Q1 2021 Universal Logistics Holdings Inc Earnings Call

April 30, 2021

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Hello, and welcome to the Universal Logistics Holdings first quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.

The 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 universal business objectives or expectations and can be identified by the use of the words such.

The 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 of this conference is being recorded it is now my pleasure to introduce your host.

Mr. Tim Phillips, Chief Executive Officer, Mr. Zhu Barris, Chief Financial Officer, and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you Mr. Philip you may begin Sir.

Good morning, and thank you for joining Universal Logistics Holdings first quarter earnings call.

Wanted to start off by congratulating the dedicated professionals of the team Universal who together made this quarter such a success the develop of strategic plans that would be both the versatile for the ever changing logistics environment and aggressive enough to achieve the result of our shareholders expect.

I believe the strong result, we reported in the first quarter of the year demonstrate our plan is executable even in an environment in spite of with weather disruption parts shortages and the ever present hiring challenge of the transportation and logistics space.

While we believe technology will play a role in furthering our success, our continued ability to attract and retain professional truck drivers warehouse workers and office personnel will be key to universal success in 2021 and beyond.

Now for the quarter and the.

Yesterday's earnings release, Universal reported first quarter earnings of <unk> 80 per share on operating revenue of $415 2 million, beating estimates on both top and bottom line first quarter operating results represented not only universal is best topline revenue operating income and earnings per share for.

The first quarter they are the highest results ever reported.

This is a direct reflection on the strategic focus and corresponding roadmap that has been developed by all of our operating segments.

I am extremely encouraged by the additional opportunity we have to further drive efficiencies.

Operational excellence.

The year over year top line revenue increased increase can be attributed to growth in four of the five service lines.

Dedicated services led the way of growing over 50% on a year over year basis.

Brokerage and value added services also experienced double digit growth, increasing 12, 8% and 12% respectively.

Paired to the same period last year.

Strong pricing also led to growth in our truckload services, where we were experienced modest gains in the first quarter of 2021, we.

We did experienced some headwinds as congestion and power unit availability hindered intermodal for the first two months of the quarter. However, we did see an 8% uptick in revenue in the month of March.

Continued strong demand for light duty vehicles kept our contract logistics group busy in Q1.

Even though chip and parts shortages began to show impact at the tail end of the quarter during the quarter weather played a larger role than parts shortages with several of our large planned third being down a couple of days up to week we.

We expect these disruptions to be temporary as the production forecast for auto has remained strong for the full year 2021.

Im also pleased to report the contract logistics group added an additional $20 million in new business wins for the quarter. We expect these launches to begin in Q2 2021 to be on a full run rate by Q2 of 2022.

Okay.

Although the obtaining qualified drivers and contractors remain extremely competitive I'm pleased to report our trucking segment was able to sequentially grow its driver base. The agent group for the agent base Division of Truckload group was successful Onboarding of <unk> 14, new agent.

Increased increased driver count paired with continued inventory replacement helped increase the group's top line revenue.

Steel metal industrial goods and energy low level remained below Q1, 2020 levels, but indications for the back half of the year remain robust.

Exiting the quarter, we remain very confident in the runway for growth propelled by new business wins, and a favorable rate environment fueled by tight inventories.

Our company brokerage operation remained in positive territory for the quarter, but experienced tight capacity and unfavorable weather in the back half of February.

Gross margins for the quarter finished in the high single digits, but trended favorably for the last part of the quarter.

Revenue was up 15, 8% year over year, the number of loads being handled decreased by 28%.

The increase in revenue was driven by higher spot market rates and better contract pricing currently 70% of our freight is running under new rates.

For intermodal drayage record import volumes, coupled with terminal congestion further deteriorated operational flow and turn times that many of the intermodal facilities around the country.

We also experienced additional street time for loads and empties its customers in intermodal facilities struggled with the volumes.

Our revenue per load move saw a modest movement downward while we saw increases in spot market or contract rates were slower to follow suit.

Although intermodal Drayage group performed okay. There's plenty of road for improvement we continue our recruiting efforts reviewing our compensation packages for all of our major markets and have renewed initiatives to entice drivers back for the workforce.

As we look ahead, we continue to remain bullish on the remainder of 2021, we expect to navigate the near term issues with supply chain disruption.

Port and rail congestion and what we hope to be the final stages of COVID-19.

Although the chip and parts shortage issues will have some effect on top line revenue in Q2, we believe the backlog and demand sets up for a very robust second half of 2021 as.

As mentioned before I am still extremely optimistic on our ability to operationally execute and deliver the numbers within our forecasted range.

We continue to evaluate the quality opportunities in our contract logistics network and using our experience technology and velocity expertise to actively branch out into alternative spaces in existing vertical as well as focusing on new verticals are present.

And knowledge continued to grow in the electric vehicle space with current launches.

Recent wins.

And interest in new projects, we remain committed to grow the contract logistics segment sales.

<unk> the greater percentage of overall top line revenue.

We remain extremely optimistic on our core customer base and our ability to execute in the market that appears to have a long runway of customer demand.

Light vehicle inventories of dealerships have recently dipped below 40 days and indicating forecast the Saar will be move above $15 5 million originally predicted this year.

We are fortunate to support many locations that produced the vehicles in high demand.

The demand for class eight trucks has also taken off since the beginning of the year. Although there has been production disruption because of the parts.

All indicators point to robust second half of 2021.

Our bullish outlook on drayage franchise remains strong even though we experienced some headwinds in the first quarter.

Indications are that the backlog and shifted anchor will correct itself by the end of Q2.

Allowing greater fluidity, and reducing turn times by our drivers and contractors. The Drayage group is also seeing rates increasing as we begin Q2.

The turn times higher rates will allow us to attract and offered greater earning opportunities for our driver and contractor base, while leveraging scale for additional margin.

Our truckload segment is continuing to see metals and industrial rates increase with volume starting to step back towards pre COVID-19 levels on the open debt side.

Food beverage and consumer goods should remain extremely strong and allow for considerable growth and opportunity.

We continue to work to better optimize our company asset and strategic kutner customer partnerships and new pricing at a local and regional model we.

We will continue to see headwinds with the supply of qualified drivers and contractors as we navigate the remainder of the year.

With our company managed brokerage we believe we will continue to see tight capacity into the near future, which makes our third party of carrier relationships. The continued focus.

We have worked hard to re price our contractual business and we'll continue our efforts to strike a balance between spot market and contractual business.

Evaluating our customer partnerships.

Nowhere in the landscape more nowhere is the landscape more competitive recruiting qualified truck drivers.

The need for additional drivers as common theme in the industry.

As has been widely reported the pool of qualified drivers has been disrupted by Corona virus, the drug clearinghouse extended unemployment benefits and limited driver school graduates the headwind from which we expect to persist for the persist for the remainder of the year.

The compact this we have structured a solid recruiting and retention strategy that includes increases to our driver wages.

In contract or pay at Onboarding, new trucks for the company fleet and creating quality of life options to address the needs of the ever changing workforce are.

Our efforts are paying off in the first quarter of 2021, we were able to add over 500 drivers and contractors to our fleet.

Our recruiting efforts are paying off other areas as well to support our new business wins, we've successfully on boarded over 800 warehouse workers and 90 management members to our contract logistics team.

In the first quarter of 2021, Universal was able to onboard just shy of 2000 associates.

Cross all of our operations.

I am extremely excited about the talent, we've been able to assemble to better service our customers. We continue to expand our team of talented women and men who are committed to work towards our common goal of operational excellence.

And customer satisfaction.

Continued to admire and respect the team's ability to work through disruption Universal is truly a people driven company.

Thank you for your continued efforts now.

Now I'd like to turn the call over to Jude Jude. Thanks, Tim Good morning, everyone. Universal Logistics Holdings reported consolidated net income of $21 7 million or <unk> 80 per share on total operating revenues of $415 2 million in the first quarter 2021. This compares to net income of $12 2 million or <unk> 45.

<unk> per share on total operating revenues of $382 2 million in the first quarter of 2020.

Consolidated income from operations was $31 2 million for the quarter compared to $23 9 million one year earlier, EBITDA increased $11 4 million to $51 2 million, which compares to $39 8 million one year earlier, our operating margin and EBITDA margin for the first quarter of 2021 are set.

One, 5% and 12, 3% of total operating revenues these metrics compare to six 3% and 10, 4% respectively in the first quarter of last year.

Looking at our segment performance for the first quarter of 2021, and our contract logistics segment, which includes our value add and dedicated transportation businesses income from operations increased $5 1 million to $16 8 million on 154 million of total operating revenues. This compares to operating income of $11 7 million.

On $127 million of total operating revenues in the first quarter of 2020 operating margins for the quarter were 10, 9% versus nine 2% last year.

In our intermodal segment operating revenues declined 6% to $103 7 million compared to $110 3 million in the same period last year income from operations also decreased 500000 to $8 5 million. This compares to operating income of $9 million in the first quarter 2020 operating margins.

For the quarter were flat year over year at eight 2%.

In our trucking segment, which includes both our agent base and company manage trucking operations operating revenues for the quarter increased three 6% to $94 9 million compared to $91 6 million in the same quarter last year, while income from operations increased 15, 4% to $5 $2 million.

This compares to operating income of $4 5 million in the first quarter 2020 included in the current quarter are $1 4 million of legal related charges. Excluding these charges our trucking segment would've operated nearly at 7% for the quarter.

In our company managed brokerage segment operating revenues for the quarter Rose 15, 8% to $61 1 million compared to $52 8 million of the same quarter last year. While income from operations also increased $1 8 million to 400000. This compares to an operating loss of $1 4 million in the first quarter of last year opera.

Margins for the quarter were seven tenths of 1% versus the negative two 6% last year.

On our balance sheet, we held cash and cash equivalents totaling $10 8 million and $7 5 million of marketable securities outstanding debt net of $1 $5 million of debt issuance cost totaled $429 million at the end of the period.

Excluding lease liabilities related to ASC 842, our net interest bearing debt to reported TTM EBITDA was two six times Universal's 12 month target total leverage ratio is between two and two five times EBITDA.

Capital expenditures for the quarter totaled $4 9 million are forecasted at Capex for the full year is expected to be in the $65 million to $75 million range before any additional business wins in our contract logistics segment or strategic real estate purchases.

Interest expense for the year is expected to come in between 14 and $16 million.

As Tim mentioned in his prepared remarks, we are experiencing some short term headwinds in our contracts the contract logistics business. This is due to supply chain disruptions at some of our North American auto customers due to the highly publicized the chip shortage. While we expect these disruptions to be resolved within a year. It is difficult to predict the full impact on the current quarter.

These headwinds are currently negatively impacting our top line revenues at a rate of approximately 1 million per week.

Our original forecast for Q2 topline revenues were in the range of $420 million to $440 million with operating margins in the 8% to 9% range assuming the disruptions are corrected by mid Q2, we anticipate new quarterly revenue target of between 400 and $420 million and due to our variable cost.

Model operating margin should remain in the 7% to 8% range for the quarter.

<unk> of course will be the largest influence or influencer on achieving those targets given the robust auto production forecast for the full year. We believe any temporary loss of production units will likely be made up within that year within the year for that reason, we are reaffirming our full year revenue guide of total operating revenues between $1 six of $1 seven Bill.

And operating margins in the 7% to 9% range.

Finally, our board of directors declared Universal's 10 of half cent per share of regular quarterly dividend. This quarter's dividend is payable to shareholders of record of the close of business on June seven 2021, and is expected to be paid on July six 2021 with that the up we're ready to take some questions.

At this time I would like to remind everyone that if he would like to ask a question you May press star and the number one on your telephone keypad now again, ladies and gentlemen that star one for any questions well pause for just a moment to compile the Q&A roster.

Okay.

And the first question will come from Chris Wetherbee with Citi. Please go ahead.

Hey, Thanks, and good morning, guys.

Okay very helpful.

I think of the detail in terms of how you're being impacted by some of your customers' facilities I guess.

Maybe if I could take the hit.

Further and maybe understand.

Tactically, how you sort of see the recovery of kind of playing out I think youre, saying mid maybe mid <unk> you could maybe see some of these the shortages begin to reaccelerate here and keep you get back to the sort of normalized production levels.

You think of the steps that need to happen I guess, we'd been a little bit surprised at the the length of the potential disruption that we've seen so far so what are the positive indicators that you guys are looking at the can give you confidence the big were to come out of the thing at some point during the <unk> and maybe not see it slips further into the back half of the year.

Hey, Chris It's June so really how it kind of works for US is that we're told in advance when the plants are going to operate and when they are not going to operate and so then we can obviously apply the labor to assist in that inbound manufacturing logistics support that universal is known for so as of right now we own.

We really have of insight until the middle of May So the current schedules that we have basically tell us what plants are going to be open which plants are going to be closed and when theyre expected recovery times is so we're expecting that to be mid quarter and thats really the only insight that we have.

Can tell you, though over the past couple of weeks those numbers have been so fluid that they changed multiple times in a day. So once again, we're just kind of reacting to what we're hearing from the Oems, but at least we have that insight through the next few weeks.

And Chris Okay.

I'll add a little bit of color to that also even though we don't have that long range forecast. We are still we're still very confident in our facilities. Because we are wrapped around what we believe to be the autos. Most successful line of products and we know that they want to put those products out on the street. So we still see.

<unk> production, so we're happy to be in the spaces that we are right now.

Yeah, certainly it seems like there's no end in demand the demand at the at the current moment that makes a lot of sense. That's helpful. I appreciate that.

Maybe turning to the the truckload side understanding sort of what the opportunity here is for rate of.

The rate has been.

The significantly higher spot rates, obviously, the up quite a bit what are you seeing sort of of the potential for realization of maybe if you want to talk about it in average revenue per tractor terms or if you just want to talk about it which obviously includes some degree of productivity or do you want to talk about just of kind of pure rate dynamic what is your outlook for for sure of the next several quarters of this year.

Yes.

Tim I think our outlook on rates is very good I think that you have to break it down into some of the segments and as you said the truckload segment, we've been in it we've been experiencing rate increases anywhere from 8% to 15% and the.

Spot market, even higher on that depending on where it's going and what needs to be moved we see that that type of rate environment of lease extending out.

Q2, Q3, and then we will re analyzed where everything is but there's nothing that I'm seeing from the customers.

Of that we're reading that says that this demand lift up or that inventories of will be replenished in the timely fashion or the supply chain congestion from international standpoint writes itself right away. So we're pretty confident that we will see continued rate increases were also equally confident that.

As these bids come up we'll study it closely and we've been pretty successful in negotiating with the customers on those so across the board on the truckload side I would see the opportunity for continued even low double digit rate increases.

And then on the.

The company asset side, we kind of blew the terminal network up and redefined it in a local.

In regional standpoint for the company assets. So our goal of the areas. We know the rate environment is favorable now it's our time to optimize the trucks and make sure that we're executing on an operational level. So that'll be the focus for the company trucks the continue to layer in.

And optimize those so we can see the full potential of revenue per truck per week.

Okay. Okay makes sense I appreciate that.

Intermodal.

How do you how are you guys thinking about sort of the congestion that's out there on the rail network and it may be service, where it stands.

And how do you think sort of the ability to look at the low dynamics kind of play out obviously youre facing tough comps in the first quarter, and obviously weather and other factors with disruption.

The comps get easier.

But you do of high hurdles, even in the back half of the year in terms of growth from last year. So how do you think about sort of absolute loads on the intermodal side potentially ramping up from here or is it sort of a cleaner run now that the weather has broken and maybe there is some improvement on the margin on the rail side or how do you think about it.

Well I think I think the rubber on the road and I mean from the time, we pick it up to get at the customer.

Yes, we're getting into much better season, I don't see weather disruptions I still see.

The supply chain disruption when it comes to.

The ships at anchor and or now seeing some of the flow of the freight that's coming and hit the inland markets, whether its Chicago Memphis some.

Of those other inland markets, where now we have internal congestion, that's starting to build and what I'd mentioned earlier in the prepared remarks is what we're seeing of street time, starting to increase so that asset now that chassis. The so valuable in those markets is now sitting on the streets and extra day or two which firm.

Other compounds the problem, what we've done from a company standpoint, we've been very aggressive on adding assets our own assets into the rotation as we as we put them on we're putting them into those major markets.

To help liquidity it does not solve the complete problem that makes us a nice option for customers that have hot sensitive loads.

Utilize our equipment. So I expect I expect some of the congestion to not totally alleviate itself, but the start to get better as we exit.

Q2 into Q3, our other our other issue to hit our full plan will be can we source the drivers and the contractors then once the supply of influence the opens up to handle those additional volume we did take a step for two back on the number of contractors and drivers were running.

In intermodal and some of that was it was due to COVID-19 of course, but a bigger thing to be said for that as we work together the law.

Last two acquisitions in the last one being the Roadrunner acquisition, we we put terminals together contractors and drivers together and there was a little bit of fallout for that from that but it had to happen because we wanted to get the profitability back to where we needed to be to execute on our on the universal side of things.

Okay.

That's fantastic and if you'll indulge me with one more I just wanted to kind of touch on those startups that you have I think you said the ramp up by two fully ramped by <unk> of next year. I believe can you just maybe put a little bit of numbers around the potential size of the these opportunities. What do you think that might be either from a revenue perspective of a profit perspective or a volume perspective. However, you want to think about it.

Yes, you were talking about the the awards that I had mentioned in my prepared remarks.

That's right, yes, yeah. So we expect we expect that to start to implement.

In Q2 of this year I believe that we will layer in now what we're looking at it is we've had quite a few of awards that have been.

Sure.

On the transportation and the value added side, but we expect that to layer in that $20 million of be full run rate by next year I would just take it in kind of equal allotment for the first quarter of two the Q2 of 2021 will be of startup, but then it should be close to run rate by Q3 Q4.

At that $5 million of quarter Mark.

Okay. That's really helpful. I appreciate the time this morning guys. Thank you.

Thanks for thanks.

We do have a question from Bruce Chan with Stifel. Please go ahead.

Hey, Tim Jude Steve.

Great result, this quarter and congratulations.

Just want to start off with the follow up on the intermodal side I understand some of the drivers of the volume declines there, but maybe you can help us to understand why we are encountering a little bit of that revenue per load pressure.

The basic level it would seem like in a market like this where the capacity is so tight.

You'd be able to make a little bit more traction there. So just curious what's kind of driving the yield pressure.

That's the great question, Bruce and we haven't of logarithm on the board right now to try to explain it because because of the normal human that looks at it kind of scratching their head.

But what we've evaluated what has happened is when we entered Q Q1 of 2020.

We were fully Onboarding. The most recent acquisition of bad time, which was Roadrunner, which had a longer length of haul and some very unprofitable business. We made some tough business decisions that took some regional type work and cut it back into okay. Now we're going to go out and explore more of the local network that we're we're so fond of.

So I would say our length of haul from Q1 2020 for Q2 2020 of Q1 2021 was reduced by about 29%.

And the actual revenue if you look at the stats the actual revenue per mile went up about 5%. So then you say to yourself well that should mean that your load count also went up because youre doing a shorter length of haul you should have better optimization of the asset and I would say, yes, then I go back in and start looking at the congestion.

Factor and then our turn time and the turn times per truck didn't reflect the shorten the length of haul. So there is where you get into if we had more trucks. We could of we could have experienced better numbers, but we also on top of that when we merged everything and through some of the COVID-19 fallout.

Less trucks.

The 11 or 12% less trucks in the marketplace to handle those shorter loads and of congested back the fashion. So I think what youre going to start to see is that as we as we build to better better normalcy on turn times I hope that youll start to see.

The revenue per load will start it will start to go up.

Now once again, we continued our average length of haul is pretty short Thunder of Hunter Center of Hunter of 100 miles. So that's the major factor with it just kind of a re look at what our freight was the type of haul the length of haul of what.

Okay got it so long story short this is mostly down to post road runner of mix changes.

Intermingled with some of what's going on of the congestion side.

Yeah, well, let me go one step further yes. It is it is it does have to do with the the mixture from road runner and then when we went back and evaluated what business works best for Universal It's more of a local business. So we know we start bidding on more.

Of the business. It's under 75 miles now you have a length of haul of that could be a short of a 10 mile youre going from ports of D. C. The 50 miles. So we had a lot of those types of bids that we were extremely successful in onboarding now its just when congestion influenced the influence he picks up.

Should see the benefits of those local news, we should see the turn time the term.

<unk> per truck increased.

Which should benefit the organization for the long run.

Got it so just putting this together with some of your other comments around the flow of goods into the country.

Next quarter or I suppose this quarter Q2, we're likely to see continued pressure there, but maybe towards the back half we start to see some sort.

Some inflection.

Yes, there'll be some continued pressure on the flow of goods, especially I mean, you guys read much more than I, probably do and the demand is not letting up. So there is going to be continued congestion issues that revolve around the fluid fees at the ports around the number of assets there are to pick up.

Those loads and then.

We didn't bring the customer up and this whole conversation, but they're not fully back the full speed in their D. C. So what used to be low debt would be potentially drop at a large D. C for a day or two now is extending for four days or so and it could create a bottleneck because now we need the chassis to go back.

Into the facility to pick up the next load and it's not emptied out yet and there's only so many chassis and many of these major metropolitan markets.

Got it okay.

That's great color.

And then just moving over to the contract logistics side for a moment.

Good to see the continued wins in that business. Just wondering if you could give us a little bit more color on where those wins are coming in as the existing customers or new customers are we within the same auto vertical or are we starting to see some progress in new verticals.

Yes, we are we are starting to see some progress into some new verticals that not all of them are purely new some of them the Libya and the industrial type space that we play in now but it is with customers that we've not done business with before so pretty excited about that because I think our footprint in the autos and our.

City approach and accuracy of approach has really sold well in other spaces.

As you know the contract logistics space is not of short term sales. So we got a lot of these things that were in front of customers now showing them. What we can do in other verticals. Besides the auto. It's finally, starting to show some positive with some wins in the first quarter and some things that we have that are still.

Under hat that we hope we can talk positively about and the next time, we get together. So there's good things happening and we're also seeing some real interest in the electric space because we're already we're already involved in it in a couple of locations.

And we're gaining of rapid knowledge and being able to really sell well for the customer on the services that we can perform for them. So we're pretty excited about that as well.

Okay. That's terrific and then just last one here in terms of.

The the mixed profile of margin profile of these new contract wins or are they fairly similar in terms of again margin and length.

Some of your of CT legacy business.

Yes, absolutely Bruce Us historical margins and in the range of three to five year contract.

Got it awesome.

Okay, and maybe I can just sneak in one very last one here. It was really good to see the agent wins coming in I'm wondering in terms of feedback what you are hearing as far as what's driving that is that.

The need from these independent guys to access capacity is it something else that's changing fundamentally with the business that's increasing debt.

That agent win rate.

Oh the agent you broke up in the middle of your remarks, there of your conversation and you were talking about the agent base.

Yes, exactly just good to see those wins is there something.

In particular, that's driving those.

Those inflows.

Those guys needing capacity or something else.

Well I think they I think they need it they need of good home that has supportive.

The management as well as some of the dynamics on insurance and some of the other things that you have to carry when you run your own small trucking company. Just continue those prices continue to escalate they see a well run organization with the back office taken care of and it's a good place the call home and I would say this we have.

Put forth a very detailed effort to go out there in the marketplace and recruit in the heavy fashion. So we're always looking at new opportunities and let's be Frank the opportunities. We look at we look at a lot of the pipeline space, but we're going to be Frank with the agent base, and where theyre going to be Frank with US we want it to be.

The fit for them as they come aboard so the pipeline remains full on that side, we will remain diligent in how we approach closing on new agents we've added.

Some of some business development personnel over the year and we continue we continue to see good success with that so I think as long as the the market remains hot I think that we will continue to see a lot of opportunity out there to close on new agents and bring them into the company.

Awesome.

Great results and thanks for the time of as always.

Hey, thanks for it.

And once again, ladies and gentlemen, if you would like to ask a question. Please press star one again Thats star one for any questions well pause for just a moment.

Okay.

Okay and at this time I am showing no further responses.

Yeah.

Okay.

And at this time I am showing no further questions.

Super well I appreciate the questions for today, thanks for dialing into the call and we look forward to talking to you next quarter. Thank you.

Ladies and gentlemen, thank you for participating in today's conference you may now disconnect.

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Hello, and welcome to the Universal Logistics Holdings first quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. 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.

On the best view of the business has seen to date.

<unk> that are forward looking relate to universal 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 of this conference is being recorded it is now my pleasure to introduce your host.

Mr. Tim Phillips, Chief Executive Officer, Mr. Zhu Barris, Chief Financial Officer, and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you. Mr. Phillips you may begin sir.

Good morning, and thank you for joining Universal Logistics Holdings first quarter earnings call I want to start off by congratulating the dedicated professionals of the team Universal who together made this quarter such a success we develop the strategic plan that would be both the versatile for the ever changing logistics environment and.

Aggressive enough to achieve the results of our shareholders expect.

Now for the quarter.

In Yesterdays earnings release, Universal reported first quarter earnings of <unk> 80 per share on operating revenue of $415 2 million, beating estimates on both top and bottom line first quarter operating results represented not only Universal's best topline revenue operating income and earnings per share.

For the first quarter. They are the highest results ever reported this is the direct reflection on the strategic focus and corresponding roadmap. The has been developed by all of our operating segments I am extremely encouraged by the additional opportunity we have to further drive efficiencies and operational excellence the year.

Year over year top line revenue increased increase can be attributed to growth in four of the five service lines.

Dedicated services led the way of growing over 50% on a year over year basis.

Brokerage and value added services also experienced double digit growth, increasing 12, 8% and 12% respectively.

Impaired to the same period last year.

Strong pricing also led to growth in our truckload services, where we were experienced modest gains in the first quarter of 2021.

Continued strong demand for light duty vehicles kept our contract logistics group busy in Q1, even though chip and parts shortages began to show impact at the tail end of the quarter during the quarter weather played a larger role than parts shortages with several of our large plant third being down a couple of days.

Up to a week.

We expect these disruptions to be temporary as the production forecast for auto has remained strong for the full year 2021.

Okay.

Although obtaining qualified drivers and contractors remain extremely competitive I'm pleased to report our trucking segment was able to sequentially grow its driver base. The agent group. The agent base Division of Truckload group was successful Onboarding of 14 new agents.

Increased increased driver count paired with continued inventory replacement helped increase the group's top line revenue.

Steel metals industrial goods and energy low level remained below Q1, 2020 levels, but indications for the back half of the year remain robust.

Exiting the quarter, we remain very confident in the runway for growth propelled by new business wins, and a favorable rate environment fueled by tight inventories.

Our company brokerage operation remained in positive territory for the quarter, but experienced tight capacity and unfavorable weather in the back half of February.

Gross margins for the quarter finished in the high single digit, but trended favorably for the last part of the quarter.

Revenue was up 15, 8% year over year, the number of loads being handled decreased by 28%.

The increase in revenue was driven by higher spot market rates and better contract pricing currently 70% of our freight is running under new rates.

For intermodal drayage record import volumes, coupled with terminal congestion further deteriorated operational flow in turn times that many of the intermodal facilities around the country.

We also experienced additional street time for loads and empties its customers in intermodal facilities struggled with the volumes.

Our revenue per load move saw a modest movement downward while we saw increases in spot market or contract rates were slower to follow suit.

As we look ahead, we continue to remain bullish on the remainder of 2021.

We expect to navigate the near term issues with supply chain disruption.

And rail congestion and what we hope to be the final stages of COVID-19.

Although the chip and parts shortages will have some effect on topline revenue in Q2, we believe the backlog and demand sets up for a very robust second half of 2021.

As mentioned before I am still extremely optimistic on our ability to operationally execute and deliver the numbers within our forecasted range.

We continue to evaluate the quality opportunities in our contract logistics network and using our experience technology and velocity expertise to it.

Actively branch out into alternative spaces in existing vertical as well as focusing on new verticals, our presence and knowledge continued to grow in the electric vehicle space with current launches.

Recent wins.

And interest in new projects, we remain committed to grow the contract logistics segment.

Flex a greater percentage of overall top line revenue.

We remain extremely optimistic on our core customer base and our ability to execute in the market that appears to have a long runway of customer demand.

Light vehicle inventories of dealerships have recently dip below 40 days and indicating forecast the Saar will be move above $15 $5 million originally predicted this year.

We are fortunate to support many locations that produced the vehicles in high demand.

The demand for class eight trucks has also taken off since the beginning of the year. Although there has been production disruption because of the parts.

All indicators point to robust second half of 2021.

Our bullish outlook on drayage franchise remains strong even though we experienced some headwinds in the first quarter.

Indications are that the backlog and shifted anchor will correct itself by the end of Q2, allowing greater fluidity, and reducing turn times by our drivers and contractors. The Drayage group is also seeing rates increasing as we begin Q2.

Net of churn time higher rates will allow us to attract and offer greater earning opportunities for our driver and contractor base, while leveraging scale for additional margin.

Our truckload segment is continuing to see metals and industrial rates increase with volume starting to step back towards pre COVID-19 levels on the open debt side for.

Food beverage and consumer goods should remain extremely strong and allow for considerable growth and opportunity.

We continue to work to better optimize our company assets and strategic kutner customer partnerships and new pricing in a local and regional model.

We will continue to see headwinds with the supply of qualified drivers and contractors as we navigate the remainder of the year.

With our company managed brokerage we believe we will continue to see tight capacity into the near future, which makes our third party of carrier relationship the continued focus.

We have worked hard to reprice, our contractual business and we'll continue our efforts to strike a balance between spot market and contractual business.

<unk> and our customer partnerships.

Nowhere in the landscape more nowhere is the landscape more competitive than recruiting qualified truck drivers the.

The need for additional drivers as common theme in the industry.

As has been widely reported the pool of qualified drivers has been disrupted by coronavirus the drug clearinghouse extended unemployment benefits and limited driver school graduates the headwind from which we expect to persist for the persist for the remainder of the year.

The capacity, we have structured a solid recruiting and retention strategy that include increases to our driver wages and contractor payer onboarding new trucks for the company fleet and creating quality of life options to address the needs of the ever changing workforce.

Our efforts are paying off in the first quarter of 2021.

We were able to add over 500 drivers and contractors to our fleet.

In the first quarter of 2021, Universal was able to onboard just shy of 2000 associates across all of our operations.

And customer satisfaction.

<unk> two of Meyer of inspect the team's ability to work through disruption Universal is truly a people driven company.

Thank you for your continued efforts now.

<unk> per share on total operating revenues of $382 2 million in the first quarter of 2020.

One, 5% and 12, 3% of total operating revenues these metrics compare to six 3% and 10, 4% respectively in the first quarter of last year.

Looking at our segment performance for the first quarter of 2021, and our contract logistics segment, which includes our value add and dedicated transportation businesses income from operations increased $5 1 million to $16 8 million on $154 million of total operating revenues. This compares to operating income of $11 seven.

Mm $127 million of total operating revenue for the first quarter of 2020 operating margins for the quarter were 10, 9% versus nine 2% last year.

For the quarter were flat year over year at eight 2%.

In our trucking segment, which includes both our agent base and company managed trucking operations operating revenues for the quarter increased three 6% to $94 9 million compared to $91 6 million in the same quarter last year, while income from operations increased 15, 4% to $5 2 million. This compares to <unk>.

Operating income of $4 5 million in the first quarter 2020 included in the current quarter are $1 4 million of legal related charges. Excluding these charges our trucking segment would've operated nearly at 7% for the quarter.

And our company managed brokerage segment operating revenues for the quarter Rose 15, 8% to $61 1 million compared to $52 8 million in the same quarter last year, while income from operations also increased $1 8 million to $400. This compares to an operating loss of $1 4 million in the first quarter of last year opera.

The markets for the quarter were seven tenths of 1% versus the negative two 6% last year.

On our balance sheet, we held cash and cash equivalents totaling $10 8 million and $7 5 million of marketable securities outstanding debt net of $1 5 million of debt issuance cost totaled $429 million at the end of the period.

Interest expense for the year is expected to come in between 14 and $16 million.

These headwinds are currently negatively impacting our top line revenues at a rate of approximately 1 million per week.

Model operating margin should remain in the 7% to 8% range for the quarter.

<unk> of course will be the largest influence of our influencer on achieving those targets given the robust auto production forecast for the full year. We believe any temporary loss of production units will likely be made up within that year within the year for that reason, we are reaffirming our full year revenue guide of total operating revenues between $1 six of one 7 billion.

And operating margins in the 7% to 9% range.

Finally, our board of directors declared Universal's 10, five cents per share of regular quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on June seven 2021, and is expected to be paid on July six for 2021 with that we're ready to take some questions.

At this time I would like to remind everyone that if he would like to ask the question you May press star and the number one on your telephone keypad now again, ladies and gentlemen that star one for any questions well pause for just a moment to compile the Q&A roster.

And the first question will come from Chris Wetherbee with Citi. Please go ahead.

Hey, Thanks, and good morning, guys.

Yes.

Very helpful.

I think of the detail in terms of how you are being impacted by price some of your customers' facilities I guess.

Maybe if I could take the hit the skip.

Further and maybe understand.

Practically how you sort of see the recovery of kind of playing out I think youre, saying, maybe mid <unk> you could maybe see some of the the shortages begin to Reaccelerate here and keep you get back to the sort of normalized production levels.

When you think of the steps that need to happen I guess, we've been a little bit surprised at the.

The length of the potential disruption that you've seen so far so what are the positive indicators for you guys are looking at debt that can give you confidence the big were to come out of the thing at some point during the <unk> and maybe not.

Further into the back half of the year.

Only really half of insight until the middle of May so.

For the current schedules that we have basically tell us what plants are going to be open which plants are going to be closed and when theyre expected recovery times is so we're expecting that to be mid quarter and thats really the only insight that we have I can tell you, though over the past couple of weeks those numbers have been so fluid that they changed multiple.

<unk> in a day. So once again, we're just kind of reacting to what we're hearing from the Oems, but at least we have that insight through the next few weeks.

And Chris the okay. Okay I'll.

<unk> production, so we're happy to be in the spaces that we are right now.

Yes, certainly it seems like there's no end in demand the demand at the current moment. So that makes a lot of that that's helpful. I appreciate that.

Maybe turning to the the truckload side understanding sort of what the opportunity here is for rate, obviously, you're right. It has been.

Significantly higher spot rates, obviously, the up quite a bit what are you seeing sort of of the potential for realization of maybe if you want to talk about it in average revenue per tractor terms or if you just want to talk about it which obviously includes some degree of productivity or do you want to talk about just the kind of pure rate dynamic what is your outlook for sort of the next several quarters of this year.

Yes. This is Tim I think our outlook on rates is very good I think that you have to break it down into some of the segments and as you said the truckload segment, we've been in we've been experiencing rate increases anywhere from 8% to 15%.

And the spot market, even higher on that depending on where it's going and what needs to be moving we see that that type of rate environment of lease expanding out of.

Q2, Q3, and then we will re analyze where everything is but there's nothing that I'm seeing from the customers were that we're reading that says that this demand less up or that inventories of will be replenished in the timely fashion or the supply chain congestion from international standpoint.

The itself right away. So we're pretty confident that we'll see continued rate increases were also equally confident that.

Then on the company asset side, we kind of blew the terminal network up and redefined it in our local and.

The regional standpoint for the company assets. So our goal of the areas. We know the rate environment is favorable now it's our time to optimize the trucks and make sure that we're executing on an operational level. So that'll be the focus for the company trucks the continue to layer in.

And optimize those so we can see the full potential of revenue per truck per week.

Okay. Okay makes sense I appreciate that.

Intermodal.

How do you how are you guys thinking about sort of the congestion that's out there on the rail network.

Service, where it stands and how do you think sort of the ability to look at the low dynamics kind of play out obviously youre facing tough comps in the first quarter, and obviously weather and other factors with disruption.

The comps get easier.

But you do of high hurdles, even in the back half of the year in terms of growth from last year. So how do you think about sort of absolute loads on the intermodal side potentially ramping up from here or is it sort of the cleaner raw now that the the weather is broken and maybe there is some improvement on the margin on the rail side or how do you think about it.

Well I think I think the rubber on the road and I mean from the time, we pick it up to get at the customer.

Yes, we're getting into much better season, I don't see weather disruptions I still see.

Our supply chain disruption when it comes to the.

Ships at anchor and or now seeing some of the flow of the freight that's coming and hit the inland markets, whether its Chicago Memphis some of those other inland markets, where now we have internal congestion that's starting to build and what I'd mentioned earlier in the prepared remarks is what we're seeing of St.

Time, starting to increase so that asset now that chassis that is so valuable in those markets is now sitting on the streets and extra day or two which further compounded the problem. What we've done from a company standpoint, we've been very aggressive on adding assets our own assets into the rotation as we as we put them on.

We're putting them into those major markets.

To help liquidity it does not solve the complete problem that makes us a nice option for customers that have hot sensitive loads.

To utilize our equipment. So I expect I expect some of the <unk>.

<unk> two not totally alleviate itself, but the start to get better as we exit.

In intermodal and some of that was due to COVID-19 of course, but a bigger thing could be said for that as we work together the law.

Okay.

That's fantastic and if you'll indulge me with one more I just wanted to kind of touch on those startups that you have I think you could the ramp up by two fully ramped by <unk> of next year I believe can you just keep many of you put a little bit of a message around the potential size of the these opportunities. What do you think that might be either from a revenue perspective of a profit perspective or a volume perspective. However, you want to think about it.

Yes, you were talking about the awards of that I've mentioned in my prepared remarks.

That's right, yes, yes, so we expect we expect that to start to implement.

In Q2 of this year I believe that we will layer in now what we're looking at it is we've had quite a few of awards that have been.

<unk>.

On the transportation and the value added side, but we expect that to layer in that $20 million to be full run rate by next year I would just take it in kind of equal allotment for the first quarter of two the Q2 of 2021 will be of startup, but then it should be close to run rate by Q3.

Q4.

The 5 million of quarter Mark.

Okay. That's really helpful. I appreciate the time this morning guys. Thank you.

Thanks for thanks.

We do have a question from Bruce Chan with Stifel. Please go ahead.

Hey, Tim Steve.

Great result, this quarter and congratulations.

Just want to start off with the follow up on the intermodal side I understand some of the drivers of the volume declines there, but maybe you can help us understand why we're encountering a little bit of that the revenue per load pressure.

The basic level it would seem like in a market like this where the capacity is so tight.

You'd be able to make a little bit more traction there. So just curious what's kind of driving the yield pressure.

Yes, that's a great question, Bruce and we have of logarithm on the board right now to try to explain it because because of the normal human that looks at it kind of scratching their head.

But what we've evaluated what has happened is when we entered Q Q1 of 2020, we were fully onboarding. The most recent acquisition of bad time, which was Roadrunner, which had a longer length of haul and some very unprofitable business. We made some tough business decisions that took some regional.

Type work and cut it back into Okay. Now, we're going to go out and explore more of the local network that we're we're so fond of so I would say our length of haul from Q1 2020 to Q2 2020 of Q1 2021 was reduced by about 29%.

And the actual revenue if you look at the stats the actual revenue per mile went up about 25%. So then you say to yourself well that should mean that your load count also went up because youre doing the shorter length of haul you should have better optimization of the asset and I would say, yes, then I go back in and start looking at the congestion.

Less trucks about 11%, 12% less trucks in the marketplace to handle those shorter loads and of congested. The fact, the fashion. So I think what youre going to start to see is that as we as we build to better better normalcy on turn times I hope that youll start to see.

The revenue per load will start it will start to go up now once again, we continue our average length of haul is pretty short it's under 110 of our Hunter 100 miles. So that's the major factor with the just kind of.

Re look at what our freight was the type of call the length of haul of what.

Okay got it so long story short this is mostly down to post road runner of mix changes.

Intermingled with some of what's going on of the congestion side.

Yes, well, let me go one step further yes. It is it is it does have to do with the mixture from road runner and then when we went back and evaluated what business works best for Universal It's more of a local business. So we know we start bidding on more.

<unk> of the business that is under 75 miles now you have the length of haul that could be as short as 10 mile Youre going from port the DC to 50 miles. So we had a lot of those types of bids that we were extremely successful in onboarding now its just when congestion and fluency influence the picks up.

Should see the benefits of those local news, we should see the turn times the <unk>.

<unk> per truck increased.

Which should benefit the organization of the longer.

Got it so just putting this together with some of your other comments around the <unk>.

Low of goods into the country.

Next quarter or I suppose this quarter Q2, we're likely to see continued pressure there, but maybe towards the back half we start to see some.

Some inflection.

Yes, there'll be some continued pressure on the flow of goods, especially.

You guys read much more than I, probably do and the demand is not letting up. So there is going to be continued congestion issues. The revolve around the fluid fees at the ports around the number of assets there are to pick up those low and then.

We didn't bring the customer up and this whole conversation, but they're not fully back the full speed of their D. C. So what used to be low debt would be potentially drop at a large DC for a day or two now is extending for four days or so and it's just creating a bottleneck because now we need the chassis to go back.

Back into the facility to pick up the next load and it's not emptied out yet and there is only so many chassis and many of these major metropolitan markets.

Got it okay.

That's great color.

And then just moving over to the contract logistics side for a moment good to see the continued wins in that business. Just wondering if you can give us a little bit more color on where those wins are coming in is that existing customers or new customers are we within the same auto vertical or are we starting to see some progress in new verticals.

Yes, we are we are.

We're starting to see some progress into some new verticals that not all of them are purely new some of them of Libya and the industrial type of space that we play of now but it is with customers that we've not done business with before so pretty excited about that because I think our footprint in the autos and our velocity approach.

<unk> and accuracy of protest has really sold well in other spaces.

As you know the contract logistics space is not of short term sales. So we got a lot of these things that were in front of customers now showing them. What we can do in other verticals. Besides the auto is finally, starting to show some positive with some wins in the first quarter and some things that we have that are still.

Under hat that we hope we can talk positively about in the next time, we get together. So there's good things happening and we're also seeing some real interest in the electric space because we're already we're already involved in it.

The location and we're gaining of rapid knowledge and being able to really sell well for the customer on the services that we can perform for them. So we're pretty excited about that as well.

That's terrific and then just last one here in terms of the.

The mixed profile of margin profile of these new contract wins are they fairly similar in terms of again margin and lengths as some of your core legacy business.

Yes, absolutely Bruce Us historical margins and in the range of three to five year contract.

Got it awesome.

Okay, and maybe I can just sneak in one very last one here and it was really good to see the agent wins coming in I'm wondering in terms of feedback what youre hearing as far as what's driving that is that.

The need from these independent guys to access capacity is it something else thats changing fundamentally with the business that's increasing debt.

That agent win rate.

All of the agent you broke up in the Middle your remarks, there your conversation and you were talking about the agent base.

Yes, exactly just good to see those wins is there something.

In particular, that's driving those.

Those inflows is that those guys needing capacity or something else.

Yeah, well I think they I think they need it they need of good home that has supportive.

The management as well as some of the dynamics on insurance and some of the other things that you have to carry when you run your own small trucking company. Just continue those prices continue to escalate the ACO well run organization with the back office, taking care of and it's a good place the call home and I would say this we have put.

For a very detailed effort to go out there in the marketplace and recruit in the heavy fashion. So we're always looking at new opportunities and let's be Frank the opportunities. We look at we look at it of what the pipeline is big but we're going to be Frank with the agent base, and where theyre going to be Frank with us we want it to be of <unk>.

For them as they come aboard so of the pipeline remains full on that side, we will remain diligent in how we approach closing on new agents we've added.

Some business development personnel over the year and we continue we continue to see good success with that so I think as long as the market remains hot I think that we will continue to see a lot of opportunity out there to close on new agents and bring them into the company.

Awesome.

Again, great results and thanks for the time as always.

Thank you for it.

And once again, ladies and gentlemen, if you would like to ask a question. Please press star one again Thats star one for any questions well pause for just a moment.

Okay.

Okay and at this time I am showing no further responses.

Yeah.

Okay.

And at this time Im showing no further questions.

Super well I appreciate the questions today, thanks for dialing into the call and we look forward to talking to you next quarter. Thank you.

Ladies and gentlemen, thank you for participating in today's conference you may now disconnect.

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