Hello, and welcome to Universal Logistics Holdings’ Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. 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 today. 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 the call.

Thank you, Joe. Welcome to Universal Logistics Holdings 2022 fourth quarter earnings call. I'd like to take a minute and reflect on Universal’s performance for the full year of 2022. I'm extremely proud of all our employees, agents, drivers, and contractors who helped achieve such remarkable results. How far we have come since the onset of the pandemic almost three years ago, the Universal team executed on their commitment to excellence, focusing on training, quality of service and transparent collaboration. We all worked extremely hard to record top line revenue in excess of $2 billion, which was a 15% increase over 2021 and more than doubled our operating income and earnings per share. For the full year 2022, Universal reported record operating income of $240.4 million, and $6.37 per basic and diluted share. In 2022, we made great strides not only in our financial performance, but also on an ongoing cultivation of associates in the warehouse, office and on the road. We continue to add and train new associates as we expand our business footprint, which unfolded in a tight labor market. The financial improvement is a credit to every associate willingness and effort to execute at the highest level. We've added train talent to a number of locations to further expand our foundation set course for continued performance and growth in 2023. As we close out 2022, Universal’s transportation sector was not insulated from a lack luster peak season brought about by high inflation and inventory destocking. Our Intermodal group experienced rapidly declining import volumes. And our Brokerage group saw the number of tendered loads declined throughout the quarter. Our Truckload group held their own by retaining pricing and elevated fuel surcharge levels. While we saw a year-over-year deterioration in our transactional transportation sector, our contract logistics segment which…

Thanks Tim. Good morning, everyone. Yesterday, Universal Logistics Holdings reported consolidated net income of $33.4 million or $1.27 per share on total operating revenues of $458.7 million in the fourth quarter of 2022. This compares to net income of $16.2 million or $0.60 per share on total operating revenues of $467.4 million during the same period last year. Consolidated income from operations was $48.2 million for the quarter compared to $23.8 million, one year earlier. EBITDA increased to $28.3 million to $68 million, which compares to $39.7 million during the same period last year. Our operating margin and EBITDA margin for the fourth quarter of 2022 are 10.5% and 14.8% of total operating revenues. These metrics compared to 5.1% and 8.5%, respectively, in the fourth quarter of 2021. Looking at our segment performance for the fourth quarter of 2022, in our contract logistics segment, which includes our value-add and dedicated transportation businesses, income from operations increased to $24.1 million to $30.1 million and $205.6 million of total operating revenues. This compares to operating income of $6.1 million and $160.7 million of total operating revenue in the fourth quarter of 2021. Operating margins for the quarter were 14.7% versus 3.8%. last year. The fourth quarter of 2021 included $5 million of previously disclosed pretax losses that adversely impacted the contract logistics segment’s operating margin by 310 basis points. And our intermodal segment, operating revenues decreased $18.6 million to $123.1 million compared to $141.7 million in the same period last year, and income from operations decreased $2.7 million to $11.1 million. This compares to operating income of $13.8 million in the fourth quarter of 2022. Operating margins for the quarter were 9% versus 9.7% last year. In our trucking segment, operating revenues for the quarter decreased to $12.5 million to $89 million,…

[Operator Instructions] And our first question here will come from Chris Wetherbee with Citigroup.

Hey, thanks. Good morning, guys. Appreciate the color and the outlook for the first quarter maybe just want to dig a little bit deeper on the intermodal side. Just want to get a sense I want to be clear about maybe how much of some of the issues in the quarter are ring-fence specifically to the quarter versus how much you think will be ongoing headwinds to the profitability of that business as we think about both 1Q as well as the full year 2023.

Chris, this is Tim. I think what we saw leaving the fourth quarter is I explained in my prepared remarks was a transitional phase for our Southern California operation, which includes equipment onboarding, driver recruiting costs, driver training costs. And then in conjunction with that transition to accompany driver profile. We also saw about a 50% dip in load count, in that 50% dip was a combination of inbound imports coming into Southern California. And our profile as it comes to our customers about eight of the top 10 on our customer list is retail and consumer goods. So we saw a sharp falloff in that. So if you take that into 2023 and look at January as a whole, we still saw some deterioration of the overall load count and top line revenue as we see it on intermodal side. Our customers are telling us in that retail and consumer goods space, that they expect some rebound after the Chinese New Year. But they're not committing and they're holding their cards a little tight to their vest on what it looks like as we stretch our legs into the summer of ‘23. So we're prepared to see import levels probably at a lower rate in the first quarter, which means we're going to have to equally be out there on the hunt for additional market share. And then of course with any good company, we're going to make sure that we're containing our costs as we push forward.

Okay, I guess as I think about the differences between the model you're running before and an employee model there first three quarters of the year in that business, I think you're running, let's call it close to mid-teens margins. Is that doable in employee model for that business? Or is it something lower than that?

No, I, let's take the first crunch of that, the first byte of that. I think it is obtainable in an employee model, but that employee model’s jar has to be full so we can optimize the assets and the drivers. And not only did we have the whole runway in the fourth quarter of obtaining assets in a very tight market, we also had in Southern California, there's a lot of contractors that run in and out of the port. So our recruitment of new company drivers came with the huge cost of onboarding and training to put them in those assets so they can be successful. So why the downturn in imports it's troublesome, I guess it's also an opportunity to get our sea legs and get our new drivers, properly trained and ready to go compliant. So we feel good about that. But I think that once this is at full run rate, the jar is full, we'll have the ability to optimize company assets, I think that you'll still enjoy the same type of margins.

Okay, that's helpful. And then I guess maybe the final question would just be sort of maybe taking a step back and thinking bigger picture. I think there's a general sense, particularly with retail exposed freight, that we are going through a meaningful normalization of inventories as it stands currently. And that maybe by late spring, there's the potential for some, that normalization to have largely occurred in maybe the return of a degree of strength. I don't know if that's sequential or year-over-year, but generally want to get your sense of how you think about at least on the retail piece of your business, and frankly, on the industrial side too whether you think there might be offsets that could sort of dampen that potential second half recovery?

Yes. on the retail side, like I said, the customers are holding their cards pretty close, we feel that the Q1 will be challenged, we think that when we get out of the Chinese New Year, they start ordering again, we should see some rebound in Q2, but don't expect there to be any kind of normalization, as you put it prior to the second half of the year. And to this degree, we don't know exactly what yet. Some of the retail customers that said there would be a normal type season. But what's normal mean, over the last couple of years, because there's been so many peaks and troughs. So we think positionally, though the second half of the year will definitely be better than the first half of the year. And on the industrial space, I think that, let's break that down a little further Class 8, I think that we're going into a solid for first half of the year. And I think a lot of that will run its cadence into the second half of the year. All indications on automotive plants that we serve is a very strong year. Inventories are rising, but there seems to be a strong demand for those products in the plants that we've serviced. So we feel good about that. Our steel and industrial goods that we haul from a transportation perspective, our load counts had decreased somewhat, although pricing has remained pretty stout. One area we see is our agriculture and heavy machinery business is some positive forecasts for 2023 that there's still demand. And I think if you encompass that all together, I think you'll feel if you ask whether it's a Class A, an automotive, agriculture and heavy machinery, I think there's still part issues and supply chain issues out there, maybe not to the degree we saw in 2022. But I think they still linger out there that cause some disruption of cadence, but overall on the industrial, the auto space, we feel comfortable with 2023.

And with no remaining questions, this will conclude our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Thank you, Joe. I appreciate everyone dialing into the call today. As I mentioned, I'm extremely excited about the opportunities in front of Universal in 2023. We've already hit the ground running with new contract logistics programs and are cautiously optimistic about inventory restocking in the second half of ‘23, which will help drive transportation growth. Finally, I cannot wait to see our compliant Southern California company driver model to deliver certainty into our valued customers supply chains, as import volumes grow seasonally. I look forward to talking to everyone on our Q1 2023 call in April. Thank you.

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.