Universal Logistics Holdings, Inc.

Hello, and welcome to Universal Logistics Holding Fourth Quarter 2021 Earnings Conference Call. At this time, our participants are in a listen-only mode. 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 view of the business as seen today. Statements that are forward-looking relate to universal 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 uncertainty, 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 Behrs, Chief Financial Officer, and Mr. Steven Fitzpatrick, Vice President of Finance Investor Relations. Thank you, Mr. Phillips. You may begin.

Good morning, and thank you for joining Universal Logistics Holdings' fourth quarter earnings call. Although the quarter saw headwinds on several fronts, I was extremely pleased with the resilience of all our Universal associates. Universal's talented base of employees throughout all levels of the organization were key to executing our business strategy through continued supply chain disruption. While our quarterly and yearly results do not totally reflect what our team is capable of, we continue to advance the corporation's footprint by adding new facilities, customers, and talents to the organization. We left 2021 recording record revenue, operating income, and earnings per share, which leaves me extremely optimistic entering the new year. Now for the quarters. In yesterday's release, Universal reported fourth quarter earnings of 60 cents per share on total operating revenues of 467.4 million. As detailed in the release, fourth quarter earnings included 31 cents per share of litigation related charges and operational losses incurred in recent contract logistics launch in Detroit. Fourth quarter operating revenues reflect Universal's highest quarterly revenue ever However, as previously mentioned, we fell short of our earnings expectations. Now for some color on our service lines. In our contract logistics segment, we continue to experience headwinds highlighted by production downtime due to chip and part shortages at several of our key locations. We have been successful in obtaining contractual price increases with many of our business partners to help offset the continued inflation. While demand remains high for autos and Class A trucks, part and chip supply will remain on the radar moving through the first quarter of 2022. Our auto and truck customers continue to navigate supply chain problems, which has challenged their production schedules. Production and operation fluency remain a challenge in servicing our new automotive customer in Detroit. Once again, our contract logistics group saw another $5 million in losses associated with the operation for the quarter and totaling nearly $20 million for the year. As with most in the transportation and logistics space, we continue to invest in onboarding new talent in an extremely tight labor market. Although labor has been a challenge in this space, we successfully launched over 250 people in a large logistics center supporting heavy equipment provider in the Midwest. In late December, we rewarded a large piece of dedicated business from an existing automotive partner. Our dedicated team is prepping to launch 150-plus drivers in the latter part of the first quarter to support this operation. We expect a rapid launch with full run rate revenue of over $30 million a year. In addition, our contract logistics group will begin launching a previously mentioned logistics center supporting a large aerospace customer at the beginning of the second quarter. Demand and opportunity remain strong for our contract logistics services. Our pipeline of opportunity remains robust, with several midsize opportunities reaching the latter stages of the procurement process. Our intermodal drage group experienced many of the same headwinds in the fourth quarter as throughout 2021. Congestant and equipment availability remain at the top of the list. While our driver and contractor numbers remain flat, Our intermodal segments face recruiting competition as a result of a red-hot truckload market and contractors getting their own authority. Accessorial charges remain elevated in the quarter as demerge, storage, per diem, and chassis charges total $35.7 million. Accessorial billings are expected to remain high because of the congestion experience in North America. We have worked closely with our... to increase rates to better position our margin profile. The Intermodal Group did realize a 33.8% year-over-year revenue increase and 17.1% improvement sequentially. Our year-over-year load count was down 14.2% because of increased length of haul, congestion, and a stagnant driver count. We worked extremely close with our customers over the quarter to rationalize the congestion, labor shortage, and inflation. Through a combination of price increases, accessorial billings, and increased length of haul, we realized a 31.9% increase in our revenue per load in the fourth quarter. In our trucking segment, our agent base was able to capitalize on tight capacity with strong pricing. Revenue was up over 25%, which was the result of moving more loads at a 19.3% increase in revenue per load. We exited the year with a strong quarter in our wind business and expect the run into strong first half of 2022. The truckload market remains very favorable for the near future with plenty of freight spurred by strong demand and pricing. Our quest for continued growth will be majored by our ability to recruit contractors and recruit new agents into our network. 2021 represented one of our best years in agent growth with 21 new agents onboarded. I'm equally excited about the pipeline of new agents that the group continues to compile. Our company-managed brokerage operation continued to perform well in the quarter. Operating revenue per load increased 10.1% to $1,976 per load. Although the number of loads hauled was down 19.4%, we were pleased with our pricing discipline and capacity utilization in a very tight broker market. Although this capped our top line revenue, our discipline allowed the group to obtain a 4% operating margin. As we move through the first quarter of 2022, we expect brokerage capacity to remain tight amid record high rates by small carrier and single brokers assess the amount of moves they need to move in a week. We expect a strong SPART market where we'll extend opportunities to capitalize on margin. As mentioned before, we will continue to rationalize margin in front of high revenue growth. Finally, our greatest resource will continue to be the people of universal logistics holding. We were able to onboard nearly 2,000 talented associates in 2021 which helped launch, service, and grow new and existing business opportunities. Outside of some launch and labor headwinds, our 2021 fundamentals were strong. I truly believe we are entering 2022 with a strong cadence to return value to our shareholders and our associates.

I would now like to turn this call over to Juice. Juice? Thanks, Tim. Good morning, everyone. Universal Logistics Holdings reported consolidated net income of $16.2 million or $0.60 per share on total operating revenues of $467.4 million in the fourth quarter of 2021. This compares to net income of $16.2 million or $0.60 per share on total operating revenues of $386 million in the fourth quarter of 2020. Included in the fourth quarter of 2021's operating results were pre-tax charges of 6 million for auto liability claims expected to settle over policy limits, as well as 5 million in operating losses incurred in a recently launched contract logistics program in Detroit. For the quarter, these items adversely impacted our operating ratio by 230 basis points and were a drag on our earnings of approximately 31 cents per share. Consolidated income from operations was 23.8 million for the quarter, compared to 23.5 million one year earlier. EBITDA decreased 4.5 million to 39.7 million, which compares to 44.2 million during the same period last year. Our operating margin and EBITDA margin for the fourth quarter of 2021 are 5.1% and 8.5% of total operating revenues. These metrics compare to 6.1% and 11.4% respectively in the fourth quarter of 2020. Looking at our segment performance for the fourth quarter of 2021, in our contract logistics segment, which includes our value-added and dedicated transportation businesses, income from operations decreased $5.9 million to $6.1 million on $160.7 million of total operating revenues. This compares to operating income of $12 million on $133.2 million of total operating revenue in the fourth quarter of 2020. Operating margins for the quarter were 3.8% versus 9% last year. As mentioned in Tim's comments and in our release, our contract logistics business incurred a $5 million loss in the third quarter at one of our launches supporting an automotive OEM here in Detroit. For the full year, launch losses and downtime settlements with customers impacted contract logistics operating income by $23.7 million. This affected or impacted segment operating margins by 380 basis points for 2021. In our intermodal segment, operating revenues increased $35.8 million to $141.7 million compared to $105.9 million in the same period last year. And income from operations increased $6 million to $13.8 million. This compares to operating income of $7.8 million in the fourth quarter of 2020. In our trucking segment, which includes both our agent-based and company-managed truckload operations, operating revenues for the quarter increased 25.5% to $101.5 million compared to $80.9 million in the same quarter last year, while income from operations decreased $2.4 million to $1.1 million. This compares to operating income of $3.5 million in the fourth quarter of 2020. The trucking segment recorded a $6 million charge for auto liability claims expected to settle over policy limits. These charges adversely impacted the trucking segment's operating margin by 590 basis points for the quarter. In our company managed brokerage segment, operating revenues for the quarter declined $3.8 million to $62 million compared to $65.8 million in the same quarter last year, while income from operations increased $2.3 million to $2.5 million. This compares to operating income of $200,000 in the fourth quarter of 2020. Operating margins for the quarter were 4% versus 3 tenths of 1% last year. On our balance sheet, we held cash and cash equivalents totaling $13.9 million and $8 million of marketable securities. Outstanding interest-bearing debt net of $1.1 million of debt issuance costs totaled $427.3 million at the end of the period. Excluding lease liabilities related to ASC 842, our net interest-bearing debt to reported EBITDA was 2.4 times. Due to the availability of transportation equipment in 2021, our capital expenditures have been somewhat lower than our customary range. Capital expenditures for the quarter totaled $12.6 million and $38.8 million for the full year. As a result, we expect our capital expenditures in 2022 to be higher than the current year. For 2022, we are expecting capital expenditures to be in the $80 to $90 million range and interest expense to come in between $15 and $18 million. Based on the current operating environment for the first quarter of 2022, we are expecting top line revenues between $430 and $450 million and operating margins in the 7.5 to 8.5% range. For the full year of 2022, we are expecting total operating revenues between $1.8 and $1.9 billion and operating margins in the 8% to 9% range. And finally, our Board of Directors declared Universal's 10.5 cents per share quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on March 7, 2022, and is expected to be paid on April 4, 2022. With that, Justin, we're ready to take some questions.