Hello and welcome to Universal Logistics Holdings' Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] 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 words such as beliefs -- 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, Joanna and good morning everyone, and thank you for joining Universal's 2024 third quarter earnings call. As evidenced by our results, Universal's diverse service offerings continue to set us apart from the competition in the transportation and logistics industry. Our comprehensive offering of logistics solution has once again enabled us to achieve exceptional results even during this extended downturn in the transportation sector. Before diving into the details of our performance, I want to take a moment to express my gratitude to the entire Universal team. The dedication and hard work of our over 10,000 employees and contractors are the driving force behind these achievements. I would also like to welcome the over 2,100 employees from the recent acquisition of the Parsec Group to the Universal family. It is each associate's commitment that allows us to consistently deliver outstanding service to our customers and maintain our position as a leading transportation and logistics provider. Now, let's discuss the quarter. Universal once again delivered solid results in the third quarter of 2024. We grew top line revenues by 1.3%, delivered a double-digit operating margin and increased our earnings per share by 14.7% compared to the same period last year. This was accomplished while going through one of the most prolonged freight recessions I have ever experienced. While I'm pleased with Universal's overall results, individual segment performance continue to vary. Our Contract Logistics business continues to deliver outstanding results, consistently achieving double-digit operating margins. Contract Logistics has been the cornerstone of our success. Our Trucking segment has also achieved solid results despite the overall weakness in the truckload market, the strong demand for our specialized heavy-haul wind business has propelled trucking to its highest operating margin in over two years and we continue to see strong demand for this offering.…

Thanks Tim. Good morning everyone. Yesterday, Universal Logistics Holdings reported consolidated net income of $26.5 million or $1.01 per share on total operating revenues of $426.8 million in the third quarter of 2024. This compares to net income of $23 million or $0.88 per share on total operating revenues of $421.3 million during the same period last year. Consolidated income from operations was $42.6 million for the quarter compared to $36.8 million one year earlier. EBITDA increased $16.2 million to $72.9 million, which compares to $56.7 million during the same period last year. Our operating margin and EBITDA margin for the third quarter of 2024 are 10% and 17.1% of total operating revenues. These metrics compare to 8.7% and 13.5%, respectively, in the third quarter of 2023. Looking at our segment performance for the third quarter of 2024 in our Contract Logistics segment, which includes our value-add and dedicated transportation businesses, income from operations increased $10.5 million to $45.6 million on $245.2 million of total operating revenues. This compares to operating income of $35.1 million on $208.1 million of total operating revenue in the third quarter of 2023. Operating margins for the quarter were 18.6% of total operating revenues compared to 16.9% one year earlier. We continue to make excellent progress on our specialty development Contract Logistics program. During the third quarter of 2024, we recognized an additional $36.8 million of operating revenues related to this program. This brings our year-to-date operating revenues related to this program to $176.6 million. As a reminder, during the full year 2024, we expect to recognize total operating revenues on this program of approximately $228 million and continue to expect it to be substantially complete by December 31st, 2024. Revenues generated in this program are reported in value-added services and the associated costs in…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Bruce Chan at Stifel. Please go ahead.

Hi, good morning gents. This is Andrew Cox on for Bruce.

Hey good morning. How are you?

Yes, great. I guess to just start here with the new Terminal Operations business to Parsec. I kind of wanted to get an idea of margin profile going forward and what the synergy opportunity you may see between the rest of the business? I know you guys noted some things in the release, but just kind of wanted to understand long-term, what kind of synergy opportunity you see here? And what opportunity you have to expand margins beyond what you laid out just a moment ago? Thank you.

Yes, Andrew, this is Tim. Yes, above and beyond what we mentioned, there was a thorough, thoughtful process of onboarding Parsec and how it will affect our overall business. We truly believe there's synergies there that allow us to have additional touch points in the supply chain. I think that the involvement of new blue chip customers and their exposure to some of our other services along with what we already do on the intermodal front from an intermodal drayage standpoint, we think that there's going to be some opportunities that are going to come of that new partnership. We're really excited about it because it's no overlap to our current business, and there's a really good cultural fit of the Parsec Group and the Universal Group. I think that was one of the other determining factors as you listen to people peel back the onion on acquisitions, we thought that it would be, as we've mentioned, immediately accretive, but also the synergies there on the human side of it, we felt that it was a really good fit that we could push it right into the Universal family without a hiccup. So, extremely excited about that.

Yes, absolutely. And also, the profile of its EBITDA fits in well with our existing Contract Logistics business, right? So, we're expecting double-digit EBITDA margins in this business similar to what we have in a number of our programs within Contract Logistics. And as Tim pointed out, the cross-selling opportunity, particularly within our drayage business, is something that we're really excited about in addition to any other type of services that we can offer the rail, now that they're going to have a very large partner with a pretty big balance sheet to help them in any way they can to offload all of those difficult things that Universal is really, really good at.

Great. It seems a good contract structure-wise as well. So, we'll dive into the brokerage closure here, if we could. Is there any piping of that business to the organization? And I guess, how should we think about the timeline for the wind down there? I mean is this completely done now or just see the revenue that's flowing into the other segments of the P&L? So, I just wanted to know how we think about that modeling going forward?

Yes, absolutely. So, remember, Universal has two aspects to our brokerage business. In our legacy agent-based truckload business, the brokerage that is handled in that space is really that overflow brokerage model, right, where they have an arrangement with a customer. They're tendered to, say, five loads and they only can cover three with their own capacity. And so they'll throw those other two loads out to be brokered. So that piece of our business, that overflow piece will continue to exist within our legacy truckload business. This specific business was a business that Universal acquired in 2009, it was a stand-alone company-managed operation located in Nashville. And really what it was as an aggregator, very similar to some of the other large brokers that you see out there except for we really didn't have a lot of other services that we could offer our customers so they really predominantly became a price player. And if you really look at our results over the past couple of years, in 2023, that business lost about $2.3 million, operated at $102 million, and we were losing between $2 million and $3 million a quarter this year with really no end in sight, right? So, it's one of those difficult decisions, as Tim mentioned in his comments. So, if you think about what we did is that we shut down that operation in August, we don't expect any further impact on the business related to it. We took our medicine, which was about $8.9 million worth of expenses. So this year, if you look at the results, we have about, what -- about $13 million of losses related to our brokerage business, that we've just replaced with about $33 million of additional EBITDA with the two acquisitions that we made. So, you think about it, we're going to have about a $50 million swing in our EBITDA year-over-year, the impact of shutting down that business and actually being able to buy businesses that we have something to offer our customers other than price. So, although these are very difficult decisions that we have to make because that there is people involved, as Tim mentioned in his comments, we have to look at the business and how it's performing, and they all have to stand on their own. So, we really look at the combination of closing down our brokerage, which was a non-core business and adding on these other two acquisitions in the quarter, which are a part of our core business is just to continue of our strategy to grow those sticky industrial-type businesses where Universal can offer their customers something other than price.

Got it. That makes a lot of sense. And just a follow-up on that. So, looking forward to the 2025 guidance, the margin expansion is expected there. Is that mainly a result of the kind of trade-off that you've made between brokerage and the two acquisitions?

Yes. Exactly. So, yes, we're trading businesses that will operate in the 10% margin range with businesses that operated at $105 million.

Got it. Okay. And so into truckload and into the checking business at heavy-haul, is there any impact from the hurricanes here? I assume there's no FEMA contracts in that business. Just kind of wondering -- we've heard some other commentary from some other executives that they're seeing some benefit here in the fourth quarter with recovery efforts. Just wanted to know if you have any exposure there?

Yes, no exposure from a FEMA or emergency response standpoint, some effects of that hurricane on some of our normal van business and things of that nature. We did see maybe a little bit of pickup when doing some of those things from an industrial standpoint that will be delivered to an emergency response like pumps and generators and whatnot. As far as its impact on the heavy-haul business, there was zero impact on that business.

Okay. And then I will just end here with, I guess, a broader question. With the sale of brokerage, excuse me, guys -- sorry about that. How are you guys thinking about the structure of the portfolio? Now is there any changes to how you envision the strategic positioning and service offerings moving forward? Do you have any new areas of focus? Thank you.

No, I mean I think we really like the businesses that we're in. And I think as Tim has continually mentioned in his comments over the past number of quarters that the real only headwind that we have left is just the turnaround of our Intermodal business. And if we can continue to see some better volumes and maybe a little bit better price, then we'll kind of get that business back to the financial targets that we hit and expected from a couple of years ago. So, no, I think we feel pretty good about the portfolio. And you can see from where we're investing, right? We're still investing in that Truckload business, albeit on the specialized side and also, we made a very large investment in Contract Logistics, which I all think that we believe is the real all-star of our portfolio. So, no, I think for the time being, we're very happy with where we stand.

Absolutely. All right. thank you so much gents.

Thank you.

Thank you. [Operator Instructions] We have no further questions. I will turn the call back over to Tim Phillips for closing comments.

Thank you, Joanna. I'm extremely excited about what is in front of us. We continue to evaluate strategic additions that bolster our precision logistics solutions that we offer our customers. From port to plant, Universal is able to provide engineered supply chain solutions with a customer-centric approach. With that, I thank you for joining the call today and look forward to talking to you next quarter. Thank you.

Ladies and gentlemen, this concludes your conference for today. We thank you for participating and we ask that you please disconnect your lines.