Q4 2020 USA Truck Inc Earnings Call
Good morning, and welcome to the USA truck fourth quarter, 'twenty and 'twenty earnings Conference call, all participants will be in a listen only mode.
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I'd now like to turn the conference over to Mike Stevens Senior Vice President Finance strategy and Investor Relations. Please go ahead.
Thank you Rob good morning, and welcome to USA for the capacity solutions fourth quarter earnings Conference call.
Joining us this morning for and the company are James Reed, President and CEO, and Zach King Senior Vice President and CFO. We thank you for joining us today and.
In order to help you better understand the USA T capacity solutions and its results. Some forward looking statements could be made during the call as we all know forward looking statements by their very nature are subject to uncertainties and risks for a more complete discussion of factors that could affect the company's future results. Please refer to the forward looking statements section of the company's earnings press release.
And the company's most recent SEC public filings and order to provide you more meaningful comparisons certain information discussed on the conference call could include non-GAAP financial measures as outlined and described and the tables and our earnings press release I'll now turn the time over to Zack.
Thank you, Mike, but we want to thank everyone for joining us on the call today and we appreciate your interest in and support of USA truck.
We stated and the earnings release last night and this was the best quarterly adjusted earnings per share in company history. This is a direct result of the initiatives that we've laid out in past calls to increase our trucking utilization grow our dedicated service offering continuously optimize our network and increase our USA T larger logistics segment load count.
While we still expect to improve on these initiatives and future quarters, the fourth quarter showed improvement and all of these areas.
However, the fourth quarter was not without challenges as the recruitment of professional drivers continued to tighten throughout the industry increase and governmental regulation COVID-19 relating driving school closures and increased governmental unemployment benefits of all impacted our recruitment of drivers the.
These constraints and make it difficult to recruit drivers however, but they do drive up price and the marketplace positively impacting both of our segments by increasing our base revenue per loaded mile and trucking and our revenue per load and USA T logistics if.
If you'll please turn with me to slide number three.
And we'll do a brief review of our financial results.
Consolidated base revenue was up 36, 3%, excluding fuel and consolidated quarterly operating revenues came in at $158 8 million, which represents a 28% increase year over year cash.
Consolidated adjusted operating ratio for the quarter was 93, 2% down from 102, 8% and the prior year, primarily driven by improvements and our base revenue per mile loaded miles per available tractor and our deadhead percentage and our trucking segment and increases in revenue per load and our USA T logistics segment, while controlling our cost structure.
Our adjusted earnings per diluted share was <unk> 70 cents.
Turning to slide for trucking base revenue, excluding fuel were up 23% to $96 4 million compared to $80 1 million for the fourth quarter of 2019 operating revenue before intersegment eliminations increased $12 1 million or 13, 2% to $104 3 million our trucking segment.
<unk> generated $6 7 million and adjusted operating income and the 93% adjusted operating ratio, which is the fourth which is the best fourth quarter trucking operating ratio and over a decade.
The primary driver of these results was the 39 net increase and base revenue per loaded mile when compared to the fourth quarter of 2019, and this was the result of our network and pricing initiatives as we discussed on prior calls and and improved market.
Utilization increased 46 miles per truck per week or approximately 3% from the fourth quarter of 2019 related to our continued regionalization strategy these rate and utilization of outcomes positively affect the base revenue per available tractor per week, which increased $684 or 21, 6% year over year for the fourth quarter.
And our deadhead percentage for the fourth quarter of 2020 improved by 80 basis points from the third quarter.
And the average available tractor count for the fourth quarter of 2020 was 1907, which of the two two per cent decrease when compared to the fourth quarter of 2019 the.
And as truck Count decrease was the result of continuing to moderate our fleet to improve asset utilization within our optimized network.
Turning to slide number six we will review the results of our USA T logistics segment revenue before intersegment eliminations increased $31 7 million from the fourth quarter of 2019 or 94, 3% for $65 3 million, our logistics segment generated $3 4 million and adjusted operating income and had a nine.
And the four 6% adjusted operating ratio.
Gross margin dollars increased sequentially by $3 5 million to $9 3 million and the quarter.
Gross margin percentage for the fourth quarter of 2020 was 14, 3% versus the 11 five per cent for the comparable quarter of 2019.
Load count increased to 32006 hundred loads during the fourth quarter from 32100 loads and the third quarter of 2020 and increase of 1.5 per cent.
And an increase of <unk> increased by 26, 2% for approximately 6800 loads year over year the.
The primary drivers of these results were an increase.
And revenue per load of approximately 53, 8% and only of 49% increase of purchase transportation cost per load.
The market environment drove our margin per load up to $286 per load from $150 per load year over year.
If you turn with me to slide seven will highlight some key balance sheet liquidity measures as of December 31, 2020, total debt and finance lease liabilities were $154 3 million and total stockholders' equity was $84 7 million net.
Net debt was $154 2 million and our net debt to adjusted EBITDA for the trailing 12 months ended was two seven times down from three five times and Q3. This represents a net debt decrease of $16 $7 million from Q3 of 2020 and of 0.8 turn improvement and our leverage ratio.
The company had approximately 56 million available to borrow under its credit facility as of December 31st 2020.
And given the challenges of 'twenty and 'twenty, we were able to pay down approximately $24 4 million and total debt and finance leases, while taking delivery of 189, new tractors during the year.
Looking ahead into 'twenty and 'twenty, one we expect normal cycle net capex of $40 million to $50 million and with that I'll turn the call over to James for a discussion of business and current initiatives great. Thanks, a lot and Zac and good morning to everyone. This quarter represents a high watermark, thus far and the history of the company in terms of not only adjusted earnings per share, but also in turn.
And the intersegment collaboration and teamwork cultural transformation and the culmination of a great group of people pulling and the same direction I'm reminded of the great work, Ralph Waldo Emerson quote that which we persist and doing becomes easier not that the nature of the task has changed but our ability to do has increased the team here at USA truck has been.
And of the Winter's mindset required to set and keep a consistent cadence and rhythm of the business and in so doing has executed the self help initiatives. We've now I'll discuss for over three years, it's a bit anti komatik. We set the right path. We are executing on the initiatives, we laid out and the results of followed just as Emerson observed we see things.
Getting easier and a sense as we follow the self-help playbook our decision makers are emboldened and empowered our teams are delivering consistently improving results the segments of working together seamlessly and we have become more nimble and results oriented before we begin.
Want to give a brief update on our COVID-19 response, and what we're doing and the realm of diversity and inclusion our COVID-19 response remains on track. The USA truck team is mostly working remotely travel is still limited to business critical and our semester view of onsite work arrangements has the next returned to work day slated for July 5th.
And we shared last quarter, it relieves organizational and employee stress to be definitive about our plans over a longer time horizon. So our next assessment will be in the early summer.
As we noted previously our efforts to become even more diverse and even more inclusive and our business are moving forward in January our executive team made the decision to formally recognized Dart Dr. Martin Luther King Junior day of an official company holiday I am proud of our team for making that important change. This month, we are celebrating black history month with the number.
And of speakers and activities throughout the enterprise, we're taking diversity and inclusion at USA truck very seriously and you should all expect even more from us and the future. Our ultimate goal is to be a leader in industry in terms of fair equitable and equal treatment and inclusion of all people now let's get started we have updates today on market dynamic.
And segment performance and the quarter, our progress and our self help transformational initiatives and finally I'll speak a bit about the outlook for.
For the fourth quarter demand dynamic was a continuation of the robust back half of the third quarter and the demand profile was a step function higher than the COVID-19 related slowdown and we witnessed earlier and the year. This step function was driven by traditional seasonality that was bolstered by a second wave of COVID-19 surge demand.
EDI I turned down the USA truck and the quarter were eight times higher than the fourth quarter of 2019, partly owing to the strong market and partly owing to our improved bid execution, which has substantially increased the number of loads that were tendered each and every day the.
Demand remained consistently strong throughout the quarter and the financial results within the quarter, we're relatively consistent month over month, the fourth quarter had three of the for best revenue and profitability months of the year at USA truck. We believe the market will remain strong for several quarters because of structural industry capacity challenges that are not quickly.
Salt inventory levels remain low and driver availability remains a challenge for all of the reasons. We noted in our release and there does not appear to be a rush of capacity into the marketplace. This remains of significant two dimensional marketplace supply and demand dynamics support a strong trucking market and the key economic drivers of this dynamic.
Are not quickly resolved.
Now I'd like to talk about the trucking segment and we look at our fourth quarter results and the trucking segment everything we said and the third quarter can be copied and pasted.
And the third quarter was the best third quarter or and over a decade and now on the heels of that result, this fourth quarter is the best fourth quarter or we've seen and the last 15 years the quarter was simply a continuation of what we did so well and the third quarter, a direct result of our self help initiatives.
Zach reviewed some of the signpost of the progress that we consider the normal indicators. When you look at trucking in terms of base revenue per tractor base rate per loaded mile loaded miles per available truck and deadhead percentage. So I won't go into the any more details on those but refer to the release and <unk> comments for more information and several key initiatives and the trucking.
And are worth, noting regionalization I think sometimes it's easy to forget that we began regionalization and 2020, the regionalization strategy, we deployed and the year continued to gain momentum throughout the end of the year and has affected all of our key operating metrics through our efforts to regionalize, we've recognized higher utilization better dead head.
The lower maintenance costs and higher driver retention rates, our regional operators were able to bring regionally optimized strategies to bear and some cases building shuttle operations and other cases executing on short haul and local opportunities and yet and others working with customers to build out denser local networks, the drove better service for the customer and <unk>.
Suffocation for USA truck. This team has adopted a rigorous data driven daily approach to managing all of the normal trucking operating metrics. In addition to a few less obvious ones. Our disciplined resembles what one would expect to see at some of the best companies and the world and that is a direct reflection of the experienced team we have.
Emboldened.
Inter segment collaboration between our logistics business and our trucking segment reached an all time high yet again. This phenomenon is expected by most asset companies that enter the non asset space, but the intersegment collaboration at USA truck excuse me. The intersegment collaboration has proven elusive for most we believe.
Our success here at USA truck is more of a statement about the culture of collaboration nurtured by our leaders than the fundamental construct of the business.
During the third quarter and our excuse me during the fourth quarter. We average just three per cent of our truckload business and the spot market, but we were able to access the spot environment through a collaboration with our logistics team whereby logistics customer freight and moved on USA truck assets and made up 12% of the truckload business, excluding Davis and debt.
The Kate at this created a margin upside while supporting customer commitments and our logistics space that was almost entirely supported by our owner operators and the fleet. It was a true win win and our pricing discipline is worth, noting as well as evidenced by our high number of tenders and high number of EDI I turned downs it is clear that our pricing and.
And network strategy born of the learnings from past challenges has succeeded and providing access to network rich freight opportunities are abundant optionality and selecting freight and more certainty in execution as noted earlier, we actually only had a small percentage of about 3% of our freight on company trucks in brokered freight by.
For the preponderance of our business with customer contracted freight in our network driver retention is another item I'd like to touch on and improve it improved to the best levels and five years for the quarter driver turnover was under 80% we'd love to say that this is the result of a more thoughtful and comprehensive retention effort, which it may.
But more than anything it's a signal of of culture and full synchronicity. Our people are communicating better and our teams are happier and as a result of retention measures have outperformed the industry and finally dedicated and the third quarter. We noted that our dedicated or had slipped as a result of the many start ups during the year dedicated truck count.
Is up another 27% year over year and is of great growth engine that is vital to our long term success. The challenge remains finding drivers to seat. These trucks. We have over 150 additional contracted trucks that we are working to actively seek today. Our long term view remains the dedicated needs to be 50% of our asset base.
Now, let's move to the logistics segment. The logistics segment is of high powered revenue engine that we will depend on for future growth now that we have been able to get enough throughput to sustained profitability, we need to grow this invested capital friendly business rapidly.
In the quarter.
Our revenue per load increased to over $2000 per load of contextually high number it is more typically and the $800 range historically, but it's been much lower and the last two years. The health of the market was helpful and we expect it to moderate a bit going forward.
The gross margin percentage story is fantastic our team has been benchmarked against some of the automated solutions that are available and the marketplace and in fact, we use some of them and routinely by is better than the marketplace and then of course load count and volume, which we've talked about for the last three quarters. We continued the trend that we've seen over the last several quarters and putting up near Rep.
Hi load count was up sequentially and was up 26, 2% year over year driving volume through this model will be the express and 10 of our team and logistics going forward. We believe that even if margins are compressed as they were and the historically challenging 2019, and first half of 2020, and we need enough volume to drive fixed.
Cost of coverage and incremental contribution dollars and we'll do that through increasing our load count and volume.
We want to share of what we believe are some amazing results from our team they get better every quarter. The first one is USA T logistics revenue per employee is up 152% year over year and every month in the fourth quarter saw base revenue per employee over $225000 and the month for the first time and our history.
The second point is the USA T logistics loads per employee is up 35% year over year. So their capacity for throughput individually has increased and third each month and the quarter was one of the three highest revenue months in the history of the segment. It goes without saying that the fourth quarter of 'twenty and 'twenty was the highest revenue.
Quarter and the history of the logistics segment, we kind of joke about run rating around here, but that's a near $250 million run rate.
Let's recap logistics base revenue grew in the quarter and had the three highest revenue months and the history of the business margins were up revenue per load went higher than expected, while improving revenue and load per employee efficiency improved 152% and 35% respectively. Just as we did the last two quarters, we improved execution.
Fusion and lowered costs significantly both year over year and sequentially the discipline and cadence of this business has is pushing for significant growth going forward scaling. This model can be highly accretive with minimal capital investment now.
Now I'd like to give you an update on our progress on transformational self help initiatives ours is the original self help story and the truckload space, we have been consistent and addressing our self help initiatives. Since 2017, we're more enthused about our prospects for change now than at anytime and the last several years, we've done a ton we've manage the age of our.
We've completed the acquisition of Davis, we closed down high cost facilities manage head count aggressively regionalize the business lowered our maintenance costs expanded our dedicated business and supercharged our logistics business. We believe this company is well positioned to leverage these improvements in whatever market, we face while the trajectory of <unk>.
And recovery is unknowable, we expect freight will will improve further through 2021 capacity has come out of the market and the challenges to that are not short term fixes. We truly are in the midst of of dual threat supply side and demand side resurgence and we have worked tirelessly to be able to take advantage of it. These factors are all positive for.
For USA truck.
We remain focused on ways to increase utilization improve revenue per available tractor and drive profitable logistics load count growth. The initiatives, we outlined in prior quarters are moving ahead and bearing fruit. This presentation marks the final time will discuss the 2020 specific self help initiatives we've shared in the past needless.
To say 'twenty and 'twenty went sideways pretty quickly, but we pivoted and while many of the Touchstones. We laid out had to be understandably re prioritized. We feel it's just good process to come back to them and this presentation and I believe you'll find these on slide eight in the presentation and the first initiative is increasing utilization of the existing fleet as the.
Ported utilization moved ahead, 3% and the quarter year over year. The second is increasing our team presence and utilization we made an intentional pivot here in light of the pandemic. We continue to focus on slip seat and shuttle arrangements as a direct response to market challenges and it continues to drive results and overall utilization next is network.
<unk> all of the footwork, we did the optimize our network profitability model the implementation of the cadence and discipline and reviewing and refining the market opportunities and the rigor of approaching customers has paid off.
17, 9% base rate of improvement in the quarter and of 21, 6% improvement and revenue per available tractor per week, a remarkable evidence of our commitment to getting the network right. Additionally, our network density has nearly doubled since we began the work of restructuring the network in 2017. The current market provides an opportunity to uplift and upgrade the network with <unk>.
And pricing and improved net network characteristics. We are actively refining the network using our proprietary network value model to call the lowest yielding freight and exchange for better options.
And next is growing the dedicated business as noted earlier, we have done a tremendous job securing dedicated opportunities startups have proved challenging for both the cost and execution standpoint.
But we are confident that this business from will return to its normalized operating conditions and this is important just that move alone will be worth 200 basis points of performance improvements of the trucking segment customers want dedicated capacity of more than ever and we of over 150 confirmed trucks and the immediate contracted pipeline. We remain ahead of.
The schedule on this critical initiative the.
The next initiative is driver retention and we now are seeing improved driver retention at USA truck and we expect that trend to continue.
Fourth quarter turnover was under 80% we have made significant cultural investment into communicating more clearly more regularly and more positively with our constituent groups. We also believe that the benefit of regionalization and building relationships with drivers is paying dividends and finally driving logistics load count we covered this.
Comprehensively earlier, we're just so proud of what this team has accomplished we are well ahead of schedule on this initiative.
Now, let me shift to the outlook.
And the demand environment remains strong we continue to see <unk> turn downs that of roughly four times. The weekly load capacity of our asset network, we have abundant dedicated opportunities and a clear line of sight that we believe will improve consolidated trucking ore by the end of the year and we have a best in class brokerage business that just gets stronger quarter after quarter and is poised to provide growth.
To the enterprise the market has its challenges the toughest headwind at the moment remains finding qualified drivers to join our team. There is a trifecta of sorts going on and the drug and alcohol clearinghouse. There has resulted in over 55000 drivers being appropriately displaced from the eligible pool of drivers.
Schools continue to struggle in light of Covid challenges.
And the licensing agencies continue to have difficulty renewing licenses and drivers and some cases are electing not to return to driving in light of other available sources of funds.
<unk> levels have moderated and the market to what we would call seasonally normal fourth quarter to first quarter trends, but overall pricing at the beginning to reflect the market realities of a challenging driver market much higher insurance costs and driver wage pressures hours was up just over 10% year over year. It was composed half and truckload incentives and the rest is the result of.
<unk> mix and yet as we analyze the 10 year trend of contract pricing the trend only reflects and annualized 2% to 3% increase over that time horizon. So we think it's pretty fair now referring to slide I think it's slide nine and the presentation.
And I'd like to quickly walk you through the Touchstones, we will return to each call for the remainder of 2021, just to orientate everyone to the slide the middle is literally the badge backer that every USA truck employee carries reminding us of the three key results. We are working together to achieve and 2020 the right side reflects the <unk>.
Specific objectives, all of which have metrics that we're managing internally and then the left side of the related Touchstones that we will discuss with you and update quarterly on our progress.
The trucking segment or <unk>.
Improvement.
Indicator as noted a couple of times here today, we plan to see improved trucking or year over year of 200 basis points or more logistics load count growth.
Our target is 10% annualized growth and profitable load count growth with an internal goal of that exceeds that amount.
Dedicated growth of 10% truck count growth or more and the year excuse me, 15% truck count growth or more in the year. We are wholly committed to making dedicated half of our asset fleet doing so profitably provides a stable profit base from which to grow and then finally and being the employer of choice.
We expect to improve our driver turnover by 10% or more.
And the year and when we will report back on that regularly the for.
Quarter of 2020 was the best adjusted EPS quarterly performance in the company's history, we said and the third quarter call. The USA Truck's best days are ahead and coming quickly and we meant it.
There is still a ton of work to do here and with the strategy cadence focused execution and people we have and this business. We believe we are finally, moving and the industry position, we always thought possible as we've said often we see the survival of the best Transportation story and the industry with that Rob I'll turn it back over to you to take us into questions.
Thank you.
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Thank you and our first question is from the line of Jason Seidl with Cowen. Please proceed with your questions.
Thank you Ivor and good morning, James and the and team.
Congratulations on a on the impressive fourth quarter and you're slightly above me.
Okay.
Wanted to talk a little bit.
About your regionalization efforts, because I think that's sort of where a lot of the success of emanating from the and the trucking space could you talk about how much you think is left as we go throughout the year and should we see some of sort of a step down and and the improvements as we lap in the fourth quarter and talk about like sort of where you'll have the most.
The growth.
And whether you whether youre looking at your debt.
Debt at miles utilization.
Maintenance costs and drive more attention.
Yeah. So you actually just answered the question for us, but let me kind of take a little bit of license and answering and at first and foremost we have relatively.
Easier comps going into Q1, and Q2 last Q1, and Q2 were not particularly good for us and we're just launching into that initiative.
We obviously talked about this a lot internally, we kind of think for 75 per cent of the way there in terms of getting our people hired getting the regional offices stood up and getting our cadence of the business going but each of the characteristics that you hit on are exactly right.
We have opportunities to improve utilization, which we are seeing we kind of barely touched on it and the call, but we've got a bunch of kind of shuttle operations that we're running that have proven to be.
Really awesome kind of productivity enhancers for us, but there are also fantastic from a driver standpoint, we're and we're kind of meeting low cap way and taking longer length of haul turns and getting drivers home multiple times during the week. So utilization is certainly one of those maintenance costs remains a big opportunity one of the things we do we do of heating.
Analysis of the update every quarter.
And really the ROI that we use and we're not even really thinking about the opportunity cost of incremental utilization. We use maintenance cost is the main driver for our next investment and so we expect that we'll be identifying a couple of more regional operators. The operations that we can add to the network over the next 12 months to help us reduce that over the road expenses.
And even further.
And then finally you hit on what's probably the biggest one which is our driver retention and reducing driver turnover. We just believe I talk a lot around here about <unk> hierarchy of needs and a lot of people don't like to talk about once you get past security safety.
Food and shelter, everyone wants to be loved and and that alward isn't used a lot and business, but drivers want expressions of affection as well they want to be they want to of personal relationships and so.
As we've seen regionalization and really take root I mean.
And I said on the call. The the fourth quarter driver turnover was less and 80% are January turnover was less than 60%. We just are having steps channel results in the personal and relationships that our regionalized leaders are having with our drivers and finally, maybe going beyond the scope of your question a little bit I would tell you we.
Still have one region that just kind of woefully underperformed the rest of the regions and so when you ask and asking it do we think there'll be a falloff I think the acceleration of.
And of savings and improvement you are right that that rate of improvement will slow down, but it is still upward into the right.
And and the one region you said is sort of woefully underperforming is there any particular region excuse me the reason for that.
Yeah, I mean, there are a couple of reasons. One is it's a tough part of the country to do business and a lot of people struggle there the.
The second is we have some turnover challenge of there and the third reason is we have some facility challenges. The the the the geography was hard to find the building. So instead of having a co located maintenance and driver facility. They are separated by about a 10 or 12 minute drive that sounds trivial. It's a big problem. So we're going to fix.
This year.
And we expect to see much improved results down there.
Okay that makes sense.
Two more and I'll turn it over to somebody else.
James you talked about getting half of your fleet over sort of the dedicated side.
So good growth I think and in the fourth quarter.
Talk about some of the challenges and doing that because everybody seems to be going after dedicated and the step of marketplace.
Yes.
It's really interesting so.
Okay.
First of all.
And the challenges are obviously and in start up right and I'm kind of kind of trying to sort of my thoughts here. Let me backup further one of the challenges that may not be as obvious to everyone is trying to make the decision about where to allocate assets. So I.
It was to actually talking to our dedicated leader yesterday and I was very pleased that he was able to play back to me what I think my job is and this is what I tell people and the company my job is to manage culture to manage asset allocation and to manage risk and when the on the allocate asset allocation piece when you've got.
Truckload business, that's producing historically high revenues per available tractor. It takes a little bit of I don't know, if it's really courage, but it takes a bit of commitment to stick to your guns right and so we made one of the tough parts of managing that is sticking to our guns that this is in fact, our long term strategy, which it.
And we reiterate that in terms of the challenges of executing the business.
Startup can be a challenge, we said and our last release I'm not you know.
Two of hesitant to mentioned it here again some of our startup has been in the dollar store space well that dollar store business is hard because the trucks, it's not drop and hook freight. It's every stick of freight gets touched by the driver of their unloading the trucks at the facilities. So the challenges of starting that up and finding.
Drivers that want to do that kind of work.
Is difficult that's one two is.
In terms of.
Starting up the businesses you have the secure facilities you've got to set up your <unk>, you've got to make of fairly significant upfront investment in small as it may be the infrastructure of these kind of satellite locations and that costs money and then finally, the particulars of each business and the startup aside.
Just getting the rhythm of being able to repeatedly kind of wash rinse repeat that business takes a little bit of time now all of that said we've done this very capably for over a decade, I mean that business typically runs and the high eighty's to low ninety's and as we get this new business to that level, which we expect to do this year.
We expect it will contribute about 200 bps for the overall trucking segment. So we're really excited because it is a very clear line of sight to that deliverables that did I Miss anything and the only thing that I would add of.
What you said about commitment to the strategy I think is important because when you look at those dedicated opportunities.
Generally one year you go in and.
And the business its usually of a two year to three year cycle before you obtain it. So so I think that is important that we stay committed to that 50% number that we've laid out a couple of years ago that was our goal. So.
Agree with that.
Yeah.
That's very very helpful. I wanted to talk lastly, about some of your productivity on the.
The logistics side I think revenue per employee it could be a function of the market of times. However.
Loads per employee of being up 35% was a very impressive number and could you talk about sort of how much is left there and what role technology might play in helping and move the needle for us.
Yeah. So.
This might be a little bit of an underwhelming answers so I literally.
I was talking to our leader yesterday and if you were if you were on the call and he would say to you. It's all about culture.
And for a guy like me that's.
Trained as the finance professional like that's what I've done for a career.
That's a hard answer for for me to accept but in fact, what has occurred is we have had this incredible cultural transformation and the business, where we have a cadence and our approach we have the right reward system set up we have the right managers, leading the business and it is.
Translated to this remarkable quarter over quarter.
Constant improvement and productivity our team our leadership team I don't know if I've ever talked to you about this Jason but we like to read the kind of management books and I gave them a break this time and we're reading of non management book called Boys and the boat non from Seattle. It resonates a lot with me it's about the 1936 U S Olympic team.
Eight and rolling team that won the gold medal and they talk in that book about how of boat finds it swing this kind of material and and almost mythical.
Jim Collins talks about it is the flywheel right that team has just hit this incredible cadence now that said what rollout of technology played we have partnered and we've talked about this from the past with some outside technology platforms that have allowed us to use predictive kind of AI.
To help us identify when you have recurring.
The capacity options on freight types. So let me give you. An example, we would have a capacity provider who halls of certain type of freight that has a certain price distance.
And freight characteristics whether it's.
And.
Based on the type of Accessorial ahead, we can use that AI platforms to help us match that kind of future customer freight back to that capacity provider and proactive ways and so we do that we have four or five different things that we've experimented with.
We havent named really any of them publicly other than our <unk> relationship, which we have talked about which helps us on the track and trace.
And Theres, nothing really star Trekkie other than our belief around tech is one.
Everybody has to be a tech company. These days, we don't have a big enough balance sheet to finance some of those innovations and so we have looked to the ecosystem to identify providers that have that kind of tech and leverage our relationships with them and that's probably all I'll say about that but it is a really important parts of this cadence that I discussed I hope that answers your question.
And I appreciate the time as always gentlemen, you guys be safe out there.
Great. Thanks, you too thanks, Jason.
As a reminder to ask the question Jamie for Star one the.
Our next question comes from the line of the Jack Atkins with Stephens. Please proceed with your questions James Zach My good morning, Thanks for taking my questions.
Correct.
Congrats on the on a great quarter, guys I guess, if we could maybe dig in for a moment on James some of the targets that you laid out of the presentation. There specifically I guess I'd like to start on the or improvement of trucking of about 200 basis points could.
Could you maybe kind of <unk>.
If you could just kind of break that down a little.
Little bit between what you are trying to do with the fleet Covid heard you correctly to one of them.
Since the answers.
And the answers one of Jason's question as you said the dedicated alone.
Mix could be about of 200 basis point improvement of your trucking or but when you think about the.
Mix changes to the business.
The rate that Youre getting and then the network improvements kind of can you can you break that 200 basis points go down between those three buckets.
She'd like to look at it.
Yeah for sure.
So.
It's interesting.
You're kind of you're catching me and my own web here.
And so you've known us long enough to know that we try to under promise and over deliver and this is a really exciting call for us because we see of line of sight.
And dedicated alone.
To get to that number we've always said and.
And then our truckload business should improve 200 to 300 bps, a year and so I think there's probably an incremental opportunity if you weighted.
Of another 100 to 150 bps just in the truckload space alone the truckload hung up.
And are the trucking segment I should say.
Hung up and 93 or in the quarter and that very easily could have been of 91. So.
I don't mean to be nebulous and I'm not trying to hide from your question, but in terms of mix changes network improvement and just operational improvement.
We had the first half of the year that wasn't fantastic and so if you think about.
And the things that are likely to drive our improvement, it's mostly around network improvement and it's mostly around utilization characteristics and so.
And we feel very well positioned on price you might remember from four years ago. When we got here, we did an analysis to understand our underlying business orders of magnitude and in order of importance, it's price seated trucks and utilization in that order.
Price is handled through the network, we're working diligently on seeding the trucks, we've already taken our unseated truck count down by 43% since the end of the quarter. So we're doing a really nice job.
Largely on the efforts of our recruiting substantially on the efforts of our retention and then of course the utilization. So if I had the kind of attribute another 100 150 basis points beyond this goal I'd say, it's mostly going to be I'd say half and half and network improvement and utilization back and I think network.
As we continue to optimize the network and get our ideal network that will also yield like you mentioned earlier and when it comes to the maintenance cost as we stand up those facilities, we have a lot of room and maintenance cost and that's true right that we can drive further cost reductions through so you know over the course of the year.
And there'll probably be some opportunities for us to get into some different markets to reduce that over the road spend from.
Okay.
It makes sense and thank you for sort of.
And kind of paint the picture for us I guess within the logistics.
And could talk about that for a moment.
I think and adjusted award this year of of about 98.
So the same as last year.
Obviously there.
A lot of different moving pieces in terms of what was happening specifically with the within the fourth quarter.
How are you thinking about whats the whats a good margin goal there.
Maybe not for 'twenty, one, but I guess longer term is it is it more of and that you know for.
For the 6% operating margin is that realistic for logistics of longer term I'm, just trying to think about where you could take that over time.
Yeah, I think so.
Robbie on the lower end of that for many of the reasons. We've discussed before right. So we actually had a special topic at our recent board meeting, where our logistics leader came in and do the white paper and kind of exploring the corners of this market space with the digital freight brokers that have come in and you've got what I would call. Some kind of irrational competitors that are willing to take la.
Losses quarter after quarter year after year.
But none of them and aggregate makeup of big enough piece of the market to really drive that number.
Into the ground and so I just want to kind of re tell our story and you alluded to the 98% year for.
For the year, you are right, but remember that that had Q1 and Q2 results that were both over 100 or one of the things we realized exiting last year.
Was.
If we treated this like a supermarket model, meaning low margin high throughput, we could create enough op income to fund the business and we really feel like Jack that we should never lose money and this business and so we feel like the first half of the year was an anomalous.
The kind of experience now that said, there's a big debate internally about because James is saying Hey, let's go grow this business a lot it doesn't require a lot of capital other than some net working capital that's hung up and the receivables and payables.
Now that we've figured out how to put a lot of kind of stuff through this goes how do we go drive it really really hard and use it as a growth engine and some of the debate has been <unk>. James if you want us to do that there's likely to be margin compression and I just like the have fun with numbers Jack So there's not great data on the size of this.
Market space, but let's stay at the $100 billion.
And if we're doing $200 million of that I mean, you can do the math, we are a miniscule sliver of market ownership, there and I believe that you can still grow this thing.
The margin positive contribution so that's why I say I'm hedging a little bit in my heart of Hearts I believe you can grow this and the four to six range. The team feels like I might need to give him a little margin relief in the name of growth. We recently commissioned a study with the bank that we do a lot of work with to help us understand what would dry.
The value from a stock stockholder shareholder standpoint, and it won't surprise anyone on this call debt in orders of importance. The number one most important thing is to improve your operating performance operating margin, which is what we're doing on the asset side and the second thing about half as impactful the stock price, but the second thing is profitable growth and so we intend to use.
And as this business for the profitable growth piece of the equation and now on the asset side, we intend to just continue the knuckle down and and expand the margins and I hope that answered. Your question no. It does that makes that makes a lot of sense I guess maybe.
Following up on that and then I've got one last question I'll turn it over but and we've heard of other asset carriers over the course of Sir and exceeded talking about doing a lot of power only moves the mineral logistics segment.
Utilizing the trailer fleet and sort of leveraging that part of their asset base.
Can you maybe talk about that do you guys do that currently is there an opportunity to do that over time to maybe help fuel that growth of and logistics as well.
Yes, so we laugh at that.
We have a.
Our business and we call our plus business of plug power.
Our customers all know about it we've been doing it for 11 years Jack.
And that new to us and so.
Everyone on our team will tell you. This I joke about it all the time I got an a and everything and Grad school, except marketing I got to be and marketing and so you don't want me be and your marketing Guy.
I think have failed investors, a little bit and not being louder about that so we have recently kind of commenced some campaigns youll see a lot more kind of and our digital marketing and and our campaigns to our customers to make it clear Jack the that program first of all non innovative not new we've been doing it for over a decade and secondly, we're better.
At it than anybody else.
Alright.
James you may not have made and a and marketing and Grad school, but it sounded like you've definitely improve your skill. So that's good.
Yeah.
And the last question and I'll turn it over but you're targeting dedicated.
The growth of about 15% year over year is that is that by year and I guess, so is that year and number versus the beginning of the year number and then how should we think about fleet total fleet, including.
Your regular route business over the course of the year.
Yes so.
This is where the team will probably reach for the mute button pretty quickly, but I've got my arms around the phone.
No.
Again under promise over deliver.
That is an annual goal but.
We can achieve that kind of growth and the first half. It just comes down to the seating trucks I mean, we I said it and my prepared remarks, we literally have 150 contracted trucks that are unseated today.
In the dedicated space and so just filling those alone will easily surpass that Mark. In addition of that there's another couple of 110 truck the customers have allowed us to take on above and beyond the contract. If we can see them. So there's just a massive opportunity here for us.
Excuse me in terms of the entire fleet complexion and.
We have been really disciplined about our capital allocation part of it was look I'll be honest the 29th coming out of 2019 of the balance sheet wasn't that great and so we were not trying to grow our fleet you don't want to kill the goose that laid the Golden age. So it is our intent to keep the entire fleet basically flat.
Year over year, the growth that we may have would be and the owner operator space our team and I don't want to go into a lot of details.
Because it's nuanced, but the nuances where.
And is important.
Our team has been able to grow the owner operator fleet, even and this robust kind of spot market and my experience has been they behave more like mercenaries and when the spot market goes crazy they leave the safety and security of and asset based carrier to go apply their trade on their own that didn't happen this year.
And I think it's unique at USA truck because of some of the special programs. We have utilizing technology that gives them access direct access via our own internal load boards of freight.
And so if we grow in the asset business, it will be and owner operators.
Alone So just to recap as we talk about.
<unk> 50, 50 dedicated and in our truckload business that means the truckload space is understandably and intentionally and going to shrink a little bit in favor of growing the dedicated business and that said I mean, we think it's the sound.
The approach right. The the dedicated business typically runs day in and day out and keep the trains running of the 90 or if we can do that and have that stability and all types of market conditions. It will allow us to be more opportunistic in the future and kind of curious markets I hope that answered your question. It does it.
A lot of sense to me and thanks again for the time and congrats on a great quarter.
Thanks, a lot of tech.
Thank you.
We've reached the end of the question and answer session and I will now turn the call over to Mr. James Reed for closing remarks, great. Thanks, Rob for 2020 has been a year, none of us will ever forget and while the tragedy of trials alive for the election and human suffering all warrants I'll remembering and learning from I will always remember it for another reason to 2020 was the year USA truck.
<unk> began to show its potential as the business behind that business as an amazing group of people with boundless potential the and comparable Henry Erin who sadly we lost just a couple of weeks ago.
Said I never doubted my ability, but when you hear all of your life your inferior and it makes you wonder if the other guys have something you've never seen before if they do I'm still looking for it and I'm.
Im not saying, where the Henry eyring of trucking, but I am saying, what we've always said that there is latent opportunity for success here at USA truck and we are just starting to tap into that potential. This team and this business have always had the potential for success and now is the time for us to finally, and ultimately close of the performance.
GAAP with the competition one of my favorite Henry R. And quotes is what Joe add Cox set of him. He said this trying to sneak a fastball pass Hank Aaron is like trying to sneak the Sunrise pass the rooster.
I hope the same will one day be said about the team here at USA truck debt. When we had opportunities we seize them finally, I want to thank our customers who stood by US the last several years and have made the revival of this company and our drivers among our countries heroes during the pandemic and our company's heroes every day for doing what they do both of our customer.
And the drivers. Thank you there the real pros and we're proud of them now it's time for us to get back to work, we still have a ways to go. Thank you very much.
This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.