Participants

Tim Phillips; President, Chief Executive Officer, Director; Universal Logistics Holdings Inc

Jude Beres; Chief Financial Officer, Treasurer; Universal Logistics Holdings Inc

Bruce Chan; Analys; stife

Presentation

Operator

Hello and welcome to Universal Logistics Holdings fourth quarter, 2024 earnings conference call at this time. (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 and 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 and 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.

Tim Phillips

Thank you, Ina good morning everyone. And thank you for joining Universal's fourth quarter. 2024 earnings call.
Our results demonstrated how universal's diverse service offerings continue to set us apart. In the transportation and logistics industry against the persistently weak freight back backdrop. Our comprehensive logistics solutions have once again driven exceptional performance before delving into the details. I want to take a moment to acknowledge the incredible efforts of the entire universal team.
The dedication and hard work of our 10,000 plus employees and contractors are the foundation of our success.
It is the commitment of each team member that enables us to consistently deliver outstanding services to our customers and maintain our position as a leader in the transportation and logistics industry.
Now, let's discuss the quarter Universal once again delivered solid results in the fourth quarter. 2024 we grew top line revenues by 19% with 8.2% in operating margins and our earnings per share of $0.77 for the full year. 2024 Universal reported $1.85 billion in revenue 11% in operating margins and $4.93 in earnings per share making 2024 the second best full financial performance in Universal's history while I'm pleased with Universal's overall performance results continue to vary across reporting segments.
Our contract logistics business continues to be a standout performer, consistently achieving double digit operating margins and serving as the cornerstone of our success.
Our trucking segment has also delivered strong results despite ongoing weakness in the truckload market demand for our specialized heavy haul wind business remains robust driving trucking to its highest operating margin over two years.
We expect this momentum to continue.
However, our intermodal segment remains, remains a challenge performing below expectations that said we are highly focused on reducing costs and improving efficiencies and our efforts are yielding results. The fourth quarter was the second straight quarter of positive. Even it up contributions from the intermodal segment indicating our cost control efforts have been effective while there is still work to be done.
I'm encouraged by the pro the progress we have made so far in our contract logistics segment revenues increased 52.7% to $307.4 million. This includes 51.3 million in revenues from our specialty development project which was completed during the quarter.
At the end of Q4, 2024 Universal managed 90 value added programs including 20 new rail terminals. From the fourth quarter acquisition of parse up from 71 programs in Q4, 2023 contract logistics remains our most consistent and profitable segment. This was the 12th straight quarter of operating ratios below 90%.
I'm very pleased with the performance of our recent acquisition of Parsec, a market leading provider of rail terminal management services. Parsec had its highest Q4 revenue in its history and its highest list volume since COVID, the acquisition has allowed universal to build new customer relationships and will continue to provide opportunities across of cross sell on our other services.
We're extremely pleased with the early performance of this acquisition. I believe there are further synergies to be recognized going forward.
The part tech acquisition was truly transformational for universal and brings our contract logistics segment annual revenue run rate to over $1.1 billion.
We remain cautiously optimistic on the segment for 2025. We did see a slight downturn in the automotive industry in the fourth quarter with plants operating fewer shifts and less weekend work. However, 2025 volumes are expected to be similar to 2024 with the star expected to remain elevated. Around $16 million class eight volumes are also expected to be similar to 2024 and 2025.
Our trucking segment performed very well despite the challenging trans transportation environment revenues increased 11.5% to $83.8 million. Primarily due to our 30.5% increase in revenue per load excluding fuel surcharges. This was partially offset by 17% drop in [Loe's hull.]
A key driver of our performance has been the strength of our specialized heavy haul wind business which continues to deliver outstanding results.
We made large investments in heavy haul equipment in 2023 and 2024 and it is paying dividends.
We also acquired the operations of our wind agent in the third quarter of 2024 turning it into a company manage operation which we expect to contribute an additional $3 million of EBITA on an annualized basis and further improving operating margins as well.
Looking ahead, our specialized heavy haul wind business has significant long term growth potential providing stability for our trucking segment and helping insulate it from broader inflation in the truckload market.
Specialized revenue made up 32.1% of the trucking segment revenue in 2024. Compared to 18.9% in the prior year.
We expect our specialized business to continue to rise as a percentage of overall trucking segment as we continue to deepen our relationship with existing customers and broaden our customer base in the coming year.
The intermodal segment had another challenging quarter capping a very difficult year in the intermodal segment revenues decreased 15.9% year over year to $73.1 million compared to Q4, 2023. Our intermodal segment experienced a 15.3% decrease in volume while rates decrease 2.2%. Additionally, fuel surcharge revenue decreased $3.9 million volume and rates have been relatively stable throughout 2024.
Leading us to believe this is the bottom for this segment. We are transforming the segment into a leaner, more efficient operations positioned for strong turnaround. Once the rate and volume environment improves.
we have brought in a new intermodal sales team to target volume shippers and key intermodal markets with a focus on capturing more share in the markets that matter across the enterprise. We're excited about the strong sales pipeline, filled with promising opportunities totaling over $800 million.
This robust pipeline enable enables us to be strategic in our approach, allowing us to focus on opportunities that align with our core competencies and margin objectives.
By maintaining this discipline strategy, we are well positioned for long term success while continuing to deliver exceptional value to our clients.
I'm incredibly proud of our performance in both the fourth quarter and the full year 2024.
I'd like to take this opportunity to express my gratitude to our employees.
Their hard work dedication are crucial to our success.
I also want to thank our customers for continuing to put their trust in universal.
As we look ahead, I remain optimistic about the rest of 2025 and confident in our future.
I will now turn the call over to June to provide color on our financials and expectations for upcoming quarter. June, thanks.

Jude Beres

Thank you Tim, Good morning, everyone. Yesterday universal logistics holdings reported consolidated net income of $20.2 million or $0.77 per share on total operating revenues of $465.1 million in the fourth quarter of 2024. This compares to net income of $21.4 million or $0.81 per share on total operating revenues of $390.9 million. During the same period. Last year, consolidated income from operations was $38.3 million for the quarter compared to $34.1 million.
One year earlier, EBITDA increased $18.7 million to $73.5 million, which compares to $54.8 million during the same period last year. Our operating margin and EBITDA margin for the fourth quarter of 2024 are 8.2% and 15.8% of total operating revenues. These metrics compared to 8.7% and 14% respectively in the fourth quarter of 2023.
Looking at our segment performance for the fourth quarter of 2024 in our contract logistics segment, which includes our value add and dedicated transportation businesses income from operations increased $7 million to $39.1 million and $307.4 million of total operating revenues.
This compares to operating income of $32.1 million and $201.3 million of total operating revenue. In the fourth quarter of 2023 operating margins for the quarter were 12.7% of total operating revenues compared to 15.9%. 1 year earlier included in the contract logistics operating results was $6 million of depreciation and amortization related to parsec which lowered the fourth quarter 2024 operating margins in this segment by 200 basis points.
During the fourth quarter of 2024 we completed our specialty development program and recognized an additional $51.3 million of operating revenue during the period. For the full year. 2024 we recognized total operating revenues on the program of $228 million revenues generated from this program were reported in value added services and the appeal stated costs in operating supplies and expense. The results of this program were included in our contract logistics segment.
On to our intermodal segment. Operating revenues decreased $13.8 million to $73.1 million compared to $86.9 million in the same period last year. And income from operations decreased $8.7 million to an operating loss of $9.7 million. This compares to an operating loss of $1 million in the fourth quarter of 2023 operating ratios for the quarter were 113.2% versus 101.1% last year.
In our trucking segment, operating revenues for the quarter increased $8.7 million to $83.8 million compared to $75.2 million in the same quarter last year and income from operations increased $3.3 million to $5.8 million. This compares to $2.5 million in the fourth quarter of 2023. Operating margins for the quarter were 6.9% versus 3.3%. Reflecting strong results in our specialized heavy haul wind business.
On our balance sheet, we held cash and cash equivalents totaling $19.4 million and $11.6 million of marketable securities interest-bearing debt, net of $3.6 million of debt issuance costs totalled $759.1 million at the end of the period excluding lease liabilities related to ASC 842. Our net interest-bearing debt to reported TTM EBITDA was 2.31 times capital expenditures for the quarter were $37.4 million for the full year.
2024 capital expenditures were to totaled $248.3 million for the full year. 2025. We are expecting total operating revenues between $1.7billion to $1.8 billion and operating margins in the 7% to 9% range for the full year of 2025. We're also expecting capital expenditures to be in the $125 million to $150 million range before any purchases of strategic real estate and interest expense to come in between $48 million and $51 million.
For the first quarter of 2025. We are expecting top line revenues between $390 million and $410 million and operating margins in the 6.5% to 7.5% range. EBITDA margin for Q1 of 2025 will be in the 14.5% to 16.5% range with increases in depreciation and amortization expense related to our recent acquisitions, as well as the associated interest cost on borrowings.
We believe EBITDA will become a more meaningful measure of universal's operating performance in 2025. And in the years ahead, the tick down in our operating margin guidance includes four discrete items. Number one, the roll off of the previously mentioned specialty development program that was completed in 2024.
The additional depreciation and amortization expenses, expense increases due to recent acquisitions, softness in our automotive customers production expectations for the first quarter and continued headwinds in our intermodal segment, specifically in southern California.
Our guide neither includes any potential neg negative impact of tariffs on either our Canadian or Mexican operations nor positive impacts on our business related to changes in the regulatory policies specific to tort reform, independent contractor classification rules at the federal level or changes in tax policy. We'll update our guide each quarter reflecting any changes in policy that will impact our current or future results either negatively or positively.
Finally, Wednesday, our board of directors declared Universal's 10.05 per share, regular quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on March 3, 2025 and is expected to be paid on April 1, 2025 with that and we're ready to take some questions.

Question and Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (operator instruction)
Bruce Chan, Stifel.

Bruce Chan

Hey, good morning guys. Thanks for the questions here. Maybe just starting from the top. I know there's been a lot of news flow on the automotive OEM side and you guys usually get some pretty good visibility in the production. So thanks for the call there.
But you know, maybe if you could just address, you know what your customers are saying as far as the different tariff scenarios on Canada and Mexico. And I know it's early and hard to say. But if we think about, kind of a worst-case scenario here with that, maybe look like a 2021 scenario where we see plant closures if you could help us to maybe, quantify the risk there.

Jude Beres

Bruce, I'll start. So first of all, our Canadian business is only about $10.5 million of annual sales and our Mexican business is just south of 50. So Universal's foreign exposure to tariffs is, is not very big, right? So around 3% to 3.5% of our 2025 guide that being said, I mean, I think similar to what's happened in you know, during strikes or, when they when there was some challenges in the supply chains in Mexico, there's a lot of components that come from either overseas or from Mexico.
So, although I don't think there's really been specific guidance given to us about those items. You know, I would expect that if there is any challenges at the border or any challenges on tariffs that relate to a specific components, it definitely could impact us. But I don't really think we have any insight into that as of right now.

Tim Phillips

Yeah, Bruce, this is Tim, I would agree with that. All of our conversations with our, with our customers have really shown what you just said. There's been no real guidance but we feel comfortable in everything that we have positioned right now.
If something should happen, I mean, this is a long-term play in Mexico, we continue to build that out. It's going to be part of the global supply chain right near shoring. And that's truly what what's happened over the years. It is a global supply chain and the autos of the different brands do depend on a global network. But we think we're positioned both in Mexico, we think we're positioned also from an import standpoint on the dry side of it to be able to capture what we will continue to be a global supply chain network.

Bruce Chan

Okay, that's really helpful. I know it's not just you guys, so I appreciate that that perspective. But maybe just sticking with contract logistics here, I know you typically see a little bit of seasonal degradation in the margins from Q3 to Q4, but it looks like it was a little bit more pronounced this year.
So, maybe you could just help us to parse out, how much of that was the mix from parsec. And you know, do you maybe what the right way to think about, structural margin impact from parsec on the segment would be like going forward.

Jude Beres

Yeah, for sure. So just a couple of things. One is that the parsec the company that we bought historically had between eight and 12% operating margins. But when you start factoring in the purchase accounting that's required for GAAP, it's going to layer in about $6 million to $8 million of other costs specifically related to amortization of intangibles and some amortization, additional amortization equipment purchases.
So, that margin that we bought it like 8 to 12 for GAAP is going to go down to 1 to 2. So that's one of the reasons that we are going to start talking a little bit more Bruce about EBITDA because we believe EBITDA will be a much better reflection. Because we're not going to shy away from buying really great companies just because there's a purchase accounting hit to our operating margin.
So, I would say parsec is, is one piece of that. And also what we started seeing in Q3, Bruce was that especially in our dedicated transportation group, we really started seeing, some plants operating, from six days to five and then going from three shifts to two.
So, that had a larger impact on dedicated's margin the quarter just because you have all those fixed costs associated with tractors and trailers. And if you're not getting that utilization out of the assets, there's going to be a little bit of mar margin degradation.
So, although the autos have guided, I think as you're aware, around a $16 million star for 2025 which would be very similar to what happened in 2024. It just looks like that ramp up may be more a mid to late year story than really starting off Gangbusters in Q1.

Bruce Chan

Okay. Got it. That's also really helpful color and then maybe just one more before I turn it over and hop back into queue on the intermodal side, obviously some continued challenges there. I know you're making some changes. But if you could just give us a little bit more insight into what the specific drivers of the kind of outsized degradation in the segment were and you know what the kind of path to progress or the path to improvement, especially in so call looks like as you think about 2025.

Tim Phillips

Sure. Well, I want to highlight a couple of things because as you can imagine, that's been all of our focal points is to make sure that we put the intermodal division a path to profitability and success. So we looked at it from a top-down approach and the top-down approach would mean some new leadership being brought into the segment to help us better plan and to accelerate where we think we need to be.
We also included in that leadership a new sales executive as well as a large increase in our sales force. And we kind of rationalize that on where we want to attack the different customers in the United States. So we feel really good about where we are positioned going into 2025 from a touch point with our customers and being able to evaluate and sell and close new deals.
In conjunction with that. We thought we needed a new level of visibility for our customers as well as our employees. So we're, we're instituting some new technology that will roll out over the year 2025 to better position our people to be successful to give our customers a clear look at where their freight is in the intermodal supply chain.
So we're, we're also excited about that. There's been a lot of heavy lifting for all these things to get a position so we can have a full crack at it in 2025.
The other thing that we've worked pretty hard on is, is the efficiencies, right? So what have we done to in Southern California, in specific, we've really rationalized the head count. We've consolidated potentially facilities where it makes sense. We've rationalized our leases we've looked at should we be subleasing? And we also did some property rationalization,
We are investing in the future and we want to make sure that when we make those commitments, we have a solid foundation to, to see that particular business growth in conjunction with that in Southern California and the rest of the intermodal unit, we'll be looking for additional efficiencies from a centralization process of how we conduct our interfaces with our customers and our interface with our drivers.
So, we'll continue to, to report on that and you'll see the results of that in the coming quarters with our successes as we climb out of that. And although the Southern California market has been a big challenge, we think we have some, some good position a pipeline.
We're, we're really being aggressive on how we approach customers in the first quarter and beyond to make sure that we continue at additional volume into the network. And I think that's the biggest thing. We've rationalized costs with consolidated facilities. We've optimized our team to be ready for that uplift.
And now what we need to do is fill the funnel full of freight and the baskets full, we just have to be very competitive because we'll, we'll tell you this, we have not on the intermodal side. What? Out of a very competitive capacity environment, there's still capacity in the hopper as some of it's falling out, but it's very competitive from a rating standpoint.
So, as we see that start to relieve itself and we start to grow some legs out of that, you'll see exponentially, we'll make some continued progress, not only in Southern California, but we'll see that type of opportunity around the United States. Bruce.

Bruce Chan

Okay, great. And, and is the demand environment right now conducive to that or do you need to see, any further upward inflection in the market in order to get that done?

Tim Phillips

I would say that the market's been, it's been somewhat flat, but I'm, but I'm optimistic and I'm optimistic for a couple of things, right. We're, we're also seeing additional throughput on bids and opportunities on the truckload sector.
We're seeing some additional opportunities on the intermodal network and I think those two going hand in hand. If truckload also picks up at any degree or rate, it also takes some of the capacity and sometimes that capacity shifts to truckload and opens up a more dynamic environment for intermodal. And not as much capacity being addressed to that intermodal type of freight.
So, I still think the rates are, are somewhat like I said, in my prepared remarks, I don't, I think we've seen the bottom and now it's just a matter of how we climb out of it. Remember the first part of 2020 or February will encompass the 29th was the Chinese New Year. So we'll see some softness.
You know, in the end of February and March, we'll we know that's coming. It's just how we climb out of it after that. So I expect as we get into second quarter, we should see some additional opportunities come.

Bruce Chan

All.

Tim Phillips

Right, great. Thanks.

Bruce Chan

I'll hop back into queue. Appreciate it first.

Operator

Thank you. Once again. (operator instruction)
Bruce Chan, Stifel.

Bruce Chan

All right, great. Well, second bite of the apple. It's all I've got plenty of questions here. You know, just on the trucking demand side. You know, nice little bump up in the fourth quarter. Any sense of whether that was, project related or recovery related or is that more, core demand that you think could stick around, you know, into the first quarter, into the early part of 2025.

Tim Phillips

Yeah, we probably both could comment on this but the demand in the fourth quarter especially was driven by the wind division. We continue to see opportunities based on the fact of our execution and also the fact that we invested a lot in the equipment to make sure we stay current and, and provide the customers with the newest equipment to move their, their freight.
I see that being because we're putting a lot of effort into it, we're putting a lot of effort into the specialized piece of the truckload and we're putting a lot of effort to make sure we stay connected with the customers to see that freight continue. We've seen a little bit better first quarter so far in the wind environment. So we're happy with that.
We've still seen a drag on rates on, your standard van and flatbed. But the promising point on the truckload, other than the specialized is we've seen a real good increase in the bids coming in that we've had the opportunity to review. So the bid activity has picked up in the first four or five weeks of the year.

Bruce Chan

Okay. So, is there a risk to that win business from some of the regulatory and policy changes, as far as what you're hearing from customers or does that seem okay at this point.

Jude Beres

Right now, Bruce, it seems okay, most of the xo's that were executed by the President related specifically to projects on federal land and the projects that we are currently operating and normally operate are not on federal land. So right now, we really don't expect any impact.

Tim Phillips

Yeah, let me just add to that from a customer standpoint. Exactly what you said. It's a dynamic environment that that has some private connotation to it. And remember some of these projects that begin this year started two or three years ago, upstream planning from a civil standpoint.
So there's been a lot of time and effort extinguished to get it to the level it's at now. So we feel we have a somewhat clear trajectory on what's out there. And we just need to be competitive and continue to service the customer to continue to get the awards.
The other thing I would say, we really put a push on to expand our customer base on the specialized side. So that will be one key initiative of this year is to expand our expertise to other customers to diversify the portfolio.

Bruce Chan

Okay, great. And then just one final one here jude on the operating expense side, personnel costs picked up. You know, a bit here. I know you mentioned some head count rationalization and intermodal. Was that just tied to pars or was there something else going on? And then on the other expense line, can you just remind us of what goes into that bucket?

Jude Beres

Yeah, for sure. So, no, you're absolutely right, Bruce, that was specifically related to parsec. If you remember, parsec, brought in about 2,100 new employees of which what 1,300 wish our union so very similar to the to our contract, [legis] our legacy contract logistics business.
And then in the in the other, in the operate other operating expense line. One, a couple of things, that's where we have our specialty development of program that ran through that expense line throughout the course of the year. It's also that has like our general operating expenses related to transportation like fuel and license plates and permits and things along those lines. But 93% of the change in that number was specifically related to the specialty development program.

Bruce Chan

Okay, perfect. Thank you so much. Really appreciate all the time.

Tim Phillips

Thanks.

Jude Beres

Bruce. Thank you, talk soon.
Thank you. There are no further question at this time. I will now hand the call back to Mr. Tim Phillips for any closing remarks.

Tim Phillips

Thank you.
We have taken a strategic and thoughtful approach on who we want. To be and what it will take to get there.
We have a deep focus on providing a customer centric approach and segments that allow us to truly integrate in our customer supply chain.
We believe this offers our customers a high level of support and build a level of stickiness which will ultimately support our long term value to our shareholders and employees.
Thank you and I look forward to catching up on our Q1 earnings call in late April.
Thank you and this today's call. Thank you for participating.