ULH - NASDAQ

Hello, and welcome to Universal Logistics Holdings Second Quarter 2025 Earnings Conference Call. [Operator Instructions] During the course of this call, management may make forward-looking statements based on their best 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 believe, expect, anticipate and project. Such statements are subject to risks and uncertainties, and as a result could differ materially from those expectations. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Tim Phillips, Chief Executive Officer; Mr. Jude Beres, Chief Financial Officer; and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you. Mr. Phillips, you may begin.

Good morning, and thank you for joining Universal's Second Quarter 2025 Earnings Call. The second quarter of 2025 remained a challenging environment across the transportation and logistics industry. We saw freight market, slightly lower automotive production and tough comps from the prior year all contributed to a muted but better overall results sequentially. However, our performance was broadly in line with our expectations, and we continue to take the necessary steps to manage costs, enhance efficiencies and position the business for long-term growth. Before diving into the numbers, I would like to recognize the efforts of our over 11,000 employees and contractors. Their continued dedication and effort have consistently provided our customers with a seamless, best-in-class service in a difficult environment. Let's review the results for the quarter. Universal reported second quarter 2025 operating revenues of $393.8 million with net income of $8.3 million or $0.32 per diluted share. Operating income for the quarter was $19.9 million, representing a 5.1% operating margin. EBITDA came in at $56.2 million or 14.3% of revenue. While down from the prior year, these results reflect our continued ability to generate solid cash flows and maintain profitability in a persistently soft freight market. Now let's look at performance by segment. Our Contract Logistics segment remains the cornerstone of our results. Revenues were $260.6 million, down slightly from Q2 of last year. The integration of Parsec continues to progress smoothly and contributed $55 million in revenue during the quarter. As a reminder, the prior year included $44.6 million of revenue related to our now completed development project in Stanton, Tennessee. Contract Logistics operating income was $21.8 million, with an 8.4% margin. While margins were lower year-over-year due to the absence of the special development project and increased depreciation and amortization on our recent Parsec acquisition, the core business remains healthy. We continue to operate 87 value-added programs, including 20 rail terminals, up from 68 programs a year ago. We are confident in the stability and long-term growth prospects of this segment, especially as we integrate our expanded footprint and pursue new contract opportunities. Turning to Trucking. Revenues were $64.1 million, down nearly 30% year-over-year. This was primarily due to the 22.6% drop in load volumes and an 8.9% decrease in revenue per load, excluding fuel surcharges. That said, I'm encouraged by the 5.2% operating margin, up from 4.8% a year ago, and the $3.3 million in operating income. Our focus on specialized freight, including our wind energy business, continues to support more resilient margins even in a depressed market, sequential improvements from the first quarter, seeing that we are on the right path, and we expect improvement in the second half of the year. Our Intermodal segment remains under pressure, but we are seeing signs of progress. Revenues were $68.9 million, down 13.5% year-over-year. Load volumes declined nearly 13%, but pricing showed some stability with a slight improvement in revenue per load, excluding fuel. We narrowed our operating loss to $5.7 million from $10.7 million in the first quarter and sequentially improved our operating ratio 108.2 from 115.1 in Q1. While we are not where we want to be, the quarter-over-quarter progress is encouraging. Our focus remains on optimizing operations, existing -- exiting an unprofitable business, rationalizing all costs and positioning this segment to return to profitability. Across all segments, we remain focused on cost discipline, operational execution and expanding our sales pipeline. Our diverse service portfolio continues to provide balance and stability as we manage through cyclical pressures. As we continue to navigate a softer freight market, we are doubling down on strategic initiatives to strengthen our sales engine and drive long-term profitable growth. We have a new executive leadership shaping our enterprise-wide sales and business development initiatives. This role reflects our commitment to building a more integrated and customer-driven sales organization that aligns with Universal's long-term strategic objectives. In addition, we've expanded our sales organization with hiring of several senior sales directors across key regions and service lines. These hires bring deep experience and strong customer relationships in core industries, including automotive, industrial and retail. We also began rolling out a new customer relationship management solution to unified sales activity across the company and provide better visibility into our growing $1 billion sales pipeline. These enhancements are already yielding improved coordination and accelerating the pace at which we are able to identify and presenting customer-centric solutions. We expect our enhanced commercial capabilities to play a critical role in achieving our margin growth targets over the coming quarters. To close, while the macro environment remains challenging, I am confident in our team, our strategy and our ability to adapt and execute. We are taking the right steps to weather the near-term storm while positioning Universal for sustained, profitable growth over the long term. Thank you again to all our team members for your continued dedication and to our customers and shareholders for your ongoing trust and support. I will now turn the call over to Jude to provide additional details on the financials and our outlook going forward. Jude?

Thanks, Tim. Good morning, everyone. Yesterday, Universal Logistics Holdings reported consolidated net income of $8.3 million or $0.32 per share on total operating revenues of $393.8 million in the second quarter of 2025. This compares to net income of $30.7 million or $1.17 per share on total operating revenues of $462.2 million during the same period last year. Consolidated income from operations was $19.9 million for the quarter compared to $47.1 million one year earlier. EBITDA decreased $28.6 million to $56.2 million, which compares to $84.8 million during the same period last year. Our operating margin and EBITDA margin for the second quarter of 2025 are 5.1% and 14.3% of total operating revenues. These metrics compared to 10.2% and 18.4%, respectively, in the second quarter of 2024. Looking at our segment performance for the second quarter of 2025, in our Contract Logistics segment, which includes our value-add and dedicated transportation businesses, income from operations decreased $31.1 million to $21.8 million on $260.6 million of total operating revenues. This compares to operating income of $52.9 million on $263.6 million of total operating revenue in the second quarter of 2024. For comparison purposes, in the second quarter of 2025 included $55 million of revenue attributable to our recent acquisition of Parsec, while the second quarter of 2024 included $44.6 million of revenue attributable to our specialty development program, which was completed in late 2024. Operating margins for the quarter were 8.4% of total operating revenues compared to 20.1% one year earlier. On to our Intermodal segment. Operating revenues decreased $10.7 million to $68.9 million compared to $79.7 million in the same period last year, and operating results improved $3 million to an operating loss of $5.7 million. This compares to an operating loss of $8.6 million in the second quarter of 2024. Operating ratios for the quarter were 108.2 versus 110.8 last year. In our Trucking segment, operating revenues for the quarter decreased $27.4 million to $64.1 million compared to $91.4 million in the same quarter last year and income from operations increased $1 million to $3.3 million. This compares to $4.4 million in the second quarter of 2024. Operating margins for the quarter were 5.2% versus 4.8% last year. For comparison purposes, one additional item of note. $26.7 million of brokerage revenues are included in the second quarter last year from our now closed company-managed brokerage operation in Nashville. On our balance sheet, we held cash and cash equivalents totaling $24.3 million and $9.9 million of marketable securities. Outstanding interest-bearing debt net of $3.1 million of debt issuance costs totaled $795.5 million at the end of the period. Excluding lease liabilities related to ASC 842, our net interest-bearing debt to reported trailing 12-month EBITDA was 3.13x. Capital expenditures for the quarter were $84.3 million. For the third quarter of 2025, we are expecting top line revenues between $390 million and $410 million, operating margins in the 5% to 7% range and EBITDA margins between 14% to 16%. For the full year, we are expecting top line revenues between $1.6 billion to $1.7 billion, with operating and EBITDA margins similar to our range in our Q3 guidance. For the full year, we are expecting capital expenditures for equipment to be in the $100 million to $125 million range and real estate between $50 million and $65 million. Interest expense is expected to come in between $48 million and $51 million as well. Finally, 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 September 1, 2025, and is expected to be paid on October 1, 2025. With that, Chloe, we're ready to take some questions.

[Operator Instructions] Our first question comes from the line of Bruce Chan from Stifel.

This is Andrew Cox on for Bruce. Just wanted to, I guess, start off here with a bit of the tariff headwind and just discuss how impactful you guys thought it was to 2Q across the business and what are the kind of conversations you're having with customers about potential restocking into 3Q and through year-end? And I guess on that note, talk a little bit about what normal seasonality would look like in the business and how you're expecting it to trend relative to that?

Yes, I'll start. This is Tim, Ian (sic) (Andy). I think the tariffs did have an impact on our Intermodal division and imports coming into the country. The way I thought it is we saw a general falloff in some of our normal volumes somewhere in the middle to end of May and that lasted generally through the month of June. And it appears that, that falloff was specifically highlighted about from discount retailers that had a large presence of Chinese sourcing, while on other customer front that there was some flexibility on sourcing from overseas. So we saw some of those types of customers audible and volumes remained somewhat consistent. But overall, it was an effect on the Intermodal division. The other divisions saw a lesser impact as it was related to tariffs, although in the prepared remarks, as I mentioned, we saw a little bit of a falloff on automotive production. It was minimal on a year-over-year basis. So I didn't see any serious challenge. The way I read the output from the autos is that they did a good job trying to source from where they had to source from and making those key strategic war-room decisions. Now as we level set, I don't know if there's really any clear firm direction that we're getting on where we're going to go from a tariff basis. You know what you read as I do in the news. We do believe we will see some normal cyclical uplift as we normally would in the third quarter. We believe that some of the Intermodal volumes will be more cyclical in nature, but there's definitely a pause in how much lift that will be. I think that we will see some pent-up ordering that wasn't done in the second quarter, especially when it comes to the discount retailers will probably hit shores this quarter. So we expect that to help our numbers. Beyond that, I really couldn't give you good guidance on what it looks like exiting the year from an import standpoint.

Just one more comment. This is Jude. I think also when you look at the ISRs across retail, wholesale and manufacturing, they're all kind of flattish to down a little bit year-over-year, so although there's been a lot of the choppiness in the first half of the year due to tariffs, you would think that because of how those inventory-to-sales ratios are shaking out, that would be a catalyst for a back half. But I think as Tim alluded to, it's kind of wait and see at this moment.

Yes, certainly seen that with the retailers, in particular, [indiscernible] right now. Sticking with that Intermodal part of the business, discussing some of the profitability initiatives you guys have ongoing. Can you refresh us here and walk us through the progress and time line here thus far? I mean, narrow -- the losses narrowed this quarter, but is it realistic to expect this business to reach a turning point by the end of the year and particularly, I mean, possibly get into -- back into the black based on the current business trends? Or is this looking towards 2026 event?

Yes. I mean, to start with the last part of your question, our goal is to return to profitability in the third or fourth quarter. A good percentage of what we need to do is on the top end of the funnel. It does depend on the sales activity. It does depend on our pricing profile as we navigate any additional bids as well as going back to customers on bids that have already closed to see if there's room for some growth. We think we're well positioned from an asset standpoint in the markets where we need to grow. We think we're very well positioned and made the commitment and investments from a location standpoint on our properties as they serve the ports and rails around the United States. So I think we're well set on that. As I've mentioned in my prepared remarks, we've had a real strong focus on the sales objectives. We have new sales leadership and we're heavily involved in cross-selling the different customers between divisions. Specifically, as you'd mentioned on the Intermodal side, we believe this will bring about new customer opportunities. In conjunction with that, on the other side of the map, the efficiencies and how we support that growth and where we look for that cost rationalization, we're middle of the road, halfway through our centralization process of customer service and our operations. As we do that, we're rationalizing head count and also making sure as we do that, the focus is on the tail and making sure that we're giving the customer the service they expect and deserve. And from a back office standpoint, we're taking a real sharp pencil and looking at what we've been awarded making sure that there's revenue realization from the awards that we've been promised, looking at any potential decliner customers and trying to work with them to figure out what we need to do to garner more of their freight. And then I think we're taking a very specific approach besides the bigger customers. We're also looking into the spot market and making sure that we're effective in capturing all the opportunities to fill in the cracks that we have with our bigger customers. So it's a full core press on the sales side as well as continuing in a parallel path to streamline, making sure that our operations is efficient and optimized as possible.

Okay. That's helpful. Moving on to -- I guess you can touch your - you touched on it briefly in the opening response, but just kind of on the other OEM and Class 8 backdrop, it does seem like the visibility here gets worse every time that we discuss future quarters. I guess to us, it does seem like the OEM and Class 8 is uncertain and may be declining, respectively. I just kind of wanted to get your thoughts on that. And then next is what levers do you guys have potentially to drive improvements in the business if the top line kind of remains a challenge for you guys?

Yes. This is Jude. I'll start. So yes, I mean, if you look at the year-over-year numbers for two of our customers within that space, I mean one of them was down 30% year-over-year. The other was down 70% year-over-year on volumes. So yes, there's not a lot of positive outlook for that space. I mean the new orders in Q2 of '25 were less than Q2 of 2020, which is the COVID period, right? So you kind of look out in that space and you say, "Well, what's going on there?" Well, there's import tariffs on steel and aluminum, you still have a really soft trucking backdrop, which is really a disincentive for trucking companies to make the investments. Now maybe the new tax legislation and the One Big Beautiful Bill will help spur some of that economic activity within Class 8, but I think that will kind of shake out over the next couple of quarters. Then I think finally, I mean, just from the global side is that the administration rolling back those NOx standards on that 2027 engine in those California emissions regulations, I think the industry overall, prior to that executive order, were really expecting a really solid pull forward ahead prior to 2027, but it's all going to be muted and kind of once again in wait-and-see mode as we go forward. So I think the tariffs obviously impacting that business, a soft trucking environment impacting that business and then, of course, the NOx standards for 2027 engine impacting the pull forward.

Yes. And to add to the Class 8 move beyond into the autos, as we had mentioned in the prepared remarks, it's still fairly consistent. Although the SAAR has dropped recently, the customers that we deal with and the locations that production is happening at, we still have a pretty decent look at the second half of the year, and I don't see any drastic drop at this particular time. It hasn't hurt us because of where we operate in supply and part of the supply chain that there's some increased production in the United States, as some of these adjustments to tariffs have happened. And I think those adjustments to the United States have helped us in certain locations with steady or increased production. So I still have an optimistic outlook for the second half of the year.

Okay, moving parts there. Moving on to the Trucking just for a moment here. I mean, it does seem like a pretty good result for Trucking, but the business continues to shrink here. What needs to happen for this business to start growing again? And if the cycle turns, is there negative leverage in this business now? Do you guys feel that you'll need to add resources here to meet demand? I know that you guys -- you felt pretty good about the asset front on Intermodal, but I kind of wanted to ask about Trucking.

Yes. I'll kick this one off. So yes, I think there's a couple of phenomenon. So we have kind of two aspects to that business. We have the legacy agent-based business on one side, which has really been the one that's been shrinking over the past couple of years, related to some initiatives that we've both done internally as well as the overall macro environment, which has really not been indicative to Trucking, particularly in the van front. If you remember, that business is about 70% flatbed and then 50% of that volume is also specifically related to metals and steel. So very heavily industrial focused on the legacy side of the business. And kind of being in that industrial recession that we've been in over the past few years has really been a major macro headwind in that space. Now on the other side of that -- of our Trucking business, we have the wind franchise where we've been investing heavily. So we are -- we haul blades, we haul towers, and we haul components. That business was impacted negatively in the first half of the year, primarily because of tariffs. A lot of those components are imported but I think the cadence that we're seeing in the back half of the year should make up for the shortfall in that business that we experienced in the first half. And then, of course, we have a pretty clear runway now with the One Big Beautiful Bill on what's going to happen for the next 5 years through 2030. So I think most of the headwinds in the wind side of the business are going to be manageable and start to improve in the coming quarters. I think on the other side of the business, on the legacy side, we really need some kind of catalyst in the general freight market to really turn that business to growing again.

Yes. And I would agree with that. On the agent side, we really rationalized the group of agents we had and how we wanted to push forward as an organization. So we think we have a level footing on the makeup of the agent. We're actively recruiting new agents as you would imagine, and we put some additional sales power and oversight on that side of the business. As Jude had mentioned on the specialized side, there's an extreme focus not only on the wind product, which we're really bullish on, we're also going to branch out into other heavier haul type opportunities that might support various industries. So we're pretty bullish on the specialized and we'll continue to focus on building that product out.

And I have a follow-up on the changes to the incentive structure and whatnot with the Big Beautiful Bill. I mean should we expect this to be kind of a short term or at least over the next few years, be a short-term tailwind and then potentially something that hurts long term. After the 5-year period, I mean, should we expect to see some increased demand for the product given the incentives are rolling out?

No. I think the way that we should imagine this is that as we decipher the bill that there is a period of time that those projects would need to get started, right? So I think it's roughly a 1-year period of time that they have to have the shape. The project will need to be started. They'll need to have some start procurement of the equipment that's going to be used on the project, but then they're going to have another four years to complete that project. And it's a minimal commitment in the first year of what they have to purchase. I guess they have to show a good course of moving forward. And then we believe that we'll have a steady feed now, and that should pick up towards the middle to end of that, let's call it, 5-year period. So we expect '27, '28, '29 to be pretty fruitful years based on the fact that those projects will be in full swing and we'll be there to serve and deliver.

[Operator Instructions] There are no further questions at this time. Mr. Phillips, please continue.

Thank you, Chloe, and thank you for joining Universal's second quarter earnings call. We remain committed to navigating the current economic environment and providing our customers with best-in-class service while creating additional shareholder value. I'm convinced the actions we have taken over the last couple of quarters have positioned us very well for future growth. I appreciate you dialing in. Thank you.