Universal Logistics Holdings Inc (ULH) 2015 Q2 法說會逐字稿

Hello and welcome to the Universal Truckload Services, Inc., second-quarter 2015 earnings conference call. (Operator Instructions).

During the course of this call, management may make forward-looking statements based on their best view of the business as seen today. Statements that are forward looking relate to Universal's business objectives or expectations and can be identified by the use of the words such as belief, 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 hosts, Mr. Jeff Rogers, Chief Executive Officer, and Mr. David Crittenden, Chief Financial Officer, for Universal Truckload Services.

Thank you. Mr. Rogers, you may begin.

Thanks, Kelly. Good morning. Thank you for joining us today for Universal Truckload Services' second-quarter 2015 earnings conference call.

From a topline perspective, it has been a slow start of the year. Total operating revenue was down 4.1% or $12.6 million for the second quarter, compared to second quarter last year.

Fuel surcharges represented 85% or $10.7 million of the reduced revenue. Lower fuel surcharge will impact revenue for the rest of the year.

Select economic factors significantly impacted our heavy haul truckload business, but we continue to see solid growth in brokerage; value-added is gaining solid momentum; and intermodal had a very solid quarter and is on pace for a record year.

Transportation continues to be our largest business unit. However, transportation revenue was down 8.8% to $100.1 million. It now represents -- $180.1 million. It now represents 61.1% of our overall revenue.

Our automotive load count is solid, but continued low oil and gas production and weak domestic steel production continued the trends we experienced in first quarter. Flatbed load count was down about 13% compared to last year's second quarter. Oil and gas load count is down 77% compared to second quarter last year.

Considering the oil price forecast and current steel inventory surpluses, we expect flatbed load count to remain weak for the remainder of this year.

Our van load count has been relatively stable versus second quarter last year. Our owner-operator count was basically flat. Revenue per loaded mile, exclusive of fuel surcharge, was down 2.3% quarter to quarter.

While we continue to focus on margin growth for our transportation business, I'm extremely encouraged by the number of new agents we have brought on this year that represent over $12 million in annualized revenue. Obviously, our goal is to improve margins while we get our transportation business growing again.

Dedicated transportation continues to negatively impact profitability. We have completed our evaluation of the market and our cost and we have greater clarity on how we can compete in the dedicated transportation space. Based on this, I am confident we can find opportunities that will be valuable for both Universal and our customers.

We have had difficult, but productive, discussions with our key dedicated customers. Some have agreed to needed price increases and operational changes, but for others, we have chosen to walk away from the business. We will get our ongoing book of business profitable.

Value added, as I mentioned in my opening comments, value added is gaining momentum. Value-added revenue for the second quarter was down slightly, 1.3%, from second quarter last year to $75.1 million and now represents 25.5% of our overall revenue.

Reporting on our largest project we began launching earlier this year, we continued to ramp up operations in second quarter. Operations there will continue without the usual summer shutdown and with a healthy Saturday production schedule for the rest of 2015. Universal has identified several add-on opportunities, including containers, rack repair, and switching, all moving us further down the road towards our strategy to own the plant.

This quarter, we locked in two new significant contracts and will be launching in the fourth quarter of 2015 and early next year, totaling over $14 million in annualized revenue. In addition, we recently renewed or extended three other contracts for another three to six years, representing over $50 million in annualized revenue, and I like what I'm seeing in our sales pipeline.

From an industry viewpoint, the automotive SAAR forecast remains solid at 17.2 million units for 2015, with continued growth forecasted through 2020. More importantly for us, we are positioned very well with our customers' fastest growing and most profitable products, trucks and SUVs.

Heavy truck production also looks good through 2016 as our customers gained market share. This is certainly good news and affirms our positive expectations for the value-added business.

As you are aware, some of our value-added businesses utilize labor contracts where our customers require it. We have concluded negotiations on one contract, which was ratified a few days ago, and we have a tentative acceptance on the second, with an expected ratification in the next week to 10 days. And going forward, we have one contract expiring per quarter over the next few quarters and anticipate concluding all future negotiations in similar form.

Intermodal, as I mentioned before, is on pace for a record year and delivered great performance this quarter. Revenue was up 17.1% to $39.8 million for the quarter. Operating income doubled to $2.9 million versus $1.4 million in second quarter last year. A strong dollar and solid import volumes resulted in strong performance from our drayage business.

We continue to benefit from many customers who have rerouted freight to the East Coast and we believe that shift will be permanent. For the first time, our intermodal operation has exceeded 900 active trucks and we continue to have success adding capacity, although there are still driver shortages in certain specific locations.

Second quarter met our performance expectations. While we see continued revenue weakness in our heavy haul business, wind-related transportation should be very strong for the second half of the year. Value-added growth will continue to accelerate through the remainder of the year and into 2016, and we believe intermodal will continue to benefit from tighter capacity and infrastructure inefficiencies driving spot prices even higher. Intermodal will continue to grow the balance of the year, but at a reduced rate from what we saw in the second quarter to around 10% to 13% versus 17% in Q2, as comps do get tougher in the second half of the year.

Finally, in the second quarter we completed a tender offer, repurchasing 5.3% of our outstanding shares. We firmly believe our shares are currently undervalued and the timing of the repurchase was prudent, based on where we see the business going forward.

David will now provide more details on the completed tender offer and our financial performance.

Thank you, Jeff. Good morning, everyone.

Universal reported second-quarter 2015 net income of $13.3 million on consolidated revenues of $295 million. Earnings per share were $0.44. Revenues were just under the midpoint of the range we anticipated in our June 29 press release and earnings per share were also in the range indicated four weeks ago.

Consolidated second-quarter operating revenues were 4.1% or $12.5 million lower than in the second quarter of 2014. Despite almost 17% growth in our intermodal services, this did not fully offset the 8.8% decline in revenues from transportation services and slightly lower revenues from value-added service, as Jeff just described.

When compared to the first quarter of 2015, Q2 revenues from our transportation services increased 12.3%, driven by improvement in volume and pricing. Our average length of haul quarter over quarter was up 2.7% and the number of loads completed was 6.2% higher than first quarter. Average revenues per load, excluding fuel surcharges, were up slightly, a 1.2% increase.

Demand for flatbed shipments of steel remain subdued, but, as Jeff said, wind energy shipments increased over the first quarter, although they do remain about 7% lower than last year.

Value-added services' second-quarter 2015 revenues increased 7% compared to the first quarter. This generally reflects seasonal production trends. Our value-added operations are supported by weekly and intermediate production forecasts from our automotive and large truck customers. The financial impact of additional projects that we are currently launching should be reflected in Q4 financial performance.

While up 17.1% from last year, intermodal revenues were up 20.7% from the preceding quarter, primarily due to a 14.7% increase in the number of loads quarter over quarter. We believe most of the Q2 versus Q1 volume change is based on seasonal factors. In 2014, we experienced a 14.6% increase in the comparable quarter over quarter -- prior-quarter statistics, excuse me.

Intermodal revenues further benefited from a 7.3% increase in the average operating revenue per load. In any case, and as Jeff said, intermodal's momentum continues.

The different growth trajectories of Universal's three service categories had a mixed impact on our consolidated operating income in Q2. Consolidated income from operations did decline $1.5 million in the second quarter to $22.9 million, compared to $24.4 million in the second quarter of 2014, but on $12.5 million lower aggregate revenues.

The consolidated values mask trends in profitability when measured as a percentage of revenue. For example, consolidated second-quarter 2015 EBITDA margins are 10.8%, compared to 9.1% in the first quarter and a modest increase above 10.5% achieved in Q2 2014.

Universal steel surcharges totaled about $21 million in Q2 2015, compared to about $32 million in 2014. When fuel surcharges are excluded from revenues, our second-quarter EBITDA margin comparison is 11.7% for Q2 2015, compared to about 11.8% last year, basically flat.

Margin improvements in our intermodal business are offset by expected year-over-year changes in value-added services and a modest margin setback in transportation services.

Income from operations in Universal's transportation segment, expressed as a percentage of Q2 2015 revenues, declined slightly to 4.9% from 5% in Q2 2014. Excluding fuel surcharges, though, transportation segment operating margins totaled 5.3%, which compared to 4.2% in the fourth quarter and 5.8% in Q2 2014.

As Jeff and I have said on prior calls, our focus on margin improvement in our transportation segment and Q2 results did fall somewhat short of our expectations.

Universal's logistics segment, which includes both value-added services and about $29 million of revenue from dedicated transportation, achieved a 12% margin, up from a 9.1% margin in the first quarter, but down from 14.4% in Q2 2014, but again due to anticipated changes in the number of specific operating locations.

Universal's free cash flow in Q2, defined as EBITDA less CapEx, almost doubled to $25 million, compared to $13.1 million in the second quarter of 2014. Although EBITDA is $600,000 lower in Q2 2015 compared to one year ago, our quarterly CapEx declined $12.4 million, due to significant investments in tractors and trailers last year.

Although we do expect expenditures for transportation equipment to rebound in the next few quarters, we currently are working with an approximate $40 million capital budget and this value may ultimately prove to be somewhat conservative.

Please take a look at the supplemental information in the announcement. It provides operating and capacity metrics for all of our businesses. It does present our segment financial performance and it includes the methodology that we use to calculate EBITDA.

As Jeff mentioned, on July 14 Universal announced the final results of our Dutch auction tender, which expired on Wednesday, July 8. We purchased 1,599,605 shares of common stock, representing approximately 5.3% of issued and outstanding shares, at a purchase price of $21.50. Payment occurred immediately at a total cost of about $34.4 million, excluding modest professional costs.

We will file our 10-Q next week and it will provide additional detail behind the financial performance that I'm talking about now.

On our late April conference call, we modified our previous revenue guidance to you, anticipating 2015 revenues of about $1.2 billion, assuming general stability in fuel surcharges. As of today, our general demand and pricing outlook remain unchanged from the end of the first quarter.

For the full year, we are continuing to project a consolidated operating margin generated by reporting units in our logistics segment in a target range of 11.9% to 12.4%. This compares to a 10.6% margin year to date 2015, 12% in the first quarter and 12.3% for all of last year. The 2015 operating margin for our transportation segment is expected to fall in the range from 4.3% to 4.5%, which compares to 4.4% year to date and 4.5% last year.

Based on these continuing trends, we continue to predict 2015 full-year EPS in the range from $0.05 to $0.09 above last year's $1.51 earnings per share.

The just concluded second quarter is important for our value-added service businesses in particular and the financial impact of customer production shutdowns in July and August do make Q3 somewhat more difficult to predict. Our confidence in our full-year forecast will increase as our newest value-added operation reaches full production, which we continue to anticipate in late September or early October. As of now in our remaining businesses, we're assuming continuing stability in near-term volume and pricing trends, which is important as we turn our attention to 2016 financial performance objectives.

This morning, I do want to highlight that the shares Universal repurchased in our recent tender offer will impact our share count for purposes of calculating EPS in future quarters. Universal's Q2 weighted average share count is approximately 29.98 million. Our Q3 EPS will be calculated based on 28.7 million weighted average shares, our Q4 result will reflect 28.4 million shares, and our 2015 full-year results will be calculated based on a 29.2 million weighted average shares outstanding.

A transcript of this call will be available for those who are not taking notes.

The favorable impact on EPS of the lower share count will be partially offset by the after-tax cost of increased interest expense incurred on borrowing to fund the transaction. We estimate this at about $500,000 per annum, based on today's LIBOR rates.

So with that, Jeff and I again want to thank you for joining us this morning and for your interest and continuing support of Universal. Kelly, we would like to invite you to open up the call now for some questions.

(Operator Instructions). Chris Wetherbee, Citi.

I wanted to touch base a little bit on the outlook here and trying to parse out 3Q and 4Q a little bit. Typically, there is some, I guess, negative seasonality, as somebody said, in the third quarter as some of your customers go into shutdown mode over the summer. It sounds like that maybe will be a bit of a mixed bag and I think in terms of the year-over-year growth in EPS, that would assume that the majority of that is back-end weighted to the fourth quarter.

But maybe specifically in the third quarter, if we could start there, just how we think about some of the seasonality of revenue and earnings, that would be very helpful.

Okay. Sure, I will start and then Dave -- this is Jeff and David would probably add on.

It is a little bit of a mixed bag. Some of the automotive production facilities are just full bore and did not take a shutdown, and you probably can understand the trucks and the SUVs that I alluded to are just really hot, so they are cranking. So we are not seeing some of those shut down that you would typically see, but other assembly plants are.

I can tell you that July is probably stronger than what it normally would be from a truckload perspective, even though we are still weaker year over year, but it's not as weak as what we saw in the second quarter.

So, it is going to be a little bit of a mixed bag, but from what I am seeing, I don't think we are seeing near the normal shutdown that you would see from the automotive sector in the third quarter.

And I would just add to that, Chris, we're being very careful to not overly focus on Q3 versus Q4 because the timing of a couple programs in particular will drive $0.01 or $0.02 one way or the other, depending on launch cadence, and I know that's not necessarily an answer that you or other folks on the call want to hear, but that really is the reality of it. We are trying to give that picture.

Third quarter is typically, particularly in value added, a little bit soft for that reason. This year, the markers suggest it is a little bit stronger than normal, but there is that other ongoing project in this part of the business that could push a couple pennies one way or the other.

Okay, that's helpful. I appreciate that color, and I guess when you think about -- the year over year that you guys are expecting feels like the majority of that in the fourth quarter will be driven by the new contract, I guess, and maybe other potential business wins. Is that the right way we should think about -- if that comes on at the end of September, obviously it has a slightly more -- better impact for the fourth quarter. I guess that's the key driver of 4Q -- implied 4Q performance.

It's definitely got a big impact on fourth quarter.

It is not all of it.

But it's definitely not all of it. But it is a big, big project and we're expecting it to go really, really well, and so it will have a positive impact on the fourth quarter, for sure.

Okay, no, that's helpful. And then maybe just my last question before I turn it over, Jeff, when you think about the business, and you have been there for a few quarters now, and you think out into 2016, how do you envision the trajectory of the business? I think maybe taking it from two sides, both from a revenue perspective and a margin perspective. I know you want to get those margins up, but the opportunities and whether or not they can get both revenue and margin accretion as you move into 2016, that would be helpful. Thank you.

Sure, thanks, Chris. I will try to tackle it in chunks because I think it's really different based on the different segments of the business.

I'm extremely optimistic about the pipeline and what I see on the value-added side and what we have got coming on board over the next two to three quarters, and the margins there historically are very strong. I don't see anything that would make me believe those margins won't continue at that historical level. So I feel good about that.

And we're going to get past some of the comparisons where we have had these five or six locations that shut down last year and we're going to get past those comparisons in the third quarter going forward. So, that's going to help from a both topline and a margin perspective within value add, so I feel good there.

Intermodal is doing really, really well and will continue. The truckload side -- and, again, we have talked about it. I think there is margin there. I think our growth issues really are more systemic of the very specific things going on that, unfortunately, are still going to be there for a while, talking about oil and gas and some of the steel issues.

But fundamentally, I think we will rebound when those rebound and will allow us to move forward very positively. And I think the margins will go with that and will improve, because there's things underlying that allow us to improve the margin that is good for everybody, including our agents and including the folks who do business for us.

And I'm encouraged by the fact that we are growing agents. We've brought on more agents year to date this year than we did the whole time I was here last year and we haven't lost a single agent, and I've asked that question continuously, because that was a concern of mine, and things look good. It's just unfortunate those agents are in some of the business that is weak right now, so I think it builds a good base for us going forward.

So, do I still think we can improve margins and get the truck transportation group growing again? Absolutely. It's just this year is going to be a tough year for us from a growth perspective.

Todd Fowler, KeyBanc Capital Markets.

Jeff, I just wanted to, I guess, follow up a little bit on what you saw during the second quarter with respect to the flatbed and the transportation trends. I get that it was up sequentially from the first quarter, but I'm trying to get a sense if you feel that some of the weakness in the oil and gas and the steel end markets have stabilized a little bit. And then, any thoughts as you move into the back half of the year with those markets and maybe with wind energy as well?

Sure. We are not seeing anything improve in the oil and gas at all. It is not -- let's put it this way; it is not continued decline, because it is kind of at the bottom, but it is just not moving. It is not moving off of the bottom on the oil and gas.

We have seen stabilization on steel. We are getting from benefit -- obviously, automotive is still strong, but just domestic steel production is weak, but I think we are seeing some strengthening in housing and some of the other broader areas. So, the sense we are getting is that steel has stabilized and it's starting to strengthen a little bit, so that answers that.

Wind, even though for the full quarter it was down year over year, but June saw our biggest month ever, I think, from what booked revenue was for the month of June when it comes to wind. And so, we expect that to really be strong for the next two quarters, for sure. Wind is kind of -- it gets really, really strong for six or seven months and then it drops off. So, we expect it to be really, really strong for the rest of the year and that's what we saw in June.

And are those comments comparable on pricing or is there some acceleration in price competition, just given some of the weakness in those end markets?

Definitely, price is not as firm as it was last year, no question, whether it be spot, whether it be just the steel pricing in and of itself, but it is still what I would call reasonable. And we don't really -- there is not a lot of price competitiveness in the wind energy so much. There is just so few players that do that, so we don't see a lot of price competitive pressure there at all.

Okay, that's helpful.

What's interesting for us here is because we were up slightly and I referenced 1.2% in transportation when you exclude fuel surcharges. The heat of the stock market isn't what it was in the second quarter of last year, okay?

And we're certainly seeing that, but what we are able to do, actually, is with the capacity, and that's one of things that is helping our intermodal business and it is certainly one of the things that we have talked about with our dedicated business, is to make some choices as we are able to reposition our capacity to better markets for us, which we do think is a real strength of our business model because if we're not getting a lot of momentum in pricing in the oilfield truckload area, we can use some of the drivers and perhaps some of the trailers, certainly the tractors, and reposition them somewhere else.

Okay, yes, that's a good point, just about being able to diversify.

And I did want to ask on the dedicated business, it feels like it has been several quarters that this has been a work in progress. Jeff, you had some comments in your prepared remarks about the difficult customer conversations. Can you help us think about maybe the dollar amount of revenue that might be coming out of that business as a result of those conversations and also the timing of the margin improvement for that?

Well, we saw some slight margin improvement already in the quarter, but we expect it -- because one of the larger customers that we walked away from ended in June, so that will be fully impactful in the third quarter going forward.

It wasn't one of our largest. We have actually held onto two of our largest dedicated customers and have been able to work through some issues with them. But the one we walked away from, and there is one that is at serious risk, that will impact several quarters from now because of the time it takes to cancel. It's got basically a six-month cancellation clause, which means we will be dealing with it for a while, if they choose not to do what I have asked -- what we are looking for to fix that business.

We have made tons of operational changes. From a size and scale, the business that we walked away from now, it's less than $10 million, but there is another big chunk that is potentially on the horizon that may -- we may choose to walk away, but that wouldn't impact us until next year.

And I am assuming mostly revenue, but not a lot of EBITDA associated with that $10 million?

Well, it was losing, so --

Okay.

So, obviously, it is going to improve our margin. So, that's -- again, as I stated before --

That math works. That's fine.

In this environment, if you have got a tractor and a driver and you have got that capacity, there is no reason you should be losing money. The market is what it is and we can definitely reallocate those resources.

Sure, okay. Just two last quick ones, the two new value-added services contracts with the $14 million of annualized revenue, will there be any EPS impact for that in 2015 or does that come in in 2016?

If it is, it is going to be pretty small because you've got the ramp-up costs that are associated with those in 2015. But I think it will have a small positive contribution, but significantly more so, obviously, in next year.

More next year, okay. And then just my last one, David, on the SG&A expenses here in the quarter, it looks like some good cost control. I guess, can you talk a little bit about what's driving that, and then how we should think about modeling that line going forward?

Great question. I don't want to oversell the SG&A reduction that we saw quarter over quarter. I have talked in previous quarters about some of the things that we have done in the back office in terms of streamlining the legal subsidiaries and all that good stuff, but we really haven't started to see huge benefit from those in terms of back-office processing and workflows and things like that.

We are just keeping a very close watch on cost, so I think the current level is the new normal, but we have opportunities to continue to improve that in the quarters ahead. We are pleased, obviously, that we have got those kind of cost reductions currently, but, as I said, they don't necessarily reflect any major changes yet in how we are -- how we do our business. So we think there is still improvements available to us, but I'm not going to oversell them here at the second quarter.

I would add on that. There is just opportunities in front of us, really. What we have seen so far is small compared to what I think we can do going forward just from a -- making the back office much more efficient.

Our goal here is to be really, really easy for the agents and our owner-operators to do business with us on the truckload side and we have got a lot of work to do there going forward. So I think it's nothing but opportunity going forward.

You will remember, Todd, that for the last few quarters, we have said we want to get 50 to 100 basis-point improvement specifically in truckload this year and 1%, 2% over the next couple of years.

We took a modest step backwards, but those kind of improvements certainly run through things like commission structure and billing and what our relationships are with our agents. We have got a lot going on, the regulatory environment being what it is. There is no stones unturned right now in our truckload business and how we operate and how we work specifically with our owner-operators in the truckload portion of the business and with our agents.

But those types of changes don't just impact the SG&A line in our income statement. It might impact a commission, might -- you know what I'm saying?

I do, yes.

The cost (multiple speakers) transportation. So that's all that I am -- I want to be very careful to not oversell the opportunity for future improvements in SG&A, but what I am saying is that we think we are just now scratching the surface of improvements -- process improvements that we can make in our back office.

I really appreciate the color. That's helpful and we will definitely take that into consideration, so thanks a lot for the time this morning.

John Larkin, Stifel.

Thanks for taking my question. Over the last couple of months, the Teamsters and some others have been putting a lot of heat on various governmental agencies to try and break down the independent contractor, owner-operator model, and that seems to be focused mostly on the shorter-haul -- port drayage, intermodal drayage -- ends of the business.

Have you had to change your operating model or what are you doing to really protect yourself from this onslaught of activity? I suspect that most of those 900 people you have in intermodal drayage are owner-operators?

Yes, that's a very good question. We actually spent quite a bit of time talking about that very specific thing in our Board meeting this week, because it is clear that that is the goal of the Teamsters and some of the government groups, for sure.

Specifically, the West Coast is where I think they've had most of the impact and some of the things that are changing, and we have less of a presence in the West Coast, so it hasn't impacted us directly.

We have not specifically changed anything within our model. What we are doing, though, is we are reviewing our owner-operator agreements from a legal or contractual perspective and making sure that our day-to-day activities are following our contracts and that we are above board and are following everything we need to from a legal perspective to make sure that we don't have any issues or chinks in the armor, so to speak, for our owner-operator model, but that's what we are doing. So far, we have not had any real specific issues directly to us.

And that hasn't caused you to change your mix of asset heavy versus owner-operator or asset light within the various businesses? You're going to continue to mixture as you go forward? Is that a fair assessment?

That's a fair assessment. I'm going to continue to mix. We want to grow -- as I have stated before, we want to grow our Company terminals, just because I like a little bit more control from a customer perspective, but I guess that goes hand in hand.

It would potentially reduce my risk from the whole owner-operator contract issue, but that's not necessarily why I am wanting to grow the Company terminals, and we're going to continue down the path of doing both. I want to continue to grow agents and owner-operators and I want to continue to grow Company assets.

Got it. And then maybe just continuing on the same theme, there was some discussion of having some flexibility of moving some Company power, maybe some owner-operators, from one segment to another segment, depending upon which one happens to be hot at a particular moment. Right now, flats are soft. Intermodal is strong.

Have you been successful in moving owner-operators from one segment to another? It occurs to me that there are owner-operators who really -- they own their own trailer. They are pretty much joined at the hip with the flatbed business, but what kind of success have you had in moving the capacity around based on what's happening in the market?

Successful, to a certain extent. Obviously, there is a lot of agents and owner-operators that were down in the southern part of the country that were really dedicated to the oil and gas, and we have had several cases where they have moved and helped support other pieces of the business.

A very specific thing that's happened -- one of the things I talked about where we've walked away from some of the dedicated business here, and this is here locally in the Detroit metro area, we have been able to shift quite a few of those resources to intermodal here in the local market.

So we definitely have moved resources around and it happens wherever we can take advantage of it. We sure do it because we want to hang onto those driver resources, and then they will shift back. Because, obviously, those guys down south prefer to do the oil and gas; there is just nothing available for them.

And you mentioned that the pace of agent recruiting has really picked up and the retention has been very good. What do you attribute that to and where are these folks coming from?

Good question of where they are coming from. Off the top of my head, John, I don't know specifically which place they are coming from.

I know one I had a conversation with that was running on his own authority and didn't want to do it anymore, so now he is signing up with us. I think several of them have definitely been oil and gas agents and they are looking for a little bit broader reach that we can provide to them and broader opportunities that Universal can give to them versus very specific oil and gas.

So it's been a hodgepodge, but I have been pretty doggone happy with what I have seen because I remember the six months I was here last year, in the transition, I didn't hear but maybe one or two agents that came on board, and we have got -- right now, we are looking at seven or eight that have come on board already year to date.

So, is it because things are maybe slow in our flatbed and slow in the oil and gas? That's probably a part of it and they are looking for help to look for other opportunities and other loads that we might have available for them.

Got it. And as people begin to anticipate maybe even a more debilitating capacity shortage out two and three years from now, these are customers now I am talking about, do you see the pace of logistics outsourcing contracts that are being bid really picking up? Do you see more dedicated opportunities out there? What is the competitive framework looking like? Do you see rational pricing out there? Are there more people bidding on these projects? Fewer bidding on them? Can you give us a little flavor for what the marketplace feels like to you right now?

Well, from a pricing perspective, it is definitely not as firm, as I said earlier, than the same time last year and I think that's probably across the board. I don't think anybody would say that pricing is stronger than it was, other than in our intermodal area because we are continuing to see because of the inefficiencies in the intermodal and the fact that we do inbound drayage -- or international dray, and that's really strong because of all the movement around, so we are seeing very, very strong pricing there.

On the flipside, we are hearing -- and to my comment in my previous about how we have looked at our dedicated model and we have made some tough choices, but I think we fully understand where we should be playing and where we are going to try to attempt to grow, and it is maybe a wait because, honestly, almost all -- matter of fact, if not all of our dedicated transportation is automotive based, and I think the smart thing for us to do from a dedicated perspective -- because what we are seeing is customers wanting to ship to a dedicated model outside of automotive, and I would love, I think, to get into those areas and that will make some sense for us.

That is not where we typically have been, but I think there are customers -- and again, at our Board meeting this week, we have got some Board members who have very specific industry knowledge and they are stating that obviously they are hearing an awful lot about customers who are wanting to shift to a dedicated model.

I think everybody -- those who have their own private fleets go through the same headaches that all of us do as far as hiring drivers and all the regulations and all those issues, and if that's not your core competency, I'm not sure why you would put up with that nonsense.

So, it makes perfect sense for customers to be shifting to a somebody who that is their core competency, so I think there is going to be opportunities going forward.

John, I could just add there. In preparing for this morning's call, yesterday we were having some very specific conversations between this call and our Board meeting a couple days ago. We have learned enormous amounts about our costing and our capacity and our strengths and weaknesses in our dedicated business as a result of the challenges that have faced it for the last five quarters, and they're all right here.

And that is why I think just adding the CFO's perspective, it is like we're working really hard to improve our capacity management knowledge, our fleet management knowledge, and knowing where those dedicated fleets are today versus those industry supply chains that we could actually service is really important.

We are certainly aware of some of our other -- the other folks in the transportation and logistics peer group. We have perhaps the advantage of our relatively modest size to make strategic changes that have some outsized improvement opportunities that maybe some of the larger companies don't.

We're still at the point, for example, in our brokerage capacity where we have both an outsized-based model and an inside-based model that we are -- on the outside-based model under the brand Cavalry, we have some really slick technology that is supporting it and we're in the process of letting both of those capacity development ideas in our Company grow, but we're not at the point in our organization where we think it's a good idea to put the two together.

So we, as a result of some of the challenges that have faced some of our more traditional legacy businesses over the last several quarters, feel like we've been to school a lot for the last several quarters and we have real opportunities in the year or two ahead to start to leverage what that learning is.

Got it. That was a pretty thorough answer. Thank you for that.

And then, just maybe one last question. Over the next, say, I don't know, six, 12, 18, maybe 24 months as you continue to drive the businesses towards a restoration of the growth rate and that would achieve your margin targets in each of the businesses, how far do you have to go with -- before you begin to get comfortable with getting back to the acquisition program or is that going to be de-emphasized under the Jeff Rogers regime?

You know, I think -- we have had some of those conversations. I mean, honestly, I think I will be ready to start looking at something like that in the 12- to 18-month time frame.

As we talked about, John, there are some many opportunities internally here and to really truly understand our capabilities going forward that we are still going to work on, and I still think the multiples are just too high for what our appetite is. So I think that will slow down in the next 12 to 18 months, to be honest with you. But we are absolutely going to be looking for strategic targets probably a year and a half out, I'm guessing.

(multiple speakers) commend you for being patient on valuation.

What's that?

I commend you for being patient on valuation.

Well, I don't know if it's patience or out of prudence, whatever you want to call it, but at the end of the day, one, I am not ready yet, so I guess that is making me patient because I'm just not ready yet.

Got it.

But we absolutely feel that that will be a part of the strategy going forward.

Great. Thanks very much for the answers.

Scott Group, Wolfe Research.

It is actually [Wang Zhu] on for Scott Group and I just had a question. I want to dig a little deeper into intermodal, the strong performance there. I was wondering if I could just get some additional color on how pricing and volumes have trended, both for steamship intermodal and also the truck intermodal space, if there is any sort of difference between the two?

Keep in mind, probably over 80% of our revenue within intermodal comes from international dray, so that's our big piece. The rest of it, we have some revenue in maintenance and repair and basically in yards where we are -- container yards.

So, we don't do a lot of truck intermodal or with the rails, so the pricing -- the steamships are always tough when it comes to getting pricing, but that has been better just because of the drayage and the capacity issues and all of the problems at the ports. So we have been able to drive what I would say was pretty solid pricing in our intermodal group and we have seen that now for the last year, for sure, and we don't see anything changing in the foreseeable future.

Okay, and I think you said earlier that part of the strength was due to just diversion to the East Coast. I understand a lot of your intermodal is focused on east of the Mississippi, and I was wondering -- and you said you had confidence as to the stickiness of the business. I was wondering if you can provide some additional color as your thoughts on -- I guess your confidence regarding the stickiness of those divergence.

Well, again, to my earlier comments, we believe it is a permanent shift. I think customers have put up with the West Coast enough, at least from what we are hearing from them, and have shifted to the East Coast permanently.

How much of that business -- from a percentage basis, I couldn't tell you, really, how many customers have actually shifted and it's going to be permanent for the East Coast versus the West Coast. I don't have that data in front of me.

But the East Coast is struggling with a lot of issues because of that, so we have struggled with the pool, the chassis pool, especially in Virginia and New York/New Jersey, so the East Coast is going through some struggles as well to try to catch up with the additional volume that is coming in there and the size of the ships. But I think it's very sticky and we are expecting it to be a permanent shift.

Okay, great. That's very helpful. Thanks so much.

Thom Albrecht, BB&T.

I wanted to clarify one thing before I ask a bigger question. Did you say year to date you have been able to add seven or eight agents or the $12 million is just from a couple of agent additions?

No, the $12 million comes from the seven.

Okay. All right.

And the $12 million is an annual -- it's an annualized revenue.

Sure, I understood that. And then, besides maybe some agents struggling with the demand side of the equation, are you doing anything different, though, to just put the word out? It seems like the agent recruiting process had just become stale before you got there, so are you just trying to be more visible on top of whatever demand issues the agents may have?

Yes, I would say we are. We are spending an awful lot more time recruiting out in the field, so we have added a bunch of field recruiters that are actually hitting locations and job fairs and everything all across the country that we haven't done before, and they're interacting with owner-operators directly, but also agents as they're out and about at job fairs or truck shows or whatever they are doing. So we've absolutely got a lot more field presence across the country.

I went to the agent meeting that we have every year, but I got to meet all the guys, and I am hoping that we are sending a lot more enthusiasm out there in the marketplace that people want to come on board to Universal and I think that's a change, Thom, maybe, but we're just trying to get the word that we want to do business with agents. We want to make it easy to do business with Universal.

And Thom, it's David. Maybe for a little historical context, I beat Jeff here by about five quarters, and you may remember that Jeff's predecessors talked about the enterprise sales model and not wanting to cannibalize the legacy agent owner-operator business of Universal Truckload.

And so, I think there is probably a hit of the pause button while we figured out what the combination of the two companies meant, and then more recently, certainly, as recently as just yesterday, we were -- I was in a conversation with one of my colleagues about, well, what can we do to be a much more visible presence? Because we have pivoted back a little bit to the fact that we really do need to be focused on agent growth and topline growth in this business.

And so, there has been something of a pivot that has occurred here in the last couple quarters and it is interesting to hear you observe that. It is very consistent with what some of our internal conversations are. (multiple speakers) we need to focus on.

Yes, that will be hopefully fun to watch that develop.

The other thing, I know you have got a little exposure to this, but I don't hear you speak about these verticals nearly as much, but aerospace and appliances. Obviously, appliances might be part of the steel component, but just given your industrial van focus as well, what are you doing in those two verticals? Because aerospace is a shining star and will be for a number of years and appliances is tied to the housing recovery that is picking up a little steam after two and a half years of stalling.

Yes, and I will start that. From very specific appliance, I don't maybe have a good fulsome answer. I do know I have gotten feedback that from housing in general and the support of housing, whether that's lumber, appliance, steel, roofing products, things like that, that is definitely strengthening, so I would assume appliances right in there with that.

The aerospace is an area that we are really, really, really working hard to try to get into. We do have a customer now that is somewhat related to aerospace that we work with down in Charleston and we've got another bid that we are hoping to get in Indiana, but I would really, really like to get into aerospace and we have got a bid that we're very, very close to landing, I hope, because it would be our first entrance into this customer, specifically. But we don't have a big presence now and we sure want a bigger one in aerospace.

Okay, that's helpful. That's all I had. Thank you.

There are no further questions at this time.

Very good. Again, we will close. Thank you all so much for your interest in Universal and, Kelly, thank you and we will talk to you next quarter. See you.

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