Q1 2021 USA Truck Inc Earnings Call
Good morning, and welcome to the USA truck first quarter 2021 earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask questions. You May Press Star then one on your telephone keypad to withdraw your question. Please press star two.
Please note. This event is being recorded I would now like to turn the conference over to Mike Stevens Senior Vice President Finance strategy and Investor Relations. Please go ahead.
Thank you Sherry good morning, and welcome to USA T capacity solutions first quarter earnings conference call joining us joining us. This morning from the company are James Reed, President and CEO, Zach King Senior Vice President and CFO, we thank you for joining us today.
In order to help you better understand 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 in the company's earnings press release, and the company's most recent SEC public filings.
In order to provide more meaningful comparisons certain information discussed on the conference call, including non-GAAP financial measures could be.
As outlined and described in the tables in our earnings press release on.
Now I'll turn the time over to James.
Great. Thanks, Mike and good morning, everyone.
The first quarter performance at USA truck is nearly a carbon copy of what occurred in the last two quarters that we've reported it was a record quarter in the history of the company as our team delivered the best Q1, adjusted operating income and adjusted earnings per share in our history.
We really want to act like we've been here before this team has set for the sales improvement.
Along with the pursuit that path and is now on delivering on the vision, we laid out together.
What we're seeing at USA truck and a self fulfilling prophecy what is possible with an aligned culture willing people and capable operators, who know how to execute the business winning never gets old but expecting to win it becomes a habit and we expect this trend to continue.
Let me remind everyone or just a few of the things we have done to get to this point in the company's history and to deliver this historic results.
First we redefined our operating network are once fragmented network has gone through an evolutionary changes to maximize yield and a real time basis, our proprietary network value model guidance, our pricing routing and planning decisions on a daily basis next.
We have relearned and retooled our pricing methodology. The lessons learned from the past have been implemented to ensure we always have abundant free in all market conditions, and we are disciplined and not always getting a fair price for our services.
The next point is that we have created a new culture focused on improving lives of all stakeholders.
<unk> said execution eat strategy for breakfast and we have found that execution is a cultural phenomenon and together execution fueled by culture isn't immutable force.
The next point is that we have transitioned to a regional net regionalized network. This is a big deal our truckload business is operating and quasi independent regions, where the operations leaders manage the market and the results. All politics are local translates to local presence drives better performance.
Next we reopened a thoughtful network of repair facilities to lower our operating costs, a redefined and predictable network leads to data driven decisions to co locate repair facilities and the places they are most needed and where costs can best be impacted and we have done that with the reopening of Chicago the opening of Carlyle. The addition of <unk>.
And the acquisition of our Waxahachie, Texas facility, we are being thoughtful in our approach and it is payable.
We also completely reshape the management team, it's sobering to realize the number of changes we made to get to the to get the stability and experience. We've gotten no. One on the senior leadership team was in their role when I arrived in 2016, not one person.
The next point is that we have reconstituted our customer base to include cyclical and counter cyclical balance in the system. We now have a complementary seasonal and year round business partners, who round out our revenue stream and service networks that resembles the best in the business, we are more consistent and more predictable on our service offering because of this intentional shift.
The next point, we have completely overhauled our technology platforms, our Tms optimization driver App load Board E. L. D income communications in temporary quarters and the interconnected applications that we have created our all new or completely retooled in the last four plus years. This makes us more.
It gives us better data and drives automation and speed in our decision making.
Finally, we have improved logistics efficiency measures dramatically through technology process and tools and most importantly, our people that have made for our business to perform at best in class levels of execution.
My point in summarizing some of the ground that we have already tried it to say that our results are not accidental they are not solely driven by robust market, but they are the outcome of a thoughtful intentional well planned and now well executed plan to create a market leader. This is just the beginning.
The day, we will offer updates on the market dynamics and segment performance in the quarter, our progress on herself self-help transformational initiatives and finally on the outlook I'll now turn the time over to Zach to discuss the financial results go ahead Zach.
Thank you James we continue to make progress on the initiatives, we have outlined on our prior calls up continuously optimizing our network to maximize base revenue per tractor per week, and increasing our USA T logistics segment low count on.
Our trucking segment utilization slid back slightly primarily related to the weather events that occurred in February and our strategy to transition more trucks to our dedicated business unit as our dedicated business unit utilization is approximately 10% less than our truckload business unit.
However, the transition of our trucks to our dedicated business unit should provide some stability in our offering operating efficiencies over time.
If youll. Please turn with me to slide number three we'll do a brief review of our financial results base revenue was up 28%, excluding fuel and consolidated quarterly operating revenues came in at $158 5 million, which represents a 25 per cent increase year over year Consol.
Consolidated adjusted operating ratio for the quarter was 95, 6% down from 101, 7% on the prior year. This was primarily driven by improvements in our base revenue per mile within our trucking segment, which was driven by network optimization and some market uplift.
The increases in our revenue per load in our USA T logistics segment, while controlling our cost structure.
Our adjusted earnings per diluted share was <unk> 43 cents.
Turning to slide number four trucking operating revenues before intersegment eliminations increased $9 1 million or nine 7% to $103 1 million base revenues, excluding fuel were up 12, 2% to $92 8 million compared to $82 7 million for the first quarter of 2020 our truck.
<unk> segment generated $3 9 million and adjusted operating income and a 95.8 adjusted operating ratio. The primary driver of these results was a 45% increase in base revenue per loaded mile when compared to the first quarter of 2020 you'd.
Utilization decreased 14 miles per truck per week or approximately <unk>, 9% for the first quarter 2021.
As I mentioned in my opening statements a portion of this decrease was related to February weather and a portion was related to our initiatives to decrease our to increase trucks within our dedicated business unit.
These rate and utilization outcomes positively affected base revenue per available tractor per week, which increased $591 or 18, 3% year over year for the first quarter.
Our debt head percentage for the first quarter of 2021 improved by 160 basis points year over year and the average available tractor count for the first quarter was 1892, which is a four 2% decrease when compared to the first quarter of 2020.
Turning to slide number six we will review the results of our USA T logistics segment.
Revenue before intersegment eliminations increased $32 6 million from the first quarter of 2020 or 99% to $68 4 million or.
Our logistics segment generated $2 5 million and adjusted operating income and had a $96 one adjusted operating ratio.
Gross margin dollars increased $4 3 million to $8 2 million in the quarter.
And gross margin percentage for the first quarter of 2021 was 12% versus 11, 1% for the comparable quarter in 2020.
Low count increased approximately two.
Approximately 33100 loans during the first quarter from 32006 hundred loans in the fourth quarter of 2020, an increase of 1.5 per cent and an increase of 21, 4% or approximately 15 900 loads year over year.
The primary driver or drivers of these results were an increase in revenue per load of approximately 57, 1% and a 55, 6% increase on purchase transportation cost per load, therefore, creating margin percent expansion year over year.
This market environment drove up our margin per load $249 up from $146 last year.
If youll turn with me to slide number seven we will highlight some key balance sheet liquidity measures.
As of March 31, 2021, total debt and finance lease liabilities were $148 3 million net debt was $145 6 million and our net debt to adjusted EBITDA for the trailing 12 months ended was $2 three times down from two seven times in Q4.
This represents a net debt decrease of $8 6 million from the fourth quarter of 2020, and a 0.4 turn improvement in our leverage ratio.
The company had approximately 67 million available to borrow under its credit facility as of March 31 2021.
Looking ahead into 2021, we expect normal cycle capex of $30 million to $40 million and with that I'll now turn the call back over to James to offer more insight into the quarter and our outlook.
Great. Thanks, a lot back.
But first I'm going to talk about the dynamics in the quarter and then I'll go into the segment performance.
A cornerstone of off strong on a continued robust inventory replenishment cycle and economic recovery.
Seasonally and historically January demand was marginally better than anticipated well February as has been noted among pundits and peers was a tough month as weather challenges hit many of our markets that setback in weather cost us about four cents in EPS in the quarter and 35 miles in trucking productivity in the quarter March was his store.
Eric the combined effect of the weather in February and the capacity challenge related to driver availability resulted in a market that had higher demand related to catch up required from February and lower relative available capacity and so march rate per loaded mile was bolstered to repositioning fees and a robust spot market that helped to make March one of the best.
Months in a very long time from both a revenue and profitability standpoint.
E D I turned down spiked in March as a result of the market. We just described but we're over 2000 E. D. I turned downs per day in the quarter and remain in that same range through April we still believe the market will remain strong for several quarters due to structural industry wide capacity challenges that are not quickly resolved inventory levels remained relative.
Low driver availability remains a challenge and there does not appear to be a rush at capacity into the marketplace add to this the impact of the worldwide chip shortage on new truck deliveries and we think we have a sustained healthy transportation market for a while.
Now, let me talk about the trucking segment.
A major focus for this team has been in improving the core underlying asset business that was a hallmark of operational success for the first 20 years of USA truck's existence, most of those who follow us know that this business languished for the better part of a decade, which is why we had to implement a self-help revival of the company we are not ready to.
To declare victory by any means but we have made an immense amount of progress and now have three consecutive quarters with the best performance in the history of the segment.
As Jack noted earlier, many of the core underlying metrics like rate per loaded mile revenue per truck and empty mile percentage continued to improve in the quarter one.
One outlier metric with the very slight reduction in loaded miles per available tractor per week, which was affected by both weather and some intentional movement into dedicated and quasi dedicated businesses that discussed.
And our last release the dedicated business is an area of intentional expansion as a means to bring long term stability to the business for sustained.
System contractual business those are all great things that typically contribute consistent predictable profitability as well those accounts also typically run fewer miles and the traditional OTR fleet and thereby reduced productivity in terms of miles, but should increase profit.
We'd like to update everyone on a few critical observations from the quarter in the trucking segment.
Network improvements our network engine reengineering has been on work in progress since 2017, we initially defined market areas that we would limit our freight goes to essentially bringing discipline to a network that previously chase freight without much structure thought we have subsequently gone through several iterations that ultimately led in 2022.
Creation of our proprietary network value model. The result of this evolutionary change in the cadence process of managing out the lowest yielding freight on a daily basis using that information to bid on new lanes that worked toward the highest yield and then executing operationally on those plants fundamentally we prioritize right with the best overall care.
Richter sticks for profitability when considered in the context of the network that means that price is not always the determining factor in selecting freight load that most positively contributes overall profit is the load we select.
<unk> seen an increase in yield as a result of this approach and that all drops to the bottom line of over 6% per move in the last year and a low density per lane improvement of 42 per cent or that same time period. This is also a key driver in improving deadhead in empty miles across the enterprise.
The next point and driver retention, our driver retention was fantastic in the quarter better than industry averages and 35 per cent better in absolute terms than last year. It may be the most noteworthy accomplishment. We have had in the context of the current marketplace. As we noted last quarter. This is a result of a team that is communicating better.
<unk> driver jobs would be to happier and higher performing teams and as a result, our retention measures have outperformed the industry. It is true that we are experiencing a historically challenging recruiting environment and that's why we see on retention performance as a competitive advantage, while others are struggling with retention arch has improved to an all time best levels at <unk>.
Our approach is multifaceted our culture permeating our actions, we've taken specific actions and soliciting and acting on employee feedback even in the innovative technology and surveys we've done meaningful and consistent driver outreach and we've been able to create driver jobs that are desirable and inherently result in better retention.
Next is technology and artificial intelligence in our decision, making we have discussed in the past our move towards using technology to make optimized tendering and planning recommendations. We deployed the first we have deployed this excuse me first at our Davis subsidiary in 2020 and since tested the tools and the core USA truck.
Our cloud business.
We're rolling out the optimizer in Q2 and expect to be fully deployed on the first part of the third quarter. We expect this to have positive impacts on further optimizing yield and improving profitability. In this segment. We have deployed a number of tools that utilize AI in the day to day operations of the business. One that we have found to be a distinct competitive.
The advantage in recruiting owner operators and retaining all drivers is our proprietary internal low board we call. It USA T driver connect.
This isn't entirely automated process technology, whereby drivers select plan and dispatch themselves without any additional intervention. It is a true technology driven self selected solutions that are drivers absolutely embrace and as of today, we have over 600 drivers utilizing that system.
Finally in this segment I want to talk about dedicated a little bit more.
We have noted in the last couple of quarters of challenging startup environment, especially in hiring drivers in the dedicated business.
The February weather events disproportionately affected dedicated is those trucks are in position and configured to support specific customers at specific locations. In fact, there was one point, where we had 228 dedicated trucks that were not moving at all for about a week's time.
While the quarter was again challenging from a profit standpoint, we remain optimistic and see accretive upside from this business and expect to see that improvement in the current year. It is worth noting that the business grew in truck count by 6% sequentially and 20% year over year.
Next I'd like to talk about our logistics segment. The logistics segment continues its March is a high throughput revenue and margin engine. The first quarter represents the highest revenue quarter in the history of the segment, we remain committed to growing this business rapidly as we see emerging opportunities in the logistics space have a highly capable and <unk>.
<unk> engine through which to drive that business and see our segment performance as a best in class organization with best in class results.
Jack already highlighted the key performance indicators from this segment in his prepared remarks, but I would like to add some emphasis to a few noteworthy efficiency gains that continued through the quarter.
Low count on volume our low count continues to be strong Q1 volumes were up one 5% sequentially and 21, 7% year over year. This is critically important in any market condition, if margin compression Israel and it may be long term, having the throughput to harvest profit is critically important.
Next USA T logistics revenue per employee is up another 97 per cent year over year.
We continue to emphasize this because it is simply astounding. The last 12 months year over year growth by quarter has been starting at Q2 2020 up 33, 6% up 79, 8% up 135 43 per cent and now up 96.5 per cent.
And finally, USA T logistics loads per employee is up 25% year over year going back to Q1 of 2019, our logistics load count per employee is up over 64 per cent or people processes and tools are all getting better and better each and every quarter.
The logistics story is straightforward higher revenue per load and being pushed by the market at large but the team continues to set records in terms of revenue load count and margin per employee even with the high throughput of volume the team found a way to expand margins year over year, that's a winning formula that we expect to see over and over again in the coming.
Orders for eight years.
Let me just offer some brief thoughts on the outlook everything we said about the outlook in our Q4 earnings call remains true.
The demand environment remains strong E D I turned downs or roughly four times a week with low capacity of our asset network, we have abundant dedicated opportunities and a clear line of sight that we believe on prime consolidated trucking ore by the end of the year and we have a best in class brokerage business. It just gets stronger quarter after quarter and it's poised to provide growth to the enterprise.
Toughest headwind remains finding qualified drivers to join our team, but our retention has gone from being a perennial weakness to an undeniable strength.
Pricing has rationalized to reflect the realities of the challenging driver market much higher insurance costs and driver wage pressures customer activity around pricing has been unusually robust as customers are scrambling to bid and rebid freight in an effort to secure capacity.
Reising volume activity or the number of moves that we bid on was up 64% year over year as a result.
We continue to have a full pipeline and traditional asset based freight dedicated opportunities in brokerage like pricing pressures remain upward, though we have re rated with all but two of our top tier customers and those will both be completed and implemented by July and we anticipate that the actualization of those bids will result in additional increases in our base rate per.
Loaded miles.
Now just in conclusion that you're referring to slide eight we'll update everyone on our 2021 touchstones that were introduced in last quarter's conference call.
The first is trucking segment or <unk>.
We're finding new and innovative ways to improve our segment go on every single day, we see yield improvement yet to come in on bid and network strategy as outlined previously we think there are efficiencies to be gained in our asset management, specifically with our trailers, we see real or expansion as a result of dedicated operational improvement Street, returning to form and we think Theres a significant.
Opportunity in deploying our optimization solutions planning and dispatch, which will happen. This quarter. So if you look at the slide we put a green checkmark next to these.
Because well, they're all green.
Next one is USA T logistics load count growth, our target at 10% annualized profit load count growth with an internal goal that exceeds that we deployed what we're calling API pricing in the quarter and see this as yet another competitive advantage versus our competition essentially our team can use AI to auto price auto ex.
Tenders and using our driver low board auto plan and auto dispatch a truck. This is an incredible innovation that will gain steam as it currently is used with a small subset of our customers. We are actively working to extend this capability to other customers as well.
Next is dedicated growth.
Our goal in dedicated growth as is <unk> 10 per cent truck count growth or more.
We are committed to growing our dedicated service offering doing so profitably provides a stable profit base from which to grow. This first quarter. So on dedicated growth of nearly 20 per cent and truck count year over year, and finally, we want to be the employer of choice, we expect to improve our driver turnover by 10% or more on the air and our first call.
On a result exceeded that it was literally 35% better than the prior year. So with that share. Those are my prepared comments, we can move to questions now and then after the questions I will have some closing remarks. Thank you.
Thank you.
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Our first question is from Jack Atkins with Stephens. Please proceed.
Good morning, everyone and congrats on a great quarter.
Thanks, Jack Thanks, Jack so.
So James I guess, maybe going back to something in your prepared comments, but you know what I think about the goals.
But you outlined over the last several years I think a big portion of it.
Sort of getting.
So getting that business set up for freight cycles, both good and bad debt and you know when you kind of think about sort of where we are right now just from a from a free market perspective, you've got your pick afraid out there and so do you have do you feel like you've got the network optimize like you wanted moving forward and sort of as we think about how the next.
A couple of years play out on.
Obviously, it's a there's a lot of goodness happening right now from a rate perspective and from a demand perspective, but how do you think all of this network effort set you up on when the freight markets.
A bit more challenging at some point in the future.
Yeah, Jack that's a great question. So we view robust markets like this is the perfect time to upgrade and refine and improve your network and so yeah.
You're exactly right and you've followed us for a long time. So you kind of know the Genesis of things you know the first order of business. So when we got here I used to describe our network. It's like a pickup sticks game that was spread out all over the table and we kind of had to move it to fix it and do the best we could with what we had to get as much density as we could on the lane.
We have subsequently moved to more and more value driven model.
And I don't want to go into a lot of details, but I'm glad to if needed where we really prioritize what we call tier one lanes, which are you know a market to market moves in the markets, where we have a presence tier two lanes, which we have a market presence in either the origination or the destination, and then tier threes, which take us kind of out of our core market.
So we've been really really disciplined about managing that process just to give you. A specific example in answering your question as we look year over year at the number of loans that we have as primary tenders contracted loans. We have increased our number of loads that are contracted to us primary tenders.
By 14% since Q1 on the last year. So I think in answer to your question and evidence of the good work that our team is doing we are using this opportunity not only to raise right. I mean, we want to be partners with our customers, we're not trying to be super opportunistic with them.
We are kind of reshuffling the deck to get freight that really fits in our idealized networks and then we're getting more on that and that's where that bullet point comes from about 14% increase year over year on the number of contracted base strike that's in our system. So I hope that's helpful.
No it absolutely yes.
A key point that this isn't just sort of taking price. When you can this is restructuring the network.
And you know fundamentally improving revenue per truck per week, which is.
Sticky you know much more so through cycles are just grabbing rate on it.
Upswing for the cycle is that a fair way to think about it.
It's an absolutely fair way to think about it and in fact, we would tell you that we we often times don't take the highest paying freight in designing that network. This network value tool that we use really helps us understand the the network effect that a load might have on us. So you know the impact on.
On.
The freight characteristics, whether it's drop and hook or how.
How it looks on the pick up on delivery side, what the time slots are what the average dwell times on the markets et cetera, et cetera, et cetera, and so often we will prioritize a lower paying load over a higher paying low because of that the net effect and I'll just add one thing well I. Appreciate you asking the question and you're exactly right and this reflects a lot of progress.
We still have some runway one on things I tried to mentioned on the call is.
We are working on implementing our optimization tools and I not to sound.
<unk> kind of like a backwards group of folks, but you know everybody in our industry. The best performers anyway already have this capability and so we think by adding in our optimization capability. This quarter, it's really going to help us improve that even further.
That's fantastic and then shifting gears to logistics for a minute you know obviously.
There's a lot of market tailwind out there right now, but you guys were also working on a lot of company specific items to increase productivity and you talked about that on your prepared comments as well you know when you look at that 21 per cent load count growth on relatively.
Flat head count overall how.
How are you thinking about you know.
What's really market share gains versus just overall.
A strong market backdrop.
Shippers just desperately needed capacity I guess I'm trying to figure out you know, what's sticky and what's not as as a cycle ebbs and flows within logistics.
Yeah. So I think the best way to answer that is that you know historically, our contract business with our customers even in logistics as well, especially on logistics, it's almost all contract on the asset side and logistics has been 50 to 60 per cent.
And as we look at our our data that hasn't changed on this cycle. So what we are continuing to move.
As you know.
More than 50 per cent of it is customer contract business and we see that as kind of sustained business over time.
That helps bolster that business case for a long term play.
Okay.
Makes sense as well last question I'll hand, it over when you think about operating ratio in the <unk>.
Quarter, obviously, but should see some sequential improvement just with normal seasonality. If I look back to 2018 at call. It 250 to 300 basis points of sequential improvement lots of moving pieces. This year, whether it was a little bit.
I have a headwind on the first quarter.
A lot of repricing has already taken place how are you guys thinking about.
Reasonable assumption for truckload asset based truckload operating ratio improvement.
As we think about first quarter second quarter.
Yeah, I'll take a shot at this and then I'll come back to to chime in and maybe give you a little bit better answer.
I don't obviously want to put a marker out there in terms of O arm treatment. What we have said historically is that we kind of expect you know three to 400 bips improvement in or in that business.
On year over year over year, and we're still committed to that and we think that's definitely possible. Some of the great things that will happen in the quarter of course, you know you mentioned that you've got the seasonality April has started off really strong.
And if may you know, even though we have the memorial day holiday in June which is historically always robust stand up to what we think it's going to happen I think the underlying assumption in your question is exactly spot on it should be very accretive.
To that business.
And then you know the other things that we're doing the self help initiatives in terms of improving our trailer churns in terms of implementing the optimization solution those will probably take another quarter or so took flushed through because it would really be fully implemented in Q3, and then I did mentioned just casually and in the prepared remarks.
Our debt we have two of our biggest customers, whose bids implement won in the quarter and one just after the quarter. So I don't think we'll see a lot of like native app upward pricing pressure I think our rate will be relatively similar to where it was in the first quarter. So I'm.
I I'm not trying to dance around your question, but I think you're right I just don't want to put a specific number out there I guess, how would you modify that answer yeah. No I would say you know pretty much. The same thing you know whenever you look at.
Our first quarter performance, you know where our rate was on our utilization was impacted by a little bit of weather, but you know in the first quarter. We started to see some of our initiatives over time start to take hold a little bit I mean, if you look at ops and maintenance you saw that come down that was the result of a lot of internalizing a maintenance cost.
That's when Carlisle Carlisle shop in the first quarter of 'twenty versus or sorry, first quarter of 'twenty, one versus first quarter of 'twenty. It was fully functioning in waxahachie. So you started to see some of those initiatives take hold I think you'll continue to see that in the second quarter.
But you also have external forces out there I just think James made mentioned to truck availability you know you've got on.
Our fleet is gonna be aging and getting those new trucks into our fleet with some of the shutdowns. We've had due to the chips are availability of parts. Our fleet may age a little bit. So we may incur a little bit more maintenance cost there. There's just a lot of factors.
Externally that that may impact that second quarter number, especially as we try to refresh the fleet.
Okay.
I really appreciate the color and thanks again for the time.
Yeah, Thanks, Jack and all in all we feel great about Q2.
Thanks, guys.
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Our next question is from Jason <unk> with Cowen and company. Please proceed.
Oh Jones and keen on how's everyone. This morning.
Hey, Jason.
Glad to hear that wanted to focus a little bit on the logistics segment. Since you know, there's there's a lot of it.
Extremely strong growth going on there.
Surprised to see so your gross margins are up, especially when you're 50% contract that you said.
Talk about what's going on there I think you alluded to some of the productivity measures in terms of on sort of a whopping.
Seven per cent increase in revenue per head count.
How long do you think we should see debt.
That productivity continued to increase before it starts to plateau and how should we think about gross margins as we go through the year.
Yeah that was a really great question. So I heard three questions. There kind of what happened you know how does the efficiency look going forward and what do you think for the rest of the year. So in terms of how we expanded margin.
It's a really interesting phenomenon that we see here and we know the data and I can tell you by customer by load.
Where it's happening and how it's happening, but if George Henry who runs that business for us where to say anything he would tell you. It's 100 per cent about the people. We've invested just a ton of energy in our organization about improving the culture and.
There's this kind of crazy phenomenon logistics businesses in particular work People's comp is often tied to margin creation or too low volume and you know people don't always behave the way that you think that they will and people tend to hit the top tier of their earnings and then they level out well.
He's been able to power through that and I, It's 100 per cent the power of our people that that's one thing I'll say the second thing I'll say and I mentioned this to our board. The other day USA truck has become a destination employer.
For many people on logistics business in the last couple of quarters, we've been able to get some really high powered talent that has come to us.
And done a great job, bringing us some accounts that have some good margin profile, nothing crazy, but kind of market plus a little bit and so.
You know if you were to net all that out I would just say it's people people people honestly am I even mentioned this in a prior call and I won't name, who we worked with but we've been working with a technology platform that has some really really cool stuff out there and we have found in certain markets, where we have certain levels of density and a specific presence in terms.
Our history on the capacity base that we actually buy it better than some of the automated solutions that are out there and so.
Weird weird hugely bought in to using technology to increase the throughput and increase the efficiency and certainly in per treats a profit, but there's an element of people make the difference here and you got to know when to use one and when to use the other and so I think George and his team are doing a fantastic job. There in terms of the margin profile going forward, we've talked a lot.
In the past about potential margin compression related specifically.
Should the free flow of information and then digital freight brokerages are out there I still see that as a real challenge and so I would expect them, Jason net debt that margins can stay maybe a little bit below what we'd put up in the first quarter, but not a lot I think the number on a gross margin.
It's probably kind of 10% to 12% certainly our internal talk is is.
It is not that we do everything we can to keep the margins healthy and robust, but I just think with the environment. It's probably 10 to 12 mm for awhile, So kind of all the players shake out and that's okay and the reason it's okay is because it's a supermarket model right high throughput Slim margins you can.
Make a lot of cash and they can and we've been doing the math lately can make really good returns on invested capital really good IRR. So we feel pretty good about that so I hope I answered your question.
No no James you did as I look at it I mean, it looks like this year, you're giving on what you put up on the first quarter, even if we see a little margin compression, you're you're you're still probably looking with seasonality of it.
Going beyond $10 billion on operating income and and as I look out there in the marketplace now into some of the private transactions that have been going on in the marketplace. So you know a lot of logistics companies are selling well.
This is 10 times.
So you don't know when I'm looking at your market cap is I'm looking at what sort of a logistics operation you have there seems to be a disconnect between what you guys are putting up on what's going on in the marketplace. So I'm just trying to get to the bottom of that as an analyst here.
Good luck.
Well, Hey, I sure appreciate you, saying that I mean, and you know I can't opine necessarily on the price, but I can't opine on my opinion, which is I guess, we're done it in some ways but.
But but yeah I agree with you and we have conversations all the time about how big does this need to be to in order to re rate us.
In order to get credit for the just the amazing work that our team is doing and they are doing a great job and I really appreciate you recognizing that from a valuation standpoint.
Well, it's interesting because one of the major logistics players on their call yesterday.
Gene you know multiples as high as 14 times.
Market, which seems almost on the southern side some of it but that's.
So that's just one man's opinion wanted to talk a little bit more go back to the truck side of things.
You mentioned weather cost force us break weather up between revenue and expense is that possible.
Yeah, I think Zack is probably better positioned to do that so I'll I'll I'll chime in quickly well he's kind of preparing the numbers there but.
From a revenue and expense standpoint, you know I mentioned that we had in the winter most greatly impacted our dedicated business. It was really interesting thing there is that like a seven to 10 day stretch, where we basically werent getting any revenue on 228 trucks, which is not our full dedicated business by the way, but there were specific.
Areas of the country that were just literally shut down and so of course that hurt us from a revenue standpoint.
But interestingly enough. This is while there are material fixed cost related to this business and there's also a lot of variable costs and so we had some variable cost relief as a result of that exactly are you you guys. There ready to answer that addressed the revenue and expense question, Yeah, well I'll take a shot at it and we can also.
Clarify you know after the call if we need to.
It whenever we were quantifying the impact on the whether you know it looks like for utilization on our trucks it cost us about 35 miles.
Per truck for the quarter and then as James mentioned, I mean, a lot of the costs associated with operating that truck are variable.
So maybe we did have a marginal amount of you know maybe additional winch outs and things like that but on the expense side, there probably wasn't a huge expense burden as a result of the weather.
Does that.
Enough of an explanation Jason for your modeling purposes. So it's so simple.
More on the revenue side as we sort of look on it.
I'll turn it over to somebody else here James.
You talked about how you've gone through it.
So to take up the pricing and then you put most of the major customers except for the top two and that's gonna be in July so as we clear July what total percentage of your business would you have sales has been repriced to current market conditions.
Yeah. So as of July I'd say all of it one of the unique things that we did last year that we pointed out in our Q3 earnings call, but I don't think we emphasize it enough is that when we.
Well go back to Q2, even we made a decision in Q2 of last year. When COVID-19 was going Crazy and nobody was share what was going on in rates were dropping I I just kind of joke, sometimes in the second day of business School in your ops class you learn.
You know that when you have excess capacity you should be willing to sell at variable cost plus and so we made the decision last Q2 to keep our trucks running.
And when Q3 hit our trucks and you can go look you can compare our results to the other truckload carriers results comparatively Q2 to Q3, we had the best quarter of anybody.
And we attribute that to kind of like working out in the weight room, we never let our muscle fatigue, we just kept working.
And so when we got to Q3, we went to our customers proactively and said Hey look.
And we didn't do it with everybody, but we did it in certain parts of our network that were the lowest performing and non accretive to the business and we raised prices out of the cycle and we've done that consistently and then of course, we participated in the bid cycle with everyone and so as you look at where we sit I feel like we're in the best position we've ever been in terms of our customer relationship.
Chips are very positive I don't think anyone feels like we've abused them at all and we don't feel like day, but these that's it's been very copacetic and very kind of participant the chip and then the last two customers even that I'm speaking I have been very cooperative even in the process I just described and they're just going through their annual bid process and it is a challenge because they are the last two years.
Fully re rate, but there are two of our biggest best most value.
Customers with whom we have the most enduring relationships. So we're really excited about that and we do think there's a little bit of upside Jason built into the model. So on and I'll. Just tell you. What it is you know as I said.
Because of the timing of those things, we don't think that's going to impact Q2, very much but as we look to Q3, we think there's another kind of four to six sense of upside.
You know pursuant to that so 100 per cent of the business will have been re rated at that point and then we're back into the cycle.
With our customers that are on annual bid cycles that are kind of Q3 and beyond.
Okay perfect. That's fantastic I appreciate the time is always on and they're gonna stay safe out there.
Thanks, Jason.
We have reached the end of our question and answer session I would like to turn the conference back over to James for closing remarks.
Great. Thanks Sherry.
Well recently, one of my Dear friends, who works on the Snow sports industry saw last year's skis were good for last year's snow.
Hot reminded me, it's something that should be a debate Bruce He said yesterday homeruns don't win today's games.
They are both right on those sentiments apply in our business, while USA truck has accomplished much we still have a lot of upside and they need to focus on the future I hope we were abundantly clear here today. The market is very good and that has helped everyone. In this space and we expect it will continue to be strong for several quarters to come. We also believe that the data supports that we have.
Clearly demonstrated that USA truck has accomplished much in executing our self help opportunities with many opportunities in results yet to come our opportunities for further margin expansion and growth were discussed in this call. We expect our dedicated business will grow and improve margin contribution. This year, we still see pricing upsides in each of our core.
I set businesses.
We have margin upside by deploying freight optimization tools and that too will occur. This year, we're having great success in using technology to increase efficiency and profit center business. Our driver retention is best in class and our logistics business is among the best in the marketplace in short we see clearly the opportunities to continue our improvement in financial and on.
Operational performance as a result across our enterprise for the foreseeable future. This is a great story that we expect will continue to improve through always of the cycle and we think that's pretty exciting for all stakeholders. Thanks for your time and have a great day.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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