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Universal Logistics Holdings, Inc. (ULH) Q1 2020 Earnings Call Transcript

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ULH earnings call for the period ending March 31, 2020.

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Universal Logistics Holdings, Inc. (ULH -1.25%)
Q1 2020 Earnings Call
May 1, 2020, 10:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Hello and welcome to Universal Logistics Holdings' First Quarter 2020 Earnings Conference Call. At this time, 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 the business as seen today. Statements that are forward-looking related 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 risks and uncertainties and actual results could differ materially from those expectations.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Tim Phillips, Chief Executive Officer; Mr. Jude Beres, Chief Financial Officer; and Mr. Steve Fitzpatrick, Vice President of Finance and Investor Relations.

Thank you. Mr. Phillips, you may begin.

Tim Phillips -- CEO & Director on the Board of Directors

Thank you. Good morning. Thank you for joining Universal Logistics Holdings first quarter 2020 earnings call.

We started this year under a drastically different operating environment compared to how we exited the first quarter. We created a plan for success with high expectations for the year, but even the best outlined plans often need adjustments.

Universal's team of employees and associates responded in amazing fashion to the conditions and challenges they faced due to COVID-19 pandemic. Over the last six weeks, I've witnessed the true resilience of our associates, as the company adjusted course in a drastically changed operating environment.

First off, I'd like to recognize the sacrifices of our drivers and contractors who answered the call and kept this nations critical goods moving in an extremely tough environment. Our warehouse worker and dock personnel have remained committed to the cause and were right there on the frontlines, supporting the flow of essential goods.

Behind the scenes, our office personnel continued to perform at a high-level, delivering solutions to our value-added customers and supporting our associates on the frontline. I'm extremely proud of the entire Universal team.

Before moving into the details of the quarter, I want to first take a minute and provide an overview on where we are related to our readiness in response to the COVID-19 outbreak.

With operations located in the United States, Mexico, Canada, and Columbia, we realized early on that one of the keys to managing through this crisis would be timely communication with our employees, contractors, customers, and vendors. I was in constant communication with our senior leadership to evaluate welfare, safety, volume trends and customer needs, to quickly react with the changing landscape.

We provided real-time updates, providing people of the latest guidelines by the Center of Disease Control, World Health Organization, state government as well as providing targeted local information, to ensure our people are up-to-date on the latest information and best practices to keep them safe not only at work but in their local communities.

We continue to follow best practices for social distancing, personal protection, cleaning procedures and health workforce process. The overall environment began to change rapidly at the end of the first quarter. The biggest shock to the system came in late March when North American auto and truck production was suspended.

Representing over 25% of our combined revenues, leadership reacted quickly to balance the workforce with volume. In addition to the suspensions of the auto and truck production, various states and local government began issuing expanded shelter-in-place order that limited continued operations to essential businesses.

We [Indecipherable] these events is having a longer impact on the business volumes. We made the decision in late March to furlough approximately 70% of the direct workforce and 30% of administrative personnel across the service line. These were really difficult decisions, but necessary to preserve the integrity of the business model.

Accelerating our cost containment and reduction strategy, we evaluated our list of essential operating expenses, adjusted our capital expenditure deployment while taking all necessary steps to preserve liquidity. We are actively managing the situation and we'll continue to rightsize the business to ensure success when life returns to normal.

I would like to now provide some highlights from the first quarter. Yesterday afternoon, Universal released its first quarter financial results, reporting $382.2 million topline revenues, a new record high for the first quarter operating revenues. And earnings of $0.45 a share, which included $0.09 per share charge for noncash holding losses on our marketable securities portfolio.

Given the rapidly deteriorating business climate we experienced in late March, I'm pleased with the results of the quarter and feel proud of the way Universal team jumped into action to tackle events as the coronavirus pandemic unfolded.

While the auto and truck production shutdown had a souring effect on end of the month, several of the other service lines ran into headwind as well.

Chinese New Year came early in 2020 with factories idling at the end of January, which is normally a 7-to-14 days idling period. And in China, it lasted longer due to coronavirus outbreak.

Chinese imports never rebounded in the first quarter as demand in the U.S. also contracted because of the virus. Our load count was down 40% at our Southern California operation. We also continued to experience some rate pressures on the truckload sector for much of the first quarter.

Excluding the effects of the auto and truck shutdown and the influences of COVID-19 outbreak, normalized first quarter results would have been Universals highest revenue for any quarter on record. In our estimates, COVID-related revenue losses in Southern California operations amounts to $8.2 million on topline revenue and lowered our operating income by $2.7 million. The impact to topline revenues from auto and truck manufacturing shutdown was $8.3 million and reduced operating income by $2.6 million. We believe the cumulative effect on these two service lines affected EPS by $0.15 per share.

Now, for some color on each service line. Truckload finished the quarter with $58.9 million in topline revenue, which was a decrease of 10.3% compared to 2019. The decrease was primarily driven by a 7.2% decline to load compared with the same period of 2019.

Open-deck movements accounted for roughly 2/3 of the truckload that didn't move. As the quarter progresses, we saw a sharp drop-off open-deck movement, particularly in steel and metals. Our local and regional operating networks focused on food, beverage and consumer goods to mitigate the decline.

Brokerage Services was a tale of vastly different operating environment entering and exiting in the quarter. Although revenue was flat $85.9 million, load count was up 13.9%. The number show a very aggressive rate driven environment coupled with very small gross margins at the beginning of the quarter. Our company brokerage operations are heavily involved in food and beverage and experienced a drastic change in the last few weeks of March.

Spot rate grew of consumers stocking up on food and beverages because of the pandemic. And toward the end of the quarter, we saw increase in our gross margin as industry began to experience loosening the truckload capacity, allowing our brokerage to secure a lower transportation rate.

Intermodal services revenue increased $19.2 million or 21% to $110.3 million. Load count was up 19.7% and revenue per load was relatively consistent. Legacy intermodal terminals performed well under the condition with the biggest moves attributed to acquisitions made in 2019.

Offsetting some of the positive momentum was a drag from our Southern California operation. In this market, we experienced a significant drop in load count where customers heavily weighted toward retail.

We are very pleased with our acquisition integration in the intermodal drayage sector. And we are looking forward to completing integrations for the most recent acquisition, Roadrunner Intermodal services by the end of the second quarter this year.

I'm extremely happy with intermodal teams' cadence, combining with various entity, employee, contractors and drivers. We're extremely satisfied time with the talent and employees and rich customer base realized throughout this acquisition.

Our dedicated services revenue was down 14.7% to $31.6 million. Load count was up slightly for the quarter to 139,000 loads due to additional shuttle moves compared to the same quarter of 2019.

The closing of North American auto assembly plant had a severe effect on revenue in the last two weeks of March. By comparison, our dedicated fleet handled 21.1% more moves during January and February 2020 compared to the same period in 2019. But due to the automotive shutdown ended the quarter up only 3.8%.

Value added services revenue decreased $2.2 million to $95.5 million. Auto and truck plant shutdowns had a negative effect on our revenue in late March. Our value-added group was running on all cylinders before plants began to shutdown at the end of the first quarter and we were on-track to having a record quarter.

Universals has worked hard and diversified service line, with automotive still the large piece with 29%, followed by retail and consumer goods of 22%, industrial booking heavy trucks next to 12% and aerospace comprising about 2%.

Universal continues to support a robust pipeline as well as some exciting first quarter wins in our logistic segment. While the effects of COVID-19 is expected to have some impact on the timing of implementing of those wins, we are confident that we'll realize the benefit of those customer partnership in the second half of 2020 and in 2021.

To add a little color, our value-added services group booked $60 million in wins thus far this year. Our dedicated transportation group, another $40 million in wins this year. We are also very optimistic about our agent pipeline, and the fact that we got our 22 new agents in the first 13 weeks of 2020.

Our combined pipeline still stands at $500 million opportunities. Times seem challenging now and we're excited about what the future will bring and remain very bullish in the long-term outlook of our business.

To provide the insight on what we are seeing for April, revenues for the month went down approximately 30% compared to last April. To respond to these declines, we've undertook a thorough review of our operating expenses and continued to adjust proportionately.

We also evaluated our capital expenditures and were able to delay a number of purchases either to later this year or next. We will also realize the cost savings of completing the integration of our Roadrunner acquisition by the end of the second quarter. Understanding that one of our large costs is direct personnel-related benefit, we continue look for ways to identify cost savings. And we're doing that across the board, including executive management team, where we're having folks take some unpaid time off each month throughout the second quarter.

Before turning it over to Jude, I wanted to reiterate my appreciation and gratitude to the entire Universal family for their dedication to operating safely and effectively through a variety of staged shutdowns and local government restrictions across the United States. Jude?

Jude Beres -- Chief Financial Officer

Thanks, Tim. Good morning, everyone. Universal Logistics Holdings reported consolidated net income of $12.2 million or $0.45 per share and total operating revenues of $382.2 million in the first quarter of 2020. This compares to net income of $17.3 million or $0.61 per share on total operating revenues of $377.4 million in the first quarter of 2019.

Consolidated income from operations decreased $2.6 million to $23.9 million compared to operating income of $26.5 million in the first quarter of 2019. EBITDA decreased $4.6 million to $39.8 million in the first quarter of 2020, which compares to $44.4 million one year earlier. Our operating margin and EBITDA margin for the first quarter of 2020 are 6.3% and 10.4% of total operating revenues. These metrics compared to 7% and 11.8% respectively in the first quarter of 2019.

Universal's financial results were negatively impacted by a 40% reduction in Intermodal loads in Southern California, the loss of automotive production during the last two weeks of the quarter, and, finally, pre-taxes losses related to the mark-to-market revaluation of our securities portfolio.

Combined, we have estimated these events to have impacted our topline revenues by $16.5 million for the quarter and operating income by $5.3 million or $0.15 per share. Below the line, the loss on securities accounted for pre-tax charge of $3.4 million or $0.09 per share. On a pro forma basis, the combination of these factors reduced Universal's operating margin by 100 basis points and earnings per share by $0.24.

Looking at our segment performance for the first quarter of 2020, in our transportation segment which includes our truckload, intermodal and freight brokerage businesses, operating revenues for the quarter rose 3.2% to $254.7 million compared to $246 million in the same quarter last year. While income from operations decreased $400,000 to $12.1 million to $12.5 million in the first quarter of 2019.

In our logistics segment, which is comprised of our value-added services, including where we service the Class A heavy truck market and our dedicated transportation business, income from operations decreased $2.1 million to $11.7 million on $127 million of total operating revenues compared to operating income of $13.8 million and $130.4 million of total operating revenue in the first quarter of 2019.

On our balance sheet, we have cash and cash equivalents totaling $8 million and $6.3 million of marketable securities. Outstanding interest-bearing debt net of $2 million of debt issuance costs totaled $478.8 million at the end of the period.

At the end of the first quarter, we have $41.7 million available under our existing revolving credit facility. Excluding lease liabilities related to ASC 842, our net interest-bearing debt to reported TTM EBITDA was 3.48 times. Capital expenditures for the quarter totaled $32.8 million.

For the remainder of the year, we are expecting capital expenditures to be in the $35 million to $45 million range and interest expense between $14 million and $16 million.

As mentioned in the release, to further preserve our liquidity during these unprecedented events, we've decided to temporarily suspend our quarterly dividend in addition to the cost cutting measures Tim discussed earlier in his comments.

Our goal is to preserve cash in the short term until there is more clarity on automotive production as well as future import and trucking volumes. As a reminder, Universal's dividend policy allows the company to pay out up to 40% of our net income each year with the target dividend yield of 2% on the stock. The quarterly dividend is an important part of our long-term capital allocation strategy, as Universal had paid out over $143 million in dividend since the inception of this policy. We expect to review the considerations for reinstating our dividend in the back half of the year.

With that, Amy, we're ready to take some questions.

Questions and Answers:


[Operator Instructions] Your first question today comes from the line of Chris Wetherbee of Citi. Your line is open.

Chris Wetherbee -- Citigroup, Inc. -- Analyst

Yes, great. Thanks, Tim. Good morning, guys.

Tim Phillips -- CEO & Director on the Board of Directors

Good morning, Chris.

Chris Wetherbee -- Citigroup, Inc. -- Analyst

I guess, it was helpful to get the update on April as well as some of the vertical concentrations within the revenue for you guys as well. Given that you have a decent amount of customer exposure to end markets that are currently sort of shut down, can you give us a sense of maybe how to think about sort of the restart? Does that happen in 2Q? Is it sort of a May and June type of event? Any color you can give to give us a sense of maybe what that negative $30 [Phonetic] for April kind of cadence might be as we move throughout the quarter?

Tim Phillips -- CEO & Director on the Board of Directors

Well Chris, this is Tim. I can guess you can say there is a ton of uncertainty in talking, many of our executives are on the phone with the customers from day-to-day. And I think there's a lot of uncertainty in their mind based on some of the government shelter-in-place and just of the whole flow, the pandemic. But what we can say is that in conversations on the auto space, we're finally hopeful, and I use the word hopeful that we would see things start back up somewhere mid to late May. It's like they're kicking the can down the road, you never have a true on it until it actually gets here. But that's what we're hopeful for.

And I think -- we mentioned some of the downfalls in Southern California. Well, Southern California, on our intermodal side, it is heavily flavored in retail. And some of the conversations we've had on the retail space, as you know, many of the closing retailers and whatnot, we can't go into the store to buy right now. So, they're in a little bit of a quandary to say what do we do? Because we're unsure how the states are going to lift the shelter-in-place orders and what season are we going to be buying into, so we can make sure we set up our stream of freights flowing in the United States. So, there's also a great deal of uncertainty there.

And then the one phase that seems to have been pretty spot on and continues to give us some flavor is food and beverage and consumer goods, through some of the work we do with them. We stayed relatively [Technical Issues] is it going to be reasonable projected -- Chris, you there?

Chris Wetherbee -- Citigroup, Inc. -- Analyst

I'm here. I'm here at the background as well.

Tim Phillips -- CEO & Director on the Board of Directors

Yes. It's something, one of the lines just went dead, not our line. One of the lines. Just to finish my comment and then we'll try to correct that real quick. What we're seeing on the consumer side is that they are backing off a little bit on the Q2 original projections, but it's not drastic. And we're still seeing our beverage-type customer still say they're going to be within 5% to 10% of their regional forecast to us. Food's even a little less than that, maybe less than 5% and consumer goods are anywhere from 5% to 10%.

One of the areas that we haven't got a lot of clarity, but we know short-term is some of our open-deck stuff like steel and metal has taken a pretty big hit. And we expect that to be a trailing hit until some other industrial things come up and running.


And your next question comes from the line of Bruce Chan with Stifel. Your line is open.

Bruce Chan -- Stifel, Inc. -- Analyst

Yes, good morning, gentlemen. And thanks for the question. Tim, my apologies if I missed this. There was some echo or line interference. But you were talking about the $40 million and $60 million wins in dedicated and value-added respectively. And maybe just want to understand a little bit better, how much of that is bankable and what the effect is of the current situation on those numbers? And then also, where those wins are coming from as far as end market and customer type?

Tim Phillips -- CEO & Director on the Board of Directors

Yes, thank you. The caller dial tone interfered. The end market, those wins are coming from in the automotive sector and we expect there to be some push out of the initial launches of those projects just based on the uncertainty and when the autos are going to start back up again.

What we would expect is that we will realize and experience some of the revenues later in the second half of the year and into 2021. But through constant conversation, we're very optimistic that these launches will still take place. We think that they're probably going to be pushed back several months.

And I say that with an asterisk of course because it seems like every week, in communications, things get pushed out around. And a lot of it isn't because of industrial one. It's just because we're all trying to figure out what the individual state shelter-in-place rules are and when we can safely go back to work.

Bruce Chan -- Stifel, Inc. -- Analyst

Okay, that's great color. That makes sense. And then maybe just a follow-up on your comments about the agent additions in the first few weeks of the year. How have those trended now given what's been going on in late March and into April? Are those decelerating, are they accelerating as maybe joining onto a bigger system and a bigger network looks more attractive than kind of flying so low? And what are your expectations for those trends in the future?

Tim Phillips -- CEO & Director on the Board of Directors

Yes and yes. I guess we've seen a couple of different phenomenon. There are some unique opportunities that are arising here early in the second quarter because of decisions made by other companies of how they want to streamline their processes.

Our pipeline remains very full still. And the ones that we have in there that we feel we have a really good chance of getting, there's a high level of interest from that agent group. The only thing that's holding them back is they want to make sure, as they make transitions, that their customer base is onboard with that. So, they've kind of -- they haven't dropped their feet, they're just kind of lingering out to make sure their customers are comfortable with it.

We're open for business and ready to make those transitioning as they become comfortable with it. And we can do that in a pretty quick amount of time.

So, if I look at the back end of the quarter and our pipeline, I'm still very optimistic. We still have a good traction. So, I don't see a decelerating atmosphere. The only thing that's changed really is your face-to-face conversations now with those types. A lot of it is done remotely and on the phone. So, you lose a little bit with that, but we're still making some pretty good headway.

Bruce Chan -- Stifel, Inc. -- Analyst

Okay, that's helpful. And then maybe just one last one here. On the fleet capacity side, what are you seeing as far as retention and what's going on with the capacity pool, both within Universal and then outside? And then what are you doing to maybe sort of protect some of those numbers and some of that retention?

Tim Phillips -- CEO & Director on the Board of Directors

Yes, from a capacity side of things on the transportation end, a couple of different things we can look at here. We know that, of course, with business being down, the amount of active drivers, both contractors and drivers that are being utilized is less than it would be in a normal environment. We know the funny thing of it is we've tried to keep a large group of them busy even though we've had to stretch the work out a little bit. I looked at the turnover numbers or actually looked at loss numbers the other day, and our loss of contractors and drivers over the last eight weeks and specifically for April has been very minimal. I want to say its under a percentage.

So, basically our contractors and drivers are staying put right now. And as things -- and we're in constant communication with them. As things start to ramp up, we'll those drivers back in and contractors back into the active loop that they were prior to the slowdown.

Bruce Chan -- Stifel, Inc. -- Analyst

Great. Well, I'll turn it over. Appreciate the time, as always.

Tim Phillips -- CEO & Director on the Board of Directors

Thanks, Bruce. Thank you.


And we have Mr. Wetherbee line open again. We did have some interference there. So, I'll join Mr. Wetherbee, so he can continue with question.

Tim Phillips -- CEO & Director on the Board of Directors


Chris Wetherbee -- Citigroup, Inc. -- Analyst

Great. Hey, thanks, guys. Can you hear me?

Tim Phillips -- CEO & Director on the Board of Directors

Yes, we can.

Steve Fitzpatrick -- Vice President of Finance and Investor Relations

Yes, we can.

Chris Wetherbee -- Citigroup, Inc. -- Analyst

Great. Thanks for letting me back in. There must have been something going on with the line there. So, sorry about that. But in terms of -- I guess my follow-up question was going to be on the flipside of sort of revenue variability. When you think about the cost side, you mentioned some of the direct labor. Can you talk a little bit about how you're positioning the downside on the cost side? How much of the costs are truly variable given the business model as we think about the decline in revenue?

Jude Beres -- Chief Financial Officer

Hey Chris, it's Jude. So, when we look at Q2 based on the ramp-up of the automotive, I mean, the delta on our top line revenue could be at a low end $250 million, and at the high end $300 million. So, we have about a $50 million delta based on when if the automotive companies can restart in the middle of May and commit to the production schedules that they've laid out to us over the past couple of weeks.

When you look at our costs, I mean, across most of the service lines, the variable nature of the cost is anywhere between 70% to 80%, of those, of our total revenues. So, it's a material amount of those, of our business, is a variable cost structure. Which is the reason why we're still paying down debt, we're still able to pay our bills. We just don't have fixed cost that many of our competitors do in the space.

So, that's the benefit of our business model. The reason why we've continued to invest in businesses and our M&A strategy related around these independent contractor businesses, and we'll continue to do that once we get out of this rut.

Chris Wetherbee -- Citigroup, Inc. -- Analyst

Yes, OK. Now, that's super helpful. And obviously, the first quarter performance was quite strong excluding some of the dynamics that you highlighted there. I guess when we start to think bigger picture and beyond this, I guess maybe trying to understand your positioning in terms of upside, the dream about when we come out of this and think about the potential opportunities there. I guess maybe the question is more around the pipeline of new business opportunities and how quickly you think you can convert those? And then maybe as you think about '21, maybe this has to do with the shape of the recovery. But you could get yourself in a scenario where revenues are at least approaching where they had been on a run rate basis before that.

So, there's a lot of pieces in that question, but wanted to get a sense there. Because clearly, you're beginning to show some of that operating leverage and margin expansion. So, just want to get a sense of how you're thinking about the pipeline of business, maybe existing business ramping back up and new business wins?

Jude Beres -- Chief Financial Officer

Yes, I'll start and then Tim can answer the questions on the pipeline and the conversion. So, Chris, I mean, as we have been saying over the past couple of years, we believe that the business volumes that we have currently, pre-COVID-19, the business should be operating between 7% and 9% operating margins. And we believe that.

As you know in the past, we've had the legal headwinds, we've had some drama with launches and all that kind of stuff. But on a run rate basis, 7% to 9% we believe is where the business stands today.

On a long-term basis, as we continue to gain leverage and gain scale with the investments that we're making and additional real-estate properties, as well as our M&A strategy, we're going to start then focusing, as we grow, to get that 8% to 10% margin.

And long-term, our long-term operating margin target for Universal is 10%. It'll take us a while to get there, but we firmly believe with the service lines that we have and the weighting of those lines as they grow, particularly our intermodal, our value add and our dedicated business, because the margins are within those ranges already, that we can expand upon them as we get scale.

And I'll turn it over to Tim for discussion on the pipeline.

Tim Phillips -- CEO & Director on the Board of Directors

Yes, thank you. Our pipeline from a customer perspective, still, like I've mentioned, still remains robust. Our communication and contact with them has been a little bit darker over the last four weeks. But everything that we have in the pipeline on all sides of the business has responded well.

As we spoke on the onset about the activity and the wins we had on the logistic side, there's some other things that are in the pipeline right now that we feel pretty strongly that we have a chance to add to that pretty large number. And we're truly sure that we can execute on it. It's just a matter of what price points that comes in at.

From a trucking perspective, we mentioned the new agent add and some of the things in the pipeline that we'll be bringing. On more so, the local and regional side, we're really taking a hard look at redirecting our services to more of a local food, beverage and consumer good. So, we're heavily out there looking at actively taking some additional swings at that type of freight to continue to build out that network. So, we're pretty positive and optimistic on that pipeline.

And then on the intermodal side, the pipeline is full, the customers just can't -- they can't tell us for sure when some of this stuff is going to come back. We have some pretty substantial things in the pipeline working, just waiting to see what the cadence is going to be on international freight. And hopefully, we'll know some of that sooner or later.

And then as you can kind of see right now, dedicated life on our customer base were pretty heavily involved around the automotive. And that's another area that we'll take a hard look at. And in our book, we're looking at not only current customers to transition some of that too, but also in conversions that we can go after.

So, the pipeline is healthy. We're unsure of how long it takes to come out of this COVID drag that we're in right now. But, we're pretty confident that as we stretch our legs later in the second half of the year that we would see continuing results as a result of the pipeline.

Chris Wetherbee -- Citigroup, Inc. -- Analyst

Okay, that's really helpful. I appreciate the time. Thanks, guys.

Jude Beres -- Chief Financial Officer

Thanks, Chris.


[Operator Instructions] Your next question comes from the line of Jeff Kauffman of Loop Capital Markets. Your line is open.

Jeff Kauffman -- Loop Capital Markets -- Analyst

Thank you, very much. Good morning, everyone.

Tim Phillips -- CEO & Director on the Board of Directors

Good morning, Jeff.

Jeff Kauffman -- Loop Capital Markets -- Analyst

I just want to go back and make sure I interpreted some of your commentary correct. Did you say on capex you'd spent about $33 million year-to-date, and I'm assuming this is gross, not net, and that the rest of year was going to be $35 million to $45 million? So, we're going to total something in the $69 million to $75 million range?

Tim Phillips -- CEO & Director on the Board of Directors

Yes. Probably it'll end up being more in the $70 million to $80 million range. But yes, you're in the ballpark.

Jeff Kauffman -- Loop Capital Markets -- Analyst

Okay, got you. And the decision to postpone the dividend, and again, your guidance is that your goal has always been about 2% yield. So, am I right to think that we're not going to worry about what we used to pay if we reconsider reinstating it that the goal is about a 2% yield and you can spend up to 40% of net income?

Jude Beres -- Chief Financial Officer

Yes. So, what we just tried to do with that, Jeff, is that we want to have a steady quarterly dividend, right? And so, we grew the dividends, the $10.50 per share, and we'll continue to grow that dividend once we get out of the situation that we find ourselves in.

It's just that the abrupt nature of what happened to Universal in the third week of March and of course the volumes on our dedicated business going from $12 million a month to zero and our value add business going from $30 million a month to zero, we just had to make some very difficult decision. And of course, Tim, myself, in conjunction with conversations with the Board, just felt it was prudent for us to do that in particular with the number of people that we have laid off and in addition to the uncertainty related to the future.

But the dividend is a huge part of what we do. It's a huge part of our capital allocation strategy. Like I mentioned in my comments, I mean, we've returned a $143 million to shareholders since the policy was implemented a number of years ago, and we'll continue that policy once we have a little more clarity on the future.

Jeff Kauffman -- Loop Capital Markets -- Analyst

Okay. So, I guess my question is, by getting rid of the dividend and abolishing it basically for an unknown period of time, you're driving away investors that would own the stock for yield or have a yield requirement. Why not, since we're talking about a savings in the $2 million to $4 million range, based on my understanding your language, why not reduce the dividend to a 2% yield and at least send the signal that we think we're fine and our cash flows are OK?

Jude Beres -- Chief Financial Officer

Yes, I mean, I think that was just the decision that we feel very comfortable, Jeff, with what we did. We have to make sure that we can preserve the integrity of our balance sheet, that we can fund the business that we have today, that we can fund the capital expenditures for the launches and the business wins that Tim mentioned earlier in his comments. And it was a decision that we made on our capital allocation strategy. And yes, there may be some investors that are pushed away as a result of that. But if you can't pay your bills, there's a lot bigger problems than you can have than worrying about someone that's chasing yield. It's just the reality of where we are today. And like I said, we'll look at it in the back half of the year and make the decision at that time.

Jeff Kauffman -- Loop Capital Markets -- Analyst

Okay, I understand. Thank you. And on the mark-to-market adjustment for the quarter, I understand that the market was down substantially. Can you talk a little bit about marketable securities and given the market, are we going to have a potential mark-to-market adjustment upward just based on where today is, as let's say markets didn't change to the end of June? I just want to --

Jude Beres -- Chief Financial Officer

Absolutely, Jeff. So, normally the portfolio doesn't cause this much drama as it did in Q1. Our portfolio is heavily weighted toward banks and oil companies that pay dividends. And so, we kind of used that as a mitigation against our interest expense and generate a little bit of cash.

So, you think about what happened in Q1 with the banks, obviously interest rates going basically to zero. And of course, as a result, their net interest margin going to zero or negative. And of course, the oil price war between Saudi Arabia and Russia that's pushed at one-time our West Texas to negative $30 a barrel. It just had a real detrimental impact on that portfolio in Q1.

We've already experienced some of those gains back in Q2. So, yes, our expectation is that that thing will slowly crawl back to hopefully even, which is about $9.3 million that we finished the year with. And yes, we should expect some gains in Q2 based on at least what we've seen up until yesterday.

Jeff Kauffman -- Loop Capital Markets -- Analyst

Okay. And then just one detailed question and a thought question because I couldn't hear you with the line interference that we had. When you were giving guidance on interest expense, I thought I heard you say rest of your $14 million to $15 million, does that sound right?

Jude Beres -- Chief Financial Officer

It's $14 million to $16 million, I believe, in the commentary.

Jeff Kauffman -- Loop Capital Markets -- Analyst

For the rest of year, not full year, correct?

Jude Beres -- Chief Financial Officer

That's full year.

Jeff Kauffman -- Loop Capital Markets -- Analyst

Okay, full year. All right. So, given this unusual environment we're in, you're not the only company to be conserving cash. And generally, you're in an acquisition mode and I got a picture there's a lot of opportunities you've been looking at that have become distressed over the last couple of weeks. Given what you're doing with dividend, given what you're doing with cash flow conservation, is it fair to assume the strategic decisions are off the table at this point?

Jude Beres -- Chief Financial Officer

No. This is Jude. No, I would not say that at all. I mean, I think we've laid out what our focus is as a company. I mean, we've mentioned it a number of times, we're paying down debt, evaluating acquisition opportunities and returning capital to shareholders.

Universal is not changing that strategy. We believe that's the right strategy for the company. We're always looking at acquisition opportunities. The difficult thing is just like what Tim mentioned with the pipeline is that everything is over the phone or via email. There's no way to visit management or fly someplace. So, I think if any of these -- if any deal comes to fruition, it'll just have to be later when things open back up and we're able to talk to people and get more information.

As you guys are probably well aware, there's so many people working from home that don't necessarily have access to all of the things that they do when they're at their job. So, our policy isn't going to change. We're still looking at M&A and we'll continue to do that. And of course, if the opportunity is right, we'll look at it in the back half of the year.

Jeff Kauffman -- Loop Capital Markets -- Analyst

All right. Well, thank you for the answers. Terrific results in a very difficult environment, and good luck. Thank you.

Tim Phillips -- CEO & Director on the Board of Directors

Thank you, Jeff.


[Operator Instructions]. And at this time, there are no further questions in queue. I turn the call back to the presenters for any closing remarks.

Tim Phillips -- CEO & Director on the Board of Directors

Yes, thank you. Once again, apologize for any of the interference that we had. I think this sums up what we're looking at right now in the second quarter. There's no clarity to a lot of the things, but hopefully we answered the questions, gave you some indication to the best of our ability. Appreciate everybody dialing-in and we'll talk to you soon. Thank you.


[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Tim Phillips -- CEO & Director on the Board of Directors

Jude Beres -- Chief Financial Officer

Steve Fitzpatrick -- Vice President of Finance and Investor Relations

Chris Wetherbee -- Citigroup, Inc. -- Analyst

Bruce Chan -- Stifel, Inc. -- Analyst

Jeff Kauffman -- Loop Capital Markets -- Analyst

More ULH analysis

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