Universal Logistics Holdings Inc. Q1 2023 Earnings Call
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Hello, and welcome to Universal Logistics Holdings first quarter 2023 earnings 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 zero.
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 their best view of the business asking today.
Eight minutes that are forward looking relate to universal's business objectives or expectations and can be identified by the use of words, such as belief expect anticipate and project.
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 Perez, Chief Financial Officer, and Mr. She didn't catch that.
Trick Vice President of Finance Investor Relations. Thank you Mr. Phillips you may begin.
Thank you Kyle.
And welcome to Universal Logistics Holdings', 2023 first quarter earnings call.
I'd like to start off by recognizing the incredible efforts of Universal's over 10000 associates, who work so hard to make our organization best in class provider of customized transportation and logistics solutions.
Although a challenging comparison to 2020 to the first quarter of 2023, well Universal's next best first quarter financial performance on record.
Anchored by the results of our contract logistics segment I'm pleased with our overall performance. Despite the significant headwinds we faced in our transactional transportation services.
The transportation and logistics community saw first quarter wrap and inventory destocking.
Excess truck capacity and low demand for consumer goods.
While we felt significant price and volume pressure on our transportation services. Our teams did an excellent job managing our controllable costs, while delivering excellent customer service and capitalizing on continuous improvement initiatives across the organization.
Each segment is focused on operational excellence, increasing the productivity of our asset.
Rationalizing head count.
The start of 2023 confirmed that we have built a solid foundation for sustainable success in a variety of market conditions.
The model has proven to be resilient and we continue to look for additional opportunities to scale the.
Our pipeline has continued to blossom and our contract logistics space.
Neal our talent technology and customer centric business approach makes us a front runner in several of our large bid opportunities across many different verticals.
Our transportation pipeline also remains full of opportunity, but the scale of business wins is influenced by the current market conditions and price reduction exercises by our customers.
Market share will continue to be our drumbeat as long as the margin profile is conducive to our overall business goals, we still remain optimistic on the autos and class eight truck space.
We have a very positive have had very positive conversations.
The order books for agriculture.
Heavy machinery.
In aerospace.
While the retail market and the overall inventory bloat remain concerning we continued to rationalize our pricing to remain competitive.
While earning a fair return in exchange for our services.
Now for the quarter.
In yesterday's release Universal reported 2023 first quarter earnings of 95 cents per share on total operating revenue of $437 4 million.
While we fell short of last year's record setting performance.
First quarter of 2023 with Universal's next best financial performance Q1 on record.
Demand for our contract logistics segments held firm throughout the quarter and our diversification strategy is paying dividends in a depressed transportation environment.
Now for some color on each of the service lines.
And our contract logistics segment, the number of active programs grew to 65.
Which was a three 2% increase over active programs in Q1 of 2022.
There continues to be strong demand for outsourced logistics, just logistics services and a variety of spaces.
We feel there is real opportunity to showcase our existing operations to potential customers, which offer a combination of experienced human assets.
Efficient processes.
And our proprietary technology.
Auto production sustain a relatively consistent work cadence during the quarter associated with a more normalized supply chain fluidity.
Although periodic six day production number is reserved for plants with high demand vehicles.
The Saar was elevated over 2022 while tracking near 15 million units as the demand for vehicles remains strong.
We're very pleased with the performance that our auto sector platforms and expect continued consistency for the remainder of the year.
2023 class a production picked up a year, where 2022 laptops.
That's the answer for another year that looks very similar to 2022 with North American production forecast it to be in excess of 300000 units.
While production is still elevated we have heard of some supplier issues that may challenge these projections levels.
Our production over the next several quarters.
We are extremely excited about eight new programs that are launching or beginning to launch in Q2, the medium sized programs and a variety of verticals and are expected to add $17 million in annual revenue at full run rate.
Our launch teams continue to execute in a timely and effective manner, delivering seamless trend transaction transitional business continuity to our customers.
As mentioned, we have encountered a number of new outsourcing opportunities not only from our sales efforts.
In fact, the delivering of logistics solutions in the marketplace.
Our value added service pipeline continues to grow reaching the largest dollar value of potential projects ever approaching 600 million.
We approach each opportunity with a collaborative and highly engineered solution.
We are eager for our current and potential customers to see real working study of our execution and believe we remain in a hunt well into the later innings of the procurement process on most of the opportunities.
The dedicated transportation group continues to experience opportunity and growth.
Our high velocity model allows us to move large amounts of freight with an incredible accuracy rate for customers, who demand high level of execution like be honest.
Our success in these environments continues to be on display which is a great lead into additional opportunity for existing customers.
And a great case study for new customers looking for the next level of execution.
Service.
Revenue for the quarter was up 12, 9% driven by increased volume and solid pricing with our strategic partners.
Yeah.
We continue to secure and allocate new equipment for our dedicated fleet both for replacement and growth.
We're committed to keep the average age of our truck fleet around three years, which helped elevate our uptime to continued deliberate velocity service.
Newer equipment also enhances the driver experience and the safety profile, which is proven positive with our recruiting.
And our retention efforts.
We exited the quarter launching a new large automotive account in the southeast which requires 80 drivers.
Two shifts.
And five to six days a week.
We expect the run rate on this accounts to be over $13 million annually.
As mentioned before this launch of companies.
Other smaller launches and new wins with a combined run rate of over 24 million in revenue annually.
We continue to see quality dedicated opportunities in the pipeline and feel extremely strong on the talented bench of employees.
With industry experience to support our want long term growth objectives to bring velocity to multiple service sectors.
Our intermodal Drayage group continues to experience, both volume and pricing headwinds.
Important volume import volumes at North American ports were down nearly 30%.
Influenced by continued inventory destocking and low consumer demand for products.
Average revenue per load ex fuel was down 18, 7% to $567 per loan as customers continue to evaluate their pricing models and capitalize on very loose capacity.
The lack of import volumes had a direct impact on the number of loads hauled in the quarter, which fell 27% and contributed to a 29, 6% decline in top line revenue.
Over the same period of 2022.
Receding accessorial charges also remain the same and we're proportional to supply chain disruption in 2022.
In particular, a reduction important rail congestion, resulting in a more fluid supply chain, which reduced per diem.
Storage and demurrage billings over 25% or 10.2 million.
Our southern California operations continue to have strong influence on intermodal numbers driven by import volumes declining over 30% over Q1 2022.
Reduced volumes, coupled with Clawbacks and pricing eroded top line revenue, which was down 56% over Q1 2022 due to our heavy retail focused customer base.
We have had great success recruiting company drivers since moving to an employee driver model in California, but lower volumes have negatively impacted our ability to optimize and ultimately scale our company truck operation.
But I'm very happy with how quickly we were able to find assets to recruit drivers, which puts us in a compliant position for our customers when volumes do normalized in the market.
We've experienced several nice customer wins in recent months and our pipeline remains robust with opportunity.
Our sales team has been extremely aggressive mining new customer opportunities and we continue to demonstrate our ability to create value for our customers by supplying company own long term leased chassis, which now number over 3500 units and storage solution around the Vas National Terminal network.
Volume headwinds were also the storyline in the trucking segment.
Overall load count was down 11, 8%.
Coupled with an eight 8% decrease in revenue per load.
Our open deck load count was down 10%, but steel and metal volumes were relatively flat year over year and pricing is still in positive territory.
On the van side load count was down 15% with retail and consumer goods up over 30%.
Topline revenue of $79 7 million was down 18, 2% for the quarter, while operating income of $3 8 million was a decrease of $3 6 million over the prior year period.
Our agent based truckload model is well positioned to ride out a break downturn with its variable cost structure, while continuing to produce consistent margins.
Interest in our agent model continues to grow our pipeline shows the results of our business development efforts. In fact, we added 12, new agent Representatives in Q1 of 2023.
I believe our agent model anchored by a team of experienced employees.
Coupled with more competitive environment.
It makes you ACL quality decision to assist in carrier conversion.
An agent's demanding additional support.
Company manage brokerage sell topline revenue dropped 47, 9% in the quarter to $34 million as inflation and consumer spending created competitive pricing unless tender opportunities.
We continued our disciplined approach in regard to operating margin, which put additional strain on spot market opportunities.
As our contractual freight remains over 80% of our topline revenue.
As mentioned in our release earnings in this segment were negatively impacted by a $1 $2 million pre tax settlement for auto liability claims in excess of policy limits, which equated to 350 basis point reduction.
Okay.
Operating revenue per load decreased 22, 1% to one $1696 per load and the load count was down 18, 9%.
Gross margins were better than Q1, 'twenty two 'twenty to margins as we experienced a continued reduction in purchase transportation, while remaining disciplined on rates.
There's been no shortage of bid opportunities, but pricing has been hyper competitive.
We will remain disciplined on pricing and look for returns that fall within our expectations given the current environment.
We continue to remain cautious on the economic environment entering Q2 of 2023.
Inflation customer Destocking and the general mood of the consumer continues to evolve.
We believe transportation will remain under pressure with an abundance of available capacity and leading indicators like imports showing near no near term term signs of improvement.
We look for optimization opportunities to take costs out of our intermodal and brokerage segment, while adding density to our variable cost structure agent truckload segment.
We remain extremely optimistic on the continued growth of our high margin contract logistics segment.
We are encouraged by the optimistic conversations we are having with autos.
Class eight.
Agriculture.
Heavy equipment and aerospace customers.
Finally.
As I had mentioned in our earnings release I'm impressed with the performance of the Universal team in this challenging environment.
It appears we continue to face inventory de stocking inflation and rising interest rates I'm convinced that our diversification of services continues to provide opportunity and stability in the current environment.
We continue to focus on quality service diversity for our customer and continued value for our shareholder.
With that I would now like to turn the call over to Jude for detailed view of our financial performance.
Great. Thanks, Tim Good morning, everybody yesterday, Universal Logistics Holdings reported consolidated net income of $24 9 million or <unk> 95 per share on total operating revenues of $437 4 million in the first quarter of 2023. This compares to net income of $42 million or a dog.
<unk> 56 per share on total operating revenues of $523 9 million during the same period last year.
Consolidated income from operations was $38 2 million for the quarter compared to $57 8 million one year earlier EBITDA decreased $18 3 million to $56 7 million, which compares to $75 million. During the same period last year, our operating margin and EBITDA margin for the first quarter of 2000.
<unk> 23, or eight 7% and 13% of total operating revenues these metrics compared to 11% and 14, 3% respectively. In the first quarter of 2022.
Additionally, during the first quarter, we recorded a settlement charge in our company managed brokerage segment of $1 $2 million. This charge impacted our EPS by three <unk> in the quarter looking.
Looking at our segment performance for the first quarter of 2023, and our contract logistics segment, which includes our value add dedicated.
And dedicated transportation businesses income from operations increased $4 3 million to $27 8 million on $211 3 million of total operating revenues. This compares to operating income of $23 5 million on $201 6 million of total operating revenue in the first quarter of 2022.
Operating margins for the quarter were 13, 1% versus 11, 6% last year.
In our intermodal segment operating revenues decreased $46 6 million to $111 million compared to $157 6 million in the same period last year and income from operations decreased $16 2 million to $6 8 million. This compares to operating income of 23 million in the.
First quarter of 2022 operating margins for the quarter were six 1% versus 14, 6% last year.
In our trucking segment operating revenues for the quarter decreased $17 8 million to $79 7 million compared to 97 5 million in the same quarter last year and income from operations decreased $3 6 million to $3 8 million. This compares to operating income of $7 4 million in the first quarter of 2022.
Operating margins for the quarter were four 8% versus seven 6% last year.
And our company managed brokerage segment operating revenues for the quarter decreased to $31 2 million to $34 million compared to $65 2 million in the same quarter last year, while income from operations decreased $4 3 million to an operating loss of 400000, this compared to operating income of $3 9 million in the.
The first quarter of 2022.
Operating margins for the quarter were a negative one 1% versus five 9% last year. Excluding the previously mentioned legal settlement in the quarter. Our company managed brokerage brokerage segments operating margin would have been two 4%.
On our balance sheet, we held cash and cash equivalents totaling $76 8 million and $10 million of marketable securities outstanding interest bearing debt net of one two.
$4 2 million of debt issuance costs totaled 377.7 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 1.25 times.
Capital expenditures for the quarter were $31 3 million for the full year of 2023, we expect capital expenditures to be in the $160 million range, excluding the acquisition of any strategic real estate.
Interest expense for the year is expected to come in between 20 and $25 million.
Based on the current operating environment for the second quarter of 2023, we are expecting top line revenues between 420 and $440 million and operating margins in the 8% to 10% range. We expect continued softness in both volumes and rates across our transactional transportation businesses.
But a stable operating environment for our contract logistics business.
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 June 5th 2023, and is expected to be paid on July three 2023.
With that Kyle we're ready to take some questions.
Great. Thank you Mr. Bruce will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
We're using a speaker phone please pickup your handset before pressing the keys.
Should we draw your question. Please press Star then two.
Our first question comes from Chris Wetherbee with CD. Please go ahead.
Hey, Good morning, guys. This is Matt on for Chris I appreciate the detail on the quarter wanted to just touch a little bit more intermodal here, obviously the space has been under some pretty serious pressure, which has been a theme. This earning season. We were just wondering you know if there's any additional color you might be able to provide as we think about you know the second quarter and into the back half of the year.
This also sort of intertwined with your with your guide I'm. The Guy details that you guys. Just put out and you know are customers, giving you feedback as to when volumes could you now begin rebounding I mean, how exactly are you thinking about the situation now.
Where do you where do you see where we're at at this point in time walking through the bloated inventories I know during the last call Tim mentioned some rebounds after the Chinese new year, just didn't know if there was any update you know in general sort of drilling a little bit deeper into the intermodal side of things on that front any detail on that front would be great. Thanks, Yeah sure.
I appreciate the question Matt.
Everything we have seen from our first quarter look back is the import volumes were down significantly.
Just about everywhere, except for maybe the Gulf with which saw a slight bit of increase.
As you know we're situated.
Around the around the country at all the major ports, we have significant density and southern California have significant density in the southeast and the northeast.
So what we're hearing from our customers, especially on the retail space is a lot of a lot of wait and see they think there will be some normal seasonality.
Two two what's going to be in the future, but theyre not willing to say that the second half of the year is going to be a big rig rebound nobody to this point has committed to saying that the second half of the year as we've seen them walk into the back to school and the holiday season is going to see any kind of large uptick they they expect bad at least.
At this current state to be.
Somewhat muted even even some of our customers, saying that if you have other customers, saying that youre going to have a rebound into the second half of the year that it's going to be real strong you may want to really rationalize that because you know some are just not believing it. So it's not just the retail space. We deal we deal with the you know some other retailers in.
Chemical we deal on raw materials, we deal in office furniture really there hasnt been anybody that's come forward and said that we expect you know a real big increase.
On our imports are even going and talking to some of the ocean liners, which.
There's there's that information out there in the news there's no real expected quick rebound there's optimism on the second half of the year turning more normal.
But with the muted peak season.
And you know I did say, we were hoping for a rebound after the Chinese new year and to this point, we really have not seen any rebound I think as we exited the first quarter.
Intermodal side I would even say that maybe April is a slight bit short of where we were in March so it's still pretty soft out there Matt.
Awesome, Great Yeah, no really I really appreciate that incremental detail and then just a quick follow up. So you know you touched on something that you know a couple of different you know retail versus industrial you know are you noticing any specific you know sort of trends in general on that side of things I don't know if there's just any you know additional.
Detail that you could provide on you know the areas of your business, you know retail versus industrial and sort of if theres any specific themes or trends that you're seeing on that side of things.
Yeah, I would say definitely on the retail at least what we service. There. There is no real indication of any quick rebound like I said, they're they're down you know as we had said in the in the California conversation you know double digits.
As it comes to more of the raw material or chemicals chemicals that the customers, we deal with seem to be flat to down the raw materials on the customers. We deal with are definitely down. So it's telling me that they're bringing in less than probably gonna be producing less.
As far as any other color on you know consumer goods.
It is it just kind of a wait and see nobody has given us any real clear indication. The one thing that the resounding theme as I said from the overall customer sentiment.
Is that volumes would increase but very slightly based on seasonality and nobody expects you know a huge uptick or peak season at this particular point.
Also really really appreciate the detail. Thanks, so much guys.
Thanks, Matt.
Yeah.
Our next question comes from Bruce Chan with time.
Please go ahead.
Hey, good morning team. Thanks for all the color. So far this is Andrew on for Bruce I kind of wanted to dig into the manufacturing inventories a little bit looking just at the government data the I S data they seem to be carrying the most excess inventories that just kind of wanted but we've not really hearing a lot of conversations about destocking on on that.
The economies I wanted to get your sense of a comp.
Conversations with customers regarding industrial inventories and they kind of expect that destocking theme to help drive inflection like the consumer focused or at some point, we know what kind of getting pushed out here, but they are expecting similar theme.
Well from what we deal with from an import standpoint point that leads into manufacturing.
The companies, we're dealing with there's really has been no prediction of the climb out of the trough that they're in right now now I will tell you that.
From a manufacturing side or a agricultural.
Heavy equipment.
In aerospace.
We we feel really good about that in our conversations with customers not only is it there there seem to be a good demand for the products. There's also a back order it seems like the order books are still full.
We expect to be able to stretch our legs are hopefully.
Hopefully the remainder of the year I mean, it's hard to predict you know a third and fourth quarter, but we're pretty we're pretty bullish on that.
That segment continuing to support <unk>.
Active growth growth in our portfolio.
That's that's helpful. I was kind of it kind of leads me into my next question about you discussed how aggressive the sales team is being in sourcing new customer opportunities, especially in intermodal here I was hoping to kind of lift the hood a little further there are you guys going after new end markets given the retail exposure there and then the retail weakness or just.
Be helpful to understand where are you finding success and difficulties is it are you guys finding success in those verticals just mentioned.
Yeah.
The intermodal market places like I said, we do a lot in retail we're going to do a lot of afraid of all kinds to because of the way that the import structure works in the states, but yeah. We're looking to diversify what we're always looking to diversify our customer base and you know, it's it's a direct effort of the sales team and it's a good color.
<unk> efforts that we communicate right, we're cross pollinating customers across service lines that could be different verticals that we maybe not have experience.
In intermodal standpoint.
At the end of the day I see good and I have seen good bid volumes flowing through really what it's come come down too Andrew is pricing right. The customers hyper focus on pricing and gaining back some of what they potentially had lost over the last year 18 months two years.
And we just have to be exceptionally competitive no matter what the vertical is that where we're going after to try it because we're really what we're doing is attempting to take market share from somebody else. So it's been it's been hyper competitive, but yet we will continue our diversification not just on intermodal, but we're.
Looking for diversification on multiple operating segments.
Great. That's helpful as well if I can just squeeze in one more on the pricing front you guys discussed the accessorial spin down 25% kind of rolling off faster than you had expected I just kind of wanted to get your Hal.
That did compare to your expectations I mean, how quickly or what are you expecting accessorial roll off or or rather.
How quick could you get to that point.
When were you expecting that before you have to roll off.
To this point sorry.
Well, that's a that's a loaded loaded questions one pack because it it's hard to forecast, but you know some of your ask the soils run in conjunction with just your your general load volume right. We're billing certain accessorial that accompany a movement of a piece of intermodal freight so number one the volumes are lighter.
Number two just like on the base dray pricing.
Whether it be helping them manage what they had at the ports and rail. So there was a lot of there was a lot of flow of funds, but it was because of the congestion and the environment.
So we expected some of that to Peel off as fluency found itself and for the most part if you read anything in the news fluids. He has found itself Atmos, Florida operations doesn't mean, they're fluids within the port in all cases, but the amount of imports coming into the country as definitely normalized so.
We expected that there would be some fall off in some of those accessorial and I think if you go back and I think Jude would agree with it. That's why we took a deep look an honest look in the fourth quarter. Because we saw some of these leading indicators that say hey, wait a minute you have to pay attention because we just got supply.
Change starting to become a little more fluid and things are slowing down so that's that one.
One of the reasons, we guided the way we guided in our in the fourth quarter because of what we saw so that's a long extended answer but that's what we're seeing.
No. That's extremely helpful. I appreciate that and I guess, all I can promise it'll be the last one but I just wanted to just kind of ask where the optimism that's coming from the driving where winter youre getting your optimism that's driving behind your expectation for orders to continue doing well, but that's been really a bright spot of the economy. So far just any any anecdotes from customers.
On on especially the consumer auto front, we've seen the class eight data, but pull back a little bit more you know just a little bit more content on that on consumer.
I think autos.
You you probably and many people on the call probably have listen to some of the autos in class eights, because some of them are reported already.
We're getting a realistic you know.
Outlook from some of the numbers, we're seeing from a production standpoint, and I do know inflation is there I know that interest rates are rising, but theres still optimism within the auto and class eight group.
That there'll be continued sales throughout the year that should be it at a good cadence and where we're seeing nothing different at this point.
<unk> bullish on class eight because we know there's a lot of pent up demand. If you remember last year and in 'twenty. One is very very difficult to get a new a new vehicle or new class eight truck. So those order books are still out there will some peel off sure they will.
As the economy goes, but where were everything aligns itself, but they're optimistic for the rest of the year and the autos they still feel that they're selling the vehicles that are that are out there that and especially from what we deal with we deal with plants that produce.
Demand vehicles, and that's where we centered herself around so.
Comfortably up and optimistic that we'll continue to see this cadence through the next several quarters.
Well good to hear thanks, so much for the time and the information this morning.
Yeah. Thanks, Andrew.
As a reminder to ask a question. Please press Star then one.
Okay.
Again, if you have a question please press star.
Then one.
There being no further questions. This concludes our question and answer session I would like turn the conference back over to Mr. Tim Phillips for any closing remarks.
Thank you Kyle.
And thank you for spending time with US. This morning. This morning to cover our Q1 performance as mentioned I'm extremely pleased with our contract logistics roadmap moving forward this year.
While the transactional transportation segments may may be experiencing some headwinds, we will remain committed to productivity improvements and rationalizing our human asset in the various segments.
We continue to look for opportunities to diversify our portfolio by cross Pollinating, our customer base among our various service segments.
With that said I look forward to continued conversation on our Q2 earnings call slated for July 28.
Have a great day. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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