Hello, and welcome to the Universal Logistics Holdings First Quarter 2021 Earnings conference call. . 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 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 Beres, Chief Financial Officer and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you, Mr. Phillips, you may begin, sir..

Good morning, and thank you for joining Universal Logistics Holdings First Quarter Earnings call. I want to start off by congratulating the dedicated professionals of the team Universal who together made this quarter such a success.

We developed a strategic plan that would be both versatile for the ever-changing logistics environment and aggressive enough to achieve the results our shareholders expect.

I believe the strong results we reported in the first quarter of the year demonstrate our plan is executable, even in an environment sparred with weather disruptions, parts shortages and the ever-present hiring challenge of the transportation and logistics space.

While we believe technology will play a role in furthering our success, our continued ability to attract and retain professional truck drivers, warehouse workers and office personnel will be key to Universal's success in 2021 and beyond. Now for the quarter.

In yesterday's earnings release, Universal reported first quarter earnings of $0.80 per share on operating revenue of $415.2 million, beating estimates on both top and bottom line.

First quarter operating results represented not only Universal's best top-line revenue, operating income and earnings per share for the first quarter, they are the highest results ever reported. This is a direct reflection on the strategic focus and corresponding road map that has been developed by all of our operating segments.

I am extremely encouraged by the additional opportunity we have to further drive efficiencies and operational excellence. The year-over-year top-line revenue increase can be attributed to growth in four of the five service lines. Dedicated services-led the way growing over 50% on a year-over-year basis.

Brokerage and value-added services also experienced double-digit growth, increasing 12.8% and 12%, respectively, compared to the same period last year. Strong pricing also led to growth in our truckload services, where we were experienced modest gains in the first quarter of 2021.

We did experience some headwind as congestion and power unit availability hindered intermodal for the first two months of the quarter. However, we did see an 8% uptick in revenue in the month of March. Continued strong demand for light-duty vehicles kept our contract logistics group busy in Q1.

Even though chip and part shortages began to show impact at the tail end of the quarter, during the quarter, weather played a larger role than part shortages, with several of our large plants served being down a couple of days up to a week.

We expect these disruptions to be temporary as the production forecast for autos remains strong for the full year 2021..

Thanks, Tim. Good morning, everyone. Universal Logistics Holdings reported consolidated net income of $21.7 million or $0.80 per share on total operating revenues of $415.2 million in the first quarter of 2021. This compares to net income of $12.2 million or $0.45 per share on total operating revenues of $382.2 million in the first quarter of 2020.

Consolidated income from operations was $31.2 million for the quarter compared to $23.9 million one year earlier. EBITDA increased $11.4 to $51.2 million, which compares to $39.8 million one year earlier. Our operating margin and EBITDA margin for the first quarter of 2021 are 7.5% and 12.3% of total operating revenues.

These metrics compare to 6.3% and 10.4%, respectively, in the first quarter of last year.

Looking at our segment performance for the first quarter of 2021 in our contract logistics segment, which includes our value-add and dedicated transportation businesses, income from operations increased $5.1 to $16.8 million on $154 million of total operating revenues.

This compares to operating income of $11.7 million on $127 million of total operating revenues in the first quarter of 2020..

. We'll pause for just a moment to compile the Q&A roster. And the first question will come from Chris Wetherbee with Citi. Please go ahead..

Very helpful sort of detail in terms of how you're being impacted by some of your customers' facilities. I guess maybe if I could take that just a step further and maybe understand practically how you sort of see the recovery kind of playing out.

I think you're saying maybe mid- 2Q, you could maybe see some of these shortages begin to reaccelerate here and can get back to sort of normalized production levels. What do you think are the steps that need to happen? I guess we've been a little bit surprised at the length of the potential disruptions that we've seen so far.

So what are the positive indicators that you guys are looking at that can give you confidence that maybe we're going to come out of this thing at some point during 2Q and maybe not see it slip further into the back half of the year?.

Hey, Chris, it's Jude. So really, how it kind of works for us is that we're told in advance when the plants are going to operate and when they're not going to operate. And so then we can obviously apply the labor to assist in that inbound manufacturing logistics support that Universal is known for.

So as of right now, we only really have insight until the middle of May. So the current schedules that we have basically tell us what plants are going to be open, which plants are going to be closed and when their expected recovery times is. So we're expecting that to be mid-quarter, and that's really the only insight that we have.

I can tell you, though, over the past couple of weeks, those numbers have been so fluid that they changed multiple times in a day. So once again, we're just kind of reacting to what we're hearing from the OEM's, but at least we have that insight through the next few weeks..

And Chris, I'll add a little bit of color to that also. Even though we don't have that long-range forecast, we're still very confident in our facilities because we are wrapped around what we believe to be the auto's most successful line of products, and we know that they want to put those products out on the street.

So we still see continued production. So we're happy to be in the spaces that we are right now..

Yes. Certainly, it seems like there's no demand at the current moment. So that makes a lot of sense. That's helpful. I appreciate that. Maybe turning to the truckload side, understanding sort of what the opportunity here is for rate. Obviously, rate has been significantly higher, and spot rates obviously have been up quite a bit.

What do you think sort of the potential for realization? Maybe if you want to talk about it in average revenue per tractor terms? Or if you just want to talk about it, which obviously includes some degree of productivity? Or do you want to talk about just kind of pure rate dynamic? What is your outlook for sort of the next several quarters of this year?.

Yes. This is Tim. I think our outlook on rates is very good. I think that you have to break it down into some of the segments. And as you said, the truckload segment, we've been experiencing rate increases anywhere from 8% to 15% and the spot market even higher on that, depending on where it's going and what needs to be moved.

We see that type of rate environment, at least extending out Q2, Q3 and then we'll reanalyze where everything is.

But there's nothing that I'm seeing from the customers or that we're reading that says that this demand lets up or that inventories will be replenished in a timely fashion or the supply chain congestion from an international standpoint rights itself right away. So we're pretty confident that we'll see continued rate increases.

We're also equally confident that as these bids come up, we'll study it closely, and we've been pretty successful in negotiating with the customers on those. So across the board on the truckload side, I would see the opportunity for continued even low double-digit rate increases.

And then on the company asset side, we kind of blew the terminal network up and redefine it in a local and regional standpoint for the company assets. So our goal there is, we know the rate environment is favorable, now it's our time to optimize the trucks and make sure that we're executing on an operational level.

So that will be the focus for the company trucks to continue to layer in and optimize those so we can see the full potential of revenue per truck per week..

Okay.

Intermodal, how do you - how are you guys thinking about sort of the congestion that's out there on the rail network and maybe service where it stands? And how do you think sort of the ability to look at the load dynamic kind of play out? Obviously, you're facing tough comps in the first quarter and obviously, weather and other factors were disruptions, comps get easier, but you do have high hurdles even in the back half of the year in terms of growth from last year.

So how do you think about sort of absolute loads on the intermodal side potentially ramping up from here? Is this sort of a cleaner run now that the weather is broken? And maybe there's some improvement on the margin on the rail side? Or how do you think about it?.

Well, I think the rubber on the road, I mean, from the time we pick it up to get it to customer, yes, we're getting into a much better season. I don't see weather disruptions.

I still see a supply chain disruption when it comes to ships at anchor and/or now seeing some of the flow of the freight that's coming in, hit the inland markets, whether it's Chicago, Memphis, some of those other inland markets, where now we have internal congestion that's starting to build.

And what I mentioned earlier in the prepared remarks is what we're seeing is street time starting to increase. So that asset now, that chassis that's so valuable in those markets, is now sitting on the streets an extra day or two, which further compounds the problem.

What we've done from a company standpoint, we've been very aggressive on adding assets, our own assets, into the rotation. As we put them on, we're putting them into those major markets to help with fluidity. It does not solve the complete problem but makes us a nice option for customers that have hot sensitive loads to utilize our equipment.

So I expect some of this congestion to not totally alleviate itself, but to start to get better as we exit Q2 into Q3. Our other issue to hit our full plan will be, can we source the drivers and the contractors then once the supply in fluency opens up to handle those additional volumes.

We did take a step or two back on the number of contractors and drivers we're running in intermodal. And some of that was due to COVID, of course, but a bigger thing to be said for that is we work together the last two acquisitions and the last one being the roadrunner acquisition, we put terminals together, contractors and drivers together.

And there was a little bit of fallout from that, but it had to happen because we wanted to get the profitability back to where we needed to be to execute on the Universal side of things..

Okay. Yes. No, that's fantastic. And if you will indulge me with just one more. I just wanted to kind of touch on those start-ups that you have, I think you could ramp up by two - fully ramp by 2Q of next year, I believe.

Can you just maybe put a little bit of numbers around the potential size of these opportunities? Where do you think that might be, either from a revenue perspective or a profit perspective or a volume perspective, however you want to think about it?.

Yes.

You were talking about the awards that I had mentioned in my prepared remarks?.

That's right..

Yes, yes. So we expect that to start to implement in Q2 of this year, I believe that we'll layer in. Now what we're looking at is we've had quite a few awards that have been on the transportation and the value-added side. But we expect that to layer in that $20 million to be full run rate by next year. I would just take it and kind of equal allotments.

The first quarter of - Q2 of 2021 will be a start-up, but then it should be close to runway by Q3, Q4 at that $5 million a quarter mark..

We do have a question from Bruce Chan with Stifel. Please go ahead..

Great result this quarter, and congratulations. I just want to start off with a follow-up on the intermodal side. I understand some of the drivers of the volume declines there.

But maybe you can help us understand why we're encountering a little bit of that revenue per load pressure because at a basic level, it would seem like in a market like this where capacity is so tight, you'd be able to make a little bit more traction there. So just curious what's kind of driving that yield pressure..

That's a great question, Bruce. And we have an algorithm on the board right now to try to explain it because the normal human that looks at it kind of scratches their head.

But what we've evaluated and what has happened is when we entered Q1 of 2020, we were fully on-boarding the most recent acquisition at that time, which was Roadrunner, which had a longer length of haul and some very unprofitable business.

We made some tough business decisions that took some regional type work and cut it back into, okay, now we're going to go out and explore more of a local network that we're so fond of.

So I would say our length of haul from Q1 2020 to Q2 - Q1 2021 was reduced by about 29% and the actual revenue, if you look at the stats, the actual revenue per mile went up about 25%.

So then you say to yourself, well, that should mean that your load count also went up because you're doing a shorter length of haul, you should have better optimization of the asset. And I would say, yes.

Then I go back in and start looking at the congestion factor and then our turn time and the turn times per truck didn't reflect the shortened length of haul.

So there's where you get into - if we had more trucks, we could have experienced better numbers, but we also, on top of that, when we merged everything and through some of the COVID fallout, had less trucks about 11% or 12% less trucks in the marketplace to handle those shorter loads in a congested fashion.

So I think what you're - you're going to start to see is that as we build to better normalcy on turn times, I hope that you'll start to see the revenue per load will start to go up. Now once again, we continue - our average length of haul is pretty short. It's under 100 miles.

So that's the major factor with it just kind of a relook at what our freight was, the type of haul and length of haul it was..

Okay. Got it.

So long story short, this is mostly down to post roadrunner mix changes intermingled with some of what's going on in the congestion side?.

Yes. Well, let me go one step further. Yes, it is - it does have to do with the mixture from Roadrunner. And then when we went back and evaluated what business works best for Universal, it's more of a local business. So we now start bidding on more that type of business, that's under 75 miles.

Now you have a length of haul that could be as short as ten miles. You're going from port to DC to 50 miles. So we had a lot of those types of bids that we were extremely successful in on-boarding. Now it's just when congestion and fluency picks up, we should see the benefits of those local moves.

We should see the turn times, the turns per truck increase, which should benefit the organization in the long run..

Got it.

So just putting this together with some of your other comments around the flow of goods into the country next quarter, I suppose, this quarter, Q2, we're likely to see continued pressure there, but maybe towards back half, we start to see some inflection?.

Yes, there'll be some continued pressure on the flow of goods, especially you guys read much more than I probably do, and the demand is not letting up. So there is going to be continued congestion issues that revolve around the fluencies at the ports, around the number of assets that are to pick up those loads.

And then we didn't bring the customer up in this whole conversation, but they're not fully back to full speed on their DC's. So what used to be a load that would be potentially dropped at a large DC for a day or two now is extending four days or so.

And it's just creating a bottleneck because now we need the chassis to go back into the facility to pick up the next load, and it's not emptied out yet. And there's only so many chassis in many of these major metropolitan markets..

Got it. Okay. That's great color. Then just moving over to the contract logistics side for a moment. Good to see the continued wins in that business.

Just wondering if you can give us a little bit more color on where those wins are coming in? Is that existing customers or new customers? Are we within the same auto vertical? Or are we starting to see some progress in new verticals?.

Yes. We are starting to see some progress into some new verticals. Not all of them are purely new. Some of them would be in the industrial type space that we play in now, but it is with customers that we've not done business with before.

So pretty excited about that because I think our footprint in the auto in our velocity approach and accuracy approach has really sold well in other spaces. And as you know, the contract logistics space is not a short-term sale.

So we got a lot of these things that we're in front of customers now showing them what we can do in other verticals besides auto, it's finally starting to show some positive with some wins in the first quarter. And some things that we have that are still under hat that we hope we can talk positively about in the next time we get together.

So there's good things happening, and we're also seeing some real interest in the electric space because we're already involved in it in a couple of locations, and we're gaining a rapid knowledge and being able to really sell well to the customer on the services we can perform for them. So we're pretty excited about that as well..

Okay. That's terrific. And then just last one here.

In terms of the mix profile and margin profile of these new contract wins, are they fairly similar in terms of, again, margin and length as some of your core legacy business?.

Yes. Absolutely, Bruce, historical margins and in the range of three to five-year contracts..

Got it. Awesome. Okay. And maybe I can just sneak in one very last one here. It was really good to see the agent wins coming in.

Wondering in terms of feedback, what you're hearing as far as what's driving that? Is that a need from these independent guys to access capacity? Is it something else that's changing fundamentally with the business that's increasing that agent win rate?.

Oh, the - you broke up in the middle of your remarks there, your conversation, and you were talking about the agent base?.

Yes, exactly. Just good to see those wins.

Is there something in particular that's driving those inflows? Is it - are those guys needing capacity or something else?.

Yes. Well, I think they need a good home that has supportive management as well as some of the dynamics on insurance and some of the other things that you have to carry when you run your own small trucking company just continue - those prices continue to escalate.

They see a well-run organization with a back-office taking care of, and it's a good place to call home. And I would say this, we have put forth a very detailed effort to go out there in the marketplace and recruit in heavy fashion. So we're always looking at new opportunities. And let's be frank, the opportunities we look at, we look at a lot.

The pipeline is big, but we're going to be frank with the agent base, and they're going to be frank with us. We want it to be a fit for them as they come aboard. So the pipeline remains full on that side. We'll remain diligent in how we approach closing on new agents. We've added some business development personnel over the year.

And we continue to see good success with that. So I think as long as the market remains hot, I think that we'll continue to see a lot of opportunity out there to close on new agents and bring them into the company..

. Okay, and at this time, I'm showing no further responses. And at this time, I'm showing no further questions..

Super. Well, I appreciate the questions today. Thanks for dialing into the call, and we will look forward to talking to you next quarter. Thank you..

Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect..