Universal Logistics Holdings, Inc.

Hello and welcome to Universal Logistics Holdings' fourth 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 the words such as belief, 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. And it is now my pleasure to introduce your host, Mr. Tim Phillips, Chief Executive Officer of Mr. Jude Perez, Chief Financial Officer, and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you. Mr. Phillips, you may begin.

Thank you, Ina. Good morning, everyone, and thank you for joining Universal's fourth quarter 2024 earnings call. Our results demonstrated how Universal's diverse service offerings continue to set us apart in the transportation and logistics industry. Against the persistently weak freight backdrop, our comprehensive logistics solutions have once again driven exceptional performance. Before delving into the details, I want to take a moment to acknowledge the incredible efforts of the entire Universal team. The dedication and hard work of our 10,000 plus employees and contractors are the foundation of our success. It is the commitment of each team member that enables us to consistently deliver outstanding services to our customers and maintain our position as a leader in the transportation and logistics industry. Now let's discuss the quarter. Universal once again delivered solid results in the fourth quarter of 2024. We grew top line revenues by 19% with 8.2% in operating margins and our earnings per share of 77 cents. For the full year 2024, Universal reported 1.85 billion in revenue 11% in operating margins, and $4.93 in earnings per share, making 2024 the second-best full financial performance in Universal's history. While I'm pleased with Universal's overall performance, results continue to vary across reporting segments. Our contract logistics business continues to be a standout performer. consistently achieving double-digit operating margins and serving as the cornerstone of our success. Our trucking segment has also delivered strong results. Despite ongoing weakness in the truckload market, demand for our specialized heavy haul wind business remains robust, driving trucking to its highest operating margin in over two years. We expect this momentum to continue. However, our intermodal segment remains remains a challenge, performing below expectations. That said, we are highly focused on reducing costs and improving efficiencies, and our efforts are yielding results. The fourth quarter was the second straight quarter of positive EBITDA contributions from the intermodal segment, indicating our cost control efforts have been effective. While there is still work to be done, I'm encouraged by the progress we have made so far. In our contract logistics segment, revenues increased 52.7% to $307.4 million. This includes $51.3 million in revenues from our specialty development project, which was completed during the quarter. At the end of Q4 2024, Universal managed 90 value-added programs, including 20 new rail terminals from the fourth quarter acquisition of Parsec, up from 71 programs in Q4 2023. Contract logistics remains our most consistent and profitable segment. This was the 12th straight quarter of operating ratios below 90%. I'm very pleased with the performance of our recent acquisition of Parsec, a market-leading provider of rail terminal management services. Parsec had its highest Q4 revenue in its history and its highest lift volume since COVID. The acquisition has allowed Universal to build new customer relationships and will continue to provide opportunities of cross-sell on our other services. We are extremely pleased with the early performance of this acquisition and believe there are further synergies to be recognized going forward. The Parsec acquisition was truly transformational for Universal and brings our contract logistics segment annual revenue run rate to over $1.1 billion. We remain cautiously optimistic on the segment for 2025. We did see a slight downturn in the automotive industry in the fourth quarter, with plants operating fewer shifts and less weekend work. However, 2025 volumes are expected to be similar to 2024, with the SAR expected to remain elevated around 16 million. Class VIII volumes are also expected to be similar to 2024 and 2025. Our trucking segment performed very well despite the challenging transportation environment. Revenues increased 11.5% to $83.8 million, primarily due to our 30.5% increase in revenue per load, excluding fuel surcharges. This was partially offset by 17% drop in loads hauled. A key driver of our performance has been the strength of our specialized heavy haul wind business, which continues to deliver outstanding results We made large investments in heavy haul equipment in 2023 and 2024, and it is paying dividends. We also acquired the operations of our wind agent in the third quarter of 2024, turning it into a company managed operation, which we expect to contribute an additional 3 million of EBITDA on an annualized basis and further improving operating margins as well. Looking ahead, our specialized heavy haul wind business has significant long-term growth potential providing stability for our trucking segment and helping insulate it from broader inflation in the truckload market. Specialized revenue made up 32.1% of the trucking segment revenue in 2024, compared to 18.9% in the prior year. We expect our specialized business to continue to rise as a percentage of overall trucking segment as we continue to deepen our relationship with existing customers and broaden our customer base in the coming years. The intermodal segment had another challenging quarter, capping a very difficult year. In the intermodal segment, revenues decreased 15.9% year-over-year to $73.1 million. Compared to Q4 2023, our intermodal segment experienced a 15.3% decrease in volume while rates decreased 2.2%. Additionally, fuel surcharge revenue decreased $3.9 million. Volume and rates have been relatively stable throughout 2024, leading us to believe this is the bottom for this segment. We are transforming the segment into a leaner, more efficient operation positioned for strong turnaround once the rate and volume environment improves. We have brought in a new intermodal sales team to target volume shippers and key intermodal markets with a focus on capturing more share in the markets that matters. Across the enterprise, we are excited about the strong sales pipeline filled with promising opportunities totaling over 800 million. This robust pipeline enables us to be strategic in our approach, allowing us to focus on opportunities that align with our core competencies and margin objectives. By maintaining this disciplined strategy, we are well positioned for long-term success while continuing to deliver exceptional value to our clients. I'm incredibly proud of our performance in both the fourth quarter and the full year 2024. I'd like to take this opportunity to express my gratitude to our employees. Their hard work, dedication are crucial to our success. I also want to thank our customers for continuing to put their trust in Universal. As we look ahead, I remain optimistic about the rest of 2025 and confident in our future. I will now turn the call over to Jude to provide color on our financials and expectations for upcoming quarter. Jude?

Thanks, Tim. Good morning, everyone. Yesterday, Universal Logistics Holdings reported consolidated net income of $20.2 million, or $0.77 per share, on total operating revenues of $465.1 million in the fourth quarter of 2024. This compares to net income of $21.4 million, or $0.81 per share, on total operating revenues of $390.9 million during the same period last year. Consolidated income from operations was $38.3 million for the quarter compared to $34.1 million one year earlier. EBITDA increased $18.7 million to $73.5 million, which compares to $54.8 million during the same period last year. Our operating margin and EBITDA margin for the fourth quarter of 2024 are 8.2% and 15.8% of total operating revenues. These metrics compare to 8.7% and 14% respectively in the fourth quarter of 2023. Looking at our segment performance for the fourth quarter of 2024, in our contract logistics segment, which includes our value-add and dedicated transportation businesses, Income from operations increased $7 million to $39.1 million on $307.4 million of total operating revenues. This compares to operating income of $32.1 million on $201.3 million of total operating revenue in the fourth quarter of 2023. Operating margins for the quarter were 12.7% of total operating revenues compared to 15.9% one year earlier. Included in the contract logistics operating results was $6 million of depreciation and amortization related to PARSEC, which lowered the fourth quarter 2024 operating margins in this segment by 200 basis points. During the fourth quarter of 2024, we completed our specialty development program and recognized an additional $51.3 million of operating revenue during the period. For the full year 2024, we recognized total operating revenues on the program of $228 million. Revenues generated from this program were reported in value-added services and the associated costs in operating supplies and expense. The results of this program were included in our contract logistics segment. Onto our intermodal segment, operating revenues decreased 13.8 million to 73.1 million compared to 86.9 million in the same period last year. And income from operations decreased 8.7 million to an operating loss of 9.7 million. This compares to an operating loss of $1 million in the fourth quarter of 2023. Operating ratios for the quarter were 113.2% versus 101.1% last year. In our trucking segment, operating revenues for the quarter increased $8.7 million to $83.8 million compared to $75.2 million in the same quarter last year. And income from operations increased $3.3 million to $5.8 million. This compares to $2.5 million in the fourth quarter of 2023. Operating margins for the quarter were 6.9% versus 3.3%, reflecting strong results in our specialized heavy haul wind business. On our balance sheet, we held cash and cash equivalents totaling $19.4 million and $11.6 million of marketable securities. Interest-bearing debt, net of $3.6 million of debt issuance costs, totaled $759.1 million at the end of the period. Excluding lease liabilities related to ASC 842, our net interest-bearing debt to reported TTM EBITDA was 2.31 times. Capital expenditures for the quarter were $37.4 million. For the full year 2024, capital expenditures were totaled $248.3 million. For the full year 2025, we are expecting total operating revenues between $1.7 to $1.8 billion and operating margins in the 7% to 9% range. For the full year of 2025, we are also expecting capital expenditures to be in the $125 to $150 million range before any purchases of strategic real estate and interest expense to come in between $48 and $51 million. For the first quarter of 2025, we are expecting top-line revenues between $390 and $410 million and operating margins in the 6.5% to 7.5% range. EBITDA margin for Q1 of 2025 will be in the 14.5% to 16.5% range. With increases in depreciation and amortization expense related to our recent acquisitions, as well as the associated interest costs on borrowings, we believe EBITDA will become a more meaningful measure of Universal's operating performance in 2025 and in the years ahead. The tickdown in our operating margin guidance includes four discrete items. Number one, the roll-off of the previously mentioned specialty development program that was completed in 2024, the additional depreciation and amortization expense increases due to recent acquisitions, softness in our automotive customers' production expectations for the first quarter, and continued headwinds in our intermodal segment, specifically in Southern California. Our guide neither includes any potential negative impact of tariffs on either our Canadian or Mexican operations, nor positive impacts on our business related to changes in the regulatory policies specific to tort reform, independent contractor classification rules at the federal level, or changes in tax policies. We'll update our guide each quarter reflecting any changes in policy that will impact our current or future results, either negatively or positively. 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 3rd, 2025, and is expected to be paid on April 1st, 2025.