Universal Logistics Holdings, Inc.: Form 10-Q for the period ended Jul 1, 2023

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, 2022 and Part II, Item 1A of this Form 10-Q, as well as any other cautionary language in these filings, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.

Forward-looking statements speak only as of the date the statements are made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements.

Overview

Universal Logistics Holdings, Inc. is a holding company that owns subsidiaries engaged in providing a variety of customized transportation and logistics solutions throughout the United States, and in Mexico, Canada and Colombia. Our operating subsidiaries provide customers with a broad array of services across their entire supply chain, including truckload, brokerage, intermodal, dedicated and value-added services.

Our operating subsidiaries provide a comprehensive suite of transportation and logistics solutions that allow our customers and clients to reduce costs and manage their global supply chains more efficiently. We market our services through a direct sales and marketing network focused on selling our portfolio of services to large customers in specific industry sectors, through a network of agents who solicit freight business directly from shippers, and through company-managed facilities and full-service freight forwarding and customs house brokerage offices. We believe our flexible business model is highly scalable and will continue to support our growth with comparatively modest capital expenditure requirements. Our business model, combined with a disciplined approach to contract structuring and pricing, creates a highly flexible cost structure that allows us to expand and contract quickly in response to changes in demand from our customers.

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

The following discussion of the Company’s financial condition and results of operations should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 and the unaudited Consolidated Financial Statements and related notes contained in this Quarterly Report on Form 10-Q.

Current Economic Conditions

A prolonged period of inflationary pressures could cause interest rates, equipment, maintenance, labor and other operating costs to continue to increase. If the Company is unable to offset rising costs through corresponding customer rate increases, such increases could adversely affect our results of operations.

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

Operating Revenues

For financial reporting, we broadly group our services into the following categories: truckload services, brokerage services, intermodal services, dedicated services and value-added services. Our truckload, brokerage and intermodal services 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 twenty-six weeks ended July 1, 2023 and July 2, 2022, presented as a percentage of total operating revenues:

Results of Operations

The following table sets forth items derived from our consolidated statements of income for the thirteen weeks and twenty-six weeks ended July 1, 2023 and July 2, 2022, presented as a percentage of operating revenues:

20

Thirteen Weeks Ended July 1, 2023 Compared to Thirteen Weeks Ended July 2, 2022

Operating revenues. Operating revenues for the thirteen weeks ended July 1, 2023 decreased $114.6 million, or 21.7%, to $412.6 million from $527.2 million for the thirteen weeks ended July 2, 2022. Included in operating revenues are separately-identified fuel surcharges of $28.6 million for the thirteen weeks ended July 1, 2023 compared to $46.1 million for the thirteen weeks ended July 2, 2022. Consolidated income from operations decreased $28.3 million, or 43.7%, to $36.4 million for the second quarter 2023 compared to $64.7 million during the same period last year. Second quarter 2022 results include a $3.0 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.

In the contract logistics segment, which includes value-added and dedicated services, operating revenues increased $1.5 million, or 0.7%, to $208.8 million in the second quarter 2023 compared to $207.3 million in the previous year. Income from operations in the contract logistics segment increased $3.4 million, or 11.4%, to $32.8 million for the thirteen weeks ended July 1, 2023 compared to $29.4 million in the same period last year. In the second quarter of 2023, Universal managed 68 value-added programs compared to 64 in the prior year period. Included in dedicated transportation revenue for the second quarter 2023 were $8.6 million in separately identified fuel surcharges, compared to $11.0 million in the same period last year. As a percentage of revenue, operating margin in the contract logistics segment for the second quarter 2023 was 15.7% compared to 14.2% during the same period last year.

In the intermodal segment, operating revenues decreased $65.3 million, or 41.6%, to $91.6 million in the second quarter 2023 compared to $156.9 million in the previous year. Intermodal revenues for the thirteen weeks ended July 1, 2023 included $13.6 million in separately identified fuel surcharges, compared to $25.2 million in the same period last year. During the second quarter 2023, Universal moved 112,925 intermodal loads compared to 145,916 in the second quarter 2022, a decrease of 22.6%, while its average operating revenue per load, excluding fuel surcharges decreased 15.3% to $590 from $696. Intermodal segment revenues also include accessorial charges such as detention, demurrage and storage, which totaled $13.4 million during the second quarter 2023, compared to $33.6 million one year earlier. Income from operations in the intermodal segment decreased $21.6 million to a loss of $(0.2) million for the thirteen weeks ended July 1, 2023 compared to operating income of $21.4 million in the second quarter 2022. As a percentage of revenue, operating margin in the intermodal segment for the second quarter 2023 was (0.3)%, compared to 13.6% during the same period last year.

In the trucking segment, operating revenues decreased $25.3 million, or 23.7%, to $81.2 million in the second quarter 2023 compared to $106.5 million in the prior year period. Included in trucking segment revenues for the second quarter 2023 were $6.4 million in separately identified fuel surcharges compared to $9.9 million during the second quarter 2022. Income from operations in the trucking segment decreased $5.2 million to $4.4 million for the second quarter 2023 compared to $9.6 million in the same period last year. During the recently completed quarter, Universal’s average operating revenue per load, excluding fuel surcharges, decreased 10.7% to $1,646 from $1,844 in the prior year period and load volumes decreased 13.7% to 45,717 from 52,986. As a percentage of revenue, operating margin in the trucking segment for the second quarter 2023 was 5.4%, compared to 9.0% during the same period last year. Included in the trucking segment’s second quarter 2022 operating results was a $3.0 million credit related to a previously disclosed item, which favorably impacted this segment’s operating margin by 280 basis points.

In the company-managed brokerage segment, operating revenues decreased $25.5 million, or 46.3%, to $29.6 million in the thirteen weeks ending July 1, 2023 compared to $55.1 million in the thirteen weeks ending July 2, 2022. During the recently completed quarter, the average operating revenue per load decreased 20.3% to $1,599 from $2,006 and load volumes fell 21.5% to 17,814 from 22,701. Second quarter 2023 operating losses in the company-managed brokerage segment were $(0.8) million compared to $4.2 million of operating income during the same period last year. As a percentage of revenue, operating margin for the company-managed brokerage segment was (2.7)% for the second quarter 2023 compared to 7.5% in the same period last year.

Purchased transportation and equipment rent. Purchased transportation and equipment rental costs for the second quarter 2023 decreased $87.3 million, or 38.4%, to $139.9 million from $227.2 million during the same period last year. Purchased transportation and equipment rent generally increases or decreases in proportion to the revenues generated through owner-operators and other third party providers. The increases or decreases are generally correlated with changes in demand for transactional transportation-related services, which includes truckload, brokerage, and intermodal services. The absolute decrease in purchased transportation and equipment rental costs was primarily the result of an overall decrease in transactional transportation-related services. Second quarter 2023 transactional transportation-related service revenues decreased 36.3% compared to the second quarter of 2022. As a percentage of operating revenues, purchased transportation and equipment rent expense decreased to 33.9% compared to 43.1% during the same period last year due to a decrease in the mix of transactional transportation services revenue. As a percentage of total revenues, transactional transportation services revenue decreased to 49.4% for the second quarter 2023 compared to 60.7% in the same period last year.

Direct personnel and related benefits. Direct personnel and related benefits for the thirteen weeks ended July 1, 2023 increased by $11.3 million, or 8.9%, to $138.0 million compared to $126.7 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, as well as the use of employee drivers in certain of our intermodal operations. The increase in second quarter 2023 was due to an increase in the number of employee drivers in our California intermodal operations. As a percentage of operating revenues, personnel and related benefits increased to 33.5% for the thirteen weeks ended July 1, 2023, compared to 24.0% for the thirteen weeks ended July 2, 2022. 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 decreased by $4.9 million, or 10.7%, to $41.1 million for the thirteen weeks ended July 1, 2023 compared to $46.0 million for the thirteen weeks ended July 2, 2022. 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 decreases of $2.5 million in fuel expense on company tractors and $0.9 million in maintenance.

Commission expense. Commission expense for the second quarter 2023 decreased by $3.1 million, or 28.9%, to $7.6 million from $10.8 million for the second quarter 2022. Commission expense decreased due to decreased revenue in our agency-based truckload business. As a percentage of operating revenues, commission expense was 1.9% compared to 2.0% for the second quarter 2022.

Occupancy expense. Occupancy expenses increased by $1.0 million, or 10.4%, to $11.0 million for the thirteen weeks ended July 1, 2023. This compares to $10.0 million for the thirteen weeks ended July 2, 2022. 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 July 1, 2023 increased by $1.3 million, or 10.6%, to $13.4 million from $12.1 million in the thirteen weeks ended July 2, 2022. The increase was due to increases of $0.6 million in professional fees and $0.6 million in salaries, wages, and benefits. As a percentage of operating revenues, general and administrative expense was 3.3% for the second quarter 2023 compared to 2.3% for the second quarter 2022.

Insurance and claims. Insurance and claims expense for the second quarter 2023 increased by $3.3 million to $5.9 million from $2.6 million in the second quarter 2022. As a percentage of operating revenues, insurance and claims increased to 1.4% for the thirteen weeks ending July 1, 2023 compared to 0.5% for the second quarter 2022. Second quarter 2022 included a $3.0 million credit to insurance and claims expense resulting from the favorable settlement of certain auto liability claims during the period.

Depreciation and amortization. Depreciation and amortization expense for the thirteen weeks ended July 1, 2023 decreased by $7.9 million, or 29.2%, to $19.2 million from $27.1 million for the second quarter 2022. Depreciation expense decreased $7.5 million and amortization expense decreased $0.4 million. During the second quarter of 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 $5.1 million for the thirteen weeks ended July 1, 2023 compared to $3.9 million for the thirteen weeks ended July 2, 2022. The increase in net interest expense reflects an increase in interest rates on our outstanding borrowings. As of July 1, 2023, our outstanding borrowings totaled $382.0 million compared to $417.3 million at the same time last year.

Other non-operating income (expense). Other non-operating income was $0.3 million for the second quarter 2023 compared to non-operating expense of $0.8 million in the prior year period. Other non-operating income for the second quarter 2023 includes a $0.1 million pre-tax holding gain on marketable securities due to changes in fair value recognized in income compared to a $0.9 million pre-tax holding loss in the previous year.

Income tax expense. Income tax expense for the second quarter 2023 was $8.0 million, compared to $15.2 million for the second quarter 2022, based on an effective tax rate of 25.3% and 25.4%, respectively. The decrease in income taxes in 2023 is the result of a decrease in taxable income and our effective tax rate for the thirteen weeks ended July 1, 2023 compared to the thirteen weeks ended July 2, 2022.

Twenty-six Weeks Ended July 1, 2023 Compared to Twenty-six Weeks Ended July 2, 2022

Operating revenues. Operating revenues for the twenty-six weeks ended July 1, 2023 decreased $201.1 million, or 19.1%, to $850.0 million from $1,051.0 million for the twenty-six weeks ended July 2, 2022. Included in operating revenues are separately-identified fuel surcharges of $62.6 million for the twenty-six weeks ended July 1, 2023 compared to $80.7 million for the twenty-six weeks ended July 2, 2022. Consolidated income from operations decreased $47.9 million, or 39.1%, to $74.6 million for the first half of 2023 compared to $122.5 million during the same period last year. First half 2023 operating results were negatively impacted by a $1.2 million pre-tax charge for settlement of an auto liability claim in excess of policy limits. First half 2022 results include a $3.0 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.

In the contract logistics segment, which includes value-added and dedicated services, operating revenues increased $11.2 million, or 2.7%, to $420.1 million in the first half of 2023 compared to $408.9 million in the previous year. Income from operations in the contract logistics segment increased $7.7 million, or 14.5%, to $60.6 million for the twenty-six weeks ended July 1, 2023 compared to $52.9 million in the same period last year. In the first half of 2023, Universal managed 68 value-added programs compared to 64 in the prior year period. Included in dedicated transportation revenue for the first half of 2023 were $18.3 million in separately identified fuel surcharges, compared to $19.8 million in the same period last year. As a percentage of revenue, operating margin in the contract logistics segment for the first half of 2023 was 14.4% compared to 12.9% during the same period last year.

In the intermodal segment, operating revenues decreased $111.9 million, or 35.6%, to $202.6 million in the first half of 2023 compared to $314.5 million in the previous year. Intermodal revenues for the twenty-six weeks ended July 1, 2023 included $30.7 million in separately identified fuel surcharges, compared to $43.5 million in the same period last year. During the first half of 2023, Universal moved 235,224 intermodal loads compared to 300,123 in the first half of 2022, a decrease of 21.6%, while its average operating revenue per load, excluding fuel surcharges decreased 17.0% to $578 from $697. Intermodal segment revenues also include accessorial charges such as detention, demurrage and storage, which totaled $39.4 million during the first half of 2023, compared to $69.8 million one year earlier. Income from operations in the intermodal segment decreased $37.8 million to $6.6 million for the twenty-six weeks ended July 1, 2023 compared to $44.4 million in the first half of 2022. As a percentage of revenue, operating margin in the intermodal segment for the first half of 2023 was 3.2%, compared to 14.1% during the same period last year.

In the trucking segment, operating revenues decreased $43.1 million, or 21.1%, to $161.0 million in the first half of 2023 compared to $204.0 million in the prior year period. Included in trucking segment revenues for the first half of 2023 were $13.5 million in separately identified fuel surcharges compared to $17.5 million during the first half of 2022. Income from operations in the trucking segment decreased $8.8 million to $8.2 million for the first half of 2023 compared to $17.0 million in the same period last year. During the first half of 2023, Universal’s average operating revenue per load, excluding fuel surcharges, decreased 9.8% to $1,627 from $1,804 in the prior year period and load volumes decreased 12.8% to 90,572 from 103,846. As a percentage of revenue, operating margin in the trucking segment for the first half of 2023 was 5.1%, compared to 8.3% during the same period last year. Included in the trucking segment’s first half 2022 operating results was a $3.0 million credit related to a previously disclosed item, which favorably impacted this segment’s operating margin by 150 basis points.

In the company-managed brokerage segment, operating revenues decreased $56.8 million, or 47.2%, to $63.6 million in the twenty-six weeks ending July 1, 2023 compared to $120.3 million in the twenty-six weeks ending July 2, 2022. During the first half of 2023, the average operating revenue per load decreased 21.2% to $1,650 from $2,094 and load volumes fell 20.2% to 37,770 from 47,311. First half 2023 operating losses in the company-managed brokerage segment were $(1.2) million compared to $8.0 million of operating income during the same period last year. As a percentage of revenue, operating margin for the company-managed brokerage segment was (1.8)% for the first half of 2023 compared to 6.7% in the same period last year. First half 2023 operating results were negatively impacted by a $1.2 million pre-tax charge for settlement of an auto liability claim in excess of policy limits.

Purchased transportation and equipment rent. Purchased transportation and equipment rental costs for the first half of 2023 decreased $163.4 million, or 35.6%, to $296.0 million from $459.3 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 transactional transportation-related services, which includes truckload, brokerage, and intermodal services. The absolute decrease in purchased transportation and equipment rental costs was primarily the result of an overall decrease in transactional transportation-related services. First half 2023 transactional transportation-related service revenues decreased 33.1% compared to the first half of 2022. As a percentage of operating revenues, purchased transportation and equipment rent expense decreased to 34.8% compared to 43.7% during the same period last year due to a decrease in the mix of transactional transportation services revenue. As a percentage of total revenues, transactional transportation services revenue decreased to 50.6% for the first half of 2023 compared to 61.1% in the same period last year.

Direct personnel and related benefits. Direct personnel and related benefits for the twenty-six weeks ended July 1, 2023 increased by $14.3 million, or 5.4%, to $277.1 million compared to $262.8 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, as well as the use of employee drivers in certain of our intermodal operations. The increase in the first half of 2023 was primarily due to an increase in the number of employee drivers in our California intermodal operations. As a percentage of operating revenues, personnel and related benefits increased to 32.6% for the twenty-six weeks ended July 1, 2023, compared to 25.0% for the twenty-six weeks ended July 2, 2022. 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 decreased by $0.9 million, or 1.0%, to $87.3 million for the twenty-six weeks ended July 1, 2023 compared to $88.2 million for the twenty-six weeks ended July 2, 2022. 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 element driving the change were decreases of $4.9 million in professional fees and $0.6 million in permits. This was partially offset by increases of $1.9 million in maintenance, $1.6 million in operating supplies and material costs in operations supporting heavy-truck programs, and $1.2 million of fewer gains on sales of property and equipment.

Commission expense. Commission expense for the first half of 2023 decreased by $5.0 million, or 23.9%, to $15.8 million from $20.8 million for the first half of 2022. Commission expense decreased due to decreased revenue in our agency-based truckload business. As a percentage of operating revenues, commission expense was 1.9% compared to 2.0% for the first half of 2022.

Occupancy expense. Occupancy expenses increased by $2.0 million, or 9.9%, to $22.2 million for the twenty-six weeks ended July 1, 2023. This compares to $20.2 million for the twenty-six weeks ended July 2, 2022. The increase was attributable to an increase in building rents and property taxes.

General and administrative. General and administrative expense for the twenty-six weeks ended July 1, 2023 increased by $2.6 million, or 11.3%, to $25.3 million from $22.8 million in the twenty-six weeks ended July 2, 2022. The change included increases of $0.9 million in professional fees and $0.8 million in salaries, wages, and benefits. As a percentage of operating revenues, general and administrative expense was 3.0% for the first half of 2023 compared to 2.2% for the first half of 2022.

Insurance and claims. Insurance and claims expense for the first half of 2023 increased by $2.8 million to $14.0 million from $11.2 million in the first half of 2022. As a percentage of operating revenues, insurance and claims increased to 1.6% for the twenty-six weeks ending July 1, 2023 compared to 1.1% for the first half of 2022. First half 2023 included a $1.2 million settlement of an auto liability claim in excess of policy limits. First half 2022 included a $3.0 million credit to insurance and claims expense resulting from the favorable settlement of certain auto liability claims during the period.

Depreciation and amortization. Depreciation and amortization expense for the twenty-six weeks ended July 1, 2023 decreased by $5.6 million, or 13.0%, to $37.7 million from $43.3 million for the first half of 2022. Depreciation expense decreased $4.8 million and amortization expense decreased $0.8 million. During the first half of 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 $10.1 million for the twenty-six weeks ended July 1, 2023 compared to $6.4 million for the twenty-six weeks ended July 2, 2022. The increase in net interest expense reflects an increase in interest rates on our outstanding borrowings. As of July 1, 2023, our outstanding borrowings totaled $382.0 million compared to $417.3 million at the same time last year.

Other non-operating income (expense). Other non-operating income was $0.3 million for the first half of 2023 compared to $0.1 million in the prior year period. Other non-operating income for the first half of 2023 includes a $0.1 million pre-tax holding gain on marketable securities due to changes in fair value recognized in income, unchanged from the prior year period.

Income tax expense. Income tax expense for the first half of 2023 was $16.4 million, compared to $29.6 million for the first half of 2022, based on an effective tax rate of 25.2% and 25.4%, respectively. The decrease in income taxes is the result of a decrease in taxable income and our effective tax rate for the twenty-six weeks ended July 1, 2023 compared to the twenty-six weeks ended July 2, 2022.

Liquidity and Capital Resources

Our primary sources of liquidity are funds generated by operations, loans and extensions of credit under our credit facilities, on margin against our marketable securities and from installment notes, and proceeds from the sales of marketable securities. We use secured asset lending to fund a substantial portion of purchases of tractors, trailers and material handling equipment.

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

During the twenty-six weeks ended July 1, 2023, our capital expenditures totaled $79.8 million. These expenditures primarily consisted of transportation equipment and investments in support of our value-added service operations. Our flexible business model depends somewhat on the customized solutions we implement for specific customers. As a result, our capital expenditures will depend on specific new contracts and the overall age and condition of our owned transportation equipment. Due to shortages, production backlogs, and limited availability of transportation equipment in recent years, as well as the acquisition of strategic real estate, our expenditures are projected to be somewhat higher than the customary range of 4% to 5% of our operating revenues. For the full year 2023, exclusive of acquisitions of businesses, we expect our capital expenditures to be in the range of $235 million, consisting of $110 million for capital equipment and $125 million for purchases of strategic real estate. We expect to make these capital expenditures for the acquisition of transportation equipment, to support our new and existing value-added service operations, to expand our owned terminal network, and for improvements to our existing terminal yard and container facilities.

On July 7, 2023, the Company closed on the purchase of a terminal in Compton, Los Angeles County, California. The purchase price was $80.0 million. The Company previously made a deposit of $1.0 million and used a combination of available cash on hand and funds borrowed under its existing line of credit to fund the balance at closing.

We have a cash dividend policy that anticipates a regular dividend of $0.42 per share of common stock, payable in quarterly increments of $0.105 per share of common stock. After considering the regular quarterly dividends made during the year, the Board of Directors also evaluates the potential declaration of an annual special dividend payable in the first quarter of each year. The Board of Directors did not declare a special dividend in the first quarter of 2023. On July 27, 2023, our Board of Directors did declare the regular quarterly cash dividend of $0.105 per share of common stock payable October 2, 2023 to shareholders of record at the close of business on September 4, 2023. During the year ended December 31, 2022, we paid a total of $0.42 per common share, or $11.1 million. Future dividend policy and the payment of dividends, if any, will be determined by the Board of Directors in light of circumstances then existing, including our earnings, financial condition and other factors deemed relevant by the Board of Directors.

We continually evaluate our liquidity requirements and capital structure in light of our operating needs, growth initiatives and capital resources. The availability of financing or equity capital will depend upon our financial condition and results of operations as well as prevailing market conditions. If such additional borrowing, lease financing, or equity capital is not available at the time we need it, then we may need to borrow more under the Revolving Credit Facility (if not then fully drawn), extend the maturity of then-outstanding debt, or rely on alternative financing arrangements. There can be no assurance that we will be able to obtain additional debt under our existing financial arrangements to satisfy our ongoing capital requirements. However, we believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months.

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

Revolving Credit, Promissory Notes and Term Loan Agreements

Our revolving credit facility (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 July 1, 2023, we were in compliance with all its covenants, and $400.0 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 July 1, 2023, $10.0 million was available for borrowing on the revolver, and the borrowers were in compliance with all covenants under the facility, provided that compliance with the fixed charge coverage ratio required application of a $2 million equity cure by Universal Logistics Holdings, Inc. as permitted by the agreement. After giving effect to application of net cash proceeds comprising the cure amount and recalculation of the financial covenant, the borrowers were in compliance with the fixed charge coverage ratio at July 1, 2023.

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 7.27%.

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 July 1, 2023, 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 July 1, 2023, and the maximum available borrowings were $5.2 million.

Any failure to comply with any material provision or covenant of the Revolving Credit Facility, UACL Credit Agreement, Equipment Financing, Real Estate Facility, Margin Facility, or other agreements governing our financing arrangements in the future could have a material adverse effect on our liquidity and operations.

Discussion of Cash Flows

At July 1, 2023, we had cash and cash equivalents of $65.0 million compared to $47.2 million at December 31, 2022. Operating activities provided $105.0 million in net cash, and we used $77.2 million in investing activities and $6.4 million in financing activities.

The $105.0 million in net cash provided by operations was primarily attributed to $48.4 million of net income, which reflects non-cash depreciation and amortization, noncash lease expense, gains on marketable equity securities and equipment sales, amortization of debt issuance costs, stock-based compensation, and provisions for credit losses totaling $56.0 million, net. Net cash provided by operating activities also reflects an aggregate decrease in net working capital totaling $0.5 million. The primary drivers behind the decrease in working capital was a decrease in trade and other accounts receivables, and an increase in accruals for insurance and claims. These were partially offset by principal reductions in operating lease liabilities during the period, an increase in prepaid expenses and other assets, and decreases in trade accounts payable, accrued expenses and other current liabilities, income taxes payable and other long-term liabilities. Affiliate transactions increased net cash provided by operating activities by $5.5 million. The increase resulted from a $6.6 million increase in accounts payable to affiliates, partially offset by a $1.1 million increase in accounts receivable from affiliates.

The $77.2 million in net cash used in investing activities consisted of $79.8 million in capital expenditures, which was partially offset by $2.5 million in proceeds from the sale of equipment and $0.1 million in proceeds from the sale of marketable securities.

We used $6.4 million in financing activities during the twenty-six weeks ended July 1, 2023. We had outstanding borrowings totaling $382.0 million at July 1, 2023 compared to $382.9 million at December 31, 2022. During the period, we made payments on our term loan and equipment and real estate notes totaling $34.6 million, and we borrowed $33.7 million for new equipment. During the period, we also paid cash dividends of $5.5 million.

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, 2022. There have been no changes in our accounting policies during the thirteen weeks ended July 1, 2023.

Seasonality

Generally, demand for our value-added services delivered to existing customers increases during the second calendar quarter of each year as a result of the automotive industry’s spring selling season. Conversely, such demand generally decreases during the third quarter of each year due to the impact of scheduled OEM customer plant shutdowns in July for vacations and changeovers in production lines for new model years.

Our value-added services business is also impacted in the fourth quarter by plant shutdowns during the December holiday period. Prolonged adverse weather conditions, particularly in winter months, can also adversely impact margins due to productivity declines and related challenges meeting customer service requirements.

Additionally, our transportation services business, excluding dedicated transportation tied to specific customer supply chains, is generally impacted by decreased activity during the post-holiday winter season and, in certain states during hurricane season, because some shippers reduce their shipments and inclement weather impedes trucking operations or underlying customer demand.

There have not been any material changes to the Company’s market risk during the thirteen weeks ended July 1, 2023. For additional information, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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 July 1, 2023, 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 July 1, 2023 identified in connection with our evaluation that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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, 2022.