Q4 2019 Earnings Call
Hello, and welcome to.
First the logistics Holdings fourth quarter 2019 earnings conference call at this time, all participants or any listen only mode.
Brief question answer session will follow the formal presentation.
During the course of this call management May make forward looking statements are based on their best view at the business I seen today.
Meant that our forward.
Looking relate to universal 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.
It is now my pleasure to introduce your host Mr., Tim Phillips, Chief Executive Officer, Mr., Ji breast Chief Financial Officer, Mr., Stephen to Patrick Vice President Finance and Investor Relations. Thank you Mr. Philipp you may begin.
Thank you Regina good morning.
Thank you for joining universal logistics.
First quarter 2019 earnings call.
Yesterday afternoon, Universal released its financial results rounding out 2019, with 375.9 million in fourth quarter topline revenue.
<unk> reported 32 cents per share in earnings.
Our fourth quarter results were fairly solid getting that current.
Operating environment I believe it sounds like to the resilience of the Universal business model.
During the quarter, we correct that's persevered through challenges at the soft freight environment.
Exit strikes at both general motors and that drops.
And also settled at 2013 legal matter, which.
Earnings by approximately eight cents a share in the fourth quarter.
Despite these challenges we were happy with how we finished the year and have a lot of <unk> momentum coming into 2020.
Our optimism is founded on the fact that we continue onboarding new business our fourth quarter.
Wins were expected to account for over 50 million in annualized revenue.
Why reconsolidated pipeline remain over 500 million opportunity.
Setting the table for a great 2020 and beyond.
Next I'm going to step through the performance.
Each of our.
Blind starting with the truckload group.
Truckload services revenue decreased 15.3 million or 20.8%.
58.4 million.
This reflects an 18% decrease in a number of loads hauled any 2.3% decrease.
In revenue per load excluding fuel surcharge.
Although the truckload business experienced softness both in terms of volume's been rate.
There were some bright spot.
We were thrilled to onboard 16, new agents in the fourth quarter 2019.
You have a robust aegion pipeline.
As we kick off 2020, I'm very optimistic about the future of our agent based truckload business.
We were also extremely excited to have made or six.
Intermodal acquisition in the past two years.
In November two.
Thousand 19, we announced the acquisition of road runner Intermodal services.
Which brought with it 23 operating terminal and over 700 drivers for the Universal team.
We went right to work on this acquisition and we're well on our way to exit successful integration of people.
Seth and property.
In our intermodal services group rental revenue increased 28.4 million or 33.8% to 112 point Threemillion.
No count was up 29.8% and revenue per load excluding fuel surcharges was also up 3.9%.
While our.
I guess, he intermodal group performed well in the quarter. The majority of the revenue growth came from acquisitions.
We're extremely pleased with where we are well with our acquisition and integration into the Universal network.
Selected and strategic acquisition strategy has provided universe.
Hey, tenured and talented employee base.
Along with exceptional blue chip customers.
Overall, our intermodal group outperform in a quarter, that's all both import and domestic container volumes decelerate in comparison to 2018.
Brokerage.
Services revenue decreased 12.9 million worth 13.1% to 85 point Threemillion, while load count grew 4.4%.
Average revenue per load was down 12.2%, which was the result of a very competitive rate environment.
We also saw.
Impression on our gross margin as purchase transportation declined at a slower rate then the rates from our customers.
Beginning in January 1st of 2020.
We integrator eight regional truckload company terminal with our company brokerage operation in that.
Nashville, Tennessee, forming our capacity solutions to.
Yes that bass pro brokerage concept will provide our customers with one stop shop.
All their truck load needs. We're very excited about this new offering it we'll keep you posted on our progress over the next few.
Sure.
Our dedicated services revenue was down 11.7% to 33 million.
We know 21.4% less loads in the quarter compared to 2018.
Our dedicated services revenue was greatly affected by the G.M. strike.
In the first month for the quarter.
And.
And margins were compressed because of our decision to keep the universal drivers hole.
Until the strike was over.
We've worked very hard over the past year in recruiting top drivers in a very competitive market our decision to keep.
The talent proved to be a saw one.
As the G.M. network came back up well the head of steam and continue to run an accelerated clip.
Value added services revenue decreased 6.2 million to 86.9 million.
Revenue was dampened by the G M and Mack truck strike.
As well as a ramping down that Ive services as result of the major customers plant closure.
We're also experiencing slower flowing class eight truck production in comparison to the record levels in 2018.
I am extremely excited about leadership in the degree of.
It has been built at all levels in our value added services line.
We are extremely well positioned to take advantage of new opportunities many of which we already have in our pipeline.
The value added group has continued to review each operation for efficiencies and cost control.
Payment.
We are well position entering 2020.
I understand a couple of the challenges we faced in the fourth quarter. Each service line continued to launch integrate new customers optimize asked that and provide extreme value to our customer base.
Although it's not freight volumes may continue in the first after 2020, we are well positioned to explore and win new market share with our focus on operational excellence excellent for our customers.
We will continue to evaluate acquisition opportunities from a very disciplined.
And strategic standpoint.
We're committed to grow our core business the unit, both organically and through acquisition as we have done over the past few years.
Universal will continue to be very conscious operating safely.
As the transportation industry continues to experience.
<unk> increased insurance premiums pressured as a result of nuclear verdict.
We will continue to allocate time.
Resources and talents, who can to continue to elevate driver contractor.
In workplace safety.
I'm looking.
Sure. It's a proper prosperous 2020 and would like to thank universal's over 12000 professionals.
For what they do each and every day.
June will now give you more color around our financials Jude Thanks, Tim Good morning, everyone Universal Logistics Holdings reported net.
Income up 8.7 million or 32 cents per share on total operating revenues of 375.9 million in the third quarter 2019. This compares to net income of 9 million or 32 cents per share on total operating revenues of 386.4 million in the fourth quarter.
2018.
Included in our 2019 operating income was a pre tax charge of 2.9 million 40 cents per share free previously disclose legal matter.
Consolidated income from operations decreased to 2.4 million to 15.5 million compared to operating income.
Some of 17.9 million and the fourth quarter 2018, EBITDA increased 6.3 million to 37.7 million in the fourth quarter 2019, which compares to 31.4 million a one year earlier, our operating margin at EBITDA margin for the fourth quarter of 2019, our four.
1% and 10% operating revenues these metrics compared to 4.6% and 8.1% respectively in the fourth quarter 2018.
Looking at our segment performance for the fourth quarter 2019 in our transportation segment, which includes our truckload intermodal and.
Freight brokerage businesses operating revenues for the quarter Rose two tenths of 1% to 260.9 million compared to 260.5 million and the same quarter last year and income from operations decreased 7.7 million to 11.6 million compared to 19.4.
4 million in the fourth quarter 2018.
And our logistic segment, which is comprised of our value added services, including where we surface. The class eight heavy truck market and our dedicated transportation business income from operations increased 8.6 million to 6.7 million on 114.8 million.
Total operating revenues compared to an operating loss of 1.8 million 125.5 billion of total operating revenue in 2018.
Our balance sheet, we held cash cash equivalents totaling 7.7 million and 9.4 million of marketable securities.
Our interest bearing debt net of 2.1 million of debt issuance costs totaled 457.6 million at the ended the period.
Excluding lease liabilities related to legacy 842, our net interest bearing debt to reported EBITDA was 3.2 times.
Capital expenditures.
Were $19 million for the quarter and totaled 79.8 million for the full year for 2020, we're expecting capital expenditures to be in the $70 million to $80 million range and interest expense between 16 and $18 million.
Finally on Wednesday, our board of directors declared universal tend to have spent for.
Sure regular regular quarterly dividends. This quarter's dividend is payable to shareholders of record at the close of business on March 2nd 2020, and is expected to be paid on April six 2020.
With that Regina, we're ready to take some questions.
At this time, making the by to ask a question simply press star.
By the number one on your telephone keypad again that Istar won our first question will come from the line if Chris Wetherbee with Citi.
Yes, thanks, good morning, guys.
Hi, good morning.
Yeah, I guess I wanted to start on the truckload market can you guys get a sense just sort of how things develop.
As you went through the fourth quarter understanding that there's probably some disruptions from customer issues early in the quarter, but surely the broader market how that progress through December than maybe what you're seeing so far in the first quarter.
Yeah. Chris. This is June so I think you know with Oh, you know as many of our other public appears to have reported it was kind of oh flow crawl to.
But the bottom on the gross margins from Q1, all the way through Q4, we did see a little bit a light the second week.
The last two weeks of the ended the year, where the gross margins in the brokerage operation I've got a little bit better incrementally, but really it was it was really soft in the second half.
All the way through Q4.
Okay, and any comments on sort of how you see as things develop or is it too early to tell from one to you.
Yeah, I think of the gross margins have been a little bit better early in January or late in January early into February.
Once again, I mean, it kind of remains to be seen.
Okay. Okay that makes sense, maybe two more questions. If I could troops on the intermodal side, obviously been busy on that front can you talk a little bit about kind of conceptually how you see 2020 shaking shipping out her out for the intermodal business.
Yeah.
Yeah, Yeah, I think that we came out of 2019 with a very nice that has seen a we continue to integrate the acquisitions from the business, Brian Oh, we see in our pipeline you know some really good thing. So we're very optimistic about pushing forward on intermodal Brian yes.
Theres some uncertainties.
You know with the virus and things that are going on out there right now, but we feel because of our pipeline a the density we built various marketplaces that we are positioned very well to has a very successful year on intermodal front.
Okay, and you see we understand like.
Load growth, how should we be thinking about it obviously, there is organic and inorganic growth, but any sort of help you can give us in terms of thinking about loan growth in intermodal.
Yes load growth organically it out.
Just positioning ourselves from an acquisition standpoint, we will continue to look on that side, if it's very.
Okay.
Very right for the organization, but organically speaking, we feel our footprint the customer base the pipeline give us the ability to grow organically. This year on on the intermodal front. So yes, I would think that we would expect organic growth from where were.
In the marketplace right now.
Okay great.
My last question Bill is on the classy side. So yes, some conflicting numbers kind of around the market, obviously, it's going to be a weaker year for production and twentytwenty.
I guess.
When you think about the outlook for 2000.
28 user a certain number of the class each side, that's sort of embedded in your expectations and how do you sort of adapt the variability, particularly if it ends up falling to the lower end.
Yeah.
Chris This is you yeah, we forecast.
At the lower end based on the most recent HCT numbers that came out.
So I mean, we're expecting a 40% decline in roughly 50% of our classic business because half of it relate to the class eight production on the other half relates to the on machining business that we also own a as a part of that group. So we're forecasting at the low end of that business with.
By patients that that 40% year over year decline and HCP will continue throughout 2020.
Okay. That's a that's covered thanks very much so Todd I really appreciate it.
Your next question comes from the line of Jeff Kauffman with loop capital markets.
Hey, good morning, and congratulations.
Thank you Jeff.
Questions.
Post.
Some of the new business wins, and they Roadrunner acquisition.
Can you help me.
I understand the geographical footprint on the intermodal side.
How Ics exposes are wrong word.
Word, but if I take the 80 20 rule and where your intermodal strengthen density and where your commitment as in the network.
How big is California.
Relative to the whole and kind of what are the key markets that I should think about from an intermodal growth standpoint.
Sure Jeff This is Tim.
Yeah, California is a key market for us it probably is attributable about 20% or the overall gross revenue.
We've aligned ourselves what we see as other key markets servicing the United States and those would be geographically size wise, Chicago course being the biggest.
Inland port in the United States.
We've also through acquisition and organic density our large in the southeast, though Savannah, Charleston, we find ourselves with with with a great deal. It density and we think that is a key play on the east coast as as intermodal volumes.
Continued to build and grow over the years, we're also very.
Again in the Texas market, the Dallas and Houston market, we think those have long term growth potential and we continue to look around the United States for places that we would need additional density now we have a whole.
Other tier of secondary piece, but I would say those are the main market that we're playing in a very large revenue against fashion.
Okay. Thank you. So can you give us an update on what's going on with a be five in California, I know it potentially can affect your intermodal.
Total dray, but but a couple other businesses out there and what the strategy is depending on how this progress is with the court.
Yeah, well, obviously, there's a there's a stay in place and so we feel pretty good about federal preemption has as a number of course that rolled over the past a couple of months so our ex.
Asian as is that this current version of 85, well or die either up most likely a slowdown because its california, but theres always going to be a labor related drama and the legal challenges operating in California, We're doing all the things in that market odd to protect ourselves.
As to the extent that we can however, our business model in California is a independent contractor and we will continue to operate.
As long as it is legal and independent contractor model in that in that state.
Okay. Thank you and I switch gears for a second to cash flow.
Taking your guidance and appreciation and your Capex.
Adam.
It looks like you're gonna have the quality problem of trying to figure out what to do with about 70 million ish of free cash.
Can you talk about your cash priorities.
Acquisition versus debt pay.
Dan versus share repo and kind of where where your head is right now.
Yeah. So I would label them. Those are obviously, great choices number one is debt paydown absolutely a walk you know all the free cash that we have will go down to reduce our debt load.
Second we'll be M&A with you know.
Just acquiring a six businesses I would mean tenant has ops team are going through and integrating all of those so if if if it magical will jump all over it if it's not a whole path and then third would be share repo. We just took advantage of the market last year. If you remember we were trading at AGBT EBITDA.
Like five acts are below so we know it was prudent for us to take about 1.1 million shares off the table, but our real focus is to reduce our leverage this year.
With all excess free cash.
And do you have a target leverage range, where in a perfect World you say okay.
This is the right level of leverage for US now we change cash priorities when we get to this leverage level.
So I would say that I think.
Perfect World, we'd be Levered at one time, EBITDA, but we're very comfortable levering up to three and a half times EBITDA if the if the.
Acquisition.
Makes sense for us so.
You know on a run rate basis, adjusted our EBITDA is around 180 million to year at our current business volumes fell I mean, we have a lot of flexibility with our debt because its you know in quote it all things being equal we're going.
To have $180 million to play with on a on annual basis. So.
We're not afraid if that universal has been acquisitive Overhit stuff you know Watkins 1981 with the business was founded in zero warrant we've done about a little less than 50 acquisitions over that period of time, and we'll continue to while lever up the business and then pay down.
As appropriate.
Okay, well congratulations on a in a challenging quarter and thank you.
Thanks, John Thank you.
Your next question comes from the line at Bruce Chan with Stifel.
Hey, Jeff Good morning, and thanks for taking the question. Thanks Maria.
Just one to start off here.
On the margin guidance.
Obviously, we won't have some of the big headwinds like.
The GM strike, but as you're looking at what's probably going to be a pretty tough backdrop still in the first half as we're looking at truck in auto production that saw under pressure, you've still got the 7% to 9%.
Margin outlook.
Which is a pretty.
Healthy step up from from last year can you just help us to bridge you know those two numbers and you know maybe help me understand.
Where we're going to see the bulk of that improvement and maybe the cadence or or pace with the improvement over the year got so you know we don't obviously provide quarterly guidance, we try to give a range of.
Where we see the business over the next 12 months that they'll look that up the performance outlook that we provided in the earnings release is the exact same performance outlook that we provided in 2018 with the assumption that we weren't going to have a club or a truckload rate collapse in March.
That we experienced so we're looking at the business as we always have we stepped through each one of our service line and we have a low end margin guidance in a high end margin guidance that we published in our Investor presentation. So you know you go through the some of the park when you look at the high to low margin.
Asians have bought each one of the service lines that we report and that's how you get the seven to nine.
Bridging the gap.
If you take the you know the 63 or 65.3 million of operating income that you all age reported for the year I mean, there's $39 million a legal.
And our strike headwinds that no matter, what the environment isn't 2020 knock on wood won't be there are won't be there in 2020 from 2019. So on an adjusted basis, you're taking that 65.3 million, you're adding 39 million of op income related to legal and strike and you're at a 104.
3 million, which is about 6.86, 0.8%.
Operating income so we're ending the year on an adjusted basis basically at stop.
Okay. All right that's fair enough and then maybe just a broader question Tim I mean, obviously, you're fairly new to the business here, but as you kind of.
Garden Acclimated.
Is there anything that you feel is going to change or needs to change about the strategy in the direction of the company's headed.
No I think that some of the ground strategy. That's already been set up this down I think that you know my job in job one will be to get into.
Some of the different business units and making sure that we're executing the strategy that we put forth before both from a revenue standpoint and from a cost containment standpoint, I think that as I stepped out of my prior position into that I looked across the enterprise and what we have in place from a leadership standpoint, and a support standpoint.
Oh, we're situated at excellent basis now, we just had execute what we put forth in front of the leaders.
The to hit the points, we want to hit so I'm very comfortable with where we sit going into February with our strategic approach.
2020.
Okay, great well appreciate the time and nicely done in a tough market.
Thanks, Bruce I appreciate it.
Once again for any questions. Please press star one of your next question comes from a line of Mike Vermut with Newland capital.
Hi, guys, how you doing.
Morning mining for you.
Good morning.
Oh I'm sorry.
And then my last time, it doesn't have anything I've ever seen a company of this quality in size trade at this valuation.
Along with the a 22 UNEV present dividend yield to do so.
One of these days that will fix itself you have done a rough estimate of your the.
I didn't you put in there for 2020 I'm getting anywhere between.
To 60, and 370, you know at the midpoint around 316, and hopefully that that's correct.
And then the translation is roughly 800 million a free cash flow or you know over $3 three to 350 of free cash flow for shared.
Point is that correct, what I'm trying to think about modeling. This out 2020, 2021 that we could pay down roughly 200 million of debt over those next two years.
Yeah, I mean is there something on or is there something I'm missing here I echo ex acquisitions or whatnot, yeah. So I think there's you know the debt.
Hey down would be only impacted by.
Additional capex for new business wins, so obviously.
We believe that between that 70, and 100 million a year is the is the number that would be available to wants to pay down debt, but obviously, if we continue to grow the business if we.
Continue to.
When a customer awards that require investment we're going to make those investments in the business for the future. So that would be the only limiting factor like.
Excellent and then when we look a buy it it's hard not to buy one were trading at.
Six times earnings in for NAV times, the about it it's hard not.
To buy back stock, but that would be the next use of capital after the debt pay down I assume.
Oh, that's yeah. So it's just that pay down M&A and then we would look at or any type of shareholder issue with this redistribution or just acquiring shares or dividend. So you know we need to lighten up.
Not a little bit we can continue the M&A strategy.
And you only get to do that if you have more available and so that's what we're going to focus on over the next couple of years.
Okay. All right is these valuations here absurd, but.
Finishing up to two more quick questions for you the synergy wouldn't when we're looking at you know you've done I guess three acquisitions.
Is it over the past year, we've done six in the past two we did two acquisitions last year micro Carnage, we closed in April and then road runner. We closed in November excellent now when we're looking at the integration the synergies.
Are they better than originally planned and how are they going if you give a little more detail on this.
So.
Well I would say that we're probably in a five phase plan, we're probably at about phase two a we're still working through a number of the back office and technology synergies. So we're still there's still a lot of a low hanging fruit out there for us to get especially as we combine.
Some of these larger market operations together, so it we've done but we can do over the past couple of years, but this year with some of the changes that we're making with our technology platforms. We should realize more at a later half of this year and of course into 2021.
Excellent okay.
And then you know just the suggestion here is most companies gives us an adjusted.
Yes number I know you give us all the charges out there.
But.
And to consider down the road, giving us an adjusted numbers. So we don't have to kind of go through dress. It really is to find out what sat back or.
It does that make it apples for apples with all the other companies in the group the report.
Okay, Mike will take into consideration. We appreciate the we appreciate the idea sure all right great job guys.
Thank you.
Do we have no further questions at this time I'll turn the conference back over to management.
Well I appreciate it thanks for dialing.
Selling in we're extremely pleased and look forward to position yourself and pushing for look forward to speaking to you all in a couple of months have great day. Thank you.
Ladies and gentlemen, this concludes today's call. Thank you all for joining you may now disconnect.
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