Q3 2023 Universal Logistics Holdings Inc Earnings Call

Hello, and welcome to Universal Logistics Holdings' third quarter of 2023 earnings Conference call.

At this time all participants are in listen only mode do you need assistance. Please signal conference specialist by pressing the star key followed by Seaworld.

Great 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 views of business as seen today.

Statements.

That are forward looking relate to universal's business objectives.

Patients and can be identified by the use of words, such as believes expect anticipate and project.

The statements are subject to risk and uncertainties and actual results could differ materially from Bolsa protection.

This conference is being recorded.

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

Nick and good morning, and welcome to Universal Logistics Holdings' 2023 third quarter earnings call.

Third quarter was a tale of two tapes.

Our contract logistics group navigated late quarter market disruption, but outstanding performance.

Headwinds continue to hamper, our intermodal and brokerage segments.

Our truckload segment outperformed expectations with a strong showing from our specialized services group.

I'm extremely proud of our employees contractors and agents, who continue to provide superior customer service to our diversified customer base.

Individuals segment of UL age are facing various challenges our experienced management team has been able to adjust and shine a light on best practices with a path forward for our associates and customers.

We continue to make headway in the electric vehicle space with various automotive manufacturers made.

Major investments in this space will shape, the future landscape of the automotive industry.

Understanding the changing landscape Universal will continue to invest in technology and human capital to address these future needs.

There will be challenges along the way such as the current UAW strike at the Big three and Mack truck.

While not immune from the impact of striking locations. The majority of our contracts do contain fixed and variable pricing components, which help us absorb some of the shot to be unpredictable events.

We understand labor searching for their footing in a changing environment, but remain hopeful an agreement can be reached with all in the near future.

Our transportation and logistics segment performance looks very similar to Q2 with transportation continuing to experience the adverse impact of inventory destocking as customer demand for goods remain tempered.

Following in line with demand transportation pricing also remains under pressure with.

With our transactional business still bumping what we hope is at.

We're near the bottom of the cycle.

Our contract logistics segment has continued to see a good flow of new opportunity and its not experienced the same level of rate compression that our brokerage intermodal and truckload groups have experience.

Leadership remains focused on evaluating and supplying our customers with the best pricing.

While keeping a keen eye on continued quality commitment.

In an inflationary environment.

Our diversified operating footprint continues to produce balanced operating result contract logistics in the variable cost agent based truckload model delivered great result.

We remain confident in the foundation of our intermodal and brokerage the brokerage segment.

We are pulling levers, while searching for additional cost containment and savings under the current market condition.

Our pipeline of new customer prospects remains robust as well as the cross selling initiatives with current customers.

Our sales team has worked extremely hard identifying these customers and introducing new services.

We are extremely pleased with the synergies we have found by linking services.

Universal remains committed to providing our customers with superior service across multiple platforms, helping them gain better control of their supply chain.

The outlook for autos and class eight trucks remains optimistic while there is some near term uncertainty, but labor and pressure from rising interest rates production forecast remains stable.

Diversification continues to be a theme for all of our operating sectors.

It will provide additional balance of new growth opportunities.

We remain committed to climb out of the great recession is important numbers remain muted and domestic freight volumes are restricted.

Discipline and execution are critical over the next several quarters.

Now for the quarter.

In yesterday's release, Universal reported 2023 third quarter earnings of 88 cents per share on total operating revenue of $421 3 million Boe.

Both operating margin and revenue were in line with our Q3 forecast.

Q3, 2022 offered tough comp comparisons.

As it was universal best operating margin and EPS ever.

Now for some color on each of our service lines.

And our contract logistics segment, the number of active value added programs continues to increase and finished the quarter at 73 programs.

Interest in our customer centric value added programs continues to grow across a variety of industry verticals.

We are confident and eager to display our existing solutions and processes to new customers, who are looking for operational efficiencies.

Tech solutions and cost savings.

Other than a few strike restricted facilities auto production remain consistent through Q3, but with a sporadic 66 day work week.

We did experienced some lost volume at the end of the quarter due to our operations matching up with the auto facilities that are on strike.

We are actively watching and remain nimble to any developments affecting production.

This is all remained elevated over the same quarter last year. The outcome of Q4 production will be influenced by the red by the resolution of the ongoing strike at the three American auto manufacturers.

2023 class eight production levels continued to exceed 2022 volume.

With a forecast of production strength the remainder of the year.

2023 class a production should be in the neighborhood of 336000 units versus 315000 units in 2000 22022.

Well there are some disruptions due to part shortages production volumes at the plants. We serve has surpassed Q3 2022 production volumes.

We are closely monitoring the ongoing negotiations between Mac mobile and the UAW.

We are excited about our pipeline that continues to reign full of opportunities in various industry verticals.

We remain busy launching several new pieces of business in Q3 and had several more launching in Q4.

And October launch will support operations for an automotive manufacturer and mid Mexico.

Universal remains focused on the opportunities that Mexico presents.

You are showing trends have now elevated Mexico, and the United States largest import trading partner.

The dedicated transportation group continues to onboard new business and execute taking advantage of the high velocity platform Dissatisfy complex and demanding inbound material environment.

We continue to highlight our velocity model, which is a fabulous fabulous entry into additional opportunities for existing customers and a great case study for new customers looking for the next level execution service.

Revenue for the quarter was up slightly but same facility sales were down as a result of softer revenue in the automotive space.

A lack of six day service any few part disruptions were to blame for the reduced revenue.

Offsetting this were a few new business wins.

Dedicated also spent the latter half of the third quarter preparing for a major launch in Mexico at the beginning of October we are extremely.

Really excited about adding our two our density amid Mexico.

We were successful in obtaining new trucks and trailers to support the customer and expect this to be entry into additional business in the region.

The program will layer in over five week period.

Can be supported by 40 drivers and 60 trailers.

At full run rate this new business is expected to generate approximately 6 million in annual revenue.

This opportunity is a great example of multiple multiple Universal service line working together to create additional value for our customer.

The dedicated group will round out Q4 with a major launch in the southeastern U S for a manufacturer of agricultural equipment.

Preparation is underway to support the facility housing over 20 drivers in a large pool of trailing equipment.

We expect to be launched and at full run rate in Q1 of 'twenty 'twenty four.

Okay.

Our intermodal Drayage group continues to navigate a restricted import environment.

We did see a slight seasonal bump in the quarter, but nothing that could be considered peak.

U S import volumes remain muted at most major ports as shippers continue their inventory destocking cycle.

The narrative among many shippers remains the same.

We're very hesitant to predict the next two quarter quarters as they continue to dive in on the customers' appetite to spend.

We've had a conversation with the major discount retailers, who expect a slight uptick in volume.

With many industrial customers expecting flat to orders being down.

The sluggish important buyer environment continue to restrict overall load volumes in the quarter, which fell 11, 8% and contribute to a 43, 9% decline in topline revenue over the same period of 2022.

Ask the soil charges continue their steep decrease as ocean volumes remained in a deficit and supply chains where fluid.

After sorial charges declined over 68% or $21 4 million.

The average revenue per load ex fuel was down 24, 7% to 547 her low as the market remains extremely competitive.

Intermodal is California operations continued to be a drag on the segment's overall financial results.

While non California operations operated profitably, albeit at reduced margins.

California load volumes remain depressed down 13, 6% over the same period in 2022, while revenue per load was down 35, 6%, which contributed to a 57% decrease in operating revenue.

While we are confident in our continued effort to rightsize and optimize the fleet freight volumes and pricing will play a part in that equation.

Losses in southern California affected our overall EPS by <unk> 19 per share.

We remain optimistic about our growing intermodal pipeline, while there is an abundant amount of opportunity the pricing is extremely competitive.

Q3 proved to be a successful quarter for launching new business. We had 10, new projects with various customers Onboarding and launched in Q3 and expect positive impacts of load counts in the coming months.

The group will continue streamlining of operations and evaluating cost control initiatives, while focusing on servicing our customer base and preparing for the climb when volumes increase.

Yeah.

Van and flatbed headwinds continued in Q3 for our trucking segment, but wind transportation experienced a 15, 6% uptick in loads for the quarter.

Metals industrial retail and consumer good volumes were all down were all down year over year.

Overall load count was down 13, 1%, but the rising wind volumes led to a 13, 3% increase in revenue per load.

Operator: Hello and welcome to Universal Logistic Holdings start quarter of 2023 earnings conference column. This time all participants are unlisted only month. To need assistance, please signal conference measures by pressing the start key followed by zero.

Our agent base brokers brokerage experienced a significant drop off in brokerage loads, which were down over 25, 6% compared to 2022.

Operator: 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 views of business as seen today. Statements that are forward-looking, related, universal business objectives or expectations and can be identified by the use of words such as beliefs, expect, anticipate, and project. Such statements are subject to risk and uncertainties, and actual results could differ materially from those expectations.

Topline revenue of $97 1 million was down two 5% for the quarter, while operating income increased 1.8 million to $6 6 million compared to $4 8 million last year.

While core flatbed and van volumes remain a challenge the variable cost structure model provided consistent returns.

Our truckload model continues to provide agents with tools and leadership to grow the business. We're excited about the prospects in our pipeline and are eager to continue to launch talent into the system.

Operator: As we monitor this conference as being recorded, it's 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 Reissence. Thank you, Mr. Phillips.

We remain diligent on finding an onboarding new agents and customers.

Company manage brokerage saw topline revenue dropped 38% in the quarter to $28 1 million at sluggish freight market influenced by inflation and customer spend consumer spending continued to drive down pricing.

Tim Phillips: You may now begin.

The group is experiencing many potential opportunities, but has remained disciplined with pricing.

Tim Phillips: Thank you Nick, and good morning, and welcome to Universal Logistic Holdings 2023 Third Quarter earnings call. Third quarter was a tale of two tapes, a contract logistic group navigated late quarter market disruption without standing performance, while headwinds continue to hamper our intermodal and brokerage segments. Our truckload segment outperform expectations with a strong showing from a specialized services group. I'm extremely proud of our employees, contractors, and agents who continue to provide superior customer service to our diversified customer base.

Many opportunities are at or below breakeven from a profit standpoint.

We continue to align our pricing and selection of afraid to give the operations team the best opportunity to make money on everything we do.

We're not interested in pricing freight to increase volume at a substantial loss.

Pricing, coupled with increased carrier operational costs.

Tim Phillips: While individual segments of ULH are facing various challenges, our experience management team has been able to adjust and shine a light on best practices with a path forward for our associates and customers. We continue to make headway in the electric vehicle space with various automotive manufacturers. Major investments in this space will shape the future landscape of the automotive industry. Understanding the changing landscape, Universal will continue to invest in technology and human capital to address these future needs.

The model very difficult to reach gross margin expectation. However.

You are beginning to see some of the fallout in the space because of margin compression.

Operating revenue per load decreased 11, 1% to 1475 per loan.

And the low count was down 12, 3%.

Gross margin increased over Q2, 2023, but was well below Q3 of 2022.

Third party capacity is available, but it is coming at a higher cost because of inflation.

Tim Phillips: There will be challenges along the way, such as the current UAW strike at the Big Three and Mac Truck. While not immune from the impact of striking locations, the majority of our contracts do contain fixed and variable pricing components, which helps us absorb some of the shock of these unpredictable events. We understand labor is searching for their footing in a changing environment, but remain hopeful and agreement can be reached with all in the near future.

We continue to remain extremely optimistic about our future while near term inventory in inflation issues have created some obstacles or road map to diversification and growth is measurable.

Our sales pipeline across all segments is healthy.

Our contract logistics offerings continued to show, well and spark enthusiasm with potential and existing customers.

Adding value to our customer supply chain is our number one priority.

Tim Phillips: Our transportation logistics segments performance looks very similar to Q2, with transportation continuing to experience the adverse impact of inventory stockings as customer demand for goods remains tempered. Following in line with demand, transportation pricing also remains under pressure, with our transactional business still bumping what we hope is at or near the bottom of the cycle. Our contract logistics segment has continued to see a good flow of new opportunity, and if not experience the same level of rate compression that are brokerage, intermodal, and truck truckload group that experience.

Finally, I would like to reiterate my appreciation to all of Universal's hardworking associates.

Your commitment to training learning and servicing the customer truly makes a difference.

I'm pleased with our overall Q3 performance driven by our diversified portfolio of services, which continue to provide value to our customers shareholders and associates.

I would now like to turn the call over to Jude for detailed.

Financial performance Jude Thanks, Tim Good morning, everyone yesterday, Universal Logistics Holdings reported consolidated net income of 23 million or <unk> 88 per share on total operating revenues of $421 3 million in the third quarter of 2023. This comparison net income of $48 5 million or $1.

Tim Phillips: Leadership remains focused on evaluating and supplying our customers with the best pricing while keeping a key and eye on continued quality commitments in an inflationary environment. Our diversified operating footprint continues to produce balanced operating results. Contract logistics and the variable cost agent-based truckload model delivered great results. We remain confident in the foundation of our intermodal and brokerage segment. We are pulling levers while searching for additional costs, containment, and savings under the current market condition.

<unk> 84 per share on total operating revenues of $505 7 million. During the same period last year for comparison purposes. Please note. The third quarter of 2022 was the peak of the trucking cycle for Universal and reflected the highest ever reported results in our history.

Consolidated income from operations was $36 8 million for the quarter compared to $69 8 million one year earlier EBITDA decreased to $27 6 million to $56 7 million, which compares to $84 4 million. During the same period last year, our operating margin and EBITDA margin for the third quarter of 2020.

Tim Phillips: Our pipeline of new customer prospects remains robust as well as a cross-selling initiative with current customers. Our sales team has worked extremely hard at identifying these customers and introducing new services. We are extremely pleased with the synergies we have found by linking services. Universal remains committed to providing our bad customers with superior service across multiple platforms, helping them gain better control of their supply chain. The outlook for autos and classic trucks remains optimistic.

Three or eight 7% and 13, 5% of total operating revenues.

These metrics compare to 13, 8% and 16, 7% respectively in the third quarter of 2022.

Looking at our segment performance for the third quarter of 2023, and our contract logistics segment, which includes our value add and dedicated transportation businesses income from operations decreased 300000 to $35 1 million on $208 1 million of total operating revenues. This compares to operating income of $35.

Tim Phillips: While there is some near-term uncertainty with labor and pressure from rising interest rates, production forecasts remain stable. The diversification continues to be esteemed for all of our operating sectors as it will provide additional balance and new growth opportunities. We remain committed to climb out of the freight recession as important numbers remain muted and domestic freight volumes are restricted. Discipline and execution are critical over the next several quarters.

$4 million on $209 5 million of total operating revenue in the third quarter of 2022.

Operating margins for the quarter were 16, 9% matching last year's margin, which was also a record and our contract logistics.

Onto our intermodal segment operating revenues decreased $67 8 million to $86 6 million compared to $154 4 million in the same period last year and income from operations decreased $32 5 million to an operating loss of $4 3 million. This.

Operator: Now for the quarter.

Tim Phillips: In yesterday's release, Universal reported 23 third quarter earnings of 88 cents per share on total operating revenue of 421.3 million. Both operating margin and revenue were in line with RQ3 forecast. Q3 2022 offered tough comparisons as it was Universal's best operating margin and EPS ever.

This compares to operating income of $28 1 million in the third quarter 2022 odd.

Operating ratios for the quarter were 105% versus $81 eight last year.

Tim Phillips: Now for some color in each of our service lines. In our contract logistics segment, the number of active value added programs continued to increase and finish the quarter at 73 programs. Interest in our customer-centric value added programs continues to grow across a variety of industry verticals. We are confident and eager to display our existing solutions and processes to new customers who are looking for operational, efficient fees, tech solutions and cost ratings.

As mentioned in Tim's comments, our intermodal segment's operating results were negatively impacted by operating losses in our west coast operations.

For the quarter, California, Drayage operations loss of $6 $5 million impacting segment margins by 750 basis points and consolidated results by <unk> 19 per share.

In our trucking segment operating revenues for the quarter decreased $2 5 million to $97 1 million compared to $99 6 million in the same quarter last year, while income from operations increased $1 8 million to $6 6 million.

Tim Phillips: Other than a few strike restrictive facilities, auto production remain consistent through Q3, but with a sporadic 60 work week. We did experience some loss of volume at the end of the quarter due to our operations matching up with the auto facilities that are on strike. We are actively watching and remain nimble to any development's affecting production. The thought remained elevator over the same quarter last year. The outcome of Q4 production will be influenced by the resolution of the ongoing strike at the three American auto manufacturers.

This compares to operating income of $4 8 million in the third quarter of 2022.

Operating margins for the quarter were six 8% versus four 8% last year supported by the strong performance from our wind energy business.

And our company managed brokerage segment operating revenues for the quarter decreased to $12 5 million to $28 1 million compared to $40 6 million in the same quarter last year and income from operations decreased $2 1 million to an operating loss of $1 1 million.

Tim Phillips: 2020-23 Class-A production levels continue to exceed 2022 volumes with a forecast of production strength, the remainder of the year. 2023 Class-A production should be in the neighborhood of 336,000 units versus 315,000 units in 2020-22. Well, there are some disruptions due to parts shortages. Production volumes at the plants we service to pass Q3 2022 production volumes. We are closely monitoring the ongoing negotiations between MAC-VOLVAL and the U-A-W.

This compares to operating income of $1 1 million in the third quarter of 2022 operating margins for the quarter were negative three 8% versus a positive two 7% last year.

On our balance sheet, we held cash and cash equivalents totaling $16 8 million and kind of half a million of marketable securities outstanding interest bearing debt net of $4 8 million of debt issuance costs totaled $387 2 million at the end of the period, excluding lease liabilities related to ASC 842.

Net interest bearing debt to reported trailing 12 month EBITDA was $1 six three times.

Tim Phillips: We are excited about our pipeline that continues to remain full of opportunities in various industry verticals. We have remained busy launching several new pieces of business in Q3 and has several more launching in Q4. An October launch will support operations for an automotive manufacturer in mid-Mexico. Universal remains focused on the opportunities that Mexico presents. You're showing trends have now elevated Mexico as the United States' largest import trading partner. The dedicated transportation group continues to onboard new business and execute, taking advantage of a high velocity platform to satisfy complex and demanding inbound material environments.

Capital expenditures for the quarter were $112 3 million, including $80 million for the acquisition of a strategic terminal in California for.

For 2023, we expect capital expenditures to be in the $235 million range and interest expense to be between $20 million to $25 million.

Based on the current operating environment for the fourth quarter of 2023, we are expecting top line revenues between 350 and $375 million and operating margins in the 7% to 9% range.

If the UAW strike continues longer than anticipated or expand to additional operations. We support we will update our guidance during the quarter.

Tim Phillips: We continue to highlight our velocity model, which is a fabulous, fabulous entry into additional opportunities 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 slightly, but same facility fields were down as a result of softer revenue than the automotive space. A lack of 6-day service and a few part disruptions were to blame for the reduced revenue.

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 December four 2023 and is expected to be paid on January 2nd of 2024.

With that Nick we're ready to take some questions.

Thank you.

I'll begin the question and answer session.

Tim Phillips: Offsetting this were a few new business wins. Dedicated also spent a latter half of the third quarter preparing for a major launch in Mexico at the beginning of October. We are extremely excited about adding our to our density in mid-Mexico. We work successful in obtaining new trucks and trailers to support the customer and expect this to be entry into additional business in the region. The program will layer in over five week period and be supported by 40 drivers and 60 trailers.

Good question you May Press Star then one on you touched on phone.

On a speakerphone, please pick up your handset before pressing the keys.

Withdraw your question. Please press Star then two at this time, we'll pause momentarily.

Assemble the roster.

First question will be from Bruce Chan of Stifel. Please go ahead.

Good morning team. This is Matt My last gone to Bruce.

Just wanted to I know you mentioned in the prepared remarks, you saw some volume attrition.

Tim Phillips: At full run rate, this new business is expected to generate approximately 6 million in annual revenue. This opportunity is a great example of multiple universal service lines working together to create additional value for our customer. The dedicated group will round out Q4 with a major launch in the South Eastern U.S, for a manufacturer of agriculture equipment. Preparations underway to support the facility housing over 20 drivers and a large pool of trailing equipment.

<unk> from UAW late in the quarter.

I just wanted to know if you could provide any more color as to whats.

Going on there and if you think you know the rate of disruption might change meaningfully going into next quarter. Thanks.

Yeah, Matt This is Tim Yeah, we did see some disruption coming out of the third quarter.

As individual plants went down week after week.

Think that they made a difference Ah tailing out of the quarter in the operating results and we will carry some of that into the beginning of the fourth quarter. It is our hope because we were not in the negotiations that there would be a near term resolution to it and you know you saw one of those of the big three come out with.

Tim Phillips: We expect to be launched and at full run rate in Q1 of 2024. Our Intermodal DRAGE group continues to navigate a restricted, important environment. We did see a slight seasonal bump in the quarter but nothing that could be considered peak. U.S, import volumes remain muted at most major ports as shippers continue their inventory to stock and cycle. The narrative among many shippers remains the same. They are very hesitant to predict the next two quarters as they continue to dive in on the customer's appetite to spend.

With this.

This week and we're hoping that the others follow suit. So I think that was taken into consideration also as we looked at what we thought our fourth quarter performance was going to be.

Okay.

Fair enough.

Secondly could.

Tim Phillips: We've had conversation with some major discount retailers who expect a slight up-sick and volume with many industrial customers expecting flat to orders being down. The sluggish import environment continued to restrict overall load volumes in the quarter, which fell 11.8% and contributes to a 43.9% decline in top-line revenue over the same period of 2022. Asusorial charges continued their steep decrease as ocean volumes remained in a deficit and supply chains were fluid. Asusorial charges declined over 68% or 21.4 million.

Could you provide just sort of your.

Maybe general outlook for the industrial economy, you know moving into next year.

Yeah, the general outlook from what we know and what we've heard from our customer base.

I start on the over the road or the truckload Transportation group, we know that in steel and some of the industrial equipment that we traditionally move on flatbed.

It did take a dive in the third quarter, we expect that to remain kind of the picture or the road map at least in the fourth quarter heading into Q1.

If I look beyond just the domestic transportation from an international standpoint, we definitely saw a slowdown in some of the industrial type of product that we import.

Tim Phillips: The average revenue per load, X-fuel was down 24.7% to 547 per load as the market remained extremely competitive. Intermodals California operations continued to be a drag on the segment's overall financial results, while non-California operations operated profitably albeit at reduced margins. California load volumes remained depressed down 13.6% over the same period in 2022, while revenue per load was down 35.6%, which contributed to a 57% decrease in operating revenue. While we are confident in our continued effort to right size and optimize the fleet, freight volumes and pricing will play a part in that equation. Losses in Southern California affected our overall EPS by 19 cents per share. We remain optimistic about our growing intermodal pipelines, while there is an abundant amount of opportunity, the pricing is extremely competitive.

Well, we move that is imported into the country. So I expect that kind of aligns with it from our customer base that the.

The industrial space, we'll we'll continue to see a slower slower type environment can't predict next year exactly but I would think that Q4 and Q1, we will experience some headwinds.

Okay, great thanks for that color.

And lastly.

Would you be able to provide sort of a new normalized.

Earnings power you know.

Bogey for for the company at this point thanks.

Hey, this is <unk>. So historically, we've talked that in a normal operating environment, we should be around a dollar a share a quarter.

We don't have a normal operating environment right you know in the middle of a freight recession and of course, the headwinds that we're now experiencing with it with the UAW, but you know you kind of saw last year I mean, we had peak earnings of over $6 a share.

Tim Phillips: Q3 proved to be a successful quarter for launching new business. We had 10 new projects with various customers, onboarding and launching Q3 and expect positive impacts of load counts in the coming months. The group will continue streamlining of operations and evaluating cost control initiatives while focusing on servicing our customer base and preparing for the climb when volumes increase. Van and flatbed headwinds continued in Q3 for our tracking segment, but wind transportation experienced a 15.6% up-sick and loads for the quarter.

But that would probably be the ultimate earnings power of the company at this point for our scale.

The current size that we are but I mean, a dollar a share. We think is kind of a baseline in a normal operating environment with upside from there.

Great. Thanks, a lot.

Thank you.

Thank you Jan if you'd like to ask a question. Please press Star then one.

Yeah.

This concludes our question and answer session I would like to turn the call back over to Mr. Tim Phillips for closing remarks.

Tim Phillips: Metals, industrial, retail and consumer goods, volumes were all down year over year. Overall load count was down 13.1%, but the rise in wind volumes led to a 13.3% increase in revenue per load. Our agent-based brokerage experience is significant drop-off in brokerage loads, which were down over 25.6% compared to 2022. Topline revenue 97.1 million was down 2.5% for the quarter, while operating income increased 1.8 million to 6.6 million compared to 4.8 million last year.

Thank you Nick.

The current landscape presents some challenges.

But with disruption will come opportunity.

Universal will be position to take advantage of these opportunities.

I appreciate everyone calling in.

And I look forward to talking to you again for the Q4 earnings call in February of 2024.

And have a great day.

It's not concluded.

For attending today's presentation you may now disconnect.

Okay.

Tim Phillips: While core, flatbed and van volumes remain a challenge, the variable cost structure model provided consistent returns. Our truckload model continues to provide agents with tools and leadership to grow the business. We're excited about the prospects in our pipeline and are eager to continue to launch talent into the system. We're going to re-remain diligent on finding and onboarding new agents and customers. Company managed brokerage saw top line revenue drop 30.8% in the quarter to 28.1 million at Sluggish Freight Market, influenced by inflation and customer spend consumer spending continue to drive down pricing.

Tim Phillips: The group is experiencing many potential opportunities that has remained disciplined with pricing. Many opportunities are at or below break even from a profit standpoint. We continue to align our pricing and selection of price to give the operations team the best opportunity to make money on everything we do. We're not interested in pricing price to increase volume at a substantial loss. Depressed pricing coupled with increased carrier operational costs has made the model very difficult to reach gross margin expectations.

Tim Phillips: However, you are beginning to see some of the fallout in the space because of margin pressure. Operating revenue per low decrease 11.1% to 1,475 per low and the low count was down 12.3%. Gross margin increased over Q2 2023 but was well below Q3 of 2022. Third party capacity is available but it is coming at a higher cost because of inflation. We continue to remain extremely optimistic about our future. While near term inventory and inflation issues have created some obstacles our road maps to diversification and growth is measurable. Our sales pipeline across all segments is healthy. Our contract logistics offerings continue to show well and spark enthusiasm with potential and existing customers. Adding value to our customer's supply chain is our number one priority.

Tim Phillips: Finally, I would like to reiterate my appreciation to all of the universal hardworking associates. Your commitment to training, learning, and servicing the customer truly makes a difference. I'm pleased with our overall Q3 performance driven by our diversified portfolio of services which continue to provide value to our customers, shareholders, and associates.

Tim Phillips: I would now like to turn the call over to Jude for detailed viewer financial performance. Jude, thanks Tim.

Jude Beres: Good morning everyone. The yesterday universal logistics holding is reported consolidated net income of 23 million or 88 cents per share on total operating revenues of 421.3 million in the third quarter of 2023. This comparison net income of 48.5 million or $1.84 per share on total operating revenues of 505.7 million during the same period last year. For comparison purposes, please note the third quarter of 2022 was the peak of the trucking cycle for universal and reflected the highest ever reported results in our history.

Jude Beres: Consolidated income from operations was 36.8 million for the quarter compared to 69.8 million one year earlier. EBITDA decreased 27.6 million to 56.7 million which compares to 84.4 million during the same period last year. Our operating margin and EBITDA margin for the third quarter of 2023 are 8.7 percent and 13.5 percent of total operating revenues. These metrics compare to 13.8 percent and 16.7 percent respectively in the third quarter of 2022. Looking at our segment performance for the third quarter of 2023, in our Contract Logistics segment, which includes our value add and dedicated transportation businesses, income from operations decreased, $300,000 to $35.1 million on $208.1 million of total operating revenues.

Jude Beres: This compares to operating income of $35.4 million on $209.5 million of total operating revenue in the third quarter of 2022. Operating margins for the quarter were 16.9 percent matching last year's margin, which was also a record in our Contract Logistics segment. On to our Intermodal segment, operating revenues decreased $67.8 million to $86.6 million compared to $154.4 million in the same period last year, and income from operations decreased $32.5 million to an operating loss of $4.3 million.

Jude Beres: This compares to operating income of $28.1 million in the third quarter of 2022. Operating ratios for the quarter were 105 percent versus $81.8 last year. As mentioned in Tim's comments, our Intermodal segments operating results were negatively impacted by operating losses in our West Coast operations. For the quarter, California Durage operations lost $6.5 million, impacting segment margins by 750 basis points and consolidates results by 19 cents per share. In our Trucking segment, operating revenues for the quarter decreased $2.5 million to $97.1 million compared to $99.6 million in the same quarter last year, while income from operations increased $1.8 million to $6.6 million.

Jude Beres: This compares to operating income of $4.8 million in the third quarter of 2022. Operating margins for the quarter were 6.8 percent versus $4.8 percent last year, supported by the strong performance from our wind energy business. In our company Managed Brokward segment, operating revenues for the quarter decreased $12.5 million to $28.1 million compared to $40.6 million in the same quarter last year and income from operations decreased $2.1 million to an operating loss of $1.1 million.

Jude Beres: This compares to operating income of $1.1 million in the third quarter of 2022. Operating margins for the quarter were negative 3.8 percent versus a positive 2.7 percent last year. On our balance sheet, we held cash and cash equivalent, totaling $16.8 million, and spent 1.5 million of marketable securities. Outstanding interest bearing debt net of $4.8 million of debt issuance costs totaled $387.2 million at the end of the period. Excluding lease liabilities related to ASC842, our net interest bearing debt to reported trailing 12-month EBITDA was 1.63 times.

Jude Beres: Capital expenditures for the quarter were 112.3 million, including 80 million for the acquisition of a strategic terminal in California. For 2023, we expect capital expenditures to be in the $235 million range and interest expense to be between $20 to $25 million. Based on the current operating environment, for the fourth quarter of 2023, we are expecting top-line revenues between 350 and $375 million, and operating margins in the 7 to 9 percent range. If the UAW strike continues longer than anticipated, or expands to additional operations we support, we will update our guidance during the quarter.

Jude Beres: Finally, Wednesday, our Board of Directors declared Universal's 10.5% per share regular quarterly dividend.

Jude Beres: This quarter's dividend is payable to shareholders of record at the close of business on December 4, 2023, and is expected to be paid on January 2 of 2024.

Operator: With that, Nick, we're ready to take some questions. Thank you. I'll begin the question answer session. That's a good question. You may press star than one on your touch on phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If we draw your question, please press star than two.

Operator: This time we'll pause momentarily with simply roster.

Matthew Milask: First question will be from Bruce Chan. Steve Wolfe, please go ahead. Good morning, team. This is Matt Milask on for Bruce. I know you mentioned in the prepared remarks. You saw some volume attrition resulting from UAW late in the quarter. I just wanted to know if you could provide any more color as to what's going on there. And if you think the rate of disruption might change, meaningfully going into next quarter, thanks.

Tim Phillips: Yeah, this is Tim. Yeah, we did see some disruption coming out of the third quarter as individual plants went down week after week. I think that they made a difference telling out of the quarter in the operating results. And we will carry some of that into the beginning of the fourth quarter. It is our hope because we're not in the negotiations that there would be a near term resolution to it. And you saw one of those of the big three come out with this week. And we're hoping that the others follow suit. So I think that was taken into consideration also as we looked at what we thought our fourth quarter performance was going to be.

Tim Phillips: Okay, fair enough. Secondly, could you provide just sort of your maybe general outlook for the industrial economy moving into next year? Yeah, the general outlook from what we know and what we've heard from our customer base. If I start on the over the road or the truckload transportation group, we know that in steel and some of the industrial equipment that we traditionally move on flatbeds did take a dive in the third quarter.

Tim Phillips: We expect that to remain kind of the picture or the road map at least in the fourth quarter heading into Q1. If I look beyond just the domestic transportation from an international standpoint, we've definitely saw a slowdown in some of the industrial type of product that we import. Well, we move that is imported into the country. So I expect that kind of aligns with it from our customer base that the industrial space will continue to see a slower, slower type environment. Can't predict next year exactly, but I would think that Q4 and Q1 will experience some hits.

Matthew Milask: Wood. Okay, great. Thanks for that color.

Matthew Milask: And lastly, would you provide sort of a new normalized earnings power, you know, bogey for the company at this point? Thanks.

Jude Beres: Hey, this is Jude. So historically, we've talked that, you know, in a normal operating environment, we should be around $1 a share a quarter, but obviously, we don't have a normal operating environment, right? You know, in the middle of a freight recession, and of course, the headwinds that we're now experiencing with the UAW. But, you know, you kind of saw last year, I mean, we had peak earnings of over $6 a share.

Jude Beres: You know, so that would probably be the ultimate earnings power of the company at this point for our scale at, you know, the current size that we are, but I mean, a dollar a share, we think is kind of a baseline in a normal operating environment, with, uh, upside from there.

Matthew Milask: Great. Thanks a lot. Thank you.

Operator: Again, if you'd like to ask a question, please press star, then one. Yeah.

Operator: This concludes our question after a session.

Tim Phillips: Now I'd like to turn to call back over to Mr. Tim Phillips for closing remarks. Thank you, Nick. The current landscape presents some challenges, but with disruption will come opportunity. Universal will be positioned to take advantage of these opportunities. I appreciate everyone calling in, and I look forward to talking to you again for the Q4 earnings call in February of 2024. Thank you, and have a great day.

Operator: Trophies without concluded. Thank you for attending.