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spk05: Hello and welcome to Universal Logistics Holdings' fourth quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode, and should you need any assistance during the call, please signal a conference specialist by pressing the star key followed by zero. A brief question and answer session will follow the formal presentation today. During the course of this call, management may make forward-looking statements based on their best view of the business as seen today. Statements that are forward-looking relate to Universal's business objectives or expectations and can be identified by the use of the words such as belief, expect, anticipate, and project. Substatements are subject to risks and uncertainties, and actual results could differ materially from those expectations. As a reminder, this conference is being recorded today. It is now my pleasure to introduce to your host, Mr. Tim Phillips, Chief Executive Officer, Mr. Jude Beres, Chief Financial Officer, and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you. Mr. Phillips, you may begin the call.
spk01: Thank you, Joe. Welcome to Universal Logistics Holdings' 2022 Fourth Quarter Earnings Call. I'd like to take a minute and reflect on Universal's performance for the full year of 2022. I'm extremely proud of all our employees, agents, drivers and contractors who helped achieve such remarkable results. How far we have come since the onset of the pandemic almost three years ago. The Universal team executed on their commitment to excellence, focusing on training, quality of service and transparent collaboration. We all worked extremely hard record top-line revenue in excess of $2 billion, which was a 15% increase over 2021, and more than doubled our operating income and earnings per share. For the full year 2022, Universal reported record operating income of $240.4 million and $6.37 per basic and diluted share. In 2022, we made great strides, not only in our financial performance, but also on our ongoing cultivation of associates in the warehouse, office, and on the road. We continue to add and train new associates as we expand our business footprint, which unfolded in a tight labor market. The financial improvement is a credit to every associate's willingness and effort to execute at the highest level. We've added trained talent to a number of locations, to further expand our foundation and set course for continued performance and growth in 2023. As we closed out 2022, Universal's transportation sector was not insulated from the lackluster peak season brought about by high inflation and inventory destocking. Our intermodal group experienced rapidly declining import volumes, and our brokerage group saw the number of tendered loads decline throughout the quarter. Our truckload group held their own by retaining pricing and elevated fuel surcharge levels. While we saw year-over-year deterioration in our transactional transportation sector, our contract logistics segment, which includes dedicated transportation and value-added services, expanded top-line revenue and operating margin because of our diversified service offerings, Universal proudly printed its best fourth quarter operating income in EPS and company history. Fourth quarter capped off a year of incredible positive change. We remained committed to identifying, reshaping, and improving processes among the various service sectors. We successfully reimagined our large automotive launch in the city of Detroit, enhancing our employees' skills, employing process improvements, and ultimately elevating our service levels to meet the customer's needs. On the West Coast, we set forward a new business plan in the state of California, brought about by the implementation of AB5. We worked diligently to obtain company assets in a tight equipment environment, hire new qualified drivers, and transition existing contractors to company employees. We successfully entered into a partnership with the Teamsters to help set course for building a skilled and talented driver group accessing the port of LA and Long Beach. Overall, we have taken great steps to strengthen the fiber of our associates around the country as we prepare for the next stage of expansion. Now for the quarter. In yesterday's release, Universal reported 2022 fourth quarter earnings of $1.27 per share on a total operating revenue of $458.7 million. We continue on our record-setting streak, reporting Universal's best ever fourth quarter operating income and earnings per share, increasing each by over 100% compared to the fourth quarter of 2021. This marks the fourth consecutive quarter of meaningful margin expansion and operational efficiency progress. While we have experienced a decline in transportation spot rates and volumes, we are optimistic our contract logistics business is well positioned to grow entering into 2023. Now for some color on each of the service lines. In our contract logistics segment, we experienced some fluency improvements in regard to parts and chips in the auto sector, which provided a consistent five-day work schedule, but still lacked some of the extended weekend runs. While the SAR remained muted throughout 2022, the demand for vehicles still remained strong. We were very pleased with the performance in the auto sector and across the various verticals. Operational performance of our early cycle launches continue to improve. 2022 Class A production finished a solid year with over 315,000 units produced. 2023 forecasts still remain elevated and we expect a solid year for new and existing customers we service. It is no secret that Class A orders are still waiting to be filled and we remain optimistic in regards to our operating operations servicing those plants. We continue to get positive year-over-year production guidance from our partners in light truck and SUV space. New vehicle sales are forecast to increase in low single digits over 22 due to resilient demand and low inventory levels. Our accumulated contract logistics talent has expanded over the last year, and we are extremely confident. in our position to efficiently operate new business. We are confident our technology and experience management team will continue to deliver and execute on new opportunities from our expanded pipeline. We were recently awarded five new value added operations with yearly top line revenue exceeding 11 million, once in full run rate. The awards are supporting industrial, agricultural, automotive, and class A facilities around the country. Our active value-added pipeline has expanded by almost 35% over the same time last year, highlighted by several large EV projects that are sure to shape the future of automotive production. Our dedicated transportation group continued to grow top-line revenue and margin by providing its best-in-class, high-velocity service. Here, we expanded our talent pool both on the road and in the office. Our dedicated driver count has continued an upward trajectory expanding by 16.7% in Q4 of 2022 over the same period in 2021. We continue to rationalize new equipment allocations in a tight environment, but successfully replaced over 35% of our tractor fleet while adding 130 new tractors into new programs in 2022. We also shifted trailing equipment from underperforming facilities as well as adding 421 new trailers into the dedicated segment. We see continued opportunity for dedicated transportation and will continue to invest in the fleet in 2023. We will need the equipment as we launched several new opportunities over the first half of 2023 with expectations of $5 million in additional top-line revenue with a potential full run rate around $20 million a year. We are very bullish on dedicated transportation solutions and the potential moving forward. The pipeline remains robust with quality wind opportunities. Our intermodal drage group did experience volume headwinds caused by reduced imports during the quarter, which led to a 13.2% decrease in top-line revenue and a 25.7% decrease in most moves. The average revenue per bill was sequentially lower, but still above Q4 21 averages, including average excluding fuel by 15.1%. Declining accessorial charges was the biggest contributing factor to our top line decline in revenue. Per diem, storage, and demerge were down over 36% or 13.2 million to 22.5 million in the quarter. influenced by less congested supply chain and a more normalized operating environment. But the largest headwind in our intermodal business was caused by increased operating costs in California due to the transition from independent owner-operator model to our AB5 compliant company driver model, as well as a massive fall-off in import traffic into the LA and Long Beach ports. Our drage revenues in Southern California were down over 50% from Q4 of last year, and operating profits were down $5.3 million. This cost us an estimated $0.15 per share in the quarter. While the Q4 intermodal volumes were a headwind, we experienced a year-over-year increase of 181 drivers or about 8.9% increase in our driver count from 2021. Our driver and contractor pipeline remains elevated by more than 40% from the same period in January of 2022. We have definitely seen a shift of drivers who obtained their own authority for coming back into our intermodal network. We remain focused on servicing our current customer base while adding additional volumes through various value propositions in the first part of the year. Sales has been extremely aggressive in mining new customer opportunities, allowing us to explain our value creation for the supply chain needs, including company chassis and an expansive terminal network. Our current drage pipeline remains strong with several large customer bids, completing in Q1 of 2023. Our trucking segment experienced some of the same volume headwinds created by inflation inventory destocking. While our rate levels have held for the most part on our open deck and specialized division, van rates deteriorated over the quarter. Open deck steel and metal loads were down over 10% in the quarter, but pricing remained elevated. On the van side, our retail and consumer goods segment was down over 10%, with prices slipping slightly more. Top line revenue of $89 million was down 12.3% for the quarter, while operating income of $5.7 million was an increase of $4.6 million over the same period last year. Our agent-based truckload model, with its variable cost structure, delivers consistent margins as it bends with top line revenue. Owner-operator costs remain consistent with a low single-digit decrease in broker purchase trends. Owner-operator count was down almost 15% at the end of the year, and locown followed suit, down 32.9% over the same period in 21. We are committed to increasing the size of our agent network by adding new agents and independent contractors. The segment's business development team has been busy evaluating leads and expanding the opportunities in the pipeline. The current truckload pipeline is equal to about 50% of the segment's trailing 12-month revenue. Company-managed brokerage saw top-line revenue drop 36.2% in the quarter to $39.6 million as inflation and consumption created less tender opportunities. We continued disciplined approach in regard to operating margin, which put an additional strain on spot opportunity as our balance shifted to over 80% contractual freight. Operating revenue per load decreased 14.8% to $1,684 per load, and the load count was down 19.9%. Gross margin was 13.7% for the quarter and was better than the 11.7% margin in the same period of 21. Purchase transportation continued to decline entering the quarter, but we saw a leveling mid-quarter and a spike around the Christmas holidays. We were awarded a significant volume for the upcoming year from one of our top customers and are awaiting several others who have yet to announce their awards. The current environment has our team aligned on pricing and performance. We continue to build on our power-only offering and plan additional units as part of our 2023 CapEx. We will continue to partner with our carrier base to drive realistic price expectations while expecting a high level of service. We are cautious on the economic environment entering 2023. Inflation, customer destocking, and the general mood of the consumer continue to evolve. We will look for optimization opportunities to help take costs out of our intermodal and brokerage segments and add density to our variable cost agent truckload segments. While we face near-term transportation headwinds, we are extremely optimistic on continued growth of our high-margin contract logistics segments. Finally, performance equals results. And I cannot say enough about our team of employees, contractors, and agents that were the foundation of our 2022 success. I'm extremely happy with the progress of the universal team. We are well positioned with talent at all levels as we navigate 2023's opportunities and challenges. Our team's efforts continue to create new customer value and shareholder returns. Universal will continue to supply people-driven solutions. I would like to now turn the call over to Jude for detailed view of our financial performance and capital needs. Jude? Thanks, Tim.
spk04: Good morning, everyone. Yesterday, Universal Logistics Holdings reported consolidated net income of $33.4 million or $1.27 per share on total operating revenues of $458.7 million in the fourth quarter of 2022. This compares the net income of $16.2 million, or $0.60 per share, on total operating revenues of $467.4 million during the same period last year. Consolidated income from operations was $48.2 million for the quarter compared to $23.8 million one year earlier. EBITDA increased $28.3 million to $68 million, which compares to $39.7 million during the same period last year. Our operating margin and EBITDA margin for the fourth quarter of 2022 are 10.5% and 14.8% of total operating revenues. These metrics compare to 5.1% and 8.5% respectively in the fourth quarter of 2021. Looking at our segment performance for the fourth quarter of 2022, in our contract logistics segment, which includes our value-add and dedicated transportation businesses, Income from operations increased 24.1 million to 30.1 million on 205.5 million of total operating revenues. This compares to operating income of 6.1 million on 160.7 million of total operating revenue in the fourth quarter of 2021. Operating margins for the quarter were 14.7% versus 3.8% last year. The fourth quarter of 2021 included $5 million of previously disclosed pre-tax losses that adversely impacted the contract logistics segment's operating margin by 310 basis points. On to our intermodal segment, operating revenues decreased $18.6 million to $123.1 million compared to $141.7 million in the same period last year, and income from operations decreased $2.7 million to $11.1 million. This compares to operating income of $13.8 million in the fourth quarter of 2022. Operating margins for the quarter were 9% versus 9.7% last year. In our trucking segment, operating revenues for the quarter decreased $12.5 million to $89 million compared to $101.5 million in the same quarter last year. And income from operations increased $4.6 million to $5.7 million. This compares to operating income of 1.1 million in the fourth quarter of 2021. Operating margins for the quarter were 6.5% versus 1.1% last year. Also, the fourth quarter of 2021 included 6.1 million of previously disclosed pre-tax charges that adversely impacted this segment's operating margin by 590 basis points. In our company managed brokerage segment, operating revenues for the quarter decreased 22.4 million to 39.6 million compared to $62 million in the same quarter last year, while income from operations decreased $1.6 million to $900,000, compared to operating income of $2.5 million in the fourth quarter of 2021. Operating margins for the quarter were 2.3% versus 4% last year. On our balance sheet, we held cash and cash equivalents totaling $47.2 million and $10 million of marketable securities. Outstanding interest-bearing debt net of $4.4 million of debt issuance costs totaled $378.5 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 1.2 times. Capital expenditures for the quarter were $31.3 million and totaled $117 million for the full year of 2022. Based on the current operating environment, for the first quarter of 2023, we are expecting top line revenues between $400 and $425 million in operating margins in the 8% to 10% range. Given current macroeconomic headwinds and volatility in the transportation space, it remains somewhat difficult to forecast in this environment. Our forecast is predicated on stable operating environment for our contract logistics business, offset by low double-digit revenue declines in our trucking, intermodal, and company-managed brokerage segments compared to the fourth quarter of 2022. For the full year of 2023, we expect capital expenditures to be in the $160 million range and interest expense for the year is expected to come in between $20 and $25 million. Finally, Wednesday, 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 March 6, 2023, and is expected to be paid on April 3, 2023. With that, Joe, we're ready to take some questions.
spk05: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. And to withdraw a question, please press star, then two.
spk06: At this time, we will pause just momentarily to assemble our roster. And our first question here will come from Chris Weatherby with Citigroup. Please go ahead.
spk03: Hey, thanks. Good morning, guys. Appreciate the color and the outlook for the first quarter. Maybe just want to dig a little bit deeper on the intermodal side. Just want to get a sense. I want to be clear about maybe how much of some of the issues in the quarter are ring-fenced specifically to the quarter versus how much you think will be ongoing headwinds to the profitability of that business as we think about both 1Q as well as the full year 2023.
spk01: Chris, this is Tim. I think what we saw leaving the fourth quarter quarter as I explained in my prepared remarks, was a transitional phase for our Southern California operation, which includes equipment onboarding, driver recruiting costs, driver training costs, and then in conjunction with that transition to a company driver profile, we also saw about a 50% dip in load count, and that 50% dip was a combination of inbound imports coming into Southern California And our profile as it comes to our customers, about eight of the top ten on our customer list is retail and consumer goods. So we saw a sharp fall off in that. So if you take that into 2023 and look at January as a whole, we still saw some deterioration. of the overall load count and top line revenue as we see it on the intermodal side. Our customers are telling us in that retail and consumer goods space that they expect some rebound after the Chinese New Year, but they're not committing and they're holding their cards a little tight to their vest on what it looks like as we stretch our legs into the summer of 23. So we're prepared to see imports levels probably at a lower rate in the first quarter, which means we're going to have to equally be out there on the hunt for additional market share. And then, of course, with any good company, we're going to make sure that we're containing our costs as we push forward.
spk03: Okay. I guess as I think about the differences between the model you were running before and an employee model there, first three quarters of the year in that business, I think you're running let's call it close to mid-teens margins, is that doable in an employee model for that business, or is it something lower than that?
spk01: No, let's take the first crunch of that, the first bite of that. I think it is obtainable in an employee model, but that employee model's jar has to be full so we can optimize the assets and the drivers. And not only did we have the whole runway in the fourth quarter of obtaining assets in a very tight market, We also had in Southern California, there's a lot of contractors that run in and out of the port. So our recruitment of new company drivers came with a huge cost of onboarding and training to put them in those assets so they could be successful. So while the downturn in imports is troublesome, I guess it's also an opportunity to get our sea legs and get our new drivers properly trained and ready to go, compliant. So we feel good about that. But I think that once this is at full run rate, the jar is full, we'll have the ability to optimize company assets. I think that you'll still enjoy the same type of margins.
spk03: Okay, that's helpful. And I guess maybe the final question would just be sort of maybe taking a step back and thinking bigger picture. I think there's a general sense, particularly with retail exposed freight, that we are going through a meaningful normalization of inventories as it stands currently. and that maybe by late spring there's the potential for some, you know, that normalization to have largely occurred and maybe the return of a degree of strength. I don't know if that's sequential or year over year, but, you know, generally wanted to get your sense of how you think about at least on the retail piece of your business. And frankly, on the industrial side too, what do you think there might be offsets that could sort of dampen that potential second half recovery?
spk01: Yeah, yeah. On the retail side, like I said, the customers are holding their cards pretty close. We feel that the Q1 – will be challenged. We think that when we get out of the Chinese New Year's, they start ordering again. We should see some rebound in Q2, but don't expect there to be any kind of normalization, as you put it, probably to the second half of the year. And to this degree, we don't know exactly what yet. Some of the retail customers have said they would be a normal-type season, but what's normal mean over the last couple of years because there's been so many peaks and troughs So we think positionally, though, the second half of the year will definitely be better than the first half of the year. And on the industrial space, I think that, you know, let's break that down a little further. Class A, I think that we're going into a solid first half of the year. And I think a lot of that will run its cadence into the second half of the year. All indications on automotive plants that we serve is a very strong year. Inventories are rising, but there seems to be a strong demand for those products and the plants that we service, so we feel good about that. Our steel and industrial goods that we haul from a transportation perspective, our low counts had decreased somewhat, although pricing has remained pretty stout. One area we see is our agriculture and heavy machinery business is some positive forecasts for 2023, that there's still demand. And I think if you encompass that all together, I think you'll still, if you ask whether it's a Class 8, an automotive, agriculture, and heavy machinery, I think there's still part issues and supply chain issues out there. Maybe not to the degree we saw in 2022, but I think they still linger out there that cause some disruption of cadence. But overall, on the industrial, the auto space, we feel comfortable with 2023. Okay.
spk02: That's a very helpful call. I appreciate the time. Thank you. Thanks, Chris.
spk06: And again, if you have a question, please press star then 1 to join the queue. And with no remaining questions, this will conclude our question and answer session.
spk05: I'd like to turn the conference back over to management for any closing remarks.
spk01: Thank you, Joe. I appreciate everyone dialing in to the call today. As I mentioned, I'm extremely excited about the opportunities in front of Universal in 2023. We've already hit the ground running with new contract logistics programs and are cautiously optimistic about inventory restocking in the second half of 2023, which will help drive transportation growth. Finally, I cannot wait to see our compliant Southern California company driver model deliver certainty into our valued customer supply chains as import volumes grow seasonally. I look forward to talking to everyone on our Q1 2023 call in April.
spk06: Thank you. The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines. you Thank you. music music
spk00: Thank you.
spk05: Hello and welcome to Universal Logistics Holdings' fourth quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode, and should you need any assistance during the call, please signal a conference specialist by pressing the star key followed by zero. A brief question and answer session will follow the formal presentation today. During the course of this call, management may make forward-looking statements based on their best view of the business as seen today. Statements that are forward-looking relate to Universal's business objectives or expectations and can be identified by the use of the words such as belief, expect, anticipate, and project. Substatements are subject to risks and uncertainties, and actual results could differ materially from those expectations. As a reminder, this conference is being recorded today. It is now my pleasure to introduce to your host, Mr. Tim Phillips, Chief Executive Officer, Mr. Jude Beres, Chief Financial Officer, and Mr. Stephen Fitzpatrick, Vice President of Finance and Investor Relations. Thank you. Mr. Phillips, you may begin the call.
spk01: Thank you, Joe. Welcome to Universal Logistics Holdings' 2022 Fourth Quarter Earnings Call. I'd like to take a minute and reflect on Universal's performance for the full year of 2022. I'm extremely proud of all our employees, agents, drivers and contractors who helped achieve such remarkable results. How far we have come since the onset of the pandemic almost three years ago. The Universal team executed on their commitment to excellence, focusing on training, quality of service and transparent collaboration. We all worked extremely hard record top-line revenue in excess of $2 billion, which was a 15% increase over 2021, and more than doubled our operating income and earnings per share. For the full year 2022, Universal reported record operating income of $240.4 million and $6.37 per basic and diluted share. In 2022, we made great strides, not only in our financial performance, but also on our ongoing cultivation of associates in the warehouse, office, and on the road. We continue to add and train new associates as we expand our business footprint, which unfolded in a tight labor market. The financial improvement is a credit to every associate's willingness and effort to execute at the highest level. We've added trained talent to a number of locations, to further expand our foundation and set course for continued performance and growth in 2023. As we closed out 2022, Universal's transportation sector was not insulated from the lackluster peak season brought about by high inflation and inventory destocking. Our intermodal group experienced rapidly declining import volumes, and our brokerage group saw the number of tendered loads decline throughout the quarter. Our truckload group held their own by retaining pricing and elevated fuel surcharge levels. While we saw year-over-year deterioration in our transactional transportation sector, our contract logistics segment, which includes dedicated transportation and value-added services, expanded top-line revenue and operating margin because of our diversified service offerings, Universal proudly printed its best fourth quarter operating income in EPS and company history. Fourth quarter capped off a year of incredible positive change. We remained committed to identifying, reshaping, and improving processes among the various service sectors. We successfully reimagined our large automotive launch in the city of Detroit, enhancing our employees' skills, employing process improvements, and ultimately elevating our service levels to meet the customer's needs. On the West Coast, we set forward a new business plan in the state of California, brought about by the implementation of AB5. We worked diligently to obtain company assets in a tight equipment environment, hire new qualified drivers, and transition existing contractors to company employees. We successfully entered into a partnership with the Teamsters to help set course for building a skilled and talented driver group accessing the port of LA and Long Beach. Overall, we have taken great steps to strengthen the fiber of our associates around the country as we prepare for the next stage of expansion. Now for the quarter. In yesterday's release, Universal reported 2022 fourth quarter earnings of $1.27 per share on a total operating revenue of $458.7 million. We continued on our record-setting streak, reporting Universal's best ever fourth quarter operating income and earnings per share, increasing each by over 100% compared to the fourth quarter of 2021. This marks the fourth consecutive quarter of meaningful margin expansion and operational efficiency progress. While we have experienced a decline in transportation spot rates and volumes, we are optimistic our contract logistics business is well positioned to grow entering into 2023. Now for some color on each of the service lines. In our contract logistics segment, we experienced some fluency improvements in regard to parts and chips in the auto sector, which provided a consistent five-day work schedule, but still lacked some of the extended weekend runs. While the SAR remained muted throughout 2022, the demand for vehicles still remained strong. We were very pleased with the performance in the auto sector and across the various verticals. Operational performance of our early cycle launches continue to improve. 2022 Class A production finished a solid year with over 315,000 units produced. 2023 forecast still remain elevated and we expect a solid year for new and existing customers we service. It is no secret that Class A orders are still waiting to be filled and we remain optimistic in regards to our operating operations servicing those plants. We continue to get positive year-over-year production guidance from our partners in light truck and SUV space. New vehicle sales are forecast to increase in low single digits over 22 due to resilient demand and low inventory levels. Our accumulated contract logistics talent has expanded over the last year, and we are extremely confident. in our position to efficiently operate new business. We are confident our technology and experience management team will continue to deliver and execute on new opportunities from our expanded pipeline. We were recently awarded five new value-added operations with yearly top-line revenue exceeding $11 million, once in full run rate. The awards are supporting industrial, agricultural, automotive, and Class 8 facilities around the country. Our active value-added pipeline has expanded by almost 35% over the same time last year, highlighted by several large EV projects that are sure to shape the future of automotive production. Our dedicated transportation group continued to grow top-line revenue and margin by providing its best-in-class, high-velocity service. Here, we expanded our talent pool both on the road and in the office, Our dedicated driver count has continued an upward trajectory expanding by 16.7% in Q4 of 2022 over the same period in 2021. We continue to rationalize new equipment allocations in a tight environment, but successfully replaced over 35% of our tractor fleet while adding 130 new tractors into new programs in 2022. We also shifted trailing equipment from underperforming facilities as well as adding 421 new trailers into the dedicated segment. We see continued opportunity for dedicated transportation and will continue to invest in the fleet in 2023. We will need the equipment as we launch several new opportunities over the first half of 2023 with expectations of $5 million in additional top line revenue with a potential full run rate around $20 million a year. We are very bullish on dedicated transportation solutions and the potential moving forward. The pipeline remains robust with quality wind opportunities. Our intermodal drage group did experience volume headwinds caused by reduced imports during the quarter, which led to a 13.2% decrease in top line revenue and a 25.7% decrease in lows moved. The average revenue per bill was sequentially lower, but still above Q4 21 averages, including average excluding fuel by 15.1%. Declining accessorial charges was the biggest contributing factor to our top line decline in revenue. Per diem, storage, and demerge were down over 36% for $13.2 million to $22.5 million in the quarter. influenced by less congested supply chain and a more normalized operating environment. But the largest headwind in our intermodal business was caused by increased operating costs in California due to the transition from independent owner-operator model to our AB5-compliant company driver model, as well as a massive fall-off in import traffic into the LA and Long Beach ports. Our drage revenues in Southern California were down over 50% from Q4 of last year, and operating profits were down $5.3 million. This cost us an estimated $0.15 per share in the quarter. While the Q4 intermodal volumes were a headwind, we experienced a year-over-year increase of 181 drivers or about 8.9% increase in our driver account from 2021. Our driver and contractor pipeline remains elevated by more than 40% from the same period in January of 2022. We have definitely seen a shift of drivers who obtained their own authority for coming back into our intermodal network. We remain focused on servicing our current customer base while adding additional volumes through various value propositions in the first part of the year. Sales has been extremely aggressive in mining new customer opportunities, allowing us to explain our value creation for the supply chain needs, including company chassis and an expansive terminal network. Our current drage pipeline remains strong with several large customer bids completing in Q1 of 2023. Our trucking segment experienced some of the same volume headwinds created by inflation inventory destocking. While our rate levels have held for the most part on our open deck and specialized division, van rates deteriorated over the quarter. Open deck steel and metal loads were down over 10% in the quarter, but pricing remained elevated. On the van side, our retail and consumer goods segment was down over 10%, with prices slipping slightly more. Top line revenue of $89 million was down 12.3% for the quarter, while operating income of $5.7 million was an increase of $4.6 million over the same period last year. Our agent-based truckload model, with its variable cost structure, delivers consistent margins as it bends with top line revenue. Owner-operator costs remain consistent with a low single-digit decrease in broker purchase trends. Owner-operator count was down almost 15% at the end of the year, and locown followed suit, down 32.9% over the same period in 21. We are committed to increasing the size of our agent network by adding new agents and independent contractors. The segment's business development team has been busy evaluating leads and expanding the opportunities in the pipeline. The current truckload pipeline is equal to about 50% of the segment's trailing 12-month revenue. Company-managed brokerage saw top-line revenue drop 36.2% in the quarter to $39.6 million as inflation and consumption created less tender opportunities. We continued disciplined approach in regard to operating margin, which put an additional strain on spot opportunity as our balance shifted to over 80% contractual freight. Operating revenue per load decreased 14.8% to $1,684 per load, and the load count was down 19.9%. Gross margin was 13.7% for the quarter and was better than the 11.7% margin in the same period of 21. Purchase transportation continued to decline entering the quarter, but we saw a leveling mid-quarter and a spike around the Christmas holidays. We were awarded a significant volume for the upcoming year from one of our top customers and are awaiting several others who have yet to announce their awards. The current environment has our team aligned on pricing and performance. We continue to build on our power-only offering and plan additional units as part of our 2023 CapEx. We will continue to partner with our carrier base to drive realistic price expectations while expecting a high level of service. We are cautious on the economic environment entering 2023, inflation, customer destocking, and the general mood of the consumer continue to evolve. We will look for optimization opportunities to help take costs out of our intermodal and brokerage segment and add density to our variable cost agent truckload segment. While we face near-term transportation headwinds, we are extremely optimistic on continued growth of our high-margin contract logistics segment. Finally, performance equals results. And I cannot say enough about our team of employees, contractors, and agents that were the foundation of our 2022 success. I'm extremely happy with the progress of the universal team. We are well positioned with talent at all levels as we navigate 2023's opportunities and challenges. Our team's efforts continue to create new customer value and shareholder returns. Universal will continue to supply people-driven solutions. I would like to now turn the call over to Jude for detailed view of our financial performance and capital needs. Jude?
spk04: Thanks, Tim. Good morning, everyone. Yesterday, Universal Logistics Holdings reported consolidated net income of $33.4 million or $1.27 per share on total operating revenues of $458.7 million in the fourth quarter of 2022. This compares the net income of $16.2 million, or $0.60 per share, on total operating revenues of $467.4 million during the same period last year. Consolidated income from operations was $48.2 million for the quarter compared to $23.8 million one year earlier. EBITDA increased $28.3 million to $68 million, which compares to $39.7 million during the same period last year. Our operating margin and EBITDA margin for the fourth quarter of 2022 are 10.5% and 14.8% of total operating revenues. These metrics compare to 5.1% and 8.5% respectively in the fourth quarter of 2021. Looking at our segment performance for the fourth quarter of 2022, in our contract logistics segment, which includes our value-add and dedicated transportation businesses, Income from operations increased 24.1 million to 30.1 million on 205.5 million of total operating revenues. This compares to operating income of 6.1 million on 160.7 million of total operating revenue in the fourth quarter of 2021. Operating margins for the quarter were 14.7% versus 3.8% last year. The fourth quarter of 2021 included $5 million of previously disclosed pre-tax losses that adversely impacted the contract logistics segment's operating margin by 310 basis points. On to our intermodal segment, operating revenues decreased $18.6 million to $123.1 million compared to $141.7 million in the same period last year, and income from operations decreased $2.7 million to $11.1 million. This compares to operating income of $13.8 million in the fourth quarter of 2022. Operating margins for the quarter were 9% versus 9.7% last year. In our trucking segment, operating revenues for the quarter decreased $12.5 million to $89 million compared to $101.5 million in the same quarter last year. And income from operations increased $4.6 million to $5.7 million. This compares to operating income of 1.1 million in the fourth quarter of 2021. Operating margins for the quarter were 6.5% versus 1.1% last year. Also, the fourth quarter of 2021 included 6.1 million of previously disclosed pre-tax charges that adversely impacted this segment's operating margin by 590 basis points. In our company managed brokerage segment, operating revenues for the quarter decreased 22.4 million to 39.6 million compared to $62 million in the same quarter last year, while income from operations decreased $1.6 million to $900,000, compared to operating income of $2.5 million in the fourth quarter of 2021. Operating margins for the quarter were 2.3% versus 4% last year. On our balance sheet, we held cash and cash equivalents totaling $47.2 million and $10 million of marketable securities. Outstanding interest-bearing debt net of $4.4 million of debt issuance costs totaled $378.5 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 1.2 times. Capital expenditures for the quarter were $31.3 million and totaled $117 million for the full year of 2022. Based on the current operating environment, for the first quarter of 2023, we are expecting top line revenues between $400 and $425 million in operating margins in the 8% to 10% range. Given current macroeconomic headwinds and volatility in the transportation space, it remains somewhat difficult to forecast in this environment. Our forecast is predicated on stable operating environment for our contract logistics business, offset by low double-digit revenue declines in our trucking, intermodal, and company-managed brokerage segments compared to the fourth quarter of 2022. For the full year of 2023, we expect capital expenditures to be in the $160 million range and interest expense for the year is expected to come in between $20 and $25 million. Finally, Wednesday, 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 March 6, 2023, and is expected to be paid on April 3, 2023. With that, Joe, we're ready to take some questions.
spk05: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. And to withdraw a question, please press star, then two.
spk06: At this time, we will pause just momentarily to assemble our roster. And our first question here will come from Chris Weatherby with Citigroup.
spk05: Please go ahead.
spk03: Hey, thanks. Good morning, guys. appreciate the the color and the outlook for the first quarter maybe just want to dig a little bit deeper on the intermodal side just want to get a sense I want to be clear about maybe how much of some of the issues in the quarter are ring-fenced specifically to the quarter versus how much you think will be ongoing headwinds to the profitability of that business as we think about both one queue as well as the full year 2023 Chris this is Tim I think what we saw leaving the fourth quarter
spk01: as I explained in my prepared remarks, was a transitional phase for our Southern California operation, which includes equipment onboarding, driver recruiting costs, driver training costs, and then in conjunction with that transition to a company driver profile, we also saw about a 50% dip in load count, and that 50% dip was a combination of inbound imports coming into Southern California, And our profile as it comes to our customers, about eight of the top ten on our customer list is retail and consumer goods. So we saw a sharp fall off in that. So if you take that into 2023 and look at January as a whole, we still saw some deterioration. of the overall load count and top line revenue as we see it on the intermodal side. Our customers are telling us in that retail and consumer goods space that they expect some rebound after the Chinese New Year, but they're not committing and they're holding their cards a little tight to their vest on what it looks like as we stretch our legs into the summer of 23. So we're prepared to see imports levels probably at a lower rate in the first quarter, which means we're going to have to equally be out there on the hunt for additional market share. And then, of course, with any good company, we're going to make sure that we're containing our costs as we push forward.
spk03: Okay. I guess as I think about the differences between the model you were running before and an employee model there, first three quarters of the year in that business I think you were running, let's call it close to mid-teens margins, is that doable in an employee model for that business, or is it something lower than that?
spk01: No, let's take the first crunch of that, the first bite of that. I think it is obtainable in an employee model, but that employee model's jar has to be full so we can optimize the assets and the drivers. And not only did we have the whole runway in the fourth quarter of obtaining assets in a very tight market, We also had in Southern California, there's a lot of contractors that run in and out of the port. So our recruitment of new company drivers came with a huge cost of onboarding and training to put them in those assets so they could be successful. So while the downturn in imports is troublesome, I guess it's also an opportunity to get our sea legs and get our new drivers properly trained and ready to go, compliant. So we feel good about that, but I think that once this is at full run rate, the jar is full, we'll have the ability to optimize company assets, I think that you'll still enjoy the same type of margins.
spk03: Okay, that's helpful. And I guess maybe the final question would just be sort of maybe taking a step back and thinking bigger picture. I think there's a general sense, particularly with retail exposed freight, that we are going through a meaningful normalization of inventories as it stands currently. and that maybe by late spring there's the potential for some, you know, that normalization to have largely occurred and maybe the return of a degree of strength. I don't know if that's sequential or year over year, but, you know, generally wanted to get your sense of how you think about at least on the retail piece of your business. And frankly, on the industrial side too, what do you think there might be offsets that could sort of dampen that potential second half recovery?
spk01: Yeah, yeah. On the retail side, like I said, the customers are holding their cards pretty close. We feel that the Q1 – will be challenged. We think that when we get out of the Chinese New Year's, they start ordering again. We should see some rebound in Q2, but don't expect there to be any kind of normalization, as you put it, probably to the second half of the year. And to this degree, we don't know exactly what yet. You know, some of the retail customers have said they would be a normal-type season, but what's normal mean over the last couple of years because there's been so many peaks and troughs So we think positionally, though, the second half of the year will definitely be better than the first half of the year. And on the industrial space, I think that, you know, let's break that down a little further. Class A, I think that we're going into a solid first half of the year. And I think a lot of that will run its cadence into the second half of the year. All indications on automotive plants that we serve is a very strong year. Inventories are rising, but there seems to be a strong demand for those products and the plants that we service, so we feel good about that. Our steel and industrial goods that we haul from a transportation perspective, our load counts had decreased somewhat, although pricing has remained pretty stout. One area we see is our agriculture and heavy machinery business is some positive forecasts for 2023, that there's still demand. And I think if you encompass that all together, I think you'll still, if you ask whether it's a Class 8, an automotive, agriculture, and heavy machinery, I think there's still part issues and supply chain issues out there. Maybe not to the degree we saw in 2022, but I think they still linger out there that cause some disruption of cadence. But overall, on the industrial, the auto space, we feel comfortable with 2023. Okay.
spk02: That's a very helpful call. I appreciate the time. Thank you. Thanks, Chris.
spk06: And again, if you have a question, please press star then 1 to join the queue. And with no remaining questions, this will conclude our question and answer session.
spk05: I'd like to turn the conference back over to management for any closing remarks.
spk01: Thank you, Joe. I appreciate everyone dialing in to the call today. As I mentioned, I'm extremely excited about the opportunities in front of Universal in 2023. We've already hit the ground running with new contract logistics programs and are cautiously optimistic about inventory restocking in the second half of 2023, which will help drive transportation growth. Finally, I cannot wait to see our compliant Southern California company driver model deliver certainty into our valued customer supply chains as import volumes grow seasonally. I look forward to talking to everyone on our Q1 2023 call in April.
spk06: Thank you. The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.
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