This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good day, and thank you for standing by. Welcome to the Universal Logistics Holdings Incorporated second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand a conference over to your speaker today, Mr. Tim Phillips, Chief Executive Officer. Please go ahead, sir.
spk05: Good morning, and thank you for joining Universal Logistics Holdings' second quarter earnings call. To start with, I would like to extend a big thank you to the hardworking associates throughout the Universal family. We have successfully navigated many of the supply chain disruptions that were prevalent throughout much of the quarter. Your efforts and a cannot-fail attitude have continued to deliver strong results for our customers and valued shareholders. Walking our way out of the COVID pandemic has presented many challenges for the transportation and logistics space. However, we have also seen significant opportunity both in the warehouse and on the roads. It's clear there will be a continued restocking of inventory, and there appears to be plenty of appetite by the customer. Your efforts have bridged these gaps, which have effectively supported our customer supply chain. Now for the quarter. In yesterday's release, Universal reported second quarter earnings of 95 cents per share on total operating revenues of $422.8 million. Second quarter operating revenues reflect Universal's highest quarterly revenue ever reported and exceeded our own estimates for the quarter. On an earnings per share basis, our results fell in line with our previously issued guidance after adjusting for non-operating gains. Top line revenue growth is a reflection of our previously mentioned contract logistics wins and a strong transportation pricing environment. Overall, I'm very pleased with the recovery in each of our operating segments, as we lap the height of the global pandemic. However, we are not immune to many of the challenges that the industry is currently experiencing. While demand remains strong for autos and Class A trucks, the continued chip shortage, a prolonged UAW strike at a heavy-duty truck manufacturer, supply chain disruption, and increased launch costs kept our contract logistics group from achieving its top and bottom line potential. As we mentioned in the release, contract logistics was adversely impacted by $5 million of losses associated with one of our recent launches. We experienced staffing challenges and weight pressure in conjunction with customer production schedule, which was far lower than previously forecast. As our customer ramps up and out of the extended launch phase, we anticipate approving volumes, which will translate into better results for us. I'm cautiously optimistic on the second half will improve as chip shortages and supply chain disruptions begin to stabilize. Additionally, we continue to add our wins in the contract logistics segment, securing an additional $22.5 million of annual business in this quarter. We anticipate these wins to be in full run rate in Q1 and Q2 of 2022. And many of these wins are on new customers in industrial, aerospace, and EV verticals. In our intermodal drage segment, we experienced 28.6% year-over-year revenue increase and also saw an improvement sequentially. The drage market has been experiencing some ongoing challenges as congestion at the ports and rails, combined with availability of equipment, adversely impact fluidity of the containerized freight. To combat these challenges and further enhance our ability to recruit, we have worked with our customers to increase rates. Some of these rate increases are reflected within the results, but not all. On average, we have increased our rates to intermodal customers about 14%. The second half will continue to be challenging, but we have positioned ourselves well with our customers to move into peak season. Our company-managed brokerage operations remain disciplined and continue to balance contractual and spot rates in a market riddled with capacity constraints and influenced by premium pricing. While revenue was up 58% year over year, the number of loads being handled decreased by 20.8%. We continued to focus on rationalizing our lanes to ensure acceptable level of profitability. Our aim is to capture consistent gross margin, and we made significant progress, finishing the quarter north of 12% in gross margins. The increased revenue was driven by higher spot market rates and better contract pricing. Currently, 99.4% of our freight is running under new rates. That would be business rated in the first half of 2021. Looking ahead to the second half, we anticipate to reprice approximately 21% of our brokerage business. Our trucking segment experienced both top and bottom line growth, highlighted by driver and contractor count increases. The truckload group saw the average rate to our customer increase by about 3.5%, I'd like to point out that this is an average. Rates are up as seen in our other company managed brokerage results. This quarter, 2021 experienced a bit of a weakness in our wind energy business, excluding when our rates were actually up about 20%. We anticipate sustained tightness in our customers' inventories and capacity throughout the industry for the near term, which continues to position us for additional rate increases with our customers. We recently received very positive outlooks for our wind customers, and the second half looks robust, which should have a positive effect on both our top and bottom line coming into the quarters. With ever-increasing burdens for small fleets, our agency-based franchises continues to offer competitive alternatives to entrepreneurs looking to excel in the transportation industry, and our efforts are paying off. In the second quarter, our agent-based division was successful in onboarding 16 new agents. Universal is truly a people-driven company. Every associate is significant and holds an important role in our success. Operational excellence is dependent on each team member contributing while navigating a demanding environment. I respect the hard work and efforts shown by all the Universal team members, and I thank you for your continued efforts. I would now like to turn the call over to Jude. Jude?
spk02: Thanks Tim. Good morning everyone. Universal Logistics Holdings reported consolidated net income of $25.6 million or $0.95 per share on total operating revenues of $422.8 million in the second quarter of 2021. This compares to net income of $6.2 million or $0.23 per share on total operating revenues of $258 million in the second quarter of 2020. As mentioned in the press release, During the second quarter of 2021, Universal recorded a $5.7 million pre-tax gain or $0.16 per share related to a favorable legal settlement. Consolidated income from operations was $31.3 million for the quarter compared to $10.8 million one year earlier. During the second quarter of 2021, Universal reported all-time record highs for revenue, operating income, as well as EBITDA. EBITDA increased 23.6 million to 53.7 million, which compares to 30.2 million one year earlier. Our operating margin and EBITDA margin for the second quarter of 2021 are 7.4% and 12.7% of total operating revenues. These metrics compare to 4.2% and 11.7% respectively in the second quarter of 2020. Looking at our segment performance for the second quarter of 2021, In our contract logistics segment, which includes our value-add and dedicated transportation businesses, income from operations increased $15.2 million to $15.9 million on $154.8 million of total operating revenues. This compares to operating income of $800,000 on $71.8 million of total operating revenue in the second quarter of 2020. Operating margins for the quarter were 10.3% versus 1% last year. As mentioned in Tim's comments and our release, our contract logistics business incurred a $5 million loss in the second quarter at one of our launches supporting an automotive OEM. We expect a similar loss in the third quarter, but moving closer to break even as the quarter progresses. In our intermodal segment, operating revenues increased 28.6% to $106.6 million compared to $82.9 million in the same period last year. Income from operations also increased $1.4 million to $6.2 million. This compares to operating income of $4.7 million in the second quarter of 2020. Operating margins for the quarter improved marginally to 5.8% in the second quarter of 2021 compared to 5.7% during the same period last year. Both driver and equipment shortages, as well as a lack of port and rail fluidity, continue to hamper the results of this segment. In our trucking segment, which includes both our agent-based and company-managed trucking operations, operating revenues for the quarter increased 58.4% to $99.8 million compared to $63 million in the same quarter last year, while income from operations increased 80.4% to $6.5 million. This compares to operating income of $3.6 million in the second quarter of 2020. In our company managed brokerage segment, operating revenues for the quarter rose 51.3% to $60.4 million compared to $39.9 million in the same quarter last year, while income from operations also increased $700,000 to $2.4 million. This compares to operating income of $1.7 million in the second quarter of 2020. Operating margins for the quarter were 4% versus a 4.3% margin last year. On our balance sheet, we held cash and cash equivalents totaling $13.1 million and $7.9 million of marketable securities. Outstanding interest-bearing debt net of $1.3 million of debt issuance costs totaled $432.2 million at the end of the period. Excluding lease liabilities related to ASC 842, our net interest-bearing debt to reported CTM EBITDA was 2.3 times. Capital expenditures for the quarter totaled $12 million. As Tim mentioned in his comment, the availability of equipment, including the procurement of new equipment, has been extremely challenging. As a result, we are lowering our forecasted capital expenditures now to be in the $40 to $50 million range before any additional business wins in our contract logistics segment and strategic real estate purchases. We expect to make up for this year's equipment deficit by increasing our capital spending next year. Interest expense for the year is expected to come in between $12 and $14 billion. If the business environment remains stable for the third quarter of 2021, we are expecting top line revenues between $420 and $450 million and operating margins in the 7.5% to 8.5% range. Additionally, while we are reaffirming our full year guide on total operating revenues between $1.6 and $1.7 billion, we are now lowering our top end 2021 expected operating margins by 100 basis points from 7% to 9% to now between 7% and 8%. Launch losses in our contract logistics service line, as well as continued operating challenges within our intermodal business, are the primary reasons we tightened our expected operating range for the full year. Turning to our dividend, yesterday 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 September 6, 2021, and is expected to be paid on October 4, 2021. Finally, in yesterday's release, Universal also announced its Board of Directors has authorized a new stock repurchase plan. Under the new plan, we are authorized to repurchase up to 1 million shares of ULH common stock in the open market. With that, Jamie, we're ready to take some questions.
spk00: Thank you. As a reminder, to ask your question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. The first question comes from the line of Chris Weatherby with Citi.
spk07: Hey, guys. Good morning. James on for Chris. The first question I have really involves what you're seeing and how you're thinking about the recovery. It sounds like you're thinking about sort of the status quo or steady state from here on out when you were thinking about the guidance and the results for the full year. We just wanted to get your perspective on the trends you're seeing and sort of if you're seeing weakness or particular strength, just trying to understand sort of like your perception of risk to the upside or downside based on the outlook and the trends you're seeing in the freight market broadly.
spk02: Yeah. Hey, this is Jude. So, yeah, we're expecting the truckload market to still be, you know, robust on the rate side and the volume side. Obviously, we're going into peak season, so on the brokerage side, we all know what that can do to capacity and to rates and some constraints, but we're still expecting that operation to operate within a similar margin to what we had in the second quarter. On the intermodal side, I think we're bullish on a lot of the things that we've heard from our customers and the freight that we have onboarding. in Q3 and in Q4 as it relates to peak. So we're expecting some additional margin out of that business in the coming quarters in the back half. And then in our contract logistics business, excluding the $5 million headwind that we have had in Q2 and the $5 million headwind that we have in Q3 related to that singular launch loss, that business really still performed really, really well and would be at historical margin had it not been for that particular excess launch cost. You know, of course there's risks with everything. You know, I think we're all hearing in the news about, you know, COVID lockdowns and all that kind of stuff and masks coming back, so we really don't know what's going to happen there. But as far as looking at the business as it is today and projecting it out over the next 60 to 90 days, we feel pretty good about it. We just have to have some cleanup in our contract logistics business, and we expect to get back to that run rate of 7% to 9% or that 8% to 9% like we were originally planning for the back half of this year.
spk07: Yeah, and to follow up on that point around the margins, are you seeing, like, wage pressure coming through at all this year that's impacting the margins? Have you largely been able to pass it through, or is it something that really you could probably see flowing through your results in 2022, just trying to understand sort of that dynamic within your costs would be great as well?
spk05: Yeah, this is Tim. Yes, we've seen some recent wage pressure. And just related to the launches that Jude was speaking to, some of this wage pressure is within the last three or four months. There's been some turnover in some operations. We've been forced to go out and source new individuals. The wages that we're having to pay are escalating, and it's also creating some training and some mentorship issues. So, yeah, I see wage – I see people – and wages being a headwind that we will have to deal with on a basis through the second half of 2021 and probably into 2022. And what we're doing is we're rationalizing every operation, looking at the wages, what percentage increases we feel we're going to have to pay out to get us to where we need to be to get that employee, and then we'll execute a plan to go back and – collaborate with our customers on what it's going to take to make sure their freight is moved through the supply chain in an efficient manner.
spk07: Got it. And as we think through that, what is your outlook for essentially startups across sort of basically the back half of this year, but also into 2022 and might that slow because of the wage pressure, like essentially could hiring hamper your ability to take on Volume or is it really just essentially a margin headwind?
spk05: Well, yeah, I think it's two things. I don't only think it's wage pressure. I also think it's the individual employees in that market that want to be in the space. So we have had some of that marketing going on to make sure we have a pipeline of people. The other thing that plays into our potential wins and where we launch is I think some of the wins that we've had over the last couple months have been in various markets around the United States. At some point, we had a pretty high concentration in particular markets that made it extremely more challenging because we were in a saturated market trying to find people, whereas we had branched out a little bit in different verticals that spread us around the country. I won't kid you and say, do we think there's going to be problems in finding qualified people? I'm going to say yes. But I do know in the next upcoming launches we have, party one, we're already taking a proactive approach with the customer and with the market in trying to get ahead of that curve because it's taking a little longer to find qualified individuals. I think the biggest point to this where we will find some potential erosion of potential wins is on the transportation side as we look at the availability of drivers in particular markets. We haven't shut any of the pipelines down. We've just been tremendously optimistic about how we're going to rate them to make sure that we can go to market with a rate that's respectable enough or a wage that we can pay that's going to attract what is in the market because the market isn't overflowing with available candidates both on the road and on the dock.
spk07: That makes sense. And actually, leading to the next question, which is really around the truckload market and how you're thinking about that there. You talked about the repricing opportunity. As we think about basically what you're going to be doing across the back half and potentially if you do see a normalization across 2022, should we see sort of a significant margin expansion assuming that like essentially the truckload market starts to normalize and capacity comes back across 2022? Just trying to understand sort of like what you would expect If that were the case, how would you expect margins to react in 2022 relative to 2021?
spk05: Well, I don't have the complete crystal ball for 2022, and I wish if someone does, they'd dial me up and give me some insight on that. We see things pretty much, as you had mentioned, coming out of the second half of 2021. We still see rates escalating with our customers. We still see demand rising. on the wage side of it. I'm pretty comfortable saying that as we exit into the first quarter of 2022, we're going to be in a similar situation. But, I mean, I think others have probably rationalized and said that at some point in 2022, things will start to come back to more of a normalized market. And if things do come back to a normalized market, much of our capacity on the truckload side is run through owner-operators, too. So it's run through a variable cost structure. which I'm somewhat comfortable that, as that said, it will equalize itself should we have to run through a normalized market. We'll have to play that hand on the company truck drivers as we get there. But for right now, for the next at least couple quarters going into 2022, I see sustained demand on wages, and I also see collaboration with customer on rate increases.
spk07: Got it. And then... Because in terms of intermodal, the ability to, like, conjecture is a hot topic, obviously, and the ability to source capacity and what you're seeing, are there any sort of incremental headwinds that you could think about across the back half? Are you expecting sort of more challenges or less? Just trying to understand sort of like what you're seeing relative to your own business versus the entire market across the back half when it comes to intermodal and capacity.
spk05: Okay, yeah, well, intermodal as a whole for universal logistics holding is really centered around the draped piece of it, you know, hauling it from ports and rails to the ultimate customer. So what we've seen in the first half of the year, I expect to continue to see in the second half of the year. That is congestion at ports and rails. That is equipment shortage with chassis in particular markets. A continued drive to recruit customers. owner operators and drivers and what we see and what we've seen in past hot markets on the van side is a lot of this we're competing against the van carriers for these drivers and contractors and Many cases a van driver is going to make a little bit more money than a drayage driver so we see some defections and it's a lot harder to recruit in these markets and And then also, you know, back to labor. We talked about labor as a whole, not only how it affects us, but think about how it's affecting the supply chain and customers. We're seeing an increased dwell time on the customer end that even adds to that equipment shortage problem. So I see those continuing to be a problem as we strive to to get, you know, extra amount of moves per driver per day for an optimization. So the results of that, you're going to see continued pressure on getting in and out of the rails, which is you've got to watch your demerge and per diem costs, and you have a reduced utilization on your power units. So we'll continue to recruit hard. We have specific departments set up to do that and focus on drayage drivers because we're going to need more of them potentially to do the same amount of work we did last third quarter at the same time. This is just unfortunate truth. And we watched the dwell times at the major ports and rails, and I'm not pointing any negative figures there towards them, but we're starting to see things escalate upwards We track the data from our own driver's ELDs, and we're approaching on average over an hour and a half wait at ports and rails, and that can expand up to four hours depending on what major market it is and how pinched it is. And now you're starting to see more ships at anchor. You're starting to see the flag going up in the port of L.A. and Long Beach that they're going to see a high level of volume. We just have to be prepared for it. And the other thing we're doing that's a little different maybe than most on the drage side is we're trying to, and Jude had mentioned our CapEx, well, the back half of this year we're focusing, because we can get chassis, we're going to go out and get more chassis. I'm not sure the exact count yet, but it'll be close to 1,000 chassis that we'll add to our fleet already. It doesn't solve the problem everywhere. but we'll filter those into major markets to help our customers address their supply chain problems. And as the chat, the leasing market still remains tight, you know. So we'll continue that strategy, you know, for the rest of this year, and we'll look at it again next year if it makes sense.
spk07: Yeah, so it sounds like just based on how you're describing it, at least the chat is at least you're – definitely in position to sort of or at least you think you're definitely in position to outperform sort of the broader trends in the fact that you can actually still get equipment and some level of and you actually can still garner some level of drivers which is obviously a positive but is there any is there anything else to be thinking of broadly or is when it just basically comes to that the ability to source capacity is really just the Is it really relying on those two aspects? Is there any sort of like contract or anything else to be thinking of? Just anything beyond that would be great.
spk05: Yeah, I think on the contractor and driver end, I'll be honest, it's like a fist fight you watch. And it's every day we come in and we start, in some days, it's not even that, we're hitting our head against the wall, but we start, you know, we start contacting, using our resources. We have resources not only centrally located in corporate, we have boots on the ground at all facilities that are out there navigating the local landscape. And it's up to us from an operational standpoint because I think there is going to be you know, many times they're going to go where they're going to make the most money. And not in all cases is it drage right now. So it's just going to be a fist fight. And then internally, we've got to look at how we can optimize to the best of our ability. That's what I mean in some of the remarks. And we talk about having additional runway. I still think there's some internal optimization that we can do. And if it's as simple as matching imports and exports better and doing some of those things internally that allow us to twist a few knobs But I'll tell you this, the knobs don't have a lot of distance to go until some of this congestion and equipment allocation lighten up because we're spending a lot of time sitting without the wheels turning on the road.
spk15: Got it. All right. Thank you.
spk00: Again, to ask an audio question, please press star 1. Your next question comes from the line of Bruce Chan with Stiefel.
spk19: Hey, Jens. Good morning, and thanks for the questions here. Maybe just to start out on the contract logistics side, I think Tim and Jude, you guys talked about that $5 million one-time loss at the startup. Just want to get a little bit more color on what's going on there. Is that sort of an atypical event where you didn't anticipate something and kind of got stuck with it? Or are there typically some of these costs involved in large new project wins that we should start to think about as you see some good demand for that product going forward?
spk10: Yeah.
spk02: Hey, Bruce, it's Jude. So yeah, we saw very similar things when we launched operations in 15, 16, and 17. This particular one, as Tim mentioned in his previous comments, that with the labor, the amount of labor that we needed in a singular market, it obviously posed a number of challenges in being able to recruit and retain the right number of people to get into that operation. And then you couple that with the chip shortage and the customer's production for that facility being down anywhere between 30% and 40%. of where we were expected to be at this time. It's the combination of those two things. So I think this one, you know, it was going okay up until about May, and then in June it just like exploded. So, you know, we're kind of in the same situation that we were with some of these other ones where you kind of have about two quarters where it kind of takes to work itself through. We're already working through the head count and the hours, the excess equipment and the people. So that's why in my comments, I mean, we're expecting about a similar loss of another $5 million at that particular operation in Q3. So, you know, August will be better than July, and then September should be close to break-even, we're hoping, by the end of the quarter. But more to come. A lot of it's out of our hands just because of the chip shortage and the customer's inability to get their production up.
spk18: Yeah. That's really helpful.
spk05: And, Bruce, I'll add to that. I think that what we've experienced in the past and how we face it now. The only real difference from a blueprint and a game plan has been the labor market, and it's not a normal labor market when it comes to hiring labor on the dock. So in some cases, we've even added some additional staffing on the dock to cover for call-offs. And the other thing that you can't measure in your launch template is the quality of an experience of an individual. You try to hire all experienced individuals, but I'd be remiss, I would be lying to you to say that they're out there in big numbers. So not only have we had some turnover, rehiring, we've also had to implement, you know, some additional training and mentorship programs to bring those individuals along so they can have a level of success in what I'll call a very intricate supply chain solution for our customers. So we're all running as hard as we can right now. And as Judith said, we have a plan to get to where we need to be. We just have to execute every day.
spk19: That's really helpful. And then just, you know, if I think about how the margins in contract logistics for legacy business, you know, stacks up against some of these new wins that you're seeing, you know, outside of, you know, this exceptional labor market, you know, are they fairly similar? Do they tend to be a little bit better because, you know, you have a better bargaining position, you know, relative to some of the big OEMs? Or are they a little bit worse because, you know, maybe you don't understand the business as well, you know, at the outset?
spk02: All right, Bruce, this is Jude. No, I mean, we would just say that we're bidding everything at those historical value-add margins. I mean, as we've learned in that business over the years, there's a lot of risk In doing them, their long-term contracts, the labor that's employed is transient and risky. So, no, we're going after all these new business wins at the historical margins that we expect for that legacy contract logistics business.
spk19: Okay, perfect. So no change to those longer-term margin targets, even if you start to accelerate that contract win rate?
spk02: No, that is correct. And as Tim mentioned in his comments, in some cases we're going back to the customer before we're launching and requesting labor rate increases because we test the market and say, hey, if we can't hire at those wages, well, we have to go back and get increases before we start.
spk19: Okay, that's super helpful. And then just one last question here, maybe on the company brokerage side. It seems like you've got a much higher percentage on the – you know, new rate business than some of your peers out there, but you know, maybe you're, you're a little bit lower on the load development. Um, you know, so just kind of thinking through your strategy in company brokerage, you know, do you have any change in thoughts around, you know, what you want to get out of this business on the, on the revenue side and the margin side versus, you know, some of the targets that you've laid out in the past? I mean, you're running it, you know, 4% now versus that kind of one to 3% target range. Um, you know, so is there a kind of, um, maybe an interest in running a smaller business but a more profitable business? Anything there to think through?
spk05: Yeah, I would think you hit it on the head there. We'd like to be a billion plus if it was intelligent. So it's called intelligent growth with what the market will give us. So as we said, we're rationalizing our rates. We're rationalizing our percentage of spot contractual. And we're trying to position it so we can be successful on a continued basis. And as you noticed in the prepared remarks, we basically touched all of our customers in the first half of the year. And in some cases, that wasn't because the contract was up. It's because we had to go back and talk about a joint solution of how we're going to continue to supply capacity to meet their needs. So there's been some heavy lifting and a lot of homework done. I wouldn't expect us to see us shrink. I would just say we're going to grow intelligently And we're trying to drive that margin into that 4% to 6% range that we've always chirped about wanting to be. And to do that, you know, it's kind of hard because you see so much opportunity out there for a win, right? There's a ton of work going through the system. But we've told our people you've got to be disciplined in how you approach it. And, yes, we will grow, but we're going to grow at those margins that we've been preaching about for a long time. So, yeah. still a ton of work to do, but I think we have the machine kind of heading that direction. And I think that it's a firm but fair approach that not only do we win, but our customer wins because we're providing a good service.
spk19: Yeah, because, you know, that sub $500 million or, you know, call it sub $250 million, you know, size range is pretty tough for brokerage. So I'm wondering, you know, as you think about capital deployment and especially M&A, I mean, is there any appetite there to you know, grow inorganically in brokerage?
spk02: This is Jude Bruce. No, I mean, we can grow that business as fast as we want to grow it just by lowering our price, right? So I think just echoing Tim's comments, I mean, you know, we've been running a different play for the past couple of years where we have our company-managed brokerage and our company-managed truckload operations, you know, working together, on sales for customers and trying to have a combined pool of great brokerage customers that translate into great trucking customers as well. So we're just going to continue to grow that thing, as Tim said, incrementally, but really focus on both sides, on the company truckload operation and the company brokerage operation on optimizing lanes in order to optimize profit.
spk06: Okay, perfect. Thank you for the time. Thanks very much.
spk00: And there are no other audio questions. Excuse me, you do have a question from the line of John Rolfe with Crescent Rock Capital.
spk09: Hi, good morning, guys. Just one quick question. Why the decision now to re-up on the repurchase authorization, given that you still had, I think, sort of 300,000-plus shares out, and is there any read-through vis-à-vis that decision in terms of you know, the M&A pipeline and what you might or might not be seeing there currently.
spk02: Yeah, for sure. Yeah, this is Jude. So, I mean, right before COVID, we had a repurchase in place, and it only took us a month to burn through about 350,000 shares. So, it was just the speed with which those shares, we were able to buy those shares back on the open market. So just to be safe, we just went to the board and asked them to reload the authorization that we had before, which was from a pretty long time ago. It's from like 2014. So, you know, we're talking seven years out, but we've kind of gotten serious about the buybacks over the past couple of years. So it was really just because it didn't take us a long time to buy back shares in the open market last time, and we wanted to make sure that if the – if the easy to EBITDA was right, that we were in the market playing that form of our capital allocation strategy. The M&A market, I mean, it has picked up considerably. I mean, we have, you know, we're probably getting sourced four deals a week from across, you know, the transportation spectrum from, you know, intermodal to truckloads to contract logistics opportunities. It's just that, you know, Universal historically has been super picky about, you know, what we want to buy and what customer verticals and markets that we want to play in. And so, you know, we let a lot of pitches pass. I mean, we don't swing at a lot of things, but when we do swing, We go after things pretty hard. And if you remember, since 2018, we acquired about six businesses in the intermodal trade space. We spent about a quarter of a billion dollars in doing that to really beef up the regionalization of that business and the density of that business. And, of course, onboarded some great customers. So, you know, we're expecting the same things with the current round of M&A. And, you know, as things progress, I mean, you'll hear more from us.
spk08: Great. Thank you, guys. Appreciate it.
spk02: Thank you.
spk06: Thank you.
spk00: And there are no other audio questions at this time.
spk05: Well, thanks for everyone's interest in Universal Logistics Holdings, and we look forward to talking to you next quarter. Thank you.
spk00: this concludes today's conference call thank you for participating you may now disconnect Thank you. Hello. Thank you. Bye.
spk11: Bye. you you
spk00: Good day and thank you for standing by. Welcome to the Universal Logistics Holdings Incorporated second quarter 2021 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, Please press star zero. I would now like to hand a conference over to your speaker today, Mr. Tim Phillips, Chief Executive Officer. Please go ahead, sir.
spk05: Good morning, and thank you for joining Universal Logistics Holdings' second quarter earnings call. To start with, I would like to extend a big thank you to the hardworking associates throughout the Universal family. We have successfully navigated many of the supply chain disruptions that were prevalent throughout much of the quarter. Your efforts and a cannot-fail attitude have continued to deliver strong results for our customers and valued shareholders. Walking our way out of the COVID pandemic has presented many challenges for the transportation and logistics space. However, we have also seen significant opportunity both in the warehouse and on the road. It's clear there will be a continued restocking of inventory, and there appears to be plenty of appetite by the customer. Your efforts have bridged these gaps, which have effectively supported our customer supply chain. Now for the quarter. In yesterday's release, Universal reported second quarter earnings of 95 cents per share on total operating revenues of $422.8 million. Second quarter operating revenues reflect Universal's highest quarterly revenue ever reported and exceeded our own estimates for the quarter. On an earnings per share basis, our results fell in line with our previously issued guidance after adjusting for non-operating gains. Top line revenue growth is a reflection of our previously mentioned contract logistics wins and a strong transportation pricing environment. Overall, I'm very pleased with the recovery in each of our operating segments as we lap the height of the global pandemic. However, we are not immune to many of the challenges that the industry is currently experiencing. While demand remains strong for autos and Class A trucks, the continued chip shortage, a prolonged UAW strike at a heavy-duty truck manufacturer, supply chain disruptions, and increased launch costs kept our contract logistics group from achieving its top and bottom line potential. As we mentioned in the release, contract logistics was adversely impacted by $5 million of losses associated with one of our recent launches. We experienced staffing challenges and weight pressure in conjunction with customer production schedule, which was far lower than previously forecast. As our customer ramps up and out of the extended launch phase, we anticipate approving volumes, which will translate into better results for us. I'm cautiously optimistic on the second half we'll approve as chip shortages and supply chain disruptions begin to stabilize. Additionally, we continue to add our wins in the contract logistics segment, securing an additional $22.5 million of annual business in this quarter. We anticipate these wins to be in full run right in Q1 and Q2 of 2022. And, Many of these wins are on new customers in industrial, aerospace, and EV verticals. In our intermodal drage segment, we experienced 28.6% year-over-year revenue increase and also saw an improvement sequentially. The drage market has been experiencing some ongoing challenges as congestion at the ports and rails, combined with availability of equipment, adversely impact fluidity of the containerized freight. To combat these challenges and further enhance our ability to recruit, we have worked with our customers to increase rates. Some of these rate increases are reflected within the results, but not all. On average, we have increased our rates to intermodal customers about 14%. The second half will continue to be challenging, but we have positioned ourselves well with our customers to move into peak seasons. Our company-managed brokerage operations remain disciplined and continue to balance contractual and spot freight in a market riddled with capacity constraints and influenced by premium pricing. While revenue was up 58% year over year, the number of loads being handled decreased by 20.8%. We continue to focus on rationalizing our lanes to ensure acceptable level of profitability. Our aim is to capture consistent gross margin, and we've made significant progress. finishing the quarter north of 12% in gross margins. The increased revenue was driven by higher spot market rates and better contract pricing. Currently, 99.4% of our freight is running under new rates. That would be business rated in the first half of 2021. Looking ahead to the second half, we anticipate to reprice approximately 21% of our brokerage business. Our trucking segment experienced both top and bottom line growth, highlighted by driver and contractor count increases. The truckload group saw the average rate to our customer increase by about 3.5%. I'd like to point out that this is an average. Rates are up as seen in our other company managed brokerage results. This quarter, 2021 experienced a bit of a weakness in our wind energy business. Excluding wind, our rates were actually up about 20%. We anticipate sustained tightness in our customers' inventories and capacity throughout the industry for the near term, which continues to position us for additional rate increases with our customer. We recently received very positive outlooks for our wind customers, and the second half looks robust, which should have a positive effect on both our top and bottom line coming into the quarters. With ever-increasing burdens for small fleets, our agency-based franchise continues to offer competitive alternatives to entrepreneurs looking to excel in the transportation industry. And our efforts are paying off. In the second quarter, our agent-based division was successful in onboarding 16 new agents. Universal is truly a people-driven company. Every associate is significant and holds an important role in our success. Operational excellence is dependent on each team member contributing while navigating a demanding environment. I respect the hard work and efforts shown by all the universal team members, and I thank you for your continued efforts. I would now like to turn the call over to Jude. Jude? Thanks, Tim.
spk02: Good morning, everyone. Universal Logistics Holdings reported consolidated net income of 25.6 million, or 95 cents per share, on total operating revenues of 422.8 million in the second quarter of 2021. This compares to net income of 6.2 million, or 23 cents per share, on total operating revenues of 258 million in the second quarter of 2020. As mentioned in the press release, During the second quarter of 2021, Universal recorded a $5.7 million pre-tax gain or $0.16 per share related to a favorable legal settlement. Consolidated income from operations was $31.3 million for the quarter compared to $10.8 million one year earlier. During the second quarter of 2021, Universal reported all-time record highs for revenue, operating income, as well as EBITDA. EBITDA increased 23.6 million to 53.7 million, which compares to 30.2 million one year earlier. Our operating margin and EBITDA margin for the second quarter of 2021 are 7.4% and 12.7% of total operating revenues. These metrics compare to 4.2% and 11.7% respectively in the second quarter of 2020. Looking at our segment performance for the second quarter of 2021, In our contract logistics segment, which includes our value-add and dedicated transportation businesses, income from operations increased $15.2 million to $15.9 million on $154.8 million of total operating revenues. This compares to operating income of $800,000 on $71.8 million of total operating revenue in the second quarter of 2020. Operating margins for the quarter were 10.3% versus 1% last year. As mentioned in Tim's comments and our release, our contract logistics business incurred a $5 million loss in the second quarter at one of our launches supporting an automotive OEM. We expect a similar loss in the third quarter, but moving closer to break even as the quarter progresses. In our intermodal segment, operating revenues increased 28.6% to $106.6 million compared to $82.9 million in the same period last year. Income from operations also increased $1.4 million to $6.2 million. This compares to operating income of $4.7 million in the second quarter of 2020. Operating margins for the quarter improved marginally to 5.8% in the second quarter of 2021 compared to 5.7% during the same period last year. Both driver and equipment shortages, as well as a lack of port and rail fluidity, continue to hamper the results of this segment. In our trucking segment, which includes both our agent-based and company-managed trucking operations, operating revenues for the quarter increased 58.4% to $99.8 million compared to $63 million in the same quarter last year, while income from operations increased 80.4% to $6.5 million. This compares to operating income of $3.6 million in the second quarter of 2020. In our company-managed brokerage segment, operating revenues for the quarter rose 61.3% to $60.4 million compared to $39.9 million in the same quarter last year, while income from operations also increased $700,000 to $2.4 million. This compares to operating income of $1.7 million in the second quarter of 2020. Operating margins for the quarter were 4% versus a 4.3% margin last year. On our balance sheet, we held cash and cash equivalents totaling $13.1 million and $7.9 million of marketable securities. Outstanding interest-bearing debt net of $1.3 million of debt issuance costs totaled $432.2 million at the end of the period. Excluding lease liabilities related to ASC 842, our net interest-bearing debt to reported CTM EBITDA was 2.3 times. Capital expenditures for the quarter totaled $12 million. As Tim mentioned in his comment, the availability of equipment, including the procurement of new equipment, has been extremely challenging. As a result, we are lowering our forecasted capital expenditures now to be in the $40 to $50 million range before any additional business wins in our contract logistics segment and strategic real estate purchases. We expect to make up for this year's equipment deficit by increasing our capital spending next year. Interest expense for the year is expected to come in between $12 and $14 million. If the business environment remains stable for the third quarter of 2021, we are expecting top line revenues between $420 and $450 million and operating margins in the 7.5% to 8.5% range. Additionally, while we are reaffirming our full year guide on total operating revenues between $1.6 and $1.7 billion, we are now lowering our top end 2021 expected operating margins by 100 basis points from 7% to 9% to now between 7% and 8%. Launch losses in our contract logistics service line, as well as continued operating challenges within our intermodal business, are the primary reasons we tightened our expected operating range for the full year. Turning to our dividend, yesterday 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 September 6, 2021, and is expected to be paid on October 4, 2021. Finally, in yesterday's release, Universal also announced its board of directors has authorized a new stock repurchase plan. Under the new plan, we are authorized to repurchase up to 1 million shares of ULH common stock in the open market. With that, Jamie, we're ready to take some questions.
spk00: Thank you. As a reminder, to ask your question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. The first question comes from the line of Chris Weatherby with Citi.
spk07: Hey, guys. Good morning. James on for Chris. The first question I have really involves what you're seeing and how you're thinking about the recovery. It sounds like you're thinking about sort of the status quo or steady state from here on out when you were thinking about the guidance and the results for the full year. We just wanted to get your perspective on the trends you're seeing and sort of if you're seeing weakness or particular strength, just trying to understand sort of like your perception of risk to the upside or downside based on the outlook and the trends you're seeing in the freight market broadly.
spk02: Yeah. Hey, this is Jude. So, yeah, we're expecting the truckload market to still be, you know, robust on the rate side and the volume side. Obviously, we're going into peak season, so on the brokerage side, we all know what that can do to capacity and to rates and some constraints, but we're still expecting that operation to operate within a similar margin to what we had in the second quarter. On the intermodal side, I think we're bullish on a lot of the things that we've heard from our customers and the freight that we have onboarding. in Q3 and in Q4 as it relates to peak. So we're expecting some additional margin out of that business in the coming quarters in the back half. And then in our contract logistics business, excluding the $5 million headwind that we have had in Q2 and the $5 million headwind that we have in Q3 related to that singular launch loss, that business really still performed really, really well and would be at historical margin had it not been for that particular excess launch cost. You know, of course there's risks with everything. You know, I think we're all hearing in the news about, you know, COVID lockdowns and all that kind of stuff and masks coming back, so we really don't know what's going to happen there. But as far as looking at the business as it is today and projecting it out over the next 60 to 90 days, we feel pretty good about it. We just have to have some cleanup in our contract logistics business, and we expect to get back to that run rate of 7% to 9% or that 8% to 9% like we were originally planning for the back half of this year.
spk07: Yeah, and to follow up on that point around the margins, are you seeing, like, wage pressure coming through at all this year that's impacting the margins? Have you largely been able to pass it through, or is it something that really you could probably see flowing through your results in 2022, just trying to understand sort of that dynamic within your costs would be great as well?
spk05: Yeah, this is Tim. Yes, we've seen some recent wage pressure. And just related to the launches that Jude was speaking to, some of this wage pressure is within the last three or four months. There's been some turnover in some operations. We've been forced to go out and source new individuals. The wages that we're having to pay are escalating, and it's also creating some training and some mentorship issues. So, yeah, I see wage – I see people – and wages being a headwind that we will have to deal with on a basis through the second half of 2021 and probably into 2022. And what we're doing is we're rationalizing every operation, looking at the wages, what percentage increases we feel we're going to have to pay out to get us to where we need to be to get that employee, and then we'll execute a plan to go back and – collaborate with our customers on what it's going to take to make sure their freight is moved through the supply chain in an efficient manner.
spk07: Got it. And as we think through that, what is your outlook for essentially startups across sort of basically the back half of this year, but also into 2022 and might that slow because of the wage pressure, like essentially could hiring hamper your ability to take on Volume or is it really just essentially a margin headwind?
spk05: Well, yeah, I think it's two things. I don't only think it's wage pressure. I also think it's the individual employees in that market that want to be in the space. So we have had some of that marketing going on to make sure we have a pipeline of people. The other thing that plays into our potential wins and where we launch is I think some of the wins that we've had over the last couple months have been in various markets around the United States. At some point, we had a pretty high concentration in particular markets that made it extremely more challenging because we were in a saturated market trying to find people, whereas we had branched out a little bit in different verticals that spread us around the country. I won't kid you and say, do we think there's going to be problems in finding qualified people? I'm going to say yes. But I do know in the next upcoming launches we have already won, we're already taking a proactive approach with the customer and with the market in trying to get ahead of that curve because it's taking a little longer to find qualified individuals. I think the biggest point to this where we will find some potential erosion of potential wins is on the transportation side as we look at the availability of drivers in particular markets. We haven't shut any of the pipelines down. We've just been tremendously optimistic about how we're going to rate them to make sure that we can go to market with a rate that's respectable enough or a wage that we can pay that's going to attract what is in the market, because the market isn't overflowing with available candidates, both on the road and on the dock.
spk07: That makes sense. And actually, moving to the next question, which is really around the truckload market and how you're thinking about that there. You talked about the repricing opportunity. As we think about basically what you're going to be doing across the back half and potentially if you do see a normalization across 2022, should we see sort of a significant margin expansion assuming that like essentially the truckload market starts to normalize and capacity comes back across 2022? Just trying to understand sort of like what you would expect If that were the case, how would you expect margins to react in 2022 relative to 2021?
spk05: Well, I don't have the complete crystal ball for 2022, and I wish if someone does, they'd dial me up and give me some insight on that. We see things pretty much, as you had mentioned, coming out of the second half of 2021. We still see rates escalating with our customers. We still see demand rising. on the wage side of it. I'm pretty comfortable saying that as we exit into the first quarter of 2022, we're going to be in a similar situation. But, I mean, I think others have probably rationalized and said that at some point in 2022, things will start to come back to more of a normalized market. And if things do come back to a normalized market, much of our capacity on the truckload side is run through owner-operators, too. So it's run through a variable cost structure. which I'm somewhat comfortable that, as that said, it will equalize itself should we have to run through a normalized market. We'll have to play that hand on the company truck drivers as we get there. But for right now, for the next at least couple quarters going into 2022, I see sustained demand on wages, and I also see collaboration with customer on rate increases.
spk07: Got it. And then... Because in terms of intermodal, the ability to, like, congestion is a hot topic, obviously, and the ability to source capacity and what you're seeing, are there any sort of incremental headwinds that you could think about across the back half? Are you expecting sort of more challenges or less? Just trying to understand sort of, like, what you're seeing relative to your own business versus the entire market across the back half when it comes to intermodal and capacity.
spk05: Okay, yeah, well, intermodal as a whole for universal logistics holding is really centered around the draped piece of it, you know, hauling it from ports and rails to the ultimate customer. So what we've seen in the first half of the year, I expect to continue to see in the second half of the year. That is congestion at ports and rails. That is equipment shortage with chassis in particular markets. A continued drive to recruit customers. owner-operators and drivers, and what we see and what we've seen in past hot markets on the van side is a lot of the, we're competing against the van carriers for these drivers and contractors, and in many cases, a van driver is going to make a little bit more money than a drayage driver, so we see some defection, and it's a lot harder to recruit in these markets. And then also, you know, back to labor. We talked about labor as a whole, not only how it affects us, but think about how it's affecting the supply chain and customers. We're seeing an increased dwell time on the customer end that even adds to that equipment shortage problem. So I see those continuing to be a problem as we strive to to get, you know, extra amount of moves per driver per day for an optimization. So the results of that, you're going to see continued pressure on getting in and out of the rails, which is you've got to watch your demerge and per diem costs, and you have a reduced utilization on your power units. So we'll continue to recruit hard. We have specific departments set up to do that and focus on drayage drivers because we're going to need more of them potentially to do the same amount of work we did last third quarter at the same time. This is just unfortunate truth. And we watched the dwell times at the major ports and rails, and I'm not pointing any negative figures there towards them, but we're starting to see things escalate upwards We track the data from our own driver's ELDs, and we're approaching on average over an hour and a half wait at ports and rails, and that can expand up to four hours depending on what major market it is and how pinched it is. And now you're starting to see more ships at anchor. You're starting to see the flag going up in the port of L.A. and Long Beach that they're going to see a high level of volume. We just have to be prepared for it. And the other thing we're doing that's a little different maybe than most on the drage side is we're trying to, and Jude had mentioned our CapEx, well, the back half of this year we're focusing, because we can get chassis, we're going to go out and get more chassis. I'm not sure the exact count yet, but it'll be close to 1,000 chassis that we'll add to our fleet already. It doesn't solve the problem everywhere. but we'll filter those into major markets to help our customers address their supply chain problems. And as the chat, the leasing market still remains tight, you know. So we'll continue that strategy, you know, for the rest of this year, and we'll look at it again next year if it makes sense.
spk07: Yeah, so it sounds like just based on how you're describing it, at least the chat is at least you're – definitely in position to sort of or at least you think you're definitely in position to outperform sort of the broader trends in the fact that you can actually still get equipment and some level of and you actually can still garner some level of drivers which is obviously a positive but is there any is there anything else to be thinking of broadly or is when it just basically comes to that the ability to source capacity is really just the Is it really relying on those two aspects? Is there any sort of like contract or anything else to be thinking of? Just anything beyond that would be great.
spk05: Yeah, I think on the contractor and driver end, I'll be honest, it's like a fist fight you watch. And it's every day we come in and we start, in some days, it's not even that, we're hitting our head against the wall, but we start, you know, we start contacting using our resources. We have resources not only centrally located in corporate, we have boots on the ground at all facilities that are out there navigating the local landscape. And it's up to us from an operational standpoint because I think there is going to be you know, many times they're going to go where they're going to make the most money. And not in all cases is it drage right now. So it's just going to be a fist fight. And then internally, we've got to look at how we can optimize to the best of our ability. That's what I mean in some of the remarks. And we talk about having additional runway. I still think there's some internal optimization that we can do. And if it's as simple as matching imports and exports better and doing some of those things internally that allow us to twist a few knobs, But I'll tell you this, the knobs don't have a lot of distance to go until some of this congestion and equipment allocation lighten up because we're spending a lot of time sitting without the wheels turning on the road.
spk15: Got it. All right. Thank you.
spk00: Again, to ask an audio question, please press star 1. Your next question comes from the line of Bruce Chan with Stiefel.
spk19: Hey, Jens. Good morning, and thanks for the questions here. Maybe just to start out on the contract logistics side, I think Tim and Jude, you guys talked about that $5 million one-time loss at the startup. Just want to get a little bit more color on what's going on there. Is that sort of an atypical event where you didn't anticipate something and kind of got stuck with it? Or are there typically some of these costs involved in large new project wins that we should start to think about as you see some good demand for that product going forward? Yeah, hey Bruce, it's Jude.
spk02: So yeah, we saw very similar things when we launched operations in 15, 16, and 17. This particular one, as Tim mentioned in his previous comments, that with the labor, the amount of labor that we needed in a singular market, it obviously posed a number of challenges in being able to recruit and retain the right number of people to get into that operation. And then you couple that with the chip shortage and the customer's production for that facility being down anywhere between 30 and 40%. of where we were expected to be at this time. It's the combination of those two things. So I think this one, you know, it was going okay up until about May and then in June it just like exploded. So, you know, we're kind of in the same situation that we were with some of these other ones where you kind of have about two quarters where it kind of takes to work itself through. We're already working through the head count and the hours, the excess equipment and the people. So that's why in my comments, I mean, we're expecting about a similar loss of another $5 million at that particular operation in Q3. So, you know, August will be better than July, and then September should be close to break-even, we're hoping, by the end of the quarter. But more to come. A lot of it's out of our hands just because of the chip shortage and the customer's inability to get their production up.
spk18: Yeah. That's really helpful.
spk05: And, Bruce, I'll add to that. I think that what we've experienced in the past and how we face it now. The only real difference from a blueprint and a game plan has been the labor market, and it's not a normal labor market when it comes to hiring labor on the dock. So in some cases, we've even added some additional staffing on the dock to cover for call-offs. And the other thing that you can't measure in your launch template is the quality of an experience of an individual. You try to hire all experienced individuals, but I'd be remiss, I would be lying to you to say that they're out there in big numbers. So not only have we had some turnover, rehiring, we've also had to implement some additional training and mentorship programs to bring those individuals along so they can have a level of success in what I'll call a very intricate supply chain solution for our customers. So we're all running as hard as we can right now. And as Judith said, we have a plan to get to where we need to be. We just have to execute every day.
spk19: That's really helpful. And then just, you know, if I think about how the margins in contract logistics for legacy business, you know, stacks up against some of these new wins that you're seeing, you know, outside of, you know, this exceptional labor market, you know, are they fairly similar? Do they tend to be a little bit better because, you know, you have a better bargaining position, you know, relative to some of the big OEMs? Or are they a little bit worse because, you know, maybe you don't understand the business as well, you know, at the outset?
spk02: All right, Bruce, this is Jude. No, I mean, we would just say that we're bidding everything at those historical value-add margins. I mean, as we've learned in that business over the years, there's a lot of risk In doing them, their long-term contracts, the labor that's employed is transient and risky. So, no, we're going after all these new business wins at the historical margins that we expect for that legacy contract logistics business.
spk19: Okay, perfect. So no change to those longer-term margin targets, even if you start to accelerate that contract win rate?
spk02: No, that is correct. And as Tim mentioned in his comments, in some cases we're going back to the customer before we're launching and requesting labor rate increases because we test the market and say, hey, if we can't hire at those wages, well, we have to go back and get increases before we start.
spk19: Okay, that's super helpful. And then just one last question here, maybe on the company brokerage side. It seems like you've got a much higher percentage on the – you know, new rate business than some of your peers out there, but, you know, maybe you're a little bit lower on the load development. You know, so just kind of thinking through your strategy in company brokerage, you know, do you have any change in thoughts around, you know, what you want to get out of this business on the revenue side and the margin side versus, you know, some of the targets that you've laid out in the past? I mean, you're running at, you know, 4% now versus that kind of 1% to 3% target range. You know, so is there a kind of – maybe an interest in running a smaller business but a more profitable business? Anything there to think through?
spk05: Yeah, I would think you hit it on the head there. We'd like to be a billion plus if it was intelligent. So it's called intelligent growth with what the market will give us. So as we said, we're rationalizing our rates. We're rationalizing our percentage of spot contractual. And we're trying to position it so we can be successful on a continued basis. And as you noticed in the prepared remarks, we basically touched all of our customers in the first half of the year. And in some cases, that wasn't because the contract was up. It's because we had to go back and talk about a joint solution of how we're going to continue to supply capacity to meet their needs. So there's been some heavy lifting and a lot of homework done. I wouldn't expect us to see us shrink. I would just say we're going to grow intelligently And we're trying to drive that margin into that 4% to 6% range that we've always chirped about wanting to be. And to do that, you know, it's kind of hard because you see so much opportunity out there for a win, right? There's a ton of work flowing through the system. But we've told our people you've got to be disciplined in how you approach it. And, yes, we will grow, but we're going to grow at those margins that we've been preaching about for a long time. still a ton of work to do, but I think we have the machine kind of heading that direction. And I think that it's a firm but fair approach that not only do we win, but our customer wins because we're providing a good service.
spk19: Yeah, because, you know, that sub $500 million or, you know, call it sub $250 million, you know, size range is pretty tough for brokerage. So I'm wondering, you know, as you think about capital deployment and especially M&A, I mean, is there any appetite there to you know, grow inorganically in brokerage?
spk02: This is Jude Bruce. No, I mean, we can grow that business as fast as we want to grow it just by lowering our price, right? So I think just echoing Tim's comments, I mean, you know, we've been running a different play for the past couple of years where we have our company-managed brokerage and our company-managed truckload operations, you know, working together, on sales for customers and trying to have a combined pool of great brokerage customers that translate into great trucking customers as well. So we're just going to continue to grow that thing, as Tim said, incrementally, but really focus on both sides, on the company truckload operation and the company brokerage operation on optimizing lanes in order to optimize profit.
spk06: Okay, perfect. Thank you for the time. Thanks for the interview.
spk00: And there are no other audio questions. Excuse me, you do have a question from the line of John Rolfe with Crescent Rock Capital.
spk09: Hi, good morning, guys. Just one quick question. Why the decision now to re-up on the repurchase authorization, given that you still had, I think, sort of 300,000 plus shares out, and is there any read-through vis-a-vis that decision in terms of you know, the M&A pipeline and what you might or might not be seeing there currently?
spk02: Yeah, for sure. Yeah, this is Jude. So, I mean, right before COVID, we had a repurchase in place, and it only took us a month to burn through about 350,000 shares. So, it was just the speed with which those shares, we were able to buy those shares back on the open market and So just to be safe, we just went to the board and asked them to reload the authorization that we had before, which was from a pretty long time ago. It's from like 2014. So, you know, we're talking seven years out, but we've kind of gotten serious about the buybacks over the past couple of years. So it was really just because it didn't take us a long time to buy back shares in the open market last time, and we wanted to make sure that if the – if the easy to EBITDA was right, that we were in the market playing that form of our capital allocation strategy. The M&A market, I mean, it has picked up considerably. I mean, we have, you know, we're probably getting sourced four deals a week from across, you know, the transportation spectrum from, you know, intermodal to truckloads to contract logistics opportunities. It's just that Universal historically has been super picky about what we want to buy and what customer verticals and markets that we want to play in. We let a lot of pitches pass. We don't swing at a lot of things, but when we do swing, we go after things pretty hard. And if you remember, since 2018, we acquired about six businesses in the intermodal trade space. We spent about a quarter of a billion dollars in doing that to really beef up the regionalization of that business and the density of that business and, of course, onboarded some great customers. So, you know, we're expecting the same things with the current round of M&A. And, you know, as things progress, I mean, you'll hear more from us.
spk08: Great. Thank you, guys. Appreciate it.
spk06: Thank you. Thank you.
spk00: And there are no other audio questions at this time.
spk05: Well, thanks for everyone's interest in universal logistics holdings, and we look forward to talking to you next quarter. Thank you.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect.
Disclaimer