Universal Logistics Holdings, Inc.

Hello and welcome to Universal Logistics Holdings Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. A brief question and answer session will follow the formal presentation. During the course of this call, management may make forward-looking statements based on their best view of the business as seen today. Statements that are forward-looking relate to Universal's business objectives or expectations and can be identified by the use of words such as beliefs, expect, anticipate, and project. Such statements are subject to risks and uncertainties, and actual results could differ materially from those expectations. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Tim Phillips, Chief Executive Officer, Mr. Jude Barris, Chief Financial Officer, and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you, Mr. Phillips. You may begin.

Thank you, Joanna, and good morning, everyone, and thank you for joining Universal's 2024 Third Quarter Earnings Call. As evidenced by our results, Universal's diverse service offerings continue to set us apart from the competition in the transportation and logistics industries. Our comprehensive offering of logistics solution has once again enabled us to achieve exceptional results even during this extended downturn in the transportation sector. Before diving into the details of our performance, I want to take a moment to express my gratitude to the entire Universal team. The dedication and hard work of our over 10,000 employees and contractors are the driving force behind these achievements. I would also like to welcome the over 2,100 employees from the recent acquisition of the Parsec Group to the Universal family. It is each associate's commitment that allows us to consistently deliver outstanding service to our customers and maintain our position as a leading transportation and logistics provider. Now let's discuss the quarter. Universal once again delivered solid results in the third quarter of 2024. We grew top line revenues by 1.3%, delivered a double digit operating margin, and increased our earnings per share by 14.7% compared to the same period last year. This was accomplished while going through one of the most prolonged freight recessions I have ever experienced. While I am pleased with Universal's overall results, individual segment performance continued to vary. Our contract logistics business continues to deliver outstanding results, consistently achieving double-digit operating margins. Contract logistics has been the cornerstone of our success. Our trucking segment has also achieved solid results. Despite the overall weakness in the truckload market, the strong demand for our specialized heavy haul wind business has propelled trucking to its highest operating margin in over two years. and we continue to see strong demand for this offering. Weighing down our results has been the underperformance of our intermodal segment. This business continues to perform below our expectations. However, we remain laser-focused, removing costs and improving efficiencies in our operations. And these efforts are paying off. In the third quarter, we saw sequential improvement in intermodal's operating ratio and narrowed our losses to just over 1.1 million during the period. We still have some work to do, but I'm encouraged by the impact of our results so far. During the quarter, we also made a difficult decision to close the company-managed brokerage business. Continued underperformance of the segment along with the deeply depressed freight environment made the decision necessary. We remain dedicated to making prudent business decisions and executing our strategy to ensure Universal's long-term success Jude will add color on the financial impact of the closure that it had on the quarter later on the call. For the third quarter of 2024, Universal reported $426.8 million of revenue and $1.01 of earnings per share and an operating margin of 10%. In our contract logistics segments, revenues increased 17.8% to $245.2 million. This was largely due to our specialty development project in Stanton, Tennessee. At the end of Q3 2024, Universal managed 70 value-added programs, down three from Q3 of 23. Contract logistics remains our most consistent and profitable segment. This was the 11th quarter of operating ratios below 90%, and the sixth straight below 85%. I'm also excited about our recent acquisition of Parsec, a market-leading provider of rail terminal management services. The acquisition will allow us to enter new industries, expand our service offerings in our contract logistics segment, and provide cross-selling opportunities for DRAGE and other service lines. It will also bring our contract logistics segment's annual revenue run rate to over $1.1 billion. We expect continued outperformance for the segment in the near future. Despite elevated inventory levels, the outlook for the automotive industry is positive, with the SAR for September at $15.8 million. Class A production also remains stable with large backlog of expected bills for the full year 2024 and 2025. Overall, our trucking segment is performing relatively well given the depressed transportation backdrop. Trucking segment revenues decreased 10.3% to $87 million. This was due to a 16.1% decrease in loads hauled. We were able to partially offset this decrease with a 9.3% increase in revenue per load, excluding fuel surcharge. Trucking segment results were buoyed by the strong results from our specialized heavy haul wind business. We expect this to continue throughout Q4 2024 as we have a full schedule of wind projects. Our specialized heavy haul wind business has a long runway that should see growth for years to come, providing solid trucking segment performance insulated from fluctuations in the broader truckload market. Outside of specialized freight, the truckload market remains soft. Flatbed volumes were down 12.9%. There's still too much capacity in the market and we expect truckload weakness to persist until we see some more capacity exit. The intermodal segment is slowly beginning to improve. In the intermodal segment, revenues decreased 11.8% year over year to 77.6 million. Compared to Q3 2023, our intermodal segment experienced a 13.2% decrease in volume while rates increased 1.8%. Additionally, accessorial charges decreased $1 million and fuel surcharges revenues decreased $2.8 million. However, compared sequentially to Q2, the picture is much better. Revenue was nearly flat with both volumes and rates stable, indicating that the segment may have bottomed. Additionally, our intermodal segments operating ratios decreased to 101.5% in Q3 2024 compared to 110.6% in Q2 2023. I'm sorry, Q2 2024. Evidence that our cost-cutting measures are paying off, we continue to streamline the business with a focus on truck productivity and taking out costs where possible. Our focus is also on capturing volume in order to position ourselves for a strong turnaround when capacity does finally come out of the market and the rate environment improves. Looking ahead, we are excited by our strong sales pipeline filled with opportunities. Specifically, contract logistics and dedicated opportunities account for over $700 million. This robust pipeline allows us to be selective, focusing on the bids that align with our core competencies and desired margin goals. By maintaining this strategic approach, we can ensure long-term success while delivering exceptional value to our clients. I'm incredibly proud of our performance in the third quarter of 2024. I want to take this opportunity to thank all our employees. Their hard work and commitment are the backbone of our success. I also want to thank our customers for the continued trust in Universal. I'm optimistic about the rest of 2024 and confident in our future. I will now turn over to Jude to provide some color on our financials and expectations for upcoming quarter.

Jude? Thanks, Tim. Good morning, everyone. Yesterday, Universal Logistics Holdings reported consolidated net income of $26.5 million, or $1.01 per share, on total operating revenues of $426.8 million in the third quarter of 2024. This compares to net income of $23 million, or $0.88 per share, on total operating revenues of $421.3 million during the same period last year. Consolidated income from operations was $42.6 million for the quarter compared to $36.8 million one year earlier. EBITDA increased $16.2 million to $72.9 million which compares to $56.7 million during the same period last year. Our operating margin and EBITDA margin for the third quarter of 2024 are 10% and 17.1% of total operating revenues. These metrics compare to 8.7% and 13.5% respectively in the third quarter of 2023. Looking at our segment performance for the third quarter of 2024, in our contract logistics segment, which includes our value-add and dedicated transportation businesses, Income from operations increased $10.5 million to $45.6 million on $245.2 million of total operating revenues. This compares to operating income of $35.1 million on $208.1 million of total operating revenue in the third quarter of 2023. Operating margins for the quarter were 18.6% of total operating revenues compared to 16.9% one year earlier. we continue to make excellent progress on our specialty development contract logistics program. During the third quarter of 2024, we recognized an additional $36.8 million of operating revenues related to this program. This brings our year-to-date operating revenues related to this program to $176.6 million. As a reminder, during the full year 2024, we expect to recognize total operating revenues on this program of approximately $228 million. and continue to expect it to be substantially complete by December 31, 2024. Revenues generated on this program are reported in value-added services and the associated costs in operating supplies and expense. The results of this program are included in our contract logistics segment. Based on its current cadence, we anticipate this program will generate additional revenues of approximately $50 million during the fourth quarter of 2024. Our guidance that I will discuss momentarily reflects the impact of this program during the fourth quarter. On to our intermodal segment. Operating revenues decreased $10.3 million to $77.6 million compared to $88 million in the same period last year. And income from operations increased $3.3 million to an operating loss of $1.1 million. This compares to an operating loss of $4.5 million in the third quarter of 2023. Operating ratios for the quarter were 101.5% versus 105.1 last year. In our trucking segment, operating revenues for the quarter decreased 10 million to 87 million compared to 97.1 million in the same quarter last year. And income from operations increased 600,000 to 7.1 million. This compares to 6.6 million in the third quarter of 2023. Operating margins for the quarter were 8.2% versus 6.8% last year. As previously disclosed in an 8K filing on August 23rd, Universal ceased operations of its company-managed brokerage business. During the third quarter of 2024, this business unit incurred pre-tax losses of approximately $8.6 million, including $2.8 million of non-cash impairment charges. These losses adversely impacted the company's operating margin by 200 basis points, net income by $6.4 million, or $0.24 per basic and diluted share. We expect no further negative financial impact from this operation going forward. During the quarter, we also made two strategic business acquisitions. On September 13, 2024, Universal acquired the assets of East Texas Heavy Haul, the truckload agency that formerly managed our specialized wind business. This acquisition will convert an agency to a company-managed operation and is expected to accrete approximately $3 million of additional EBITDA to our trucking segment. Next, on September 30, 2024, we acquired Parsec, a rail terminal operator whose operations extend across all Class I railroads, and includes three of the largest rail ramps in North America. It also accounts for approximately 20% of all North American lift volume. We anticipate this acquisition to add approximately $230 million of top line and nearly $30 million of additional EBITDA annually to our contract logistics segment. Both of these acquisitions will be immediately accretive and were financed with availability on our revolver. On our balance sheet, we held cash and cash equivalents totaling $11.8 million and $11.7 million of marketable securities. Outstanding interest-bearing debt net of $3.8 million of debt issuance costs totaled $557.5 million at the end of the period. Excluding lease liabilities related to ASC 842, our net interest-bearing debt to reported TTM EBITDA was 1.8 times. Capital expenditures for the quarter totaled $65 million. For the full year, we are expecting capital expenditures to be in the $315 to $330 million range and interest expense to come in between $34 and $36 million. Based on the current operating environment and the expected cadence of the new contract logistics program mentioned earlier, For the fourth quarter of 2024, we are expecting top line revenues between 450 and 475 million, and operating margins in the nine to 11% range. Given the number of moving pieces in our business throughout the year, including the recent acquisitions, closing of our company managed brokerage, and the roll off of our specialty development project, we also wanted to offer some longer term guidance on how we see the business performing in 2025. Looking ahead, our expectations for the full year of 2025 are operating revenues between 1.8 to 1.9 billion and operating margins between 10 and 12%. For the full year of 2025, we are also expecting capital expenditures to be in the 140 to $160 million range before any purchases of strategic real estate and interest expense to come in between 45 and $50 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 December 2nd, 2024, and is expected to be paid on January 2nd, 2025. With that, Joanna, we're ready to take some questions.