Hello and welcome to Universal Logistics Holdings Second Quarter 2024 Earnings Conference Call. [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 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, Ludy. Good morning, everyone. Thank you for joining Universal’s 2024 second quarter earnings call. Once again, the theme of the quarter can be summed up in four words: diversity is our strength. Universal’s diversity service offerings are what differentiates us from our competitors in the transportation and logistics space and is what allows us to deliver outstanding results even during this prolonged transportation down cycle. But before I dig into the results, I would also like to take the moment to thank the entire Universal team. The tremendous work and effort of our 10,000 plus employees and contractors are what make these results possible. This is what allows us to deliver outstanding service to our customers and continue to be the best-of-breed transportation and logistics provider. Now, let’s move on to the quarter. Overall, Universal once again delivered outstanding results in the second quarter of 2024. We grew top line revenue by 12%, delivered double-digit operating margin, increased our earnings per share by 30% compared to the same period last year. We did all this during one of the longest and deepest freight recessions I’ve experienced. Universal’s second quarter results, however, were mixed and varied considerably amongst our different business segments. Our contract logistics business continues to outperform and deliver excellent results, while our intermodal and company-managed brokerage segments continue to perform below our expectations. The trucking segment performed well despite softness in the overall truckload market on the back of our specialized, heavy-haul wind business. Q2 was another challenging environment to navigate in the transportation market. However, Universal’s diversified business model is working as designed and I am very happy with the outcome. For the second quarter 2024, Universal reported $462.2 million of revenue, $1.17 of earnings per share, and an operating margin of 10.2%. This was…

Thanks, Tim. Good morning, everyone. Yesterday, Universal Logistics Holdings reported consolidated net income of $30.7 million or $1.17 per share on total operating revenues of $462.2 million in the second quarter of 2024. This compares to net income of $23.6 million or $0.90 per share on total operating revenues of $412.6 million during the same period last year. Consolidated income from operations was $47.1 million for the quarter compared to $36.4 million 1 year earlier. EBITDA increased $29 million to $84.8 million, which compares to $55.8 million during the same period last year. Our operating margin and EBITDA margin for the second quarter of 2024 are 10.2% and 18.4% of total operating revenues. These metrics compare to 8.8% and 13.5%, respectively, in the second quarter of 2023. During the quarter, Universal took an $11.3 million charge depreciation expense. This charge was due to revisions made to the useful lives and salvage values of certain pieces of equipment, primarily Class 8 tractors. Prior to COVID, it was not uncommon for 4 to 5-year-old tractors to retain a 40% to 50% salvage value when sold on either the open market or traded in for new models. Now after the extreme bubble experienced in the used truck prices during COVID, we have seen a massive unwind in the value of used tractors. We are now seeing residual values fall to 20% to 25% of historical costs. This update to the estimated residual values on certain tractors resulted in the additional depreciation expense, impacting our operating ratio by 245 basis points. Looking at our segment performance for the second quarter of 2024, in our contract logistics segment, which includes our value-add and Dedicated Transportation businesses, income from operations increased $20.1 million to $52.9 million on $236.6 million of total operating revenues. This compares to…

[Operator Instructions] And your first question comes from the line of Bruce Chan with Stifel. Please go ahead.

Hey. Good morning and thanks as always. Maybe just to start here with contract logistics, you showed some really nice growth in that division, even if you strip out the special project business. But it does look like programs are down from, I think 71 quarter-over-quarter to 68. Is there anything to read from that or was that just kind of the normal cadence of contracts rolling off?

No. That’s just the normal cadence of contracts rolling off. In this particular situation, we had some end-of-life agreements that were moved out, and we continue to move new opportunities in to replace those. And as the pipeline continues to fill, we have the hope and the opportunity that we will continue to build on the 68 that we exited on Q2 with.

Okay, that’s good to hear. And I think you said it was like $600 million to $750 million of pipeline opportunity?

Right.

Just kind of wondering, given the softer backdrop, if you expect any changes in maybe the rate of conversion of that pipeline or any maybe elongation in the sales cycle, or are customers still kind of just making decisions as normal?

So far, customers are making decisions as normal. If I de-bundle the transportation from the four walls type of activity in the contract logistics, there has been more pressure put on the transportation sector as we look to advance in new bids or even renew bids. So, we are cautiously optimistic as we work our way through that. There has still been a level of consistency on the value-added services bid and we still see a full pipeline. The determining factor on that will be as corporations look at their internal cost for employees, do we provide a logical solution, an outsourced solution for those companies, I think we do, but we have to sort through that. That does take a little bit of time from a sales cycle standpoint as the company’s management structure makes sure they look at their fees and queues. But once again, I am cautiously optimistic that we will continue to see additional outsourcing opportunities.

Okay, that’s great. That’s good to hear. And then Jude, you talked about residual values on used trucks falling and that was a big factor in the depreciation revision. Seems like that is maybe a healthy indication of capacity exiting the market, but I am also wondering on the flip side if that raises maybe any concerns about what Class 8 activity might look like as we move into 2025 and beyond. And just kind of how you are thinking about that?

Yes, for sure. I just think, Bruce, that I think all companies in the space just have to be really smarter about what these residual values are going to be in a post-COVID environment. I mean there seems to be a glut of trucks on the market. And you can see from the ACT numbers that orders were down markedly sequentially from Q1 to Q2. Coupling that with really, really soft residuals, yes, I think there is going to be some concern. We really haven’t seen a decline in prices of the Class 8 trucks though, which would be a great indication for us that, hey, there is – the OEMs are recognizing some form of oversupply. We expect that to happen, but we really haven’t seen it yet. So, Universal, once again, we are just trying to manage our own balance sheet and our own assets. And when we see a pretty large delta between what the expectation was and what the reality is, we are just reacting to it.

Okay, that’s great. And then just switching gears here a little bit to intermodal, we have seen some good inbound volumes to the West Coast ports. Maybe if you could just walk us through kind of the disparity between those numbers and then what you are seeing in terms of load volumes. And wondering if that’s maybe just a delay between those volumes showing up in your network, or if there is some other reason why maybe you wouldn’t be seeing that uplift.

Yes. The inbound into the West Coast is up. I wouldn’t say that from the customer base that we are moving freight for right now in the West Coast, we have experienced that type of double-digit uptick. And as we look as the freight moves itself inland into the Midwest and other parts of the country, we would expect to see some uplift from that. And I would say that if I had to have 1 market that I have seen some uptick based on those West Coast numbers would be the inbound coming off the West Coast into Chicago. So, we have seen some uptick there. The other markets are harder to read, but we would think that an uptick in West Coast imports should filter into the inland parts of the United States. And to that point, we mentioned that the month of June was one of our best months from an intermodal standpoint. So, that’s somewhat reflective of that inbound volume. And if we strip out California from those numbers, I thought we had a fairly decent June as a whole other than California on the intermodal front.

Yes, Bruce. And just to give a little bit more color to Tim’s comments on the legacy non-California business, June had our largest load counts for the entire year. And although California was still down sequentially, it was down less than 600 loads for the quarter. So, we are seeing a little bit of a repair to those volumes. But once again, we are just really cautiously optimistic because there is still a lot of carriers that are taking freight at below-market prices.

Got it. That’s great color. And then just a last question here is a kind of point of clarification. Tim, you talked about trucking, and you are certainly seeing some very nice increases there in revenue and revenue per load, which you attributed to the specialized, heavy-haul. You said that you were expecting that to be a secular headwind in subsequent years. I just want to make sure I heard that correctly.

Well, sometimes, coming and going confused, that should be a good tailwind for us.

Okay. Alright. I just wanted to clarify that point. Okay. Great. That’s all I have. I really appreciate the time as always. Congratulations.

Thanks Bruce. Appreciate it.

[Operator Instructions] And there are no further questions at this time. I would like to turn it back to Mr. Phillips for closing remarks.

Thank you, Ludy. Universal continued to employ various cost-cutting strategies while advancing our various opportunities in key segments and verticals. I am pleased with our continuous improvement plan, which encompasses our human assets, the use of technology, and the focus on the customers’ needs and visibility. I appreciate everyone taking time to listen this morning and look forward to talking to you in Q3 earnings call in October. Thank you.

Thank you. And ladies and gentlemen, this concludes today’s conference call. Thank you all for participating. You may now disconnect.