Hello, and welcome to Universal Logistics Holdings Second Quarter 2023 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's 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.

Thank you, Drew. Good morning, and welcome to Universal Logistics Holdings 2023 second quarter earnings call. Once again, our team of associates continue to perform at the highest level, supporting continuous improvement in growth objectives of the company. I'm very optimistic about the collection of talent Universal has been able to assemble increasing our bandwidth and putting us in a position to take on new opportunity and fine-tune our existing operations particularly in the contract logistics space. Although we experienced different levels of success amongst the business units in Q2, the framework of experienced human capital, we have put in place is poised to take advantage of the growth opportunities when the freight volumes pick up and new business awards are launched and what an exciting time to be in Detroit and across the automotive space. OEMs are investing billions of dollars in capital in the next generation of electric vehicles and our long tenured relationships with these customers is paying off. As they add EV production capacity into their product mix, we are able to capitalize on these opportunities and add major EV platforms to our already strong contract logistics portfolio. The transportation and logistics community continue to experience inventory destocking as consumer demand for goods remain tempered. Falling in line with demand, transportation pricing was also remains under pressure. Our transactional business continued to navigate very choppy waters while new contractual opportunities saw a modest softening in pricing, driven by competitive spirit of asset carrier competition. Leadership remains focused on evaluating and supplying our customers with the best pricing while keeping a keen eye on continued quality commitments in an inflationary environment. The first two quarters of the year confirm that our diversified operating footprint continues to produce results. Universal's four operating segments have helped balance the regression…

Thanks, Tim. Good morning, everyone. Yesterday, Universal Logistics Holdings reported consolidated net income of $23.6 million or $0.90 per share on total operating revenues of $412.6 million in the second quarter of 2023. This compares to net income of $44.7 million or $1.69 per share on total operating revenues of $527.2 million during the same period last year. Consolidated income from operations was $36.4 million for the quarter, compared to $64.7 million one year earlier. EBITDA decreased $35.1 million to $55.8 million, which compares to $90.9 million during the same period last year. Our operating margin and EBITDA margin for the second quarter of 2023 are 8.8% and 13.5% of total operating revenues. These metrics compared to 12.3% and 17.2%, respectively, in the second quarter of 2022. Recall that in the second quarter of 2022, operating results were favorably impacted by a $3 million pretax credit related to a previously disclosed item. Looking at our segment performance for the second quarter of 2023. In our Contract Logistics segment, which includes our value-add and dedicated transportation businesses, income from operations increased $3.4 million to $32.8 million on $208.8 million of total operating revenues. This compares to operating income of $29.4 million on $207.3 million of total operating revenue in the second quarter of 2022. Operating margins for the quarter were 15.7% versus 14.2% last year. On to our Intermodal segment. Operating revenues decreased $65.3 million to $91.6 million compared to $156.9 million in the same period last year. And income from operations decreased to $21.6 million to an operating loss of $200,000. This compares to operating income of $21.4 million in the second quarter of 2022. Operating margins for the quarter were negative 0.3% versus positive 13.6% last year. As mentioned in Tim's comments, our Intermodal segment's operating results were negatively…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Bruce Chan with Stifel. Please go ahead.

Good morning, team. This is Matt Milask on for Bruce. Thanks for taking some of our questions.

Hi, Matt.

To start, can you provide some insights from your trucking business on how industry capacity is currently trending? And with respect to Class 8 trucks, are you seeing any signs of demand cooling there.

Yes. As far as -- Matt, this is Tim. As far as the industry trends on the actual transportation trucking side, I do still see a very loose environment. Not only is that indicative from what we're seeing on our intermodal product, but also the pricing we're seeing on the brokerage side of things, says all we need to hear, it's very soft. And the number of opportunities flowing through the pipeline right now are -- I don't say they're not limited, but they're not what they were a year ago, and they're very, very competitive price-wise. As far as production of Class 8, we've seen no letup in production in Class 8. And as I mentioned in my remarks, at least from the customers we touch, we expect an uptick in Class 8 in the second-half of the year. And while first half of the year numbers were better than first half of the year numbers 2022, the first half of 2023 still saw some parts shortage issues that caused some production disruption. So I expect the remainder of the year to be better than the first-half of the year, hard to comment on 2024 yet.

Okay. Super helpful. On the Intermodal business, can you provide any additional color around recent pickups in the import volumes there? And sort of what exactly you're seeing there in late July and then perhaps when you might expect comps to ease for accessorial declines within that business?

Yes, that's a rough one, because just like a lot of the other things that we talk about when we entered and exited the COVID phase, there was such a pent-up demand in supply chain that hadn't -- that didn't have great fluency, a lot of those accessorials that you see declining are a result of that congestion and what we had to charge to make sure that we serviced our customer properly. In a more fluent supply chain network, we don't see those same opportunities for help with port storage or per diem or port surcharges related around congestion. So those have all been evaporated. So that kind of tells you also the second part of what you were asking, the volumes at the port remain muted, and it depends, of course, what segment that you're working with from a customer standpoint, but we continue to see retail in a muted or a negative type standpoint, at least from the customers we deal with, heavy industrial, chemicals, some raw materials, also in a challenging state. And we've seen some pickup, but that pickup has been in miscellaneous type goods, and I really couldn't give you a good lay of the land of exactly what it is coming into the ports. But the expectation is that we will still remain constricted through Q3, follow the same seasonality cycle, maybe a little uptick just because we will get into back-to-school or Thanksgiving, Halloween, Christmas, but I don't expect it to be something we'd sit here at the end of October on our call and have this huge increase in volumes.

Okay. Yes, that makes a lot of sense. And lastly, I know that you mentioned your expectation for destocking to really run its course over the next couple of quarters here. Generally, are you hearing any sort of material differences from your industrial customer base here? And maybe how far behind that sector might be from the consumer side with respect to destocking?

Well, that's a good question. If I had to pinpoint from an industrial standpoint, I mentioned on our open deck type movements, there's definitely been a decline in the movement of industrial equipment. Steel has remained somewhat resilient, but still down mid-single digits. So I see somewhat of a restriction going in raw materials for whatever production purpose and process that would be for. Same thing could be said from -- we deal with a couple of large industrial customers on the Intermodal side and their import volumes, material that they use in the production process is down at least 20%, maybe 30%.

Got it will jump back in the queue. Thanks a lot.

You’re welcome.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Tim Phillips for any closing remarks.

Thanks, Drew. First off, I appreciate everyone taking the time to listen this morning. I remain confident in our continued growth in the contract logistics segment of our business. And while the Transportation segment has faced many headwinds, I'm optimistic that the hard work that is being done will have us well positioned when freight volumes begin to increase. I look forward to updating you on progress during our Q3 earnings call slated for late October. Thank you.

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