Q1 2021 US Xpress Enterprises Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the U S. Xpress first quarter 'twenty 'twenty, One earnings conference call.
And today's presentation, all parties will be in a listen only mode.
During the presentation. The conference will be opened for questions with instructions will follow at that time. As a reminder, this conference is being recorded I would now like to turn this call over to Mr. Brian Barber Senior Vice President of corporate Finance. Please go ahead, Sir you may begin.
Thank you operator, and good afternoon, everyone. We appreciate your participation and our first quarter 2021 earnings call.
With me here today are Eric for President and Chief Executive Officer, and Eric Peterson, Chief Financial Officer.
Additionally, Cameron Ramsdell, President of Varian, and Joel Guard President expressed technologies for here to answer questions.
As a reminder, a replay of this call will be able available on the investors section of our website for April 29 for 2021.
We have also posted and updated supplemental presentation to accompany today's discussion on our website at Investor day at U S. Xpress Dot com.
We will be referencing portions of this supplement as part of today's call.
Before we begin let me remind everyone on this call may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These include remarks about future expectations beliefs estimates plans and prospects such statements are subject to a variety of risks uncertainties and other factors that could cause actual results to differ materially.
From those indicated or implied by such statements.
Such risks and other factors are set forth on our 2020 10-K filed on March 2nd half 2021, we do not undertake any duty to update such forward looking statements.
Additionally, during today's call and we'll discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance.
The presentation of this additional information should not be considered and isolation or a substitute for results prepared in accordance with U S. GAAP.
A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found on our earnings release at this point I'll turn the call over to Eric for.
And you Brian.
This afternoon I will review, our first quarter results and provide an update on our digital initiatives designed to accelerate revenue growth.
And our profitability and improve our return on capital Eric Peterson, who will review our financial results in more detail and I'll, then conclude with a review of our market outlook.
On todays call. There are five main themes that we hope you take away.
First we continued to successfully execute against our strategic plan to improve our profitability, while doubling revenues over the next for years.
Congress this we're allocating investment and capital to our higher return digital businesses, while taking capital out of lower return legacy OTR business.
Second we exceeded our goal of growing variant to 900 tractors by the end of the first quarter, having grown to more than 950 tractors and remain on track to meet or exceed our goal of growing variant to 1500 tractors by the us this year.
Third as we invest and scale variant, we're carrying duplicative costs as we are essentially running to OTR companies, one with higher profitability and returns and one with lower profitability and returns.
Net scales through 2020, one we believe we will hit an inflection point whereby variance higher profitability will begin to meaningfully impact total company profitability.
For us.
Our digital brokerage platform handled and 67 per cent of our transactions this quarter.
This tech enabled platform allows our team to scale, our brokerage business as revenues rapidly growth.
Lastly, we made significant progress addressing customer pricing and certain dedicated accounts through the first quarter related to the driver and capacity cost deflation and we experienced in 2024th quarter.
We expect this improved pricing to contribute to improved dedicated division results as the year continues.
Turning to our operations and more detail we started the year strong as our legacy OTR tractors and very fleet performed better than typical seasonality from January.
That said severe weather that swept through Texas, and the Midwest and February caused many of our key customers and both our OTR and dedicated divisions to temporarily close.
This impacted our utilization across all of our operations given their reliance on those areas most affected by weather and.
In fact, it wasn't until the first week of March until our customers volume started to return to more seats and the levels.
Variant was not immune given its reliance on the Texas market, which was most impacted by weather.
This can be seen and variance utilization, which was eight.
<unk> 1800, and 15 average revenue miles per tractor per week for the first quarter.
Excluding February and from our results variance utilization was 1800 60 for average revenue miles per tractor per week.
And its key operating metrics held stable.
Despite the severe weather, we were able to grow variant to more than 950 tractors and the first quarter up 36% sequentially as compared to approximately 700 tractors and variant at year end and exceeding our goal of 900 tractors and.
Importantly, we are reducing our invested capital and a lower return legacy OTR fleet, while increasing our average tractor count.
This is the mix shift that is occurring and is one of the primary reasons why our total company tractor count has declined year over year.
Looking forward, we remain on track to meet or exceed our goal of 500 tractors and variant and by year end and our current hiring rate and would project to increase total fleet size during the second half of the year.
At this scale variant would generate a revenue run rate of approximately $300 million.
The growth and variance tractor count contributed to very strong very revenue growth as revenues increased 30% sequentially to 39 5 million and the first quarter of 2021 as compared to the fourth quarter 2020.
It is important to reemphasize that we are incurring some duplicative expenses as we grow there yet and shrink our legacy fleet as we were essentially running two separate OTR companies, which is depressing our profitability over the near term.
And its various scales and begins to absorb more overhead we expect to see our total company profitability improve beginning in the second half of this year.
And from an operational perspective variance metrics utilization turnover and accidents per million miles all held steady as we scaled the fleet through the first quarter when excluding the impact of weather.
The improved operating metrics as compared to our legacy fleet are partly due to our optimization engine, which dynamically routes are drivers earlier.
Earlier. This month, we launched the second version of variance optimization engine, which incorporates yield and to its decision making.
We believe our optimizer to porno will have a positive impact on revenue per total mile and add to the fleet profitability.
And the early results of our new optimizer are promising and as a result, we will begin to disclose the average revenue per tractor per week and the fifth key metric for variant.
Turning to our brokerage segment and as we touched on last quarter, we purchased a small technology company with a scalable platform and an experienced and talented team and April of last year, which utilizes an innovative platform for handling brokerage transactions and.
This digital platform enables our people to handle more loads, which improves both productivity and profitability, while allowing us to really scale the business.
The benefits can be seen and our first quarter results, where our digital platform handled and 67% of our brokerage segments transaction and <unk>.
And as compared to 15% of transactions and the first quarter 2020.
This along with a more balanced ratio on a spot to contract mix contributed to the segment's strong revenue growth and profitability as first quarter revenues increased 62% year over year.
$81 4 million and our operating ratio improved more than 1000 basis points to 98, 4%.
The brokerage segment delivered operating income of $1 $3 million and and the 2021.
First quarter as compared to an operating loss of $4 $9 million and the year ago first quarter.
Importantly, our digital platform is a key driver share goal and scaling revenues and profitability.
Turning to our financial results in more detail, our first quarter truckload operating ratio improved to 98, 2% or 150 basis points improvement over the prior year.
This improvement was primarily the result of higher rate per mile combined with lower claims expense and other costs, partially offset by higher driver wages and independent contractor costs, along with fewer average tractors and the quarter and we strategically scaled down our legacy OTR fleet.
Our over the road segment experienced a year over year increase and spot rates, given the favorable supply demand dynamics and the market.
This helped to drive average revenue per tractor per week higher by seven 5% as compared with the year ago first quarter. This.
This was primarily the result of a 16% increase and average revenue per mile partially offset by a seven 3% reduction and average miles per tractor.
Turning to our dedicated division average revenue per tractor per week, excluding fuel surcharges increased $87 per tractor per week or two 1% as compared to the year ago first quarter.
The average revenue per tractor per week achieved and the first quarter of 2021 was $4155. The increase was primarily the result of a 1.4% increase and revenue miles per tractor per week and.
And a 0.8 per cent increase and average revenue per mile.
I'm also pleased with and significant progress that our team achieved address and customer pricing and certain dedicated accounts through the first quarter, given the driver and capacity cost inflation that we experienced and the 2024th quarter and.
And then we look forward to the balance of the year. We believe all of our businesses are firmly positioning the company to deliver on our goals and growing our digital businesses and achieving scale benefits, which will begin to drive meaningful margin expansion as we exit the year.
Conclude I am pleased with our progress this quarter and wanted to highlight another very important initiative to me personally and our company, which is corporate sustainability.
In February we launched our inaugural corporate responsibility report, which we plan on releasing annually.
This report represents our commitment to exceeding traditional environmental and social responsibility standards as we strive to build a workplace granted and ethical behavior and comp<expletive>ion and equality.
I'm proud of the strides we have made us the team towards supporting these important initiatives and promoting environmental sustainability.
As part of this inaugural report, we've established ambitious goals, including the 60 per cent reduction of our carbon footprint by 2035 and doubling our community engagement over the next five years.
We have also established and diversity and inclusion council designed to foster real change within our company.
We understand this is a journey and are very proud of the course that we have charted for U S. Xpress.
Let me now turn the call over to Eric Peterson for a review of our financial results.
Thank you Eric and good afternoon operating revenue for the 2021 first quarter was $458 million and increase of $18 $2 million as compared to the year ago quarter.
The increase was primarily attributable to increased revenues and the company's brokerage division of $31 $4 million, partially offset by a decrease of $6 $5 million and truckload revenue and decreased fuel surcharge revenues of $6 $6 million, excluding the impact of fuel surcharges first quarter revenue increased.
$24 8 million to $417 $6 million and increase of six 3% as compared to the prior year quarter.
We posted operating income of $8 million for the first quarter of 2021, which compares favorably to an operating loss of $3 $7 million and the 2021st quarter on.
Our operating ratio for the first quarter of 2020, one with 98, 2% as compared to 100.8% and the prior year quarter.
The primary drivers of our improved earnings were one and prove brokerage margin to a higher rate per mile partially offset by fewer miles and higher driver and owner operator costs and three lower claims expense.
Revenue per tractor per week, and proved seven 5% and our over the road division and two 1% and our dedicated division, while we continue to execute on our digital initiatives.
Truckload operating ratio improved 150 basis points to 98, 2% from 99, 7% and the prior year quarter.
While we are certainly encouraged by delivering margin improvement year over year, we expect much more as we returned to growth and reduce duplicative platforms. The current reduction of <expletive>ets and our legacy over the road fleet and the redeployment to variant has multiple impacts first the net reduction and fleet size resulted in almost 20.
And fewer miles for the quarter, or 11, 6%, which less sufficiently spread fixed costs on a per mile basis.
Running both traditional and digital platforms require different types of personnel and.
Third we have a highly trained and experienced staff that we expect to need us tractor growth returns and we made a strategic decision not to downsize valuable personnel for the short term owing to re hire them and a tight labor market the.
The combination of these factors contributed to overall fixed cost per mile over our truckload operation that was approximately six cents per mile higher and the first quarter of 2021 compared to the prior year quarter, which equates to approximately 300 basis points of truckload operating income we believe this increase per mile cost us.
Temporary but necessary as we are laying the foundation to dramatically grow our business and maintain the team and infrastructure, while our total truck count temporarily contract.
As we scale over time, we believe that these per mile costs will decrease below historical level. This can be seen on page 10 of our supplement where I've included and illustrative slide that demonstrates our historical and expected fixed cost per mile as we scale variant.
We believe as we continue to rapidly grow variant that we will reach an inflection point, where our fixed cost per tractor and per mile driven will reduce below historical level, which will allow our margins to expand us variant and continues to become a larger percentage of our total truckload revenues.
Net income for the first quarter of 2020, one with $2 5 million, which compares favorably to the $9 $2 million loss that we reported and the prior year quarter earnings per diluted share were five star.
Turning to our balance sheet, we had $337 $5 million of net debt and $166 $5 million of liquidity defined as cash and cash equivalents plus availability under our revolving credit facility I'm very pleased with the progress we have made us our leverage continued to decline to two two times net.
Debt to trailing 12 month EBITDA for the first quarter of 2021 compared to four two times at the end of the 2021st quarter. Finally, net capital expenditures totaled $2 million for the first quarter of 2021 with that I'd like to turn the call back to Eric for for concluding remarks.
Thank you Eric as we look ahead, our core markets have recovered from the weather related disruptions that occurred through February and freight demand is running better than normal seasonality through the first two weeks of April.
Our expectation is for freight demand to remain strong throughout 2020, one given the broader economic recovery and tailwind that we're experiencing as a result on the federal government's most recent stimulus package, which is having a notable impact.
On the supply side the market for experienced drivers remains challenging which is keeping a lid on supply. Additionally, chip shortages and supply chain constraints are impacting new tractor builds which will impact supply over the near term.
To conclude I am proud of our accomplishments for the first quarter as we grew variant to more than 950 tractors as we exited the first quarter.
And remain on track to meet or exceed our goal of having 500 tractors transition by year end.
Continued to scale, our digital brokerage platform, having handled 67% of transactions over our tech enabled platform this quarter and.
And address critical pricing issues and several of our dedicated accounts, which we believe will yield positive results as the year continues.
Over the balance of the year, we intend to continue to redeploy capital from legacy OTR to variant operations to meet our goals of at least 500 trucks.
Run rate of 25% of truckload revenues and a return to total fleet growth.
We believe we are firmly on this path as a reminder, Cameron ramsdell, President and the variant and Joe Guard President of Express technologies are on the call and will be able to add color to questions on variant and our brokerage segment as needed.
Thank you again for your time today on.
Writer, please open the call for questions.
At this time, we'll be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad and confirmation from our industry.
Your line is and the question queue, you may put us start to share and move your questions from the queue for participants using speaker equipment and may be necessary for you to pick up your handset before pressing the star team on moment, while we poll for questions.
Our first question comes from the line of Jack Atkins Stephens You May proceed with your question.
And good afternoon, guys. Thanks for taking my questions.
Hey, Jack So Eric and.
Uh huh.
Maybe camera and let's take this as well I guess to start off when I think about variant and the idea around scaling variant from from here, you're obviously, making a lot of progress.
Putting additional trucks into service there.
I guess.
And I think folks from just trying to understand how the profitability also scales along with us and so I think that five number 10 on the supplemental was helpful. But when we think about the variant fleet today at 900 trucks or 950 trucks can you help us think about what's the operating ratio and net fleet today.
And what will the operating operating ratio be at 1500 trucks and then when you get to 2500 and you start to see that inflection in terms of fixed overhead.
The operating ratio at that point I guess, we're just trying to understand how this is going to progress from here.
And as we add additional trucks and we can absorb that additional overhead.
Yeah. So Jack we don't have all of those exact or broken out, but I'll give you a little bit.
And the sense that internally, we looked at the cost that we had from the fixed cost investment was roughly.
We looked at the breakeven be and about 900 trucks. So as we got over 900 and trucks and variant and we're starting to inflect positive from an overall corporate standpoint, so we've gotten to that point so that that's one positive.
The other positive and if I take the overhead investments out of variance and just look at the operations. Our variant operations gets about 200 basis points better operating ratio than the day.
And the legacy business today now keep in mind, we've had that fixed cost of that kind of offset that but that was where are we kind of got to that 900, and say hey, now we're starting to inflect positive.
If we look out over the next couple of years, we believe that as we get down into that 2500, 3000 truck range and we're starting to get closer to that 2000 and basis points GAAP between our legacy business and variance. So from here on out we should have paused.
As a result, as we add more trucks the variant, but really as we grow and scale and take more of that fixed cost and spread it out over more miles, where we really get the benefit and you can see that and that slide. We go from I believe a high of 39 cents a mile on fixed costs, all the way down to 20 cents a.
A mile it at roughly four to 5000 tractors and variant so there's some real benefit as we grow and scale. This model. Okay. That's super Super helpful. Eric. Thank you for that I guess kind of moving to a different subject, which is which is dedicated.
Think about other you know.
Truckload carriers that are public the kind of disclose there or and love.
And the profitability within their dedicated operations.
And we see mid to low eighty's operating ratios for for those carriers.
Can you help us think through the steps that you guys have taken already to improve profitability within dedicated and over time is it reasonable to think that U S. Xpress as dedicated business can see.
And operating ratio with an eight handle on it and as that is that realistic or not.
It is very realistic and I'll tell you Jack we've made a pretty significant pivot and our mindset and I and I'll give you and anecdotes in the past we were always a company that was a little nervous about making sure that we kept our truck count to our fixed costs and so I can tell you forever and always go.
Back almost 15 or 20 years, we were always talking about we need an X or Y from a rate perspective with the customer, but it was always a lead with the caveat, but whatever you do don't lose the business and this year, we have taken a completely different approach and Erik and I have told the dedicated group.
We have to right the ship as it relates to profitability within their dedicated division and we identified nearly almost a thousand trucks that were not operating where we wanted those trucks to operate and so we gave instructions for a dedicated group to go fix that business from a rate perspective, and if it means.
And that the customer is going to put that business out to bid and they can't meet that requirement than we're willing to walk away from that business and I can tell you that is a completely different mindset and what we've had in the past and if it means that we lose an account with 100 trucks and if we can't get our rate and then we're going to walk away from it and happy to say that.
We have taken that aggressive approach through Q1, and so far we haven't had any business that we've lost and so things are moving positively because we are getting the rates that we that we need and the business in order to operate it at a profitable level. Okay. Okay. That's really encouraging to hear US well last question for me and I'll turn it over.
And jump back in queue, but.
And Eric Peterson and is there a way to think about the weather impact to the first quarter I know it can be difficult to quantify but it sounds like you guys had a pretty significant.
<unk> overall, just just given where your operations are located.
And can you kind of frame up from an earnings perspective, how much how much weather negatively impacted you and the first quarter.
Yes, the weather was really tough, especially in Texas and not just in our over the road division, but dedicated as well and.
Looking at the impact of utility and some of what it did to our orientation cl<expletive>es with the drug testing and physical result, getting delayed to go in through the just our supply chain and it really close to 10 cents a share.
When youre looking at what that did to our O or I mean, if you look at our utility on and year over year basis, you see that it's down and that's despite having almost 900 more tractors and our and our various fleets that are getting that excess utilization. So.
I would say close to 10 cents a share.
Okay. That's helpful. Thanks again for the time guys I appreciate it.
Thanks Jerry.
Our next question comes on the line of Ravi Shanker with Morgan Stanley You May proceed with your question.
Thank you, Eric and Eric first of all I'll, just say that the increased disclosure on very and is very encouraging and very helpful. So please keep that coming and I'm sure. It wasn't a quarter or two you should be able to get to a point, where you can disclose or on berry and separately as well which would be.
Credit would be helpful. A couple of questions. One on slide eight where you kind of give us the legacy versus very and metric comparison.
And that took a little bit of a step back from what you gave us last quarter. I mean was that entirely because of weather or are you seeing a little bit of a diminishing returns as you are kind of scaled up for it.
Hey, Ravi this is camera and thanks for the question I think again.
<unk> metrics were you specifically referring to.
And looking at slide eight the versus legacy change percentage.
I think al and then the preventable accidents the delta.
I think it was 61% decline and and now it's 54 per cent decline.
And hang on let me just for them this year.
Sure I can add on the other day one yeah, yeah, I can just speak to all of the metrics on there obviously the truck count was in line the accident generally and we did see a pronounced uptick and the number of accidents per million miles during the storms.
Which is fairly intuitive when weather like that occurs and areas, where youre dense <unk>.
General and.
And so thats nothing alarming from that standpoint, and that has normalized.
And the turnover is slightly up on a percentage basis I will say it is still very much in line and.
And has completely normalized.
And then.
And.
From the voluntary attrition.
And also in line with no interest book last last quarter, which is substantially less and the number we publish and utilization of course as we've already discussed on this call and and the and the core.
Earnings transmit.
On experienced that step back mainly again due to the storms.
Got it that is incredibly helpful. Thank you for that and then maybe on slide 10, as well I mean, there's also a very helpful. Slide but just if you can help me understand what I'm seeing here.
And that inflection point at around 2000 trucks or so is that telling me that day.
The fixed cost to offer very and becomes a lower than the legacy fleet at that point or what exactly does that mean, because youre going from 33 to 39 and clearly the fixed cost starts turning the headwind start starting lower from this point forward, but what.
The pointed with your interest takes the X axis.
Yes.
Go ahead Eric.
No I was just going to say you know the point of the slides if you look at that opportunity going from 39 to 30.
That's over 400 basis points of earnings on our truckload level and so it's the increased to 39 cents isn't just the investments that we have and Atlanta with the new infrastructure. We're standing up for variant. It's also representative of that over the that legacy over the road infrastructure that we're not tearing down.
So that's still there and so if you look at on the previous slide first quarter over first quarter, we're down over 1000 tractors and our legacy over the road operations and that infrastructure is still there and the reason what we said previously and we want to keep that there is because we're continuing to grow variance and we don't want us teardown and.
For just to have to build it back up.
Months later.
Going from 39 to 30 cents per mile. That's all that's over 400 basis points alone and improved truckload earnings and that doesn't take into account the improved per unit metrics on a very attractive versus the legacy tractor to boot.
And Ravi the 30 debt really is where we have been kind of historically over the last couple of years prior to going to launching a variant and so that's kind of why we made that kind of that breakeven point.
And as per 100 basis point difference did you guys speak about I mean is that excluding this 30 day is that the.
A variable portion of the loan or is that including these gains.
Yeah, the 1200 basis points us the variable piece. So this is.
This is in addition to.
Okay got it and then just very lastly, you kind of Eric.
Peterson and given all the moving parts here.
With this kind of ramped down and fixed costs and scaling up the Varian fleet.
With the improved dedicated pricing brokerage getting traction, but at the same time kind of carrying the fixed.
Fixed costs on the legacy fleet.
Or do you think or looks like exiting the euro and for 'twenty, one or are we looking at getting to a 90 or by the end of the year.
Yeah.
Not saying all the way through a 90 or by the end of the year, but you know as we've said previously as we approached that 1500 trucks and variant and a healthy plan on some of these dedicated tractors, we can see that number being in the low nineties.
Understood. Thanks, so much.
Thank you.
Our next question comes from the line of Brian Olsen back with Jpmorgan. You May proceed with your question.
Hey, good afternoon, and thanks for taking the question.
Yeah.
Eric Eric for and maybe it's just start with a bigger picture like you mentioned and thank you for economic report and infrastructure demand will create some some tension for the trucking jobs, obviously, it's quite hard to get people and keep them and retain them.
Whether it's I mean, maybe a little easier on and variant for now but.
Is this sort of the environment that you've envisioned where it's really hard to scale the fleet.
Where you really do need that digital initiative, whether it's an and brokerage are and.
On the very inside and then he's talking about technology disruption as well, but just maybe putting that aside and just talking about the cycle like are we at the point, where and this is where you say hey. This is this is why we're making these pivots because it is hard to scale. The business you know kind of exactly when you would want to when the market's tight.
Right It does make it easier.
By having a new brand and digital brand light variant, we're actually seeing a more traction and the market from a recruiting perspective than we would and our traditional legacy business and so we do think it helps to differentiate us so from that regard I definitely think it's a positive I mean, if you look at the market.
The driver situation is probably more difficult than anything I've ever seen and my entire career and I envision if we'd get an infrastructure bill it's only going to get worse and so I think we're well positioned to at least see some growth now to be honest with you that that pace of growth has slowed a little bit we were running at a pace that.
And I thought we would probably in the quarter more over a thousand trucks, where.
And where we where we were say a week or two before the stimulus Bill and we did see a little bit of a falloff and our recruiting numbers once the stimulus payout payment went out and so that has created a little bit of a headwind, but I think that we're probably moving past that now and we can get back to a little bit.
And quicker, but trajectory from a growth perspective and variance.
Okay got it and I guess the point of the question was to really though is.
And with this type of market being tight and hard to get drivers like it does seem like this is what you had you're pivoting the company to be able to grow through.
And it sounds like that's still there.
Still valid like this I guess, the way and looking at us whether your test case.
Can you get the scale and this market and that's kind of what you're you're pivoting the company to us.
So I guess that was yes.
That was more of a question it sounds like you're you feel like you're on track, even though it's slowed down a little bit recently is that fair.
And now we're still on track and like I said it is showing that we have some debt. This model really can scale, regardless and cycle and so we feel real confident about it yeah.
Okay, great. So I guess on the other part of scale, the digital brokerage rollout and that's kind.
Coming along behind the variance side.
You did mentioned and the acquisition you've got some commentary and the in the slide deck as well.
Can you just kind of give us a bit of and update on on how how things are progressing what we should expect throughout the rest of the year the pace of investment and anything to kind of help frame the frame the pace of improvement and kind of where you are at this point and time.
Yeah. Thanks for the question Brian This is Joel.
I think to start it's just worth highlighting.
On the the approach to improving some of the fundamentals that we really emphasized last year in parallel with integration of the ankle higher transaction reported and the supplement.
And all of our internal kind of transformation initiatives are very much on track, we're starting to see some of the Ah.
Positive indicators of that thus far and we expect to.
Be able to leverage some of the benefit that we built up and and the trailing quarters here for the rest of this year, which is indicative.
Indicative of the hard work being done by the team right now.
Okay. Thank you very much for time and I appreciate it.
Alright, Thanks, Brian.
Our next question comes from the line of Scott Group with Wolfe Research You May proceed with your question.
Hey, Thanks, guys. Good afternoon, and good afternoon can I ask can I ask for what's a realistic mark.
Margin.
The expectation for for the truckload segment and the second quarter.
And I think we can see a little bit of a sequential improvement.
But.
I don't necessarily you know we don't normally give.
And that type of guidance, but I think we'll see some improvement from where we're at I mean, our biggest debt.
The improvement where youre going to see is one and dedicated.
Lot of the rate increases that we have gotten will go into effect either at the beginning of Q2 or and say halfway and through Q2, so that will have a positive impact on the quarter.
We also will continue to grow our various truck count as a percentage of our overall truck count, which will improve our earnings as well. So we feel we feel like we're moving and the right direction and we're gonna be making sequential improvement from here on out as we move through the quarters.
You think we'll see year over year improvement relative to that 94.
And in truckload.
A year ago and net of fuel.
I think that.
And that was a.
Pretty unique comp given the situations and I don't know that.
And at this point and we're not really saying one way or the other I do think it'll be an improvement sequentially from the previous quarter, though.
Okay, and then when you talk about getting to a low ninety's by the end of the year is that a is that on an annual run rate comment or a fourth quarter comment on I'm, just trying to understand just because and it.
Last pricing cycle and fourth quarter of 18, and you got to a low ninety's and and so I just want to understand is this just getting back to where we were because pricing is grade or is there something thats more.
Structurally better.
Yeah, I would say, it's structurally better because our focus right now you're on a quarterly basis like we said isn't to maximize the arps to build this foundation for growth and so I think the difference if we get to the low ninety's this fourth quarter compared to before we're doing it with a model that is not done and that's going to continue to scale, where we can we can then continue to make.
Improvements into 2022 and into 2023 and as we don't stop our aggressive growth plan as we said earlier to double the revenues and for years. If we can get for the low ninety's by this fourth quarter and still have that scalable platform and that's gonna have a much better feel heading into the subsequent year than the previous.
Tom we did that.
Okay and then just my last question, just given the sort of the mix changes and should.
Should we think that utilization turns positive starting and <unk> weather is behind us.
I think the problem with utilization as our truck count as you see and I and our slide I believe it was.
On slide nine where we show that we've lost more trucks, and our legacy business, and we've added and variant and and and that's intentional but debt.
That has obviously a little bit of a negative impact of headwind on our utilization numbers as we go through that transformation.
So that has a per tractor impact.
It does.
Okay, I'm not sure I followed okay. Okay.
But it's in the back half of the year and when you would expect utilization to turn positive and I and then.
And and meaning because we have potentially at any given point during the quarter. We may have more unseated tractors and that number.
Okay. Okay got it alright perfect. Thank you guys appreciate the time.
Our next question comes from the line of Kenn Hoekstra with Bank of America. You May proceed with your question.
Hey, great Good afternoon, Eric and Eric and team can you just I guess, maybe start off with how many unseated tractors out of the total and and are you counting that to get to that utilization. It's all in right in terms of your unseated tractors.
Yeah, our utilization numbers are per available tractor and we don't disclose what they are but you can infer that on a sequential basis with that drop and legacy over the road, but it's a higher percentage today than it was and the fourth quarter.
So how do we reconcile this this progress so a variant do you is there at some point where you.
Your aging out the tractors and don't know if it's on a three year cycle and so in three years U S. Xpress no longer exists and only variant and trucks exists.
Once you get to that flip point of <unk>.
Profitability and performance for variant and <unk>.
Distributing the fixed cost that you show.
Sure. So we do have some tractors and that will not get converted over it. It's a small percentage of the overall, but we do have some directors, but for the most part I would say probably within two to two and a half years, we should have all of the tractors that we intend on phasing out and moving over into variant and the variance.
It's a slow process and and there's there's other areas that need to be built out in order for us to absorb the entire fleet, but that should happen over the next two two and a half years.
So at what point I'm, just trying to reconcile your earlier comment on on shutting down or carrying two fixed cost company.
Companies is there a point, where we're migrating up and even for once a year you don't carry those legacy costs.
Yeah, I would say within say six quarters, and I think that and we're going to be trailing down cost as we go but we should be able to strip out the majority of the costs within six quarters.
And just strip out not just distributed over a wider base of expansion.
Both but yes, there will be some costs that will come out as well as the distributor and distribute over more miles, but there will be some cost that comes out over probably a six quarter timeframe.
Alright, I appreciate that on.
The dedicated your average revenue per mile up a slim 0.8%.
For a lot about repricing that that starts you know maybe next quarter and mid next quarter.
I mean this is just so low given the environment is it the mix of new and shorter lanes that impacted that average price per mile or or or what what is holding that back I mean, you know basically since the IPO you've talked about focusing on rates.
What what is holding that down and given the environment. We're in.
Yes, there is a fair a bit of a mix. So if you look at the some of the areas, where we have struggled to staff at full levels has been and our higher paying but less desirable jobs and so some of our higher rated but less desirable job, so and some of them.
Those areas, we have been most impacted by this driver situation, where some of the places where we were getting the best rates.
And then also.
Some of our rate increases like I said, we're either went into effect late Q1 or into Q2, and so we think we'll see a much larger impact for that rate improvement as we go forward.
So I think I guess my final one and just thinking about all quick ones, but youre, considering doubling the fleet yet youre still at a 98 or why why not focus on conversion and gaining that scale.
And then growing after you've you've improved the performance or do you only see the improved performance. If you add more scale and I don't know sometimes size.
It helps and sometimes it <unk>.
You have too many fixed costs, you're carrying so maybe walk us through that to give us confidence that doubling the fleet is the right way to go.
No. We're we're only doubling will double the fleet once we make the conversion and so we're talking about as we move forward.
That conversion will happen prior to net fleet growth.
And we think that we can do most of that conversion going into the back half of that by the back half and this year and there'll be some pockets that may not get completely converted for for the most part most of that conversion will happen and then we move into a net growth stage. So we're not growing with.
And the conversion is a big part of that and it's more on the front and of that growth strategy and.
And at that point, our operating ratio and that division will be much better than than you know, what we have seen and our legacy business and so therefore that will drive our decision to grow and for some reason we didn't get the operating ratio that we expect.
And our say variant fleet and we're not going to grow the variant fleet I mean, where we're not growing and is at a 98, we plan on growing it at a really healthy operating ratio and return and we think we'll be there as we move into a growth phase.
So just to clarify then you mentioned, maybe not improving year over year and the second quarter. Kim I don't know if there was anything special other than just a strong market continuing on the third quarter, if youre talking low ninety's by back half.
Can we presume by then that third quarter Youre seeing year over year improvement.
Yeah, I think we will see sequential improvement.
And I think we'll see sequential improvement from quarter to quarter as we get us.
As we get more trucks and variant as we get our rates layered back and and dedicated and so sequential us what ill commit to.
Alright, thank you.
Thank you.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Eric Fuller for closing remarks.
Alright, well I don't have anything else I really appreciate the time and look forward to.
Doing this again and a quarter. Thank you.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your evening.
[music].
And.
[music].
And.
[music].