Hello, and welcome to Universal Logistics Holdings Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Should you need assistance, please hang up the conference specialist by pressing the star key followed by zero. 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 and/or expectations and can be identified by the use of the words as belief, expect, anticipate. 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.

Thank you. 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 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 ten thousand 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 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% 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 in over two years. We expect this momentum to continue. However, our intermodal segment 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 EBITDA 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 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 that 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 Parsec, up from 71 programs in Q4 of 2023. Contract Logistics remains our most consistent and profitable segment. This was the twelfth 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 lift volume since COVID. The acquisition has allowed Universal to build new customer relationships and will continue to provide opportunities across our other services. We're extremely pleased with the early performance of this acquisition and believe there are further synergies to be recognized going forward. The Parsec 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 about 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 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 a 17% drop in loads hauled. 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-managed operation. We expect to contribute an additional $3 million of EBITDA 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 decreased 2.2%. Additionally, fuel surcharge revenue decreased $3.9 million. Volumes 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 operation positioned for strong turnaround once the rate and volume environment improves. We have brought in a new internal 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 are excited about the strong sales pipeline filled with promising opportunities totaling over $800 million. This robust pipeline 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 disciplined 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 and 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'll now turn the call over to Jude to provide color on our financials.

Thanks, 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 by $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 on $307.4 million of total operating revenues. This compares to operating income of $32.1 million on $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% one 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 margin 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 associated 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 from 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 totaled $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 totaled $148.3 million. For the full year 2025, we are expecting total operating revenues between $1.7 and $1.8 billion, and operating margins in the 7% to 9% range. For the full year of 2025, we are 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 and $51 million. For the first quarter of 2025, we are expecting top-line revenues between $390 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 costs 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 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 guidance neither includes any potential 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 guidance each quarter reflecting any changes in policy that will impact our current or future results either negatively or positively. Finally, our board of directors declared Universal's $0.105 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, we're ready to take some questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your telephone keypad. You would hear a prompt that your hand has been raised. And should you wish to cancel your request, please press star followed by the pound key. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.

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 into production. So thanks for the call there. But, you know, maybe if you could just address 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, you know, kind of a worst-case scenario here, would that, you know, maybe look like a 2021-esque scenario where we see plant closures? You could just help us to maybe, you know, quantify the risk there.

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 million. So Universal's foreign exposure to tariffs is not very big. Right? So around 3% to 3.5% of our 2025 guidance. That being said, similar to what happened during strikes or when there were some challenges in the supply chains and there's a lot of components that come from either overseas or from imports, I would expect that if there are any challenges at the border or any challenges on tariffs that relate to a specific component, it definitely could impact us, but I don't really think we have any insight into that as of right now. I would agree with that. All of our conversations with our customers really reflect what Jude 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 happened over the years. It is a global supply chain. And the autos of different brands do depend on a global network. But we think we're positioned both in Mexico and from an import standpoint on the drayage side of it to be able to capture what will continue to be a global supply chain network.

Okay. That's really helpful. I know it's not just you guys, so I appreciate that perspective. But maybe just sticking with contract logistics here. You know, 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, you know, maybe you could just help us to parse out, you know, how much of that was the mix from Parsec? And, you know, Jude, maybe what the right way to think about, you know, structural margin impact from Parsec on the segment would be like going forward.

For sure. So just a couple of things. One is that the Parsec, the company that we bought historically had between 8% and 12% operating margins. But when you start factoring in the purchase accounting required for GAAP, it's going to layer in about $6 to $8 million of other costs specifically related to the amortization of intangibles and some additional amortization on equipment purchases. That for GAAP is going to go down to one to two. So that's one of the reasons that we are going to start talking a little bit more 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 one piece of that. And, also, what we started seeing in Q3, especially in our dedicated transportation group, we really started seeing some plants operating, you know, from six days to five and then going from three shifts to two. So that had a larger impact on dedicated's margin in the quarter just because you have all those fixed costs associated with tractors and trailers, and you're not getting that utilization out of the asset, there's gonna be a little bit of margin degradation. So although the autos have guided around the 16 million SAAR 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 strongly in Q1.

Got it. That's also really helpful color. And then maybe just one more before I turn it over and hop back in the queue. On the intermodal side, you know, 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, you know, kind of outside degradation in the segment were, and, you know, what the kind of path to progress or the path to improvement looks like as you think about 2025.

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 on 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 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 to rationalize that on where we wanted to attack the different customers in the United States. So we feel really good about where we are positioned going into 2025 from a touchpoint 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 customers as well as our employees. So 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 also excited about that. There's been a lot of heavy lifting for all these things to get it positioned so we can have a full crack at it in 2025. The other thing that we've worked pretty hard on is the efficiencies. Right? So what have we done in Southern California specifically? We've really rationalized the headcount. We've consolidated potentially facilities where it makes sense. We've rationalized our leases. We'd look at should we be subleasing, and we also did some property rationalization. You know? We are investing in the future, and we want to make sure that when we make those commitments, we have a solid foundation 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 essential processes regarding how we conduct interfaces with our customers and our drivers. So we'll continue 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 good position on a pipeline. We're really being aggressive on how we approach customers in the first quarter and beyond to make sure that we continue to add additional volume into the network. And I think that's the biggest thing. We've rationalized the consolidated facilities. We've optimized our team to be ready for that uplift. And now what we need to do is still fill the funnel full of freight. The basket's full. We just have to be very competitive because I will tell you this. We have not, on the intermodal side, watched 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 exponential improvement not only in Southern California, but we will see that type of opportunity around the United States.

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

I would say that the market's been somewhat flat, but I'm optimistic for a couple of reasons. Right? 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 shows that any degree or rate, it also takes some of the and sometimes that capacity shifts to truckload and opens up a more dynamic environment for intermodal and not much capacity being addressed to that intermodal type of freight. So I still think the rates are somewhat as 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 with the Chinese New Year. So we'll see some softness and that's coming in late February and March. It's just how we climb out of it after that. So I expect as we get into the second quarter, we should see some additional opportunities come.

Thank you. Once again, should you have a question, please press star followed by the one on your telephone keypad. We have a follow-up question from J. Bruce Chan from Stifel. Please go ahead.

Alright, great. Well, second bite of the apple. There are 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, you know, project-related or recovery-related or is that more, you know, core demand that you think could stick around, you know, in the first quarter, into the early part of 2025?

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've invested a lot in the equipment to make sure we stay current and provide the customers with the newest equipment to move 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 good increase in the bids coming in that we've had the opportunity to review, so the bid activity has improved in the first four or five weeks of the year.

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

Right now, Bruce, it seems okay. Most of the XO's executed by the present 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. Let me just add to that from a customer standpoint, exactly what you'd said it's a dynamic environment 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. There's been a lot of time and effort invested to get 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 award. 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 just to expand our expertise to diversify the portfolio.

Yep. For sure. So no. You're absolutely right, that was specifically related to Parsec. If you remember, Parsec brought in about 2,100 new employees, of which 1,300 were union. So very similar to our legacy contract logistics business. Then in the other operating expense line, a couple of things. That's where we have our specialty development program that ran throughout that expense line during the course of the year. It also has our general operating expenses related to transportation, like fuel and license plates and permits and other related items. But 93% of the change in that number was specifically related to the specialty development program.

Okay. Perfect. Thank you so much. Really appreciate all the time.

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 in segments that allow us to truly integrate into our customer supply chain. We believe this offers our customers a high level of support and builds 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 concludes today's call. Thank you for participating. You may all disconnect.