with customers (in thousands):

October 1,

2022

December 31,

2021

Prepaid expenses and other - contract assets

1,546

2,023

We generally receive payment for performance obligations within 45 days of completion of transportation services and 65 days for completion of value-added services. Contract assets in the table above generally relate to revenue in-transit at the end of the reporting period.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

(4)	Marketable Securities

The Company accounts for its marketable equity securities in accordance with ASC Topic 321 “Investments- Equity Securities.” ASC Topic 321 requires companies to measure equity investments at fair value, with changes in fair value recognized in net income. The Company’s investments in marketable securities consist of equity securities with readily determinable fair values. The cost basis of securities sold is based on the specific identification method, and interest and dividends on securities are included in non-operating income (expense).

Marketable equity securities are carried at fair value, with gains and losses in fair market value included in the determination of net income. The fair value of marketable equity securities is determined based on quoted market prices in active markets, as described in Note 7.

The following table sets forth market value, cost basis, and unrealized gains on equity securities (in thousands):

	October 1, 2022		December 31, 2021
Fair value	$	8,557	$	8,031
Cost basis		7,351		6,426
Unrealized gain	$	1,206	$	1,605

The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities (in thousands):

	October 1, 2022			December 31, 2021
Gross unrealized gains	$	2,370		$	2,574
Gross unrealized losses		(1,164	)		(969	)
Net unrealized gains	$	1,206		$	1,605

The following table shows the Company’s net realized gains (losses) on marketable equity securities (in thousands):

	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Realized gain
Sale proceeds	$	—	$	—	$	—	$	117
Cost basis of securities sold		—		—		—		92
Realized gain	$	—	$	—	$	—	$	25

Realized gain, net of taxes	$	—	$	—	$	—	$	19

The Company did not sell marketable equity securities during the thirteen-week or thirty-nine week periods ended October 1, 2022, or in the thirteen-week period ended October 2, 2021.

During the thirteen-week and thirty-nine week periods ended October 1, 2022, our marketable equity securities portfolio experienced a net unrealized pre-tax gain (loss) in market value of approximately $(491,000) and $(399,000), respectively, which was reported in other non-operating income (expense) for the period.

During the thirteen-week and thirty-nine week periods ended October 2, 2021, our marketable equity securities portfolio experienced a net unrealized pre-tax gain (loss) in market value of approximately $(110,000) and $1,249,000, respectively, which was reported in other non-operating income (expense) for the period.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

(5)	Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities are comprised of the following (in thousands):

	October 1, 2022		December 31, 2021

Accrued payroll	$	19,119	$	13,645
Accrued payroll taxes		2,287		7,132
Driver escrow liabilities		3,945		3,754
Legal settlements and claims		6,350		9,350
Commissions, other taxes and other		10,196		9,746
Total	$	41,897	$	43,627

(6)

Debt

Debt is comprised of the following (in thousands):

	Interest Rates at October 1, 2022	October 1, 2022			December 31, 2021
Outstanding Debt:
Revolving Credit Facility (1) (2)	4.63%	$	15,378		$	163,257
UACL Credit Agreement (2)
Term Loan	4.88%		80,000			—
Revolver	4.88%		—			—
Equipment Financing (3)	2.25% to 6.33%		138,525			103,298
Real Estate Facility (4)	5.15%		159,839			—
Margin Facility (5)	4.13%		—			—
Debt paid upon refinancing:
Term Loan (1) (4)	NA		—			120,000
Real Estate Notes (4)	NA		—			41,887
Unamortized debt issuance costs			(4,572	)		(1,094	)
			389,170			427,348
Less current portion of long-term debt			62,472			61,160
Total long-term debt, net of current portion		$	326,698		$	366,188

(1) On September 30, 2022, we amended our Revolving Credit Facility by increasing the revolving credit commitment to up to $400 million. Borrowings under the Revolving Credit Facility may now be made until and mature on September 30, 2027, and bear interest at index-adjusted SOFR or a base rate plus an applicable margin for each based on the Company’s leverage ratio. The term loan proceeds were advanced on November 27, 2018, and the Company repaid in full its then outstanding balance on the term loan on April 29, 2022. The Revolving Credit Facility is secured by a first-priority pledge of the capital stock of applicable subsidiaries, as well as first-priority perfected security interests in cash, deposits, accounts receivable, and selected other assets of the applicable borrowers. The Revolving Credit Facility 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. At October 1, 2022, we were in compliance with all covenants under the facility, and $384.6 million was available for borrowing on the revolver.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

(6)	Debt – continued

(2) Our UACL Credit and Security Agreement (the “UACL Credit Agreement”) provides for maximum borrowings of $90 million in the form of an $80 million term loan and a $10 million revolver. Term loan proceeds were advanced on September 30, 2022 and used to repay existing indebtedness under the Revolving Credit Facility. The term loan matures on September 30, 2027 and will be repaid in consecutive quarterly installments, as defined in the UACL Credit Agreement, commencing December 31, 2022. The remaining term loan balance is due at maturity. Borrowings under the revolving credit facility may be made until and mature on September 30, 2027. Borrowings under the UACL Credit Agreement bear interest at index-adjusted SOFR, or a base rate, plus an applicable margin for each based on the borrower’s leverage ratio. The UACL Credit Agreement is secured by a first-priority pledge of the capital stock of applicable subsidiaries, as well as first-priority perfected security interest in cash, deposits, accounts receivable, and selected other assets of the applicable borrowers. The UACL Credit Agreement 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. At October 1, 2022, we were in compliance with all covenants under the facility, and $10.0 million was available for borrowing on the revolver.

(3) Our Equipment Financing consists of a series of promissory notes issued by a wholly owned subsidiary. The equipment notes, which are secured by liens on specific titled vehicles, are generally payable in 60 monthly installments and bear interest at fixed rates ranging from 2.25% to 6.33%.

(4) Our Real Estate Facility provides for a $165.4 million term loan, the full amount of which was advanced on April 29, 2022. The Company used the facility’s proceeds to repay the outstanding balances under the term loan portion of the Revolving Credit Facility and certain other Real Estate Financing obligations. The facility matures on April 29, 2032. 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 are 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 October 1, 2022, we were in compliance with all covenants under the facility.

(5) Our Margin Facility is 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 line of credit is based on a percentage of the market value of the underlying securities. At October 1, 2022, the maximum available borrowings under the line of credit were $5.0 million.

The Company is also party to an interest rate swap agreement that qualifies for hedge accounting. The Company executed the swap agreement to fix a portion of the interest rate on its variable rate debt. Under the swap agreement, the Company receives interest at Term SOFR and pays a fixed rate of 2.88%. The swap agreement has an effective date of April 29, 2022, a maturity date of April 30, 2027, and an amortizing notional amount of $95.8 million. At October 1, 2022, the fair value of the swap agreement was an asset of $3.1 million. Since the swap agreement qualifies for hedge accounting, the changes in fair value are recorded in other comprehensive income (loss), net of tax. See Note 7 for additional information pertaining to interest rate swaps.

(7)	Fair Value Measurements and Disclosures

FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date and expanded disclosures with respect to fair value measurements.

FASB ASC Topic 820 also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

•

Level 1 — Quoted prices in active markets for identical assets or liabilities.

•

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

(7)	Fair Value Measurements and Disclosures – continued

We have segregated all financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the tables below (in thousands):

	October 1, 2022
	Level 1		Level 2		Level 3		Fair Value Measurement
Assets
Cash equivalents	$	25	$	—	$	—	$	25
Marketable securities		8,557		—		—		8,557
Interest rate swap		—		3,071		—		3,071
Total	$	8,582	$	3,071	$	—	$	11,653

	December 31, 2021
	Level 1		Level 2		Level 3		Fair Value Measurement
Assets
Cash equivalents	$	10	$	—	$	—	$	10
Marketable securities		8,031		—		—		8,031
Total	$	8,041	$	—	$	—	$	8,041

Liabilities
Interest rate swaps	$	—	$	238	$	—	$	238
Total	$	—	$	238	$	—	$	238

The valuation techniques used to measure fair value for the items in the tables above are as follows:

•

Cash equivalents – This category consists of money market funds which are listed as Level 1 assets and measured at fair value based on quoted prices for identical instruments in active markets.

•

Marketable securities – Marketable securities represent equity securities, which consist of common and preferred stocks, are actively traded on public exchanges and are listed as Level 1 assets. Fair value was measured based on quoted prices for these securities in active markets.

•

Interest rate swaps – The fair value of our interest rate swaps is determined using a methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. The fair value measurement also incorporates credit valuation adjustments to appropriately reflect both the Company’s nonperformance risk and the respective counterparty’s nonperformance risk.

Our Revolving Credit Facility and our Real Estate Facility consist of variable rate borrowings. We categorize these borrowings as Level 2 in the fair value hierarchy. The carrying value of these borrowings approximate fair value because the applicable interest rates are adjusted frequently based on short-term market rates.

For our Equipment Financing, the fair values are estimated using discounted cash flow analyses, based on our current incremental borrowing rates for similar types of borrowing arrangements. We categorize these borrowings as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of these promissory notes at October 1, 2022 is summarized as follows:

Carrying Value

Estimated Fair

Value

Equipment promissory notes

138,525

133,936

We have not elected the fair value option for any of our financial instruments.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

(8)Leases

ASU 2016-02, Leases, requires us to recognize a right-of-use asset and a corresponding lease liability on our balance sheet for most leases classified as operating leases under previous guidance. Right-of-use assets represent our right to use an underlying asset over the lease term and lease liabilities represent the obligation to make lease payments resulting from the lease agreement. We recognize a right-of-use asset and a lease liability on the effective date of a lease agreement.

As of October 1, 2022, our obligations under operating lease arrangements primarily related to the rental of office space, warehouses, freight distribution centers, terminal yards and equipment. Our lease obligations typically do not include options to purchase the leased property, nor do they contain residual value guarantees or material restrictive covenants. Options to extend or terminate an agreement are included in the lease term when it becomes reasonably certain the option will be exercised. As of October 1, 2022, we were not reasonably certain of exercising any renewal or termination options, and as such, no adjustments were made to the right-of-use lease assets or corresponding liabilities.

We did not separate lease and nonlease components of contracts for purposes of determining the right-of use lease asset and corresponding liability. Variable lease components that do not depend on an index or a rate, and variable nonlease components were also not contemplated in the calculation of the right-of-use asset and corresponding liability. For facility leases, variable lease costs include the costs of common area maintenance, taxes, and insurance for which we pay the lessors an estimate that is adjusted to actual expense on a quarterly or annual basis depending on the underlying contract terms. For equipment leases, variable lease costs may include additional fees associated with using equipment in excess of estimated amounts. Leases with an initial term of 12 months or less, short-term leases, are not recorded on the balance sheet. Lease expense for short-term and long-term operating leases is recognized on a straight-line basis over the lease term.

The following table summarizes our lease costs for the thirteen weeks and thirty-nine weeks ended October 1, 2022 and October 2, 2021 (in thousands):

	Thirteen Weeks Ended October 1, 2022
	With Affiliates		With Third Parties			Total
Lease cost
Operating lease cost	$	2,391	$	6,399		$	8,790
Short-term lease cost		630		1,582			2,212
Variable lease cost		215		734			949
Sublease income		—		—			—
Total lease cost	$	3,236	$	8,715		$	11,951

	Thirteen weeks ended October 2, 2021
	With Affiliates		With Third Parties			Total
Lease cost
Operating lease cost	$	2,431	$	5,672		$	8,103
Short-term lease cost		15		2,497			2,512
Variable lease cost		220		609			829
Sublease income		—		(224	)		(224	)
Total lease cost	$	2,666	$	8,554		$	11,220

UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

(8)Leases – continued

	Thirty-nine Weeks Ended October 1, 2022
	With Affiliates		With Third Parties			Total
Lease cost
Operating lease cost	$	7,114	$	18,891		$	26,005
Short-term lease cost		1,907		8,017			9,924
Variable lease cost		630		2,425			3,055
Sublease income		—		(113	)		(113	)
Total lease cost	$	9,651	$	29,220		$	38,871

	Thirty-nine Weeks Ended October 2, 2021
	With Affiliates		With Third Parties			Total
Lease cost
Operating lease cost	$	7,472	$	17,314		$	24,786
Short-term lease cost		42		6,493			6,535
Variable lease cost		640		1,997			2,637
Sublease income		—		(1,248	)		(1,248	)
Total lease cost	$	8,154	$	24,556		$	32,710

The following table summarizes other lease related information as of and for the thirty-nine week periods ended October 1, 2022 and October 2, 2021 (in thousands):

	October 1, 2022
	With Affiliates			With Third Parties			Total
Other information
Cash paid for amounts included in the measurement of operating leases	$	6,890		$	17,626		$	24,516
Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,074		$	20,677		$	21,751
Right-of-use assets change due to lease termination	$	—		$	(1,370	)	$	(1,370	)
Weighted-average remaining lease term (in years)		5.0			4.0			4.3
Weighted-average discount rate		6.7	%		4.7	%		5.4	%

	October 2, 2021
	With Affiliates			With Third Parties			Total
Other information
Cash paid for amounts included in the measurement of operating leases	$	7,173		$	16,741		$	23,914
Right-of-use assets obtained in exchange for new operating lease liabilities	$	10,235		$	24,655		$	34,890
Right-of-use asset change due to lease termination	$	—		$	(875	)	$	(875	)
Future right-of-use asset change due to lease signed with a future commencement date	$	—		$	10,926		$	10,926
Weighted-average remaining lease term (in years)		5.8			4.6			5.0
Weighted-average discount rate		6.5	%		5.1	%		5.6	%

UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

(8)Leases – continued

Future minimum lease payments under these operating leases as of October 1, 2022, are as follows (in thousands):

	With Affiliates		With Third Parties		Total
2022 (remaining)	$	2,299	$	6,333	$	8,632
2023		8,741		23,335		32,076
2024		8,541		19,336		27,877
2025		6,934		16,431		23,365
2026		4,364		14,112		18,476
Thereafter		9,039		5,666		14,705
Total required lease payments	$	39,918	$	85,213	$	125,131
Less amounts representing interest						(14,844	)
Present value of lease liabilities					$	110,287

(9)	Transactions with Affiliates

In the ordinary course of business, affiliated companies that are owned or controlled by our controlling shareholder, Matthew T. Moroun, provide us with certain supplementary administrative support services, including legal, human resources, tax, and IT infrastructure services. Universal’s audit committee reviews and approves related party transactions with affiliates that involve Universal or its consolidated subsidiaries. The cost of these services is based on the actual or estimated utilization of the specific service.

Universal also purchases other services from companies owned or controlled by our controlling shareholder. Following is a schedule of costs incurred and included in operating expenses for services provided by affiliates for the thirteen weeks and thirty-nine weeks ended October 1, 2022 and October 2, 2021, respectively (in thousands):

	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021

Insurance	$	21,532	$	9,674	$	56,363	$	32,977
Real estate rent and related costs		3,035		2,541		9,114		8,811
Administrative support services		2,220		1,114		4,514		3,112
Truck fuel, maintenance and other operating costs		2,390		270		5,470		681
Contracted transportation services		269		11		958		30
Total	$	29,446	$	13,610	$	76,419	$	45,611

We pay the direct variable cost of maintenance, fueling and other operational support costs for services delivered at our affiliate’s trucking terminals that are geographically remote from our own facilities. Such costs are billed when incurred, paid on a routine basis, and reflect actual labor utilization, repair parts costs or quantities of fuel purchased.

We lease 33 facilities from related parties. Our occupancy is based on either month-to-month or contractual, multi-year lease arrangements that are billed and paid monthly. Leasing properties from a related party affords us significant operating flexibility; however, we are not limited to such arrangements. See Note 8, “Leases” for further information regarding the cost of leased properties.

We purchase employee medical, workers’ compensation, property and casualty, cargo, warehousing and other general liability insurance from an insurance company controlled by our controlling shareholder. In our Consolidated Balance Sheets, we record our insured claims liability and the related recovery in insurance and claims, and other receivables. At October 1, 2022 and December 31, 2021, there were $15.5 million and $20.4 million, respectively, included in each of these accounts for insured claims.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

(9)	Transactions with Affiliates - continued

Other services from affiliates, including contracted transportation services, are delivered to us on a per-transaction basis or pursuant to separate contractual arrangements provided in the ordinary course of business. At October 1, 2022 and December 31, 2021, amounts due to affiliates were $22.7 million and $17.8 million, respectively.

Services provided by Universal to Affiliates

We periodically assist our affiliates by providing selected transportation and logistics services in connection with their specific customer contracts or purchase orders. Following is a schedule of services provided to affiliates for the thirteen weeks and thirty-nine weeks ended October 1, 2022 and October 2, 2021 (in thousands):

	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Contracted transportation services	$	59	$	247	$	662	$	505
Facilities and related support		40		—		160		—
Total	$	99	$	247	$	822	$	505

At both October 1, 2022 and December 31, 2021, amounts due from affiliates was $0.8 million.

During the thirty-nine weeks ended October 1, 2022, we purchased used tractors from an affiliate totaling $1.2 million. There were no such purchases made during the thirty-nine weeks ended October 2, 2021.

In June 2022, we executed a real estate contract with an affiliate to acquire a multi-building, office complex located in Warren, Michigan for $8.3 million. The purchase price was established by an independent, third-party appraisal. The Company made an initial deposit of $200,000, and the balance of the purchase price is due at closing, which is expected to occur in the fourth quarter of 2022.

In May 2022, we sold an inactive Mexican subsidiary to an affiliate for approximately $0.1 million. The purchase price was based on the book value of the net assets sold in the transaction, and as such, no gain or loss was recorded.

On May 13, 2022, the Company commenced a “Dutch auction” tender offer to repurchase up to 100,000 shares of the Company’s outstanding common stock at a price of not greater than $28.00 nor less than $25.00 per share. Following the expiration of the tender offer on June 15, 2022, we accepted 164,189 shares, including 64,189 oversubscribed shares tendered, of our common stock for purchase at $28.00 per share, for a total purchase price of approximately $4.6 million, excluding fees and expenses related to the offer. The total number of shares purchased in the tender offer includes 5,000 shares tendered by a director of the Company, Mr. H.E. “Scott” Wolfe. We paid for the accepted shares with available cash and funds borrowed under our existing line of credit.

(10)	Stock Based Compensation

On April 23, 2014, our Board of Directors adopted our 2014 Amended and Restated Stock Incentive Plan. The Plan was approved at the 2014 annual meeting of shareholders and became effective as of the date our Board adopted it. The 2014 Plan replaced our 2004 Stock Incentive Plan and carried forward the shares of common stock that remained available for issuance under the 2004 Plan. In May 2022, the Company’s shareholders approved an amendment to the Plan to increase the number of shares of common stock authorized for issuance by 200,000 shares. Grants under the Plan may be made in the form of options, restricted stock awards, restricted stock purchase rights, stock appreciation rights, phantom stock units, restricted stock units or shares of unrestricted common stock.

On September 9, 2021, the Company granted 2,355 shares of restricted stock to an employee of the Company. The restricted stock award has a fair value of $20.46 per share, based on the closing price of the Company’s stock on the grant date. The shares will vest in five equal increments on each August 9 in 2022, 2023, 2024, 2025 and 2026, subject to continued employment with the Company

On February 5, 2020, the Company granted 5,000 shares of restricted stock to our Chief Financial Officer. The restricted stock award has a fair value of $17.74 per share, based on the closing price of the Company’s stock on the grant date. The shares will vest on February 20, 2024, subject to his continued employment with the Company.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

(10)	Stock Based Compensation - continued

On January 10, 2020, the Company granted 60,000 shares of restricted stock to our Chief Executive Officer. The restricted stock award has a fair value of $18.82 per share, based on the closing price of the Company’s stock on the grant date. The shares will vest in installments of 20,000 shares on January 10, 2024 and January 10, 2026, and installments of 10,000 shares on January 10, 2027 and January 10, 2028, subject to his continued employment with the Company.

On February 20, 2019, the Company granted 44,500 shares of restricted stock to certain of its employees, including 10,000 shares to our Chief Financial Officer. The restricted stock awards have a grant date fair value of $23.56 per share, based on the closing price of the Company’s stock, and any non-vested shares under the awards vest in four equal increments on each February 20 in 2020, 2021, 2022 and 2023.

A grantee’s vesting of restricted stock awards may be accelerated under certain conditions, including retirement.

The following table summarizes the status of the Company’s non-vested shares and related information for the period indicated:

	Shares			Weighted Average Grant Date Fair Value
Non-vested at January 1, 2022		81,105		$	19.60
Granted		—		$	-
Vested		(7,346	)	$	23.36
Forfeited		—		$	-
Balance at October 1, 2022		73,759		$	19.23

In each of the thirty-nine week periods ended October 1, 2022 and October 2, 2021, the total grant date fair value of vested shares recognized as compensation costs was $0.2 million. As of October 1, 2022, there was approximately $1.4 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize stock-based compensation expense of $0.2 million in 2023, $0.4 million in each 2024 and 2026, and $0.2 million in each 2027 and 2028.

(11)	Earnings Per Share

Basic earnings per common share amounts are based on the weighted average number of common shares outstanding, excluding outstanding non-vested restricted stock. Diluted earnings per common share include dilutive common stock equivalents determined by the treasury stock method. For the thirteen weeks and thirty-nine weeks ended October 1, 2022, there were 30,919 and 17,739 weighted average non-vested shares of restricted stock, respectively, included in the denominator for the calculation of diluted earnings per share. For the thirteen weeks and thirty-nine weeks ended October 2, 2021, 8,604 and 13,433 weighted average non-vested shares of restricted stock, respectively, were included in the denominator for the calculation of diluted earnings per share.

In each of the thirteen weeks and thirty-nine weeks ended October 2, 2021, we excluded 13,750 shares of non-vested restricted stock from the calculation of diluted earnings per share because such shares were anti-dilutive. No such shares were excluded from the calculation of diluted earnings per share during the thirteen weeks or thirty-nine weeks ended October 1, 2022.

(12)

Dividends

On July 28, 2022, our Board of Directors declared a cash dividend of $0.105 per share of common stock, payable on October 3, 2022 to shareholders of record at the close of business on September 5, 2022. Declaration of future cash dividends is subject to final determination by the Board of Directors each quarter after its review of our financial condition, results of operations, capital requirements, any legal or contractual restrictions on the payment of dividends and other factors the Board of Directors deems relevant.

UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

(13)	Segment Reporting

We report our financial results in four distinct reportable segments: contract logistics, intermodal, trucking, and company-managed brokerage, which are based primarily on the services each segment provides. This presentation reflects the manner in which management evaluates our operating segments, including an evaluation of economic characteristics and applicable aggregation criteria.

Operations aggregated in our contract logistics segment deliver value-added and/or dedicated transportation services to support in-bound logistics to original equipment manufacturers (OEMs) and major retailers on a contractual basis, generally pursuant to terms of one year or longer. Our intermodal segment is associated with local and regional drayage moves 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 primarily by our agents using a mix of owner-operators, company equipment and broker carriers. Our company-managed brokerage segment provides for the pick-up and delivery of individual freight shipments using broker carriers, coordinated by our company-managed operations. Other non-reportable segments are comprised of the Company’s subsidiaries that provide support services to other subsidiaries.

Separate balance sheets are not prepared by segment, and we do not provide asset information by segment to the chief operating decision maker.

The following tables summarize information about our reportable segments for the thirteen week and thirty-nine week periods ended October 1, 2022 and October 2, 2021 (in thousands):

	Operating Revenues
	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Contract logistics	$	209,507	$	156,889	$	618,426	$	466,552
Intermodal		154,391		121,018		468,869		331,336
Trucking		99,619		107,161		303,649		301,838
Company-managed brokerage		40,615		59,221		160,940		180,758
Other		1,560		1,305		4,851		3,124
Total operating revenues	$	505,692	$	445,594	$	1,556,735	$	1,283,608

	Eliminated Inter-segment Revenues
	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Contract logistics	$	955	$	75	$	4,174	$	454
Intermodal		1,363		2,194		7,417		4,579
Trucking		34		2,650		150		8,849
Company-managed brokerage		562		508		2,397		1,488
Total eliminated inter-segment revenues	$	2,914	$	5,427	$	14,138	$	15,370

	Income from Operations
	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Contract logistics	$	35,400	$	5,976	$	88,300	$	38,742
Intermodal		28,148		1,935		72,526		16,580
Trucking		4,791		6,830		21,821		18,503
Company-managed brokerage		1,079		1,770		9,097		4,656
Other		353		203		526		702
Total income from operations	$	69,771	$	16,714	$	192,270	$	79,183

UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

(14)	Commitments and Contingencies

Our principal commitments relate to long-term real estate leases and payment obligations to equipment vendors.

The Company is involved in certain other claims and pending litigation arising from the ordinary conduct of business. We also provide accruals for claims within our self-insured retention amounts. Based on the knowledge of the facts, and in certain cases, opinions of outside counsel, in the Company’s opinion the resolution of these claims and pending litigation will not have a material effect on our financial position, results of operations or cash flows. However, if we experience claims that are not covered by our insurance or that exceed our estimated claim reserve, it could increase the volatility of our earnings and have a materially adverse effect on our financial condition, results of operations or cash flows.

At October 1, 2022, approximately 39% of our employees in the United States, Canada and Colombia, and 79% of our employees in Mexico were subject to collective bargaining agreements that are renegotiated periodically, less than 1% of which are subject to contracts that expire in 2022.

(15)	Subsequent Events

On October 27, 2022, our Board of Directors declared the regular quarterly cash dividend of $0.105 per share of common stock, payable to shareholders of record at the close of business on December 5, 2022 and is expected to be paid on January 3, 2023. Declaration of future cash dividends is subject to final determination by the Board of Directors each quarter after its review of our financial condition, results of operations, capital requirements, any legal or contractual restrictions on the payment of dividends and other factors the Board of Directors deems relevant.

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, 2021 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 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. We believe our asset-light business model is highly scalable and will continue to support our growth with comparatively modest capital expenditure requirements. Our asset-light model, combined with a disciplined approach to contract structuring and pricing, creates a highly flexible cost structure that allows us to expand and contract quickly in response to changes in demand from our customers.

We generate substantially all of our revenues through fees charged to customers for the transportation of freight and for the customized logistics services we provide. We also derive revenue from fuel surcharges, where separately identifiable, loading and unloading activities, equipment detention, container management and storage and other related services. Operations aggregated in our transportation segment are associated with individual freight shipments coordinated by our agents, company-managed terminals and specialized services operations. In contrast, operations aggregated in our logistics segment deliver value-added services and transportation services to specific customers on a dedicated basis, generally pursuant to contract terms of one year or longer. Our segments are distinguished by the amount of forward visibility we have in 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.

Impact of COVID-19 and Current Economic Conditions

The ultimate magnitude of COVID-19, including the extent of its impact on the Company’s financial and operating results, which could be material, will be determined by the length of time the pandemic continues, its severity, government regulations imposed in response to the pandemic, and to its general effect on the economy and transportation demand. Additionally, a prolonged period of inflationary pressures could cause interest rates, equipment, maintenance, labor and other operating costs to continue to increase. If the Company is unable to offset rising costs through corresponding customer rate increases, such increases could adversely affect our results of operations.

While operating cash flows may be negatively impacted by the pandemic and inflation-driven cost increases, the Company believes we will be able to finance our near term needs for working capital over the next twelve months, as well as any planned capital expenditures during such period, with cash balances, cash flows from operations, and loans and extensions of credit under our credit facilities and on margin against our marketable securities. Should the impact of the COVID-19 pandemic and/or inflation-driven cost increases last longer than anticipated, and/or our cash flow from operations decline more than expected, we may need to obtain additional financing. The Company’s ability to fund future operating expenses and capital expenditures, as well as its ability to meet future debt service obligations or refinance indebtedness will depend on future operating performance, which will be affected by general economic, financial, and other factors beyond our control.

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 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 1, 2022 and October 2, 2021, presented as a percentage of total operating revenues:

	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Operating revenues:
Truckload services		11.5	%		14.7	%		11.3	%		14.3	%
Brokerage services		16.5			22.9			18.8			23.5
Intermodal services		30.5			27.2			30.1			25.8
Dedicated services		17.1			11.6			15.5			11.7
Value-added services		24.4			23.6			24.3			24.7
Total operating revenues		100.0	%		100.0	%		100.0	%		100.0	%

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 1, 2022 and October 2, 2021, presented as a percentage of operating revenues:

	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Operating revenues:		100.0	%		100.0	%		100.0	%		100.0	%
Operating expenses:
Purchased transportation and equipment rent		41.3			47.8			42.9			46.8
Direct personnel and related benefits		25.3			26.6			25.2			26.2
Operating supplies and expenses		8.8			9.8			8.5			8.9
Commission expense		2.1			2.0			2.0			1.9
Occupancy expense		2.0			2.1			1.9			2.1
General and administrative		2.6			2.5			2.2			2.3
Insurance and claims		1.1			1.8			1.1			1.6
Depreciation and amortization		3.0			3.7			3.7			4.0
Total operating expenses		86.2			96.2			87.6			93.8
Income from operations		13.8			3.8			12.4			6.2
Interest and other non-operating expense, net		(1.0	)		(0.7	)		(0.8	)		(0.2	)
Income before income taxes		12.8			3.1			11.6			6.0
Income tax expense		3.2			0.8			2.9			1.5
Net income		9.6	%		2.3	%		8.7	%		4.5	%

Thirteen Weeks Ended October 1, 2022 Compared to Thirteen Weeks Ended October 2, 2021

Operating revenues. Operating revenues for the thirteen weeks ended October 1, 2022 increased $60.1 million, or 13.5%, to $505.7 million from $445.6 million for the thirteen weeks ended October 2, 2021. Included in operating revenues are separately-identified fuel surcharges of $46.8 million for the thirteen weeks ended October 1, 2022 compared to $24.9 million for the thirteen weeks ended October 2, 2021. Consolidated income from operations increased $53.1 million, or 317.4%, to $69.8 million for the third quarter 2022 compared to $16.7 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 $52.6 million, or 33.5%, to $209.5 million in the third quarter 2022 compared to $156.9 million in the previous year. Income from operations in the contract logistics segment increased $29.4 million, or 492.4%, to $35.4 million for the thirteen weeks ended October 1, 2022 compared to $6.0 million in the same period last year. In the third quarter of 2022, Universal managed 63 value-added programs compared to 61 in the prior year period. During the recently completed quarter, dedicated transportation load count increased 11.4% to 152,734 from 137,127 in the third quarter 2021. Also included in contract logistics revenue for the third quarter 2022 were $11.3 million in separately identified fuel surcharges, compared to $5.1 million in the same period last year. Third quarter 2021 contract logistics segment results included $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 2022 was 16.9% compared to 3.8% during the same period last year.

In the intermodal segment, operating revenues increased $33.4 million to $154.4 million in the third quarter 2022 compared to $121.0 million in the previous year. Intermodal revenues for the thirteen weeks ended October 1, 2022 included $26.4 million in separately identified fuel surcharges, compared to $13.2 million in the same period last year. During the third quarter 2022, Universal moved 135,800 intermodal loads compared to 159,428 in the third quarter 2021, a decrease of 14.8%, while its average operating revenue per load, excluding fuel surcharges increased 35.2% to $726 from $537. Intermodal segment revenues also include accessorial charges such as detention, demurrage and storage which totaled $31.3 million during the third quarter 2022, compared to $23.3 million one year earlier. Income from operations in the intermodal segment increased $26.2 million to $28.1 million for the thirteen weeks ended October 1, 2022 compared to $1.9 million in the third quarter 2021. Third quarter 2021 intermodal segment results included legal charges of $5.8 million. As a percentage of revenue, operating margin in the intermodal segment for the third quarter 2022 was 18.2%, compared to 1.6% during the same period last year.

In the trucking segment, operating revenues decreased $7.6 million to $99.6 million in the third quarter 2022 compared to $107.2 million in the prior year period. Included in trucking segment revenues for the third quarter 2022 were $9.1 million in separately identified fuel surcharges compared to $6.5 million during the third quarter 2021. Income from operations in the trucking segment decreased $2.0 million to $4.8 million for the third quarter 2022 compared to $6.8 million in the same period last year. During the recently completed quarter, Universal’s average operating revenue per load, excluding fuel surcharges, increased 26.6% to $1,794 from $1,417 in the prior year period; however, this increase was offset by a 30.2% decrease in load volumes as we rationalized underperforming operations in this segment. During the third quarter 2022, Universal moved 50,614 loads compared to 72,549 during the same period last year. As a percentage of revenue, operating margin in the trucking segment for the third quarter 2022 was 4.8%, compared to 6.4% during the same period last year.

In the company-managed brokerage segment, operating revenues decreased $18.6 million, or 31.4%, to $40.6 million in the thirteen weeks ending October 1, 2022 compared to $59.2 million in the thirteen weeks ending October 2, 2021. During the recently completed quarter, the average operating revenue per load, excluding fuel surcharges, decreased 8.2% to $1,659 from $1,808 in the third quarter 2021 and load volumes fell 31.0% to 21,141 from 30,619. As a percentage of revenue, operating margin for the company-managed brokerage segment was 2.7% for the third quarter 2022 compared to 3.0% in the same period last year.

Purchased transportation and equipment rent. Purchased transportation and equipment rental costs for the third quarter 2022 decreased $4.0 million, or 1.9%, to $208.9 million from $212.9 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. As a percentage of operating revenues, purchased transportation and equipment rent expense decreased to 41.3% compared to 47.8% during the same period last year. The decrease in purchased transportation and equipment rental costs was due to a decrease in brokerage services revenue, where the cost of transportation is typically higher than our other transportation businesses. As a percentage of total revenues, brokerage services revenues decreased to 16.5% in the third quarter of 2022 compared to 22.9% in the same period last year.

Direct personnel and related benefits. Direct personnel and related benefits for the thirteen weeks ended October 1, 2022 increased by $9.4 million, or 7.9%, to $127.7 million compared to $118.4 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 decreased to 25.3% for the thirteen weeks ended October 1, 2022, compared to 26.6% for the thirteen weeks ended October 2, 2021. The percentage is derived on an aggregate basis from both existing and new programs, and from customer operations at various stages in their lifecycles. Individual operations may be impacted by additional production shifts or by overtime at selected operations. While generalizations about the impact of personnel and related benefits costs as a percentage of total revenue are difficult, we manage compensation and staffing levels, including the use of contract labor, to maintain target economics based on near-term projections of demand for our services.

Operating supplies and expenses. Operating supplies and expenses increased by $0.9 million, or 2.1%, to $44.7 million for the thirteen weeks ended October 1, 2022 compared to $43.8 million for the thirteen weeks ended October 2, 2021. These expenses include items such as fuel, maintenance, cost of materials, communications, utilities and other operating expenses, and generally relate to fluctuations in customer demand. The main elements driving the change were increases of $4.8 million in fuel expense on company tractors and $1.5 million in vehicle and other maintenance. These increases were partially offset by a $5.7 million decrease in legal charges professional fees.

Commission expense. Commission expense for the third quarter 2022 increased by $1.5 million, or 17.0%, to $10.6 million from $9.1 million for the third 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 2.1% compared to 2.0% in the third quarter 2021.

Occupancy expense. Occupancy expenses increased by $0.8 million, or 8.7%, to $10.2 million for the thirteen weeks ended October 1, 2022. This compares to $9.3 million for the thirteen weeks ended October 2, 2021. The increase was attributable to an increase in building rents and property taxes.

General and administrative. General and administrative expense for the thirteen weeks ended October 1, 2022 increased by $2.0 million to $13.0 million from $11.0 million in the thirteen weeks ended October 2, 2021. The increase was primarily attributable to an increase in salaries, wages, and benefits. As a percentage of operating revenues, general and administrative expense was 2.6% for the third quarter 2022 compared to 2.5% for the third quarter 2021.

Insurance and claims. Insurance and claims expense for the third quarter 2022 decreased by $2.2 million to $5.7 million from $7.9 million in the third quarter 2021. As a percentage of operating revenues, insurance and claims decreased to 1.1% for the thirteen weeks ending October 1, 2022 compared to 1.8% for the third quarter 2021. The decrease was attributable to a decrease in auto liability premiums and cargo and service failure claims.

Depreciation and amortization. Depreciation and amortization expense for the thirteen weeks ended October 1, 2022 decreased by $1.4 million, or 8.6%, to $15.0 million from $16.5 million for 2021. Depreciation expense decreased $1.5 million and amortization expense increased $0.1 million.

Interest expense, net. Net interest expense was $4.5 million for the thirteen weeks ended October 1, 2022 compared to $3.0 million for the thirteen weeks ended October 2, 2021. The increase in net interest expense reflects an increase in interest rates on our outstanding borrowings. As of October 1, 2022, our outstanding borrowings totaled $393.7 million compared to $444.8 million at the same time last year.

Other non-operating income (expense). Other non-operating expense was $0.5 million for the third quarter 2022 compared to $0.1 million in the prior year. Other non-operating expense for the third quarter 2022 includes a $0.5 million pre-tax holding loss on marketable securities due to changes in fair value recognized in income compared to $0.1 million in the third quarter 2021.

Income tax expense. Income tax expense for the third quarter 2022 was $16.3 million, compared to $3.3 million for the third quarter 2021, based on an effective tax rate of 25.2% and 24.5% respectively. The increase in income taxes in 2022 is the result of an increase in taxable income for the thirteen weeks ended October 1, 2022 compared to the thirteen weeks ended October 2, 2021.

Thirty-nine Weeks Ended October 1, 2022 Compared to Thirty-nine Weeks Ended October 2, 2021

Operating revenues. Operating revenues for the thirty-nine weeks ended October 1, 2022 increased $273.1 million, or 21.3%, to $1,556.7 million from $1,283.6 million for the thirty-nine weeks ended October 2, 2021. Included in operating revenues are separately-identified fuel surcharges of $127.5 million for the thirty-nine weeks ended October 1, 2022 compared to $68.0 million for the thirty-nine weeks ended October 2, 2021. Consolidated income from operations increased $113.1 million, or 142.8%, to $192.3 million for the thirty-nine weeks ending October 1, 2022 compared to $79.2 million during the same period last year. Results for the thirty-nine weeks ending October 1, 2022 include a $2.8 million credit to insurance and claims expense resulting from the favorable settlement of certain auto liability claims during the period as well as $9.7 million in additional depreciation expense due to the revision of the useful life and salvage value of certain equipment. 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 unrelated legal charges, and $13.9 million of losses incurred in connection with a contract logistics program launch.

In the contract logistics segment, which includes value-added and dedicated services, operating revenues increased $151.9 million, or 32.6%, to $618.4 million in the thirty-nine weeks ending October 1, 2022 compared to $466.6 million in the previous year. Income from operations in the contract logistics segment increased $49.6 million, or 127.9%, to $88.3 million for the thirty-nine weeks ended October 1, 2022 compared to $38.7 million in the same period last year. In the thirty-nine weeks ending October 1, 2022, Universal managed 63 value-added programs compared to 61 in the prior year period. During the thirty-nine weeks ending October 1, 2022, dedicated transportation load count increased 3.8% to 466,852 from 449,621 in the thirty-nine weeks ending October 2, 2021. Also included in dedicated transportation revenue for the thirty-nine weeks ending October 1, 2022 were $31.1 million in separately identified fuel surcharges, compared to $15.3 million in the same period last year. Contract logistics segment results for the thirty-nine weeks ending October 2, 2021 included $13.9 million of losses incurred in connection with a previously announced program launch. As a percentage of revenue, operating margin in the contract logistics segment for the thirty-nine weeks ending October 1, 2022 was 14.3% compared to 8.3% during the same period last year.

In the intermodal segment, operating revenues increased $137.5 million to $468.9 million in the thirty-nine weeks ending October 1, 2022 compared to $331.3 million in the previous year. Intermodal revenues for the thirty-nine weeks ended October 1, 2022 included $69.8 million in separately identified fuel surcharges, compared to $35.2 million in the same period last year. During the thirty-nine weeks ending October 1, 2022, Universal moved 435,923 intermodal loads compared to 508,352 in the thirty-nine weeks ending October 2, 2021, a decrease of 14.2%, while its average operating revenue per load, excluding fuel surcharges increased 41.2% to $706 from $500. Intermodal segment revenues also include accessorial charges such as detention, demurrage and storage which totaled $101.1 million during the thirty-nine weeks ending October 1, 2022, compared to $49.3 million one year earlier. Income from operations in the intermodal segment increased $55.9 million to $72.5 million for the thirty-nine weeks ended October 1, 2022 compared to $16.6 million in the thirty-nine weeks ending October 2, 2021. Intermodal segment results included litigation related charges totaling $7.6 million in the thirty-nine weeks ending October 2, 2021. As a percentage of revenue, operating margin in the intermodal segment for the thirty-nine weeks ending October 1, 2022 was 15.5%, compared to 5.0% during the same period last year.

In the trucking segment, operating revenues increased $1.8 million to $303.6 million in the thirty-nine weeks ending October 1, 2022 compared to $301.8 million in the prior year period. Included in trucking segment revenues for the thirty-nine weeks ending October 1, 2022 were $26.5 million in separately identified fuel surcharges compared to $17.6 million during the thirty-nine weeks ending October 2, 2021. Income from operations in the trucking segment increased $3.3 million to $21.8 million for the thirty-nine weeks ending October 1, 2022 compared to $18.5 million in the same period last year. During the thirty-nine weeks ending October 1, 2022, Universal’s average operating revenue per load, excluding fuel surcharges, increased 36.4% to $1,799 from $1,319 in the prior year period; however, this increase was partially offset by a 30.1% decrease in load volumes as we rationalized underperforming operations in this segment. During the thirty-nine weeks ending October 1, 2022, Universal moved 154,479 loads compared to 220,938 during the same period last year. As a percentage of revenue, operating margin in the trucking segment for the thirty-nine weeks ending October 1, 2022 was 7.2%, compared to 6.1% during the same period last year.

In the company-managed brokerage segment, operating revenues decreased $19.8 million, or 11.0%, to $160.9 million in the thirty-nine weeks ending October 1, 2022 compared to $180.8 million in the thirty-nine weeks ending October 2, 2021. During the thirty-nine weeks ending October 1, 2022, the average operating revenue per load, excluding fuel surcharges, increased 8.5% to $1,960 from $1,807 in the thirty-nine weeks ending October 2, 2021; however, load volumes fell 27.6% to 68,453 from 94,510. As a percentage of revenue, operating margin for the company-managed brokerage segment was 5.7% for the thirty-nine weeks ending October 1, 2022 compared to 2.6% in the same period last year.

Purchased transportation and equipment rent. Purchased transportation and equipment rental costs for the thirty-nine weeks ending October 1, 2022 increased $67.9 million, or 11.3%, to $668.2 million from $600.3 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. During the thirty-nine weeks ending October 1, 2022 transportation-related service revenues increased 22.0% compared to the same period last year. As a percentage of operating revenues, purchased transportation and equipment rent expense decreased to 42.9% compared to 46.8% during the third quarter of 2021 due to a decrease in the mix of brokerage services revenue, where the cost of transportation is typically higher than our other transportation businesses. As a percentage of total revenues, brokerage services revenue decreased to 18.8% for 2021 compared to 23.5% in the same period last year.

Direct personnel and related benefits. Direct personnel and related benefits for the thirty-nine weeks ended October 1, 2022 increased by $54.8 million, or 16.3%, to $391.7 million compared to $336.9 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 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 thirty-nine weeks ending October 1, 2022. As a percentage of operating revenues, personnel and related benefits decreased to 25.2% for the thirty-nine weeks ended October 1, 2022, compared to 26.2% for the thirty-nine weeks ended October 2, 2021. The percentage is derived on an aggregate basis from both existing and new programs, and from customer operations at various stages in their lifecycles. Individual operations may be impacted by additional production shifts or by overtime at selected operations. While generalizations about the impact of personnel and related benefits costs as a percentage of total revenue are difficult, we manage compensation and staffing levels, including the use of contract labor, to maintain target economics based on near-term projections of demand for our services.

Operating supplies and expenses. Operating supplies and expenses increased by $19.3 million, or 17.0%, to $132.9 million for the thirty-nine weeks ended October 1, 2022 compared to $113.6 million for the thirty-nine weeks ended October 2, 2021. These expenses include items such as fuel, maintenance, cost of materials, communications, utilities and other operating expenses, and generally relate to fluctuations in customer demand. The main elements driving the change were increases of $20.8 million in fuel expense on company tractors, $4.5 million in vehicle and other maintenance, and $3.1 million in bad debt expense. These increases were partially offset by decreases of $4.5 million in professional fees including legal charges and $1.8 million in travel and entertainment expense.

Commission expense. Commission expense for the thirty-nine weeks ending October 1, 2022 increased by $6.4 million, or 25.7%, to $31.4 million from $25.0 million for the thirty-nine weeks ending October 2, 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 thirty-nine weeks ending October 1, 2022, compared to 1.9% in the same period last year.

Occupancy expense. Occupancy expenses increased by $3.4 million, or 12.8%, to $30.3 million for the thirty-nine weeks ended October 1, 2022. This compares to $26.9 million for the thirty-nine weeks ended October 2, 2021. The increase was attributable to an increase in building rents and property taxes.

General and administrative. General and administrative expense for the thirty-nine weeks ended October 1, 2022 increased by $4.8 million to $34.6 million from $29.9 million in the thirty-nine weeks ended October 2, 2021. The increase was primarily attributable to an increase in salaries, wages, and benefits. As a percentage of operating revenues, general and administrative expense was 2.2% for the thirty-nine weeks ending October 1, 2022 compared to 2.3% for the thirty-nine weeks ending October 2, 2021.

Insurance and claims. Insurance and claims expense for the thirty-nine weeks ending October 1, 2022 decreased by $3.1 million to $16.9 million from $20.0 million in the thirty-nine weeks ending October 2, 2021. As a percentage of operating revenues, insurance and claims decreased to 1.1% for the thirty-nine weeks ending October 1, 2022 compared to 1.6% for the thirty-nine weeks ending October 2, 2021. The decrease was attributable to decrease in auto liability insurance premiums and auto liability claims and included a $2.8 million credit resulting from the favorable settlement of certain auto liability claims during the period. The decrease was partially offset by an increase in cargo and service failure claims.

Depreciation and amortization. Depreciation and amortization expense for the thirty-nine weeks ended October 1, 2022 increased by $6.5 million, or 12.4%, to $58.3 million from $51.9 million during the same period in 2021. Depreciation expense increased $6.3 million and amortization expense increased $0.2 million. During the thirty-nine weeks ending October 1, 2022, Universal revised the estimated useful life and salvage value of certain equipment, and these adjustments resulted in additional depreciation expense of $9.7 million during the period.

Interest expense, net. Net interest expense was $10.8 million for the thirty-nine weeks ended October 1, 2022 compared to $9.1 million for the thirty-nine weeks ended October 2, 2021. The increase in net interest expense reflects an increase in interest rates on our outstanding borrowings. As of October 1, 2022, our outstanding borrowings totaled $393.7 million compared to $444.8 million at the same time last year.

Other non-operating income (expense). Other non-operating expense was $0.3 million for the thirty-nine weeks ending October 1, 2022 compared to $7.0 million of non-operating income in the prior year. Other non-operating income for the thirty-nine weeks ending October 1, 2022 includes a $0.4 million pre-tax holding loss on marketable securities due to changes in fair value recognized in income. Other non-operating income for the thirty-nine weeks ending October 2, 2021 includes a $5.7 million pre-tax gain from a favorable legal settlement and a $1.2 million pre-tax holding gain on marketable securities due to changes in fair value recognized in income.

Income tax expense. Income tax expense for the thirty-nine weeks ending October 1, 2022 was $45.9 million, compared to $19.5 million for the thirty-nine weeks ending October 2, 2021, based on an effective tax rate of 25.4% compared to 25.3% in the prior year period. The increase in income tax expense in 2022 is the result of an increase in taxable income for the thirty-nine weeks ended October 1, 2022 compared to the thirty-nine weeks ended October 2, 2021.

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 an asset-light operating strategy which we believe lowers our capital expenditure requirements. In general, our facilities used in our value-added services are leased on terms that are either substantially matched to our customer’s contracts, are month-to-month or are provided to us by our customers. We also utilize owner-operators and third-party carriers to provide a significant portion of our transportation and specialized services. A significant portion of the tractors and trailers used in our business are provided by our owner-operators. In addition, our use of agents reduces our overall need for large terminals. As a result, our capital expenditure requirements are limited in comparison to most large transportation and logistics service providers, which maintain significant properties and sizable fleets of owned tractors and trailers.

During the thirty-nine weeks ended October 1, 2022, our capital expenditures totaled $85.8 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. 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 7% to 8% of operating revenues. We expect to make these capital expenditures for the acquisition of transportation equipment, to support our new and existing value-added service operations, for a new administrative office complex to support our growth, and for improvements to our existing terminal yards and container facilities. Due to widespread shortages, production backlogs, and limited availability of transportation equipment during 2021, our 2022 expenditures are projected to be somewhat higher than the customary range of 4% to 5% of our operating revenues. As equipment manufacturers identify and implement solutions enabling them to overcome supply-side constraints, we would expect to return to a normalized level of capital expenditures in future periods.

We have a cash dividend policy that anticipates a regular dividend of $0.42 per share of common stock, payable in quarterly increments of $0.105 per share of common stock. After 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. The Board of directors did not declare a special dividend in the first quarter of 2022. On October 27, 2022, our Board of Directors did declare the regular quarterly cash dividend of $0.105 per share of common stock payable January 3, 2023 to shareholders of record at the close of business December 5, 2022. During the year ended December 31, 2021, we paid a total of $0.42 per common share, or $11.3 million. Future dividend policy and the payment of dividends, if any, will be determined by the Board of Directors in light of circumstances then existing, including our earnings, financial condition and other factors deemed relevant by the Board of Directors.

On May 13, 2022, the Company commenced a “Dutch auction” tender offer to repurchase up to 100,000 shares of the Company’s outstanding common stock at a price of not greater than $28.00 nor less than $25.00 per share. Following expiration of the tender offer on June 15, 2022, we accepted 164,189 shares, including 64,189 oversubscribed shares tendered, of our common stock for purchase at $28.00 per share, for a total purchase price of approximately $4.6 million, excluding fees and expenses related to the offer. We paid for the accepted shares with available cash and funds borrowed under our existing line of credit.

We expect that our cash flow from operations, working capital and available borrowings will be sufficient to meet our capital commitments, to fund our operational needs for at least the next twelve months, and to fund mandatory debt repayments. Based on the availability of borrowings under our credit facilities, against our marketable security portfolio and other financing sources, and assuming the continuation of our current level of profitability, we do not expect that we will experience any liquidity constraints in the foreseeable future.

We continue to evaluate business development opportunities, including potential acquisitions that fit our strategic plans. There can be no assurance that we will identify any opportunities that fit our strategic plans or will be able to execute any such opportunities on terms acceptable to us. Depending on prospective consideration to be paid for an acquisition, any such opportunities would be financed first from available cash and cash equivalents and availability of borrowings under our credit facilities.

Revolving Credit, Promissory Notes and Term Loan Agreements

Our revolving credit facility (the “Revolving Credit Facility”) provides for a $400 million revolver at a variable rate of interest based on index-adjusted SOFR or a base rate and matures on September 30, 2027. The Revolving Credit Facility, which is secured by cash, deposits, accounts receivable, and selected other assets of the applicable borrowers, includes customary affirmative and negative covenants and events of default, as well as financial covenants requiring minimum fixed charge coverage and leverage ratios, and customary mandatory prepayments provisions. Our Revolving Credit Facility includes an accordion feature which allows us to increase availability by up to $200 million upon our request. At October 1, 2022, we were in compliance with all its covenants, and $384.6 million was available for borrowing.

Our UACL Credit and Security Agreement (the “UACL Credit Agreement”) provides for maximum borrowings of $90 million in the form of an $80 million term loan and a $10 million revolver at a variable rate of interest based on index-adjusted SOFR or a base rate and matures on September 30, 2027. The UACL Credit Agreement, which is secured by cash, deposits, accounts receivable, and selected other assets of the applicable borrowers, includes customary affirmative and negative covenants and events of default, as well as financial covenants requiring minimum fixed charge coverage and leverage ratios, and customary mandatory prepayments provisions. Our UACL Credit Agreement includes an accordion feature which allows us to increase availability by up to $30 million upon our request. At October 1, 2022, we were in compliance with all its covenants, and $10.0 million was available for borrowing.

A wholly owned subsidiary issued a series of promissory notes in order to finance transportation equipment (the “Equipment Financing”). The notes issued in connection with the Equipment Financing, which are secured by liens on specific titled vehicles, are generally payable in 60 monthly installments and bear interest at fixed rates ranging from 2.25% to 6.33%.

Certain wholly owned subsidiaries entered into a $165.4 million term loan facility to repay outstanding balances under a then-existing term loan and certain other real estate notes (the “Real Estate Facility”). The Real Estate Facility matures on April 29, 2032 and is secured by first-priority mortgages on specific parcels of real estate owned by the Company, including all land and real property improvements, and first-priority assignments of rents and related leases of the loan parties. The Real Estate Facility includes customary affirmative and negative covenants, and principal and interest is payable on the facility on a monthly basis, based on an annual amortization of 10%. The facility bears interest at Term SOFR, plus an applicable margin equal to 2.12%. At October 1, 2022, we were in compliance with all covenants under the facility.

We also maintain a short-term line of credit secured by our portfolio of marketable securities (the “Margin Facility”). 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 October 1, 2022, and the maximum available borrowings were $5.0 million.

Discussion of Cash Flows

At October 1, 2022, we had cash and cash equivalents of $14.6 million compared to $13.9 million at December 31, 2021. Operating activities provided $144.5 million in net cash, and we used $76.4 million in investing activities and $64.6 million in financing activities.

The $144.5 million in net cash provided by operations was primarily attributed to $135.2 million of net income, which reflects non-cash depreciation and amortization, noncash lease expense, losses on marketable equity securities, gains on equipment sales, amortization and write-off of debt issuance costs, stock-based compensation, and provisions for doubtful accounts totaling $84.4 million, net. Net cash provided by operating activities also reflects an aggregate increase in net working capital totaling $75.1 million. The primary drivers behind the increase in working capital were principal reductions in operating lease liabilities during the period, an increase in trade accounts receivable, and decreases in trade accounts payable, accruals for insurance and claims, accrued expenses and other current liabilities, and in other long-term liabilities. These were partially offset by decreases in other receivables and in

prepaid expenses and other assets, and an increase in income taxes payable. Affiliate transactions increased net cash provided by operating activities by $4.9 million primarily resulting from an increase in accounts payable to affiliates.

The $76.4 million in net cash used in investing activities consisted of $85.8 million in capital expenditures and $0.9 million in marketable securities purchases. These uses were partially offset by $10.4 million in proceeds from the sale of equipment.

We used $64.6 million in financing activities during the thirty-nine weeks ended October 1, 2022. During the period we paid cash dividends of $11.2 million, $14.3 million for purchases of common stock and $4.4 million in capitalized financing costs. We had outstanding borrowings totaling $393.7 million at October 1, 2022 compared to $428.4 million at December 31, 2021. During the period also we made net repayments on our revolving lines of credit totaling $147.9 million and term loan, and equipment and real estate note payments totaling $205.5 million. We also borrowed $318.7 million during the period to repay outstanding balances under a then-existing term loan and certain other real estate notes, and for new equipment.

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, 2021. There have been no changes in our accounting policies during the thirteen weeks ended October 1, 2022.

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. However, due to the COVID-19 pandemic and its impact on North American automotive manufacturing, we may not experience normal seasonal demand for our services supporting the automotive production and selling cycles during the current year.

Our transportation services business is generally impacted by decreased activity during the post-holiday winter season and, in certain states, during hurricane season. At these times, some shippers reduce their shipments, and inclement weather impedes trucking operations or underlying customer demand.

Prolonged adverse weather conditions, particularly in winter months, can also adversely impact margins due to productivity declines and related challenges meeting customer service requirements.

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 October 1, 2022. For additional information, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to paragraph (b) of Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934, as amended (or the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 1, 2022, our disclosure controls and procedures were effective in causing the material information required to be disclosed in the reports that it files or submits under the Exchange Act (i) to be recorded, processed, summarized and reported, to the extent applicable, within the time periods required for us to meet the Securities and Exchange Commission’s (or SEC) filing deadlines for these reports specified in the SEC’s rules and forms and (ii) to be accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Controls

There have been no changes in our internal controls over financial reporting during the thirteen weeks ended October 1, 2022 identified in connection with our evaluation that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

For information regarding legal proceedings, see Note 14 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report.

ITEM 1A: RISK FACTORS

Except as noted below, there have been no material changes to our risk factors as previously disclosed in Item 1A to Part 1 of our Form 10-K for the fiscal year ended December 31, 2021.

A determination that independent contractors are employees could expose us to various liabilities and additional costs.

Federal and state legislators and other regulatory authorities, as well as independent contractors themselves, often seek to assert that independent contractors in the transportation services industry are employees rather than independent contractors. An example of such legislation enacted in California will now be enforceable against trucking companies following the U.S. Supreme Court’s recent decision not to hear an appeal in litigation challenging the legislation. Although no enforcement actions under the California legislation have been asserted against the Company, if the State of California seeks to re-classify our use of our independent contractors as employees, that result could materially increase our exposure under a variety of federal and state tax, workers’ compensation, unemployment benefits, labor, employment and tort laws, as well as our potential liability for employee benefits. In addition, such changes may be applied retroactively, and if so, we may be required to pay additional amounts to compensate for prior periods. Any of the above increased costs would adversely affect our business and operating results.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

None.

ITEM 6: EXHIBITS

The exhibits listed on the Exhibit Index are furnished as part of this quarterly report on Form 10-Q.

Exhibit No.		Description

3.1		Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 filed on November 15, 2004)

3.2		Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3(i)-1 and 3(i)-2 to the Registrant’s Current Report on Form 8-K filed on November 1, 2012)

3.3		Certificate of Amendment to Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 2, 2016)

3.4		Fifth Amended and Restated Bylaws, effective December 13, 2019 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 16, 2019)

4.1		Second Amended and Restated Registration Rights Agreement dated July 28, 2021 among the Registrant and the Moroun Family Holders (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed July 29, 2021)

10.1		Credit Agreement dated as of April 29, 2022 among UTSI Finance, Inc., UTS Realty, LLC, the lenders party thereto, and Fifth Third Bank, N.A., as agent for the lenders (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed May 2, 2022)

10.2		Confirmation of Transaction, dated April 29, 2022, between Fifth Third Bank, N.A. and UTSI Finance, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed May 2, 2022)

10.3		First Amendment Agreement dated September 30, 2022 among Universal Management Services, Inc., certain of its affiliates identified therein as Borrowers, KeyBank National Association, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed October 3, 2022)

10.4		Credit and Security Agreement dated September 30, 2022 among UACL Logistics Holdings, LLC, certain of its affiliates identified therein as Borrowers, KeyBank National Association, and the Lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed October 3, 2022

31.1*		Chief Executive Officer certification, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Chief Financial Officer certification, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002

32.1**		Chief Executive Officer and Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

101.INS*		Inline XBRL Instance Document

101.SCH*		Inline XBRL Schema Document

101.CAL*		Inline XBRL Calculation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		Inline XBRL Labels Linkbase Document

101.PRE*		Inline XBRL Presentation Linkbase Document

104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*	Filed herewith.

**	Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

		Universal Logistics Holdings, Inc.
		(Registrant)

Date: November 10, 2022	By:	/s/ Tim Phillips
		Tim Phillips Chief Executive Officer

Date: November 10, 2022	By:	/s/ Jude Beres
		Jude Beres Chief Financial Officer