Universal Logistics Holdings Inc (ULH) 2014 Q3 法說會逐字稿

Hello, and welcome to the Universal Truckload Services, Inc. third-quarter 2014 earnings call. All participants are in a listen-only mode. 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 business as seen today. Statements that are forward-looking related to Universal's business objectives or expectations can be identified by the use of words such as believe, expect, anticipate, and project. Such statements are subject to 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; Mr. David Crittenden, Chief Financial Officer; and Mr. Jeff Rogers, Executive Vice President for Universal Truckload Services. Thank you.

Jeff, you may begin.

Thank you, Keith. Good morning, everyone, and welcome. Thank you for joining Universal Truckload Services' third-quarter 2014 earnings conference call. Before I get into the update, let me take a few moments to talk about the transition between Scott and I.

The transition is going well. As I said last quarter, typically, CEOs do not get seven months to transition into a new role, but I am thankful for the time. I have used the last four months to travel to many of our locations, and have met many of our customers, have spent time with quite a few of our employees. I've been able to spend time getting to understand the key drivers of our business, our current strategies, our opportunities, and our challenges. I can honestly say I like what I see.

Because the transition is going so well, me leading the call today seemed appropriate. Scott is here with us and will be available for questions. One last thing, I want to thank Scott for his years of service and contributions. He is a true logistician. This will be his last call as CEO before he transitions to our Board of Directors.

Now to our update. Our Transportation segment is benefiting from a good operating environment. Economic growth, while not stellar, has at least been steady. This quarter, we saw continuing growth in demand for our transportation services with growth across all verticals, but especially strong in oil and gas and retail. Strengthening price and our ability to keep costs increases modest led to margin improvements.

As you are aware, our Logistics segment aligns closely with the automotive industry, and revenue is reflective of SAAR volumes. The most recent SAAR forecast has been reduced slightly to a more sustainable 16.4 million units per year, a decline of about 0.5 million units. Revenue for our Logistics segment is typically lower in the third quarter than in the second quarter, due to fewer production days and the July shutdown when plants are typically retooled for the next model year.

This was not a typical shutdown season, as plants were shutdown periodically throughout the quarter as opposed to the first two weeks of July. There was one exception. We had one customer facility with a prolonged 12-week shutdown. This, in addition to the normal July and December shutdowns, has and will impact both third and fourth quarters. As normal, in the fourth quarter, we will have the year-end shutdown for two weeks as the plants retool for their model refresh and other changes.

Unlike automotive, the heavy truck market continues to push towards supplier capacity. North American Class 8 sales have increased 22.1% year-to-date over the same period last year. The recession years between 2007 and 2010 caused companies to delay heavy truck purchases, resulting in a Class 8 fleet today that is the oldest it has been in 20 years. This pent-up demand, coupled with new EPA requirements and better fuel economy delivered by the newer models, point toward a strong market ahead for heavy trucks.

In fact, we expect modest growth above our current levels, well beyond 2016. To that extent, we are working on plans to expand one of our facilities in the next couple of quarters to meet our customers' rising demand.

Now, turning our attention back to Universal's third-quarter performance. Overall, consolidated operating revenue was up $40.5 million, a 15.5% increase this year over third-quarter of last year. We saw solid growth in Transportation Services revenue this quarter, which was up 8.8% over third quarter last year. As previously mentioned, the Transportation Services business continues to benefit from increased freight volumes and strong pricing.

Intermodal service revenue is on a similar track. It was up 10% over third quarter last year. This was primarily from growth in our container drayage operations. Don will speak more about our transportation and intermodal services in just a moment.

The value-added services revenue was up 44.3%, due primarily because of the Westport acquisition we completed late last year. If you exclude that acquisition, revenue was down slightly, mainly because of the winding down of four operations that we have discussed before. On the bright side, we continue to see a strong and growing pipeline of new business from our enterprise sales team, which is key to our growth and margin improvement.

From our update last quarter, several of those programs are in the final rounds of bidding. We have already won multiple awards, one just launched, three others will launch in the first quarter of 2015. Combined, this represents over $10 million in annualized revenue once launched, with further expansion opportunities following.

From a contract management perspective, we are currently negotiating two of our logistics contracts. Both are extensions with long-term customers. One will be for three years and will replace a contract expiring second-quarter 2015, and the other will be for three to five years, replacing a contract expiring first quarter. We are confident we will renew the contracts and anticipate having them wrapped up in the fourth quarter.

With the strong growth in Transportation Services revenue, our business mix momentum shifted slightly toward Transportation Services when compared to the second quarter of 2014. That said, Transportation Services revenue makes up 65.1% of consolidated revenue versus 69.1% over the comparable quarter last year. Likewise, value-added services revenue at 22.9% compared with 21.3% for third-quarter last year; intermodal revenue at 11.9% of total revenue compared to 12.6% for third quarter last year.

Our strategy of growing the value-add business to be a bigger piece of our total pie is continuing to be effective. Last quarter, we successfully launched a major transportation management and dedicated services contract awarded by an OEM in the Southeast. As with all new contracts and launches, the project continues to evolve, which is good news for us. Again, fourth quarter will be our first representative full quarter of performance for the new business.

Our overall dedicated Transportation Services business is putting a drag on our margin within the Logistics segment, and we are currently evaluating specific pieces of that business for price adjustment and/or operational changes. Driver recruitment efforts continue to limit industry capacity in the transportation side of the business. We continue to manage several strategies to improve driver recruiting and retention. From a labor perspective in our Logistics segment, we have one labor contract expiring each quarter next year. We will begin negotiating the first expiring contract next month.

In summary, we see fourth-quarter continuing to grow with an even brighter outlook, as our customers continue to look to us to help them manage and support their supply chains. The strong relationships we have with our long-term customers, and the ones we are building with newly acquired customers, continue to provide us with ample opportunity for growth domestically and abroad. We will continue to complement our growth with acquisitions to expand our service offerings and geographical footprint, and we look forward to what is ahead.

With that I will turn over the discussion to Don Cochran. Don?

Thanks, Jeff. Transportation Services revenue, which includes dedicated services, was up 8.8% overall for the third quarter of 2014 over 2013. Average operating revenue per loaded mile, excluding fuel surcharges, increased 7.3% for the third quarter of 2014 or the same quarter of 2013. Load counts were also up 11.3% for the third quarter of 2014 over 2013.

The biggest challenge facing our industry is still capacity. Our total fleet is 4,242 trucks, up 53 over last year. Our owner-operator count increased roughly 5%, mostly in the intermodal drayage fleet, reflecting improved rates and slightly better conditions outside of some of the more congested ports. Our truckload owner-operator fleet is actually down slightly.

We are investing in our own equipment and drivers to meet the needs in some markets, and are expanding sales of equipment to selected owner-operators. We will see this process grow over the next few months.

What we are moving is also shipping. Related transporation -- retail-related transportation sales were up 35% for the third quarter of 2014 over the third quarter of 2013. Meanwhile, oil and gas-related transportation continues to be strong, up 32%, especially in pipe hauling and oilfield-related services. Wind energy, on the other hand, has leveled off by comparison to the third quarter of 2013. Steel is about the same pace as the second quarter, and building materials are up 18% over the second quarter. Those are normal adjustments to the annual year.

Our brokerage revenue increased significantly, mostly due to TDMS work being done with a major automotive customer in the Southeast. The actual trucking related to this project helped volumes in dedicated transactional bands and in brokerage. Margins in truckload services actually improved by 40 basis points, once we excluded dedicated service operations from the mix, the result of the generally improved conditions I just talked about. We believe the fourth quarter will also show a good revenue base.

Intermodal services revenue was up 10% overall for the third quarter 2014 over third quarter of 2013. The largest increase was in intermodal drayage services, which were up $4.1 million or 14.3% for the third quarter 2014 over the same quarter last year. The growth in drayage was offset by contraction in our domestic intermodal and depot business.

Within the numbers, our average operating revenue per loaded mile increased 14%, excluding fuel, and the load count was up 6.4%. Freight volumes were strong, and truck counts continued to increase. Spot market drayage rates, pushed up due to capacity constraints, impacts even the larger customers. With a focus on recruiting and retention at our terminals, truck counts rose 7.4% in the third quarter of 2014 over 2013.

We are working towards a modest strategic acquisition that will enhance our footprint and give us a revenue boost in 2013. Unfortunately, container yard services lagged, as steamship lines are turning containers faster on the street, and that constrains maintenance and repair service spending. Domestic intermodal suffered from stiff price competition and pricing with the railroads, although we have a few small wins.

In summary, our industry is still exposed to increased regulatory pressure from both federal and state level. In addition to multiple attacks on the independent contractor business model, safety and insurance coverage are targets of increased legislation. Our truckload business and our intermodal operations are enjoying improved freight availability and the continued price improvement that we predicted we would see. As I've always said, our truckload business reflects GDP and general business conditions. Conditions look positive for the fourth quarter and into early 2015. Despite the challenges, it's a good time to be in trucking.

With that, I'll turn it over to David.

Thank you, Don. Good morning, everyone. As highlighted in yesterday's earnings release, Universal's financial performance in the quarter ended September 27 reflects year-over-year revenue growth in all three of our service categories -- Transportation, Value-added, and Intermodal. We achieved roughly comparable levels of operating profit and net income in the aggregate compared to the third quarter of 2013. On a per-share basis, net income was $0.44 in the third quarter compared to $0.45 per share in the previous quarter and $0.46 per share last year.

Universal's third-quarter consolidated operating revenues were in the range we anticipated in our September 26 press release. And earnings per share came in just above the midpoint of our expectations. Specifically, Universal earned consolidated net income of $13.1 million on operating revenues of $302.1 million. On a year-to-date basis, we have earned $34.9 million or $1.15 per share on total operating revenues of $889 million through September 27.

Although up 8.8% over Q3 2013, when compared to the immediately preceding quarter, revenues from our Transportation Services in Q3 were basically flat at $196.8 million. Revenues from value-added services declined 9% in Q3 compared to Q2, again reflecting typical seasonal patterns and slightly lower overall production volumes from automotive customers, and also the final impact of operations that closed in the second quarter.

As Don mentioned, our Intermodal revenues continued to enjoy favorable momentum, up 6.3% compared to the second quarter, and up 10% over the third quarter of 2013. In terms of operating income, results from operations totaled $23 million in the quarter, up slightly from $22.5 million one year earlier, but down $1.4 million or 5.8% from $24.4 million in the second quarter.

As a percentage of consolidated operating revenues, our operating margin was 7.6%, which compared to 8.6% in Q3 2013 and 7.9% in the preceding quarter. Compared to one year ago, about 70 basis points of the reduction in consolidated margin percentages can be attributed to incremental intangible amortization from acquisitions.

Now if you take a look at EBITDA margins that are reported in the item captioned Non-GAAP Financial Measures, you will see Universal's Q3 2014 EBITDA came in at $31.5 million, reflecting an EBITDA margin of 10.4%, which is unchanged from last year, but off just slightly compared to 10.5% in the second quarter.

A comparative analysis of our major cost categories show that when calculated as a percentage of revenue, our combined Q3 cost of purchase transportation and commission expense was 56.9%, down from 58.7% in Q3 2013, but up from 54.2% in the preceding second quarter. In contrast, direct personnel and related benefits were 15.7% in the third quarter, down from 17.9% in Q2. Similarly, other operating expenses declined to 9.4% of revenues in Q3 compared to 10% in the previous quarter.

These recent cost trends are the result of countervailing influences. First, the relative revenue growth of the Transportation and Intermodal Services that comprise most of Universal's Transportation segment, and which drives incremental cost of purchase transportation and commission. Second, the 12.5% sequential quarter-over-quarter revenue decline in Universal's Logistics segment, reflecting both seasonality and the impact of the value-added operations that concluded in Q2.

Page 6 of our press release lays out Universal's Q3 segment performance in greater detail. In our Transportation segment, which includes our agent-based transactional truckload transportation, along with Universal's intermodal services, brokerage and specialized services, revenues in the quarter increased to $203.9 million, a $22.4 million or 12.3% increase from $181.6 million in the third quarter 2013 and a 4.4% increase over the second quarter.

Expressed as a percentage, income from operations in Universal's Transportation segment increased to 5% of revenues in Q3 2014 compared to 4.5% last year and 4.2% in the second quarter. As Don just mentioned, favorable pricing has emerged as the response to tight capacity this year, and our truckload and brokerage operations are benefiting with improved profitability.

Revenues from our Logistics segment totaled $98.1 million in Q3, an $18.1 million increase compared to $80 million in the third quarter of 2013. Of note, though, is that revenues from the value-added services, and dedicated transportation businesses that comprised our Logistics segment, declined $14 million or 12.5% compared to the immediately preceding quarter. The sequential Q3 versus Q2 comparison is important to understand, since continuing operations were generally comparable during both quarters.

The revenue decrease then is substantially due to seasonal supply chain adjustments by our automotive and industrial customers, which Jeff mentioned earlier, and the operations we exited in Q2. The composite operating margin achieved by our Logistics segment business was 14.3% in the third quarter. This compares to 14.4% in the immediately prior quarter and also to 19.2% in Q3 2013.

When we look at what we call our bricks-and-mortar value-added services operation, we operated at historic expected margin levels in the third quarter. Our composite segment margins remained somewhat compressed, though, due to pricing cost challenges with our two largest dedicated transportation customers. Please take a look at the supplemental information in our earnings announcement, which includes, among other key operational data, our calculation of interest before interest, taxes, depreciation and amortization.

Turning now to a summary of Universal's consolidated balance sheet. We held $10 million of cash and $12.3 million of marketable securities at September 27. Borrowings totaled $238.4 million, a $900,000 increase since the beginning of the year. Universal's capital expenditures totaled $10 million in the third quarter and have continued to be funded principally by operating cash flows. Although our tractor and trailer acquisitions, relative to period revenues, have trended higher than our historic experience, they reflect both catch-up purchases from planned 2013 investments as well as additional equipment we are acquiring in support of our long-term business and customer commitments.

We will file our quarterly 10-Q in about eight business days, and it will provide additional detail behind the financial performance we are discussing today. This will include some discussion of a very modest tuck-in acquisition that we recently completed for just under $2 million.

On this morning's call, we have discussed trends that we expect will drive Universal's financial performance through the end of the year, including good fundamentals from our principal customers and markets, and continued favorable price trends for truckload transportation services. Although the fourth quarter, due to Thanksgiving and year-end holidays, is typically a little light on both the number of shipping days and the production schedules of our industrial customers, we currently anticipate Q4 results only slightly lower than the Q3 results we just reported.

In our two previous quarterly calls, we shared our expectation that consolidated 2014 revenues would increase about 10% to 12% over 2013. Due to continued demand growth and favorable pricing, we now expect consolidated year-over-year revenues, including the addition of Westport's revenues, to grow at a rate in the midteens, and more specifically, about 15%. Generally, we expect year-to-date demand trends to continue across our three service categories.

As the calendar days grow short, we really don't anticipate any near-term bump in value-added services in the last two months of the year. But as Jeff said, we like our momentum and the opportunities we see in our pipeline. From an EBITDA margin perspective, we do anticipate relatively stable performance expressed as a percentage of revenues through the end of 2014. Cautiously, we expect consolidated 2014 EBITDA in the range of 9.5% to 10% of full-year revenue.

Now I should also mention here that our third-quarter operating results reflect a charge to operating income totaling about a penny per share, related to the acceleration of a restricted stock award that was triggered upon retirement of a marketing executive in the third quarter. You should anticipate a similar but slightly larger charge upon Scott Wolfe's retirement from active employment at the end of December, based on his participation in the same program, for which details are provided in our annual 10-K Report.

Looking into the crystal ball, we are circumspect about the overall economic environment going into 2015, both in the United States and also internationally, given the impact of international trade on a small part of Universal's business. Although we don't believe the midterm elections will significantly change near-term economic trends that impact our customers in the short-term, and we believe the interest rate environment will remain subdued for several more quarters, we are aware that there are some unique challenges confronting the global economy.

Closer to home, however, we are pleased to see recently secured awards from existing and new customers across all of Universal's service offerings generated by our enterprise sales organization. Also, an encouraging pipeline of new value-added business prospects. Thirdly, ongoing industry capacity constraints and regulatory challenges that favor those transportation companies like Universal, that have the scale and the expertise to rise to the challenge. And finally, increased organizational effectiveness and responsiveness in 2015, following our internal completion in December of a streamlining program that will consolidate our organizational structure, reducing the number of subsidiaries that we have acquired through past acquisitions.

On a personal note, I want to thank Scott Wolfe here, as he turns the page on a successful career and transitions from Universal's corner office to our boardroom, where we fully expect him to keep a close watch on Jeff, Don, and me. I have had the privilege of working with Scott for over eight years now. He is an astute businessman with great strategic insight, integrity, and humility. I have learned much from observing Scott since he first brought me to Linc over eight years ago to assist on the finance side of the house.

Now, Jeff here is a quick study, and he will lead a great logistics team that has been together for many years. And Don is a steady, experienced hand, leading our truckload organization. But it goes without saying that Scott's contribution to our Corporation has been invaluable. And for that and for his friendship, I am grateful.

With that, thank you for your time this morning. Keith, will you please open the telephone lines for questions?

Chris Wetherbee, Citi.

Thanks for taking the question. And yes, congrats, Scott. It's been a pleasure working with you. And good luck going forward on the Board.

Thanks, Chris.

I guess maybe a question for Jeff. You've had a couple of months to be at the Company and sort of run through, and meet with customers, and think about the end markets. I guess maybe a bigger picture question to start with was, as you've gone through that review, are there any particular areas, segments of the business, end markets, geographical regions, that look either pretty compelling to get more involved in, or maybe conversely where maybe you want to pull back a little bit so you can focus on being sort of top-tier within the markets that you serve?

That's a pretty broad question, Chris, but I can say that I think there is opportunities that are very positive all around the country. I don't know from my perspective yet I see any particular part of the country that's booming versus another one, other than maybe the oilfield industry, from a transportation management perspective. Don talked about that, and we are seeing huge growth there.

You know, we talked about, and I talked about when I was with you, about we really want to try to expand beyond a little bit more than automotive. That's our bread-and-butter. That's what we do really, really well. But you know what? If you do something really, really well, you always have the opportunity to grow it and provide a great service. So, we'll continue to do that but I'll sure love to expand into other verticals as well.

And on the value-added side, do those continue to be sort of retail, maybe aerospace, a few of those other sort of verticals that you guys have talked a little bit about in the past?

Yes, absolutely. There is always opportunities to expand retail. We would love to expand it. We've got some opportunities in front of us on the aerospace that will enable us to expand, I think, further there. So we are optimistic about that and looking forward to it.

Okay. And then just a question sort of on the guidance a little bit for the fourth quarter. David, you highlighted the revenue opportunity, I think, in the midteens, maybe 15% is what you suggested. Gave us a little bit of EBITDA guidance as well. I guess it speaks to a bit of a sequential margin contraction. I guess when you think about the margin opportunity in the fourth quarter, on a year-over-year basis, should we see it be roughly steady? Or does maybe it come down a little bit because of the mix of the business? I guess I just want to make sure I'm sort of putting all the pieces together.

Fair enough. Yes, my commentary was directed on full-year results as opposed to the fourth quarter. And I think from a margin perspective, I think we think the fourth quarter will look like the third quarter.

Okay. Oh, okay. That's actually very helpful. And then one final question from me before I turn it over. Just when you think about sort of the labor inflation side, you have a couple of contracts coming up in the next couple of quarters. Just want to get a rough sense when we think about 2015. Anything change materially in your outlook on labor inflation? Or should it stay relatively in line with what we've seen so far in 2014?

No, I think it should be relatively in line.

Okay. So no particular tightness that you are worried about as it stands right now?

No, I think the whole industry is looking at driver pay. I mean we all know that that's out there. But I don't see anything that's just going to dramatically change from what we've experienced this year.

Okay. That's very helpful. Thanks for the time. Appreciate it.

Scott Group, Wolfe Research.

It's actually Vanck Zhu in for Scott Group. Yes, just congratulations on the quarter and just a couple of questions. One is, just wondering, given that WTI is trending downwards, I know that you said your oil and gas was up very strongly in third quarter. Just wondering if you saw any slowdown there as the quarter progressed?

We have seen some contraction in some of the direct oilfield work, but there's other things that are going on there supplying pipelines. There are some refinery projects that continue to ramp up. So it's hard for us to say that we'll see that contraction in relation to the market price, because we're kind of across the lines there. So it could happen, but we don't see it at this point.

Okay, that's helpful. And just the second question, just a question on value-added margins. I noticed that in third quarter again, just like similar to second quarter, we saw kind of a step-back. I was wondering just as the business evolves what's -- if your long-term margin target is still midteens, high-teens, I think you said in past quarters? And if you had any preliminary looks as to what margins will trend and be at in 2015?

Yes, on the Transportation segment side, we've seen positive change quarter-over-quarter as the pricing dynamic and the economics have improved. And I think I mentioned a 70% basis improvement, just since the second quarter.

On the logistics segment side, we have seen in the supply chain operations where we are operating, inside buildings, in our buildings and customer buildings, and things like that, we are back today inside of that typical guidance. What I was trying to convey was the dedicated portion of that business, the Logistics segment, has been a challenge for us over the last three or four quarters.

We have not completely solved that problem yet. We are still working on it. But we see continued quarter-over-quarter improvement. And we don't see anything in the next couple of quarters that we would expect would drive margin compression.

Okay. And any viewpoint as to 2015 margin targets?

Well, long-term, we expect the Transportation segment to operate at north of a [95] -- or south, I guess, of a [95] OR. (multiple speakers)

(laughter) Better.

Better. And the logistics segment to operate at kind of that 85 to 83 OR range.

Yes. This is Jeff. I'll add to that. You know we pointed out before the key to really that continued margin expansion or being in that more historical level is all about bringing on new opportunities and getting through the launches. And that's why I feel so optimistic about the pipeline we have.

We had a little bit of a maybe a -- I wouldn't call it a hiccup, but we just had a period of time at the beginning of this year where things were a little bit slower, and we didn't bring on as many new projects as we typically have done in the past. So, I guess, looking forward, I'm confident that, yes, you will see us get back to more of a normal margin range for the value-added.

Okay. Great. Well, thanks for your time. Congratulations, Scott, and looking forward to working with you going forward, Jeff.

You bet.

Thank you.

Todd Fowler, KeyBanc Capital Markets.

Jeff, just on the last point about the value-added services pipeline, you mentioned a couple of contracts in your prepared remarks, and I think that the aggregate revenue that you talked about was about $10 million. You know the last couple of quarters, there's been comments about the pipeline and some business that you're working on. And I know that the timing can be lumpy. I'm just trying to get a sense of at what point you think that we'd return to seeing organic growth in the value-added services side?

Well, I think it's ongoing. You can -- and keep in mind that $10 million was really from those four launches that I talked about, that are really what we would consider smaller launches. The negotiations that we've got undergoing are some of our larger operations, and we feel very confident we'll get those done.

There's a lot of big things in the pipeline, a lot of medium things in the pipeline, and a lot of small things in the pipeline. But I expect to continue to have organic growth that we've historically had, and I'm very pleased at what I see in the pipeline.

Okay. So it sounds like for the rest of 2014, I mean you're pretty much -- there's -- I think David's comment was there is not many days left in the calendar. But getting into 2015, you are expecting kind of a normalized level of organic revenue growth, given the way the pipeline looks at this point?

Yes.

Okay. And then there's been a couple of comments about the dedicated business and the impact that it's having on margins. I just wanted to see if we can get a sense of kind of the size of that, from a revenue standpoint or the margin impact, and your expectation for the timing of trying to correct some of that. I'm trying to get a sense of how big of a drag that is right now, and kind of the time when you'll be able to maybe show some improvement with that.

I'll take the first part of the question because it's easy or hard. (laughter) Todd, you know, we think on a year-to-date basis that that shortfall has taken $8 million to $9 million out of our operating income.

I'm sorry, say that, David -- year-to-date, $8 million --?

Year-to-date, $8 million to $9 million out of our operating income. As I said, we haven't solved the problem yet. It's a couple of specific customers and relationships that we are working inside of. There are some of the things that are kind of a little bit related from a value-added perspective. And for that, I'll throw it over to my colleagues here.

Yes, I guess I'll just add on that. Because it's contractual, which means you have to go back and negotiate, and because it is with some very key, long-term, very good customers, it's just a delicate process, and you've got to balance it all. So we are obviously not going -- and we're not satisfied with the current performance, and we're not going to continue the current performance, but it does take a little while to get through it, fix it and get the right level of performance going forward, with everything being balanced because of the customers that we are dealing with.

(multiple speakers) So, we're going to get it fixed. We're going to get it fixed. It's just -- it just takes a while.

Okay, but it is a pretty big drag right now from the order of magnitude that you just gave? (multiple speakers) Okay. And then, yes, okay. And then (multiple speakers) --

Well, Todd, to put it in context --

Go ahead.

-- yes, to put in context, it's about two-thirds of the hit to the value-added business this year. And the balance of the hit in the value-added side was kind of that first quarter and slightly in the second quarter issue, driven by snow. So, it's -- it is significant and I'll let the commentary you just heard kind of speak to what we're doing about it.

Okay. And then on the transportation side, the mid-single digit growth that you're seeing in the load count, is the expectation that you can continue to sustain that level based on where demand is? Or is that more of some share gains that you're seeing right now in the market because of tight capacity? I'm just trying to get a sense of the volume growth that you've had here in some of the share, kind of how sticky some of that is as we move forward, particularly into 2015?

It is absolutely from the tight capacity. We are working at trying to do a couple of things -- enhance our brokerage services so that we can take advantage of that spot market better than we have in the past. And we've seen some pretty good results this year in our brokerage results.

But additionally, it's blocking and tackling. We have to continue to recruit trucks. If we can't recruit experienced owner-operators as much, we have to train some, which we are doing. We have to go out and find a way to finance trucks for good drivers that are available to us. So it's a multi-plan attack. And it's going to take a lot of time and effort. We expect marginal growth in that fleet. But it's going to be a lot of hard work to do that.

Okay, that helps, Don. And then just the last one I had, Jeff, when you and I spoke a couple of -- I guess a couple of months ago at this point, can you give an update just kind of a big picture strategically, as you look at the Company? And there's some comments in the release -- I'm just trying to get a sense of, are you still looking at large acquisitions? Or is it more of small tuck-ins? And is it more opportunity to streamline the business and take out costs over the next couple of quarters? I mean, how should we be thinking about strategically what you're looking to do with the business at this point? Thanks.

Sure. You know, as David said, we are undergoing a little bit of a restructuring here to kind of streamline the back-office, as well as just, in my mind, put an organization together that's just more effective. Because I want to be really, really good at what we do. So if you are more effective, everything else works better, whether it be acquisitions or just ongoing business.

From an acquisition perspective, I do see more of a lean towards smaller tuck-in type businesses that just fit with what we do maybe in the near-term, although, as I said before, we are always open to something that really just makes sense. When you look back at what we did the end of last year with Westport, that was a very, very good acquisition and it's performing extremely well.

So I don't think we'll ever turn away from something like that if it presents itself. But we're really not out there aggressively looking for something really, really big. It's more of smaller things that allow us to just stay focused on what we're doing every day and really fits with what we do.

Okay. Yes, that's consistent with what we talked about. Okay, thanks a lot for the help.

Yes.

John Larkin, Stifel.

Thanks for taking my questions this morning. (multiple speakers) I did want to apologize what the Orioles did to the Tigers in their best season. I wanted to get that out. (laughter) (multiple speakers)

But go Royals, John. (multiple speakers)

(multiple speakers) There you go. I also wanted to wish Scott a happy retirement. Hope he spends lots of time with his wonderful grandchildren.

Thanks, John.

It has been a pleasure working with you over the last few years. I had a question for Don. And it relates to what I think I heard you say -- maybe I got the numbers wrong here, but transportation revenue rising 8% year-over-year. Revenue per loaded mile, excluding fuel surcharge, up 7.3%; load count up 11.3%.

I think the combination of the revenue per mile increase and the load count increase would imply a higher revenue growth rate than that, unless there's some fairly dramatic mix change underway with respect perhaps to length of haul. Could you maybe illuminate us a little bit in terms of the mix shift, if that, in fact, is what is happening?

Well, you kind of the lead me right into the answer. The length of haul does affect it. We have seen our van operation length of haul shrink a little bit. Most all of the wind energy and oilfield stuff has, as we operate in the oil fields, and the pipeline work, is shorter, but the revenue per mile a little bit better. Because it does take time to do those kinds of things with pipe.

So, yes, we do expect continued advance on the rate per mile, but also, since an awful lot of this is job bid and bid based on where the work is going, it moves around a lot. So, it may go the other direction too. But at least for now, I think length of haul does have an impact.

We talked internally about that. It appears like an anomaly yesterday, and really also to add onto Don's second point there, we have a wide spread of rates per mile because we have a lot of different types of loads that we do. Some of them are fairly tightly centered around a certain rate per mile, but because we're doing windmill blades and unusual oilfield loads, and things like that, the percentage change of the rate per mile statistic that we put into our earnings release is very much a composite of a variety of statistics. So, the mix makes a big difference.

That's very helpful. Thank you for that. Also, you mentioned that the -- I believe you said the CapEx was about $10 million in the quarter. I assume that was net CapEx, but maybe it was gross. I'm guessing that the Company is moving in the direction of being a little bit more asset-intensive than was the original sort of game plan or operating template. Do you see that trend continuing with respect to both power and trailing equipment? Or do you think things are going to level off and stabilize? Or perhaps you can shoot back to more of an asset-light type of operation?

Hey, John. This is Jeff. I'll start and anybody else here can add in. I don't see our overall strategy significantly changing from being an asset-light model. Part of what's driving this year is to what David said -- is we didn't spend near what we normally would last year. So part of that has carried over this year. If you kind of normalized those two years apart, it's not as big of anomaly as just this year is.

But having said that, we are going to probably spend a little more than we normally have, because we will be moving more with more owned equipment as we go forward, just because I think that's part of the strategy from a capacity perspective, and increasing the ability to grow. So I think there will be a little bit higher CapEx than what we've seen in the past, but we still will consider ourselves an asset-light type model.

And just to quantify that a little bit, John. We bought a number of tractors for the business that we captured in the Southeast. That increased the tractor count there. And we've also used some of that tractor purchase to turn in leased equipment that was scattered around the system, and we bought a number of glider units that replaced older equipment.

So, while the asset count on the tractor side has increased, we've also been doing some upgrades. And as that number of trucks in the dedicated moves around a little bit, we'll see that shift. But we also have most of our trailers designed to work in the automotive sector, which has a 10-year life. And we have some catch-up to do there.

Got it. One of the other RE companies that we cover, Kansas City Southern, does a lot of work down in Mexico. And historically, I think Linc Logistics was focused on a few plants down there. With so many new auto plants opening down in Mexico, and a number of them that are the drawing boards or under construction and in the planning stages, how do you feel like you are positioned to capture some of that incremental business? Is that a real fertile area? Or are there other competitors that are better positioned down in Mexico?

John, this is Jeff. You know, ironically, I just got back from a three-day trip down to Mexico last week to visit our operations in San Luis Potosi. And we do have other operations besides the ones that I visited there. And I would say that I think we are extremely well-positioned to take advantage of what's going on in Mexico.

I love the team down there. It's very seasoned. They are really, really good. So, I would say we are just as well, if not better positioned, than the other folks that I saw down there when I was there. So I like our opportunities to grow and take advantage of what's happening in Mexico.

Okay, thanks for that color. And then maybe just as a final more philosophical question, Jeff, you spent your formative years in the LTL business. Obviously, Universal is not in the LTL business. But the LTL business has a lot going on that may be a little bit different than what's going on over at Universal. Are there any particular skills you've developed during those earlier years that perhaps weren't resident at Universal, that you can sort of add to the party and perhaps take the game up a notch on the Universal side?

Well, I sure hope so. I think that's why I was brought in, as any leadership change would bring in, even though it's really retirement for Scott. He's done a great job here. Keep in mind, John, I did spend quite a bit of time with Yellow and the WireSea Worldwide. Prior to that, I spent a long time with UPS on the package side. So I'm not necessarily an LTL guy. And I can promise you we are not getting into LTL at Universal.

But I would say I'm a finance guy at heart. I consider myself to be a leader of organizations. And so I hope to bring strong leadership capabilities and have the ability to focus on what I think is really, really important; make good, sound decisions; and have the opportunity to just get better.

Got it. Appreciate that. Thank you very much.

Matthew Frankel, Macquarie.

Thanks for taking the questions. A few questions here for you. One is, about -- over a year ago, when we first started talking, Dave, you had mentioned that auto was about one-third of your end market business. I'm curious -- I mean, the focus was obviously on diversifying -- I'm curious where it is now?

It's about the same. It's about 31%, 32%.

Okay. Any plan or goal over the next six months, 12 months, to really change that?

Well, strategically, we've talked about our enterprise sales group and our focus on certain vertical markets, obviously, our -- we have a very strong market position in automotive and related industries. Diversification will continue. We've obviously grown a lot in industrial in the last few years. And retail has obviously been a good market for us as well.

The challenge -- we want to grow all of our verticals. And to the extent some of our -- about 20 of our customers represent about 50% of our total revenues. So to the extent our best customers continue to give us business opportunities, we are going to pursue those opportunities. But we recognize the benefits of diversification. And we are pleased that we have as many new customer wins and prospects outside of the automotive sector as what we have inside.

Got it. Turning to just transport for a minute, what is your owner-operator driver turnover? I'm curious how it compares to the rest of the industry.

On a combined basis, we are running at about 80%. But that changes depending on the business unit. We have very low turnover in our iron and steel group, which is a relatively short length of haul, and they're kind of home every weekend. The guys in the van operations and drayage tend to turn over a little bit more rapidly for different reasons.

But one of our growth areas seems to be an improved market in the drayage business. And I think it is a shift from some historic things where we would see that bounce up and down very rapidly. So, we are kind of optimistic that we are going to improve our turnover in the drayage field and all the short-haul businesses. But it remains to be seen, because we are losing an older generation.

And, quite honestly, we've got a lot of pretty old contractors who have been with us for a long time. I know we had one guy just this past week have a little party down here in Dearborn, because he's been here over 30 years. And we're losing some of those. So, it's going to be a mixed bag.

All right. Is there any pressure to raise pay or anything their payout or anything (multiple speakers) --?

Well, as long as revenue goes up in the base truckload world, their earnings go up. Because nearly all of our owner-operator work force is on a percentage basis. So if our rates go up, their truck pay goes up. So most of them are doing pretty well right now. There is a little bit of a struggle because fuel costs are going down, so fuel surcharges are shrinking a bit.

But still, the rates continue to accelerate. So, overall, they are getting a little shift in what they are making because they own the truck and they get the fuel, versus -- and that part is going down and the rate is going up. So, does that make any sense?

Yes, thank you. In your truck brokerage, in the brokerage division specifically, can you talk about what net margins have been doing there? Obviously, capacity -- price capacity is going up, as you well know. So I'm just curious if you've been able to pass those costs on to customers?

Yes, we have two basic brokerage plans that are the pure brokerage deal. About 60% of our brokerage number comes from excess freight. In other words, if it's tagged to the agent and owner-operator network, and it's freight that goes to people that are in that business. So, it's overflow freight, if you will.

A big part of our operation is also, though, centered on a little acquisition we made a few years ago called Cavalry. And it's got a great growth rate right now. And it's got the best profit performance that it's had in the time that we've owned it.

So again, they've been able to push up rates a bit, and they've been able to retain a small piece of it, which improves their performance. On every load, they have to do a little bit better for the owner-operator, because the equipment demand is pretty harsh right now. So, a maturing of that operation, as well as good availability of freight at good rates within our core truckload business.

Okay, thank you. And two final questions. One is -- what was that $2 million acquisition you made? And then the other one is, maybe improving liquidity, improvement of the liquidity for the stock has been a focus for a while. I'm curious if there is any update on that?

The acquisition we made was from a company that we had actually started doing some business with in March as a multi-location agency. We bought a part of that business, and it is a machinery hauler, for the most part. Again, we've fully expected that that was going to happen at some point, and we're real happy with the deal. We believe they are too.

So, they are going to stick with us, with the other locations, as an agency fleet operation. But, again, this one was a good opportunity for them to cash out a little bit.

(multiple speakers) And then just on the stock liquidity -- yes. Thanks, Dave.

Well, on the liquidity of the stock, there is nothing going on right now that we are talking about. We certainly recognize it; we watch it; we watch the float. We did an event back in the second quarter to address that. As Jeff mentioned, we are obviously focused on a transition here right now. So, there is -- and some things going on in the back office. So that's not something that we anticipate really focusing on for the next couple of quarters.

Okay, thanks for the time.

Yes. You're welcome.

There are no further questions at this time. I'd like to turn the call back over to the presenters.

Thank you very much. We appreciate you joining the call and look forward to talking to you next year. Thank you.

This concludes today's conference call. You may now disconnect.