Universal Logistics Holdings, Inc.

Hello and welcome to Universal Logistics Holdings first quarter 2025 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 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. It is now my pleasure to introduce your host, Mr. Tim Phillips, Chief Executive Officer, Mr. Jude Barris, Chief Financial Officer, and Mr. Stephens Fitzpatrick, Vice President of Finance and Investor Relations. Thank you. Mr. Phillips, you may begin.

Thank you, Andrew, and good morning everyone, and thank you for joining Universal's first quarter 2025 earnings call. As we kick off the new year, we do so with an understanding of the challenges facing the broader transportation and logistics landscape. The overall freight environment remains sluggish, and our largest vertical, automotive, saw a slowdown in January, but improved as the quarter progressed. While the results of this quarter were below our historical benchmarks, we remain confident in the resilience of our business model and the long-term strategic direction of the company. Before I begin, I want to recognize the incredible commitment of more than 10,000 employees and contractors. Their hard work in the face of poor weather and market volatility continues to be the backbone of our operations, and a key reason why we are well positioned for future growth. Let's get into the results. Universal reported $382.4 million in total operating revenue for the first quarter of 2025. Net income was $6 billion, or $0.23 per share, and operating margin for the quarter came in at 4.1%. While this represents a -over-year decline, it is important to note that the year-ago quarter included our now-completed development project in Tennessee. Adjusting for that, our core performance remains stable, with encouraging progress in several key areas. Our contract logistics segment continues to be a critical part of our business, contributing $255.9 million in revenue and delivering a solid .3% operating margin, despite the absence of last year's $95.3 million specialty project revenue. We are on track to book over $1.1 billion in contract logistics revenue in 2025. Additionally, we continued to integrate and optimize our parsec acquisition, which contributed $56.4 million revenue this quarter. We now operate 87 value-added programs, including 20 real-termal operations, a significant increase from the 70-rum programs at the same time last year. As mentioned, auto production influenced volumes early in the quarter, but activity picked up in February, then surged through March. We remain encouraged by the long-term opportunities in this segment, particularly as we leverage our expanded footprint and deepen relationships with legacy and new customers. We have three key launches that will begin in the second quarter. These launches will increase our contract logistics annual revenue by $50 million per year at historic margins. Contract logistics continues to drive Universal forward, with massive customer interest in our customized solutions led by our world-class service. Turning to trucking, revenues came in at $55.6 million, down .2% from the prior year, largely due to a .3% drop in volumes. However, revenue per load excluding fuel surcharges increased by more than 24%, a sign that our of emphasizing specialized high-yield freight is gaining traction. Operating income in the trucking was $2.2 million, with a .9% margin. We continue to see strong demand in our specialized heavy-haul wind operation, which remains strategic differentiator and a stabilizing force for the segment. Looking ahead, we expect this business to be a key contributor in 2025, especially as renewable energy infrastructure projects continue to move forward. Our intermodal segment remains a work in progress. Revenues decreased to $70.7 million, and we reported an operating loss of $10.7 million. The segment was negatively impacted by both a .4% drop in volumes and an .7% decline in rate per load, excluding fuel. Additionally, the quarter included a $1 million in charges related to unemployment-related matter. While these results are disappointing, we believe we've hit bottom in this segment. Our new intermodal sales team is gaining traction, and we have seen stable freight volumes. We remain committed to transforming this business into a leaner, more efficient contributor to the universal portfolio. Across the board, we are taking strategic actions to improve underperforming operations while remaining disciplined in our growth. Our sales pipeline remains strong, and we continue to pursue new opportunities in areas where we can create long-term value and achieve sustainable margins. In closing, while Q1 was clearly a challenging quarter, we are not standing still. We are focused, we are making necessary adjustments, and we believe the second half of 2025 will look markedly different. Our team is committed to ever delivering for our customers, our employees, and our shareholders. Finally, we are closely monitoring the impact of tariffs on our business. We are in constant communication with our customers, ensuring we are ready to adapt and implement any changes that require to keep the assembly lines that we support producing. Thus far, we'll see a number of benefits to our contract logistics segment, as two assembly plants that we service will increase production. Although there is plenty of uncertainty with the potential outcome on tariffs, we are also looking for opportunities in this fluid environment. We are actively engaging the customers regarding our manufacturing capabilities in Louisville, Kentucky, offering storage solutions that are intermodal depots that are within close proximity to several ports and inland rail, as well as offering excess warehouse and assembly capacity to both our existing and prospective customers in strategic locations throughout our network. We are consulting with our customers to assist with their contingency planning efforts to mitigate the effects of tariffs, as well as assist in any near or reshoring planning they are engaged in. We'll have additional updates on our Q2 call. Once again, I want to thank all of our employees for their continued hard work and dedication and to our customers. Thank you for your continued trust and universal. I'll now turn the call over to Jude for more color on our financials and expectations for the remainder of the year. Jude?

Thanks, Tim. Good morning, everyone. Yesterday, Universal Logistics Holdings reported consolidated net income of $6 million, or $0.23 per share, on total operating revenues of $382.4 million in the first quarter of 2025. This compares to net income of $52.5 million, or $1.99 per share, on total operating revenues of $491.9 million during the same period last year. Consolidated income from operations was $15.7 million for the quarter, compared to $75.1 million one year earlier. EBITDA decreased $45.2 million to $51.7 million, which compares to $96.9 million during the same period last year. Our operating margin and EBITDA margin for the first quarter of 2025 are .1% and .5% of total operating revenues. These metrics compare to .3% and .7% respectively in the first quarter of 2024. Looking at our segment performance for the first quarter of 2025, in our contract logistics segment, which includes our value add and dedicated transportation businesses, income from operations decreased $57.6 million to $23.9 million on $255.9 million of total operating revenues. This compares to operating income of $81.5 million on $313.5 million of total operating revenue in the first quarter of 2024. For comparison purposes, in the first quarter of 2025, included $56.4 million of revenue attributable to our recent acquisition of Parsec, while the first quarter of 2024 included $95.3 million of revenue attributable to our specialty development program, which as mentioned was completed in 2024. Operating margins for the quarter were .3% of total operating revenues compared to 26% one year earlier. Overall, the decline in operating margin for our contract logistics segment was attributable to subseasonal start to the year in auto production volumes, the completion of the previously mentioned specialty development program, and the impact of both the intangibles and accelerated on equipment related to the Parsec acquisition. On to our intermodal segment, operating revenues decreased $7.7 million to $70.7 million compared to $78.4 million in the same period last year, and income from operations decreased $2.4 million to an operating loss of $10.7 million. This compares to an operating loss of $8.3 million in the first quarter of 2024. Operating ratios for the quarter were .1% versus .6% last year. In our trucking segment, operating revenues for the quarter decreased $14.1 million to $55.6 million compared to $69.7 million in the same quarter last year, and income from operations decreased $1.5 million to $2.2 million. This compares to $3.7 million in the first quarter of 2024. Operating margins for the quarter were .9% versus .3% last year. On our balance sheet, we held cash and cash equivalents totaling $20.6 million and $12 million of marketable securities. Outstanding interest-bearing debt net of $3.3 million of debt issuance costs totaled $736.7 million at the end of the period, and excluding lease liabilities related to ASC 842, our net interest-bearing debt to reported TTM EBITDA was 2.6 times. Capital expenditures for the quarter were $52.6 million. Excluding any impact of tariffs, for the second quarter of 2025, we are expecting top-line revenues between $390 and $410 million and operating margins between 5% and 7%, and EBITDA margins in the 14% to 16% range. For the full year, we are expecting capital expenditures for equipment to be in the $100 to $125 million range and real estate between $55 and $65 million. Interest rate is expected to come in between $48 and $51 million. Finally, Wednesday, our board of directors declared Universal's $10.5 per share regular quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on June 2nd and is expected to be paid on July 1st, 2025. With that, Andrew,

we're ready to take some questions. Thank you. Ladies

and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question.

Your first question is from Bruce Chan from Stiefel. Please go ahead.

Hi, good morning, everyone. This is Andrew Cox, Archibrews.

Hey, Andrew. Hey,

guys. I just wanted to kind of get a sense of how auto OEMs were trending month to date and how the conversations about auto OEMs are going for their expectations for the rest of the year. I mean, I know you guys said that you saw some progression as the economy was going forward. I mean, I know that the quarter went on and saw some improvement in March. We've all seen the SAR data for March. It does seem like there was a pull forward there. So I'm just kind of trying to understand how volumes and expectations are trending since then and how things may have changed for the rest of the year. Thank you.

Yeah, for sure, Andrew. I'll talk about the progression in the quarter and then Tim will get to the outlook. So, you know, as we kind of mentioned in the comments, we really had a slow start to the year. Although we don't normally don't provide intra quarter analysis, I think it's worth mentioning it this quarter just because of how dramatic it was. So in January of this year, Universal experienced its first loss ever in January. So we went into February, five cents in the hole, losing five cents of EPS per share. Then the quarter slowly got better. We went from negative five cents a share in January to positive nine cents a share in February and then 19 cents a share in March. So the quarter really started out low and the business really rebounded well. So, for example, our cross stock tonnage in February was up 30% from January and then March's cross stock tonnage was up 64% from January's levels. Auto production was up 29% in February from January and then up .1% in March from January. And then lifts at our parsec business were up .2% from February, then .5% from January. And we also saw some nice trends as well in our intermodal business where intermodal volumes were up 13% in February from January's numbers and then 53 from March to January. So there was a lot of really great improvement as the quarter progressed. And if we just would have had an environment in January that was similar to February, the results would have looked a lot different. We would have definitely been within our guidance range of around 400 million of revenue, EPS of around 41 and well within our 14 to 16% guide on EBITDA. So a real rough to the start of the year, but the numbers that I just showed really showed the rebound in auto. And of course then how our earnings were really driven by that additional volume coming into our facilities, which showed the operating leverage that we have in the business. Do you want to go through the outlook, Tim? Yeah.

And then I would extend from March on what Jude was speaking about. We've had some really good collaborative conversations with the various OEMs that we serve. While there is some uncertainty on sourcing of parts, there's been no alarms that have been sounded on direction. In fact, we feel that our footprint within the U.S. gives us a definite advantage on servicing some of the high production plants that the autos have. So we feel good. And I think we've mentioned that in our prepared remarks that at least two of the facilities we service in the United States, they're looking at ramped up production. So line speed, some facilities looking at extending from five to six days, and then various things that we see over that quarter coming up and onward, nothing that alarms us from a production standpoint. So I think I also mentioned in the prepared remarks, we're ready, willing, and able to provide other logistics solutions within the United States, as well as we're in close proximity to most of these plants. So we feel comfortable that whatever their strategies are and how they realign their supply chain, we'll be there to help them consult and hopefully optimize their network.

One more final comment, you know, doff hailing off of Tim's comments, Andrew, is that the automotive companies have really done a nice job, too, of unwinding those large inventories that we saw in the middle of last year. So, you know, towards the end of Q4, some of the industry racks were printing. There was about three to 3.1 million units on the ground in late Q4, early Q1. Well, those numbers are now down to 2.6 million. So basically they've unwound 500,000 units net in Q1, which is a reduction of like 16%. If you also look at the new day supply of inventory in June of last year, that number was averaging 116 days. That number is now 70 days. So once again, a reduction of 40%. So if tariffs don't kill the entire industry, we're really set up in the back half for some decent production numbers, which will really drive our results.

That's really good to hear, and that corroborates some of the other commentary we've heard, where shippers at this point seem to be a little bit more afraid of rising costs than the potential for demand destruction at this point. So that's good to hear. On that front, talking about inventories maybe on a more broader sense in some of the other verticals that you serve, are you seeing a kind of -and-see approach taking hold here? I mean, that kind of seems to be the consensus we see forming just until we get a little bit more clarity on the tariff policy. What are you guys seeing there?

I would agree with that. We're seeing in customer communication a -and-see approach. Some customers have potentially more, can be more affected by the tariffs than others. And they're strategizing as they went through the quarter and go into this quarter, what they do, where they source from. Once again, as we get in some of our other segments, other than just the four walls of value added, we're pretty well positioned in rail cities that we can offer storage, we can offer metering out of our various yards and locations. So if it is determined that they're going to pull some stuff forward, we're able to help with storage solutions and metering solutions. But at this point, we have had nobody make definitive, this is how we see quarter two, three, four looking. So we're kind of aligning with you on what you're hearing from the rest.

Okay. And on those facilities you're speaking of where you can do some metering and some warehousing around the ports, can you remind us of the kind of geographical dispersion of those? Are you guys more west or east coast based? Where is the dispersion there?

Well, nationally. So when it comes to port alignment, we're in L.A., Long Beach, the Inland Empire, Oakland, Inland and Stockton, Seattle and Portland, and then we've got the ports on the east coast all the way from Jersey, all the way down to Jacksonville. And then if you look at the infrastructure of the rail network, we're placed in all major rail network in cities such as Chicago, Dallas. We do have a presence, I mentioned, on ports, but we also service the Port of Houston. So we're pretty well connected. I also feel really good about our potential in Atlanta. I don't think we'll miss anything on the intermodal front. I think we're positioned well. And in our warehouses and our LOCs around the country are positioned close to manufacturing. So if you can think of major manufacturing around the country, there's a good chance we have one of our facilities there.

And as a follow-up, what kind of scenarios are you guys contemplating for the potential for imports to fall off abruptly here beginning, it seems like, first week of May? What are the kind of scenario analysis you guys are going to do there?

Yeah, we're kind of just dovetailing off of some of the comments that were brought out by the National Retail Federation with the report that came out a couple of days ago, or maybe late last week. They were kind of looking for about a 15 percent reduction in imports that should start hitting mid to late May. So we're just kind of looking at our intermodal business and kind of dovetailing off of what's been out there. But other than that, there's not a whole lot to report.

Okay, understood. And I guess I've got one last one here on the flatbed market. We've seen some broad signs of strengthening. It's been relatively stronger than the rest of the tracking modes year to date. But we have seen a little bit of rollover. It seems that there was maybe some pull forward in certain input materials and raw materials in certain places of the country. I just kind of wanted to see how the broader tightening of the flatbed market has impacted, particularly your heavy haul business or any of your flatbed offerings. Have you seen some episodic tightening in places that have helped rates, or is this really just driven by a continued expansion into the heavy haul business? Thank you.

Yeah, I would like, you know, on the heavy haul wind business, we have seen an expansion of that that really influences our open deck division. If you want to consider the differential between heavy haul specialized, which we break off into a separate unit, our open deck division is, I would say, pretty consistent. We've seen a little bit of lift as the quarter progressed, but nothing that I would call outstanding that we could sit here on this call and tell you about. So I think things are pretty status quo. Pricing's remained relatively stable, but there's been no great upward lift at this point in flatbed transportation.

Okay. Thank you all so much for the time. Thank you. Thank you.

Ladies and gentlemen, as a reminder, should you have any questions, please press the star key followed by the number one. There are no further questions at this time. Please proceed with closing remarks.

Thank you, Andrew. Universal will remain disciplined with our cost control initiatives while focusing our sales efforts on new and existing customers, helping them shape their supply chain by providing a customer centric approach to accuracy, velocity and visibility. While we realize the transportation and logistics landscape remains uncertain, we will remain focused on the opportunities this will present. Thank you for joining today's call. We look forward to

continued conversation next quarter.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.