Universal Logistics Holdings Inc (ULH) 2013 Q4 法說會逐字稿

Hello, and welcome to the Universal Truckload Services, Incorporated fourth-quarter 2013 earnings call. At this time all our participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

During the course of this call the management may make forward-looking statements based on their best view of 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 believe, expect, anticipate, and project. Such statements are subject to (technical difficulty) uncertainties and risks 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. Scott Wolfe, Chief Executive Officer; Mr. Don Cochran, President; and Mr. David Crittenden, Chief Financial Officer for Universal Truckload Services. Thank you.

Mr. Wolfe, you may begin your conference.

Thank you. Good morning, everyone. Welcome and thank you for joining us for the Universal Truckload Services, Inc.'s fourth-quarter 2013 earnings conference call.

To begin, during 2013 we had continued to focus on growing the top line while maintaining the discipline to improve the bottom line. In all, our top line looks unchanged, but overall the sales mix continues to move. Year over year, 2013 to 2012 we saw our higher margin value-added business grow by 11.5%. It now accounts for 18.9% of our total revenue.

The intermodal business also grew year over year and it is up 9.1%. In contrast, transportation services with the loss of brokerage revenue, the anticipated slow restart of wind energy and as well pruning of some (technical difficulty) business, offset the revenue gains in the value-added and intermodal, and resulted in flat revenue performance overall.

Having mentioned these items, it is important to note that EBITDA continues to improve and David will give you more specific detail, relative to that (technical difficulty).

Late in fourth quarter we concluded Universal's second-largest acquisition, Westport Axle Corporation. Today, Westport provides similar operation and services Class 8 and heavy truck market customers and dovetails nicely in what value-added operations do with the automotive OEMs. Strategically, it provides a capabilities in heavy industry and additional customer opportunities for other service offerings.

We have only owned Westport for 60 days now, but the integration is going well and so far our new colleagues are meeting our performance expectations. Today, we are about 28% complete with our integration plan. And the majority of the remaining tasks are on track for completion within the next couple of months.

Historically, we focused our efforts on growing organically and will maintain those efforts, but today we see a full pipeline of acquisition opportunities and we will continue to weigh the best alternatives to grow the Company and expand our service offerings, customer base, our footprint and margins in our eight key verticals.

Now within the current business, we saw industry strengthen and weaken in 2013. The automotive industry continued strong sales trend through the end of the year with SAAR volumes in fourth quarter pushing higher and approaching 17 million units. Overall this strengthened our value-added operations. But several things slowed that growth trend.

For instance, we saw an industrial customer in source one of our value-add operations. An aerospace customer's business was lost due to budget sequestration of 2013. These closures negatively impacted revenue and margins.

Additionally in Q4 we experienced startup costs for new and expanding operations. Steel and metals revenue improved modestly in the fourth quarter while retail sales were essentially flat.

Contracts are a recurring topic of discussion for Universal. We are currently negotiating contract with renewals with two of our long-term OEM customers. We are working toward an extension of an annual renewal [fee load for one] and negotiating a multiyear extension on the other. Our relationships exceed 12 years with both accounts and we see no issue in negotiating a successful conclusion to each contract.

We have [cost] negotiations underway with one Tier-1 automotive supplier due to scope changes in the operations. These changes added tonnage and complexity to the business, necessitating a rate renegotiation. Again, we see no issue to negotiating a successful resolution.

Westport also has one contract expiring at the end of 2014. Here again, we anticipate no issues to negotiating a positive solution. Westport was recently granted an 18-month extension to one of its existing contracts that effectively give it a five-year term. From a labor perspective, we have one relatively small labor contract that is open for negotiation at this time. And it is the last labor contract we will negotiate until the first quarter of 2015.

Facilities have always been part of our value-added business and we have contracts that exist there. In this last year, as an example, we have opened our expanded three facilities, one in New York, one in Mississippi, one in Michigan to support our customers' value-added services. As normal these are coterminous [or] provided by the customer.

Finally, with 2013 behind us and as we face the first quarter of 2014, I'm sure it comes as no surprise, but weather continues to impact our operations. In the dedicated transportation segment we face strict contractual commitments. The heavy snowfall increases driver calloffs, extends travel time forcing hours of service issues, and increases the accident rate. The extreme cold we experienced added to customer failures -- excuse me, equipment failures and breakdown. Facility operations have been impacted as well. Across (technical difficulty) operators at this time are working in temperatures well below zero.

As you can imagine productivity is seriously impacted. People move slower, fatigue faster, and require more breaks for personal safety. These issues increased our cost of service, but we have honored our commitments to our employees and to our valued customers.

Now at this time I will turn it over to Don who will have commentary on transportation and intermodal business. Don?

Thank you, Scott. For 2013 Universal's transportation service revenue was down 4.7% over last year. Our largest segment, transportation, accounts for 68.4% of Universal's 2013 topline revenue. Also the trend we saw in the third quarter continued, essentially leading to a flat fourth-quarter 2013 over the fourth quarter of 2012.

Explaining fourth quarter of 2013 begins with explaining fourth quarter of 2012 when we had several revenue opportunities out of the ordinary course of business. As you may recall, in 2012, Hurricane Sandy hit the East Coast, triggering FEMA operations in the fourth quarter and adding approximately $4.5 million in revenue [within its] margins.

We also had a full year delivering wind turbines with a push in the last quarter to deliver before 2012 federal tax incentives expired at year end. The [slow] restart on wind energy in 2013 explains another $8 million in revenue during the first five months of the year also with solid margins.

Finally, we were returning heavy military equipment from the war in Iraq for an added $4.8 million in revenue in 2012.

In 2013, we took certain steps to improve margins and manage our capacity. That means we terminated several brokerage relationships that were just not performing for us. We attribute $7.6 million in revenue to this, but we saw margins improve from this change. The latest -- the largest impact was that overall our brokerage revenue was down by $24.1 million. Our overflow brokerage remains profitable, albeit on 21% lower volumes. Meanwhile, our high-tech brokerage operations were flat.

Load counts in Universal's transportation services dropped 4.8% in the fourth quarter of 2013 over the fourth quarter of 2012. Compared to an 8% -- 8.7% drop for the full year, as we expand our fleet of contractors including lease purchase trucks and a Company driver fleet, we focus on continuous improvement of our operating ratios.

The transportation segment experienced a marginal improvement in our operating ratio. It came in purchase transportation and SG&A. The bulk of the improvement is attributed to controlled costs for brokerage payoffs and equipment maintenance. And there are still a few synergies brought on by the LINC acquisition.

Intermodal revenue in 2013 over 2012 is up 9.1% to $131.4 million for the full year, despite a 9.7% drop in the fourth quarter over the prior year fourth quarter. Softening imports in the fourth quarter affected our volumes as with most of our international trading partners. International drayage revenue grew at a slower pace of 10% for the fourth quarter of 2013 than it did in the fourth quarter of 2012 and slightly slower than the 12.3% full year run rate.

Domestic intermodal overall was planned for the year, but for the fourth quarter comparison of 2013 over 2012, it was down 82%. This was due to an affiliate LTL customer's change in operating strategy. We saw fourth-quarter 2013 average operating revenues per loaded mile increase by $0.43 over Q4 2012 and by $0.67 if we include the surcharges over Q4 2012.

Our fleet size grew modestly in 2013 showing improved retention and increase in Company-owned power units and with a small lease purchase plan for a few owner operators. These programs allow Universal to support the growth of our owner operator base with equipment and training.

Our industry suffers from weather challenges in the first quarter, but Q1 2014 is shaping up to be one of the worst in recent memory. The severity of the weather conditions in the Midwest and unusually high number of weather-related events in the South and the East have held back what we believe to be a slightly better economy. Our energy, metal, and automotive transportation customers have voiced some optimism for the full year.

Additionally, we see daily improvement in shipments. But it is still too early to call a trend and we are very cautious at this point.

Compliance remains a challenge for our industry and for our business model. With a relatively moderate length of haul compared to other carriers, we have not seen an impact on the service side, but managing the day trips is tougher than before. Delays at shipper and delivery points must be compensated because there's little margin for error in planning a trip for both drivers and contractors, and for maintaining customer commitments.

Changes in medical regulations and impending electronic lobbying device announcements will further pressure the contractor market in the very near future. Our fleet is already migrating to [ELDs]. The majority of our transactional transportation business is subject to the overall economic cycles. Despite the continuing challenges in recruiting and retaining contractors, with an improving demand environment by some of our customers and key verticals, we expect low single-digit revenue growth in transportation for 2014.

With that, I will turn the conversation over to David Crittenden.

Thank you, Don. Good morning. As we highlighted in yesterday's earnings announcement our fourth-quarter financial performance capped what was a solid year for Universal. Although revenue (inaudible) slowed somewhat at year-end in our value-added logistics and intermodal businesses, we viewed the recent trends as not reflective of the long-term growth prospects. (technical difficulty) over the course of the year, revenue momentum increased in our transportation services including our dedicated truckload business from a slow start in early 2013. However, for the reasons Don just described, the fourth quarter had some difficult analytical comparisons from a margin perspective from one year ago.

Universal started 2013 with a then recent acquisition of our logistics business and with a preconfigured leadership team including yours truly. We ended the year with the acquisition of Westport, which we think will be an important component in our growth strategy in the years ahead. In between, we saw continued strength in our largest industry automotive, stabilizing demand in steel and energy sectors, and a rebound of demand in our wind energy transport business where Universal is making a name for itself with one of the industry's largest manufacturers.

In 2013 we also prepared ourselves to support the Federal Emergency Management Administration in the southeastern United States. Although our efforts for FEMA in 2013 turned out to be modest, we did provide limited transportation support in January for their response to the West Virginia chemical spill, and we very much appreciate their confidence in our ability to implement a transportation and logistics network quickly in the event of a natural disaster.

I will touch on some financial highlights. Since Don and I spoke last week at two equity conferences and we likely met with some people listening this morning, my goal here is to share something that maybe you haven't already heard.

For the fourth quarter we reported net income of $11.3 million and income from operations of $19.1 million on revenues of $259.5 million. This compares to net income of $2.5 million on operating revenues of $259.1 million in 2012 fourth quarter. Basic and diluted earnings per share were $0.38 compared to reported EPS of $0.08 in Q4 2012.

For 2013 in total, Universal reported net income of $50.6 million on income from operations of $84.5 million which were generated on revenues of $1.033 billion. Our reported results are inside the ranges we had estimated in the press release we issued two weeks ago, which announced our near-term investor relations calendar.

Our aggregate Q4 financial performance was modestly lower than the quarter that preceded it when we recognized aggregate revenue of [$251].7 million, operating income of $22.5 million and net EPS of $0.45. Some of this change is due to seasonal variations including the number of days worked. And Scott and Don gave color on some other items that are reflected in the quarterly results.

As you know though, Universal offers extensive capabilities in transportation and logistics. The strength of our Company include the flexibility of our asset like business model, our expanding breadth and balance across several industry verticals and the solutions that we tune to unique customer demand. Scott and Don shared their views on recent trends impacting each of these businesses, including near-term challenges and opportunities.

I want to highlight though just a few items that will help you analyze our performance. First, I would point you to the audio replay and presentations that Don and I made last week at conferences hosted in much warmer climes by Stifel and by BB&T. This information remains available at the Investor Relations Events tab at our website goutsi.com.

Second, I want to point you forward to our Annual 10-K Report which we anticipate filing in about 2 1/2 weeks during the week of March 10. Next I would turn you to the amended 8-K filing that Universal filed with the SEC on February 7 in connection with the Westport acquisition. Our report includes historical and pro forma information for Westport including forward-looking estimates of various income statement items. like anticipated amortization charges related to intangibles.

Finally, I would point you to the supplemental information in our earnings announcement itself which describes both important adjustments that we think are appropriate to consider when comparing our current financial performance to prior periods and also to evaluate trends in our reportable transportation and logistics segment.

Now as reported, Universal's fourth-quarter 2013 EPS, both basic and diluted, was $0.38 which appears to be in line with several recent analyst estimates which were updated after we released our estimated performance two weeks ago. Reported EPS does include approximately $700,000 of costs related to the Westport acquisition on December 19.

A comparative analysis of our consolidated income statement shows that when calculated as a percentage of revenue our Q4 cost of purchase transportation and commission continues the trends we commented on during conference calls last year. Specifically, our PT expense expressed as a percentage of revenue has declined from 56.6% in the fourth quarter of 2012 to 54.8% in the third quarter and 54.1% in the most recent quarter. Personnel costs and operating expenses increased as our revenue mix continued to trend towards value-added services. This general trend in personnel and operating costs was amplified in Q4 by some of the cost items Scott just talked about.

Scott and Don commented on the current environment and demand for Universal's three service categories for which we separately report revenues and, also, our near-term expectations for moderate growth with some pressure on margins as we satisfy our customer requirements in a snowbound operating environment. Here I will highlight our recent financial performance by reference to the detail appearing on page 6 of our press release, which shows the performance of our two reportable segments, transportation and logistics.

Universal's logistics segment which includes our value-added services and dedicated truck load operation realized $12.7 million in operating income on $83.2 million in revenue in the fourth quarter. Operating revenues were up 16.7% from Q4 of 2012 but profitability declined as operating margins contracted to 15.3% in the quarter. On a full-year basis, though, we are generally pleased with the 13.2% annual growth and 17.9% operating return generated by the businesses that we report in this segment.

While we acknowledge the performance, which is driven by the operating characteristics of individual programs, we are taking a conservative stance on near-term growth and margins especially in light of sober views about first-quarter operating challenges and related impact on demand in our key markets.

In our transportation segment, which includes transactional truckload transportation, our intermodal operation, brokerage and specialized services, revenues declined 6.1% in the quarter ended December 31 in part due to the 9.7% decline in intermodal revenues described earlier on today's call.

For the year, business operating in the segment saw revenues decline 5.6% in the aggregate and generated $7 million of income from operations on $176.2 million in revenue. This is a 96 OR which matches our full-year operating return of 4% in this segment.

Turning now to a summary of Universal's consolidated balance sheet, which does include purchase accounting for Westport as of the last day of the year. As of December 31, Universal held $10.2 million of cash and cash equivalents. We had borrowed $237.5 million which reflects, in addition to changes due to operating cash flow, the $120.5 million we borrowed to fund the Westport acquisition.

As previously reported, the cash purchase price for Westport was $123 million on a cash-free, debt-free basis and it is subject to a postclosing adjustment that we expect to finalize in Q1. In connection with the deal, we increased our principal credit facility to $300 million of total availability. In addition, Westport now has capital lease obligations valued at $4.6 million -- $4.6 million as of December 31 which are now reported as a new line item in our consolidated balance sheet.

Our 8-K filing on Westport shows a company that just generated $14.1 million of operating income for the first nine months of 2013 on $56 million in revenue or a 21.4% return on sales, which is a similar economic profile to our other value-added services businesses.

As I mentioned before, I would point you to the 8-K filing for supplemental information regarding our purchase accounting, which includes various intangible assets valued at about $57.8 million in the aggregate and the like amount of goodwill.

We have enjoyed the first few months of our partnership with Westport, and we look forward to great opportunity. At $6 million, Universal's Q4 capital expenditures continue to run lower than we typically expect, but as I said back on October 25 this trend is expected to reverse in the next few quarters when we plan purchases primarily for tractors and trailers that will move us back to our typical range of 2% to 3% of revenue.

Our Board recently reviewed a 30 -- about a $36 million annualized capital expenditure plan for transportation and logistics support equipment. And I should emphasize, this plan does not include investments that may be required to support prospective value-added services opportunities in our sales pipeline for Westport CapEx requirements which are modest, but which we are still reviewing.

For those of you who have followed Universal for a while, you may have noticed that our Investor Relations press release on February 7 was something a little different from us. We expect to continue this practice going forward. Although reasonable people can disagree about the weather forecasting skills of Punxsutawney Phil, we are going to work toward providing our investors better forward visibility to our financial performance based on our best judgment of a particular point in time.

Universal's diverse operations do have different dynamics and they operate in different demand environments, but we believe our proximity to our largest customers and, in some cases, the long-term contracts that underpin a good chunk of our logistics segment which -- will allow us to give you better insight going forward. Having said that, we look forward to April showers when some of the operating challenges Scott described subside.

And I will stop there. We appreciate the chance to respond directly to your questions and, Sarah, could you please open the line?

(Operator Instructions). Chris Wetherbee, Citi.

Good morning. I guess a couple of questions here. I guess one of the things I wanted to make sure I understood is, when you think about all of the business lines, Scott, you helpfully kind of mentioned some of the big contracts coming up. How much of the business is going to be rolling over, should we expect to be rolling over in 2014? So how much short of exposure is there to some of these renewing contracts when you put it all together, the Westport, the transport and the logistics side of the business?

I am just doing some quick math in my head, so, excuse me a second. Approximately in dollar value around $23 million.

Okay, so not particularly immaterial off of a $1 billion base?

That's correct.

Okay. That's helpful. You mentioned M&A pipeline as well and I guess when you think about it and obviously you have got the Westport deal, which is in the process of getting integrated, what are the other potential opportunities or where do those lie? Are there specific industry verticals that look sort of more compelling or where the pipeline is a little bit more robust than others?

For us, certainly geographic reach is important as well as fulfilling some of the other sectors that we have (technical difficulty). One particular unit that we are looking at has a mix that was kind of unique in the business. It looks a lot like Universal except on a much smaller scale. It has a mix of transportation, a mix of value-added services and it even throws in some LTL management portions to the business. Its customer base is more in the technology side of the business, which typically has some aggressive margin attached to it. So it would be topics or -- excuse me, companies that kind of fall in that, ones that will again (technical difficulty) did all the things that we talked about and be accretive to our business.

Okay. Sounds like you might have something reasonably specific on the horizon, but I guess any way to think about the potential timing of any type of transactions or a little bit more wait and see how it develops?

It's the latter. More wait and see.

Okay. Final question would just be when you think about the seasonality of the business, again just trying to get comfortable with how some things may change from 1Q to -- from 4Q to 1Q, rather. Obviously understanding that the weather is a challenge that everyone is facing in the first quarter. Generally speaking, how should we expect particularly sort of the logistics side of the business to ebb from 4Q to 1Q, just traditionally speaking?

I think if you look at first quarter of last year from a revenue perspective excluding Westport we -- probably about the same. I think the margins from the fourth quarter are probably more reflective of the first quarter than the margins into the fourth quarter a year ago. And I think we do expect 100 basis points to 200 basis points compression to continue because of the weather-related issues that Scott talked about.

Okay, 100 basis points to 200 basis points year-over-year compression or --?

No, if you just took -- if you just look at the first quarter last year and the first quarter this year. I mean, we know what we absorbed in the fourth quarter of this year and just projecting that forward to the first quarter.

And what I would -- I would just like to try to give a little more color. Last year, the automotive was certainly rebounding end of 2012, 2013, still strong growth. The forecast that we are getting from our customers kind of indicate that they are going to be somewhere in the 4.5% to 5% growth rate. And what I can share with you beyond the weather conditions for the first quarter, if I look at our current customer base, we have five dedicated operations that in the first quarter will, in the aggregate, create 15 weeks of downtime. So there are -- we are seeing what we are seeing are [sound like] adjustments where the industry was really strong last year to where it's evaluating its current situation and moving forward to new product introductions and those kinds of things which we will see in the second half of the year.

I see, okay. So you have some norm -- some cycle changes going on within -- at the customer level. Okay, that is very helpful.

My last one, will you willing to venture a guess when you think about all the impacts of weather and some of the things going on from a customer standpoint, should we be thinking about the ability with -- including Westport to grow earnings in the first quarter or is that maybe going to be a little bit more challenging given all -- challenging given all the things that you have just mentioned?

I think we are aware of where you and others are right now and I think right now a lot of folks are taking our fourth quarter (technical difficulty) and -- or our first quarter of last year and adding $0.04 or $0.05 to it because of the accretive impact of Westport. I think we think that that is probably on the high side a little bit by a few pennies. I think for the full year we are getting close to the ballpark for 2014. I think we think that there is a big range out there right now for the full year that we are going to try and address over the next couple of months in our communication.

But for the first quarter I think people are probably a little ahead of us. Because I don't think for the reasons that we just responded to on the first quarter I think we think the margins are going to be compressed in the first quarter in the value-added business.

Okay. That's helpful. Thank you for the time. I appreciate it.

Scott Group, Wolfe Research.

This is actually [Rina Christian] sitting in for Scott Group. Wanted to get some clarification in terms of the guidance that you provided on the transportation side in terms of low single-digit revenue guidance. Wondering if that is taking into perspective recent commentary on tighter capacity and it just generally seems that there's a relatively more upbeat tone in terms of pricing and capacity conditions, and wondering why that's not leading to maybe some stronger outlook or revenue growth guidance from you guys. Could you maybe provide some more color on that and what your underlying expectations are?

I will certainly comment that we are somewhat optimistic, based on those primary verticals -- metals, automotive, energy. All three of them are giving us positive signals, but quite honestly as I look at the weather we keep hitting, it holds back might enthusiasm, to be honest. We are seeing improvement in daily averages as we put a good week together, but again here in the Midwest we just got a little kick in the ribs for about two days this week. So I would be more optimistic if this was maybe second week of March.

Okay. So definitely more clarity around the second week of March is what you are indicating.

No. I don't think we are going the public about it. I think I am simply saying that we expect business to pick up in the next few weeks and we will all feel better.

And are you starting to see any of the normal seasonal freight kick in at this point or does it seem it would be delayed because of weather conditions at all?

A lot of that seasonal business is in fact looking for the summer retail and the building world, the Home Depots and Lowe's. I think that is still frozen and I think it is going to be a slower season.

Okay.

Again, the steel business, some of those other things, the seasonality comes from bad weather.

So, we just looked at some port information from a warmer part of the world, Southern California and we do know that there's parts of the United States that are thawed but here we sit at the end of the third week of February, it is just a couple weeks too early to call when the seasonal business is going to start. I think what we're saying is that -- or what Don just said -- was that it is going to be delayed start.

Okay. All right, thanks, that's helpful. One more question in terms of on the audit side you mentioned that you are working on a multiyear contract with one OEM and another contract with another that seems like it is going to move to an annual contract. And can you maybe provide some color on the changeover in that and how that contract is working and the implications for that longer term? Is there as wide a switchover from the multiyear to an annual contract if I understood that correctly?

Yes, well, the one contract is that we are talking about that absolutely renews on an annualized basis. It is not a change. It has continued to operate on a year-to-year basis. And so we are doing no more than negotiating the next annual extension of that business.

The other one has traditionally been a multi-year contract, was running in the five-year terms and then in the last two or three negotiations has dropped down to a two- to three-year term. And again, nothing unusual in that process. It just requires us again to renegotiate that multiyear contract.

Okay, got it. And then, last question in terms of the impact you are seeing from weather thus far in the quarter, are you able to get any offsetting revenues or fees from customers to just offset some of the challenges you are experiencing with weather and equipment?

I wish I lived in that world. No, it -- contractually there are covenants that we have to provide service to our customers. They expect us to honor those commitments. Pricing considerations typically take in the good and the bad over the term of a contract. Until this year, that has worked in our favor. This year it hasn't.

And as you know, the value-added logistics segment is about 70% of our income and so in Scott's commentary earlier about consolidation centers across [that], when he talked how difficult it is to operate in those environments, when you have got buildings that have 375 doors open in subzero, that -- for us the first and primary focus is making sure our customer commitments are satisfied and it is less productivity, it is less efficiency, it is a little bit more expensive. So that when we talk about 100 basis points or 200 basis point margin compression and that portion of our business that gives you some context for why that is important.

Okay, great. Thanks for your time.

Thom Albrecht, BB&T.

I wanted to clarify like everybody some of your revenue comments. Don, when you talked about low single to mid-digit revenue growth in transportation, I didn't necessarily take that to be a first-quarter comment. I kind of took that because of weather to be sort of after this first quarter. Is that the way you meant that?

It is really kind of a long-range comment. We are not sure what the first quarter is going to look like to be honest, Tom. It's just -- we see better average daily through February than we did through January, but frankly we can't really tell what this is going to look like until we get past this bad weather.

No, I can imagine the challenge. And then your intermodal was negative for the first time, I think, since the fourth quarter of 2009, intermodal revenues and you did have some color on that. But would you expect that ex the weather as we move forward that that would resume growing its revenues?

Probably not short term because all the weather (technical difficulty) as you comment on, but we are really reasonably optimistic that the international trade piece which we cater to is fairly solid at that 4.7% growth rate, that they announced on the LA, Long Beach terminals couple of days ago. So if that is just an early indicator, I think that is good for us.

We do follow closely the international trade pieces so if we get past the weather, maybe we will feel better.

So, I know you mentioned there was a decision to exit some brokerage contracts which helped your profitability, but hurt the revenues in transportation. I forgot, did you mention or was there a deliberate attempt to also bring down intermodal or that was just purely a function of the international component?

That was really locked down to domestic intermodal where we shrunk the volume base and worked hard at improving the margins. The domestic and international drayage business, again, all of that intermodal work is something of a separate marketplace. So, we think there's some growth potential there, but kind of looking at the international side as being most helpful to us.

The domestic intermodal piece obviously was impacted by one customer's decision to go in a different direction in the fourth quarter of last year and so we have -- I haven't penciled out the math for the impact on the first and second quarter of this year and as Don is saying, it is also kind of being put into this first-quarter weather related thing going on, but I think on -- as Don has said -- out there two, three, four quarters we continue to expect our intermodal business to grow faster than the general economy because of the more specialized position we have in the intermodal market.

Great. That's helpful. Then you mentioned some of the revenue hits included an aerospace customer who was hit with a sequestration. Was that a total loss of that business or just their volumes were off because they had a smaller budget, they were able -- that they were working with?

It was a 100% loss.

Okay. Then, David, I just want to make sure I'm understanding what you are try to say on earnings and I realize there's still over a third of the quarter left and March is typically maybe half of everybody's earnings or more, but you are saying if we just set aside Westport and we can kind of figure out a financial contribution there, look at the numbers, ex Westport, work in those margin comments you made, that is the way we ought to do it and then we can add $0.03 to $0.05 for Westport.

Right. And I know we reported $0.38 in the first quarter of 2013. It looked to me like a variety of folks out there, I think, will add $0.03 to $0.05 to $0.38 and get a new number and what I am saying is we think that new number is probably a little high, based on the weather.

Yes. I think we got $0.36. So, I guess we'll just have to figure it out.

Well, you know what I would suggest, Tom, and maybe we can do this at a beach in Florida somewhere next time, but -- is take a look at the AK on Westport, take a look at the amortization information. I think we are saying 2014 in general is going to have like $6.5 million worth of intangible amortization in it. So, you can work through what you think that is going to do in terms of how much, how accretive Westport is going to be.

But then -- and then kind of set that off on the side, and do the rest of the business on a standalone basis. I think that will get you where you need to be.

Okay. Then, last question, for Scott. After this first quarter kind of a longer term, maybe a two- to three-year description, what do you believe we should be thinking about for the revenue growth at [VAS]? That may be a range. I mean you have given some stuff in the past, but the economy is always tricky, auto is kind of getting to a point where the rate of improvement is going to be slower. Is it that 4% to 5% that you described is the input from your customers or is it more 8% to 10%?

I will broaden the range a little bit. I think it will be -- I think we can be in the 5% to 10% range. And that depends on certainly the sales pipeline that we have out there, the things that we are aggressively working on. So I am looking for those certainly from new opportunities to complement what we are already doing.

Got it. Thank you very much.

(Operator Instructions). John Larkin, Stifel.

Good morning. Following in on Tom's question there with a little longer term orientation. I was wondering if you could comment on the diversification of the overall business. Let's say five years out, what percentage do you think will be value-added service revenue, what percent will be transportation and then within value-added service over that same timeframe. What do we expect --? I know there's been a long-term effort to sort of move the automotive percentage down which has been difficult because automotive itself has been growing so quickly.

But with the earlier comments regarding perhaps a technology-oriented orientation perhaps on a new acquisition, could you give us a little bit of a flavor for what the automotive exposure might be in VAS, let's say in the three- to five-year time horizon?

Again, we have some additional opportunities that are in front of us, relative to automotive. We've never been ashamed of the automotive business that we are doing. So we would take on more automotive to goal. And I am struggling a little bit because of the Westport acquisition.

I don't look at that as automotive. It is more certainly heavy industrial. The growth perspectives in that business are very good. So I guess in five years if we could get to somewhere in the 65-35, 70-30 range we would be very successful.

Okay, so that is the overall mix between transportation and value-added? Not necessary --

No, John, I think Don or Scott is commenting on the value-added specifically.

Okay, so he is talking about (multiple speakers) non-automotive within value-added services?

Let me correct myself. Our logistics segment. Our logistics segment, which is principally comprised of businesses that Universal did acquire from LINC, has both the value-added services in it and dedicated transportation. And that is where you would know this, Scott, and I know that seven or eight years ago that business was 90% automotive. It is about 75 -- 70% to 75% today, but that is where we continue to add industrial aerospace. Walmart, one of -- we have an interesting opportunity with Walmart right now and each one of those value-added projects, as you know, can move the needle.

But -- and we are certainly not discouraged from growth opportunities in the automotive. But we have been making progress at moving it down and that's why I think that 65-35 is where Scott is probably [at].

(Technical difficulty) two third, one third split -- excuse me, within the context of value added services, but how would value-added services shake out as a percentage of the total revenue of the whole Company? I think you said it was 18% either in the year or in the quarter.

I make it my business to listen very closely to what Don and Scott say and what I think Don has said is single-digit out (technical difficulty) this quarter which he seems reluctant to put himself out on, which I understand. And Scott has said kind of a 5% to 10% range, particularly on the logistics segment.

Got it. Okay. Thank you. Then on the transportation side I was wondering if Don could comment on the (technical difficulty) [owner operator] availability picture. Clearly it is tight. Are you experiencing tightness? Have you experienced a loss of owner operators to go elsewhere or to just get out of the business altogether? And then on the brokerage side, with all of the growth we have seen from competitors. some consolidation from now a very big player, has the competitive intensity gotten to be any -- has competitive intensity become a major issue as far as margin pressure is concerned on the brokerage site?

Mostly a owner operator issue. There's no question that it remains really, really tough to recruit and retain owner operators right now. We think we improved ourselves this past year, modestly better off than we were at this time last year. Our turnover is down just a little bit. We have installed a much more aggressive recruiting, training program so that we can expand the types of guys that we will put in place in certain businesses. We are taking on training programs to train truck drivers in certain areas.

So, we are combating the existence of that thought that the owner operator market as just completely shifting down. We are trying to bolster our ability to train drivers first and modestly qualified owner operators to a more qualified owner operator meaning a guy that can handle a flat bed or a guy with more miles than what some other carriers might take. So we are working very hard at increasing our programs.

Additionally, we have always done a little bit of independent contractor lease purchase work. At the moment, we have probably got 85 to 90 trucks out there. Our intention is to increase that over the course of 2013 -- excuse me, 2014. And that will again not only change the environment, but it will rub off on a few trucks for us.

Owner operators are always going to be our largest contingent service group. They are tougher, but at least we feel like we have done some of the things to keep the flow relatively consistent and growing. Although it is not going to grow big. We know that.

Second piece on the margin. You are absolute right about the competition. It is getting god-awful tough there and we have seen margins shrink all over the place. That is part of the reason that we took out some brokerage business that we just didn't feel like we could make any money with.

Our belief is that our growth, well, what we call overflow brokerage which is the business that is tied to our agents, while we think it can improve again, it was just a tough year because of the competition and pricing. And again, I will mention that the bulk of our overflow brokerage is flat bed work. So we tend to be attractive to those guys that run flatbeds.

So, there's a couple of dynamics there. The shrinking of the available owner operator and flat bed workforce is a little tougher than what is in the van business. But we do see ourselves in a position to at least fight that off to some degree.

Maybe just one wrap up on the FEMA contract you alluded to during your prepared remarks. Is that a national contract? Is that a regional contract? How long have you had that? How long does that contract extend?

We won a materials management contract for the Southeastern region, which is Georgia, Alabama, Mississippi, Florida and the Carolinas. We won that last summer and it is a four-year contract.

Now in 2013, as everybody knows there were no hurricanes or major events. So we didn't see any improvement to our topline revenue because of that contract last year, but as I listened to all of the weather scientists I think there's going to be hurricanes in 2014. Just my opinion.

And is the pricing fixed in that contract?

Yes and no. We have developed a pricing model for that contract, but some of that has to do with market conditions. It is an extensive process that FEMA has put us through to develop our pricing and there are things that will move the needle for you. And I will give you an example.

David alluded to the FEMA contract giving us first-quarter revenue in West Virginia. One of the more interesting things that happened was that most of those guys were working in very bad weather and dealing with equipment that just was hard to manage. We had one owner operator that [happened in] security almost a full set of hand tools in his truck. And he was able to come off of the road for a little while for these guys and manage their trailer yard. So they have asked us to bid additional services recognizing how smoothly this worked by having online mechanics.

We will bid that contract now or we will change the bidding to include on-site contracts. They may or may not be owner operator/mechanics, a couple of them will be. But we will also have on-site (technical difficulty) were not a part of the original contract.

Okay. Thanks very much.

David Tamberrino, Goldman Sachs.

Good morning. I just wanted to dig a little bit deeper into your comments regarding value-added segment in the five dedicated auto operations. You noted about 15 weeks of scheduled production downtime in the first quarter of 2014. Has there been any additional weather-related delays or production slowdowns as a result of the winter storms that have rolled through?

Certainly, particularly in the Midwest. Some production losses, some of those were restricted to shift losses, some were full day losses. Westport has even in its piece of the business had two days of downtime up aggregate between two site locations that it serves. So yes. There were weather-related shutdowns beyond.

Okay, thank you.

I have no further questions queued up for this time. I will turn the call back over to presenters for closing remarks.

Again, thank you very much for joining us today. We appreciate your questions and your comments. We look forward to talking to you next quarter. Have a great weekend. Thanks again. Bye.

And this concludes today's conference call. You may now disconnect.