Q1 2022 Universal Logistics Holdings Inc Earnings Call
Hello, and welcome to the Universal Logistics Holdings first quarter 2022 earnings conference call.
This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
I would now like behind the conference over to your Speaker for today, Mr. Tim Phillips Universal Chief Executive Officer. Please go ahead Sir.
Thank you Eric Good morning, and thank you for joining Universal Logistics Holdings first quarter earnings call before we jump into the details.
Wanted to take a moment to recognize Universal's over 12000 associates, who worked so hard to get us to where we are today.
We have believed for quite some time the earnings power of Universal was much greater than reflected in past results and it has been a herculean effort of these incredible team members, who have gotten us to this point.
While universal continues to experience headwinds associated with the supply chain disruptions automotive production and talent acquisition I remain impressed with our employees continued ability to adapt <unk>.
Riding an elevated level of service to our valued customer base.
You are beginning to see the next level of execution that will expand our service levels and provide value to our customers and shareholders alike.
Make no mistake.
The new team members to address the demands of new and existing project remains a challenge we will focus on evaluating the expectations of our employee base and continue to shape the company to be an employer of choice in logistics and transportation.
As we will outline in our remarks performance in the first quarter of 2022 with just a glimpse of universal hitting its stride with newly shaped contractual rates and a high level of execution.
Now for the quarter.
In yesterday's release Universal reported first curdle earnings of $1 56 per share on total operating revenues of $523 9 million.
Our reported first quarter performance reflects not only record results for the first quarter, they represent Universal's highest quarterly revenues.
Operating margin and earnings per share in our company's history.
While first quarter was a financial win for our company. It has also brought into light the hard work and success of <unk>.
Onboarding and positioning talent to expand oversight and increased efficiencies I firmly believe yesterday's release reflect universal's capabilities. When we operate in a somewhat stable productive environment and.
And we are paid fair rate to deliver quality services.
Now for some color some color on each of our service lines and contract logistics segment, we continue to chase consistent production cadence at the auto plants that we serve while there has been some minor disruption in early Q2, mainly driven by available supply of parts are continued training and talent acquisition leads.
Is well positioned to take advantage of any production uptick I.
I believe our recent rate increases will allow us to continue to onboard talented employees provide a newer fleet of material handling and transportation equipment.
All indications show continued demand for autos light utilities and class eight trucks universal is well positioned to capitalize on this demand supporting customer plants that produce the most sought after trucks and Suvs in North America.
Continued cost rationalization and our variable cost model have allowed us to hit many of our financial targets with a relatively low star and some inconsistency than production.
The past few quarters. We have also we have also been discussing the production issues at large automotive plant in Detroit, Michigan, and the losses associated with it.
Although it's still not hitting our performance targets, we have recently seen progress and working through some of the production shortfall and wage inflation issues with our customer and expect to receive a price increase sometime in the second quarter.
While we will continue to rationalize our relationship I believe the teamwork and customer recognition of increased wages and operating costs will align favorably for our contract logistics group moving forward.
While locating in Onboarding talent continues to be a challenge in this space.
Continue to work hard at training and shaping our workforce to take advantage of current and future opportunities.
We were delighted to have a successful launch of a previously mentioned shuttle operate operation of 150, plus drivers for an automotive customer in March and expect the opportunity to reach full run rate of $2 $5 million a month in April .
Demand for our customer centric contract logistics product remains strong our pipeline remains full of opportunity and we will continue to rationalize each opportunity to make sure just to fit not only for the customer, but it sound financial decision for U L. H.
While our intermodal Drayage group continued to navigate a lesson fluid important rail network. The fruits of many months of collaborative customer discussions is visible in our first quarter rate levels. We are confident that these new rate levels will help us recruit and retain the very sought after drivers and owner operators.
We continue to see heightened has the soil charges such as the merge storage and per diem, which totaled $36 2 million in the first quarter of 2022.
While there is some concern about the lockdowns in China, and how it affects the flow of goods over the next several months.
The influence we have been hearing from our customers has been reduced reassuring for a solid second half of 2022.
Even while published spot rates have softened our contract customers have remained committed to holding capacity by maintaining not only our rate, but also various congestion fee.
In addition to solid rate increases are there internal evaluations of operational efficiencies and rationalization of length of haul led to a 52% year over year revenue increase and 11, 6% improvement sequentially.
Our overall load count remained somewhat constrained because it turn time, which were the lowest in our history. We also experienced reduced number of contractors and we did stretch our legs by increasing length of haul and markets afflicted by low turn times in order to keep our trucks loaded.
We were extremely pleased with our 51, 2% increase in revenue per load in the first quarter.
And I am cautiously optimistic about recent trends in our contractor and driver recruiting pipeline.
This truckload spot market normalizes I believe the cadence of owner operators migrating back towards our best in class intermodal business platform will accelerate.
In our trucking segment youre going to see some noise and load counts over the next few quarters. We took a hard look at some of our underperforming trucking operations and redeploy these assets into our better performing ones.
In our agent based business, we continue to see the entrepreneurial spirit of our agent Shine. The group has continued to capitalize on strong pricing of premium flatbed specialized and van freight overall revenue remained elevated and was up two 7%, which was a 41, 4% increase in revenue per load.
However, as I mentioned low counts were down due to moving asset drivers and contractors into our dedicated and intermodal operation to bolster capacity and capitalize on a better margin profile.
Although the spot market has softened our contractual van flatbed and wind business remained steady to strong we believe our profile within the truckload market will remain steady over the near term and favorable for the second half of 2022.
As mentioned, we see our opportunities in the flatbed and wind sector remaining stable and was 63% of our capacity pulling a flatbed, we like our positioning in the market.
Although owner operator capacity remains tight we think there will be opportunity to capture owners, who may have transition to their own authority and maybe getting nervous about the softening spot market. We are equally as optimistic about transitioning opportunities up small trucking companies into our turn key agent model. We were very pleased with our new age.
<unk> partnerships in the first quarter and I am extremely excited about the agent transition opportunities that are currently in the pipeline and the positive prospecting opportunities developing in the second quarter.
Our company managed brokerage operations saw margin opportunity to accelerate in the latter part of Q1, we took a careful look at our rate profile during contract renewal and collaborated with our customers to establish pricing that would cover the freight on a consistent basis.
Operating revenue per load increased 25, 3% in $2176 per load.
Although the number of loads hauled was down 25, 2%, we remain pleased with our pricing discipline and capacity utilization and a broker market that softened the latter part of the quarter, which led to our best quarter in the history of offering for operating income.
We remain focused on continuing to diversify the portfolio of blue chip customers, while keeping an eye on the skull responsibility.
While we faced some headwinds concerning labor equipment supply chain and auto production cadence, we remain on point to evaluate market swings.
<unk> solutions and expand our footprint, we are closely watching indicators of potential market slowed down but remain optimistic of the continued path of heightened profitability driven by strong customer relationships and operational execution.
Finally, the whole Universal team has worked very hard onboarding and training. The many new associates that will help us expand our business both in new and existing locations.
We will continue to focus on elevating the expectation of our associates and customers to provide the next level of service while Q1 results yielded the best performance in the history of our company.
I am extremely optimistic that we will continue to find execution opportunities that will add value and create additional momentum.
I would now like to turn the call over to Judy Judy. Thanks, Tim Good morning, everyone. Universal Logistics Holdings reported consolidated net income of $42 million or $1 56 per share on total operating revenues of $523 9 million. This compares to net income of $21 7 million or <unk> 80 per share on total <unk>.
Operating revenues of $415 2 million in the first quarter of 2021 consolidated income from operations was $57 8 million for the quarter compared to $31 2 million one year earlier EBITDA increased to $23 8 million to $75 million, which compares to $51 2 million during <unk>.
The same period last year, our operating margin and EBITDA margin for the first quarter of 2022, or 11% and 14, 3% of total operating revenues. These metrics compare to seven 5% and 12, 3% respectively in the first quarter of 2021.
Looking at our segment performance for the first quarter of 2022, and our contract logistics segment, which includes our value add and dedicated transportation businesses income from operations increased $6 7 million to $23 5 million on $201 6 million of total operating revenues. This compares to operating income of <unk> 16.
$8 million on $154 9 million of total operating revenue in the first quarter of 2021 operating margins for the quarter were 11, 6% versus 10, 9% last year as Tim mentioned in his comments, we are still experiencing some headwinds at our Detroit based contract logistics business that we launched last year, but our realm.
Tivoli stable auto production environment was favorable with a favorable contributor to our contract logistics results.
In our intermodal segment operating revenues increased $53 9 million to $157 6 million compared to $103 7 million in the same period last year and income from operations increased $14 5 million to 23 million. This compares to operating income of $8 5 million in the first quarter of 2021.
Operating margins for the quarter were 14, 6% versus eight 2% last year, a large contributor to this segment's strong performance was our ability to charge market rates on chassis usage as well as accessorial services customary in this business.
In our trucking segment operating revenues for the quarter increased two 7% to $97 5 million compared to $94 9 million in the same quarter last year, while income from operations increased $2 2 million to $7 4 million. This compares to operating income of $5 2 million in the first quarter of 2021 operating.
For the quarter were seven 6% versus five 5% last year.
And our company managed the brokerage segment operating revenues for the quarter increased $4 1 million to $65 2 million compared to $61 1 million in the same quarter last year, while income from operations increased $3 4 million to $3 9 million. This compares to operating income of 400000 in the first quarter of 2021.
Operating margins for the quarter were five 9% versus seven tenths of 1% last year favorable contract rates with our customers propelled our company managed brokerage to report their best operating results ever.
On our balance sheet, we held cash and cash equivalents totaling $14 9 million and $9 million of marketable securities outstanding interest bearing debt net of $1 million of debt issuance cost totaled $401 7 million at the end of the period.
Excluding lease liabilities related to ASC 842, our net interest bearing debt to reported trailing 12 month EBITDA was 199 times.
Capital expenditures for the quarter totaled $6 million for the full year of 2022, we are expecting capital expenditures to be in the $90 million to $110 million range with interest expense between 15 and $18 million.
Based on the current operating environment for the second quarter of 2022, we are expecting top line revenues between 525 and $550 million and operating margins in the 8% to 10% range for the full year of 2022, we are updating our guidance. We now expect a total operating revenues to come in between $1 nine.
And $2 1 billion with operating margins in the 8% to 10% range as well.
As mentioned in the release through the end of the first quarter Universal acquired 257261 shares of its common stock out of 1 million shares authorized we acquire these shares at a average price of $20 42 per share.
And finally on Wednesday, our board of directors declared Universal's $10.05 per share regular quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on June six 2022 and is expected to be paid on July 5th 2022 with.
With that Erica, we're ready to take some questions.
Yeah.
Thank you at this time the floor is now open for questions again, if you would like to ask a question. Please press star one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Chris Wetherbee from Citi. Your line is open. Please go ahead.
Hey, Thanks. Good morning, guys. This is Ely winski on for Chris.
Broad I'm just curious about what your outlook is for overall demand in 2020 threes you have many moving parts here and you're in your business segments, but just curious as to your take in the out year there.
Well I think I can give you a high level view is you listen and listen this is no different than what you hear on the news is very very hard to predict that far out in the future. The one thing we were comfortable with because of the heavy lifting we've done over the last six months.
Is that we really locked down a lot of our major contracts that will run over the next two to three years, allowing us to have some pricing security with some of the major operations that we are involved in I can't give you as clear a picture on some of the intermodal.
Landscape because there is a lot of uncertainty you know within the news right now.
But our customers on that side of it continues to give us a good read into the near future none of them have really.
Put anything on the table to talk about 2023, yet, but theres still youre still positive forecast in the second half of 2022.
Some of the guidance, we're giving we feel pretty comfortable but I would feel its pretty hard to <unk>.
<unk> 2023, yet the only thing I can tell you is we've had a favorable six months of some contract negotiations.
Sure that makes sense, and then maybe getting a little bit more specific here you mentioned that loads on the intermodal side.
Town because of some some business shifts that you guys did during the quarter and I'm sorry, if I missed this on the call here, but what are you seeing on the supply chain for intermodal containers, what should we expect the cadence to be for the rest of the year here.
Well.
We're a little cautious as everybody is understanding the China, Covid, lockdowns and how thats going to affect the next couple of months.
We haven't seen any drastic pullback in freight to this point with the customer base that we were doing business with we still see congestion on the east coast, a little bit more than there is on the west coast.
Our biggest our biggest.
I would say obstacle right now on some of the locations. It's just the equipment, both our trucks being able to turn X amount of loads per day, which I had mentioned that is down to the lowest level and then customers holding on.
Two the equipment at warehouses, which means we don't have a chassis to take back in and get that next import load and I think that youll see a of course, when China list lift the Covid Lockdown Youll see a rush of freight that's going to hit our way.
We're positioned well number one on the intermodal side, where all major ports around the United States that will be able to capture that whether they they take.
<unk> bound for the United States and push it through the west coast or try to evaluate maybe an east coast unloading we're positioned well I think we're positioned as well as we can be with our own chassis availability ability. The only Trump card is what's going to be available in the marketplace.
From an outside provider standpoint, and as our customers and warehouses have labor in the right frame that they can unload in an expeditious fashion.
Be able to push the freight through so I'm expecting I'm expecting.
I am cautious right in the next two months, but I expect the second half of the year on the intermodal drayage side to have some consistent volumes with the customer base that we're dealing with.
Sure got it.
One more from me and that's just on purchased transportation expense.
So normal seasonality it looks like it goes up more than <unk>, but how should we be thinking about PT here throughout.
<unk> in that throughout the rest of the year I guess.
Well I think.
<unk>.
Decimal point in dollar amount of a juice can probably speak a little more of that but I think let's just look at this let's let's level set and look at what we've done over the last year, we've taken and looked at all of our driver base around the country. We perform the market analysis, we've raised rates accordingly to make sure that we can attract the.
Drivers that we're looking for an equally so on the contractor side, we have <unk> elevated point to point rates or if it's a contractor at a percentage rate agreement he or she has experienced the new the new rates that we've been able to charge the customer so I feel pretty comfortable that from a purchase transportation standpoint.
What youre seeing now is what youre going to get.
Going forward into the second quarter and beyond.
Got it thanks, a lot guys I appreciate it thank you.
Your next question comes from the line of Bruce Chan from Stifel. Your line is open. Please go ahead.
Hey, good morning, gentlemen.
Get the questions as always.
I guess first.
Tim you spoke a lot about the benefits that youre seeing on the top line in terms of surcharges.
And then some of these assets soils I'm wondering if you can maybe speak to the resilience of those as we kind of move later into the year and move into next year.
Maybe when you think about the various segments where are you in terms of how much of the book is priced at current market levels and how long do you think they can stay that way.
Well, let's unpack intermodal because I think you would actually pose the question a couple of quarters ago about where we were from an acid soil charged to our customers. We rationalize that over the latter part of the year and yet maybe we were a little bit late to the dance on a few of them.
Really buckled down and I think what we've really done is take a look at it and I think they're fair at the soil charges for what's going on in the marketplace. We see the customer the customer has given us this read on the intermodal side. They havent pulled back on any rate and they continue to pay accessorial such as Congest.
<unk> fees, even more so on some of the.
I wouldn't say hot beach type situations, but when the equipment gets pent up at warehouse, we've even seen the appetite even court escalating accessorial charge to remunerate for that asset sitting so I think the customers are really cautious knowing the fact that we got a little bit of a lull now and we know that.
We have this big glut of break when China does open up that should probably push our way so I'm, saying that I am cautious we're going to we're going to be stable over the next couple of months, but I feel that these types of intermodal as the soil.
Hold going forward.
On the truckload and brokerage side, our rate levels with our contractual rate levels with our customers have held well the accessorial as our traditional accessorial, we've moved with the market and.
And I have heard no noise and I don't foresee in the foreseeable future those asset soils coming back down I think we're priced favorably and fair and I think the word from the customers. So far is they understand that there could be constraints the capacity and equipment. As this year progresses, we finished 22 of them.
Going into 2023.
Okay.
Great color and point taken on the China Covid Lockdowns, So maybe just.
It's a follow up on that point then.
<unk> for a glut did you call that or maybe a fruit embolism.
If I could switch it over to you when you think about the guidance for the rest of the year does that factor in any of that China, COVID-19 surge potential or where maybe the potential for more slowdowns related to the <unk> negotiations.
Yeah, I think a little bit of it I mean, if you just look at I mean first of all we just we just raised our guidance by $200 million for the year. So I think we're we're taking into account. The fact that not only is there still a robust rate environment out there for our.
Our service lines and also there is still some opportunity for price if that.
Great Mccadden or freight embolism as you as you just mentioned actually occur. So that's kind of reflected in the updated guidance, we're not really sure yet if the if this is going to be a permanent thing where we can we can execute above our target margins, which were in that 8% to 10% range, but obviously theres going to be some quarters that were going to be.
To exceed that based on the market conditions and of course based on if we can continue to attract and retain drivers to drive some additional volume into the business. So I think we took that into consideration, but obviously we provide.
Kind of a peak into the next quarter every quarter on these calls and so for our Q2 call. We'll definitely update that guidance again, if need be to reflect the conditions at that time.
Okay. That's great. That's really helpful. And then maybe just to finish off Tim.
Wondering if you can give us some some broad color on how the UNH model works in a more normal cyclical downturn because I think.
When investors look at the past couple of years, we saw some pretty unique maybe once in a generation type events unfold.
As far as facility Lockdowns in logistics for example.
But I would think that thats pretty atypical when it comes to business cycle changes. So maybe if you could just give us a sense in terms of how the business fares over a more normal.
Type of freight pullback.
Yes, I think that if you look at <unk> as a whole and the impact some of the different service lines. We know we have about 30% of our biggest price sensitivity and possibilities of swings in the brokerage in truckload group, although we haven't seen it now we know that there is some exposure there, but I go back to <unk>.
We started we still have 40% of our business is still through the contract logistics model, which is just what it says it's contracted long term rates with our customers and what we've done over the past two years.
Really leveraged our sales on the intermodal side to equally go after BCS the beneficial cargo owner, making sure that we're looking at high volume stable accounts that will go with market fluctuations or the economy.
That's one thing that I think that the.
The good and the bad of that we are focused on it. We also locked out maybe a little bit on the spot market on the intermodal side, because we have but we've done that intentionally to take into account regular business cycles. So we can perform at a consistent nature on the intermodal side.
Okay, great. Thanks for the color I appreciate the time.
Okay. Thanks, Bruce I appreciate it.
Again, I would like to remind everyone. If you would like to ask a question you May press star one on your telephone keypad.
So as there are no further questions at this time I would like to turn the call over back to Mr. Phillips for closing remarks.
Thank you Erika I appreciate everybody dialing in Super excited about where we just we just drove through and equally excited about what we're driving into and I look forward to another positive call for quarter two thank you and take care.
This concludes today's conference call. Thank you all for joining you may now disconnect.
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