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00:09 Hello. And welcome to Universal Logistics Holding Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-the answer session will follow the formal presentation.

00:23 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 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. 00:55 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..

01:10 Good morning and thank you for joining Universal Logistics Holdings fourth quarter earnings call. Although, the quarter saw headwinds on several fronts, I was extremely pleased with the resilience of all our Universal associates.

Universal's talented base of employees throughout all levels of the organization were key to executing our business strategy through continued supply chain disruption.

01:36 While our quarterly and yearly results do not totally reflect our team -- what our team is capable of, we continue to advance the corporation's footprint by adding new facilities, customers, and talents to the organization.

We left 2021 recording record revenue, operating income and earnings per share, which leaves me extremely optimistic entering the new year. 02:00 Now for the quarter, in yesterday's release, Universal reported fourth quarter earnings of $0.60 per share on total operating revenues of $67.4 million.

As detailed in the release, fourth quarter earnings included $0.31 per share of litigation-related charges and operational losses incurred in recent contract logistics launch in Detroit. Fourth quarter operating revenues reflect Universal's highest quarterly revenue ever. However, as previously mentioned, we fell short of our earnings expectations.

02:35 Now for some color on our service lines. In our Contract Logistics segment, we continue to experience headwinds, highlighted by production downtime due to chip and part shortages at several of our key locations.

We have been successful in obtaining contractual price increases with many of our business partners to help to offset the continued inflation. While demand remains high for Autos and Class 8 trucks, parts and chip supply will remain on the radar moving through the first quarter of 2022.

03:10 Our auto and truck customers continue to navigate supply chain problems, which has challenged their production schedules. Production and operation fluency remain a challenging servicing our new automotive customer Detroit.

Once again, our Contract Logistics group saw another $5 million of losses associated with the operation for the quarter and totaling nearly $20 million for the year. As with most in the transportation and logistics space, we continue to invest in on boarding new talent in an extremely tight labor market.

03:44 Although labor has been a challenge in this space, we successfully launched over 250 people in a large logistics center supporting heavy equipment provider in the Midwest. In late December, we were awarded a large piece of dedicated business from an existing automotive partner.

Our dedicated team is prepping the launch of 150 plus drivers in the latter part of the first quarter to support this operation. We expect a rapid launch with full run rate revenue of over $30 million a year.

04:16 In addition, our Contract Logistics group will begin launching a previously mentioned logistics centers supporting a large aerospace customer at the beginning of the second quarter. Demand and opportunity remains strong for our contract logistics services.

Our pipeline of opportunity remains robust with several mid-sized opportunities reaching the latter stages of the procurement process. 04:16 Our Intermodal Drayage Group experienced many of the same headwinds in the fourth quarter as throughout 2021, congestion and equipment availability remain at the top of the list.

While our driver and contractor numbers remain flat, our Intermodal segments face recruiting competition as a result of a red hot truckload market and contractors getting their own authority. 05:04 Accessorial charges remain elevated in the quarter as demurrage, storage or diem and chassis charges totaled $35.7 million.

Accessorial billings are expected to remain high because of the congestion experience in North America. We have worked closely with our customers to increase rates to better position our margin profile. The Intermodal group did realize a 33.8% year-over-year revenue increase and 17.1% improvement sequentially.

05:41 Our year-over-year load count was down 14.2% because of increased length of haul, congestion and a stagnant driver count. We worked extremely close with our customers over the quarter to rationalize the congestion, labor shortage and inflation.

Through a combination of price increases accessorial billings and increase length of haul, we realized a 31.9% increase in our revenue per load in the fourth quarter. 06:12 In our Trucking segment, our agent base was able to capitalize on tight capacity with strong pricing.

Revenue was up over 25%, which was the result of moving more loads at a 19.3% increase in revenue per load. We exited the year with a strong quarter in our Wind business and expect the run into strong first half of 2022. The truckload market remains very favorable for the near future with plenty of freight spurred by strong demand and pricing.

Our quest for continued growth will be measured by our ability to recruit contractors and recruit new agents into our network. 06:53 2021 represented one of our best years in agent growth with 21 new agents on-boarded and equally excited about the pipeline of new agents that the Group continues to compile.

Our company managed brokerage operation continue to perform well in the quarter. Operating revenue per load increased 10.1% to $1,976 per load, although, the number of loads hauled was down 19.4%, we were pleased with our pricing discipline and capacity utilization in a very tight broker market.

Although this capped our top line revenue, our discipline allowed the Group to obtain a 4% operating margin. 07:33 As we move through the first quarter of 2022, we expect brokerage capacity remains tight, I mean -- a mid-record high rates by small carry and single brokers access the amount -- assess the amount of moves they need to move in a week.

We expect a strong spot market will extend opportunities to capitalize on March. As mentioned before, we will continue to rationalize margin in front of high revenue growth. 08:01 Finally, our greatest resource will continue to be the people of Universal Logistics Holdings.

We were able to onboard nearly 2,000 talented associates in 2021 which helped launch, service and grow new and existing business opportunities. Outside of some launch and labor headwinds, our 2021 fundamentals were strong. I truly believe we are entering 2022 with a strong cadence to return value to our shareholders and our associates.

08:34 I would now like to turn the call over to Jude.

Jude?.

08:36 Thanks, Tim. Good morning, everyone. Universal Logistics Holdings reported consolidated net income of $16.2 million or $0.60 per share on total operating revenues of $467.4 million in the fourth quarter of 2021.

This compares to net income of $16.2 million or $0.60 per share on total operating revenues of $386 million in the fourth quarter of 2020.

Included in the fourth quarter of 2021’s operating results were pre-tax charges of $6 million for auto liability claims expected to settle over policy limits as well as $5 million in operating losses incurred to recently launched contract logistics program in Detroit.

09:17 For the quarter, these items adversely impacted our operating ratio by 230 basis points and were a drag on our earnings of approximately $0.31 per share. Consolidated income from operations was $23.8 million for the quarter compared to $23.5 million one year earlier.

EBITDA decreased $4.5 million to $39.7 million, which compares to $44.2 million during the same period last year. 09:44 Our operating margin and EBITDA margin for the fourth quarter of 2021 are 5.1% and 8.5% of total operating revenues. These metrics compared to 6.1% and 11.4% respectively in the fourth quarter of 2020.

Looking at our segment performance for the fourth quarter of 2021, in our Contract Logistics segment, which includes our value-added and dedicated transportation businesses, income from operations decreased $5.9 million to $6.1 million on a $160.7 million of total operating revenues.

This compares to operating income of $12 million on a $133.2 million of total operating revenue in the fourth quarter of 2020. 10:26 Operating margins for the quarter were 3.8% versus 9% last year.

As mentioned in Tim's comments and in our release, our Contract Logistics business incurred a $5 million loss in the third quarter, and one of our launches supporting an automotive OEM here in Detroit. For the full year, launch losses and downtime settlements with customers impacted Contract Logistics operating income by $23.7 million.

This affected or impacted segment operating margins by 380 basis points for 2021. 11:01 In our Intermodal segment, operating revenues increased $35.8 million to $141.7 million compared to $105.9 million in the same period last year and income from operations increased $6 million to $13.8 million.

This compares to operating income of $7.8 million in the fourth quarter 2020.

11:20 In our Trucking segment, which includes both our agent based and company managed truckload operations, operating revenues for the quarter increased 25.5% to $101.5 million compared to $80.9 million in the same quarter last year, while income from operations decreased $2.4 million to $1.1 million.

This compares to operating income of $3.5 million in the fourth quarter of 2020. 11:44 The Trucking segment recorded a $6 million charge for auto liability claims expected to settle over policy limits. These charges adversely impacted the trucking segments operating margin by 590 basis points for the quarter.

In our company managed brokerage segment, operating revenues for the quarter declined $3.8 million to $62 million compared to $65.8 million in the same quarter last year, while net income from -- while income from operations increased $2.3 million to $2.5 million. This compares to operating income of $200,000 in the fourth quarter of 2020.

Operating margins for the quarter were 4% versus 0.03% (ph) last year. 12:26 On our balance sheet, we held cash and cash equivalents totaling $13.9 million and $8 million of marketable securities.

Outstanding debt -- outstanding interest-bearing debt net of $1.1 million of debt issuance costs totaled $427.3 million at the end of the period, excluding lease liabilities related to ASC 842, our net interest bearing debt to reported EBITDA was 2.4 times.

Due to the availability of transportation equipment in 2021, our capital expenditures have been somewhat lower than our customary range. 12:57 Capital expenditures for the quarter totaled $12.6 million and $38.8 million for the full year. As a result, we expect our capital expenditures in 2022 to be higher than the current year.

For 2022, we are expecting capital expenditures to be in the $80 million to $90 million range and interest expense to come in between $15 million and $18 million.

Based on the current operating environment for the first quarter of 2022, we are expecting top line revenues between $430 million and $450 million and operating margins in the 7.5% to 8.5% range. For the full year of 2022, we are expecting total operating revenues between $1.8 billion and $1.9 billion and operating margins in the 8% to 9% range.

13:42 And finally, our Board of Directors declared Universal's $10.5 per share quarterly revenue -- quarterly dividends. This quarter's dividend is payable to shareholders of record at the close of business on March 7, 2022 and is expected to be paid on April 4, 2022. 14:00 With that, Justin, we're ready to take some questions..

14:07 And thank you. And our first question comes from Chris Wetherbee from Citigroup. Your line is now open. Chris, your line is now open, if your phones on mute, could you please unmute it? And our next question is going to come from Bruce Chan from Stifel. Your line is now open..

14:49 Hey. Good morning, everybody and thanks for taking the questions here. Maybe just want to start with what's going on around the border, obviously, some shutdowns on the Ambassador Bridge and we've heard about some OEMs closing plants as a result. So I just want to see whether that's having a material impact on your operations.

And what do you sort of expect there as far as the first quarter is concerned?.

15:16 Yeah, Bruce. This is Tim. Thanks for the question. Yeah. We have seen a little bit of disturbance as a result of the border blockade. There has been no complete shift shut down, but there has been some short shifting at a couple of facilities that we service. We hope that there is some result of that in the near future meeting today.

The autos have been communicated that they're going to continue to push production, it had to come up with some various means of getting parts across the border, but I see this -- I see this as being this week blip on the radar and we'll continue to push forward with I think to be a very good first quarter..

15:58 Okay. Great. I appreciate that color. And just maybe sticking with contract logistics here. I was hoping to get a little more color on the $5 million charge.

Is that a new facility or is that the same kind of facility or contract that was kind of causing the headache for the majority of 2021?.

16:17 Yeah. That is the same facility that was charging some of the headache for 2021.

From an operating standpoint, we have seen some progress on the facility itself, there were some other associated charges in that $5 million in the fourth quarter and we've been working with the customer to rationalize process, operation, wage inflation, the talks are continued and ongoing as recent as just a couple of days ago.

So it's our hope as we push through this to get them to get some pricing in place that allows us to take it to the next step. So we are returning value and not spinning our wheels..

17:00 Okay. Got it. And I imagine visibility is tough on the whole chip shortage issue, but is there any color that you've gotten from your customers as far as what their expectations are on kind of return to normalcy.

And then once that happens, can you maybe just give us a reminder of what comes back in terms of variable cost or are we just going to see essentially pure leverage on top here when volumes come back?.

17:24 Yeah. I would say there is some leverage on top of quarter one, when we see some of this come back. The problem is, we do get bits and pieces of what's going on with the chip shortage.

I don't know if sometimes if they have the full stream of what's holding up some of their chips for production and what I've learned is chips go into a lot of different pieces and parts.

So some of the associated pieces and parts that we see inbound for the plant could have a chip that's holding it up or could this be a raw material event with the part, but there is best there is definitely been -- there's definitely been some disturbance on that level.

And the area where we find ourselves if we want to call it that lucky the plants that we service are the product that is of high demand. So they are funneling parts and chips into those plants. So we see a pretty regular overall production schedule. 18:20 Now, we still have had the disturbance, as we just spoke about Detroit.

They still have struggled to get up to the production level that they want to be and some of that probably their own internal doing. But the other piece of it is just the flow of parts as it comes in on a regular basis. So I expect if you would ask me that, like I said in my comments, the first quarter, we'll still see some hit and miss on parts.

I would hope that as the year progresses, we see a better fluency if we look at what our production predictions are they’re solid but to be solid you got to have the chip and you got to have the people to right so we all face that, the people got to be there to put the piece -- the vehicle together and we have got the parts flow.

So there will still be some short-term to service..

19:13 Got it. And then maybe just to two more quick ones here. Good to see the new customers coming in on the contract logistics side diversifying the portfolio a little bit.

As you think about launching those facilities, can you -- maybe give us some flavor on what the – may be margin headwind is as you ramp and when you expect that to kind of fade and normalize?.

19:36 Yeah. On the first one that I mentioned, which is in our dedicated Contract Logistics Group, I think we rationalized the agreement along with the market when it comes to the wage inflation. I think we'll enter that in a good space in a good spot.

I think that on this particular transition of services we will hit the ground running hard in the latter part of Q1. I would think by the time, we get through the middle of Q2, we're up and running as we have lived there for the last 10 years. So that's my hope.

That's what the troops have been directed and that's been our communication and collaboration with our customer.

The launch for the aerospace customer on this contract logistics value added space, we expect a little bit of a softer launch, we are comfortable right now with what we've priced into it from a labor standpoint, we are working towards that launch at the beginning of the second quarter.

I would expect that will take a little bit longer to get up to full run rate. So our expectation is there could be a little bit of disturbance, beginning of the second quarter with launching that. But I don't expect to be any kind of hiccup like we hit with the latter one we just mentioned in Detroit..

21:01 Got it. That makes sense. And then just for the last one here, on the brokerage and maybe also the Trucking segments, good to see you are making some progress there.

Can you just speak broadly about what you're seeing in terms of customer activity, shipper activity or we getting back to kind of a normal bid cycle and starting to see people lock in contracts for normal durations?.

21:21 Well, in our largest customer sector, yes, we just went through a couple rounds of the contract negotiations and pricing. They are locking rates in for the year at our larger customers and, yes, there is a lot of wage inflation, a lot of our pricing inflation on that and we've been working through that.

I would say that there is still customers out there that are doing short-term type of bids or we're pricing things out quarterly. So there is still some of that in the marketplace and I think that we'll see that into the near future..

21:56 Okay. Great. Well, I appreciate that color as always and congratulations on making the best of a tough year..

22:03 Thanks, Bruce..

22:04 Thank you..

22:05 And thank you. And our next question comes from Chris Wetherbee from Citigroup. Chris, your line is now open..

22:19 Hey, thanks. Good morning, guys. This is on for Chris. Thanks for technical difficulties earlier. Maybe we can start with Intermodal. So just curious what you guys are expecting from the CapEx side of that taking delivery. I know it's hard to look at it with the congestion right now.

And then maybe you could talk about the box from side of that? And then just to tack on to that same question, what do you guys think a normalized revenue per load in intermodal could look like throughout the year? Thanks..

22:52 Well, some of your first part of your question, broke up I did hear the last part, you were looking at -- you said something towards the extent of normalized load revenue?.

23:01 Yeah. So we could start there, I guess just that one and then what you guys think that the box trends could be and what container CapEx might look like throughout 2022? Thanks..

23:11 Right. Well, let's start with that, I think the revenue per load will -- as it stands right now, we will hold strong. We haven't seen any deterioration in that. In fact, our pricing initiatives that are just the opposite. We're still pushing for premium pricing because of the congestion levels that we're experiencing around the country.

The fluency is really hurt the productivity of the driver and contractor and not to mention the options that we have out there in the various transportation spaces.

So I think that what we'll see is similar to what we're seeing now or maybe even a tad better, when it does come down to earth as you'd put it, I'm sure we'll see some reduction, but I think some of this pricing outside of -- some of the spot accessorial is here to stay for at least the near-term of this year..

24:07 And on the CapEx side, so for 2022, we don't buy the 53-foot boxes, all we buy our chassis because we're primarily in the international box market and not at the domestic box market. So we're currently planning on buying somewhere between 250 to 500 chassis depending on availability, so somewhere between $8 million to $15 million box.

The high-end, if we can get them, but based on what we're hearing right now, most likely on the lower end of that about half that about 250, which would be about 8 million box..

24:41 Yeah, it makes sense. Thank you. Maybe we can turn to the dedicated side, you guys said you're going to bring on 150 new drivers.

Can you talk about what that process looked like so far and just what the hiring environment looks like for you guys, right now?.

24:53 Yes, definitely, You would think as we went into this, we were pretty upfront with ourselves about what we were going to be able to do from a hiring process.

Remember that's 150 plus drivers in a short period of time is a task, very optimistic about where we are in the process right now, because we price this thing accordingly to be successful, maybe even to set some of the wage rate in the market to capitalize on that driver recruiting.

And up into this point, I will tell you that I am very, very optimistic about our cadence of bringing on new towers. So I don't think anything out there at this point that disturbs the cadence of the launch. The launch will start in March. We have enough drivers.

We get through the first phase of two of the launch, and I'm extremely optimistic by the time we get at the end of the lines, which is over three or four week period. We will have every driver and every equipment up there. We're ready to go.

That's why I think this will be a very quick implementation into it and this is something we have a lot of experience with. We provide the same type of services, a couple of other major facility, so expertise is there, the launch teams there. I just feel good about it. I feel good about it we are up in labor market too..

26:16 That makes sense. Thanks for the time, guys. Appreciate it..

26:18 Yeah. Thank you..

26:22 Thank you. And I'm showing no further questions. I would now like to turn the call back to Tim Phillips for closing remarks..

26:31 Well, thanks for calling in and I can assure you Universal is going to be focusing on our people, continuing pricing, uniformity of process, technology and last but not least safety as we go through 2022. I appreciate you calling in and look forward to talking to you very soon. Thank you..

26:49 This concludes today's conference call. Thank you for participating and you may now disconnect. Speakers, please standby..