Universal Logistics Holdings, Inc.

Hello and welcome to the Universal Logistics Holdings first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. During the course of this call, management may make forward-looking statements based on their best view of the business as seen today. Statements that are forward-looking relate to Universal's business objectives or expectations and can be identified by the use of the words such as belief, Expect, anticipate, and project. Such statements are subject to risk and uncertainties, and actual results could differ materially from those expectations. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Tim Phillips, Chief Executive Officer, Mr. Jude Barris, Chief Financial Officer, and Mr. Stephen Fitzpatrick, Vice President of Finance and Investor Relations. Thank you, Mr. Phillips. You may begin, sir.

Good morning, and thank you for joining Universal Logistics Holdings' first quarter earnings call. I want to start off by congratulating the dedicated professionals of the team, Universal, who together made this quarter such a success. We developed a strategic plan that would be both versatile for the ever-changing logistics environment and aggressive enough to achieve the results our shareholders expect. I believe the strong results we reported in the first quarter of the year demonstrate our plan is executable even in an environment spotted with weather disruptions, park shortages, and the ever-present hiring challenge of the transportation and logistics space. While we believe technology will play a role in furthering our success, our continued ability to attract and retain professional truck drivers, warehouse workers, and office personnel will be key to universal success in 2021 and beyond. Now for the quarter. In yesterday's earnings release, Universal reported first quarter earnings of 80 cents per share on operating revenue of 415.2 million, beating estimates on both top and bottom line. First quarter operating results represented not only Universal's best top line revenue, operating income, and earnings per share for the first quarter, they're the highest results ever reported. This is a direct reflection on the strategic focus and corresponding roadmap that has been developed by all of our operating segments. I am extremely encouraged by the additional opportunity we have to further drive efficiencies and operational excellence. The year-over-year top-line revenue increase can be attributed to growth in four of the five service lines. Dedicated services led the way, growing over 50% on a year-over-year basis. Brokerage and value-added services also experienced double-digit growth, increasing 12.8% and 12% respectively, compared to the same period last year. Strong pricing also led to growth in our truckload services, where we experienced modest gains in the first quarter of 2021. We did experience some headwinds as congestion and power unit availability hindered intermodal for the first two months of the quarter, However, we did see an 8% uptick in revenue in the month of March. Continued strong demand for light-duty vehicles kept our contract logistics group busy in Q1. Even though chip and part shortages began to show impact at the tail end of the quarter, during the quarter, weather played a larger role than part shortages, with several of our large plants served being down a couple days up to a week. We expect these disruptions to be temporary as the production forecast for autos remains strong for the full year 2021. I am also pleased to report that Contract Logistics Group added an additional $20 million in new business wins for the quarter. We expect these launches to begin in Q2 of 2021 to be on a full runway by Q2 of 2022. Although obtaining qualified drivers and contractors remained extremely competitive, I'm pleased to report our trucking segment was able to sequentially grow its driver base. The agent-based division of Truckload Group was successful in onboarding 14 new agents. Increased driver count paired with continued inventory replacement helped increase the group's top-line revenue. Steel, metals, industrial goods, and energy loads level remain below Q1 2020 levels, but indications for the back half of the year remain robust. Exiting the quarter, we remain very confident in the runway for growth, propelled by new business winds in a favorable rate environment, fueled by tight inventories. Our company brokerage operation remained in positive territory for the quarter, but experienced tight capacity and unfavorable weather in the back half of February. Gross margins for the quarter finished in the high single digits, but trended favorably for the last part of the quarter. While revenue was up 15.8% year over year, the number of lows being handled decreased by 20.8%. The increase in revenue was driven by higher spot market rates and better contract pricing. Currently, 70% of our freight is running under new rates. For intermodal drage, record import volumes coupled with terminal congestion further deteriorated operational flow and turn times at many of the intermodal facilities around the country. We also experienced additional street time for loads and empties as customers in intermodal facilities struggled with the volumes. Our revenue for loads moves saw a modest movement downward. While we saw increases in spot market, our contract rates were slower to follow suit. Although intermodal drage group performed okay, there's plenty of road for improvement. We continue our recruiting efforts, reviewing our compensation packages for all of our major markets, and have renewed initiatives to entice drivers back to the workforce. As we look ahead, we continue to remain bullish on the remainder of 2021. We expect to navigate the near-term issues with supply chain disruption, port and rail congestion, and what we hope to be the final stages of COVID. Although chip and part shortages will have some effect on top line revenue in Q2, we believe the backlog and demand sets up for a very robust second half of 2021. As mentioned before, I'm still extremely optimistic on our ability to operationally execute and deliver the numbers within our forecasted range. We continue to evaluate the quality opportunities in our contract logistics network, and using our experience, technology, and velocity expertise to actively branch out into alternative spaces in existing verticals, as well as focusing on new verticals. Our presence and knowledge continue to grow in electric vehicle space with current launches, recent wins, and interest in new projects. we remain committed to grow the contract logistics segment so it reflects a greater percentage of overall top line revenue. We remain extremely optimistic on our core customer base and our ability to execute in a market that appears to have a long runway of customer demand. Light vehicle inventories at dealerships have recently dipped below 40 days and indicating forecasts that SAR will be moved above 15.5 million originally predicted this year. We are fortunate to support many locations that produce the vehicles in high demand. The demand for Class A trucks has also taken off since the beginning of the year, although there has been production disruption because of parts. All indicators point to robust second half of 2021. Our bullish outlook on DRAGE franchise remains strong, even though we experienced some headwinds in the first quarter. Indications are that the backlog and shifted anchor will correct itself by the end of Q2, allowing greater fluidity and reducing turn times by our drivers and contractors. The DRAGE group is also seeing rates increasing as we begin Q2. Better turn times, higher rates will allow us to attract and offer greater earning opportunities to our driver and contractor base while leveraging scale for additional margins. Our truckload segment is continuing to see metals and industrial rates increase, with volumes starting to step back towards pre-COVID levels on the open deck side. Food, beverage, and consumer goods should remain extremely strong and allow for considerable growth and opportunity. We continue to work to better optimize our company assets and strategic customer partnerships and new pricing in a local and regional model. We will continue to see headwinds with the supply of qualified drivers and contractors as we navigate the remainder of the year. With our company managed brokerage, we believe we will continue to see tight capacity into the near future, which makes our third-party carrier relationships a continued focus. We have worked hard to reprice our contractual business and will continue our efforts to strike a balance between spot market and contractual business evaluating our customer partnerships. Nowhere is the landscape more competitive than recruiting qualified truck drivers. The need for additional drivers is a common theme in the industry. As has been widely reported, the pool of qualified drivers has been disrupted by coronavirus, the drug clearinghouse, extended unemployment benefits, and limited driver school graduates. the headwind from which we expect to persist for the remainder of the year. To combat this, we have structured a solid recruiting and retention strategy that includes increases to our driver wages and contractor payouts, onboarding new trucks to the company fleet and creating quality of life options to address the needs of the ever-changing workforce. Our efforts are paying off. In the first quarter of 2021, we were able to add over 500 drivers and contractors to our fleet. Our recruiting efforts are paying off in other areas as well. To support our new business wins, we have successfully onboarded over 800 warehouse workers and 90 management members to our contract logistics team. In the first quarter of 2021, Universal was able to onboard just shy of 2,000 associates across all of our operations. I'm extremely excited about the talent we have been able to assemble to better service our customers. We continue to expand our team of talented women and men who are committed to work towards our common goal of operational excellence and customer satisfaction. I continue to admire and respect the team's ability to work through disruption. Universal is truly a people-driven company. Thank you for your continued efforts. Now I'd like to turn the call over to Jude. Jude? Thanks, Tim. Good morning, everyone.

Universal Logistics Holdings reported consolidated net income of $21.7 million, or $0.80 per share, on total operating revenues of $415.2 million in the first quarter of 2021. This compares to net income of $12.2 million, or $0.45 per share, on total operating revenues of $382.2 million in the first quarter of 2020. Consolidated income from operations was 31.2 million for the quarter compared to 23.9 million one year earlier. EBITDA increased 11.4 million to 51.2 million, which compares to 39.8 million one year earlier. Our operating margin and EBITDA margin for the first quarter of 2021 are 7.5% and 12.3% of total operating revenues. These metrics compare to 6.3% and 10.4% respectively in the first quarter of last year. Looking at our segment performance for the first quarter of 2021, in our contract logistics segment, which includes our value add and dedicated transportation businesses, income from operations increased 5.1 million to 16.8 million on 154.1 million of total operating revenues. This compares to operating income of 11.7 million on 127 million of total operating revenues in the first quarter of 2020. Operating margins for the quarter were 10.9% versus 9.2% last year. In our intermodal segment, operating revenues declined 6% to $103.7 million compared to $110.3 million in the same period last year. Income from operations also decreased $500,000 to $8.5 million. This compares to operating income of $9 million in the first quarter of 2020. Operating margins for the quarter were flat year over year at 8.2%. In our trucking segment, which includes both our agent-based and company-managed trucking operations, operating revenues for the quarter increased 3.6% to $94.9 million compared to $91.6 million in the same quarter last year, while income from operations increased 15.4% to $5.2 million. This compares to operating income of $4.5 million in the first quarter of 2020. Included in the current quarter are $1.4 million of legal-related charges. Excluding these charges, our trucking segment would have operated nearly at 7% for the quarter. In our company managed brokerage segment, operating revenues for the quarter rose 15.8% to $61.1 million compared to $52.8 million in the same quarter last year, while income from operations also increased $1.8 million to $400,000. This compares to an operating loss of $1.4 million in the first quarter of last year. Operating margins for the quarter were 0.7% versus a negative 2.6% last year. On our balance sheet, we held cash and cash equivalents totaling $10.8 million and $7.5 million of marketable securities. Outstanding debt net of $1.5 million of debt issuance costs totaled $429 million at the end of the period. Excluding lease liabilities related to ASC 842, our net interest-bearing debt to reported TTM EBITDA was 2.6 times. Universal's 12-month target total leverage ratio is between two and two and a half times EBITDA. Capital expenditures for the quarter totaled 4.9 million. Our forecasted capex for the full year is expected to be in the 65 to 75 million range before any additional business wins in our contract logistics segment or strategic real estate purchases. Interest expense for the year is expected to come in between 14 and 16 million dollars. As Tim mentioned in his prepared remarks, we are experiencing some short-term headwinds in our contract logistics business. This is due to supply chain disruptions at some of our North American auto customers due to the highly publicized chip shortage. While we expect these disruptions to be resolved within a year, it is difficult to predict the full impact on the current quarter. These headwinds are currently negatively impacting our top line revenues at a rate of approximately $1 million per week. Our original forecast for Q2, top line revenues were in the range of $420 to $440 million with operating margins in the 8% to 9% range. Assuming the disruptions are corrected by mid-Q2, we anticipate new quarterly revenue target of between $400 and $420 million, and due to our variable cost model, operating margins should remain in the 7% to 8% range for the quarter. Timing, of course, will be the largest influencer on achieving those targets. Given the robust auto production forecast for the full year, we believe any temporary loss of production units will likely be made up within that year, within the year. For that reason, we are reaffirming our full year revenue guide of total operating revenues between 1.6 and 1.7 billion and operating margins in the 7% to 9% range. Finally, our board of directors declared Universal's 10.5 cent per share regular quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on June 7, 2021, and is expected to be paid on July 6, 2021. With that, Thea, we're ready to take some questions.