Q1 2024 Universal Logistics Holdings Inc Earnings Call

Operator: Hello and welcome to Universal Logistics Holdings' first quarter 2024 earnings conference call. At this time, all participants are in listen-only mode.

Hello, and welcome to Universal Logistics Holdings first quarter 'twenty 'twenty four earnings conference call.

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

Operator: 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 view of the business as seen today. Statements that are forward-looking relate to Universal's business objectives or expectations and can be identified by the use of the words such as belief, expect, anticipate, and project. Such statements are subject to risks and uncertainties, and actual results could differ materially from those expectations.

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 view of the business has seen today statements that are forward looking relate to universal's business objectives or expectations and can be identified by the use of the words, such as belief expect anticipate and project.

Such statements are subject to risks and uncertainties and actual results could differ materially from those expectations. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Tim Phillips, Chief Executive Officer, Mr. Jude Barrett, Chief Financial Officer and Mr. Stephen.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Tim Phillips, Chief Executive Officer, Mr. Jude Beres, Chief Financial Officer, and Mr. Stephen Fitzpatrick, Vice President of Finance and Investor Relations. Thank you. Mr. Phillips, you may now begin. Thank you.

Tim Phillips: Patrick Vice President of Finance and Investor Relations. Thank you. Mr. Phillips you may now begin.

Tim Phillips: Thank you, and good morning everyone. Thank you for joining Universal's 2024 first quarter earnings call. There's a lot to unpack in this quarter, but let me start off by thanking our nearly 10,000 team members who work tirelessly, day in and day out, to make Universal the best-in-class transportation and logistics provider we are today. We couldn't do it without your hard work and dedication.

Tim Phillips: Thank you and good morning, everyone. Thank you for joining Universal's 'twenty 'twenty four first quarter earnings call.

Tim Phillips: There's a lot to unpack in this quarter, but let me let me start off by thanking our nearly 10000 team members, who work tirelessly day in and day out to make universal the best in class transportation and logistics provider we are today.

Tim Phillips: We couldn't do it without your hard work and dedication I also want to thank our customers for continuously recognizing our efforts and the value we bring to their supply chain.

Tim Phillips: I also want to thank our customers for continuously recognizing our efforts and the value we bring to their supply chain. The long-term partnerships we have built with some of the most recognizable brands in the manufacturing space are what we truly differentiate our universal business model in the space. Now for the quarter.

Tim Phillips: The long term partnerships, we have built with some of the most recognizable brands in the manufacturing space are what we truly differentiate universal business model in the space.

Tim Phillips: Now for the quarter.

Tim Phillips: Our performance in the first quarter vary greatly dependent on the individual business segments.

Tim Phillips: Our performance in the first quarter varied greatly depending on the individual business segment. Our contract logistics segment delivered outsized results, while our intermodal and company-managed brokerage segments continued to fall behind our performance expectations. Trucking was steady as she goes, delivering mid-single-digit margins as their specialized heavy haul business buoyed their results. Q1 was certainly a challenging environment for our transactional transportation business, but overall, I'm extremely pleased with our results. In the first quarter of 2024, Universal reported $491.9 million of revenue.

Tim Phillips: Our contract logistics segment delivered outsized result.

Tim Phillips: While our intermodal and company manage brokerage segments continue to fall behind our performance expectations.

Tim Phillips: Trucking was steady as she goes delivering mid single digit margins as our specialized heavy haul business buoyed their results.

Tim Phillips: Q1 was certainly a challenging environment for our transactional transportation business, but overall I'm extremely pleased with our result.

Tim Phillips: The first quarter of 2020 for Universal reported $491 9 million of revenue.

Tim Phillips: $1.99 earnings per share and an operational margin of 15.3%. This was the best earnings per share and operating margin for any quarter in Universal's history in the contract logistics segment. Revenues increased 48.4% to $313.5 million. This was largely due to a recent program award that ramped up in Q1 and will be completed by the end of 2024. At the end of Q1 2024, Universal managed 71 value-added programs compared to 65 at the end of Q1 2023.

Tim Phillips: $1.99 of earnings per share and an operational margin up 13 15, 3%.

Tim Phillips: This was the best earnings per share and operating margin for any quarter in Universal's history.

And the contract logistics segment.

Tim Phillips: Revenues increased 48, 4% to $313 5 million.

Tim Phillips: This was largely due to our recent program award that ramped up in Q1, it will be completed by the end of 2024.

At the end of Q1 2024, Universal managed 71 value added programs compared to 65 at the end of Q1 2023.

Tim Phillips: We believe we will continue to see strength in the contract logistics segment for a number of reasons. Q2 is typically our strongest quarter for contract logistics because there are fewer shutdowns or interruptions to the OEM's production. Secondly, the auto industry is doing well. The SAR remains over 15 million, and Class A production has remained consistent.

Tim Phillips: We believe we will continue to see strength in the contract logistics segment for a number of for a number of reasons.

Tim Phillips: First Q2 is typically our strongest quarter for contract logistics, there are fewer shutdowns or interruptions to the oem's production.

Tim Phillips: Secondly, the auto industry is doing well the Saar remains over $15 million and class eight production has remained consistent.

Tim Phillips: As the Oems are under pressure, some or all three or even reevaluating their EV transition plans, while addressing labor cost pressures.

Tim Phillips: As the OEMs are under pressure, some are altering or even reevaluating their EV transition plans while addressing labor cost pressure. The wage inflation we are seeing in the auto sector could lead our customers to seek more outsourcing opportunities, utilizing Universal's lower-cost but high-service solution. We are already beginning to see this.

Tim Phillips: The wage inflation, we are seeing in the auto sector could lead our customers to seek more outsourcing opportunities utilizing universal's lower cost, but high service solutions.

Tim Phillips: We are already beginning to see this we have several new contract logistics programs launching in the back half of 2024.

Tim Phillips: We have several new contract logistics programs launching in the back half of 2024 and the beginning of 2025. Trucking segment revenues decreased 12.6% to $69.7 million. This was due to a 7.1% decrease in loads hauled, while revenue per load, excluding fuel surcharges, also decreased 6.2%.

Tim Phillips: And the beginning of 2025.

Tim Phillips: Yeah.

Trucking segment revenues decreased 12, 6% to $69 7 million.

Tim Phillips: This was due to a seven 1% decrease in loads hauled while revenue per load excluding fuel surcharges also decreased six 2%.

Tim Phillips: We expect to see a significant uptick later in the year in our specialized truckload business, which has a full book of business for the rest of the year. Flatbed volumes, while still negative year over year, are showing some signs of life. With the ISM now in expansive territory, we await better volumes as the year progresses. In the intermodal segment, revenues decreased 30.9% to $76.7 million in the first quarter of 2024. Compared to Q1 2023, our intermodal segment experienced a 14.1% decrease in volume, while line haul rates decreased less than 1%. Additionally, accessorial charges decreased $17.5 million, and fuel surcharge revenue decreased $6.4 million.

Tim Phillips: We expect to see a significant uptick later in the year in our specialized truckload business, which has a full book of business for the rest of the year.

Tim Phillips: Flatbed volumes flatbed volumes, while still negative year over year are showing some signs of life with the ICM now inexpensive territory, we await better volumes as the year progresses.

Tim Phillips: In the intermodal segment revenues decreased 39% to $76 7 million in the first quarter of 2024.

Tim Phillips: Compared to Q1 2023, our intermodal segment experienced a 14, 1% decrease in volume while line haul rates decreased less than 1%.

Tim Phillips: Additionally, accessorial charges decreased $17 5 million in fuel surcharge revenue decreased $6 4 million.

Tim Phillips: We are excited to see some signs of life on import volumes, although our retail customers continue their screen outlook for the year any.

Tim Phillips: We are excited to see some of the signs of life on import volumes, although our retail customers continue their strained outlook for the year. Any volume increases are welcome and should help us on the return to profitability in both the West Coast, port, and inland rail locations. Company-managed brokerage segment revenues decreased 8.7% to $31 million.

Tim Phillips: Any volume increases are welcome and should help us on the return to profitability in both the West coast Port and inland rail locations.

Tim Phillips: Company managed brokerage segment revenues decreased eight 7% to $31 million. This was due to a 12, 2% decrease in revenue per load, which was partially offset by 8% increase in revenue per load.

Tim Phillips: This was due to a 12.2% decrease in revenue per load, which was partially offset by an 8% increase in revenue per load. However, excess capacity continues to be the biggest constraint on price. We took some share back in the quarter, but the brokerage market is super competitive, and we do not expect that to change in the near term. Similar to our industry peers, our transactional transportation business has been experiencing ongoing volume and rate pressure.

Tim Phillips: Excess capacity continues to be the biggest constraint on price.

Tim Phillips: We took some share back in the quarter, but the brokerage market is it's super competitive and we do not expect that to change in the near term.

Similar to our industry peers are transactional transportation business had.

Tim Phillips: We had been experiencing ongoing volume and rate pressures pricing remains extremely competitive as shippers are taking advantage of the current market conditions.

Tim Phillips: Pricing remains extremely competitive as shippers are taking advantage of the current market conditions. On the positive side, we are hearing some optimistic sentiments from our customers regarding the back half of the year. Although we haven't seen the start of the turnaround, we believe we are at the bottom of the cycle.

Tim Phillips: On the positive side, we are hearing some optimistic sentiment from our customers regarding the back half of the year.

Tim Phillips: Although we haven't seen the start of the turnaround. We believe we are at the bottom of the cycle.

Tim Phillips: It's hard to imagine drayage and truckload rates going lower than they already are. Universal's transportation foundations remain strong. Our legacy truckload agent business is a compelling solution for both customers and for capacity providers. With the current pressures facing capacity providers, including insurance.

Tim Phillips: It's hard to imagine drayage in truckload rates going lower than they already are.

Tim Phillips: Universal's transportation foundations remains strong our legacy truckload agent business is a compelling solution for both customers and for capacity providers with the current pressures facing capacity providers, including insurance comply.

Tim Phillips: Compliance and Recruiting, to name a few, we offer support to entrepreneurial-minded capacity providers. In recent years, we have also built a nationwide drayage network with a big emphasis on major freight markets. Our network provides shippers a unique one-stop shop that few drayage providers can match.

Tim Phillips: Compliance and recruiting to name a few we offer support to the entrepreneurial minded capacity provider.

Tim Phillips: Yeah.

Tim Phillips: In recent years, we have also built a nationwide <unk> network with a big emphasis on major major freight markets.

Tim Phillips: Our network provide shippers a unique one stop shop that few drayage providers can match.

Tim Phillips: Okay.

Tim Phillips: While we have while we have strong foundations, we are not dependent on an upswing in volumes to return the business segment back in the black.

Tim Phillips: While we have strong foundations, we are not dependent on an upswing in volumes to return the business segment back to the black. We are actively implementing new operational plans for our transportation segment, specifically the intermodal and brokerage segment. We have brought in new leadership and talent with a vast wealth of experience. We are evaluating our processes to identify any possible efficiencies and to control the costs we are able to manage.

Tim Phillips: We're actively implementing new operational plans for our transportation segment, specifically, the intermodal and brokerage segments.

Tim Phillips: We have brought in new leadership and talent with a vast wealth of experience.

We are evaluating our processes to identify any possible efficiencies and to control the costs, we were able to manage we.

Tim Phillips: We remain hyper-focused on optimizing and the utilization of our apps, and we continue to build out our DREJ network with the acquisition of two additional properties servicing the Port of Savannah Mission. We are bullish on the future of Intermo, and our investments show it. As you've seen in recent filings, we have become more agile in Mexico. Global supply chains are changing, and we see many opportunities with the near-shoring trend. We've been in Mexico for a long time, and the opportunities that we see are very exciting.

Tim Phillips: We remain hyper focused on optimizing the utilization of our assets.

Tim Phillips: And we continue to build out our drayage network with acquisition of two additional properties servicing the port of Savannah. This year.

Tim Phillips: We are bullish on the future of intermodal and our investments show it.

Tim Phillips: As you've seen in recent filings we have become more agile in our Mexican Mexico global supply chains are changing and we see many opportunities with the near shoring trend we've been in Mexico for a long time.

Tim Phillips: And the opportunities that we see are very exciting.

Tim Phillips: Our Mexican franchise continues to grow, and we are actively expanding both the trucking capacity and the value-added footprint with new business wins, as well as planning for the future and planning for the future opportunities. Nearshoring is real, and we are well-positioned to be key players in the Mexican market in the years to come. M&A is always a part of our strategy. We continuously evaluate acquisition opportunities but remain disciplined. An opportunity cannot be a distraction; it must complement and better our core competencies.

Tim Phillips: Our Mexican franchise continues to grow and we are actively expanding both the trucking capacity and value added footprint with new business wins as well as planning for the future.

Tim Phillips: For the future opportunities near shoring is real and we are well positioned to be key player in the Mexican market in the years to come.

Tim Phillips: M&A is always a part of our strategy, we continuously evaluate acquisition opportunities but remain disciplined.

Tim Phillips: An opportunity to cannot be a distraction and must be complement and better our core competencies.

Tim Phillips: Any addition to the portfolio must make us stronger and more competitive in the market. We have seen an uptick in deals coming to the market and are excited that the M&A market is beginning to unthaw, even though interest rates remain elevated. As we look forward to our contract logistics segment, our sales pipeline remains full of opportunities. Value-added and dedicated opportunities alone total nearly $1 billion. The robust pipeline allows us to be selective about which programs we choose to take on and make sure they fit our core competencies and desired margin profile.

In addition to the portfolio must make us stronger and more competitive in the marketplace.

We have seen an uptick in deals coming to the market and are excited that the M&A market at the beginning the unthought, even though interest rates remained elevated.

Tim Phillips: As we look forward to our contract logistics segment, our sales pipeline remains full with opportunities value added and dedicated opportunities alone totaled nearly $1 billion.

Tim Phillips: The robust pipeline allows us to be selective about which programs we choose to take on and make sure they fit our core competencies and desired margin profile.

Tim Phillips: Additionally, we are continuously seeking cross-selling opportunities with our current customers to find more ways to provide value with our diverse service offering. The OEMs are not only customers we service in the contract logistics segment; aerospace, defense, agriculture, heavy truck, consumer manufacturing, and e-commerce make up our book, and we continue to see new and exciting opportunities with them. As I mentioned earlier, Universal was not immune from the challenges in the transportation market.

Tim Phillips: Additionally, we are continuously seeking cross selling opportunities with our current customers to find more ways to drive value value with our diverse service offerings.

Tim Phillips: Auto Oems are not only customers we service in the contract logistics segments Aerospace defense.

Tim Phillips: Culture heavy truck consumer manufacturing E. Commerce makeup our book and we continue to see new and exciting opportunities with them.

Tim Phillips: As I had mentioned <unk>.

Tim Phillips: Universal was not a movement immune from the challenges in the transportation market.

Tim Phillips: However, our strategy of complementary service offerings allows us to weather any storm. And even in this challenging environment, we continue to publish record results. We have consistently found ways to outperform throughout the cycle, led by our diversified portfolio businesses and our unique contract logistics franchise. I am confident that through our efforts today, we will be in a stronger position to take advantage of the freight rebound during the next up cycle.

Tim Phillips: Over our strategy of cycle complimentary service offerings allows us to weather any storm.

Tim Phillips: And even in this challenging environment, we continue to publish record results.

Tim Phillips: We have consistently found ways to outperform throughout the cycle led by our diversified portfolio of businesses and our unique contract logistics franchise.

Tim Phillips: I am confident that through the efforts today, we will be in stronger in a stronger position to take advantage of the freight rebound during the next up cycle.

Tim Phillips: I'm very proud of our execution and results for the first quarter of 2024.

Tim Phillips: I'm very proud of our execution and results for the first quarter of 2024. Our strategy of offering diverse services while investing in our higher-margin businesses has been validated by our record EPS and margins, despite the freight market weakness. Once again, I would like to extend a thank you to each member of the team at Universal for their contributions to a great quarter. I remain optimistic about the future and bullish on the remainder of 2024. I will now turn the call over to Jude to provide more color on our financials and expectations for the coming quarter.

Tim Phillips: Our strategy of offering diverse services, while investing in our higher margin businesses has been validated by a record EPS and margins despite the freight market weakness.

Speaker Change: Once again I would like to extend a thank you to each member of the team universal for their contributions to a great quarter.

Speaker Change: I remain optimistic for the future and bullish on the remainder of 2024.

Speaker Change: I will now turn the call over to you to provide more color on our financials and expectations for the coming quarter skewed. Thanks, Tim Good morning, everyone yesterday, Universal Logistics Holdings reported consolidated net income of $52 5 million or $1 99 per share on total operating revenues of 490 <unk>.

Jude Marcus Beres: Thanks, Tim. Good morning, everyone.

Jude Marcus Beres: Yesterday, Universal Logistics Holdings reported consolidated net income of $52.5 million, or $1.99 per share, on total operating revenues of $491.9 million in the first quarter of 2024. This compares with net income of $24.9 million, or $0.95 per share, on total operating revenues of $437.4 million during the same period last year. Consolidated income from operations was $75.1 million for the quarter, compared to $38.2 million one year earlier. EBITDA increased $40.2 million to $96.9 million, which compares to $56.7 million during the same period last year. Our operating margin and EBITDA margin for the first quarter of 2024 are 15.3% and 19.7% of total operating revenue, respectively. These metrics compare to 8.7% and 13%, respectively, in the first quarter of 2023.

Tim Phillips: $491 9 million in the first quarter of 2024. This compares to net income of $24 9 million or <unk> 95 per share on total operating revenues of $437 4 million. During the same period last year consolidated income from operations was $75 1 million.

Speaker Change: For the quarter compared to $38 2 million one year earlier.

Speaker Change: EBITDA increased $40 2 million to $96 9 million, which compares to $56 7 million during the same period last year.

Speaker Change: Our operating margin and EBITDA margin for the first quarter of 2024, or 15, 3% and 19, 7% of total operating revenues.

Speaker Change: These metrics compared to eight 7% and 13% respectively in the first quarter of 2023 <unk>.

Jude Marcus Beres: Looking at our segment performance for the first quarter of 2024, in our contract logistics segment, which includes our value-add and dedicated transportation businesses, income from operations increased $53.7 million to $81.5 million on $313.5 million of total operating revenue. This compares to operating income of $27.8 million on $211.3 million of total operating revenue in the first quarter of 2023. Operating margins for the quarter were 26% of total operating revenues compared to 13% one year earlier.

Speaker Change: Looking at our segment performance for the first quarter of 2024, and our contract logistics segment, which includes our value add and dedicated transportation businesses in <unk>.

Speaker Change: Come from operations increased $53 7 million to $81 5 million on $313 5 million of total operating revenues. This compares to operating income of $27 8 million and $211 3 million of total operating revenue in the first quarter of 2023 operating.

For the quarter were 26% of total operating revenues compared to 13% one year earlier.

Jude Marcus Beres: As previously disclosed, in the first quarter of 2024, we launched a significant new contract logistics development program, which is expected to be substantially complete by January 1st of 2025. For the full year 2024, we expect to recognize total operating revenues on the program of approximately $228 million, of which $95.3 million or approximately 42% was recognized in the first quarter of the year. Revenues generated for this program are reported as value-added services revenue and the associated costs in operating supplies and expenses. The results of this program are included in our contract logistics segment.

Speaker Change: As previously disclosed in the first quarter of 2024, we launched a significant new contract logistics development program, which is expected to be substantially complete by January one of 2025.

Speaker Change: For the full year 2024, we expect to recognize total operating revenues on the program of approximately 228 million of which $95 3 million or approximately 42% was recognized in the first quarter of the year.

Speaker Change: Revenues generated for this program are reported as value added services revenue and the associated cost in operating supplies and expense.

Speaker Change: The result of this program are included in our contract logistics segment.

Jude Marcus Beres: Based on its current pace, we anticipate this program to be approximately 65 to 75 percent complete by the end of the second quarter, generating additional revenues in the range of $53 to $75 million during the period. Then, we expect the program revenues to step down to the range of $25 million to $45 million in each of the third and fourth quarters of 2024. Our guidance, which I will discuss momentarily, reflects the expected impact of this program during the second quarter.

Speaker Change: Based on its current cadence we anticipate this program to be approximately 65% to 75% complete by the end of the second quarter generating additional revenues in the range of 53% to $75 million during the period.

Speaker Change: Then we expect the program revenues to step down to the range of 25% to $45 million in each of the third and fourth quarters of 2024, our guidance that I will discuss momentarily reflects the expected impact of this program during the second quarter.

Jude Marcus Beres: On the intermodal segment, operating revenues decreased $34.3 million to $76.7 million compared to $111 million in the same period last year, and income from operations decreased $14.9 million to an operating loss of $8 million. This compares to operating income of $6.8 million in the first quarter of 2023. Operating ratios for the quarter were 110.5, versus 93.9 last year. In our trucking segment, operating revenues for the quarter decreased $10.1 million to $69.7 million, compared to $79.7 million in the same quarter last year, and income from operations decreased $100,000 to $3.7 million.

Speaker Change: Onto our intermodal segment operating revenues decreased $34 3 million to $76 7 million compared to $111 million in the same period last year and income from operations decreased to $14 9 million to an operating loss of 8 million. This compares to operating income of $6 8 million in the first quarter.

Speaker Change: 2023 operating ratios for the quarter were 110 five versus 93 nine last year.

Speaker Change: In our trucking segment operating revenues for the quarter decreased $10 1 million to $69 7 million compared to $79 7 million in the same quarter last year and income from operations decreased 100000 to $3 7 million. This compares to operating income of $3 8 million.

Jude Marcus Beres: This compares to operating income of $3.8 million in the first quarter of 2023. Operating margins for the quarter were 5.3% versus 4.8% last year. In our Company Managed Brokerage segment, operating revenues for the quarter decreased $3 million to $31 million, compared to $34 million in the same quarter last year, and income from operations decreased $2.1 million to an operating loss of $2.5 million. This compares to an operating loss of $400,000 in the first quarter of 2023. Our company-managed brokerage segment reported an operating ratio of 108 versus 101.1 last year.

Speaker Change: In the first quarter of 2023 opt.

Speaker Change: Operating margins for the quarter were five 3% versus four 8% last year.

Speaker Change: And our company managed brokerage segment operating revenues for the quarter decreased 3 million to $31 million compared to 34 million in the same quarter last year and income from operations decreased $2 1 million to an operating loss of $2 5 million. This compares to an operating loss of 400000 in the first quarter of 2023.

Speaker Change: Three our company managed brokerage segment reported an operating ratio of 108 versus 101, one last year.

Jude Marcus Beres: On the balance sheet, we held cash and cash equivalents totaling $11.1 million and $11.8 million of marketable securities. outstanding interest-bearing debt, net of $4.3 million of debt issuance costs, totaled $414.1 million. Excluding lease liabilities related to ASC 842, our net interest-bearing debt to reported TTM EBITDA was 1.57 times. Capital expenditures for the quarter were $68.6 million. For the full year, we are expecting capital expenditures to be in the $315 to $330 million range and interest expense to come in between $26 and $28 million.

Speaker Change: Onto our balance sheet, we held cash and cash equivalents totaling $11 1 million and $11 8 million of marketable securities outstanding interest bearing debt net of $4 3 million of debt issuance cost totaled $414 1 million exclude.

Speaker Change: Excluding lease liabilities related to ASC 842, our net interest bearing debt to reported TTM EBITDA was 157 times.

Speaker Change: Capital expenditures for the quarter were $68 6 million for the full year, we are expecting capital expenditures to be in the $315 million to $330 million range and interest expense to come in between 26 and $28 million.

Jude Marcus Beres: For 2024, based on the current operating environment and expected cadence of the new contract logistics program mentioned earlier, for the second quarter of 2024, we are expecting top-line revenues between $450 to $475 million and operating margins in the 9 to 11 percent range. Finally, on Wednesday, our Board of Directors declared Universal's $0.105 per share regular quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on June 3, 2024, and is expected to be paid on July 1, 2024.

Speaker Change: For 2024.

Speaker Change: For 'twenty based on the current operating environment and expected cadence of the new contract Logistics program mentioned earlier for the second quarter of 2024, we are expecting top line revenues between $450 million to $475 million and operating margins in the 9% to 11% range.

Speaker Change: Finally, Wednesday, our board of directors declared Universal's $10.05 per share regular quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on June <unk> 2024, and is expected to be paid July one 2024.

Operator: With that, Joelle, we're ready to take some questions.

Speaker Change: With that Joelle, we're ready to take some questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please hold the handset before pressing any key. Your first question comes from Bruce Chan with Stiefel. Your line is now open.

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.

They're a prompt that your hand has been raised should you wish to decline from the polling process. Please press star followed by the Q.

Speaker Change: You are using a speaker phone please lift the handset before pressing any keys. Your first question comes from Bruce Chan with Stifel. Your line is now open.

Jizong Chan: Hey, gentlemen, good morning. And, wow, congrats. Clearly, the market is liking the result here this morning. You know, I just want to clarify a couple things on the contract logistics program that you talked about. You know, namely, whether this entire program is expected to be completed by next year. If you're just talking about the ramp-up, I'm assuming that this is just kind of a one-off thing. Is that correct? Yeah, that's correct, Bruce.

Jizong Chan: Hey, gentlemen, good morning, Endo, while congrats clearly the market is liking the results here this morning.

Jizong Chan: Just want to clarify a couple of things on the contract logistics program that you talked about.

Jizong Chan: Namely whether this entire program is expected to be completed by next year or if youre just talking about the ramp up I'm assuming that this is just kind of a one off things that is that correct.

Speaker Change: Yes, correct, Bruce it's a one.

Tim Phillips: This project will be substantially complete this year. It's a one-year phenomenon with the possibility of additional business in the future, but the economics of this particular business that we described is a 2024 phenomenon.

Speaker Change: This will project will be substantially complete.

Speaker Change: This year, it's a one year phenomenon with the possibility of additional business in the future, but the economics of this particular business that we described is a 2024 phenomenon.

Jizong Chan: Okay, so clearly, you know, a very beneficial contract here, which is not to, you know, undersell the progress and the rest of the contract logistics business, but maybe towards that end, can you just help us to kind of parse out, you know, what portion of the, you know, big margin uplift here is coming from mixed from this program? And then, you know, what kind of leverage on existing contracts? And ultimately, you know, what a sustainable margin run rate should look like for this business once you kind of sunset the program?

Speaker Change: Got it okay. So clearly.

Speaker Change: A very beneficial contract here, which is not to undersell the progress on the rest of the contract logistics business, but maybe towards that end can you just help us to kind of parse out.

Speaker Change: What.

Speaker Change: What portion of the big margin uplift here is coming from mix from this program.

Speaker Change: And then what's kind of leverage on existing contracts and ultimately what.

Speaker Change: Sustainable margin run rate should look like for this business once you kind of subset the program.

Jizong Chan: Yeah, so we're not going to get into the specific customer economics on this one, Bruce, but what we can just basically reiterate is, you know, we had $95 million in business for this contract in Q1. We think there's going to be somewhere between $54 and $75 million of additional revenue in Q2, then $44 million in Q3, and $35 million in Q4. I would just say that after this particular business, this particular development contract, is over at the end of this year, the business will continue to operate at its run rate that we've seen over the past, you know, six or seven quarters, a little better than 15%.

Speaker Change: Yes, so we're not going to get into the specific customer economics on this one Bruce but what we can just basically reiterate is.

Speaker Change: We had $95 million of the business of this contract was in Q1.

Speaker Change: We think theres going to be around somewhere between 54% and $75 million of additional revenue in Q2.

Speaker Change: Then $44 million in Q3 of $35 million in Q4.

Speaker Change: I'd, just say that after this particular business.

Speaker Change: This particular development contract is over at the end of this year. The business will continue to operate at its run rate that we've seen over the past six or seven quarters, a little better than 15%.

Speaker Change: Got it and then just one final question here is there any reason to believe that.

Jizong Chan: And then just, you know, one final question here. Is there any reason to believe that, you know, you'd be able to attract similar opportunities like this one? Or should we be thinking about this as, you know, really just a kind of one-time windfall? Well, the one thing, Bruce, is that we have a great balance sheet. We are slightly levered. So we have been able to since, you know, the founders of this company started this contract with the logistics business in the mid 80s.

Speaker Change: You'd be able to attract similar opportunities like this one or should we be thinking about this as really just a kind of onetime windfall.

Speaker Change: Well the one thing Bruce is that we have a great balance sheet. We are slightly levered. So we have been able to.

Speaker Change: The founders of this company started this contract logistics business in the mid eighties, we've been able to grow our business from one location in Flint, Michigan to 71 programs across four countries. So I would just say that universal is the go to for any type of solution that a customer wants and we're going to continue.

Jizong Chan: We've been able to grow a business from one location in Flint, Michigan, to 71 programs across four countries. So I would just say that Universal is the go-to for any type of solution that a customer wants.

Speaker Change: To be opened for any type of opportunities that are presented to the team and I think I would I would add Tim Bruce I would add to that we look at this as a holistic logistics solution.

Speaker Change: We'd be willing to court many more of them. When we think we have a level of expertise to excel and offer exceptional value.

Tim Phillips: And I think I would add that...

Jizong Chan: Okay, yeah, I appreciate that color. And then maybe just to follow up on some of your comments, Tim, on, you know, SAR, you know, just maybe looking to get a little bit more color there, if I'm not mistaken, you know, we're still below, you know, kind of pre pandemic levels here, I think there's some probably good pent up demand for, you know, consumer fleet refreshment, you know, any color that you can give there, as far as what, you know, your customers are saying and what they're expecting for the ramp up.

Speaker Change: Okay. Yeah I appreciate that color and then maybe just to follow up on some of your comments Tim on SAR.

Speaker Change: Maybe looking to get a little bit more color there if I'm not mistaken, we're still below kind of pre pandemic levels here I think there's some probably good pent up demand for consumer fleet refreshment any color that you can give there as far as what your customers are saying and what they're expecting for the wrap up.

Tim Phillips: Yeah, what I can say is that the facilities that we are servicing in our contract logistics portfolio are very high-demand type units, and there really hasn't been any talk of any fall-off, aside from the overall SAR in those facilities. In fact, we've gained a couple additional programs, which you saw on that ramp up to 71. We think there's a good chance throughout the rest of this year we could see an overall increase in units on the programs we've serviced as a whole. Great Super helpful.

Speaker Change: Yes, what I can say is that the facilities that we are servicing in our contract logistics portfolio are very high demand type units.

Speaker Change: There really hasnt been any talk of any falloff aside from the overall Saar in those facilities. In fact, we've gained a couple of additional programs, which you saw on that ramp up to 71 that we think there's a good chance throughout the rest of this year, we could see on the programs we service as.

Speaker Change: A whole overall in key increase in units.

Speaker Change: Great Super helpful. And then just pivoting over to the intermodal side here I understand the headwind.

Jizong Chan: And then just pivoting over to the intermodal side here, and I understand the headwind on yield from the assessorial comp, but I guess, you know, just on the volume decline here, I'm a little surprised, maybe not at your result, but just overall in the industry, to see the pressure on the dredge business, given the strength that we've seen in import volumes and, you know, what we've heard anecdo So, you know, maybe just a little insight from your side about what's happening with the demand side of the intermodal dredge business. Yeah, I think that if you look around the country, different regions have different pockets of flow and volume. We have not seen that pick up yet, kind of like I mentioned in the remarks.

Speaker Change: On yield from the <unk> comp, but I guess.

Speaker Change: Just on the volume decline here.

Speaker Change: Little surprised maybe not at year result, but just overall in the industry to see the pressure on the drayage business given the strength that we've seen in import volumes and what we've heard anecdotally about the trans loading activity. So maybe just a little insight from your side about whats happening with the demand side on the intermodal.

Speaker Change: Business.

Yes, I think that if you look around the country different regions have different pockets.

Flow in volume.

Speaker Change: We have not seen that pick up kind of like I've mentioned their remarks, a lot of our retail customers on the coastal cities, especially on the West coast.

Tim Phillips: A lot of our retail customers in coastal cities, especially on the West Coast, we've seen steady volumes, but not that type of increase that you might read in the news. Some of those increases on the West Coast that were recently published, we have not seen those double-digit margins make it into the inland environment where we serve in major cities. We're a little speculative on how that will go over the next, let's call it Q2, but we have a full-blown sales force out there looking to fill the pipeline with opportunities to expand our footprint.

Speaker Change: <unk> seen steady volumes, but not that type of increase that you might.

Speaker Change: Read in the news in some of those increases on the West Coast that were recently published.

Speaker Change: We have not seen those those double digit margins make it.

Speaker Change: The inland environment, where we service in major cities. So we're a little speculative on how that will go over the next let's call. It Q2.

Speaker Change: But we have a full full blown sales force out there looking to fill the pipeline with opportunities to expand our footprint because ultimately.

Tim Phillips: What we need to drive the business, we think we have, as I've mentioned, a good leadership team in place. We have a good terminal network in place. We're investing in the business from a property and where we're going to place ourselves to do business standpoint. We need some wood in the wood chipper to be able to optimize those assets. So I think that's just around the corner. You know, as hard as it's been from the economic side of things, as hard as it's been from the volume flow, I think it's given us the opportunity to take pause, to step back and look at these facilities and make sure that we're looking at them the correct way, making sure that we have a secure and direct plan to optimize the assets. And I think when we come out of this, we'll be in a better position to take advantage of that increased volume.

Speaker Change: What we need to drive the business, we think we have as I've mentioned.

Speaker Change: Good leadership team in place we have a good terminal network in place we're investing in the business from a property and where we're going to place ourselves to do business standpoint, we need to we need some more than the wood chipper to be able to optimize those assets. So I think that's just around the corner.

It's hard as it's been from an economic side of things as hard as it has been from a volume flow I think it's given us the opportunity to take pause.

Speaker Change: Step back and look at these facilities and make sure that we're looking at it the correct way, making sure that we have a secure and direct plan to optimize the asset and I think when we come out of this we'll be in a better position to take advantage of that increase volumes.

Jizong Chan: Okay, perfect. And then maybe just one more from my side, and I'll turn things over, just looking for an update on the Southern California operation. I know, you know, that had been a focus for some kind of turnaround. So, if you could give us some detail on how that process is going, that'd be great. Yeah, Bruce, this is Jude. Yeah, overall, the business operated on an adjusted basis at slightly break even in March, but we did throughout the quarter perform better, as, you know, a lot of the optimization efforts that Tim's been talking about over the past couple of quarters have come to fruition. So, although not obviously the result that we're looking for, the business is operating markedly better than it was at the trough of the cycle in the middle quarters of last year.

Okay, Perfect and then maybe just one more from my side and I'll turn things over just looking for an update on the southern California operation I know that had been a focus for kind of turnaround.

Speaker Change: So if you could give us some detail on how that process is going that would be great.

Speaker Change: Yes, Bruce this is Jude yes overall the business operated on an adjusted basis at slightly breakeven in March we did throughout the quarter perform better as a lot of the optimization efforts that Tim has been talking about over the past couple of quarters have come to fruition.

Jude Barrett: So although not obviously the result that.

Jude Barrett: That we're looking for the businesses operating markedly better than it was at the trough of the cycle in the middle quarters of last year.

Speaker Change: In verticals, let me add let me just add a little bit of color to that financial remark and other not only from an optimization process, but were extremely confident that we bring a compliance program to southern California, and what I mean by that you've seen <unk> back in the news some of the things that Doug.

Jude Marcus Beres: Bruce, let me just add a little bit of color to that financial remark and other, not only from an optimization process, but we are extremely confident that we will bring a compliant program to Southern California. And what I mean by that is, you've seen AB5 back on the news, some of the things it's done to some of the businesses that are trying to operate on that playing field. We truly believe that over a period of time, you will see some of these others that may not be operating in the same manner filter out of the market.

Speaker Change: Some of the businesses that are trying to operate on that playing field. We truly believe over a period of time you will see some of these others that may not be operating in the same manner filter out of the market. So we positioned ourselves once again with property, new asset and running things in a clue.

Jude Marcus Beres: So we positioned ourselves once again with property, new assets, and running things in a clean and compliant fashion so when we do see an uptick there, we're going to be able to service our customers and offer them the value that they deserve.

Speaker Change: And compliant fashion, so when we do see the uptake there we're going to be able to service our customers and offer them the value that they deserve.

Speaker Change: Yeah.

Tim Phillips: Okay, well that's great. That's all from me. Again, you know, congratulations and appreciate all the color. Thank you.

Speaker Change: Okay, well that's great. That's all from me again, congratulations and appreciate all the color.

Jizong Chan: Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Ladies and gentlemen, there are no further questions at this time. I will now turn the call back over to Tim.

Speaker Change: Thanks Bruce.

Speaker Change: Okay.

Speaker Change: Ladies and gentlemen, as a reminder, should you have a question. Please press star one.

Speaker Change: Yeah.

Speaker Change: Ladies and gentlemen.

Speaker Change: There are no further questions at this time I will now turn the call back over to Tim.

Tim Phillips: Well, thank you. Appreciate everyone dialing in to the Q1 call. We look forward to having you continue the journey with us in Q2, and we'll be happy to report again on our earnings call on July 26. 2024.

Tim: Well. Thank you I appreciate everyone dialing into the Q1 call. We look forward to having you continue the journey with us in Q2, and we will be happy to report again on our earnings call on July 26, 2024. Thank you.

Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

Operator: Thank you. Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and ask that you please disconnect.

Speaker Change: Yes.

Operator: Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and ask that you please disconnect your line.

Speaker Change: Okay.

Speaker Change: Okay.