Hello and welcome to the Universal Logistics Holdings Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. During the course of this call management may make forward-looking statements based on their best view of the business as seen today. Statements that are forward-looking relate to Universal business, objectives or expectations and can be identified by the use of the words such as believe, expect, anticipate and project. Such statements are subject to risks and uncertainties and actual results could differ materially from those expectations. As a reminder, this conference is being recorded. It 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.

Well, thank you, Chad. Good morning, and thank you for joining Universal Logistics Holdings Second Quarter Earnings Call. Before we get into the details, I want to express my gratitude for all of our hard working Universal associates. I'm extremely pleased to see the exceptional level of service with an emphasis on continuous improvement. Our leadership team has worked tirelessly to on-board new talent and shape a results-oriented work environment. While we've had a good success staffing our new and existing operations, overall industry appeal remains a challenge. With so much uncertainty draped around the economy Universal remain focused on continuous improvement and execution to drive customer satisfaction and shareholder value. Still, our operating environment remains less fluid than we would like. Part shortages, ports – and port congestion among other periodic supply chain constraints have kept us from hitting our full stride. Now due to the re-instituted AB5 law in California, we will have to take on a new set of challenges on the labor front. However, AB5 is nothing new, we have been evaluating the potential impact for several years now and have a multifaceted plan that allows for us to make a smooth transition of the current owner operators in a seamless fashion to our customers and our potential to grow in the marketplace. We have the know-how, we have the equipment to be successful and we are on a trajectory to make things happen. While there is still some heavy lifting to do, I’m optimistic that we will navigate these challenges and set course for the second half of 2022. Universal will continue to prove to be a leader in the transportation and logistics space. Now for the quarter. In yesterday's release Universal reported second quarter earnings of $1.69 per share and total operating revenue of…

Thanks, Tim. Good morning everyone. Universal Logistics Holdings reported consolidated net income of $44.7 million or $1.69 per share, on total operating revenues of $527.2 million. This compares to net income of $25.6 million or $0.95 per share on total operating revenues of $428 million in the second quarter of 2021. Consolidated income from operations was $64.7 million dollars for the quarter, compared to $31.3 million one year earlier. EBITDA increased $37.2 million to $90.9 million, which compares to $53.7 million during the same period last year. Our operating margin and EBITDA margin for the second quarter of 2022 are 12.3% and 17.2% of total operating revenues. These metrics compared to 7.4% and 12% respectively in the second quarter of 2021. Looking at our segment performance for the second quarter of 2022. In our contract logistics segment, which includes our value add and dedicated transportation businesses, income from operations increased $13.5 million to $29.4 million on $207.3 million of total operating revenues. This compares to operating income of $15.9 million on $154.8 million of total operating revenue in the second quarter of 2021. Operating margins for the quarter were 14.2% versus 10.3% last year. In our Intermodal segment, operating revenues increased $50.3 million to $156.9 million compared to $106.6 million in the same period last year. And income from operations increased $15.2 million to $21.4 million. This compares to operating income of $6.2 million in the second quarter of 2021. Operating margins for the quarter were 13.6% versus 5.8% last year. In our Trucking segment, operating revenues for the quarter increased 6.8% to $106.5 million compared to $99.8 million in the same quarter last year, while income from operations increased $3.1 million to $9.6 million. This compares to operating income of $6.5 million in the second quarter of 2021. Operating…

Thank you. We will now begin the question-and-answer session. The first question today will be from Bruce Chan from Stifel. Please go ahead.

Hi, everyone. Another nice print for you here. So congratulations.

Thanks, Bruce.

Tim, maybe just a point of clarification to start. You talked about that rationalized site in contract logistics, was that the same one that was generating the big loss earlier this year? And then any others that are still underwater, are you back kind of above water on the whole portfolio?

Yeah. To question one, yes, it's the same one we have been referencing in working diligently with the customer to get it to where it's at now. We feel comfortable, we feel comfortable that there is some additional -- there is some additional efficiencies that we can layer into the operation to continue to gain strength there. And as far as the rest of the portfolio, and now it's operating well. We've done an excellent job and I opened up with that continuous improvement comment. That's -- one of our big initiatives is to roll through places that -- even our operating well and look for those nuts and bolts that we can go forward with an operate it even more efficiently.

Okay, great. That's good news. And then maybe just a follow-up. I know these past few years have been pretty unique in terms of their impact on that contract logistics business, but maybe you can just talk about how it generally performs in a more, call it, normal economic cycle or down cycle? And I think you mentioned that you felt confident in earnings for that business into 2023, what sort of macro assumptions does that comment kind of contemplates?

Yeah. I think that in reviewing what our contracts look like, I'm very comfortable with what we worked really hard on over the last six to eight months on contract renegotiations and pricing. I can't give you an exact look at what the economy looks like next year, but I think, overall, we're pretty insulated. We're operating at a really good level now and the SAAR is only at -- right around 13,000. So I think we position this very well in the contract logistics space. I think we've taken a look at not only how we operate from a continuous improvement, we also from a rationale on contracts, we want to make sure that we're working in a fixed variable environment and we're covering some of our costs and not working in totally in a variable environment. And I think that combination helps us and supports us in making those statements that we feel really comfortable going into 2023. And I still think on our core competency in automotive, I still think there's a lot of pent-up consumer demand that we feel comfortable with.

That's great. And then just a last question here on AB5, you gave some good detail there already. Any thoughts on what impact that might have on your segment OR as you start to maybe convert some of that California business? And then maybe you can also comment on how some of these work stoppages and protests and strikes might affect volumes next quarter?

Yes. Let's start with the first part first and its current news. The work stoppage in LA didn't -- did not or the protest did not do anything to workflow in and out of the ports. It's a much harder environment to get to shut down the whole complex. Oklahoma is a little more successful with the shutdown because of the order in there and how you access the port. So what that did and what you read in the news puts us behind a couple of days to a week, but there is not going to be any canceled shipments per se as a result of that, everybody has to experience the same thing. So what it will do? It will put a little stress on our operations to backfill and to push up some of those orders into the customers' facilities in a quicker fashion. So I'm not looking for any -- I'm not looking for any revenue loss on that. And then, your question on AB5 and the OR assumptions. We've looked at it at a high level, the way we're going to approach this, long-term Universal wants to be company trucks and company drivers in California. As we transition into that we'll have a bridge, there could be a little bit of escalation of costs, but we're not going to call it too serious. I can't give you exact percentage because there is some fluidity to the environment, but I'm going to say that, that our margins will remain consistent to elevated maybe a couple of percent by the cost that's associated with the transition.

Okay. That's helpful. Thanks and congrats again.

Thanks you, Bruce.

Thanks, Bruce.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Tim Phillips for any closing remarks.

Thanks, Chad. Well, first off, I want to thank again all our employees, our agents, our independent contractors for doing such a superb job at operating in servicing our customers. Secondly, I'd like to thank everybody that supports the company from a shareholder perspective and of course, everybody the dialed into the call to listen to Universal and how we think we as a company pointed in a positive direction moving forward. With that being said, we look forward to talking to you again next quarter. Thank you.

Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.