Jeff Rogers - CEO David Crittenden - Treasurer and CFO.

Alex Hahn - Citigroup Aaron Reeves - BB&T Capital.

Hello and welcome to the Universal Truckload Services Inc First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

During the course of this call, management may make a few forward-looking statements based on their best views 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 uncertainties and risks 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. Jeff Rogers, Chief Executive Officer; and Mr. David Crittenden, Chief Financial Officer for Universal Truckload Services Inc.

Thank you. Mr. Rogers, you may begin..

Thanks Sean. Good morning. Thank you for joining us today for Universal Truckload Services' first quarter 2015 earnings conference call. Now let's get right to the numbers. From a top line perspective, revenue was down 5.7% for the first quarter over last year's first quarter.

Several factors contributed to the drop in revenue and those include, the reduced fuel prices which are a significant portion of our transportation related revenue, the slowdown in steel and metals hauling, oil and gas related services and GDP. The weather was also a factor, but it impacted us differently than last year.

Our business models did allow us to hold or even improve our margins, as volumes declined rapidly in the first quarter. The impact to transportation was significant, down 10.8% to $160.4 million, it now represents 60.9% of our overall revenue.

Transportation remains our largest business, including best in class truckload, heavy haul, and niche transportation hauling like GE's new 180-foot wind blades, which we will begin hauling in the third quarter. The contraction in steel and metal hauling, as cheap foreign steel hit U.S.

ores, and a slowdown in the oil and gas energy group has been a significant hit to our first quarter revenue, and we now expect this to have a lasting effect through most of the year to come. Capacity is still a key issue for the industry, and our growth is limited by the number of drivers we can recruit.

We have added significant resources to improve our capacity development, and I am pleased with the increased activity, which will lead to more drivers. Brokerage also suffered, as the overall market softened, and spot rates drifted down for the first quarter. But we still expect our brokerage business revenue to grow at better than 25% year-over-year.

Dedicated transportation continued to be a drag on profitability for the first quarter. However, it is starting to turn around. Three customers have agreed to 5% to 6% price increases to its start dates beginning in April and one, which a start date we are still yet to set.

Another customer has not yet agreed to our request, and we may ultimately end up reallocating those resources. Although the price increases don't fully address the performance issues, they are essential to getting back on track.

Owner-operator count was down 1.1%, revenue per loaded mile, exclusive of fuel surcharge was down 4.7% first quarter, from last year's first quarter. We continue to focus on margin growth for our transportation business, by growing our company terminals, while continuing to support our agent model, in order to maximize both margin and growth.

As a matter of fact, right after this call, we are heading to meet with our largest agents, and get their ideas on growing the business and ours.

In value added services, we have our first quarter-to-quarter comparative that includes Westport, value added revenue for the first quarter was at 1.1% over first quarter last year to $70.2 million, and it now represents 26.6% of our overall revenue. We launched two new programs in the first quarter, as I mentioned last call.

The smaller international operation is up and running, while the larger operation will continue to ramp up in volume, into early fourth quarter. One of these, as I mentioned in the first quarter, is over $30 million in annualized revenue, and moves us down the road towards owning that plant.

Adding color from an industry perspective, the automotive star forecast remained strong at 17.1 million units for 2015, with good growth forecasted through 2020. Heavy truck production also looked solid for the next year or two.

These are the two largest industrial sectors impacting our value added business, and it is good to see continued positive outlook. As we mentioned before, our value added business sometimes utilizes labor contracts, primarily where our customers require it.

We will have one contract expiring per quarter over the next year, and anticipate concluding each negotiation without issue. Our intermodal business delivered a solid performance this quarter.

Revenue was up 9.5% to $32.9 million over last year, a strong dollar and solid import volumes were reflected in the strong performance, both our drayage and depot businesses. Driver capacity continues to be an issue, as well as the choppiness from the port congestion.

However, it appears that many customers are rerouting freight to the East Coast, some of the permanently, which is great news for us, as most of our operations are east of the Mississippi.

In summary, in light of the first quarter, we have revised our outlook for 2015 with respect to the softening economy and its impact to certain segments of the transportation market. While there is still room for optimism and parts of our business, it certainly isn't growing at the same trajectory we were forecasting just 10 weeks ago.

We expect our overall revenue will be up slightly from last year, with intermodal and value add growth, offsetting much of the transportation decline. I am encouraged by our margin improvement opportunities within the truckload business.

The bright spot continues to be intermodal, where we expect a very solid year with 10% growth and significant margin expansion. While value added revenue growth remains consistent with our last call, as new business wins offset discontinued operations, and most new growth falls in the second half of 2015, and into 2016.

With that, David will now provide a more detailed run-down on the first quarter financial performance..

Thank you, Jeff. Good morning everyone. Universal reported first quarter 2015 net income of $8.2 million on consolidated revenues of $263.6 million. Earnings per share were $0.27. Revenues were just above the midpoint of the range we anticipated in our April 1st press release.

Earnings per share on a revised revenue forecast, were also in the range indicated four weeks ago. Consolidated first quarter operating revenues were 5.7% or $15.8 million lower than in the first quarter of 2014.

Despite almost 10% growth in our intermodal services and overall flat revenues in our value-added services, our first quarter revenues were weighed down by a 10.8% decline in revenues from transportation services.

Following an abrupt reversal of demand and pricing trends for our truckload services, and ongoing trends in our dedicated transportation services. When compared to the fourth quarter of 2014, Q1 revenues from our transportation services were down 17.8%, driven by expected seasonality, softer pricing and lower diesel surcharges.

Our average length of haul quarter-over-quarter was up 2.5%, but that was offset by a 9.3% decline in the number of loads. That compares to a 3.2% quarter over prior quarter decline one year ago.

Average revenues per load, excluding fuel surcharges were down 6.8%, highlighting the impact of the decline in high rated, flatbed and heavy haul moves on revenues from this operation. First quarter 2015 revenues from value added services were flat, compared to the fourth quarter of 2014.

As Jeff indicated, our continuing value added operations are supported by solid 2015 forecast from our automotive and large truck customers, and Universal's logistics performance later this year will be helped along by the new operation Jeff mentioned.

Although up 9.3% from last year, intermodal revenues were actually down 12% from the proceeding quarter, primarily due to a 10.3% drop in the number of loads quarter-over-quarter. We believe approximately half of the Q1 VQ4 change is seasonal. We experienced a 4.7% decline in the comparable statistic last year.

The balance was caused by a 3.6% decline in the average operating revenue per load, reflecting both mix and pricing considerations. Despite the aggregate 5.7% revenue decline in the quarter and consolidated operating revenues, our margin trends paint an improving operating picture.

Consolidated income from operations in Q1 rose to $15.1 million, compared to $14.6 million in the first quarter of 2014, on $15.8 million lower revenue. First quarter EBITDA margins are 9.1% compared to 8% a year ago.

The 100 plus basis point improvement in consolidated EBITDA margin compared to last year, still appears, even when fuel surcharges are excluded. Universal's fuel surcharges totaled about $22 million in Q1 2015, compared to $29 million in 2014.

When fuel surcharges are removed from revenues in the denominator, our first quarter EBITDA margin comparison is about 10% for Q1 2015 compared to 8.9% last year.

Income from operations in our transportation segment, expressed as a percentage of revenue, increased to 3.8% from 3% last year, despite $8.1 million less billings in operations reported in this segment.

And even Universal's logistics segment, which includes both value added services and about $27 million of revenue from dedicated transportation, maintained a 9.1% margin, down slightly from 9.3% in Q1 2014, despite continuing subpar performance in our dedicated business.

While we have only taken early steps to improve or restore margins across our businesses, we do see early evidence of progress in enhancing the quality of our earnings.

Of significance, Universal's free cash flow in Q1, defined as EBITDA less CapEx, increased to $21.9 million compared to $11.5 million in the first quarter of 2014, due to modestly higher EBITDA and restrained capital spending.

While we do expect investments in tractors, trailers and other capital equipment to rebound somewhat in the next few quarters, we currently are working with an approximate $40 million capital budget this year, which is one-third lower than last year's purchases.

We pointed out a few additional items in our earnings announcement that impacted our net income, including a $1.4 million increase in depreciation expense compared to the first quarter of 2014.

Also, a modest increase in interest expense, due to the higher interest rate spreads on our matrix based debt, beginning in late Q1 2014, following the Westport acquisition a few months before.

We encourage you as always to review the supplemental information in our earnings announcement, which provides important operating and capacity metrics, present our segment financial performance and includes the methodology we use to calculate the EBITDA metric.

We will file our Q1 10-Q late next week, and it will provide additional detail behind the financial performance we are just discussing today. Midway through Q1, we described our 2015 revenue growth targets for each of Universal's three service categories in several forms, including on our February 20th conference call.

Jeff updated this view a few minutes ago, particularly in connection with our transportation services, which encountered a somewhat abrupt change in volume demand and low pricing, midway through the quarter, especially impacting our flatbed and heavy haul operations.

Based on our views of current market conditions and trends through this morning, we now anticipate results in 2015 revenues of about $1.2 billion, which is a modest 1% to 2% above last year's results in the aggregate.

Extending the profitability metrics, we expect continued improvement in operating and EBITDA margins through the next several quarters. This will result from normal seasonal effects, along with the profit improvement initiatives, Jeff alluded to.

For all of 2015, we currently anticipate the aggregate operating margin of operating units that we report in our logistics segment, to be in a target range of 11.9% to 12.4%, this compares to 9.1% in the first quarter and 12.3% for all of last year.

The 2015 operating margin for our transportation segment businesses is expected to fall in the range from 4.3% to 4.5%. This compares to 3.8% in the first quarter and 4.5% last year, when pricing momentum was stronger. Given these revised assumptions, we anticipate 2015 EPS to exceed last year's $1.51 per share, anywhere from a nickel through a dime.

Our visibility will continue to improve through Q2, as this is always an important quarter for the automotive portion of our logistics business, and we will soon see, if February and March weakness represented temporary setbacks, or instead where permanent changes in demand and pricing, due to loss of general economic momentum.

Yesterday, Universal concluded our annual shareholders' meeting and our quarterly board meeting. Although Universal's Q1 performance fell short of our broader growth expectations, particularly in our largest business, we take some solace in the resilience of our asset-like business model and its free cash flow and high ROIC.

Jeff and I also know that we have our Board's support in executing value creating strategies for our shareholders. The team here remains focused on profitable growth, and we look forward to demonstrating that over successive quarters.

With that, Jeff and I again want to thank you for your interest this morning, and we now invite Sean to open the phone lines for some questions..

Your first question comes from the line of Chris Wetherbee from Citi. Your line is open..

Good morning guys. This is Alex Hahn in for Chris..

Hey Alex..

Hi. Just wondering, would you say the lower than expected demand in February and March for [indiscernible].

Is that indicative of demand throughout the year, and can you give us an insight on how April fared?.

This is Jeff. April was very-very similar to what we saw in the first quarter. I think from a flatbed -- what's going on with the steel environment and the heavy haul, I think that's going to continue for a while. A lot of that -- you've got the oil and gas issue, so I think that's going to continue.

So to say it, I don't know is that going to continue through the whole year, to be honest, I am not sure anybody knows what's going to happen for that length of time, but I do see the continued trends right now that we saw in the first quarter..

Okay. That's helpful.

And as a follow-up, where do you see the opportunity to improve margins and performance, as demand stays sluggish and are you guys progressing towards your full year targets given in February?.

From a margin perspective, yes, I still feel very confident with what we said. There is a lot of little -- it’s a lot of additions of small things within that model, that maybe have not been looked at for quite some time.

So we are going to look at every opportunity we see to drive, whether it be through assessorials, whether it be through how we engage with customers. We talked about the growth of company terminals, who we feel we had the opportunity to drive higher margins in that growth segment.

Even though the growth is stagnant, if we still continue to grow that as a higher percentage of the total, I think we have the ability to drive margins that way. But I still feel very-very confident in the ability to improve our margins in the truckload segment..

I might just add, if you look at what -- Jeff did mention, in terms of the full year expectations, they fall very close to what they were last year. So in the transportation business, we have only looked for like 50 to 100 basis point improvement in those costs this year as incremental improvement.

And then in the logistics business, if we fix the dedicated business, it will be an immediate improvement to the aggregate margin in that segment and in those businesses..

Okay, great. That was very helpful. I will turn it over..

Your next question comes from the line of Aaron Reeves from BB&T Capital. Your line is open..

Hey, good morning guys..

How're you Aaron?.

Not much, just had a few questions for you. Wanted to focus first on transportation services; I know you mentioned that these trends are probably going to continue.

But I am curious to know, do you think the growth in transportation revenues can get flat at some point this year? I mean, I noted down, like maybe almost 11% in Q1; but as we get to maybe Q3 or Q4, could you see it maybe turning positive or at least flat?.

I would sure hope we can, but we will just see how things play out this year. Really, a lot of that depends on what happens in the steel environment. Housing starts kick off again, which we know, we are very-very sluggish in the first quarter, that can have a lot to do with what we do from a flatbed perspective.

Who is to say what's going to happen in the oil and gas industry, but the expectation is, I know, we are starting from a big hole, but I know what Mark and the team in transportation is trying to shoot for.

And it is still -- even though the volume is down, there is still an issue out there with drivers, and I feel that as we add drivers, we will have the ability to grow more and I do feel confident that we can do that. So the expectation would be, yeah to try to get back to at least flat, but we will see how the year plays out..

Okay. And then I have got a similar question on the value added side, obviously, your revenues are up about 1% in the quarter.

Could we start to see that maybe accelerate later in the year? I know we expect some contracts to kick in, but could we start to see some mid-upper single digit growth as we get into the back half of the year?.

Absolutely. If you remember, we guided the full year of 3% to 5%, and we expected the first quarter to be about where it was, it came in kind of where we thought. So we absolutely expect it to accelerate in the back half, as these new businesses that we are adding and we have got some other ones in the pipeline that I think are going to come on.

So absolutely, it will accelerate, and we still feel very comfortable that for the full year, we will be in that high 3% to 5% range..

All right.

And just one more question, this kind of goes back to the oil and gas exposure, could you just quantify that again for us? I am trying to remember what it was, what you said last year? I just wanted to make sure, I got that right?.

The way I think we talked about it is, the entire energy segment was about 7%. Of that, a lot of it was the GE win, which really didn't have anything to do with what's going on in the oil exploration business. And I think we said somewhere around 3% potentially was the exposure, which I still think, is there.

It sure seems and felt like it -- the impact of it is a hell lot more than that, in the first quarter, I will be honest with you. But from just a total piece of the pie, it's not that big.

But I think there is just broader things going on in that flatbed environment, having to do with what I talked about the Chinese dumping steel and how that was moved around, we didn't play in a lot of the transportation of that at all.

So I think there is just some other things going on, that are really impacting the flatbed and heavy haul environment..

All right.

And could you just give us a couple of anecdotes from what you're hearing from your industrial customers?.

You know, Class-A truck is still strong. I think they are projecting this year to still be a solid record year. I think next year it is starting to soften and what they are projecting into 2016. Automotive is still strong.

Case New Holland, which is a very large customer of ours, is experiencing some softness for sure, but all in all, it's very mixed, depending on what area the industrial is playing in..

All right. Thanks a lot. I will hop back in the queue..

[Operator Instructions]. Your next question comes from the line of [indiscernible] from Wolfe Research. Your line is open. Sir, your line is open..

Good morning. Sorry I was on mute. Thanks for taking my question..

That's all right. Good morning..

Just a quick question, just following on, on kind of the weakness in the truckload division. I was wondering if you had kind of a breakdown by month, January, February and also into April, in terms of both pricing and volumes..

We certainly do, but we typically don't share that information actually. I think what we can say though is that, the trends that we are talking about, actually we started talking about at the end of March, started to really become obvious, midway through February.

As we started the year, we were engaged in a lot of internal changes and focused on that. But the pricing and demand trends started to become obvious to us, kind of midway through February. As Jeff just said, we were very interested over the last four weeks, to figure out whether it was broader general economic trends.

I think we all saw the GDP come out yesterday, well, it was a surprise to a lot of folks. We probably started seeing evidence of that five or six weeks ago, and now that's why, it's going to be really important for us, to see how the residential and commercial real estate development activity picks up in May and June.

I don't think we have seen it yet, and so four weeks from now, we might have better visibility to that. But there was clearly a point of inflection, that started emerging kind of midway through the quarter..

Okay.

And you said that this kind of continued through April as well, right?.

Yes. Pretty much the same thing..

Okay.

And just another question on kind of your revenue pre loaded mile, is there a -- I noticed there was 7.9% growth in fuel, 5% net of fuel, is there any kind of difference between kind of contractual pricing and your spot pricing?.

Absolutely. I mean, last year results had strength in the spot market which drove a lot of the pricing increases, which is much softer now than it was, and a business shift.

Last year, your steel and wind energy or heavy haul created a much higher revenue per mile, than what we are seeing now, as those constrict and go down, then that obviously impacts your revenue per mile indices. So it's really a change in mix that's driving a lot of that pricing change as well..

Okay.

Any sense on, I guess the split, percentage-wise year-over-year between your contractual pricing, and your spot pricing?.

As far as [indiscernible], I don't have that in front of me. We will have to get back with you..

Okay. Sure. Okay, that's all I have. Thanks for taking my questions..

You bet..

There are currently no further questions at this time. Presenters, I turn the call back to you..

Well once again, we sure appreciate you joining and your interest in Universal, and everybody have a great day..

This concludes today's conference call, you may now disconnect..