Q1 2020 Earnings Call

Good morning, ladies and gentlemen, and welcome to U.S. Express first quarter 2020, <unk> earnings conference call. During today's presentation, all parties won't be in listen only knowledge.

Following the presentation the conference will be open for questions with instructions just follow at that time.

As a reminder, at this conference is being recorded.

I would now like trying to call over to Mr., Brian call back Senior Vice President corporate finance.

Please go ahead Sir.

Thank you operator, and good morning, everyone. We appreciate your participation in our first quarter 2020 earnings call.

Me here today, our airport, President and Chief Executive Officer, and aired Peterson Chief Financial Officer.

As a reminder, a replay of this call will be available under Investor section of our website through may 7th 2020.

We've also posted supplemental presentation to accompany today's discussion on our website at Investor Day, U.S. Express Dot com.

Before we begin.

Turning to everyone. This call may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1990.

These include remarks about future expectations beliefs estimates plans and prospects.

Such statements are subject to ride isn't risks uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such state.

Such risks and other factors are set forth in our 2019 10-K filed on March 420 20.

Supplemented by our April.

20 form 8-K.

We do not undertake any duty to update such forward looking statements. Additionally, during today's call will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance.

Presentation. This additional information should not be considered in isolation.

As a substitute for results prepared in accordance with U.S. gap.

A reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in our earnings release.

At this point I'll turn the call over the airport.

Thank you, Brian and good morning.

Given the evolving race in financial markets in the World what impacted cobot 19.

I'll be covering a lot of ground on the call.

The four main theme, we hope you take away our first we've been very proactive and protecting the health and safety of our employees second.

Freight volumes have remained relatively steady year over year during the first quarter and through the most recent April.

Third at the peak of the Cobot 19 crisis customers, representing 96% of the company's Precrisis revenues remained operational.

And incremental volumes from those customers more than made up the non operational customers.

Finally.

The company is managing the business to prudently control expenses and to project liquidity.

On today's call our views the steps that we have taken to protect their employees and customers as cobot 19 has quickly spread across the country as well as the actions that we're taking to ensure that we had to liquidity and resources necessary to manage that extended downturn.

Well then briefly review our first quarter results before turning the corner Peterson, who will discuss our financials in more detail.

I'll conclude with a comment on our market outlook and then open the call your questions.

I would like to start the thank you our employees for their hard work and dedication during such a challenging Todd.

They've adapted quickly to our new normal and kept our company operating seamlessly and our customers products moving across the country.

To ensure we can maintain the safety and health of employees in businesses Kobin 90, pandemic again to sweep across the globe. We created a task force to analyze and develop our business contingency plans in the beginning of March.

As the pandemic intensified our task force moved quickly to enable our office employees to work.

And we transition more than 95% of our corporate office staff to work from home environment by the middle of March.

Given this new work environment, we have instituted policies to facilitate the effective communication to ensure we maintained their productivity.

For a non driving employees our managers are required to have multiple daily contracts via video with direct reports and we have developed KBR has facilitated by our digital capabilities to measure the companys operational effectiveness.

We believe that the increased communication across the company is driving an improvement in areas such as customer and driver satisfaction.

Many of the learnings will continue to be uses returned to the office in the future.

To ensure employees have access the necessary medical services, we have also implemented new processes and support staff. So that our people have access to the resources that they need. Additionally, we're providing regular cleaning and disinfecting about facilities and maintaining an adequate supply of safety.

Net.

Including mass in Glugs for our drivers who are on the front lines. Our employees are playing a central role in the countries fight against Cobot magazine as they work to keep critical supplies moving and store shelves stopped the further ensuring the safety of our drivers and staff, we have instituted mandatory temperature jags.

Drivers prior to entering company facilities.

For new drivers, we have leveraged our new driver training program as well as created a virtual orientation program that allows drivers to can we work remotely. This is an attractive innovation for drivers and has contributed positively to our recruiting efforts.

A critical factor that has enabled our organization to quickly adapt to this new environment has been our investment in technology over the last several years as we had digitized and automated many processes, which is enabling our employees to successfully work remotely.

We believe these investments have enabled our entire workforce to maintain their efficiency.

And in some cases drive improved output and customer satisfaction.

This is a direct result of our ongoing digital initiatives, including the frictionless order and represent opportunities for further efficiency gains.

Our investments in technology combined with the active supported our team has enabled us to handle a sharp increase in demand from our grocery consumer products and home improvement customers. During the early days the shelter in place orders while transitioning.

Pass need from other customers where volumes decline.

As most of our employees work remotely we continue to accept plan and deliver over 30000 loads for a week during March and April.

We are fortunate to have a strong and diversified customer base with their top 25 customers, representing approximately 71% or 2019 revenues at the peak of the Cobot 90 crisis customers, representing 96% of the company's pre crisis revenues remained operational.

And as stated earlier incremental volumes and those customers more than made up the non operational customers.

Yes expressed as a strong customer bags of grocery E commerce consumer products discount retail and home improvement.

With little exposure to automotive manufacturing and restaurants.

Despite relatively steady freight volumes to date, there is increasing rate pressure from certain customers as well as competition from non traditional truckload and LTL carriers that are entering our markets due to drops in their core verticals in the near term, we expect rate pressure to continue.

In the medium to longer term, we expect capacity to exit the truckload industry and the supply demand balance the shift as capacity receives and the economic restart gains momentum, while the country looks to be bending the curve on the pandemic.

The outlook for the economy remains uncertain.

To effectively manage our business and liquidity given this uncertainty we have considered a variety of economic scenarios, including those that wouldn't tell a significant multi quarter degradation of business conditions and volumes across our customer base.

Based on this analysis, we are closely managing our expenses capital expenditures and liquidity to ensure that we can comfortably operate even deeper and longer periods of economic decline come to pass.

Derek will touch on further we are proactively closed on a new five year $250 million credit facility in January which will provide us increase flexibility combined with lower borrowing cost.

Overall, we ended the first quarter with almost $100 million, a total liquidity and remain very confident in our ability to weather probably long downturn now I would like to spend a few minutes reviewing your first quarter results are over the road segment experienced a 10% year over year decline in spot rates.

Given the persistent oversupply of tractors relative to market man.

And our contract rates also modestly declined due to mix.

This supply demand imbalance pressured our over the road average revenue per tractor per week down about 4.2% that's compared to the 2019 first quarter, while our average revenue miles per tractor per week increased about 1.6%.

The truckload freight environment was a lackluster through 2019. However, we were starting to see early signs of a broad market recovery prior to the U.S. outbreaks cobot 19.

Turning to our dedicated division average revenue per tractor per week, excluding fuel surcharges increased $107 per tractor per week or 2.7% as compared to the year ago quarter.

The average revenue per tractor per week achieved in the first quarter, a 2020 of over $4000 remainder in record territory for the fourth quarter in a row.

The increase was primarily the result of a 1.7% increase and the division's revenue per mile and higher miles per tractor.

The peak of the pandemic only 40 tractors of our more than 2700 tractors, and then division where it locations that ceased operations and we quickly redeployed those assets to other operational accounts.

We have continued to see consistent results and our dedicated division as the fluctuations in volumes in the general freight market and then specific industries have not yet negatively impacted our major dedicated accounts, which are concentrated in the discount retail and grocery market sectors.

Brokerage segment revenue increased to $50.5 million in the first quarter of 2020 as compared to $46.2 million in the first quarter 20 that team.

Primarily driven by increased was partially offset by decrease in revenue or low.

We incurred an operating loss of $4.9 billion as compared to operating income of $2.8 billion nigger quarter.

We continue to work on improving margins in this segment.

I would now like to turn the call over the air Peterson for view of our financial results.

Thank you Eric and good morning.

Operating revenue for the 2020 per quarter with $432.6 million, an increase of $17.2 million as compared to the year. There quarter. The increase was primarily attributable to increased volumes in our truckload division and an increase of $4.3 million and brokerage revenue.

We posted an operating loss of $3.7 million into first quarter of 2020, which compares to operating income of $12.6 million into 2019 per quarter.

Our operating ratio for the per quarter, or 2020, with 100.8% as compared to 97.0% in the prior quarter.

This production in earnings is primarily the result of our 5.7% reduction in our rate per mile in over the roughly and a reduction of brokered the Martin from 17.5% to 3.7%.

Our net fuel costs for the quarter were offset by increases in our general and other operating expenses primarily related to higher driver turnover.

Degradation was partially offset by progress made in our dedicated fleet would stop per unit revenue productivity increased 2.7% to $4068 an average revenue per cracker per week.

Net loss for the first quarter 2020 was $9.2 million, which compares to net income of $4.7 million in the prior year quarter, excluding a 2.0 million dollar impairment charge for equity method investment our adjusted net loss for the first quarter was $7.2 million or.

15 cents per diluted common share.

Turning to our balance sheet, we announced in January that we've refinanced or their credit facility into a new 250 million facility.

The new facility has improved pricing and provides us with greater flexibility.

As a reminder, the new facility has a single covenant, which is a fixed charge coverage, which is tested only if available borrowing fall below that threshold them out which is less than the greater a $20 million worth 10% of the facility.

At quarter end, we had $438.5 million of net debt and had $96.3 million attack and availability under our revolving credit facility.

There.

We are managing the company to be prepared for a prolonged downturn and are aggressively managing our capital expenditure expenses and financing to protect liquidity and flexibility.

As a result, we have reduced our plan that capital expenditure for 2022, the in a range of 102 $120 million, which include a previously discussed $20 million transaction that carried over from the fourth quarter of 2019.

To provide context, we spent $67.1 million than net capex during the first quarter, leaving only an approximate $35 million to $55 million net capex for the balance of the year.

<unk> full year guidance represents a decrease from the 140 to 150 million dollar, which we had outlined on our fourth quarter call and its subject to further downward adjustment should economic conditions deteriorate. The production from our prior estimate relates primarily to the deferral of small quantity of plan track to replace.

Combined with a reduction in the plan number of new trailer deliveries for the balance of the here.

For the balance of 2020, we expect to finance, 100% of our new equipment purposes, with finance leases or security equipment note with no use of cash or revolver liquidity.

We're also revealing a broad range of program designed to produce nonessential offensive and contain call.

As a reminder, approximately two thirds of our cost structure is variable, but to fuel driver pay and claim and one third that that'd facility that the and non driving compensation a.

Dramatic increase and low volume would not be welcome but have also would be cushioned by lower variable that.

Great. Thank just had a dollar for dollar amount that we are diligently working on the call and variable cost per mile through that period overall, we remain confident in our ability to whether even if the beer and prolonged economic downturn at the resolved it depends on it.

Lastly, interest expense for the first quarter with $5.4 million and we expect that to be approximately $20 million for the full year 2020.

With that I'd like to her turn the call back to air color for concluding remarks.

Thank you Eric.

While the truckload freight environment has been lackluster for silver quarters, we were seeing the early sign to broaden market improvement prior to the outbreak of in 19.

As the pandemic sporadic cross the U.S. through March freight volumes and spot market pricing began to ramp up as consumer stockpiling inventory restocking drove increased demand.

Through April we have started to see spot market pricing begin to subside as consumer buying patterns have started to normalize.

Log demand, it's difficult to forecast in the current environment, we remain well positioned as practically all of our customers are open.

Additionally, our investments in technology, and <unk> goal of delivering the frictionless order combined with improvements in our driver training facilities.

I've had the added benefit of positioning us express to quickly adapt this new work environment and succeed.

Our productivity and efficiency are increasing and we're developing best practices to further improve our operations once the economy begins to normalize.

Additionally, we're working with our customers to further digitize their operations in order to minimize our drivers interactions with customers employees.

In this respect the pandemic is accelerating the movement toward automating the processes around moving freight which will help to improve the velocity of our operations over time.

Lastly, I remain confident no liquidity and believe we will be well positioned to take advantage of opportunities as we exit this unprecedented that soon.

Thank you again for your time today.

Operator, please open the call for questions.

We will now begin that question answer session to join the question can you do you mean press Star then one on your telephone keypad, you'll hear a cone acknowledging your request if you're using a speakerphone. Please pick up your hands that there's more pressing any keys to withdraw your question. Please press Star then too.

I'll pause for a moment as color just trying to Q.

Just first question is turned Ravi Shanker at Morgan Stanley. Please go ahead.

Thank you good morning, everyone Eric.

So your your commentary talking about a stable April is little bit differing from many of your peers, who are so all the data kind of drop off pretty choppy in March and April to date.

Can you maybe isolate some other reasons why what youre seeing maybe different and also if things have been relatively stable. So far is it possible that one Q couldn't be the earnings bought them for you guys for the year.

Yeah Robbie Thanks for the question, Yeah, I think that the distinction is really our customer base. If you look at our customer base as we mentioned previously 96% of our customers stayed open I would say, that's probably a stronger than most and it's really because we had almost no.

Pose your did those are areas or or verticals that were shut down during.

March and into April So if you think about.

A lot of manufacturing automotive anything to do with restaurants clothing retail we have really small.

Percentage of capacity in those areas and really focused around grocery yeah.

Home improvement discount retail and those areas that really if anything actually increase during this period as opposed to a you know being shut down or even slowing in so that really helped us whether through this event quite well and I think as we look out I think it's going to.

Help us because I think those areas, even though I think there is a little bit of a pull back because I think we thought spike in demand probably for a few weeks and a lot of those areas and while I think things are normalizing those are areas.

Those customers are going to continue to stay fairly strong and robust relative to those that are just slowly gonna be coming back online. So we feel like we can weather weather the storm.

Probably better than most in that regard. So that gives you as you look out into the future I think the the big question. It's just there's so much uncertainty so I'd really be hesitant to say one way or another whether they would how how earnings in the second quarter would be relative to the first but I would say, where we sit today we feel.

Pretty comfortable with our position and our customer base.

Understood and just a follow up can you describe the driver environment for you guys right now kind of what be supply of drivers is like for you guys. I'll walk you are talking over like a because that used to be an issue in the past <unk> is that better now.

Also a any views on wage inflation over the next 12 months.

Yeah. So in regards to turn it over.

We have seen turnover greatly improved but I mean I'm.

I believe it really is kind of a false positives. So this environment has made it less likely for drivers to want to switch I'm. Obviously, if you think about a driver go into another carrier they have to go and sit on the bus for you know a a few hours if not you know half a day and then they go sit into an orientation facility for a couple of days and.

The risk of exposure to other people and potentially getting in fact, it is it's probably greater than if they were to stay with their current carrier. So I think what you're seeing not just the U.S. express, but in all carriers I think the drivers are kinda hunkering down and staying where where they're at and so that is a net benefit from the turnover standpoint.

From a driver perspective, I think the other dynamic that you have and you see this and most downturns is you have a flight to quality. So you've got smaller carriers that are going to be the most impacted from a utilization and afraid to build these standpoint, and they are probably being squeezed more than most and so drive.

Birds, well look to go somewhere where they can get a stable paycheck, where they know theres more consistency and lanes that consistency with customers and so I think you're seeing that and so we're seeing turnover come down and we're seeing the ability to find qualified experienced drivers right now improving and so what that is allowing us to do is to improve.

Our core driver mix and so were a check you know where we are increasing our hiring standards. So that we can hire a better quality a driver. We're looking at some of the drivers within our population to see if there's some that we can turn churn the system and find and really upgrade our quality of driver at this point. So no I don't think this is.

It's something that's going to last for quarters in quarters, it's probably something that that this situation could be a quarter or too, but it's going to give us an opportunity we believe to upgrade our driver population.

Hi, good thank you.

Thank you.

The next question is from Jack Atkins Stephens. Please go ahead.

Hey, guys. Good morning, Thanks for taking my questions.

More than one yet so I guess, so I guess, Eric a full or would you just start off and maybe kinda talk about how you see a fleet count progressing as we move into the second quarter and ended the second half of the year between both O.G. Our dedicated can you maybe give us some color on sort of how you plan on.

On a those are those two fleet shaping up here.

Yeah. So.

We again I mean, we've talked about this for a while I was trying to prioritize growth and dedicated and we will continue to do that so we do have some so new dedicated accounts that'll be coming on over the next 60 90 days and so we'll continue to see some growth there as and if you. If you look at the customer mix that we have within dedicated I mean, very very heavy growth.

Machinery and discount retail I think we mentioned that we only had 40 trucks shut down at any point during a this pandemic in so we really have a healthy robust dedicated group and lots of opportunity to increase or truck count not only with a new new accounts, but also.

Within our existing and so that's probably where you're going to see the bulk of the growth obviously, where we believe the uncertainty has gotten a lot through this process is going to be within that over the road division. So the more that we can insulate nice let ourselves from Matt the better so I would say kind of flat for the most part to maybe slightly down and over the road, but trying.

To see some incremental growth in dedicated.

Okay. So could you just kind of following up on that with them the dedicated.

Business I mean, well you know what are you, saying in terms of customers willingness to sort of move forward with.

Yes, you know new agreements or are there any sort of you know delays happening there pushed back in terms of getting stuff across the finish line and what are you, saying from a rate perspective on a dedicated could you maybe comment on that from all that.

Yeah, I mean, I think in regard to the bids I think it depends on where they were in the process. So if it's something where they're kind of middle of the way through the bid process than you know people are pausing a little bit. Obviously this is an uncertain situation ends I think everybody's wanted to see how this is going to play out so if it was.

Early or mid way through the bid cycle use all kind of a little bit about let's wait and see maybe won't Stan.

In the period for a period of time to kind of see how this plays out those that were further a longer going ahead and awarded business and so that you know we haven't seen any body coal dedicated beds or anything like that at this point. So I think that the interest still seems fairly robots and strong through this period <unk>.

I I think maybe they'll be a little bit of slow down in the velocity as people try to figure out what how this thing plays out but I still think dedicated there's going to be an area. That's going to have a lot of demand going forward from a rate perspective, I think we just could see mostly consistency in the rights, we're not see a lot.

Pressure, either in or existing business or new business for any kind of significant decreases and rates or anything relative to that so I would say, mostly dedicated is isn't mostly a you know on a go forward basis or at least for the next few quarters, it's probably more in a flat environment.

Okay Gotcha, and then last question I'll turn it over but within within brokerage.

No.

Pretty significant compression and net revenue margins there. So sequentially could you talk about what you're seeing you know in April in terms of brokerage or net revenue margins are you getting some some relief there now that the market's loosened up and you know how are you guys thinking about taking steps to it has substantially improved profitability within that segment, which as you know.

You know really the reason you guys are reporting a loss this morning.

Right Yeah it.

We really started to see degradation in our brokerage margins starting in Q4 and again I think as we previously had mentioned we had gotten aggressive with a dedicated specific beds and say Q2 in Q3 last year as the market weekend and the reason being was twofold.

One we felt there was an opportunity for us to <unk> to grow our brokerage.

But we also really wanted to have increased selectivity for our asset so bringing more opportunity in the door and that kinda started to negatively impacted in Q4 as we saw some of those by prices from a capacity standpoint start to creep up and we started to get squeezed.

We saw we continued to see the same phenomenon in the first quarter. We did start to back out of some of those commitments and somebody that freight that we had originally sold however, I would say right now having somebody that freight wouldn't do we didn't back out of all of that because having some of that freight now is actually advantage.

Hey, just as the market starts to slow a little bit we can take some of that freight back into our over the road division to keep our trucks running and that freight is still better than going out to the spot market. In this current environment now as you look out of margins over the next couple of quarters from a brokerage perspective, we believe we.

We'll see sequential improvement over the next couple of quarters, and we believe that within the next say two to four quarters, we can be backend.

Double digit gross margin territory and started to be moving towards a positive net margin. So we you know we see improvement we know that we've made some pretty substantial changes within our management group within our brokerage division, we made some process changes and some structural changes and we believe.

So that's going to continue to drive some improvement in our margins over the next couple of quarters.

[music].

Okay, great. Thank you for the time.

Thank you.

The next question is trying to Scott Group, That's Wolfe Research. Please go ahead.

Hey, Thanks morning, guys.

Can you want to give us can you just give us an update in Italy and over the road, what you're seeing April from a utilization and rate per mile perspective.

Yeah on the on the utilization, we're staying consistent and I would say in April our utilization has stayed consistent if not on the high end of an average week for the year. So again, our customer mix has really helped us through this process and and.

That's something that we're you know we're really proud of I'm now on the rate side, specifically the spot rates is where you're getting an incredible amount of pressure well I would say that we're we're seeing spot rates are lower than we saw through really any 2019, and so theres obviously some concern.

There about where spot rates are going <unk>, we believe that they will probably stay fairly low for the foreseeable future and so the real positive that customer mix should allow us to minimize our exposure.

Hopefully to attend the spot market and you know with us moving more capacity over into dedicated and trying to get more concentration with those customers that we've had longstanding relationships with we can help to minimize that exposure further because we don't we don't see an uptick in the spot rate market you know for at least.

Another quarter too.

And where are you now in terms of spot exposure.

I think roughly probably in that total revenue in that well you know 11, 12% as we said, we normally like to manage it close to 10%.

It spiked up in 19 as high as 14% to 15%.

Where we're at today is probably closer to 11 apps as well.

And that's just of over the road or that's of total truck.

That's a total revenue.

Total revenue okay.

So that so we should based on that certain rate per mile will certainly be lower sequentially.

Well in Q2 Q.

Yeah, I think what we're seeing a little bit of pressure there on the rates on.

But utilization is not seeing pressure, which is good okay.

Right right.

Why don't you just make sure im understanding what's going on with the Capex stuff. So that the 67 million in the first quarter was that was net cash capex, but you're saying the remaining 35 to 55 a of net we'll all be three leases is is that right Eric.

Yeah leases are funded debt. So the point there is when you're looking at our overall liquidity is the capex for the remainder of the year will not impact on liquidity at all.

Okay and can you do you have like about 35 to 55, that's up do you have a a breakdown of whats.

Gross versus net just because obviously the proceeds will all be cash than that will help liquidity.

Yeah, I don't have that that broken down right now.

Okay and then.

Do you know there when you're if you're doing it.

Instead of with with cash, but with with leases, what's the <unk>, the o. or impact of doing it this way.

I would say yeah, I would tell you know what the number of factors were looking out for the balance of the year I'd say it'd be minimal I think when you're looking at our you know what yeah essentially what you're doing is if you saw I put the our interest expense I said will be down it you know to $20 million for the year and previously I was that I believe I was at 22.

$1 million, so essentially what you're doing as you're putting that interest expense above the line and vehicle rent so call that $2 million over the year compared to where we were I'd say, it's gonna have a minimal impact on our operating ratio for the year.

Okay perfect Alright. Thank you guys appreciate the time.

Thank you.

The next question is from Brian Ossenbeck hasn't JP Morgan. Please go ahead.

Hey, Thanks, good morning.

Eric as Peter said can't go back and maybe elaborate on some of the cost reduction initiatives. It sounds like you have quite a few going on right now before and probably even more so now.

Okay, maybe you can give us some broad strokes just what's what are in which on the board and potentially what could be structural sounds like there's some others that have already been implemented in brokerage, but not to take some do you can lay those out and perhaps quantify any of it would be helpful.

Yeah, you're not going to not going to go through quantify but I think just things that we're doing in general you know as far as you know our office staff and new hires working remote you know work unless it that to the extent we have turned over we're not back filling those positions unless there are 100% you know critical obviously monitoring you know over.

Her time, you have expenses, yeah, it's amazing having everybody working from the home environment. You know your productivity is it's actually been pretty strong if not higher and so we've been able to get the same amount of work done without those you know incurring those overtime hours. Yeah. If you look at our procurement group and if you remember we said we just started this group.

Really you on the IPO and now it's we're getting some maturation maturation with that group.

And really starting to make some progress and being able to harvest some of that investment.

Going through all of our expenses with all of our vendors with warmer.

Our peas and not just the RFP is important important but the service level agreements were put into place.

Our vendors and working with is making for much more efficient relationships.

You know a big one a big expense I think we've made tremendous progress that's our overall capital management and that's managing that are tractors, you know as far as our Unsi right now, we probably had the lowest number up on say the trackers in our fleet. The that we've had a long long time and as far as trailers. We've really focused on this you know we yeah.

We've had our trailer tracking.

On our on our fleet for Awhile, but recently, we've done a much better job integrating that into our operational work flow, where we're actually able to.

You know run the fleet with.

1500, a 2000 fewer trailers than we were before and still maintained the same revenues and so that's really helping us from a capex perspective going forward because if some of those trailers are reaching the end of life on their cycle. You know, we're not having to go out and and replace them with new trailers and we're maintaining our revenue. So those are some exam.

Samples are more but I meant we essentially have all of our vice presidents across the organization I'm getting calls on a daily basis, almost you know from one of them, saying, Hey look I think I can eliminate this cost and you know and here's the dollar amount. So were yeah. We're keeping score we have a scoreboard you know of all of these savings and.

Yeah that a lot of them are small dollars, but they're adding up to a decent figures.

Okay. Thanks for that and trying to same topic. It at the level of technology investment you guys have highlighted some of the benefits here a couple of times today.

Is that still.

Continuing at the same patients before are you finding new opportunities.

To reallocate into certain projects I believe you hired a CIO not too long ago. So perhaps you can offer some thoughts on that too.

Yeah. So we didn't we hired a new see I was probably been about 18 months now and I think that when we talked about bringing them on the we were really talking about digitizing our operations in our systems and that's really led to this frictionless order initiative.

And we are seeing some incredible results of that I would say that being able to shift.

Our entire workforce of over a thousand people to work from home and under two weeks is is really a testament, what we were able to accomplish with the frictionless order because being able to rely on the level of automation and optimization that we had.

Let us to be able to do a lot of those things and the shift that work I think if we were 18 months ads pandemic occurred 18 months ago, we would not been able to make the shifts I think that our investment in technology has really helped to facilitate our ability to kind of work through this situation and we're continuing to invest in that.

We truly believe that we've gotten about 50, 45% to 50% of the so called touch points out that we think that we can remove from the system. Most of those touch points relate to driver friction and frustration. So we really believe that we continue to focus on that we can take a lot of that friction out.

The system that friction is going to allow.

US to drive our driver or improve our driver attention. It's also going to lead to better utilization and we're already seeing some of the early wins of that so we think as we focus on driving the other 50% out we'll start to see improved results due to that so we think technology is something that we are committed to and if anything.

More committed to it today than we were six weeks ago, because we now see the benefit of all of the investment we've made over the last 18 months and how it's been sitting organization.

Alright, Thanks, Eric one more quick one on the supply side you have something that's fives about you continue to expect long term trends would pick out capacity, but some of other actions will perhaps though the speed of the contractions.

Over that little bit with some of the competition spilling over into the into over the road, but maybe you can elaborate on that come into this five specific T. I government another actions there yeah.

Yeah, I mean, I I think that and if you look at the the stimulus Bill and the PPP that was put in place specific to cut their companies under 500 employees I think there are going to be some examples and there are some examples of companies that were probably very close.

<unk> too.

You know moving towards bankruptcy or or having to at least reduce their fleet significantly in order to survive because 2019, obviously with a really tough period for a lot of smaller companies unless well capitalized companies and and you saw a good bit of bankruptcies, but I think there were quite a few other companies that were really on the.

Edge of bankruptcy as we moved into the situation and.

In sum in some cases, the pandemics actually going to give companies a lifeline there will be some companies that are going to get funding through a this stimulus bill that will actually allow them to continue operations, where otherwise they may have gone out of business over the next couple of months and so I do think there is a cropping up of capacity.

That will be occurring at a certain level now.

Most of our industry is made up of carriers with 123 trucks and most likely those companies aren't going to be able to take advantage of a of that you know that stimulus bill and so I still think you're going to have capacity come out, but but yeah that was that was the point of that comment is that we do think that there are so.

Capacity that will be propped up through the government action or over the next couple of months.

Hi, Thanks, that's helpful.

Yes.

The next question is from David Ross at Stifel. Please go ahead.

[noise] Hey, guys. This is Matt My last gone for Dave Ross.

Hi, Matt.

Hey can you just provide us with.

Any updated guidance on gains loss on sales and DNA for the remainder of the here.

And perhaps one Q is a fad run rate for the insurance and claims line going forward. Thanks.

Yeah, I would say you know as far as our depreciation you all inclusive of the gain loss that you could.

You could see that probably be consistent with where we were in the first quarter to maybe you know dropping.

Nominal amount not significant yet with the leases increase through the balance of the year you could see our depreciation you have dropped consistent with that but I think that if you look at our overall equipment costs. Yeah. It's more of a geography area you know depreciation and interest you know down a little vehicle rent up a little <unk>.

<unk> is how I would look at that you know the aggregate YOD to do not anticipate our losses, you know accelerated through the year, Yeah, I don't believe that they're going to accelerate throughout the year relative to where we were in the first quarter I think when you look at our moving onto the insurance line item when you look at that expense.

And you look back historically over the years is yet to the extent we are self insured up to $3 million. That's why you all have some variability and not from a.

From a quarterly basis, if we stayed at that level and you go back the last two years for the rest of the or that would be something that we have never experienced before usually our high quarters are in that range, where we are today, it's in that $25 million to $26 million range, but then I think if you look back we also have quarters, where in that $20 million range. So when I look at the progress.

Yes, we've made from a safety perspective, and the overall incidents I would say the inventory and our insurance accruals on our balance sheet of over $100 million that that's rolling in is better than the inventory rolling out. It's I would anticipate you had a sequential improvement in our claims expense through the year.

But you know like I said like I've said before all types is one or two bad incident, yeah, when I could be right back at that $25 million range. So.

Yeah, Thanks, a lot.

The next question is from Ken Huckster as DNA. Please go ahead.

Good morning, Eric and Eric I can maybe <unk> Fuller can you talk about the Digitization that you run through why do you still see 100 operating ratio plus versus some of your pure carriers that are clearly seeing it a different market is it is it really just rate is it more exposure the spot market is.

It's still your expenses that you've talked about since the IPO or they just still too high what what has really been the difference here versus what we see it some of the peers.

Sure I mean, I I think you we've gone through a significant transformation and you look at it.

<unk> those that you're comparing us to Dave been operating at those levels for an extended period of time and we are in a process of moving from the way we look at it from one group one one kind of operating tier to another and you know that's a different situation.

And that those that had been operate he got that year for extended period of time so.

But the biggest thing for us as these things don't happen overnight and it's a lot of consistency that we just have to continue to drive results and stay consistent with our plan and we believe that they plan that we have around our Digitization is the right plan, we are seeing cost come out it doesn't happen overnight and it.

Something that you know does take a number of quarters. If not you know in some cases, you know a number of years for cost to the level that we have that'd be great. Maybe you know as long as you know 15 20 years that cost has to come out and we have to you know put other things in place to replace that Uh huh.

Austin So it's the Digitization is the automation it's optimization, it's a different things around just doing things differently and for US again, one of the biggest thing we've talked about is that turnover has been our biggest issue for a long long time as a company and that's something that we have put a lot of focus on.

And the needle has moved a lot slower than we would've liked but again it is moving and you know we believe that all of a the initiatives and the investments that we've made are going to continue to drive better results in our turnover numbers and that's really where we get probably the biggest impact and problem.

We were wouldn't weeks benchmark with our peers that operated a much better level, that's where we see a biggest gap is if we can get to their level of turnover you really start to see the models really start to converge from margin perspective.

So just to sum that up and you really see does more a cost issue than anything on your exposure to spot rates and maybe more rate pressure. So.

I get that right Oh, Oh, yeah, Yeah. We've all I think I think we've always said that as I think into cost, it's a cost problem more than anything.

So then offer and really can't I think I'd like to add you can really isolate it you know to our over the road fleet I'm going if you look at our dedicated division, which is you have 40% of our tractors and we benchmark you know that group as far as revenue productivity on a per tractor basis. You can see we're very comparable I think where you see the sharp divide.

There was mention as you start looking at our driver turnover, it's a significantly higher and if you look at our utility you know revenue productivity on that over the road fleet and compares to others, you'll you'll see a gap there and so as we continue to utilize that equipment better and get the turnover better that's when you'll see that gap start closing.

So let me let me then focus on on the driver turnover for a quick second because you mentioned the higher cost.

I'm kind of surprised given the that the scale of unemployment than where we are now that kinda loosening environment that we're seeing and the trucking market because of the ability of of getting drivers or are you.

Not then seeing that loosened up a bit and then and then if the driver issue is there.

What is it is it up a worst platform on the U.S. Express model in terms of not getting the same utilization of miles is it pay what is the crux of of the Irish either.

Yeah, Ken <unk> done there the comment about turnover was it's a pre co bed comment I'm really about our model over a long period of time or the last six weeks, we had seen our turnover or.

Percentage at better than probably we could probably go back 10, plus years and we'd probably haven't had a period of four to six weeks, where we've seen there are turned over where it is right now so I think that that that but I don't think that that is a long term fixed I do think that situational I think its market driven.

Because prior to the coded situation, we were still having a good bit of of issues around turnover. So we're not being naive to think all the sudden that its fixed we do think it situational I I think if you look at it but the again, what we're seeing in the market over the last six weeks is real positive from a drive perspective that loosening also.

So is allowing us as I said earlier to upgrade our drivers so.

Orientation, and hiring is becoming more plentiful were fine and get a little bit easier to find drivers as I said that you see drivers moved kind of a flight to quality and so they start to go to the big carriers. They can get consistency and so we are being able to hire at a at a probably a higher pace than what we were previously.

That is allowing us to upgrade so in the in the near term, we have low turnover and and we have better recruiting which is allowing us again to improve our quality of driver, but we're taking advantage of why we can because we do think it is purely a situation that is being caused by the tandem again the X.

<unk> and back not necessarily something that we've done internally we recognize that.

Appreciate that I I thought the answer is a bit Isle before about getting on a bus and going to drive orientation I've heard most of the carrier is going to online situations anyway. Let me just flip to the I guess the ultimate question here that is given Eric Peterson your view of adding more tractors and operating these.

Why why bother even if your revenue per tractor is declining, especially in over the road why not shrinking that fleet and if you're having trouble with driver.

And keeping the drivers and with costs why not really shrink that fleet significantly and and and focus on on increasing profitability of of that existing fleet in this kind of a market.

Yeah, I think when you're looking at the replacement yeah. That's not that's not grow into fleet. What that's essentially doing it's just taking equipment out that we would consider that said the 10th end of life, you know as far as maintaining our equipment and you know that average age and that you know one and a half to two your range is what we're really doing.

There you know, we're not we're not going out and growing the fleet you know and into the.

Pan pandemic so to speak so.

And as far as shrinking the fleet, if we look at our per tractor contribution yeah, but you know what the numbers and what the math says is your better keeping those volumes up even though you do you might have a little decline in rate over a period of time, but once again, we yeah. We're looking at this over a longer period of time, we think the spot market.

It is a temporary phenol, we think we worsening market recovery prior to the pandemic and we think that as we come out on the back side that supply still will be exiting the market capacity will be lower and the cycles going to flip.

Hi, guys push at times one thank you.

[noise] [noise]. This concludes todays question and answer session I would now let's turn the conference back over to Eric Southern for any closing remarks.

Okay, I really appreciate everybody down into the call today, we look forward to.

During this again a in a few months you know, we really believe we're kind of getting a unique period of time, given the situation with the pandemic and so obviously things are probably a little little more confusing the normal but I think at U.S. Express we're doing everything we can to plan for every contingency I mean, we've modeled out.

Everywhere from a view of the W., an l. shaped recovery and we're well prepared to react regardless of what the overall macro economic environment is and so we think we're in a good position to take advantage of the future and a you know where we're excited to see where things go from here. So.

Anyway. Thank you.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant [laughter] [noise].

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