Hello, and welcome to Universal Logistics Holdings Fourth 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, Gary, and good morning, and welcome to Universal Logistics Holdings 2023 fourth quarter earnings call. Once again, Universal's diverse service offerings continue to differentiate us in the transportation and logistics space and provide a stable earnings base for the organization in a changing trade environment. While we await a rebound in the transportation market that has been bumping along the bottom in the past few quarters, we are pleased with the continued resiliency and performance of our contract logistics segment. Being deeply rooted in our customers' ecosystem has given us the opportunity to inject additional value, consistency and visibility into their supply chain, which in turn demonstrates our strong business proposition and affords us tremendous opportunity for growth. In 2024, it remains our goal to streamline operations within our transportation segment, focusing on cost reductions, which extend additional value to our customers while continuing to produce consistent margins that fuel our future growth. We continue to see excellent opportunities in the contract logistics space to simplify customers' logistics complexities while simultaneously showcasing cost savings and reliability. Our people-driven solutions require great talent armed with state-of-the-art technology. I'm extremely pleased with our build-out of the contract logistics team with excellent talent that is focused on continuous improvement in labor management, as well as blueprinting the technological needs of our customers to advance our accuracy, enhanced visibility. We continue to stress a customer-centric approach that takes best practice while outlining a very individualized solution to our customers' specific needs. We continue to be extremely mindful of cost in our transportation businesses while we ride out the remainder of the inventory destocking and other market pressures. It is fair to say the opportunity to deeply evaluate costs has uncovered opportunities that will remain fundamental as we step out of the current…

Thanks, Tim. Good morning, everyone. Yesterday, Universal Logistics Holdings reported consolidated net income of $21.4 million or $0.81 per share on total operating revenues of $390.9 million in the fourth quarter of 2023. This compares to net income of $33.4 million or $1.27 per share on total operating revenues of $458.7 million during the same period last year. Consolidated income from operations was $34.1 million for the quarter compared to $48.2 million one year earlier. EBITDA decreased $13.2 million to $54.8 million, which compares to $68 million during the same period last year. Our operating margin and EBITDA margin for the fourth quarter of 2023 are 8.7% and 14% of total operating revenues. These metrics compared to 10.5% and 14.8%, respectively, in the fourth quarter of 2022. Looking at our segment performance for the fourth quarter of 2023, in our contract logistics segment, which includes our value-add and dedicated transportation businesses, income from operations increased $1.9 million to $32.1 million on $201.3 million of total operating revenues. This compares to operating income of $30.1 million on $205.5 million of total operating revenue in the fourth quarter of 2022. Operating margins for the quarter were 15.9% of total operating revenues compared to 14.7% one year earlier. On to our intermodal segment. Operating revenues decreased $37.7 million to $85.4 million compared to $123.1 million in the same period last year. And income from operations decreased $12.1 million to an operating loss of $944,000. This compares to operating income of $11.1 million in the fourth quarter of 2022. Operating ratios for the quarter were 101.1% versus 91% last year. As mentioned in Tim's comments, our intermodal segment's operating results were negatively impacted by operating losses in a number of our West Coast operations. These losses totaled $4.5 million, impacting segment margins by 550…

[Operator Instructions]. Our first question today is from Bruce Chan with Stifel. Please go ahead.

Hey, thank you, operator, and good morning, everyone. Tim, you talked about some of the drayage trends and the disruption coming with the Red Sea and Panama Canal issues. Just wondering if you've seen any change in volume trends so far this year as a result of those issues. And then maybe just to follow-up quickly, we've got some potential ILA disruptions and negotiations coming up as well. Any early conversations with customers about some of the relocation and diversion that may happen as a result?

Yeah. Thanks, Bruce. From a drayage perspective, when it relates to the Red Sea, no, we've had no real hiccups from a volume standpoint. What we've been told by our customers is that they understand if they're not going to change port routing, they're going to experience a longer sale time anywhere between probably 12 -- 10 to 12 days longer, and they're just setting themselves to absorb that as it goes so far. That's one area where we feel we're really well acclimated because if they do decide to push freight to the West Coast, we feel we have a good catch net there with all our terminals that operate up and down the West Coast to catch that potential volume that could be redirected. I would say that I have not heard a lot on the ILA potential this summer when the contract renewal for work disruption. But I would say the same thing holds true there. As our customers look at their supply chain, potentially pivot, then we're going to be there to catch the freight on the other coast or potentially the Gulf region if that would delay into the plan. We're definitely preparing ourselves, should freight shift as it kind of did when we had the ILWU disruption on the West Coast, the same thing could potentially happen here with East to West shift. So, we feel good about what we have in case to be able to service our customers.

Okay. Got it. That's helpful. And then maybe just a big picture question here. We've had a couple of companies talking about some potential spin-offs to unlock shareholder value. When I look at your portfolio, there's certainly been some operational and valuation drag from some of the transactional segments on contract logistics. When you think about the portfolio, are there any thoughts or conversations happening here around potential spins or divestitures? Or is there maybe something about the integration of the businesses or the cross-selling opportunity that makes that unlikely?

No. I think we're positioned well. I mean, I hate to look at some of our underperforming segments right now based on just the economic environment. But I will tell you this, we continue to evaluate anything that doesn't give us the proper margin profile. We spoke over the last several quarters about where we think the long-term value is in the intermodal space, and we'll continue to optimize operations, consolidate, look for better, more efficient ways to do things. We think when we come out of this slower period, we're going to be ready to capitalize on and leverage additional freights as it funnels into the terminals that are already built. The brokerage environment becomes much more difficult. It's been a rough ride over the last part of 2023 and into '24, but we're going to position that sector, that segment of the business to be successful as possible. So, there's no plans at this current point to do anything differently. But to give them the tools and continue to explore cross-sell opportunities, introducing other customers from other various segments into those portfolios.

Got it. That's great. And then maybe just a final question here. You gave some color on the margin profile or the margin expectations in the first quarter. But you also talked about some of the leadership goals for the various businesses this year. Certainly, there are a lot of moving parts with contract logistics and the new starts and the weather impact on trucking and then the diversion impact on intermodal as you talked about. Any thoughts on where we might be headed for the year just in terms of the overall margin profile? And if you care to give any color on the individual businesses, I'm sure that would be helpful as well.

So for the full year, I mean, I would just say that it's kind of TBD based on the transportation environment either improving or staying the same. But I think we would feel comfortable with an annual guide of $1.8 billion to $1.9 billion with similar margin that we are expecting in Q1 in the 8% to 10% range. So, I mean that's kind of where the trajectory of where we think the business is going. I don't think it's stepping out too far of a limb to say that we could -- we're expecting that for the year.

Okay. Excellent. Well, thank you very much. Appreciate the time.

Thank you.

Thanks, Bruce.

[Operator Instructions] Showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Tim Phillips for any closing remarks.

Thank you, Gary. I would like to thank everyone for listening today. Universal continues to benefit from our diversified operating platforms, which helps balance the peaks and valleys associated with the overall freight market. Even with some of the headwinds we faced in 2023, Universal recorded its second best year ever of op income and EPS. Of course, all this is not possible without our talented group of hard-working associates. I look forward to talking to everyone on the next earnings call slated for April 26, 2024. Thank you, and have a great day.

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