Universal Logistics Holdings, Inc.

Hello and welcome to the Universal Logistics Holdings' first quarter 2022 earnings conference call. At this time, all participants are in the listen-only mode. After this 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 0. I would now like to hand the conference over to your speaker for today, Mr. Tim Phillips, Universal Chief Executive Officer. Please go ahead, sir.

Thank you, Erica. Good morning, and thank you for joining Universal Logistics Holdings' first quarter earnings call. Before we jump into the details, I want to take a moment to recognize Universal's over 12,000 associates who have worked so hard to get us to where we are today. We have believed for quite some time the earnings power of Universal was much greater than reflected in past results. And it has been a Herculean effort of these incredible team members who have gotten us to this point. While Universal continues to experience headwinds associated with the supply chain disruptions, automotive production, and talent acquisition, I remain impressed with our employees' continued ability to adapt while providing an elevated level of service to our valued customer base. You are beginning to see the next level of execution that will expand our service levels and provide value to our customers and shareholders alike. Make no mistake, adding new team members to address the demands of new and existing projects remains a challenge. We will focus on evaluating the expectations of our employee base and continue to shape the company to be an employer of choice in logistics and transportation. As we will outline in our remarks, performance in the first quarter of 2022 was just a glimpse of Universal hitting its stride with newly shaped contractual rates and a high level of execution. Now for the quarter. In yesterday's release, Universal reported first curtail earnings of $1.56 per share on total operating revenues of $523.9 million. Our reported first quarter performance reflects not only record results for the first quarter, they represent Universal's highest quarterly revenues, operating margin, and earnings per share in our company's history. While first quarter was a financial win for our company, it has also brought into light the hard work and success of onboarding and positioning talent to expand oversight and increase efficiencies. I firmly believe yesterday's release reflects Universal's capabilities when we operate in a somewhat stable, productive environment, and we are paid fair rate to deliver quality services. Now for some color on each of our service lines. In contract logistics segment, we continue to chase consistent production cadence at the auto plants that we service. While there has been some minor disruption in early Q2, mainly driven by available supply of parts, our continued training and talent acquisition leaves us well positioned to take advantage of any production uptick. I believe our recent rate increases will allow us to continue to onboard talented employees, provide a newer fleet of material handling, and transportation equipment. All indications show continued demand for autos, light utilities, and Class A trucks. Universal is well positioned to capitalize on this demand supporting customer plants that produce the most sought-after trucks and SUVs in North America. Continued cost rationalization and our variable cost model have allowed us to hit many of our financial targets with a relatively low SAR and some inconsistencies in production. The past few quarters, we have also been discussing the production issues at large automotive plants in Detroit, Michigan, and the losses associated with it. Although still not hitting our performance targets, we have recently seen progress in working through some of the production shortfalls and wage inflation issues with our customers and expect to receive a price increase sometime in the second quarter. While we will continue to rationalize our relationships, I believe the teamwork and customer recognition of increased wages and operating costs will align favorably for our contract logistics group moving forward. While locating an onboarding talent continues to be a challenge in this space, we continue to work hard at training and shaping our workforce to take advantage of current and future opportunities. We were delighted to have a successful launch of a previously mentioned shuttle operation of 150 plus drivers for an automotive customer in March and expect the opportunity to reach full run rate of $2.5 million a month in April. Demand for our customer-centric contract logistics product remains strong. Our pipeline remains full of opportunity, and we'll continue to rationalize each opportunity to make sure it is a fit not only for the customer, but a sound financial decision for ULH. While our intermodal drapes group continue to navigate a less-than-fluent port and rail network, the fruits of many months of collaborative customer discussions is visible in our first quarter rate levels. We are confident that these new rate levels will help us recruit and retain the very sought after drivers and owner operators. We continue to see heightened accessorial charges such as demerge, storage, and per diem, which totaled 36.2 million in the first quarter of 2022. While there is some concern about the lockdowns in China and how it affects the flow of goods over the next several months, the input we have been hearing from our customers has been reassuring for a solid second half of 2022. Even while published spot rates have softened, our contract customers have remained committed to holding capacity by maintaining not only our rates, but also various congestion fees. In addition to solid rate increases, our internal evaluations of operational efficiencies and rationalization of length of haul led to a 52% year-over-year revenue increase and 11.6% improvement sequentially. Our overall load count remained somewhat constrained because of turn times, which were the lowest in our history. We also experienced reduced number of contractors, and we did stretch our legs by increasing length of haul and markets afflicted by low turn times in order to keep our trucks loaded. We were extremely pleased with our 51.2% increase in revenue per load in the first quarter, and I'm cautiously optimistic about recent trends in our contractor and driver recruiting pipeline. As this truckload spot market normalizes, I believe the cadence of owner-operators migrating back towards our best-in-class intermodal business platform will accelerate. In our trucking segment, you're going to see some noise and load counts over the next few quarters. We took a hard look at some of our underperforming trucking operations and redeployed these assets into our better-performing ones. In our agent-based business, we continue to see the entrepreneurial spirit of our agents shine. Their group has continued to capitalize on strong pricing of premium flatbed, specialized, and van freight. Overall, revenue remained elevated and was up 2.7%, which was a 41.4% increase in revenue per load. However, as I mentioned, load counts were down due to moving assets. drivers, and contractors into our dedicated and intermodal operations to bolster capacity and capitalize on a better margin profile. Although the spot market has softened, our contractual van, flatbed, and wind business remain steady to strong. We believe our profile within the truckload market will remain steady over the near term and favorable for the second half of 2022. As mentioned, we see our opportunities in the flatbed and wind sector remaining stable and with 63% of our capacity pulling a flatbed, we like our positioning in the market. Although owner-operator capacity remains tight, we think there will be opportunity to capture owners who may have transitioned to their own authority and may be getting nervous about the softening spot market. We are equally as optimistic about transitioning opportunities of small trucking companies into our turnkey agent model. We were very pleased with our new agent partnerships in the first quarter, and I'm extremely excited about the agent transition opportunities that are currently in the pipeline and the prospecting opportunities developing in the second quarter. Our company-managed brokerage operations saw margin opportunities accelerate in the latter part of Q1. We took a careful look at our rate profiles during contract renewal and collaborated with our customers to establish pricing that would cover the freight on a consistent basis. Operating revenue per load increased 25.3% to $2,176 per load. Although the number of loads hauled was down 25.2%, we remained pleased with our pricing discipline and capacity utilization in a broker market that softened the latter part of the quarter, which led to our best quarter in the history for operating income. We remain focused on continuing to diversify the portfolio of blue chip customers while keeping an eye on fiscal responsibility. While we face some headwinds concerning labor, equipment, supply chain, and auto production cadence, we remain on point to evaluate market swings, look for solutions, and expand our footprint. We are closely watching indicators of potential market slowdown, but remain optimistic of a continued path of heightened profitability driven by strong customer relationships and operational execution. Finally, the whole Universal team has worked very hard onboarding and training the many new associates that will help us expand our business, both in new and existing locations. We will continue to focus on elevating the expectation of our associates and customers to provide the next level of service. While Q1 results yielded the best performance in the history of our company, I am extremely optimistic that we will continue to find execution opportunities that will add value and create additional momentum. I would now like to turn the call over to Jude.

Jude? Thanks, Tim. Good morning, everyone. Universal Logistics Holdings reported consolidated net income of $42 million, or $1.56 per share, on total operating revenues of $523.9 million. This compares to net income of 21.7 million or 80 cents per share on total operating revenues of 415.2 million in the first quarter of 2021. Consolidated income from operations was 57.8 million for the quarter compared to 31.2 million one year earlier. EBITDA increased 23.8 million to 75 million, which compares to 51.2 million during the same period last year. Our operating margin and EBITDA margin for the first quarter of 2022 are 11% and 14.3% of total operating revenues. These metrics compare to 7.5% and 12.3% respectively in the first quarter of 2021. Looking at our segment performance for the first quarter of 2022 in our contract logistics segment, which includes our value add and dedicated transportation businesses, Income from operations increased 6.7 million to 23.5 million on 201.6 million of total operating revenues. This compares to operating income of 16.8 million on 154.9 million of total operating revenue in the first quarter of 2021. Operating margins for the quarter were 11.6% versus 10.9% last year. As Tim mentioned in his comments, We are still experiencing some headwinds at our Detroit-based contract logistics business that we launched last year, but a relatively stable auto production environment was a favorable contributor to our contract logistics results. In our intermodal segment, operating revenues increased $53.9 million to $157.6 million compared to $103.7 million in the same period last year, and income from operations increased $14.5 million to $23 million. This compares to operating income of $8.5 million in the first quarter of 2021. Operating margins for the quarter were 14.6% versus 8.2% last year. A large contributor to this segment's strong performance was our ability to charge market rates on chassis usage as well as accessorial services customary in this business. In our trucking segment, operating revenues for the quarter increased 2.7% to $97.5 million compared to $94.9 million in the same quarter last year, while income from operations increased $2.2 million to $7.4 million. This compares to operating income of $5.2 million in the first quarter of 2021. Operating margins for the quarter were 7.6% versus 5.5% last year. In our company managed brokerage segment, operating revenues for the quarter increased $4.1 million to $65.2 million compared to $61.1 million in the same quarter last year. while income from operations increased $3.4 million to $3.9 million. This compares to operating income of $400,000 in the first quarter of 2021. Operating margins for the quarter were 5.9% versus 7 tenths of 1% last year. Favorable contract rates with our customers propelled our company-managed brokers to report their best operating results ever. On our balance sheet, we held cash and cash equivalents totaling $14.9 million and $9 million of marketable securities. Outstanding interest-bearing debt net of $1 million of debt issuance costs totaled $401.7 million at the end of the period. Excluding lease liabilities related to ASC 842, our net interest-bearing debt to reported trailing 12-month EBITDA was 1.99 times. Capital expenditures for the quarter totaled $6 million. For the full year of 2022, we are expecting capital expenditures to be in the $90 to $110 million range. with interest expense between $15 and $18 million. Based on the current operating environment, for the second quarter of 2022, we are expecting top-line revenues between $525 and $550 million and operating margins in the 8% to 10% range. For the full year of 2022, we are updating our guidance. We now expect the total operating revenues to come in between $1.9 and $2.1 billion, with operating margins in the 8% to 10% range as well. As mentioned in the release, through the end of the first quarter, Universal acquired 257,261 shares of its common stock out of one million shares authorized. We acquired these shares at an average price of $20.42 per share. And finally, on Wednesday, our board of directors declared Universal's 10.5 cents per share regular quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on June 6, 2022. and is expected to be paid on July 5, 2022. With that, Erica, we're ready to take some questions.