Q4 2022 Universal Logistics Holdings Inc Earnings Call
Hello, and welcome to Universal Logistics Holdings fourth quarter 2022 earnings Conference call.
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A brief question and answer session will follow the formal presentation today.
During the course of this call management May make forward looking statements based on their best view of the business as seen today.
That are forward looking relate to universal's business objectives or expectations. He came by 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 today. It is now my pleasure to introduce to your host Mr. Tim Phillips, Chief Executive Officer, Mr. Jude Perez, Chief Financial Officer, and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you.
Mr. Phillips you may begin the call.
Thank you Joe.
Welcome to Universal Logistics, Holdings', 2022 fourth quarter earnings call.
I'd like to take a minute and reflect on Universal's performance for the full year of 2022.
Extremely proud of all our employees agents drivers and contractors, who help achieve such remarkable results.
How far we have come since the onset of the pandemic almost three years ago.
The universal team executed on their commitment to excellence excellent.
Focusing on training.
But even service in transparent collaboration.
We all work extremely hard to record topline revenue in excess of $2 billion.
Which was a 15% increase over 2021 and more than double our operating income and earnings per share.
For the full year 2022.
Universal reported record operating income of $240 4 million.
$6 37 per basic and diluted share.
In 2022, we made great strides not only in our financial performance, but also on our ongoing cultivation of associates in the warehouse.
And on the road.
We continued to add and train new associate as we expand our business footprint.
Unfolded in a tight labor market.
The financial improvement as a credit to every associate the willingness and effort to execute at the highest level.
We've added train talent to a number of locations to further expand our foundation set course for continued performance and growth in 2023.
As we closed out 2022, Universal transportation sector was not insulated from a lack luster peak season brought about by high inflation and inventory Destocking.
Our intermodal group experienced rapidly declining import volume in.
In our brokerage group saw the number of tendered loans declined throughout the quarter.
Our truckload group held their own by retaining pricing and elevated fuel surcharge levels.
While we saw a year over year deterioration of our transactional transportation sector.
Our contract logistics segment, which includes a dedicated transportation and value added services expanded topline revenue and operating margin.
Because of our diversified service offerings, Universal probably printed its best fourth quarter operating income and EPS in company history.
Fourth quarter capped off a year of incredible positive change we remain committed to identifying reshaping.
Reshaping and improving processes among the various service sectors.
We successfully re imagined our large automotive launch and the city of Detroit, enhancing our employee skills employing process improvement and ultimately elevating our service levels to meet the customers' need.
On the West Coast, we set forward with a new business plan and the state of California.
Brought about by the implementation of <unk> five.
We work diligently to obtain company assets in a tight equipment environment higher new qualified drivers and.
And transition existing contractors to company employees.
We successfully entered into a partnership with the Teamsters to help set course for building a skilled and talented driver group accessing the port of L. A and long beach.
Overall, we have taken great steps to strengthen the fiber of our associates around the country as we prepare for the next stage of expansion.
Now for the quarter.
In yesterday's release, Universal reported 2022 fourth quarter earnings of $1 27 per share on a total operating revenue of $458 7 million.
Continuing on our record setting streak reporting Universal's Beth.
However, fourth quarter operating income and earnings per share increasing each by over 100% compared to the fourth quarter of 2021.
This marks the fourth consecutive quarter of meaningful margin expansion and operational efficiency progress.
While we have experienced a decline in transportation spot rates and volumes.
We are optimistic our contract logistics business is well positioned to grow entering into 2023.
Now for some color on each of the service lines.
Our contract logistics segment, we experienced some fluency improvements in regard to parts and chip in the auto sector, which provided a consistent five day work schedule, but it still lacks some of the extended weekend run while the Saar remained muted throughout 2022 the demand for vehicles still remains strong we're very pleased.
With the performance in the auto sector and across the various verticals operational.
Performance of our early cycle launches continue to improve.
2022 class eight production finished a solid year with over 315000 units produced.
2023 forecast still remain elevated.
<unk>, a solid year for new and existing customers we service.
It is no secret the class eight orders are still waiting to be filled and we remain optimistic in regards to our operating operations servicing those plants.
We continue to get positive year over year production guidance from our partners in light truck and SUV face.
New vehicle sales are forecast to increase in low single digits over 'twenty, two due to resilient demand and low inventory levels.
Our accumulated contract with dish.
Our accumulated contract logistics talent has expanded over the last year and we are extremely confident in our position to efficiently operate new business.
We are confident in our technology and experienced management team will continue to deliver and execute on new opportunities from our expanded pipeline.
We were recently awarded five new value added operations with yearly topline revenue exceeding 11 million once at full run rate there.
The awards are supporting industrial agricultural automotive and class eight facilities around the country.
Our active value added pipeline has expanded by almost 35% over the same time last year highlighted by several large <unk> projects that are sure to shape the future of automotive production.
Our dedicated transportation group continued to grow top line revenue and margin by providing best in class high velocity service.
Here, we expanded our talent pool, both on the road.
And in the office are dedicated driver count has continued an upward trajectory expanding by 16, 7% in Q4 of 2022 over the same period in 2021.
We continue to rationalize new equipment allocations in a tight environment, but successfully replaced 30 over 35% of our tractor fleet, while adding 130, new tractors into new programs in 2022.
We also shifted trailing equipment from an underperforming facilities as well as adding 421, new trailers into the dedicated segment.
We see continued opportunity for dedicated transportation and will continue to invest in the fleet in 2023.
We will need the equipment as we launched several new opportunities over the first half of 2023 with expectations of <unk> 5 million in additional topline revenue with a potential run rate around $20 million a year.
We are very bullish on dedicated transportation solutions and the potential moving forward.
Our pipeline remains robust with quality wind opportunities.
Our intermodal Drayage group did experienced volume headwinds caused by reduced imports during the quarter, which led to a 13, 2% decrease in topline revenue and a 25, 7% decrease in LOE smooth.
The average revenue per bill was sequentially, lower but still above Q4, 'twenty, one averages including <unk>.
Average excluding fuel by 15, 1%.
Declining asset Sorial charges was the biggest contributing factor to our topline decline in revenue per diem.
Storage and emerge were down over 36% or $13 2 million to $22 5 million in the quarter influenced by less congested supply chain in a more normalized operating environment.
But the largest headwind in our intermodal business was caused by increased operating costs in California due to the transition from independent owner operator model to our AAV five compliant company driver model as well as a massive falloff in import traffic into the L. A and long beach ports.
Our drayage revenues in southern California were down over 50% from Q4 of last year and operating profits were down $5 3 million.
This cost us an estimated 15 cents per share in the quarter.
While the Q4 intermodal volume.
While the Q4 intermodal volumes were a headwind we.
We experienced year over year increase of 181 drivers are about eight 9% increase in our driver count from 2021.
Our driver and contracted pipeline remains elevated by more than 40% from the same period in January of 2022.
<unk> definitely seen a shift of drivers who obtain their own authority are coming back into our intermodal network.
We remain focused on servicing our current customer base, while adding additional volumes through various value propositions in the first part of the year sale.
Sales has been extremely aggressive in mining new customer opportunities, allowing us to explain our value creation for the supply chain needs, including company chassis and an expansive terminal network.
Our current <unk> pipeline remains strong with several large customer bid.
<unk> in Q1 of 2023.
Our trucking segment experienced some of the same volume headwind created by inflation inventory destocking.
Our rate levels have held for the most part on our open deck and specialized division van rates deteriorated over the quarter.
Open deck steel and metal loads were down over 10% in the quarter.
Pricing remained elevated on the van side, our retail and consumer goods segment was down over 10% with prices slipping slightly more.
Topline revenue of 89 million was down 12, 3% for the quarter, while operating income of $5 7 million was an increase of $4 6 million over the same period last year.
Our agent based truckload model with its variable cost structure delivers consistent margins as it burns with topline revenue.
On our operating costs remain consistent with a low single digit decrease in broker purchase trends owner, operator, count was down almost 15% at the end of the year and low count followed suit down 32, 9% over the same period in 2001.
We are committed to increasing the size of our agent network by adding new agents and independent contractors. This segment's business development team has been busy evaluating lead in.
And expanding the opportunities in the pipeline.
The current truckload pipeline is equal to about 50% of the segment's trailing 12 months revenue.
Company manage brokerage solid topline revenue dropped 36, 2% in the quarter to $39 6 million as inflation and consumption created less tender opportunities.
We continued disciplined approach in regard to operating margin was put an additional strain on spot opportunity as our balance shifted over 80% contractual freight.
Operating revenue per load decreased 14, 8% to $1684 per load and the load count was down 19, 9%.
Gross margin was 13, 7% for the quarter and was better than the 11, 7% margin in the same period of 'twenty one.
Purchase transportation continued to decline entering the quarter, but we saw a leveling mid quarter.
And a spike around the Christmas holiday.
We were awarded a significant volume for the upcoming year from one of our top customers and are awaiting several others, who have yet to announce their awards. The current environment has our team aligned on pricing and performance. We continued to build on our power only offering and plan additional.
Units as part of our 2023 Capex, we will continue to partner with our carrier base to drive realistic price expectations, while respecting our high level of service.
We are cautious on the economic environment, entering 2023 inflation customer destocking and the general mood of the consumer continue to evolve.
We will look for optimization opportunities to help take cost out of our intermodal and brokerage segment and.
And add density to our variable cost agent truckload segment.
While we face near term transportation headwinds, we are extremely optimistic on continued growth of our high margin contract logistics segment.
Finally performance equals results and I cannot say enough about our team of employees.
Contractors and agents that were at the foundation of our 2022 success.
I'm extremely happy with the progress of the Universal team, we are well positioned with talent at all levels as we navigate 2023 opportunities and challenges our team's efforts continued to who create new customer value and shareholder return Universal will continue to supply.
People driven solutions.
I would like to now turn the call over to Jude for detailed view of our financial performance and capital needs. Jude. Thanks, Tim Good morning, everyone yesterday, Universal Logistics Holdings reported consolidated net income of $33 4 million or $1 27 per share on total operating revenues of 458.
<unk> 7 million in the fourth quarter of 2022. This compares to net income of $16 2 million or <unk> 60 per share on total operating revenues of $467 4 million during the same period last year.
Consolidated income from operations was $48 2 million for the quarter compared to $23 8 million one year earlier, EBITDA increased $28 3 million to $68 million, which compares to $39 7 million. During the same period last year, our operating margin and EBITDA margin for the fourth.
Quarter of 2022, or 10, 5% and 14, 8% of total operating revenues.
These metrics compared to five 1% and eight 5% respectively in the fourth quarter of 2021.
Looking at our segment performance for the fourth quarter of 2022, and our contract logistics segment, which includes our value add and dedicated transportation businesses income from operations increased to $24 1 million to $30 1 million on $205 5 million of total operating revenues. This compares to operating income of $6.
$1 billion on $160 7 million of total operating revenue in the fourth quarter of 2021.
Operating margins for the quarter were 14, 7% versus three 8% last year. The fourth quarter of 2021 included $5 million of previously disclosed pretax losses that adversely impacted the contract logistics segment's operating margin by 310 basis points.
Onto our intermodal segment operating revenues decreased $18 6 million to $123 1 million compared to $141 7 million at the same period last year and income from operations decreased $2 7 million to $11 1 million. This compares to operating income of $13 8 million in the fourth quarter of.
2022 operating margins for the quarter were 9% versus nine 7% last year.
In our trucking segment operating revenues for the quarter decreased to $12 5 million to $89 million compared to 101 5 million in the same quarter last year and income from operations increased $4 6 million to $5 7 million. This compares to operating income of $1 1 million in the fourth quarter of 2021.
Operating margins for the quarter were six 5% versus one 1% last year.
Also the fourth quarter of 2021 included $6 1 million of previously disclosed pretax charges that adversely impacted this segment's operating margin by 590 basis points and.
And our company managed brokerage segment operating revenues for the quarter decreased to $22 4 million to $39 6 million compared to 62 million in the same quarter last year, while income from operations decreased $1 6 million to $900 compared to operating income of $2 5 million in the fourth quarter of 2021.
Operating margins for the quarter were two 3% versus 4% last year.
On our balance sheet, we held cash and cash equivalents totaling $47 2 million and $10 million of marketable securities.
Outstanding interest bearing debt net of $4 $4 million of debt issuance cost totaled $378 5 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 one two times.
Capital expenditures for the quarter were $31 3 million and totaled $117 million for the full year of 2022.
Based on the current operating environment for the first quarter of 2023, we are expecting topline revenues between 400 and $425 million and operating margins in the 8% to 10% range.
Given current macroeconomic headwinds and volatility in the transportation space. It remains somewhat difficult to forecast in this environment. Our forecast is predicated on stable operating environment for our contract logistics business offset by low double digit revenue declines in our trucking intermodal and company managed brokerage segments compared to.
The fourth quarter of 2022.
For the full year of 2023, we expect capital expenditures to be in the $160 million range and interest expense for the year is expected to come in between 20 and $25 million.
Finally, Wednesday, our board of directors declared Universal's 10, and a half cent per share regular quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on March six 2023 and is expected to be paid on April 3rd 2023 with that Joe we are ready to take some questions.
Yeah.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
And our first question here will come from Chris Wetherbee Citigroup. Please go ahead.
Yeah, Hey, thanks, good morning, guys.
I appreciate the color on the outlook for the first quarter, maybe just wanted to dig a little bit deeper on the intermodal side, just want to get a sense of I want to be clear about maybe how much of some of the issues in the quarter, our ring fence, specifically to the quarter or versus how much you think will be ongoing headwinds to the profitability of that business as we think about <unk>.
As well as the full year 2023.
Chris This is Tim.
I think what we saw leaving the fourth quarter as I explained in my prepared remarks was a transitional phase for our southern California operation, which include equipment Onboarding driver recruiting cost driver training cost and then in conjunction with that transition to a company driver profile.
We also saw.
About 50% dip in load count in that 50% dip was a combination of inbound imports coming into southern California.
And our profile as it comes to our customers about eight of the top 10 on our customer list is retail and consumer goods. So we saw a sharp falloff in that so if you take that into 2023 and look at January as a whole we still saw some deterioration.
Of the overall load count and top line revenue as we see it on the intermodal side, our customers are telling us in that retail and consumer goods space that they expect some rebound after the Chinese new year, but where theyre not committing and they're holding their cards, a little tight to the vest.
On what it looks like as we stretch our legs into the summer of 'twenty. Three so we're prepared to see import levels, probably at a lower rate in the first quarter, which means we're going to have to equally be out there on the hunt for additional market share and then of course with any good company, we're going to make sure that we're <unk>.
<unk> our cost as we push forward.
Okay.
I guess as I think about the differences between the model you were running before and an employee model. Their first three quarters of the year in that business I think youre running let's call. It close to mid teens margins is that doable in a.
Employee model for that business or is it something lower than that.
Now, let's take the first crunch of that in the first bite of that I think it is obtainable and in employee model, but that ploy models jar has to be full so we can optimize the assets and the drivers and not only did we have.
The whole runway in the fourth quarter of obtaining assets in a very tight market.
We also had in southern California that there is a lot of contractors that run in and out of the port. So our recruitment of new company drivers came with a huge cost of Onboarding and training to put them in those assets. So they can be successful so why the downturn in imports it's troublesome.
I guess, it's also an opportunity to get our sea legs and get our new drivers.
Properly trained and ready to go compliant.
So we feel good about that but I think I think that once this is at full run rate. The jar is full we will have the ability to optimize company assets I think that youll will still enjoy the same type of margins.
Okay. That's helpful. And then I guess, maybe the final question would just be sort of maybe taking a step back and thinking bigger picture I think there's a general sense, particularly with retail exposed freight that we are going through a meaningful normalization of inventories as it stands currently and that maybe by late spring there is the potential.
For some normalization too are largely occurred in may be the return of a degree of strength I don't know if that sequential or year over year, but generally wanted to get your sense of how you're thinking about at least on the retail piece of your business and.
And frankly on the industrial side to weather, what do you think there might be offset that could dampen that potential second half recovery.
Yes on the retail side like I said the customers are holding their cards pretty close we feel that the Q1 will be challenged we think that when we get out of the Chinese new year's.
They start ordering again, we should see some rebound in Q2, but don't expect there to be any kind of normalization.
As you put it price or the second half of the year and to this degree we don't know exactly what yet some of the retail customers that said they would be abnormal type season.
Season, but what's normal mean over the last couple of years, though because there's been so many peaks and troughs. So we think position really though the second half of the year will definitely be better than the first half of the year.
On the industrial space I think that I mean.
Let's break that down a little further class eight I.
I think that where we're going into a solid first half of the year and I think a lot of that will run its run its cadence into the second half of the year.
All indications on the automotive plants that we serve is a very strong year.
Inventories are rising, but there seems to be a strong demand for those products.
Products and the plants that we service so we feel good about that.
Our steel and industrial goods that we haul from a transportation perspective, our load count had decreased somewhat although pricing has remained pretty stout one area, we see as our agriculture and heavy machinery business is.
Some positive forecast for 2023 that there is still demand.
And I think if you encompass that altogether I think youll steel if you ask whether it's the class eight and automotive AG.
Agriculture, and heavy machinery, I think theres still part issues and supply chain issues out there maybe not to the degree we saw in 2022, but I think they still linger out there that caused some disruption of cadence, but overall on the industrial the auto space.
We feel comfortable with 2023.
Okay. That's very helpful color appreciate the time thank you.
And again, if you have a question. Please press Star then one to join the queue.
And with no remaining questions. This will conclude our question and answer session I would like to turn the conference back over to management for any closing remarks.
Thank you Joe.
I appreciate everyone dialing into the call today as I mentioned I am extremely excited about the opportunities in front of Universal in 2023, we've already hit the ground running with new contract logistics programs and are cautiously optimistic about inventory restocking in the second half of 'twenty, three which will help drive transportation.
Growth.
Finally, I cannot wait to see our compliant Southern California company driver model deliver certainty.
Into our valued customer supply chain as import volumes grow seasonally.
I look forward to talking to everyone on our Q1 2023 call in April Thank you.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.