Q2 2022 Universal Logistics Holdings Inc Earnings Call

July 29, 2022

Hello, and welcome to Universal Logistics Holdings second quarter 2022 guidance conference call.

At this time all participants are in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by <unk>.

A brief question and answer session will follow the formal presentation.

Hello, a course of this call management may make forward looking statements based on our best view of the business as seen today.

Statements that are forward looking relate to universal's business objectives or expectations.

Can be identified by the use of the words, such as believe expect anticipate and project.

Such statements are subject to risks and uncertainties and actual results could differ materially from those expectations.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Mr. Tim Phillips, Chief Executive Officer, Mr. Jude Beres, Chief Financial Officer, and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you. Mr. Phillips you may begin.

Thank you Chad good morning.

Thank you for joining Universal Logistics Holdings second quarter earnings call.

Before we get into the details I want to express my gratitude for all of our hardworking Universal Associate.

I'm extremely pleased to see the exceptional level of service with an emphasis on continuous improvement.

Our leadership team has worked tirelessly to onboard new talent and shape, a result oriented work environment.

While we've had a good success staffing, our new and existing operations overall industry appeal remains a challenge.

With so much uncertainty draped around the economy Universal remained focus on continuous improvement and execution to drive customer satisfaction and shareholder value.

Still our operating environment remains less fluid than we would like part shortages.

<unk> and port congestion among other periodic supply chain constraints have kept us from hitting our full stride.

Now due to the re reinstituted <unk> law in California, we will have to take on a new set of challenges on the labor front. However, 85 is nothing new.

We have been evaluating the potential impact for several years now and have a multi faceted plan that allows for us to make a smooth transition of the current owner operators.

In a seamless fashion, so our customers and our potential to grow in the marketplace.

We have the Knowhow, we have the equipment to be successful and we are on a trajectory to make things happen. While there is still some heavy lifting to do I am optimistic that we will navigate these challenges and set course for the second half of 2022 units.

Universal will continue to prove to be a leader in the transportation and logistics space.

Now for the quarter.

Yesterday's release, Universal reported second quarter earnings of $1 69 per share on total operating revenue of $5 $527 2 million on a reported second quarter performance reflects not only record results for our second quarter, they represent Universal's highest op.

Operating margin and earnings per share in company history.

We once again set new all time highs and surpassed the record performance set just one quarter ago.

We have successfully built on our first quarter and are reshaping the organization to meet these exceptions.

<unk> expectations on a consistent basis, while I expect to see a normalization of transportation rates in the future I believe our contract logistics group is well positioned to grow in 2022 and beyond.

Now for some color on each of the service lines.

Our contract logistics segment, some of our auto and truck customers continue to chase consistent production.

Those that have had level of consistency of found it hard to stretch their legs for a six day of production.

Demand remains strong for our nonautomotive customers with less obvious parts disruption.

All indications show continued demand for autos light utility and class eight trucks.

Light truck and class eight production forecast are solid for the back half of 2022 for the plants that we serve even with the Saar tracking at a lower level than it was at the first part of the year.

I am very comfortable with Universal's labor and asset position in most of the markets we serve.

The contract Logistics group has worked extremely close with a major automotive customer here in Detroit on our recently launched piece of business and have successfully worked together reshaped the contract while rationalizing the operations while rationalizing the operations at the operations continues to evolve in fact G.

June was the first month of operating profitability since the plant has ramped up to three shifts of production.

While the plant stretches for full production, we will look at continued internal improvement and expect this large facility to be margin contributor to the Companys bottom line.

We continuously look for diversification opportunities and our contract logistics business.

I'm excited to report on a few successes.

We have recently began work with a large appliance provider with a goal of enhancing their operational flow of efficiencies and in July successfully launched a new program award for an aerospace customer in the southwest.

Our dedicated transportation group hit full stride in the second quarter with our recently launched and fully staffed operations servicing a large automotive customer. Additionally, the group continued to add additional capacity with various existing customer accounts.

Looking forward I'm very excited about recently launched dedicated transportation operation in Mexico that will allow us to service new and existing customers.

We recently ramped up a small award from a major OEM, but I am very excited about the operations future prospects.

We continue to see solid opportunity in the contract logistics space, our pipeline of near term opportunity remains robust.

And our position in this space continues to grow.

We believe we are in the we are a front runner on several value added opportunities that will fuel unit Universal's growth.

Into 2023.

Our intermodal Drayage group continues to experience choppy volumes in flow.

Year over year volumes have declined because of congestion.

The availability length of haul and independent contractor availability topline revenue remained consistent with Q1 as pricing continues to remain favorable.

We keep we continued to see heightened necessary all charges such as de merge storage and per diem, which totaled $33 6 million in the second quarter of 2022.

<unk> remain in line with congested network and strained chassis availability.

We continue to work on buying chassis to add to our current fleet of 2500.

In addition to solid rates, our continued improvement initiatives have led to a 47, 2% year over year revenue increase low.

Low counts remain a major focus as we continue to recruit capacity to handle the demand and navigate a congested port and rail environment.

Our pipeline of independent contractors and drivers continue to grow suggesting a softening in the truckload spot market and a return for those individuals who chose to obtain their own authority.

I believe there is great opportunity to expand our independent contractor and driver count in the coming months and I am encouraged by our sales pipeline and customer conversations on the continued need for capacity.

In our trucking segment Youre going to continue to see some noise and low count as trucks from the legacy company run truckload operation have been deployed into our dedicated and intermodal division.

We are more than comfortable leveraging our variable structured agent base business in this segment and we continue to see the entrepreneurial spirit of our agent Shine.

While land spot opportunities have decline specialize in flatbed rates have held or increased.

Even even remained elevated and was six 8%, which was a result of a 43, 4% increase in revenue per load.

All indications point to a favorable second half of 2022.

Our profile within the truckload market is well positioned to continue to capitalize on the flatbed and specialized opportunities while remaining consistent on our contractual van work.

As mentioned, we see our opportunities in the flatbed and wind sector remaining stable.

And was 63% of our capacity pulling flatbed, we feel good about the second half of 2022.

The current economic landscape escape and uncertainty will surely set the table for small fleet agent conversions and a return of the independent contractors to obtain their own authority.

We have continued to expand our business development group to gain better contiguous U S coverage as we canvass for new agent opportunities.

We are very pleased to have brought on 20, new agents in the second quarter and our pipeline remains full of future of opportunity.

Our company managed brokerage operation experienced the best operating margin in the history of the company. We've continued to rationalize our margin profile in relation with the revenue opportunities.

Opportunities accelerated out of the ended the first quarter into the first part of the second quarter.

While our contractual work continues to remains.

Strong or spot market opportunities have decelerated along with the rates.

Operating revenue per load increased six 8% to $2006 per load.

Although the number of loads hauled was down 26, 8%, we remain pleased with our pricing discipline and capacity utilization and a softening spot market.

We remain focused on expanding our customer base diversify the portfolio, while keeping a sharp eye.

On margin.

There are many uncertainties facing transportation and logistics space in the second half of 2022.

We're keeping a close eye on the West coast IL W you'd negotiation rail.

Rail worker contract talks as well as inflation in customer inventories.

The labor market continues to challenge this space with availability of labor and labor unrest.

The supply of equipment is improving and we are confident we have the deliveries to fill our growth in our replacement needs. While tensions are high in California. We've.

We view this as an opportunity to reshape our model and provide excellent jobs, which will ultimately drive customer satisfaction.

We will continue to improve Universal's operating model by rationalizing customers refining processes and leveraging talent.

Finally, our success as a company isn't attributed to just one person, but a team of collaborative hardworking associates.

The universal team remains resilient.

And open to change capitalizing on the best practices to deliver superior customer service.

I appreciate the efforts of all of Universal's associates and thank them for the great results and best margin performance in the history of the company.

I am extremely optimistic that we will continue to ride the momentum of the first two quarters of 'twenty, two and find additional opportunities in the second half of 2022.

With that said I would now like to turn the call over to Jude Jude. Thanks, Tim Good morning, everyone. Universal Logistics Holdings reported consolidated net income of $44 7 million or $1 69 per share on total operating revenues of $527 2 million. This compares to net income of $25.

<unk> million dollars or <unk> 95 per share on total operating revenues of $422 8 million in the second quarter of 2021.

Consolidated income from operations was $64 7 million for the quarter compared to $31 3 million one year earlier, EBITDA increased $37 2 million to $90 9 million, which compares to $53 7 million. During the same period last year, our operating margin and EBITDA margin for the second quarter.

2022, or 12, 3% and 17, 2% of total operating revenues these metrics compared to seven 4% and 12, 7% respectively in the second quarter of 2021.

Looking at our segment performance for the second quarter of 2022, and our contract logistics segment, which includes our value add and dedicated transportation businesses income from operations increased 13, 5 million to $29 4 million on $207 3 million of total operating revenues. This compares to operating income of $15 <unk>.

$9 million on $154 8 million of total operating revenue in the second quarter of 2021.

Operating margins for the quarter were 14, 2% versus 10, 3% last year.

In our intermodal segment operating revenues increased $53 million to $156 9 million compared to $106 6 million in the same period last year and income from operations increased $15 2 million to $21 4 million. This compares to operating income of $6 2 million and the SEC.

Quarter of 2021.

Operating margins for the quarter were 13, 6% versus five 8% last year.

In our trucking segment operating revenues for the quarter increased six 8% to $106 5 million compared to $99 8 million in the same quarter last year, while income from operations increased $3 1 million to $9 6 million. This compares to operating income of $6 5 million in the second quarter.

2021 operating margins for the quarter were 9% versus six 5% last year.

In our company managed brokerage segment operating revenues for the quarter decreased $5 3 million to $55 1 million compared to $60 4 million in the same quarter last year, while income from operations increased $1 7 million to $4 2 million. This compares to operating income of $2 4 million in the.

Quarter of 2021 operating margins for the quarter were seven 5% versus four five I'm, sorry, 4% last year.

And our balance sheet, we held cash and cash equivalents totaling $14 7 million and $8 2 million of marketable securities outstanding interest bearing debt net of $2 million of debt issuance cost totaled $415 3 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 173 times.

Capital expenditures for the quarter totaled $31 5 million and 37 5 million year to date for the full year, we are expecting capital expenditures to be in the $120 million range and interest expense between 15 and $18 million.

Based on the current operating environment for the third quarter, we are expecting top line revenues to come in between 500 $525 million with operating margins in the 10% to 12% range.

For the full year, we are updating our margin guidance as well, we expect total operating revenues to come in between one nine and $2 1 billion.

With operating margins in the 10% to 12% range as well.

As mentioned in the release through the end of the quarter Universal acquired $229 488 shares of its common stock in open market purchases at an average price of $19 41 per share and an additional 164189 shares and a modified Dutch auction.

At $28 per share year to date <unk> has acquired 659.

938 shares of its common stock and remains authorized to purchase an additional 513251 shares.

Finally, Wednesday, our board of directors declared Universal's 10, five per share regular quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on September five 2022 and is expected to be paid on October three 2022.

With that Chad, we are ready to take some questions.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Your speaker phone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

And our first question today will be from Bruce Chan from Stifel. Please go ahead.

Everyone. Another nice print for you here so congratulations.

You too.

Yes, Tim maybe just a point of clarification to start.

<unk> talked about that rationalized site and contract logistics was that the same one that was generating the big loss earlier this year.

And then any others that are still underwater or are you back kind of above water on the whole portfolio.

Yes. The question one yes, it's the same one we have been referencing and working diligently with the customer to get it to where is that now we feel comfortable we feel comfortable that there is some additional.

There's some additional efficiencies that we can layer into the operation to kidney.

<unk> gained strength, there and as far as the rest of the portfolio and now it's operating well.

We've done an excellent job and I opened up with that continuous improvement comment.

One one of our big initiatives is to roll through places that even our operating well and look for those the nuts and bolts that we can we can go forward with an operating even more efficiently.

Okay, Great. That's that's good news and then maybe just a follow up.

These past few years have been pretty unique in terms of their impact on that contract logistics build business.

But maybe you can just talk about how it generally performs in a more call it normal economic cycle or down cycle.

And I think you mentioned that you felt confident in earnings for that business into 2023.

What sort of macro assumptions does that comment kind of contemplate.

Yes, I think that in reviewing what our contracts look like I'm very comfortable with what we work really hard on over the last six to eight months on on contract renegotiations and pricing I can't give you an exact look at what the economy looks like next year, but I think overall, we're pretty insulated we're operating at a really.

Good level now in the Saar is only at.

Right around 13000.

I think we position this very well on the contract logistics space I think we've taken a look at not only how how we operate from a continuous improvement. We also from a rationale on contracts we want to make sure that we're working in a fixed variable environment and we're covering some of our cost and not working in totally in a variable.

The environment and I think that combination helps us and supports us in making those statements that we feel really comfortable going into 2023, and I still think on our core competency in automotive I still think theres a lot of pent up consumer demand.

We feel comfortable with.

Okay. That's great and then just the last question here on <unk> you gave some good detail there already.

Any thoughts on what impact that might have on your segment or as you start to maybe convert some of that California business and then maybe you can also comment on how.

Some of these work stoppages and protests and strikes might affect volumes next quarter.

Yes, let's start with the first part first since its current news the work stoppage in la didn't did not or the or.

The protests did not do anything too.

Workflow in and out of the ports its a much harder environment to get to shut down the whole complex, Oklahoma is a little more successful with the shutdown because of the artery in there and how you access the port So would that did and what you read in the news puts us behind a couple of days to a week, but theres not going to be any canceled shipments per se as a.

Result of that everybody has to experience the same thing so what it will do it will put a little stress on our operations two to backfill and to push up some of those orders into the customer's facilities in a quicker fashion. So I'm not I'm not looking for any im not looking for any revenue loss.

On that and then your question on AB five in the O R assumptions, we've looked at it at a high level.

The way, we're going to approach this long term universal wants to be company trucks and <unk>.

Company drivers in California, as we transition into that we will have a bridge there could be a little bit of escalation of costs, but we're not going to call it too serious.

I can't give you exact percentage because there is some fluidity to the environment, but im going to say that our margins will remain consistent too.

Elevated maybe a couple of percent by the cost that's associated with the transition.

Okay.

Thanks, and congrats again.

Thanks Bruce.

And once again, if you have a question please press <unk>.

And then one once again, we will just pause for a moment to join the queue. You may do so by pressing Star then one.

Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Tim Phillips for any closing remarks.

Thanks, Chad well first off I want to I want to thank again, all our employees our agents our independent contractors.

For doing such a superb job at operating.

In servicing our customers secondly.

Secondly, I'd like to thank everybody that supports the company from a shareholder perspective and of course, everybody that dialed into the call to listen to Universal and how we how we think we have the company reported pointed in a positive direction moving forward with that being said, we look forward to talking to you again next quarter. Thank you.

And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[music].

Thanks.

Yes.

Okay.

[music].

Hello, and welcome to Universal Logistics Holdings second quarter 2022 conference call.

At this time all participants are in a listen only mode should you need assistance. Please signal a conference specialist by pressing restocking followed by <unk>.

A brief question and answer session will follow the formal presentation.

Hello, The course of this call management May make forward looking statements based on their best view of the business today.

Once that are forward looking relate to universal's business objectives or expectations and can be identified by the use of the words such as believe expect anticipate all 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.

Well, thank you Chad good morning.

And thank you for joining Universal Logistics Holdings second quarter earnings call.

Before we get into the details I want to express my gratitude for all of our hard working Universal Associates.

I'm extremely pleased to see the exceptional level of service with an emphasis on continuous improvement.

Our leadership team has worked tirelessly to onboard new talent and shape, a result oriented work environment.

While we've had a good success staffing, our new and existing operations overall industry appeal remains a challenge.

With so much uncertainty draped around the economy Universal remained focus on continuous improvement and execution to drive customer satisfaction and shareholder value.

Still our operating environment remains less fluid than we would like parts shortages ports and port congestion among other periodic supply chain constraints have kept us from hitting our full stride now.

Now due to the re reinstituted.

85 law in California.

We'll have to take on a new set of challenges on the labor front.

Over 85 is nothing new.

We have been evaluating the potential impact for several years now and have a multi faceted plan that allows for us to make a smooth transition of the current owner operators.

In a seamless fashion, so our customers and our potential to grow in the marketplace.

We have the Knowhow, we have the equipment to be successful and we are on a trajectory to make things happen.

There is still some heavy lifting to do I am optimistic that we will navigate these challenges and set a course for the second half of 2022 <unk>.

Universal will continue to prove to be a leader in the transportation and logistics space.

Now for the quarter.

In yesterday's release Universal reported second quarter earnings of $1 69 per share on total operating revenue up five $527 2 million on a reported second quarter performance reflects not only record results for our second quarter they represent universal's highest.

Operating margin and earnings per share in company history.

We once again set new all time highs and surpassed the record performance that.

Just one quarter ago.

We have successfully built on our first quarter and are reshaping the organization to meet these exceptions. These.

These expectations on a consistent basis, while I expect to see a normalization of transportation rates in the future I believe our contract logistics group is well positioned to grow in 2022 and beyond.

Now for some color on each of the service lines.

And our contract logistics segment, some of our auto and truck customers continue to chase consistent production.

Those that have had level of consistency of found it hard to stretch their legs for a six day of production.

<unk> remained strong for our nonautomotive customers with less obvious parts disruption.

All indications show continued demand for autos light utility and class eight trucks.

I am very comfortable with Universal's labor and asset position in most of the markets we serve.

The contract Logistics group has worked extremely close with a major automotive customer here in Detroit on our recently launched piece of business and have successfully worked together to reshape the contract while rationalizing the operations.

Rationalizing the operations at the operations continues to evolve in fact June was the first month of operating profitability since the plant has ramped up to three shifts of production.

While the plant stretches for full production, we will look at continued internal improvement and expect this large facility to be margin contributor to the Companys bottom line.

We continuously look for diversification opportunities and our contract logistics business and I'm excited to report on a few successes.

Looking forward I am very excited about recently launched dedicated transportation operation in Mexico that will allow us to service new and existing customers. We recently ramped up a small award from a major OEM, but I am very excited about the operations future prospects.

We continue to see solid opportunity in the contract logistics space, our pipeline of near term opportunity remains robust and.

And our position in this space continues to grow.

We believe we are in the we are a front runner on several value added opportunities that will fuel universe Universal's growth.

Into 2023.

Our intermodal Drayage group continues to experience choppy volumes in flow.

Year over year volumes have declined because of congestion chassis availability length of haul and independent contractor availability topline revenue remained consistent with Q1 as pricing continues to remain favorable.

We keep we continued to see heightened accessorial charges such as de merge.

Storage and per diem, which totaled $33 6 million in the second quarter of 2022.

<unk> remain in line with congested network and strained chassis availability.

We continue to work on buying chassis to add to our current fleet of 2500.

In addition to solid rates, our continued improvement initiatives have led to a 47, 2% year over year revenue increase.

Low counts remain a major focus as we continue to recruit capacity to handle the demand and navigate a congested port and rail environment.

Our pipeline of independent contractors and drivers continued to grow <unk>.

Suggesting a softening in the truckload spot market and a return for those individuals who chose to obtain their own authority.

In our trucking segment segment, you are going to continue to see some noise and low count as trucks from the legacy company, Ron truckload operation have been deployed into our dedicated and intermodal division.

We are more than comfortable leveraging our variable structured agent base business in this segment and we continue to see the entrepreneurial spirit of our agents shine.

While land spot opportunities have decline specialize in flatbed rates have held or increased <unk>.

<unk>, even remained elevated and was six 8%, which was a result of the 43, 4% increase in revenue per load.

All indications point to a favorable second half of 2022.

Our profile within the truckload market is well positioned to continue to capitalize on the flatbed and specialized opportunities while remaining consistent on our contractual van work.

As mentioned, we see our opportunities in the flatbed and wind sector remaining stable.

And was 63% of our capacity pulling flatbed, we feel good about the second half of 2022.

The current economic landscape escape and uncertainty will surely set the table for small fleet agent conversions and a return of the independent contractors to obtain their own authority.

We have continued to expand our business development group to gain better contiguous U S coverage as we canvass for new agent opportunity.

We are very pleased to have brought on 20, new agents in the second quarter and our pipeline remains full of future of opportunity.

Opportunities accelerated out of the ended the first quarter into the first part the second quarter.

While our contractual work continues to remain strong our spot market opportunities have decelerated along with the rates.

Operating revenue per load increased six 8% to $2006 per load.

Although the number of loads hauled was down 26, 8%, we remain pleased with our pricing discipline and capacity utilization and a softening spot market.

We remain focused on expanding our customer base diversify the portfolio, while keeping a sharp eye.

On margin.

There are many uncertainties faced in transportation and logistics space in the second half of 2022.

We're keeping a close eye on the West coast IL <unk> negotiation.

I'll work or contract talks as well as inflation in customer inventories.

The labor market continues to challenge this space with availability of labor and labor unrest.

The supply of equipment is improving and we are confident we have the deliveries to fill our growth in our replacement needs. While tensions are high in California. We've.

We view this as an opportunity to reshape our model and provide excellent job, which will ultimately drive customer satisfaction.

We will continue to improve Universal's operating model by rationalizing customers refining processes and leveraging talent.

Finally, our success as a company isn't attributed to just one person, but a team of collaborative hardworking associates the universal team remains resilient.

And open to change capitalizing on the best practices to deliver superior customer service.

I appreciate the efforts of all of Universal's associates and thank them for the great results and best margin performance in the history of the company.

I am extremely optimistic that we will continue to ride the momentum of the first two quarters of 'twenty, two and find additional opportunities in the second half of 2022.

With that said I would now like to turn the call over to Jude. Thanks, Tim Good morning, everyone. Universal Logistics Holdings reported consolidated net income of $44 7 million or $1 69 per share on total operating revenues of $527 2 million. This compares to net income of $25.

<unk> million dollars or <unk> 95 per share on total operating revenues of $422 8 million in the second quarter of 2021.

2022, or 12, 3% and 17, 2% of total operating revenues these metrics compared to seven 4% and 12, 7% respectively in the second quarter of 2021.

Looking at our segment performance for the second quarter of 2022, and our contract logistics segment, which includes our value add and dedicated transportation businesses income from operations increased $13 5 million to $29 4 million on $207 3 million of total operating revenues. This compares to operating income of $15 <unk>.

$9 million on $154 8 million of total operating revenue in the second quarter of 2021.

Operating margins for the quarter were 14, 2% versus 10, 3% last year.

Quarter of 2021.

Operating margins for the quarter were 13, 6% versus five 8% last year.

21 operating margins for the quarter were 9% versus six 5% last year.

<unk> 2021 operating margins for the quarter were seven 5% versus four five I'm, sorry, 4% last year.

Interest bearing debt to reported trailing 12 month EBITDA was 173 times.

Based on the current operating environment for the third quarter, we are expecting top line revenues to come in between 500 $525 million with operating margins in the 10% to 12% range.

For the full year, we are updating our margin guidance as well, we expect total operating revenues to come in between one nine and $2 1 billion.

With operating margins in the 10% to 12% range as well.

As mentioned in the release through the end of the quarter Universal acquired 229488 shares of its common stock in open market purchases at an average price of $19 41 per share and an additional 164189 shares and a modified Dutch auction.

At $28 per share year to date <unk> has acquired 650938 shares of its common stock and remains authorized to purchase an additional 513251 shares.

Finally, Wednesday, our board of directors declared Universal's 10, five cents per share regular quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on September five 2022 and is expected to be paid on October three 2022.

With that Chad, we are ready to take some questions.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If your speaker phone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

And the first question today will be from Bruce Chan from Stifel. Please go ahead.

Hey, everyone. Another nice print for you here so congratulations.

Tim.

Yes, Tim maybe just a point of clarification to start.

<unk> talked about that rationalized site in contract logistics was that the same one that was generating the big loss earlier this year.

And then any others that are still under water or are you back kind of above water on the whole portfolio.

Yes to question one yes, it's the same one we have been referencing and working diligently with the customer to get it to where is that now we feel comfortable we feel comfortable that there is some additional.

There's some additional efficiencies that we can layer into the operation to continue.

<unk> continued to gain strength, there and as far as the rest of the portfolio and now it's operating well.

We've done an excellent job and I opened up with that continuous improvement comment. That's one bid at one of our big initiatives is to roll through places that even our operating well and look for those.

<unk> and bolt that we can we can go forward with an operating even more efficiently.

Okay great.

Good news and then maybe just a follow up.

These past few years have been pretty unique in terms of their impact on that contract logistics build business.

But maybe you can just talk about how it generally performs in a more call it normal economic cycle or down cycle.

I think you mentioned that you felt confident in earnings for that business into 2023.

Sort of macro assumptions does that comment kind of contemplate.

Yes, I think that in reviewing what our contracts look like I'm very comfortable with what we worked really hard on over the last six to eight months on on contract renegotiations and pricing I can't give you an exact look at what the economy looks like next year, but I think overall, we're pretty insulated we're operating at a really.

Good level now and <unk> is only at.

Right around 13000.

So I think we position this very well on the contract logistics space I think we've taken a look at not only how how we operate from a continuous improvement. We also from a rationale on contracts we want to make sure that we're working in a fixed variable environment and we're covering some of our cost and not working in totally in a very.

<unk> environment, and I think that combination helps us and supports us in making those statements that we feel really comfortable going into 2023, and I still think on our core competency in automotive I still think theres a lot of pent up consumer demand that we feel comfortable with.

Okay. That's great and then just a last question here on <unk> you gave some good detail there already any.

Any thoughts on what impact that might have on your segment or as you start to maybe convert some of that California business and then maybe you can also comment on how some of these work stoppages and protests and strikes might affect volumes next quarter.

Yes, let's start with the first part first since its current news the work stoppage in la didn't did not or the or the protests did not do anything.

Two workflow in and out of the ports its a much harder environment to get to shut down the whole complex, Oklahoma is a little more successful with the shutdown because of the artery in there and how you access support so what that did and what you read in the news puts us behind a couple of days to a week, but theres not going to be any canceled shipments per se as.

As a result of that everybody has to experience. The same thing so what it will do it will put a little stress on our operations two to backfill and to push up some of those orders into the customer's facilities in a quicker fashion. So I'm not I'm not looking for any I'm not looking for any revenue loss.

On that and then your question on AB five in the O R assumptions, we've looked at it at a high level.

The way, we're going to approach this long term universal wants to be company trucks and <unk>.

Company drivers in California, and as we transition into that we'll have a bridge there could be a little bit of escalation of costs, but we're not going to call it too serious.

I can't give you exact percentage because there is some fluidity to the environment, but I'm going to say that our margins will remain consistent too.

Elevated maybe a couple of percent by the cost that's associated with the transition.

Okay.

Thanks, and congrats again.

Thanks Bruce.

And once again, if you have a question. Please press Star then one once again, we will just pause for a moment to join the queue. You may do so by pressing Star then one.

Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Tim Phillips for any closing remarks.

Thanks, Chad well first off I want to I want to thank again, all of our employees our agents our independent contractors.

For doing such a superb job at operating and servicing our customers.

And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Q2 2022 Universal Logistics Holdings Inc Earnings Call

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