UTi Worldwide, Inc. UTIW
Q1 2014 Earnings Call Transcript
Transcript Call Date 06/06/2013

Operator: Welcome to the UTi Fiscal 2014 First Quarter Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, June 6, 2013.

I would now like to turn the conference over to Jeff Misakian, Vice President of Investor Relations. Please go ahead, sir.

Jeff Misakian - Global VP, IR: Thank you, Doug and good morning, everyone. Welcome to UTi Worldwide's fiscal 2014 first quarter results conference call. Joining us on the call today are Eric Kirchner, Chief Executive Officer; and Rick Rodick, Chief Financial Officer. Ed Feitzinger, Executive Vice President, Global Operations is also here and available to answer questions during the Q&A session.

Before we begin the presentation, I would like to point out that certain statements made on today's call are not historical facts. They may be deemed, therefore, to be forward-looking statements under the Private Litigation Reform Act of 1995. Many important factors may cause the Company's actual results to differ materially from those discussed in any forward-looking statements. These risks and uncertainties are described in further detail in the Company's filings with the Securities and Exchange Commission. Please refer to these filings for more information regarding the risks and uncertainties that the Company faces. UTi undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.

Now I would like to turn the call over to Eric Kirchner. Eric?

Eric W. Kirchner - CEO: Thank you, Jeff. Good morning, everyone. Our first quarter started slowly which wasn’t surprising but momentum was built as the quarter progressed. Results were impacted by lower pricing in Freight Forwarding, reduced activity in Contract Logistics and Distribution and currency translation. However, we also saw signs of greater stability in the industry and began to realize some modest benefits from new business.

We've reported a small pre-tax profit in the first three months of fiscal 2014 as results improved each month. We started the quarter with a loss in February, then recorded breakeven results to the margin, and ended with a profit in April. Net revenue improved progressively in the quarter as well with the month of April being higher than the same period last year. This is the first time in 13 months that we experienced year-over-year net revenue growth.

The net revenue increased in April was led by improving trends in Freight Forwarding. One month doesn't make a trend and we still face many challenges. Industry volume percentage growth in part reflects easier comparisons not necessarily stronger demand. In addition, the environment remains every bit as competitive as we saw last year. Finally the decline in the South African rand has continued to weigh on the result.

At the end of the first quarter the rand was trading at approximately ZAR9 for every U.S. dollar. On May 31st it had fallen to nearly ZAR10, a deterioration of almost 10% in one month. So while we are somewhat encouraged by recent improvements, we are cognizant that there are a variety of continued challenges presented by the external environment.

In Freight Forwarding, airfreight volumes were slightly lower in the first quarter compared to the same period last year. Tonnage in the month of April was higher than the comparable month last year for only the second time since June 2011, led by a rebound in Asia-Pacific shipment. Ocean freight volumes in the first quarter were relatively strong, led by improvements in our EMENA region. Net revenue per unit of cargo was lower in the first quarter particularly in ocean freight. Currency weighed on pricing in the quarter but pressure was also felt in lower sell rate.

We saw somewhat better performance in airfreight pricing in the quarter. Net revenue per kilo declined 5% compared to last year's first quarter, but improved slightly on a sequential basis. Net revenue per TEU fell 11% in the first quarter on a year-over-year basis and weakened further sequentially.

Contract Logistics and Distribution revenue was lower in the first quarter due to many of the same factors we saw in the fourth quarter of last year. Revenues were impacted by the loss of a few large accounts that we previously told you about.

Currency had a larger impact on Contract Logistics and Distribution in the first quarter due to the decline in the South African rand. On the positive side, we saw improvement in North American volumes in both Contract Logistics and Distribution operations. New business implemented in the first quarter provided a modestly positive tailwind to our results, but greater benefits are expected in the second half of the year. Our Asia Pacific and Africa regions continue to provide strong business growth, and our North American Contract Logistics pipeline remains robust.

Expenses were lower in fiscal 2014’s first quarter compared to the same period last year, but increased on a constant currency basis. The trend line is moving in the right direction, however, as our previously announced cost reduction efforts led to a sequential decline in expenses of approximately $7 million on a constant currency basis. This sequential decrease is in line with our previously announced cost reduction plan. We continue to see some short-term duplicative costs in our shared service centers as we ramp up our system rollout and invest in North American local sales initiatives. As we told you on our last earnings call, these duplicative cost pressures are expected to ease later this year.

I’ll provide you with an update on our transformation activities after Rick reviews financial details for the first quarter. Rick?

Richard Rodick - CFO, EVP, Finance: On a GAAP basis we reported a net loss attributable to common shareholders of $0.12 per diluted share in fiscal 2014 first quarter. Excluding adjustments to GAAP results that I’ll discuss in a moment, our adjusted net loss was $2.4 million or $0.02 per diluted share. Adjusting further for a temporarily higher than normal tax rate in the first quarter, and the impact of currency changes, we've had a profit of $0.02 per diluted share. This compares to an adjusted net income of $0.16 per diluted share recorded in the same period last year. Currency changes had a larger negative impact on our first quarter results than we saw in the previous quarter. The U.S. dollar was stronger against most currencies, particularly the South African rand. Reported revenues and expenses in the first quarter were negatively impacted by more than 4 percentage points. Currency translation also had a negative impact of about 8 percentage points on operating income.

Revenues and net revenues decreased 7.5% and 7.4%, respectively in the first quarter compared to the same period last year. The decrease in revenues reflect impact of currency changes and reduced pricing. On an organic basis, revenues decreased 3.9%, while net revenues fell 2.7% compared to the same period last year. First quarter adjustments to GAAP results included severance cost of $3 million and $2 million in the first quarter of fiscal 2014 and 2013, respectively. Severance costs were primarily related to the transformation activities.

In addition, we increased our valuation allowance on deferred tax assets by $8 million and $1 million in the first quarter of fiscal 2014 and 2013, respectively. As I mentioned, last quarter, this is pursuant to accounting rules related to income taxes and does not affect our ability to utilize operating loss carry forwards once these operations become profitable. We provided reconciliations of GAAP to non-GAAP results in the tables in today's press release and posted more details on our website. The rest of my remarks will refer to our results as adjusted to exclude the severance and valuation allowances on deferred tax assets.

Adjusted operating expenses in the first quarter were 3% lower than the same period last year. On an organic basis, adjusted operating expenses were 1.5% higher than the same period last year, primarily due to additional costs in corporate, relating to the implementation of Oracle Financials, higher audit fees and consulting costs, and a short-term duplication of some finance cost in our shared service centers. As we complete the transformation the duplicative costs will be removed from our field operations.

Our adjusted operating income was $7 million in the first quarter compared to $25 million in the same period last year. The decrease was primarily due to lower revenues in Contract Logistics and Distribution and reduced pricing in Freight Forwarding. In addition, currency negatively impacted operating income by $2 million.

Revenues from the Freight Forwarding segment were down 8%, primarily due to reduced pricing and impact of currency, partially offset by higher volumes in ocean freight. Ocean freight TEUs were up 5% in the first quarter compared with the prior year, which was better than market. In the month of April, ocean freight volumes were up almost 11% higher than the same month last year. Air freight tonnage fell 2.5% in the first quarter but in April air freight volumes were up 3.4% compared to the same month last year. Preliminary volumes in May were consistent with the same month last year for both air freight and ocean freight.

Net revenues in Freight Forwarding decreased 3.8% in the first quarter, primarily due to lower sell rates partially offset by reduced carrier buy rates in air freight and higher ocean freight volumes. Net revenue per kilo declined 5%, while net revenue per TEU fell 11% in the first quarter compared to the same period last year. Adjusted operating profit in Freight Forwarding fell 28% in the first quarter compared to the same period last year, reflecting lower revenue per kilo and TEU. Operating expenses were slightly lower in the first quarter but not enough to offset the decline in revenue per unit – net revenue per unit.

Contract Logistics and Distribution revenues and net revenues decreased 6.6% and 10.1% in the first quarter, respectively, versus same period a year ago, primarily due to the previously announced loss of business and impact of currency, partially offset by increased activity in North America. The decline in revenue led to 47% decrease in operating profit for Contract Logistics and Distribution in the first quarter.

We recorded a tax provision in the first quarter of $11 million on pretax income of $442,000. This was primarily for two reasons. First, as I mentioned earlier we recorded an additional valuation allowance on deferred tax assets of $8 million. Secondly, a mixed issue in which losses for certain operations recorded in jurisdictions with very low or no tax rates, while certain operations in higher tax jurisdictions were very profitable. This led to a first quarter tax provision that was higher than normal. Nonetheless, we still estimate that our annual tax rate will be approximately 37%.

Cash flow from operations was an outflow of $53 million in the first quarter compared to last year's outflow of $10 million. Working capital decreased $69 million compared to a decline of $46 million in last year's first quarter. The first quarter decline was primarily due to the timing of receivables collection in South Africa due to record duty settlement payments during the quarter. I anticipate a significant improvement in collections during the second quarter.

As I have mentioned on the two previous earnings calls, I have been reviewing our capital structure for the past several months. I recently presented a detailed analysis and recommendation to our Board of Directors. Management and the Board have agreed to a balanced approach of investing in the business and returning cash to shareholders. During last couple of years we have invested a significant amount in the business. Most notably in our Freight Forwarding operating system and our South African pharmaceutical facility.

If we conclude the transformation investment and our financial results improve, we will be in a position to consider returning additional cash to our shareholders. One final comment, regarding the use of cash; any time we identify a significant opportunity for the use of cash, we will always perform an analysis to determine if that is the best use of cash at that time and always compare this with other alternatives.

With that, I'll turn the call back over to Eric for his closing remarks. Eric?

Eric W. Kirchner - CEO: Thank you, Rick. We see positives in the sequential progress in industry trends and operating performance. The industry still faces many headwinds but was somewhat encouraged by the modest improvements we've seen in April. The new business wins that we told you about earlier should allow us to show better performance as we look for the market to show more sustainable improvement. We launched our Freight Forwarding system in nine additional countries as we projected on our last investor call. That brings to 15, the total number of countries on the system including, Thailand, Malaysia and Canada, our largest countries to-date in terms of shipments.

The operating system is performing well. We plan to deploy the new system in three to five additional countries before our next earnings call. However, most of our time will be spent on pre-implementation activities for larger countries that we expect to add in the third quarter. We also plan to refine the linkage between our Freight Forwarding operating system and Oracle Financials. We estimate that at least 70% of shipments will be on the new system by the end of fiscal '14.

Our new cost savings target of approximately $30 million to $35 million in fiscal 2014 remains on track. Cost savings in fiscal 2015 are still estimated to be in the range of $45 million to $50 million and we remain on track to achieve our goal of 75 million to 95 million by 2016. We're also on scheduled to reach our targeted operating margin run rate of 20% in Freight Forwarding and 10% in Contract Logistics and Distribution in late fiscal 2015.

With that, I'll turn the call back to Jeff to direct the Q&A period.

Jeff Misakian - Global VP, IR: Thank you, Eric. We will now open up the call for your questions. As a reminder we ask that you limit your questions to one initially and then get back in the queue. Last quarter there were a few participants who could not participate because we ran out of time. We want to allow as many as possible to have the opportunity to participate, and we do appreciate your assistance in this process. Doug, may we have the first question please?

Transcript Call Date 06/06/2013

Operator: Tom Wadewitz, JPMorgan.

Tom Wadewitz - JPMorgan: Wanted to see if you could provide some additional on – I don't know if you want to give us like the bi-month on the air and ocean volumes. I think you said some of the numbers fairly quickly, but if you want to give us those numbers and maybe a little more commentary just on how much conviction you have on that improvement that you saw in April air tons.

Ed Feitzinger - EVP, Global Contract Logistics and Distribution: Sure, this is Ed Feitzinger, Tom. I'll try to answer that question. So, in terms of the air tonnage, we've seen improvement with each month against our performance last year, as Eric mentioned and Rick mentioned. April was positive. We've looked at some initial data from May and that seems to indicate that the trend is continuing and that we're expecting the numbers to be marginally better than last year, but not spectacularly better. So, that gives us some hope that the market has slightly improved and that the general environment I think there's still some concern with all the manufacturing data and other stuff out there, but our air tonnage has definitely shown signs of improvement over the quarter.

Tom Wadewitz - JPMorgan: And do you care to give some of the by-month numbers aside from I guess I think you said April up 3.4?

Ed Feitzinger - EVP, Global Contract Logistics and Distribution: Yeah, I'll have to get that in detail. I don’t have that right in front of me. You have that Rick?

Richard Rodick - CFO, EVP, Finance: Yes, I'll give that the. The tonnage was down 4% in February, down approximately 6% in March, up 3% in April, so that's where we were down little over 2% for the quarter, and then – those were the numbers. And May we think is up slightly.

Operator: William Greene, Morgan Stanley.

Lisa Tyson - Morgan Stanley: This is (Liz Tyson) for Bill. I wanted to follow up on the transformation. What are the key milestones that we should be watching for over the next quarter? And are there any lessons that you learned so far with the numbers, with the countries that you rolled out that you can update us on?

Eric W. Kirchner - CEO: Sure, it's a challenge to try to pick specific milestones by quarter because there are movements within the deployment schedule based on specific conditions, but our expectation, as we've said, is to be over 70% of our transactions on the system by the end of this fiscal year and some of that just has to – the quarterly view just has to do with the timing of which countries go on when. We have probably eight or nine countries that are already in queue to go based on the pre-implementation work, but we're doing a deeper dive on the larger countries that would come online because they are just bigger, there are more locations to deal with and it is a slightly larger endeavor to bring (and realize) onto the system versus a much smaller country. But as we have said we remain on track for that 70% of transactions metric by the end of this fiscal year. We anticipate three to five more countries coming on the system in this coming quarter. That would take our transaction volumes somewhere in the neighborhood of 25% of our total transactions, depending again on which country. So we have specific nuances within the system deployment so we might have a different proposition in a country that has more complexity around linkages accustomed system and automated custom system, (noise) system all depending on the existing functionality that that resides in a country on its legacy system and how that compares to our new system deployment. There are a couple of different factors that will tend to move countries around in the queue but as I said we have about I think eight or nine that are ready to go with all the pre-implementation activities done and the initial training done of our field Forward operating people. So I don’t know if that's precise enough but I'd say three to five additional countries by the next call and then with the anticipation that we are spending more time on pre-implementation activities in the larger countries that will drive a higher percentage of transactions going forward.

Lisa Tyson - Morgan Stanley: Then one quick follow-up. Is there any service updates in terms of feedbacks from customers? Have you – have that been coming in, is that changing your timeline at all?

Ed Feitzinger - EVP, Global Contract Logistics and Distribution: No. We had some learnings in the pilot phase that we went through in the Netherlands and we implemented that and I’m sorry, incorporated that into subsequent rollouts and actually this last round of countries that came online in the last two or three months has had very positive feedback and have been our smoothest implementations to-date. So, it's a positive reflection that we are integrating learnings into the go-forward deployments and with respect to any issues with customers, there has not been any service deterioration associated with the system. The thing that we are mindful of and continuing to work on as it relates to our customers is the visibility from a reporting standpoint because often customers rely on us to provide them detailed reports about their transportation and logistics activities and we do have some refinements to do with that going forward, but it's not impacted our ability to service those customers.

Eric W. Kirchner - CEO: Just a reminder again everyone, to limit your questions to one initially so we can allow enough time for everybody to have a chance. Thanks.

Operator: Scott Group, Wolfe Research.

Scott Group - Wolfe Trahan & Co.: So, I guess my question is on the ocean side and you talked about net revenue per TEU down 11% and down sequentially, can you give us your perspective on how you think that progresses going forward with ocean spot rates that have come down the past couple of months? Are you starting to see any recovery there? I know you are seeing the gross yields turn positive yet.

Eric W. Kirchner - CEO: Yes. It's a very interesting dynamic and I don't know how long it will take for it to play itself out, but we still see the imbalance between capacity and demand and the fact that more capacity is coming into the market, so we have to be mindful with our relationship with our customers to pass on changes in that pricing. So, in many cases, you've got different agreements depending on the customer. Some are fixed where we manage the TEU and the price fluctuates and we don't produce specific margin off of change in price. We have others that as the market conditions change, we obviously want to maintain and improve our margin, but when there are volatile radical swings as we've seen in certain time periods, we've got to react to that. So, I don't know if Ed's got any other color on expectation going forward, but it's not extremely clear right now.

Ed Feitzinger - EVP, Global Contract Logistics and Distribution: Yeah, so certainly I think, one of the things that we also look at is the mix of our business between the LCL and the FCL as we go forward. So, we've had some nice growth in our full container business, that tends to be at a slightly lower margin as well. So, as we move between adding LCL services and growing our FCL business, makes the quarter-to-quarter shifts in the yields just as a result of the mix within that ocean number.

Operator: Ben Hartford, Robert W. Baird.

Kenton Moorhead - Robert W Baird: This is Kenton on for Ben. I guess, I wanted to talk a little bit about the Contract Logistics results. Could you maybe give us a little bit of a breakdown in terms of what the impact was from currency, business loss and then maybe some of the economic weakness in Europe, what type of drag that's having on the results both from a top line and then obviously looking at the margins, what's happening there and how do we get back to that 10% target?

Ed Feitzinger - EVP, Global Contract Logistics and Distribution: So I think the easiest thing to look at is the gross revenue number, so if you looked a year ago quarter gross revenue was $387 million, current quarter it is $361 million. That was a decline of about 6.5%. Of that 6.5%, 4.3% was currency, so $16.9 million and about $8.7 million plus or minus was volume. We saw increases in volume in our Distribution business, which is primarily in the United States and in Southern Africa. We saw some increase in new business, and that was offset by a decrease in business from contracts that we had ceased and some reduction in volumes. On the European side, the Europe remained flat. We've taken steps to improve our performance in spite of the economic conditions and our expectation is that it will continue to hold the line on those. As you guys know, a significant portion of our business is based in Southern Europe, particularly in Spain and Portugal, which has been particularly hard hit. So the team has done a good job of holding the line there, but certainly there is no evidence of improving economic conditions or volume flow throughs in Europe, which is certainly a different condition than we're seeing in the States where we're starting to see existing customer volumes increase at the same warehouses.

Kenton Moorhead - Robert W Baird: And then again I was sort of wondering sort of as a follow up, is there a bigger impact maybe on the profitability side of this from some of this weight in Europe or are you – when you are getting these new businesses are you seeing increased yield pressure competitiveness that's weighing on the margin currently?

Ed Feitzinger - EVP, Global Contract Logistics and Distribution: So I wouldn't say there is anything different in terms of the competitiveness in Europe. I think the major established markets Europe and North America are very price sensitive. So when the contracts do come up for renewal every three to four years which is our typical cycle on a CL contract you will see some margin compression there. We have, as we have talked about before we have called out a number of low performing clients over the past couple of years. You see that in both the revenue numbers there. As we have also talked about we think that this is a cyclical, that we are in a little bit of a valley here and in terms of the expectation I'd just reiterate Eric's comments that we do expect to get to the 10% goal in the FY '15 – the last FY '15 period. So I would – we look at this as a valley that we intend to climb out of.

Operator: (Glenn Primack), PEAK6 Investors.

Glenn Primack - PEAK6 Investors: I am just wondering, on your Distribution business in North America, is that a function of increased market shares that you are seeing growth there, is it just having better customer base than perhaps others?

Eric W. Kirchner - CEO: I would attribute the growth there to a mix of improvement and cooperation between the business units that's yielding some growth and a very modest increase in the base volumes of our existing customer base.

Operator: Peter Nesvold, Jefferies.

Peter Nesvold - Jefferies: On the buybacks, so definitely encouraged to hear the dialog moving in that direction. I guess I’m a little surprise to hear you talk about it being a sequential process where you want to execute the turnaround first and then do the buyback and I say that for two reasons. Number one, assuming you’re successful with the IT deployment, the stock's going to be a lot higher than 15 when you get around to the buyback; and number two, (indiscernible) symmetrical information I mean you guys know where you are in terms of progress on the turnarounds whereas it’s very difficult for us to track that. So why not dual track both of these efforts?

Richard Rodick - CFO, EVP, Finance: Maybe, Peter, I’ll just start. It's Rick. When I mentioned, just so we’re clear, when I say when we finished investment in the transformation which were very near, I think in the past we said that we would begin amortizing the system late summer, I wasn’t saying once the transformation was completely implemented.

Peter Nesvold - Jefferies: Okay.

Richard Rodick - CFO, EVP, Finance: It’s really more the cash flow right now. In recent years, we’ve invested a lot in the business with the transformation in the new pharma building and what I was saying was once those investments are done, which we’re very close to, and financial results improve, that’s when we're open to reconsidering that. So, it’s not as far off as I think you believe.

Operator: Kelly Dougherty, Macquarie.

Kelly Dougherty - Macquarie Capital: I’m just wondering if any of the eight or nine countries that you've got teed up to go, is there any of the major countries like U.S., South Africa, China and then if you were to put any of those big countries on the system, can you give us a sense on how much of a boost you would see from – I’m expecting the 25% level after you completed things this quarter. If you were to put any of those major countries on there, any sense of magnitude for how much more you get above that level?

Eric W. Kirchner - CEO: Again, it's hard to say, but those are the three largest countries that we're focused on in terms of transaction volume or the U.S., South Africa and Germany and so, again, each of those represents more than double-digit percentage of transaction. So, I don't know how much upside there is from the 25% level for this quarter, that we're looking at, but all those countries are in that eight or nine country queue, and again, some of them, specifically South Africa have some more complexity about interacting with other systems that are going to cause us to move forward with caution, but I would say that, that 25% number is a good thing to consider for this quarter and then into the third quarter you could expect some of these larger countries to start coming online and that's where we'll see a bigger pop in the third quarter.

Operator: David Ross, Stifel Nicolaus.

David Ross - Stifel Nicolaus: On the Contract Logistics side, can you talk a little bit about eh competitive environment which you're seeing for pricing for contract renewals and then just on the segment reporting within Contract Logistics, I was looking at your geographic reporting, Asia Pac has a very high EBIT margin. Just want to know what's going on there and why that may be the case.

Ed Feitzinger - EVP, Global Contract Logistics and Distribution: Okay, why don't I take the first part of that and maybe Rick can take the second part. So, in terms of the competitiveness – so around the world, I think it's pretty clear that both in the CL and the Distribution side, particularly again in the mature markets. It’s a competitive environment. Customer is still – outsourcing your warehouse as an example is a trust based sale. There are some customers out there that are looking for the cheapest possible solution. We try to avoid those in general where they are looking for labor plays where we can't add value through systems or providing much innovation. We try to avoid those as well. The market I think is – I would say is mature and is somewhat stable. If you look at the large competitors, ourselves included, we need to make a return on our invested capital on these projects, and all of the competitors that I know of and us have thresholds, and so there may be some small local heroes that are willing to work below that threshold. But I think there's a minimum floor that most of the competitors will work with that you can trust to do this work for you if you are going to outsource a large warehouse, and I think that creates a floor on the pricing that most of the competitors are not going to go beneath. So I don’t view this as something where people don’t typically buy the business in the warehousing side because you're stuck with a contract for three or four years. So, again, while the customers are always pushing to reduce the cost, we try to drive that through innovation and finding other ways to add value and reduce the cost of their supply chain, and I don't see that the market is going to drag people down to some incredibly low point because of pressure and desire to get these buildings, because at some point all of our competitors are rational and they are going to just turn it back to the customer and say I can't make a return on my capital, so you can take this project back.

David Ross - Stifel Nicolaus: And is that a change in attitude from a couple years ago with the main competitors?

Ed Feitzinger - EVP, Global Contract Logistics and Distribution: I would say the competitors have matured over time and you see pressure I think on all the calls that you see from our competitors and all of their quarterly releases that they are all looking to make a reasonable margin in their warehousing businesses. So if you look over the last five years, I think the market has definitely matured. I think at one point particularly companies that had Freight Forwarding arms were looking at warehousing as a loss leader to their Forwarding business and I think that has really gone away in the market for the most part over the last five years.

Richard Rodick - CFO, EVP, Finance: David this is Rick, will you look at the schedules in the press release?

David Ross - Stifel Nicolaus: Yes.

Richard Rodick - CFO, EVP, Finance: Yes. That's really combined Freight Forwarding and Contract Logistics.

David Ross - Stifel Nicolaus: Because I was just looking at the operating income, got it.

Richard Rodick - CFO, EVP, Finance: Yes. It's for the combined.

Operator: Jack Atkins, Stephens.

Jack Atkins - Stephens: So I guess my first question is really (too far) one to get around Jeff's concerns. But would you think about how many – I guess where do we stand today as far as the number of transactions, the percentage of your transactions on your existing – on your new platform after the nine country roll out in April? Then what portion of your $30 million to $35 million in cost reductions have already been captured to-date?

Richard Rodick - CFO, EVP, Finance: The percentage of transactions on the systems is there between $10 million and $15 million and the cost capture for the first quarter was between $6 million and $7 million. So if you look at that total amount that we have talked about $30 million to $35 million, that's a combination of cost actions that we initiated in the fourth quarter in response to business conditions and what we expect at the tail end of this year (to see) with regard to the system. So a net benefit of the system but that's obviously back end loaded. So the amount that we saw in the first quarter was really related to basic blocking and tackling within the business because obviously volumes has continued to be anemic and we wanted to make sure that we had that cost action in place before this year started.

Jack Atkins - Stephens: Just to be clear Eric, the $67 million is that an annual run rate or is that just actual hard dollars taking out as it relates just to the first quarter?

Eric W. Kirchner - CEO: Jack, that's actual hard dollars taking out in the first quarter. So, the ongoing run rate.

Operator: Nate Brochmann, William Blair and Company.

Nate Brochmann - William Blair and Company: I wanted to talk little bit too on the pricing side but moving over to the Freight Forwarding side, in terms of some of the new business that you've won Eric in terms of kind of talking about where the pricing on that business is and also kind of at the end of last quarter, you're talking about pricing becoming a little bit more rational as you're winning some business that maybe was coming back that wasn't being serviced at various price commitments. Wondering if you could kind of talk about how that trended through the quarter and kind of where do you see kind of that pricing pressure going for the rest of the year?

Eric W. Kirchner - CEO: Okay, Nate. What we saw in the quarter was improvement on our buy rates and reduction in pricing. So those things in tandem, we saw I think about $0.55 reduction in the sale rate and a $0.50 reduction in the buy. So, we did lose a little bit on the net revenue per unit side there, but we're encouraged because we've been more active in the gateway process, so that we can help keep relative margin as pricing is more competitive by taking better use of the capacity that we're purchasing. So, I think that we've trended reasonably well and staying competitive on the pricing but also offsetting that through both procurement initiatives and then capacity utilization initiatives. There is evidence and I've seen more since the last call, of customers wanting to come back and reengage because they've taken a little price option and the service has been unsatisfactory. So, I think that will tend to firm up some of the pricing, because again, in some sense, you end up getting what you paid for, and the only way that – there's only two ways that someone can underprice the market. One is to go to carriers that don't provide as reliable service and the other is to sustain insufficient margins and I think that we've seen evidence from a couple of data points back from these customers that the trend is continuing that service is coming into a more balanced part of the discussion as opposed to just price, because the penalty of not making service requirements, especially if you're going to pay the premium for air freight, you've got to get the service, we'll tend to bring that in line. So, we're going to continue to work the procurement and capacity utilization initiatives so that we can provide market competitive pricing to our customers, but we're hopeful that there's continued acknowledgement within the customer base that the service cost equation is important and it's not just a cost decision.

Operator: David Campbell, Thompson Davis.

David Campbell - Thompson Davis: I just had one question and that is the corporate overhead cost $17.7 million in the first fiscal quarter, that's up again from the fourth quarter. Does that include – you mentioned (at the start) you've got a lot of nonrecurring expense duplications from putting in the new operating systems. Is that where part of this savings will come in terms of – or is that $17 million something we look forward on a continuing basis each quarter?

Richard Rodick - CFO, EVP, Finance: This is Rick. You will see that go down overtime. The duplicative costs will go away. We had some timing differences and we talked about the audit and the tax consulting fees that were in there. Those were budgeted for the year, but they were kind of in there earlier than budgeted, but we should see these costs go down as we roll out and get more of the countries on the system and we continue taking cost out of the field and not have the duplicate costs in the shared service center. Right now we are ramping up shared service centers to take on the countries, and we've got the duplicative costs. So those numbers should start going down.

Operator: Ryan Bouchard, Avondale Partners.

Ryan Bouchard - Avondale Partners: You said earlier that April net revenue was higher year-over-year and you also talked about air freight and ocean freight volumes were slightly positive in May but I was also wondering if you could say the consolidated net revenue for May was higher year-over-year or at least what you know so far about May?

Eric W. Kirchner - CEO: Ryan, I think it's too early. We're just starting the closing process, so we get the volumes in and that's where we see that the volumes in that. So right now we are getting all the information from the field, so it's too early for us to tell if actually net revenues will be up year-over-year in May.

Operator: Ryan Cieslak, KeyBanc Capital Markets.

Ryan Cieslak - KeyBanc Capital Markets: The one I had is on the transformation initiative, the incremental depreciation expense guidance that you gave of roughly $10 million here in fiscal 2014, if I see this right we have not had any incremental expense at this point. I just was curious to know, how we should expect that to ramp up for the balance of the year, and then also, the incremental $10 million again into '15.

Richard Rodick - CFO, EVP, Finance: What we had, say was, it would be approximately $20 million a year. We thought that we begin amortizing the system in late summer so it will be somewhere around $10 million this year. But we have said in the past that it will cost us all in about $140 million for the transformation. Amortized over seven years is about $20 million annually. So it would be probably little less than $10 million this year.

Ryan Cieslak - KeyBanc Capital Markets: Then once you begin to amortize that late summer, is there any lumpiness to that or is that a gradual sort of amortization going forward?

Richard Rodick - CFO, EVP, Finance: Straight line amortization. So it would be $10 million for the – well it's basically $20 million a year divided by 12, so just under $2 million a month.

Operator: Matthew Young, Morningstar.

Matthew Young - Morningstar Research: Just a quick follow-up on the pricing on the airfreight side. Are you seeing that pricing pressure coming from some of the larger providers out there or is it more coming from the smaller less capable guys? It sounds like the latter if some of that – if customers are getting less service and coming back to you.

Ed Feitzinger - EVP, Global Contract Logistics and Distribution: So, Matt is your question about the competitors or the customers?

Matthew Young - Morningstar Research: No, the competitors, in terms of the pricing pressure and whether they are underpricing in the market, whether pricing is rational and so forth? Is that coming from some of the larger Freight Forwarders?

Ed Feitzinger - EVP, Global Contract Logistics and Distribution: Yes. I would say that the larger Freight Forwarders have displayed a much greater degree of rationality in the past two quarters let's say than we've seen in the past. Occasionally, you get people that want to buy business in bursts to achieve some growth and I think as we are seeing the maturity in the market it's I think a natural evaluation of the market for people to be a little bit more rational. The customers are still pushing on cost liability and terms and so, obviously as we certainly push back on those because we have to make a return and I think again it's – I look at it as a rational competitor behavior in a mature market for most of our larger competitor set and the small guys are always going to be out there.

Matthew Young - Morningstar Research: Then, just a quick follow-up. Are you seeing much of a differential between the shipment count versus tonnage trends? I know that in the past the tonnage has fallen, maybe in the last year tonnage has fallen more than shipments and that's often a pressure on productivity.

Richard Rodick - CFO, EVP, Finance: Matt its Rick. For the quarter, you are asking shipments versus tonnage?

Matthew Young - Morningstar Research: Yes.

Richard Rodick - CFO, EVP, Finance: They were both down a similar amount. For April actually the tonnage was up and the shipments were down slightly. So, the trend is that the tonnage is growing. Let's say, in April, we were down just a little bit below last year in shipments, while tonnage was up 3%.

Operator: Scott Group, Wolfe Research.

Scott Group - Wolfe Trahan & Co.: I've got just two things. One, can you give us the monthly ocean numbers if you have it, first?

Richard Rodick - CFO, EVP, Finance: You want shipment or TEUs use, volume or – how about TEUs use.

Scott Group - Wolfe Trahan & Co.: You typically give us TEUs, so we'll take that.

Richard Rodick - CFO, EVP, Finance: So, February we're flat year-over-year, March, we were up about 4%, April, we're up about 11% for the quarter that got us approximately 5% increase.

Scott Group - Wolfe Trahan & Co.: The 35 million of cost savings, is that inclusive of the 10 million increase in depreciation or is it 25 net of the depreciation increase?

Richard Rodick - CFO, EVP, Finance: It's the net, but I mean, we have those two totally separate. We'll have some cost save, part of that 30 to 35 is related to that, but you could look at it that way and say it's net, 20 to 25. Similarly that long-term 75 to 95 is prior to the 20 annual amortization.

Scott Group - Wolfe Trahan & Co.: Right, but that 75 to 95, that's cash savings and depreciation is non-cash?

Richard Rodick - CFO, EVP, Finance: Correct.

Scott Group - Wolfe Trahan & Co.: Then, just last thing, when we just think about this, if you're at – call it a 7.5% margin, Forwarding in the first quarter at 5% in Logistics and you're talking about getting to 20 and 10 by the end of next year, does it happen kind of equally in '13 and '14? Is it all kind of really back end loaded? What's the trajectory we should think about of margin improvement over the next couple of years?

Eric W. Kirchner - CEO: I think that the Forwarding number is more back end loaded than the CL number, because the Forwarding thing is dependent on execution throughout the remainder of the transformation and then enabling that with the system, whereas the CL&D numbers are more dependent on getting from growth back in the business and then managing individual operations to profitability or to better margins than they exhibit today. So we've had a series of actions that are ongoing where we basically look at the bottom performing operations and then have specific plans that either involve adjusting the pricing or improving the productivity within the operations to get them to adequate margins and it's a site by site basis. Freight Forwarding is more networked and as I said dependent on execution of these specific transformation initiatives that relate to working these new standard operating processes and then enabling those with the system.

Scott Group - Wolfe Trahan & Co.: Okay, that's great. And just with that just one last thing. All of the depreciation or other implementation costs, anything that's ongoing, is that showing up in Forwarding expenses or corporate?

Richard Rodick - CFO, EVP, Finance: It will be in Forwarding.

Operator: Kelly Dougherty, Macquarie Capital.

Kelly Dougherty - Macquarie Capital: Can you just give us a sense in South Africa which are the industries you are most levered to and whether there's anything going on in the country that gets you more optimistic or maybe on the flipside more concerned about the exposure you have there? And then I guess finally what you're seeing from a competitive standpoint, specifically in that region?

Ed Feitzinger - EVP, Global Contract Logistics and Distribution: This is Ed. So certainly in South Africa, I think most people have seen issues on the news with the labor unions and the ANC and the issues that has had on the mining and the export industry which has put a lot of pressure on the rand over the course of the past couple of months. We do have some exposure to the mining industry. You would typically see that in our ocean shipments and so if the mining industry slows down not so much but we have some in South Africa. We also have a fair amount of Sub-Saharan African business that flows through South Africa which would be un-impacted, that's more touched by the commodity prices. So we are cautious about South Africa. We are very careful to look at how we can get growth. We do have a predominant market position in South Africa in many different businesses. We have a full spectrum of businesses there that cover both the customer supply chain and the value chains. Frankly we see not only solidifying the position in South Africa but we have seen the growth of Sub-Saharan Africa which is somewhat unrelated to South Africa's problems, as a growth opportunity for us going forward. So while South Africa may have its issues, we also expect to able to lever our position on the continent to grow as the rest of Africa grows.

Kelly Dougherty - Macquarie Capital: Are you seeing more competition coming into the market?

Ed Feitzinger - EVP, Global Contract Logistics and Distribution: So the European competitors come into South Africa on a cyclical basis. So I would say every year another competitor announced an effort in the market and puts a big investment in and we have seen that, that's no different – what we see now is really no different than we have seen over the past five or six years. I would expect to be honest with you that some of the issues in South Africa may actually deter some of our customers from (planning) their next effort there. But every year to 18 months we see one of our other particularly European competitors try to make a big push and get inroads and up to-date we have been able to thwart those efforts.

Kelly Dougherty - Macquarie Capital: I just have one more quick clarification. The $6 million to $7 million cost savings you guys mentioned for the first quarter, is that net of – or gross of any of kind of the redundancies that you talked about having no more financial redundancies and things because of the multiple systems?

Richard Rodick - CFO, EVP, Finance: It's Rick. The cost savings are there and we also have the duplicative costs. So, it'd be net.

Kelly Dougherty - Macquarie Capital: So, that $6 million to $7 million is net of any kind of duplications?

Richard Rodick - CFO, EVP, Finance: Yes.

Operator: Nate Brochmann, William Blair and Company.

Nate Brochmann - William Blair and Company: Kind of in line with my previous question, this was Scott's follow-up question. I was looking like – and we talk a lot about the transformation in terms of the systems but you mentioned a couple of times like particularly still kind of coming through some of the underperforming contracts or areas in CL&D. Then, also in terms of continue to focus on improving your buy rates and leveraging that, obviously those have been like kind of ongoing type projects for a long time. Just kind of wondering, in terms of how far through all those you feel that we are? How much more is there really to go? In terms of once we even get this whole system up and running on the Freight Forwarding side, how much more process improvement or coming through underperforming type things, do you feel that you still need to go through?

Eric W. Kirchner - CEO: There is I guess a couple of different questions within your question, Nate. So, on the CL&D side, it's just math. There is always going to be a bottom 10 and we are always going to focus on improvement initiatives on those. So, we are – I think we have become so much better in the contracting process in the – we've got a process called Advanced Quality Planning, where we have in-depth discussions with our customers before we initiate operations, so that there's a very clear alignment between their expectations and our preparedness to execute to those expectations and we're getting better and better at those things. So, what we should expect to see and I think we have seen the absence of big misses as we've had in this business a few years back. So, we've had much better account selection in terms of the type of client that we can provide value to and then derive margin from, and then better execution as we agreed to the terms and then subsequently moved into start the business. We have an initiative to expand both Forwarding and Logistics which is five star quality. So we have a very prescribed approach to ensure that that we're improving operations. It involves in auto process and it's, I think very detailed and it's helping us get better in terms of performance. With regard to Forwarding, we have now built out product leadership which the Company didn't have before. So, we have an air leader, an ocean leader and a customs brokerage and compliance leader and we are seeing better collaboration and cooperation across the geographic execution at an entire level product function to just help us iterate and get better and better. So, I'd say on the CL&D side, we're building on a lot of progress already and we'll continue to incrementally improve. On the Freight Forwarding side, there's still ample opportunity for additional improvement because as we implement the new system and along with the new system coming different management type reports that give us visibility for operations. It will make problem recognition and resolution a lot straighter and quicker than we've ever seen it before because we'll be able to do a different type of stack ranking and then compare – it's a little bit different than CL&D because CL&D is within the four walls. Within the Freight Forwarding operation you'll still have varying levels of performance across multiple operations and then we'll be able to derive trends from the top performers and apply those to the bottom and work them up. So I think the Forwarding still has more upside opportunity than the CL&D, although we've got opportunity on both of those business lines.

Nate Brochmann - William Blair and Company: But it sounds like generally the platform's (process) improvement on both sides are definitely in place and in Freight Forwarding it's about leveraging what you have in place and then be able to leverage that even further once the system is in place?

Eric W. Kirchner - CEO: Yeah, that's there.

Operator: Jack Atkins, Stephens.

Jack Atkins - Stephens: Just wondering if you all could comment on the initial customer conversations you're having about peak season, just any feedback you could give us there I think will be helpful.

Eric W. Kirchner - CEO: What is that? That's an antiquated term. I don’t know. Ed, do you have any input there?

Ed Feitzinger - EVP, Global Contract Logistics and Distribution: Yeah, I think it is really dependent on how the market unfolds, particularly outbound out of Asia. And the peak season varies by trade lanes obviously, but we're watching the trade lanes carefully outbound out of Asia. If the U.S. economy takes off, it's really a question of with all the extra capacity that's been in the market on the air side is that going to be able to pick it up or not and we are monitoring that carefully and we are watching it. At this point I think it's too early to call it. If things stay the way they were aggregate for the first quarter, I don’t think we have seen one. If April and May, if we see a June that's (just a) uptick and U.S. inventory volumes are low and the U.S. economy starts to accelerate then you might start to see a trans-Pacific east bound thing. But generally I think it's a longer shot. I would say the odds are lower and that it will not happen and when it will happen.

Operator: Ladies and gentlemen that is all the time that we have for questions at this time. I would like to turn the call back over to management for closing remarks.

Eric W. Kirchner - CEO: Thank you, Doug. Thank you very much to all of you for participating in our call this morning. On behalf of all of us here at UTi, we thank you for your continued interest and your ongoing support. Have a great day.

Operator: Ladies and gentlemen that does conclude our conference for today. I would like to thank you for your participation and you may now disconnect.