Jeff Rogers - Chief Executive Officer Jude Beres - Chief Financial Officer Steven Fitzpatrick - Vice President of Finance and Investor Relations.

Hello, and welcome to Universal Logistics Holdings’ Fourth Quarter 2017 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 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 actual results could differ materially from those expectations. As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Mr. Jeff Rogers, Chief Executive Officer; Mr. Jude Beres, Chief Financial Officer; and Mr.

Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you. Mr. Rogers, you may begin..

Thanks, Holly. Good morning. Thank you for joining the Universal Logistics Holdings Fourth Quarter 2017 Earnings Call. The Universal team delivered another record revenue quarter of $314 million, the most in any quarter in our history and represents an increase of $50 million or 18.9% over last year.

Excluding the impact of fourth quarter tax adjustments, our earnings per share increased to 140% over last year. Our momentum continued as we closed out 2017 with all business units showing top line growth except our dedicated division that is still impacted by specific auto assembly plans, experiencing reduced production.

Our brokerage service delivered an astonishing 47.7% growth over last year, which shows how difficult it is for us and others to find capacity. Value added grew by 16.5% and our mobile services grew 14.4% and truck load services grew 9.8%. With a current sales pipeline of over $0.5 billion, I'm very bullish on our continued ability to grow.

In truckload services, which excludes brokerage as mentioned, our revenue was at 9.8%. FEMA activity accounted for $2 million in the quarter and at this point, we feel the additional revenue from FEMA activity due to the hurricanes last year has winded down. Overall, load account was flat while revenue per load was up 17.7%.

Flatbed and heavy haul loads increased 4.7% year-over-year as we see continued strength in the industrial segments that we serve. We added 60 new agents in 2017 and revenue coming from new agents exceeded $20 million on an annual run rate basis, and represents 6.2% of total revenue for our agency based truckload unit.

As capacity continues to tighten, we have the ability optimize revenue per load. Our agents and owner operators continually choose the highest revenue opportunities. Brokerage revenue increased 47.7% year-over-year being driven by load count increases of 17.4% and revenue per load increases of 32.6%.

Our standalone brokerage business executed extremely well in a difficult environment and delivered its best ever financial performance in the fourth quarter. Our intermodal team delivered another solid performance. Overall, revenue increased 14.4%, driven by 5.6% increase in loads and 5.5% increase in revenue per load.

Pricing has finally started to move up significantly for international containers. I am extremely confident in our intermodal team and with the recently announced acquisition of Fore Transportation in the Chicago market where we did not have a footprint, we have a tremendous opportunity.

Fore brings a list of new blue chip customers to Universal that are eager to grow in our existing markets and our legacy customers are eager to grow in Chicago. Dedicated services revenue decreased 7.9% year-over-year. The decrease is primarily attributable to one customer and one location where production with shutdown for most of the quarter.

This assembly plant has since resumed production but is still on a reduced schedule.

While our dedicated unit remains slightly profitable for the quarter, we are not happy with the current results and are working hard to increase rates, better utilize our assets and grow outside of the automotive vertical, which in my opinion is the key to long-term stability for a dedicated model.

Our value add operations supporting heavy truck continue to rebound in a big way, and had revenue growth of [Audio Gap] production for Class A trucks raises the bar and with the latest forecast predicting one of the highest production years in a decade, our confidence in this segment of our business continues to grow.

Our customer base is looking to us to assist them in many ways as their production capabilities will be stretched to the max this year. For our value add business that supports auto, aerospace, retail and industrial customers revenue grew13.9% year-over-year.

While our margins for the segment were below historical levels and what we expect going forward, we did complete implementation on the last very large logistics operation and came to an agreement with our customer on pricing that we expect will make us profitable with this $40 million annual piece of business.

The headwinds that we have experienced for many quarters are now behind us and we can focus our efforts on improved efficiency versus implementation, and from being marginally profitable to solidly profitable. Universal finished 2017 with very strong momentum.

There are so many reasons for us to be even more excited about what 2018 and beyond will bring. Although, leadership changes the strategic decisions to focus Universal on who we are and what we do has put us in a position to take advantage of what is ahead. Tight driver capacity is a good thing for our industry, and I do not see it loose anytime soon.

Fright rates must continue to rise and sustain at these higher rates for a long-time to support higher wages for drivers and reinvestment. As the economy strengthens, we expect to see -- to continue to see bottlenecks and hiccups in the supply chain that will only enforce the need for sustained higher rates.

The new tax law and the positive impact it is having on capital investment it’s right into our business and what Universal is all about. Our expectation of a more robust infrastructure plan will also bring more good news for our Flatbed and Heavy Haul fleets.

With the significant headwinds behind us and all the positive influences we see in our markets, we expect earnings and free cash flow to improve to historical levels and beyond. Jude will provide more commentary on our strategy for uses of free cash, but hopefully you saw a release last night of our Universal’s change in our dividend policy.

Going forward, we have increased our quarterly dividend 50%. The board will also review our financial results at the end of the year and consider paying a special dividend up to 40% of our earnings. We feel this is a good use of expected free cash and clearly enhances shareholder value. With that, I’ll turn it over to Jude..

Thanks Jeff. Good morning, everyone. Universal Logistics Holdings reported net income of $24.4 million or $0.86 per share on total operating revenues of $314 million in the fourth quarter of 2017. This compares to net income of $2.7 million or $0.10 per share on total operating revenues of $264.1 million in the fourth quarter of 2016.

Included in the reported net income of $24.4 million was an $18.1 million tax benefit due to revaluing our deferred tax liability resulting from the new Tax Cuts and Jobs Act legislation signed by President Trump in December of 2017. This accounted for $0.64 per share in the quarter.

Universal also experienced an additional charge of $0.02 per share of unfavorable tax adjustments, primarily related to a larger than expected return to provision adjustment for the 2016 tax year, which increased our effective tax rate during the quarter.

Consolidated income from operations increased $7.3 million to $13.1 million compared to $5.8 million in the fourth quarter of 2016. EBITDA increased to $10.3 million to $26.6 million in the fourth quarter of 2017, which compares to $16.3 million one year earlier.

Our operating margin and EBITDA margin for the fourth quarter of 2017 are 4.2% and 8.5% of total operating revenue. These metrics compare to 2.2% and 6.2% respectively in the fourth quarter of 2016. Looking at our segment performance in the fourth quarter of 2017.

In our transportation segment, which includes our truckload, intermodal, NVOCC and freight brokerage businesses, operating revenues for the quarter rose 23.7% to $197.9 million compared to $160 million in the same quarter last year and income from operations increased to $2.3 million to $7.3 million compared to $5 million in the fourth quarter of 2016.

In our logistic segment, which is comprised of our value added services, including where we service the Class A heavy truck market and our dedicated transportation business, income from operations increased 35.1% to $4.2 million on $115.8 million of total operating revenues compared to $3.1 million of operating income on $104 million of total operating revenue in 2016.

On our balance sheet, we held cash and cash equivalents totaling $1.7 million and $15.1 million of marketable securities. Outstanding debt net of $1.2 million of debt issuance costs totaled $248 million at the end of the period. Capital expenditures for the quarter totaled $16.7 million.

For the year, Universal CapEx totaled $63.4 million, while we generated 20.5 million in free cash flow. For 2018, we are expecting capital expenditures to be in the $55 million to $65 million range and interest expense of approximately $10 million. On Wednesday, our Board of Directors declared Universal's $0.07 per share regular quarterly dividend.

This quarter's dividend is payable to shareholders of record at the close of business on March 5, 2018 and is expected to be paid on March 15, 2018. As we look out over the next few years, we expect Universal to return to the profitability and operating and margins experienced during the 2013 to 2014 period.

The result in increased cash flow is due to improving operating performance coupled with changes to corporate tax rate and allowing for full expensing of our planned capital equipment purchases. We believe this will put Universal on a different path for the foreseeable future.

Here is an overview of how we expect to deploy that additional capital in the near-term. First, Universal will continue to grow and recapitalize our fleet of trackers, trailers and material handling equipment. In 2014, we rolled out a regiment to trading cycle for our fleet of tractors and trailers.

This allows Universals to have predictable CapEx spend and get rid of the some of the choppiness we’ve experienced in past years. In addition, we will be able to provide our drivers and customers with the most updated equipment serving their transportation need. Second, we will continue to look for strategic acquisitions within our core service lines.

As Jeff mentioned, earlier this month, Universal reentered the acquisition market and announced the acquisition of Fore Transportation in Harvey, Illinois.

Fore, a full service intermodal logistics solutions provider, not only immediately added over 150 experienced owner operator and company drivers to our fleet, it provided Universal a 28 acre footprint strategically located in the Chicago land market.

We are actively looking for Fore like businesses within our space who bring with them experienced management and if possible a strategic piece of property we can acquire with the business. Third, we're going to continue to pay down debt. Our debt to EBITDA is currently a little over 3 times.

Our target at the EBITDA is around 2.5 times with the ability to flex up for acquisition. And finally, we want to continue returning capital to our shareholders. Since 2013, Universal has returned over $75 million to shareholders through our dividend policy and stock buyback programs.

As our cash flow and debt levels improve, we will strive the strike the right balance of deploying capital in our business and returning it to shareholders as evidenced by our recent acquisition of Fore and our updated dividend policy Jeff detailed earlier. With that, Holly, we’re ready to take some questions..

[Operator Instructions] Our first question will come from the line of Mike [indiscernible] Capital. Your line is open..

That was a great overview of the situation, and a good release last night. I went back and I was looking at the prior years of the company and on a pro forma basis with link, the years 2010 through 2014. And now we're doing, I think this past year to about 20% more on the top line.

And it seems underlying demand is significantly better, your price is significantly better. So we assume that we get margins back to the peak over the next year to year, so hopefully sooner than later. Should we expect to EPS the really blow pass this prior peak number over the next few years.

And I'm trying to figure out why our peak EPS this cycle isn’t significantly higher than the prior peak with better run network and higher revenues coming in as well..

I hear where you’re coming from and we expect to get back to those historical and beyond, which is what I said in my comments.

There’re a lot of things that are going really, really well, truckload is probably going get back to some of their best performing operations, intermodal was clearly having their best performance, Westport that's the Class A truck units, they are not back to what I would say their historical best, because they’re still ramping up.

But we expect that -- now whether that's in ’18 or ’19, who knows but in the near term, we expect them to get back to their best demonstrated performance.

So everything is coming together and brokerage is just getting better and better, because this is becoming a larger piece and the margins there it's brokerage, so the margins there in that 5% are what we're looking for. But that's where they’re at now and they were not there before either. So you've got a lot of things working in your favor.

It's really the legacy link and the value add that we've talked about that's really been compressing the margins over the last couple of years that it’s the issue and that's where obviously all the efforts are focused.

I honestly and I’ve said this numerous times, I don’t expect legacy link to get back to their historical margins, because the market is just so different.

The way we interact with customers in that business is different and a lot of it has to do with real-estate play and who is holding the real-estate us versus the customer and the margins you can make on that. So the business is a little bit different.

But what we would be happy with and what we're really trying to work to is to get that business back to plus 10% margins. And they haven’t been there for two years. So if we do that, that's what will drive the earnings as good if not better than what we've ever done before.

And that's the expectation whether it happens throughout this year and into next year or next year, we still got some technology changes that we’re going through that I think will also lead to better performance than we've ever had. So there is a lot of reasons why we should be able to do just what you’re asking.

The timing of it is really the only question as to when it takes place this year or into next year..

So there is no reason we shouldn’t -- this peak I was just doing the math to get to that. The last peak was $1.70, so get to $1.70 plus, $2 plus this cycle. It seems just like the revenues are much higher and if we get approach those higher margins will get to that $2 plus number, which will lead me into my next question.

I think the dividend new policy announces was a excellent move. When you were looking at the capital allocation, we're trading at such a discount to the entire transportation group. There is nothing really approaching our valuation out there, whether you look it on a cash flow basis, on an EPS basis, on EBITDA however we want to look at it.

Did you consider doing another one of your Dutch tenders at these levels as we’re trading so cheap to an intrinsic value or is the goal continuing along with the divined, which I think is great as well?.

Well, like I said Mike there has been no conversations around a [Dutch] option. So right now we're going to continue with what we've laid out and the dividend policy.

And then hopefully at the end of the year we have a kick buck year and we can -- the board will sit there and talk about special dividend and we talk about at the 40% earnings, which I think will provide a very good return and additional money back to shareholders..

And then last one, can you give us a little under the hood as to some of the new bids and customers were looking at, not specifics but new end markets we're trying to enter to diversify the company..

The truckload is transactional as well as intermodal.

So those customers come and go and there is really no real specific group of new customers for those businesses, other than the Fore Transportation acquisition brought a whole new list of customers that we have not done business with, which is awesome which will diversify us further from an intermodal perspective.

But it’s really all about the value add and trying to diversify that customer base. We’ve done a great job in my opinion over the last two years to expand in the aerospace and defense. We just want a new piece of business from a defense contractor.

So we're getting an awful lot of looks from customer in those spaces, because of what we’ve done with Boeing and some of the other aerospace companies. My point, I think why I'm so bullish from a growth perspective is I think we just have to be disciplined on where we grow, because we can grow as much as we want to.

And in hindsight and I’ve said this before, we grew so fast on the value add side. I think that created some of our problems from a margin perspective. So we're going to be a little more disciplined going forward, because there is such an opportunity because only a few companies do what we do.

So our opportunity to grow is always bigger, it’s just staying disciplined to make sure that we don’t lose side of our margins or get caught where we have the last couple of years on just such growth that was just so much. Again, we’ve got the revenue now focused on improving the margins on that revenue.

So that’s what we're going to do going forward..

[Operator Instructions] Our next question comes from the line of Chris Wetherbee, Citigroup..

This is William on for Chris. I just want to ask another question about the capital returns regarding the dividend. So I know that you increased your basic normal dividend by 50%, and you're evaluating the specials dividend. I was just wondering typically on the clarity front.

Are you targeting a payout ratio in total of 40% for the common and special dividend or is that like just for the special dividends?.

No, I think it would be up to 40%, so that just gives us a little bit of a bracket. But it doesn’t mean that the board is going always declare up to 40%, but we just wanted to state that at given time we’re not going to exceed 40%..

And just a follow up on that. So given your recent acquisition of Fore and dividend increase, and also the fact that you guys got it down to -- CapEx down to about 5% year-over-year in 2018.

I was just wondering if you comment on your outlook for organic growth going forward and where you see those opportunities to continue growing and also what could get you back to growth on dedicated front..

Well, the dedicated growth -- again, I will go back to my comment that we could grow dedicated as fast as we want to because there is unlimited opportunities, it’s just what make sense to us in that dedicated model. We’ve been so focused on automotive and now I really want to try to grow outside of automotive.

I’ve got a list of 30 opportunities on the automotive side that we could grow tomorrow, it's just we've got to just make sure we're doing it smart. And what's difficult in that dedicated piece with the pricing, everybody knows transportation prices are going through the roof and arising faster than you can even account for from a driver perspective.

And with the dedicated model, you've got to be really, really smart now on what rate structure you want to lock into for the next year or two.

So that's all what we're doing now is really trying to be very disciplined and smart to understand what pieces of business on the dedicated side we can make sure that we make a written on, because in some cases the cost of trying to secure capacity and transportation is going up fast as well.

So that's I'm just caution we could grow dedicated tomorrow like this, it’s just a matter of being smart about it. So the rest of the organic growth, I don’t expect anything to be any different going forward than what we've experienced the last couple of quarters.

So I think value add growth could slow down just a little bit, but only because we thought that's massive growth last year but the rest of the businesses -- I mean just think about it. I mean pricing environment is up 10% at a minimum and more.

So I would expect at a minimum 10% -- comment on the $0.5 billion sale pipeline, so organic growth is not going to be an issue from my perspective..

[Operator Instructions] And currently we have no questions in the queue..

Holly, thank you so much. I sure appreciate everybody joining us this morning, and I appreciate your interest in Universal. We’ll talk to you coming up in April. Take care, have a great Friday..

Thank you. That will conclude today’s conference call. We do appreciate your participation and ask that you disconnect..