Q4 2019 Earnings Call

The free market has been soft.

Allowing shippers the opportunity and motivation to move a larger portion of their Freight at reduced prices this phenomenon wait on several of our operational metrics in the quarter and was a meaningful factor in our pork for financial performance. Having said that our team remains focused on the long-term plan. We let out more than two years ago in keeping with that plan. We made several key changes and investments in 2019 in spite of the difficult Market which will position us to benefit when the market pendulum swings back in favor of the carriers. We will talk about several of those changes and Investments throughout the call today.

We remain committed to the turnaround efforts here at usat capacity Solutions and are pleased with the progress. We are yielding on many of the structural systemic issues. We inherited when we embarked on this journey, we thought would be tough markets along the way but it's not about making short-sighted decisions to prop us up in the downturn rather make the right decisions to ensure success in the long run. If you'll please turn off light number three will do a brief review of our financial results Consolidated operating revenues came in at 124.1 million for the quarter which represents a 12% decrease year-over-year Consolidated adjusted operating ratio for the quarter was 102.8% primarily driven by the week or Freight environment mentioned previously and affected. Both of our operating segments are adjusted loss. Looted share was $0.52.

turning to slide number for

Trucking operating Revenue before intersegment eliminations decrease 7.8 million or 7.8% to ninety two point 1 million for the fourth quarter of 2019 r Trucking segment ejected a 2.2 million dollar loss and adjusted operating income and 102.7 adjusted operating ratio for the fourth quarter of 2019. The primary driver of these results was a 25% reduction in base Revenue per loaded mile when compared to the fourth quarter of 2018 the rate reduction also negatively affected base Revenue per available tractor per week, which decreased $284 or 8.2% year-over-year for the fourth quarter.

The offset to the rate reduction was an improvement in utilization of 14 miles per truck per week or approximately 1% when compared to the fourth quarter of 2018.

The aforementioned base rate per loaded mile reduction was a result of increased year-over-year pressure and required participation in the spot Market combined with lower margins in our normal seasonal job opportunities typically operated in the fourth quarter are spot Market participation in the fourth quarter of 2019 was approximately 9% up from approximately 6% for the comparable. E eighteen, but down sequentially from approximately 15% figure we disclosed in the third quarter.

as previously mentioned

Loaded miles per available tractor per week increased 14 Mi or 1% year-over-year and our deadhead percentage for the fourth quarter of 2019 improved a hundred twenty basis points year-over-year as well phone number available unseated tractor account with 6.9% up nominally from the fourth quarter of 2018. The average available tractor count for the fourth quarter of 2019 was $1,949 off which is a three and a half percent increase when compared to the fourth quarter of 2018 due in large part to the Davis transfer acquisition completed during the fourth quarter of 2018 as well as the year-over-year growth in our owner-operator Fleet off.

Turning to slide number six, we will review the results of our usat Logistics segment Revenue before intersegment eliminations decrease 10.8 million or 24.4% to thirty three point six million for the fourth quarter of 2019. Our Logistics segment generated a $932,000 loss in adjusted operating income and had 103.1% adjusted operating ratio for the fourth quarter of 2019. The primary driver of these results was a lower Revenue per load as a result of deterioration in The Brokerage Market when compared to a robust comparable quarter in 2018.

Revenue per load decrease

20% or $326 per load year-over-year.

Gross margin decreased two point six million or 40.7% to 3.9 million for the fourth quarter of 2019 gross margin percentage for the fourth quarter of 2019 was 11 and a half percent wage versus 14.6% for the comparable quarter of 2018 load count decreased 5.5% or approximately 1,500 loads year-over-year to roughly $25,800 in the quarter.

If you'll turn with me to slide number seven, we will highlight some key balance sheet and liquidity measures as of December 31st, 2019 total debt and Lease liabilities were 190.6 million months total stockholders' Equity with 78.2 million net debt was 190.5 million and our net debt to adjusted ebitda R for the trailing twelve months ended December 31st, 2019 was 3.7 times the company had approximately 55.1 million dollars available to borrow under its credit facility as of December 31st, 2019.

I want to take this.

Take this moment to point out a couple of items and briefly highlight some Trends over the past several years. I think it is helpful to look back at the progress that has been realized by this team since we came together in early 2017 long as you can see from the charts and slides 6 the entire USA T capacity Solutions team has done a pretty good job over the past three years at increasing ebitda, which is a proxy for cash flow as well as increase the quiddity while the same time investing in the fleet. We all know that 2018 was unusually strong and 2019 was unusually weak, but in spite of that fact we are currently wage but in spite of the fact that we are currently in a weak point of the cycle the trends in each of these categories are all much improved from where they were when we started this journey.

Additionally during this time. We've invested in our technology and information systems and have expanded our terminal presence. Finally. I want to remind people that we amended and extended our revolving credit facility in the first part of 2019 further enhancing. What was already one of the better facilities in the industry as it has minimal restrictive covenants with ftcr and liquidity being the only key measures. So in fact in spite of the significant headwinds our industry and our company of experienced in 2019, we feel the team has made the right long-term decisions along the way to place usat capacity Solutions on firm footing so that we are positioned to accelerate profitable growth when the market turns which most of us are expecting you to happen at some point in 2020. In the meantime, we will remain focused on improving the operational levers. We cannot control focusing on cost discipline and ensuring we preserve liquidity keeping in mind that should the downturn take longer than expected. We can always temporarily pull back on capex an option afford wage.

as a result of The Prudent Investments

Have made over the last two years. So with that I'll now turn the call over to James for a discussion of the business and go forward strategies. Great. Thanks, Jason and thanks to everyone that's on the call with us today intent is to be a little more detailed in adding color to the results giving insight to the corrective measures. We took during the quarter and to outline our next steps in the self-help story that we continue to work through long as I stayed in our release our results were meaningfully at impacted by the difficult great market during the fourth quarter of 2019 the soft spot market and supply-demand imbalance affected both our contract and spot Market opportunities during the quarter Market rates remained pressure during the quarter and shippers allocated large portions of their Freight spend to the lowest cost alternative adding to the near-term pressures of organizational changes. We expect will enhance our business in the long term, but that resulted in are experiencing the effects of a tough Market even more severely than some of our peers I will give you additional color on each of those items later wage.

Call before we get into the quarter.

We always like to give you some indication of the current market conditions just as we have have all seen in the readily available Market data. The abundance of trucking capacity is reflected in seasonally soft rates and rate recovery related to capacity rationalization will be an important theme to watch throughout the balance of twenty-twenty demand has inflicted positively positively from our own expectations. And there seems to be encouraging signals that returning demand in the marketplace the one critical measure EDI turndowns has been very low over the last ten days, which is generally a sign of weaker demand Dynamics wage activity was quite heavy in the fourth quarter as we believe shippers were trying to reset rates on a lower base, but now we see the bid Kaden normalizing back somewhat just under one-third of our annual truckload bids are setting up to be completed in the first quarter, which is only slightly higher than a quote-unquote normal year looking back over the last decade now, I'd like to get into the results a bit on the trucking side. Our segment results are really dead.

we have a market-wide reduction in the rate and the flow through of expense Headland that Jason addressed a little bit earlier as we noted in the release our Trucking segment rate preloaded mile was down 9.1% year-over-year month or 21 and 1/2 cents from

The rate impact alone accounted for roughly an eight million dollar reduction in trucking revenue and operating income in the fourth quarter of 2019. The reduction in rate was partially driven by continued disproportionate Reliance on spot rates historically, we have kept that percentage out. Excuse me. We have kept that percentage of our freight mix to less than 5% and in the fourth quarter of 2019, we had approx 9% of our Freights divorced via the spot market and while that is not ideal because in this environment spot rates are about 25% lower than contract rate. It is an improvement over the last couple of quarters where we had 10% and 15% respectively of our Freights torst in that manner. This challenge was mostly created in two ways. Both of which we discussed at length throughout 2019 and which we have addressed through our teams good work and focus the first way is customer Freight award realization. This is partially in our control. We have a lot to do with winning.

Just every single day but customers had choices throughout 2019 and the realization of freight that was tendered as a percentage of what was awarded hovered between 60 and 65% of all year long when we don't get Freight tendered that we won in our bid process. It hurts the model to mitigate this challenge 2019 was a year where we at usat capacity Solutions focused in a sense lie on developing a service culture with our team and especially with our customers. We add a team members in our sales organization to help create contact points and sustained engagement with our customers are executive team more customers in person than ever and our internal business Cadence shifted to a daily customer level accountability for service performance.

the second issue with

Respect to spot rates in the way that we've combated that need for spot rate Freight and low realization is by heightening our bid participation and intensity in 2019 wage. We doubled the amount of freight we competitively bid when compared to 2018 for some perspective. That was an increase from 6.6 million loads bid in 2018 to 13.9 million load are nine million loads bid in 2019. That's a 110% increase and to be clear. We are targeted in the bid activity two lanes that comport with our Network design. In fact it is we never bid Freight for fun. It's always with the express intent of improving the network. The remainder of the rate for loaded mild reduction was driven by broad reaching Market moves that impact the entire industry. But as a reminder, when our team took on the opportunity at usat capacity Solutions, the company's rate was perennially the lowest in the public Pier set. We now have a rate Reserve.

That reflects one of the top price position.

In the industry our rate therefore will tend to move with the industry peers. Now more than ever the year-over-year revenue decreases partially offset by the Improvement. We had in utilization that Jason discussed earlier. We want to be clear that we are not in the mode of expanding capacity by adding trucks that is not our plan in the current environment while we are pleased that utilization improved we know there is more opportunity ahead and look forward to further Improvement. We also improved our deadhead percentage 120 basis points again showing our discipline to keep trucks in our Network despite almost 9% of our loads coming from the market some highlights in the quarter and the trucking segments include the Davis transfer performance and are dedicated business performance. These are both included in the trucking segment results as we have entered dependence on a tractor driver and trailer resources, but these businesses both performed despite the challenging Market at near best-in-class performance levels this ray of light provides too important wage.

the first is that the

Educated business provides insulation and volatile times and consistently earns acceptable returns this business performed almost exactly as well as it did in 2018.

And second that regionalization which we consider Davis to be a near-perfect proxy for creates the visibility ownership and focus that can produce acceptable returns and profits even in the office environment all in all has rates improve and our execution continues to gain traction. So we'll segment results. Now turning to Logistics. The fourth quarter was particularly tough for our Logistics business, which experience lower volumes and margins that are indicative of broader Market challenges in the industry. The challenge is Jason mentioned were broad-based as Revenue per load was down 50% over the period and gross margin was down 310 basis points year-over-year in plain terms price was down and the spread between price and capacity cost was the tightest we have ever seen a face with that environment. We made an intentional choice to eliminate loss-leader Freight. We just couldn't justify losing more money to support Freight that was being moved in the Market at negative.

margin

Had a direct impact on our volume in the quarter and frankly in the year. We're not convinced that gaining a critical mass of unprofitable Freight is the right strategy for us in this market where customers move quickly between lower-cost options. We have studied this Market closely and have come to believe that typical down markets in The Brokerage space have generally been supply-side issues. And while there is no doubt that there is excess Supply a capacity in the market today. We have also come to realize that what we are seeing is exacerbated by the number of Brokers competing in the market and a demand same issue as well by our estimates. The number of licensed Brokers has grown 40% to over 18,000 licensed broker since 2009 which creates a hyper-competitive and in some cases irrational competitor set and there are many outside sources that have documented the soft demand measured in load count or loads per available tractor. Think about what that means we have over Supply dead.

Low demand and more competitors than ever.

In this little margin environment and so with that backdrop, we see two really distinct approaches to this Market one gain critical mass at any cost. The second is hold fast to develop marja where they exist preserve relationships and lower transaction costs remain relevant until the supply-demand equation balances out. The first option to us is a bit like the time-honored question of why don't you wrestle with a pig and of course the answer is because you both get dirty and the pig likes it we don't have the prophet Headroom or funding to pursue that path. So we're taking the latter path which is to say we're focused on increasing efficiency lowering execution costs improving capacity networks and Mining Profitable Freight We Believe will be able to leverage those competencies going forward with our existing relationships to Garner profitable Freight as a logistics Market improves from this current cold front some of the things we're doing to execute on this strategy include first partnering with outside technology firms these birth

Use text to automatically match.

Great two carriers and use artificial intelligence and continuous learning models to optimize the experience for our third party capacity providers that lowers the transaction cost. The second thing we're focused on is improved capacity networks. This is code for creating efficiency and network options for third-party carriers. We're bringing meaningful insights to the carrier base so they can be more effective and profitable when they are making money so long and finally increased presence and high-touch Freight want to say too much here other than low-intensity Freight Isn't So profitable. We're really good at adding value to supply chains where there are high touch needs and we intend to focus some of our efforts here as we mentioned earlier Enterprise cost headwinds are part of our fourth-quarter results story to insurance premiums alone resulted in a approximately 1 million dollar of additional cost in the quarter add to that the impact of the used equipment Market which continues to to deteriorate our impairment loss on sale and accelerated depreciation combined a.m.

Cost us more than $500,000 those two items alone accounted for 1.5 million dollars in the quarter.

That we made during the quarter and throughout the year as we noted in our release. We affected some organizational changes in the quarter that we expect will enhance our business in the long term. These are the right decisions but amplify the effects of a tough Market on USA capacity Solutions We Believe wholeheartedly in our self-help turn around and approached the business and that this requires ongoing investment in people time and resources even a down Market to ensure we are fit for the race when the market returns here are some of the things we're doing the first is regionalization. We continue our conversion to a regionalized network. Should we believe over the next 18 to 36 months? Each of our regional centers can become a creative contributors to our business.

During the fourth quarter. We on-boarded all four of our regional leaders, you might recall in the third quarter release that we had a goal of adding one of those Regional leaders. We added all four of them and they are focused on rebuilding out our regional teams training our people and improving operational processes. The second thing we're doing is in technology as we mentioned in our release. We've invested in upgrading our TMS deploying a best-in-class ELD system that integrates with our existing Tech platform and we joined forces with strategic Partners to enhance our operational capabilities in both Trucking and usat Logistics. Third is cost control. We had a reduction in force of approximately 8% of our non-driver's support staff in the quarter to help offset. The significant market headwinds cost control is an essential part of our operating plan in 2020.

now I want to talk about some of the internal improvements and

Additionally our financial team maintains one of the best in the industry converting our receivables Into Cash quicker than most of our peers we shy away from sharing the number exactly wage other than to say it's less than 35 days. We also reduce the average age of our tractors from 3.3 years to two point six years over the last 24 months, which is Jason indicated gives us some flexibility next operational process Improvement. Our Trucking segment is in the midst of an all-encompassing process Improvement project that will fundamentally change the way we operate this is integrated in our regional office in the sense that this effort will institutionalize the USA Truck way which in effect is franchised out to our regional centers. We have made immense progress defining documenting training provided government and managing this change. It is tedious, but rewarding and value-creating work and finally driver retention. We deployed a team in the quarter which is focused one hundred percent on driver retention dead.

we're managing our interactions to

Cadence and intentional outbound calling of all drivers and their first six months. This team has become the advocate of the driver community and the result in the quarter was improved turn over which we expect to continue.

So as we look ahead and consider the state of this Market the most meaningful gap between our performance competitors and our aspirations is revenue protractor per week. And while our pricing is more competitive our utilization is not and so the question becomes why and what are we doing about it? Historically we have been a solo drive and carrier and we have

And we have not been able to get appropriate Revenue per tractor, even for solo drivers. And so everything we have done over the last three years has been toward getting this company ready for its future. I always say that we're getting fit for the race many of the things they've discussed before and on this call have gotten us to a point where we are intent on now accelerating our utilization and US Revenue per truck off it will help a ton if the market recovers, but we can create our own path to and that spirit. All of the foregoing items have had exciting applications on our truck load business. The fourth quarter was the first full quarter under the leadership of our new Trucking leader and while we had a small but meaningful impact on your reservation in the quarter month-to-date in January of 2020. Our utilization is up more than 100 miles per available tractor per week when compared to January of 2019.

Our our plan in 2020 will focus on ways. We can increase utilization Revenue per available tractor and profitable Logistics load count growth. We won't provide guidance per say here with specific areas of focus for 2020 which we will report back on in subsequent quarters are as follows and I believe you can find this on slide 8 in the presentation. The first is increasing utilization on our existing Fleet. We believe we can create an addition of $300 in Revenue available tractor per week by the end of the year on a run-rate basis through managing the processes. I talked about earlier improving load velocity standardized training and governance. The second thing is we are increasing our team presence and utilization. We believe we can create an additional $100 in Revenue per available truck across the fleet per week by the end of the year. We've had a small team operation for many years, but now we're growing that Fleet in size and expected Revenue. It will be achieved through industry competitive performer.

And key metrics on those trucks.

The third thing is Network optimization. Our network has improved in density over 60% since we began the self-help Journey here at usat capacity Solutions month. We now are at the phase of our Network improvements where targeted power lanes and Market hubs, which we have already targeted in our robust 2019 bid cycle and discuss extensively last quarter in the earnings of them will provide an additional $50 in Revenue per tractor per week by the end of the year. Next. We intend to grow our dedicated business. We will report back on percentage growth terms not absolute because this is part of the trucking segment. We expect to grow this business at least 10% in 2020 given the virtues we discussed earlier in the insulation. It provides an up-and-down markets next driver retention. This is a big cost savings an opportunity cost initiative that we expect could add as much as $750,000 in savings to are already improving results and finally drug.

Logistics load count we will

Continue to grow low count while driving gross margin percentage performance back toward the mid-teens. So now I just like to talk a bit about the Outlook and conclude my remarks here. As long as we have said all along closing the performance Gap with the competition has been a high priority for us and despite all the challenges of 2019. We made progress toward that goal during the last Freight downturn from 2015 to 2016 USA T capacity Solutions adjusted Trucking know are degraded by a full eight hundred basis point during this time our adjusted truck, you know, our has degraded but only by 350 basis points. We're not happy about that. But as we've said repeatedly we are getting fit for the race and it's definitely an improvement in Trend. We believe that doing what we said we would do should lend credibility to our thesis that the usat capacity Solutions self-help story is working to improve

results and that our opportunity to

Prove remains in place more now than ever. This is a unique story and transportation. And as we outlined we have real room to improve asset utilization reduce operating costs and a drive to make sure our identity that should materially improve our future outlook as we said last quarter. We still anticipate the first half of 2022 look somewhat like the second half of 2019 from an earnings perspective the market notwithstanding 20/20 is the year in our plan as it always has been that several elements of our strategic plan gain their traction home network improvement in our heightened bid activity will manifest themselves in the first half of twenty twenty 41% of the freight that we bid in 2019 will go into effect in the first quarter. We should have a page to read on the year once these Implement and we begin to see first-hand what customer tender Dynamics look like regionalization will gain full voice in the year and while it will take some time to fully reach its potential wage.

We are excited to finally be at.

This point in the journey we've done exactly what we said. We would do. We open 3 new facilities in the last 12 months and are very close on a Ford facility right in the heart of our Network. We believe the action outline here today lead us to hire base Revenue per available tractor per week improve Trucking and Logistics though are higher utilization lower outer route and consistent cost control so much. We'll have to be judged relative to the market though because it's not clear what will happen in terms of capacity and rate pressure. And the timing of that one thing we are clear about is that we expect to improve our relative Perfection no matter what the market does just as we have done thus far since our team arrived in 2017, January 29th marked three years since I was appointed CEO here at USA off the solutions and I'm so proud of what our team is accomplished in that time and are about to accomplish. We outlined a lot of it here today, but this company is well ahead of where it was by almost any relative measure birth.

and yet the most

Important part of our work is not done. We must take the opportunity in 2020 to create more sustained profitability and results for our stakeholders the world lost clay Christensen last week. I was offered to know Clay he was merely an acquaintance to me but an impactful one at that but early in my career I was able to be near him when he advised our company he once wrote quote if you defer invest your time and energy until you see that you need to Chances Are it will already be too late in quote. I hope that what we are portraying is that we are making the right Investments. Now, in fact that will yield rewards later in the right areas with the highest return. We're not deferring we're advancing in the early indications are clear that this team has made and expects to make great progress over 20 years and years Beyond just as a quick FYI. Jason will be attending to sell side conferences in South Florida the week of the 10th. If you're there, we'd invite you to schedule time with him. Otherwise

for further questions that you might

Have after the Q&A session, please. Feel free to contact Chad lane or Jason to schedule a call. So Jason with that. I'll turn it back to you for questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press star then to the first question comes from Jason Sidell from Cowen and Company. Please get ahead.

Hey guys, this is Adam on for Jason. I just wanted to ask first of all, you guys talked about the different initiatives this year and and so just wage double-check between the $300 $100 and then $50 per week. That's a would be a $450 run rate by the end of the year or are some of those overlapping initiatives and wage total up to a 454 truck per week. No, you got it, right the first time. So these are all separate and initiatives and then calculating the impact to our Revenue protractor birth week, they're isolated and so you can add those up. Um, it's obviously you're not asking this we're not here to talk about our peers. But when we look at our peers one of the main distinguishing factors is that many of them have operations that are able to put more miles on the truck in there for more revenue and we just know that that's where we've got to go next. And so we are

Got it. Got it. No, that's that's really helpful. Second question. I want to ask a little bit about the the sequential change for you. Two one Q, you know, obviously, you know Market has been towed in in 2019. You know, I'm not the first person to say that but the one q o r one q19 o r versus the four Q 1800r about a six hundred bits, you know worse and there's one asked me what your expectations are for that sequential move going into one Q twenty, you know, obviously Mark is still soft. But you know what with some of the initiatives you guys are doing. You know what that's jawar change may look like

You want to answer that one? Yeah, so I mean, I think a lot of it depends on some of the things that James talked about right? He he he indicated that a significant portion of the bids that we engaged in over the last three or four months will be coming to roost here in the first quarter. And so our ability to accelerate our Improvement on the our front is on a part a function of what we realize through through that bid process. And so that's something that that is a little bit of an unknown right now. We are cautiously optimistic about what it might mean, but I want to be cautious to not overcommit home and and under deliver either and so I would tell you right now some of the cost headwinds that we experienced during the fourth quarter or those those don't go away right? Those are still going to be there specifically on the insurance front that headwind wage and and dealing with some of the assets that we've been talking about. And so while I think we we might see some some favorable movement on our Trucking side as James alluded to we're we're already up more than a dog.

Miles per truck per week. Um year-over-year in in January, you know, the rate environment is is has been tough. We're having to haul a little bit more broker Freight than we will.

Like but the the the other area that that we're a little concerned about right now is is logistics at that market and you know, you've probably heard several people have that have already reported of talk about how brutal that market is right now. And so when you look at the all-in or the the change the sequential change or the year of your change, however, you want to look at it. You know Logistics is going down is is probably going to be a hard one to forecast. And so, you know in his prepared remarks James talked about the first half of 2020 probably, you know, looking similar to the back half of month of 2019 and I would say that you know, if you probably if you flip those on themselves, you know that that trajectory is probably the right way to think about it. I'm not giving earnings guidance per se but but that's you know, that's kind of based on the all the unknowns and all the qualifiers. I just put out there that's kind of how we're thinking about it right now.

Got it. Now that makes a lot of sense and just a final one for me and then I'll pass it on in terms of you know, some of those those contracts that you mention wage. Would you want to give kind of a a figure directional figure where you know these recent contracts that you've signed, you know the percent rating increase or decrease on those and then what you're you're kind of you is for your 2020 contract rate increase.

Yeah.

So I was just looking at this today. I believe you ever been Blended right there. I think it was two for the year for the full year. Yeah, so I was just looking at this this morning. So I appreciate you asking the question. Yeah, so are are Blended rate per loaded mile is 256 in nineteen. And as we look ahead logic of two elements to this, right the the first one and we're not trying to dodge your question. I'm trying to be as like transparent as I possibly can on the contract front we expect rates to be and what we're seeing a frankly is is reasonably decent rates looking forward into the year. So kind of down to between flat and down just very low single-digits on the contract side our challenge in nineteen was we just took way more broker Freight than we ever intended to and so as I mentioned in the call, we more than doubled our bid activity in 2019 as compared to 2018 and we talked about

in every one of our earnings

Calls for 2019 that that was where we tripped up into an absolutely. That was a shortfall I was a mistake by management and we rectified it quite heartily that said as that goes through and as I also set on the call, you know, forty 1% of that Freight goes into effect frankly between this Monday and the next 45 days. So we expect you know, given the win rates that we see and and in a conservative realization rate like we saw last year that we have a significant uptick in contract Freight coming that's at zero two down one and a half percent. Now I said if we get the freight we think we're going to get and by so doing I don't have to rely so heavily on brokerage Freight like we did in 2019. You would say a weighted-average impact that could in fact see our rate go up year-over-year on the year on the year. So I would think about it kind of relying on two things pressure on contract rates, but dead.

let a a mix that's

Tilted toward contract, right? Cuz we want to get back to having less than 5% of our freight in the spot Market. Is that is that helpful?

Yeah, no, that's that's extremely helpful. Yeah, and really appreciate the time guys. Thank you. Yeah, no problem.

The next question comes from Jack Atkins from Stevens Incorporated, please go ahead. Hey, thanks guys. Good morning. Thanks for taking my questions. I guess could we just go back for a moment James to the to the commentary on January? I was a little bit confused just listening to the prepared comments. Cuz it you know one hand it sounds like you're seeing things kind of pick up. And you said you're just a moment ago miles per tractor per week or or improving but then you you referenced in the last ten days, maybe things kind of falling off some so could you maybe just kind of talk for a moment about what's happening in January from a marketing perspective what you're saying? They're yeah it really great question and it's so Dynamic. I mean and I'm going to add in some data points here that even Jason hasn't heard yet. So, um everything we said there was absolutely true. We we've seen an uptick in in in Freight in the month, especially compared to Prior January's in fact in our town.

seen segments and we don't want to get in the

Spot were reporting financials by month. We're never going to do that. But just on a revenue basis and our Trucking segment this January is the highest revenue we've had in the trucking segment in the last five years. So it's setting up pretty good that way when we wrote these comments the EDI turndowns had bottomed out it was an indicator that Freight was kind of softening but just this morning we have a daily operations meeting every morning at 7:30 and as we're going through the freight we see a bunch of markets that are filling up with with customer Freight and so it took a little bit of a bipolar Market is probably the best way to describe it that said, I would not model big profitability outside because of that for a couple of reasons the cost heads when happens we described the revenue, uh, you know, relative wind compared to the prior five years isn't enough to overcome the cost headwinds and probably the more important thing. I mean these authors

few quarters its first time in the

History that we have that are Logistics business hasn't delivered prophets and that's just a drag on the number. So anyway, I hope that's helpful Logistics has a plan to get it out of the ditch so to speak but it's going to be through some focused effort that our leaders are very very dialed in on and I'll just give you a kind of an anecdote if if in the quarter our Logistics employees that all booked up one more load per day. We would have at least broke even at the margins we saw in the quarter. So this isn't a Herculean effort to get it back to break even and then on to profitability but it is a process and I want people to kind of be mindful of that. Yeah, and if if I could add I I think we need to be careful that we don't mix the market with kind of some of the Dead unique specific activity that the U S A T capacity Solutions teams are are focusing on so, for example, we're up a hundred plus miles per truck per week this month, but some of that is just these guys bird dog.

and things and going and and finding

Afraid that they've got to find and sometimes it's not the the highest rated Freight out there which you know, even though our revenues are up. You know, we we are seeing some rate pressures here in January because sometimes we we want to move trucks we want to get drivers where they need to be positioned them for that next head Hall load. And so we're being aggressive about not laying over trucks and not letting guys stay at the house and took us to the Ops Team for doing that but it is a little bit of a headwind from a rep perspective relative to what we would like to see now our our earlier comments about all these bids coming on. Hopefully that'll help so that we're not having to go to the spot Market or broker market and and take that Freight and we can instead replace it with contract Freight that's going to be more ideal and better rated. But you know, those are some of the unique things that are going on here in January better miles, but pressure on the rape front which is why my earlier comments about what do we think the overall trajectory is going to look like for the quarter? I mean every January for the last five years

This company has lost money. So

You know, I think even though we're better today on a revenue front. We've got the cost headwinds and we're you know comparing to an you know, an unprofitable comp. So yeah, okay gotcha. Gotcha, you know and then I guess as we sort of think about, you know, the trajectory of the Year here, it's been it's been pretty pretty tough as we sort of watched results, you know, kind of really have em as we move through the through the 2019 and you know, obviously it's easily very challenging here, especially in the first quarter. But you know, when I hear your your comments about the you know, effort you're taking to improve the profitability of the business and you know, the hope that that should show up in the first half of the Year. There seems to be a little bit of wage. I don't know some caution in your voice and I don't know if that's a function of what happened in 2019, but you know, if if if these initiatives don't materialize I guess wage.

the contingency plan and then

Secondly, I guess why why wouldn't it work? I guess I'm just trying to understand why wouldn't you see a significant Improvement in profitability beginning in the first quarter as these bids go effect. Yeah, so we don't have a crystal. I totally know what you mean. I think I'm going to try to address it. And then if we miss the Mark just put us back on on track. Um,

You know, we got a couple of things, you know, we've we have the best operator that we've had in the recent history of this company. He's a great teammate. He's humble. He interacts better with our support functions than anyone that we've ever had. And so we're really pleased with what he's done and the leadership team that he's brought together. And and as you noted in this tough Market to be up a hundred miles per tractor year-over-year and to have asset utilization at the highest point. It's been in the last three years in January compared to Prior January is dead is a really good indicator that we're already on track for some of these things from Nuance, maybe things. We don't talk about a lot but you can find this by, you know, getting on our website or posing as a driver. We just introduced and it's starting this week industry competitive team pay, it sounds ridiculous, but we've never had that before and we didn't focus on it cuz we were trying to fix our our team up.

Operation. We also had a pay.

Anomaly, we're trained drivers basically stayed on a training pay scale for a year and we were losing him at 90 days because they leave us to go to competitor where they got paid as experienced drivers. We change that this week too. And so all of these things combined, you know, we've got the Ops team already proven that they're adding miles at at a pretty good clip. We've got the regionalization coming down the pike which naturally adds more miles cuz you've just got more scrutiny. You got a smaller Fleet shepherded by you know, a single leader we're adding team we've got trainer fleets that we already have that we need to get more miles out of store managing those more diligently all of those things combined. We don't have a contingency plan for that because that's just what good operators do none of those are unnatural acts. They're all things that are competition does today and we just had to get right and get our regionalization pattern. Yep.

To go so that we could deploy and now it's the time. Yeah, and so just to add to that I guess.

From my perspective. I agree with everything James just said about the you know, and we talked about the operational leverage that irrespective of the market. We're going to go after and we're going to pull this year. The difficult thing is I mean, if you look down here we were down twenty one and half cents in a rate per mile. And and that's you know, that's that's tough. You know that James has been kind of banging this drum around our building. I'm going to beat him before he said that but I mean if you just take that 21 and 1/2 cents and apply it to the miles if if you know, what's What's the phrase if it's if somebody or candy and nuts it be Christmas all year long, you know, so but if the rates were the same I mean we're we're looking at at at at wildly different profitability profile cuz again just to reiterate I know you know this but for all those that may be listening in on the call, I mean, we've only got 8,000 million shares outstanding and so your EPS number swings drastically, you know, when when you you lose 21 and 1/2 cents of rate on a year-over-year basis, and so so I guess if there's caution or a sense of birth

Austin that you're feeling from, you know our our our tone if you will it's not that we have concerns about the fact that the team is going to go after all the levers that we can pull it's the concern about when this Market does turn in what the contract realization does end up looking like and and what those rates end up and

Bean and how much spot Freight we have to continue to to haul and and what is that spot Market going to look like and I guess it's just we've been burned with our our our fuzzy crystal balls over the last, you know, nine months. And so I guess we're just being a little cautious on that front. Yeah Jack just one other thing. I'd like to add to that. I'm really glad that Jason alluded to it, you know, the the main theme that I hope you got my prepared comments. That should be that even though we face just like everybody else incredibly tough Market. We got our process Improvement place. We got our leaders in Palm. We developed our regionalization model we move forward we're investing with our time and resources even in the face of the headwinds and we will do the same thing in the first half of this year and last Jason kind of alluded the hesitation is and when and if the market turns cuz it always does that's just the part that we don't know. We don't know when that song.

And I know everybody's saying that it's second half. I don't know who their staff Economist are that figure these things out.

I'm being facetious. Nobody has that they're just guessing um, but it could be June it could be produced season, which really didn't have any to speak of last year or it could be nine months from now. It doesn't matter. I am just going to keep improving and beating our Cadence so that when we're in tough markets, if we have more Revenue per tractor at the rates that we currently have today. We should be able to get this thing to where we're still operating in a reputable kind of mid to high-90s you are in pretty short fashion. I'd say within a year or so. So that's where our head is. Okay. Gotcha. I'm in last class question. I'll fax it over but you know within the logistics business, it sounds like there's opportunity for you know higher levels of utilization per employee. And you know, is there a chance that maybe doing some restructuring there? It's so that you can gain better efficiency. Yeah, cuz it just it's it's unusual to see a logistics operation where you typically think about high high above.

Variable costs in terms of the the operating model lose money.

I guess what's the plan there to get that back to profitability? Yeah, so it's kind of a I I went through this in the bullets and when you actually see the transcript, I think it'll jump off the page and you'll be able to kind of tell what we're doing but you know one the first thing is, you know, we need to get more load count and we are working through our Compensation Program incentivize that and through our management Cadence to incentivize that as well. And so we've recently within the last couple of weeks really stepped up our management intensity just in terms of the return and report on a daily accountability with sales and our Logistics team members to get more loads. So we have a scorecard that every one of the offices looks at and manages. It includes a margin goal, which I'm not going to tell you an account per day per employee goal, which I'm also not going to tell you but we're we're just maniacally focused on that. One of the things I did not say in the prepared remarks is that we are looking dog.

Well at ways to reduce the transaction costs. I actually did say that and we're doing it through some partnering with outside firms.

But we're also looking at taking some of our expense structure for more of the clerical type portions of the job to lower-cost geographies Offshore type geographies, and I'm kind of upscaling the jobs for our value-added people who are doing capacity matching so that instead of you know fishing for capacity wage get proposed capacity Solutions, and then they optimized for the right most profitable one. So you your question I think alludes to what are some things to reduce transaction costs are some things to increase throughput. Those are those are the things we're doing it just comes down to blocking and tackling and as I said our Logistics team, if every person had booked one more load per day in the quarter, they suck at least broke even so, you know, that was a mistake where we didn't go get gross margin on a high enough load count and that's something that we're pursuing wage.

I won't say it will have it totally rectified in the quarter, but we will have it rectified by the end of the quarter.

Okay, great. Thank you for the time.

Thanks, Jack. The next question comes from Jeff Kaufman from loop capital markets, please. Go ahead. Thank you. Hey James. Hey Jason. Hi guys. Hey, Jeff. Hey, Jeff. All right, so we're going to go down the candy and nuts path here the you know, it's easy to throw stones after the fact, but if you look back to the analysts a.m. We had back in the spring last year and and the plan today seems a little different from the plan then and how you're executing. What what did we not catch in time? And that was Thursday a systems issue where your your numbers weren't giving you the right data was that just not recognizing the market and I guess, you know looking at kind of what you're doing. What what makes em USA Truck unique in the market. What special thing. Do you have going for yourself? And and I've heard the plan on how we get back to where we need to be but you know, how should we have gone about

differently and and kind of

How do we get back to where we are outside of these these fixes that you have on the table right now?

Yeah, so look, it's it's a commoditized it's a highly commoditized market and then the truck load space in particular the differentiation that anybody has is the service and offering they provide on the straight truck load space. Honestly, the best Advantage we have is our customer base. We have loyal and long-lasting customer relationships that we value and Thursday value. Um and from a kind of commoditized market. I'll just go back to what we said all the 2019 and I feel we've finally rectified and we admitted it was a management mistake and that was all she just didn't get enough rate in eighteen going into nineteen. I think I presented a case and a fax set that quite readily addresses that issue. The second thing is dedicated. We have we missed a year of dedicated. I won't go into all the reasons for that but during 2019. We refocused our efforts on dedicated. We've got a robust.

pipeline as I talked about in

The third quarter and we've actually got some recent wins, which were very kind of casually alluded to in our comments. Um, but we've got some nice significant dedicated winds that are ramping up here in the first quarter. So that's kind of a portion of the strategy that we maybe didn't talk about before and then on the the logistics of running just lean back on on what I said earlier, you know, we lost some momentum package a really tough Market. I I won't quote per say that the the analysts but one of the sell-side folks who's not on this call in a recent piece and actually was a CFO of another public company said that it was a bloodbath and their Logistics market and they were projecting, you know, multiple quarter losses. That's not our approach now, I just take a little bit of issue with representing that as being a change in the strategy that we presented am still have the same strategy that we said before we're a self-help business. And the way that we're going to do that is by improving our metrics and managing our cost. That was the theme in May of last year and I don't think that's changed. Yeah, and that's where I was going.

I'm as well. I think.

When you ask well what changed there was something that changed the bottom fell out of the market. I mean, that's what changed and so, you know, I don't think that we uh-huh. Nobody anticipated that coming off of the highs that we were in a 2018 that it was going to flip as quick as it did and so if there was a mistake that we made it was probably having the same the investor day when we did and but who would have known that that we were having that investor day right at the point when the market was about to fall out and so understandably, you know, the trajectory has to be reset but everything we talked about in the investor day was based on 5 year outlook, right? And and we knew at some point there was going to be a Slowdown in the market and it turned down we just didn't know was going to happen so fast and and and so quickly down but we still believe in in everything we talked about in that in that investor day and all the the data points we gave in the investor day about how long

Money can be saved through.

Initiatives and and what the upside opportunity is by putting this much more revenue for truck per week. Those numbers all still hold true. It's just as James alluded to where we're going to commodity market place and uh, you know, they have some butts, you know comment, you know, when when you lose 21 and 1/2 cents of rate, you got to reset reset the it's a step function down and then you got to build from there and that's that's where I am right now. Is that that answer your question and it's a fair point. You're right the analysts day was about utilization and and increasing rep for tractor and some of those other initiatives you highlighted that need the credit line and you have the credit support and the liquidity that you need for the environment. Do you have the fleet that you need? Do you have the technology that you need and and kind of or should I think about Capital spending you mentioned you can always pull a lever and scale back. But but where are you on fleet? Where are you on technology? And how should I be thinking about cash requirements for the next year's?

Yeah, so I'll hit real quick the the fleet so, you know, we we have been making Investments you saw in.

Prepared comments we talked about taking the average age of the fleet down from 3.3 years to 2.6 2.7 as of the end of the year. So in two years, we we made that kind of an improvement. We we've made a lot of Investments on that front on safety technology and all those kind of things. We've also made Investments. And you know, I think James May touch on this in a minute this year. We spend a whole lot of time making investments in our operating systems to try to help us help our operators be able to be more efficient so that we can realize some of those utilization improvements that we talked about. So so that was places that we made Investments this year and and, you know, we talked about the terminals, you know, we haven't gone out and spent millions and millions of dollars on buying terminals, but we are acquiring a you know, a different whether it's property or or leasing facilities that are available out there to get ourselves a presence in the market so we can start pulling some of the over-the-road spend in house dog.

Um, those are all Investments that we made this year. So back to your question about capex. Um, you know, we we we are you know, this is very preliminary hasn't been final blessed by the boss yet. But we're thinking we're probably going to be in the 20 to 30 million dollar range for net capex in in 2020. Now I will tell you we have a lot of flexibility in that number given where the average age of our Fleet is and some of the Investments we've already made if we need to pull back on that this year if the market takes longer to recover than we would like we will absolutely do that and we have the flexibility do that long but sticking with the theme of hey, we're we're we're trying to make long the right long-term decisions. We don't want to you know, you know make short-sighted decisions just to to prop up they you know current. When we're really looking at at at what's the best long-term decision, but but we do have to be mindful of liquidity mindful of investors my info love uh of earnings and so Thursday,

That that come into that that decision Matrix James anyone else.

That was that was great. Actually just one thing on the technology front kind of a unintended but super cool by product of the LD changes, you know, we were on the Rd grandfather and so we change over to his last year and it was interesting. And again, I won't name names but one of the technology providers who was in our trucks did not have a robust roadmap. And in fact had no way to upgrade the unit that we had in our trucks. And so when they came to us and said, hey, it's time for you LDS. We said hey if we're going to have to replace your unit that to us makes us product Diagnostic and we're going to do an artifact of the market and so we went out and I would argue and and and and the reason I argue this is we talked the customers. We've actually talked to some vendors who are really excited about working with us. We came up with a unique solution month. So we use an incap tablet that's connected to a puck device. That's under the truck. It has our own customized kind of ELD application that runs on the tablet. It's yep.

Credibly cool. It's incredibly flexible. It meets all the compliance standards. It's been certified and yet it allows us some flexibility and working.

It outside technology, uh partners that I think are competition at least based on the interactions. I have had don't have and so no news to report today on that but it's just an example of us being having some foresight and thinking, you know a few years down the road in ways that we can use technology that's required from a regulatory standpoint to give us an advantage in the marketplace a lot more to come on a future. Yeah, and and I would say just so that everyone nobody gets the wrong impression. We were very cost-conscious as we went through that implementation. So I don't want anyone to think that we're out there spending gobs of money because you know, we want to suck tons of Cool Tech, you know, we we made sure that there was an Roi there and and and that we were getting the best deal with it was it was an appropriate price in the marketplace. Good point. All right, guys, I just one detail question then the pass it on. Thank you for your answers Jason. You went through a lot of numbers quickly and and I heard a a 1.5 million dollar number. Did you discover?

Kind of one-time or short-term Oddity items. I I know you talked about the million dollar increase endurance and it was amazing.

You held Insurance costs flat, I guess on a year-over-year basis with that. But what is their Severance where their impairments where the writedowns was there anything kind of non-operating or unusual? That was in the numbers this month? Yeah. Good question Jeff. I'll hit some of those real quick. So, you know, we did as James alluded to we had an 8 per cent reduction of our non-driving staff and the quarter which resulted in $122,000 of severance. Um, we did we have our normal customer amortization of of acquisition-related intangible social with Davis. That's $340,000. But you know, we call that a fax order. We did have a an impairment on some uh, let's just say assets that are Bap depreciated in the market size and value relative to some of their their their appears assets by assets. You mean trunk. Yeah trucks specifically. Yeah. Thank you. And so, you know there was dead.

Vision that was made before any of us were here to buy that particular truck and and and the market for that truck is has been abysmal. And so those trucks were were being pulled out of service to be back to to be disposed of here in in you know this month actually and so there was an impairment on those assets that we recorded that was four hundred eighteen thousand and then the, you know, the million dollars that you talked about on the insurance side, and then the other one is the accelerated depreciation, you know in James that that's where you got the million and half we record it in addition to the $418,000 range of of impairment on some of those those assets that I just alluded to there was an additional hundred. I won't get my controller will will literally wring my neck if I give an exact number but there's there's a hundred plus thousand dollars in the quarter of accelerated depreciation that we took just because we want to make sure that we're doing the best job that we can to log.

expected asset values

At the end of useful life to what the market is going to be and so we're we're doing a comprehensive Deep dive on what some of how our peers are looking at things and and we're looking at auctions. We're looking at at a truck values and we're trying to be you know, not overly conservative but we don't want to be aggressive on that either and so we have accelerated depreciation and that is a headwind that we will probably continue to have faith at least in you know in the first half of next year as well. So thank you for for bringing that up. Those are all important points. Okay. Thanks. That's all I have.

Again, if you request and please press * then 1 the next question comes from Barry Hames from Sage management, please go ahead you guys thanks for for hanging in and taking my question or two. First one is I wanted to go to the the Tinder vs. Award statistic, which I think she said you only got sixty to 65% of the freight was tendered versus what was awarded and I'm wondering what if anything you can do to to try to mitigate that you know, obviously it was a function of you know, these contracts not really being firm contracts and you had a you know, a spot Mark very cheap rates. And so, you know customers were diverting Freight but you know in terms of future contracts or and you know, I have to kind of contrast that behavior wage

You know James.

You you talked about well and long-lasting customers. Well, you know a loyal customer wouldn't wouldn't kick you only two-thirds of the freight that had been promised. I wonder if you could sort of address that issue. I know it's a tough life. And and is there anything you can do to incent their behavior on the part of your of your shippers? Thanks. Yeah. No, it's a really excellent question. So you're right. We only have a handful of customers that we really consider a strategic Partners who come to the table in a price environment like this and work together with us to ensure that we receive the attenders the freight that we were awarded we have other customers that I would say are pretty loyal. They've been customers for a very long time but are very price-sensitive. In fact, they pull Freight but that's not the entirety of the dynamic and I don't mean it's such a wonderful question very and I don't mean to go too far in detail, but I think it's a lot of strategic.

Helpful for this audience from the way that this works.

Is customers have you know multiple ship or carriers in their routing guide and historically when customers took two carriers carriers reject the portion of that Freight and when it's rejected it moves down the routing Guide to the next carrier and the next care in the next carrier. So for example and 2018, we received throughout the year depending on the quarter between eighty and ninety percent realization on our freight.

And so that's what happens in a really tight year when people are playing the spot Market their declining first tenders. It's called first tender acceptance and they're trying they the cash are trying to get better prices in the open market and that creates an environment where you get higher realization this last year because of the market in a tender acceptance rates were at all-time highs when we would go to customers. We have customers tell us that anywhere between ninety-five and ninety-eight percent of their first tender. So they send out to carriers were accepted and said there's none of that kind of waterfall effect of that Freight moving to the next carrier in the routing guide. So that's kind of the dynamic there that really insightful part of your question is well, is there anything you can do about it? Yeah. There's absolutely something we can do about it. The number one thing that we can do is be the absolute best service provider that we can be with our customers. We have focused on that. We have five corporate objective.

I'll share them in our next quarterly update with with with each of you.

Um, but one of them this year is to make service our identity as we provide high levels of service. You naturally get higher higher realization. That's one thing too is we stick to our Network strategy as we get denser and denser and denser Freight. I've always said the densification afraid is critical to this business you start to suck frankly develop economies of scale in Lanes where the customers are more naturally suited to Tender you the freight and finally and this one might sound a little capitalistic. But finally when we do get Freight from customers that was rejected by another carrier and I said this to the sales team just this morning because we have a lot of freight that's coming on frankly, I think because the Super Bowl Sunday, we're getting a bunch of customer Freight. I said go except the freight go service the freight and then make sure no one else ever Halls that Freight because we want it to be ours permanently. And so it's kind of a three-headed monster, but that's how I am.

about it that helpful very yeah that that's great and then one other question we

When you talk about the new beds that are coming on in the first quarter, I think you said, you know, maybe 40% of updates are coming on the first quarter it could you characterize how much of that is new customers for Asus existing customers because I know a a Thrust has been to to to bring in some new Freight to satisfy all the objects and talking about on the call. So any kind of feel for that. Thanks. Yeah. So so to be totally fair I'm going to add to your question because we lost some customers to so often we get into twenty-twenty over and it's easiest to talk about what we did in nineteen as far as bids go. We added an over 280 new customers last year. We also offer lost, uh a portion of those so net-net and I'm not going to give you the exact number but round numbers net-net of new customers lost customers. We added north of 225 Club.

And so as the freight is coming on there are some big shippers shippers that you or your families probably shop at that this company's never hauled Freight for we signed contracts with them last year and we're in the final parts of the bid process. We're going to start carrying Freight for them. We had a customer that I'll just tell you it's a beverage customer with whom we did half a million dollars last year. We got our bid award from them yesterday. It's 2 and 1/2 million dollars. So the complexion is we've got a growing Dynamics with some customers. We've lost some customers and we found it on a ton of new customers and part of Bring It On the new customers is you've got to fill in the gaps in your network. It's just being smart about Regional Freight and so it's a critical element bulb completing kind of the aspirational regionalization Dynamics that we expect. I mean, I I say this internally, I don't mean to give to credit too much credit to one of our competitors who such a great operator dead.

I told the team, you know, if if if I told you were going to run bill.

Belichick's offense tomorrow you probably shouldn't ask us. Why are you running Bill Belichick's offense? That's self-evident. All we're doing is copying with the best of the best of done and that's that's how we're approaching it. So I I hope that address is your question. Yeah, that's great. Very helpful. Thanks. Good luck guys. Thank you, very

this concludes our question-and-answer session and the conference. Thank you for attending today's presentation. You may now disconnect.

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