Q3 2021 USA Truck Inc Earnings Call
Good morning, and welcome to the USA truck third 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 today's presentation, there will be an opportunity to ask questions to ask a question you May press.
Star then one on your telephone keypad to withdraw your question. Please press one. 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 Terry good morning, and welcome to USA <unk> capacity solutions third quarter earnings conference call joining us this morning.
The company are James Reed, President and CEO, Zach King Senior Vice President and CFO. Thank you for joining us today.
To help you better understand USA P 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.
In order to provide you more meaningful comparison.
Information discussed on the conference call could include non-GAAP financial non-GAAP financial measures as outlined and described in the tables in our earnings press release.
Now I'll turn the time over to James.
Great. Thanks, Mike and good morning, everyone.
Third quarter performance of USA truck represents the fifth consecutive quarter of record setting results. Our team delivered the best Q3, adjusted operating income and adjusted earnings per share in our company's history and the highest revenue quarter in the history of USA truck to third quarter was our second consecutive record setting revenue quarter.
Our self help story hasn't changed since we first rolled it out.
Just over four years ago, we are still focused on improving our asset business continued success.
In our logistics segment, and we're now cementing our culture that is focused on delivering value to shareholders. The ingredients remain unchanged. We have refined our network. We have worked tirelessly to keep trucks seated and have been relentless about growing revenue per tractor on the logistics side, we committed early on to creating a market leading volume engine that can thrive in.
Up and down markets alike, and now that we've cracked that code, we're now growing the team.
And if the company observer look back over that time horizon. They would see that this team does exactly what we said we would do.
Years ago, I said on an earnings call that the culture and the people that USA truck had learned to lose the challenge of course is that mindset and that mindset excuse me is that people only see roadblocks and challenges to their aspirations fast forward to today and despite all the progress and all the records, we don't simply relish in winning we long for even more progress.
And we believe that there is still great margin for growth you see there's something funny about winners they're never satisfied even though we are in a period of the highest revenues and earnings in the company's history. The tone of our internal reviews as more hungry more opportunistic and more frustrated with the missed opportunities. Then we are relishing in result winters hate missing.
Opportunities and losing more than they like winning.
We expect to see upside from where we are exiting Q3, we can say that because we still see a number of opportunities that went unrecognized in the quarter specific areas of profit enhancement in even more opportunities to stabilize their decision processes and execution through all phases of the cycle.
USA truck has outperformed most of our public peers in terms of price performance. We've continued to improve profit margins each quarter and now have $2 19, and trailing 12 months adjusted earnings per share we remain dissatisfied with the public markets pace and recognizing our consistent.
Performance over the last four years with multiples that reflect the new and improved version of USA truck, but we believe in the market's overall long term that the market overall is the long term arbiter of value and we intend to just keep improving earnings and controlling what we can.
Our balance sheet is strong and improving and our liquidity and leverage metrics position us well for future growth today, we will offer updates on the market dynamics segment performance in the quarter and our progress on our self help transformational initiatives and finally on the outlook. So I'll now turn it over to Zach to discuss the financial results. Thank you. James If you. Please turn with me to slide number three we will do it.
Review of our financial results consolidated quarterly operating revenues came in at 181 million, which represents a 27, 7% increase year over year consolidated adjusted operating ratio for the quarter was 95% down from 96, 4% in the prior year. This was primarily driven by improvements in our base revenue per mile within our trucking segment.
<unk>, which continues to be driven by our network optimization initiative and market uplift and increases in revenue per load and load count in our USA logistics segment.
Our adjusted earnings per diluted share was <unk> 57.
Turning to slide number four trucking operating revenue before eliminations increased $15 8 million or 16, 2% to $113 1 million base revenues, excluding fuel were up 13, 1% or.
Our trucking segment generated $4 8 million and adjusted operating income and a 95, 3% adjusted operating ratio.
Primary driver of these results was a 50% increase in base revenue per loaded mile when compared to the third quarter of 2020.
This rate increase was driven by our network optimization strategy in capacity demand within the broader market, causing rates to rise.
Utilization decreased 26 miles per truck per week or approximately one 7% in the third quarter of 2020, a portion of this decrease is a result of our strategic network optimization strategy and the increase in our dedicated shuttle and local operations year over year.
These rate and utilization outcomes positively affect the base revenue per available tractor per week, which increased $689 or 19, 9% year over year for the third quarter.
Our deadhead percentage for the third quarter of 2021 improved by 80 basis points year over year as a result of our continued network optimization.
The average available tractor count for the third quarter of 2021 was 1857, which represents a five 7% decrease when compared to the third quarter of 2020.
Turning to slide number six we will review the results of our USA logistics segment revenue before eliminations increased $29 5 million from the third quarter of 2020, or 56, 7% to $81 6 million.
Logistics segment generated $3 4 million and adjusted operating income and had a 95, 5% adjusted operating ratio.
Gross margin dollars increased $3 6 million to $9 5 million in the quarter.
Gross margin percentage for the third quarter of 2021 was 11, 6% versus 11, 3% for the comparable quarter in 2020.
Load count increased to approximately 36800 loads during the third quarter of 2021 from the 32100 loads in the third quarter of 2020, an increase of 14, 6%. This drove our margin per load to $258 per load from $183 per load year over year.
If youll turn with me to slide number seven will highlight some of our key balance sheet and liquidity measures as of September 32021, total debt and finance lease liabilities were $121 1 million.
Net debt was $128 9 million and our net debt to adjusted EBITDA for the trailing 12 months ended was one eight times down from two times in Q2.
This represents a net debt decrease of $7 2 million from Q2, 2021, and two turn improvement in our leverage ratio. The company had approximately $96 3 million available to borrow under its credit facility as of September 32021.
Looking at the remaining months of 2021, we expect $20 million to $30 million and net capex for the remainder of the year. However, acquiring new revenue equipment has been challenging due to the widely reported OEM supply chain issues.
However, we expect to receive the new revenue equipment in the fourth quarter, but there could be delays.
This could negatively impact our operations and maintenance cost as our equipment ages.
With that I'll now turn the call back over to James to offer more insight into the quarter and our outlook great. Thank you Zack.
The same tender box environment that has been widely reported was experienced by us in the quarter and it was especially robust in September we had collaborative opportunities to reprice contract rate with many of our best customers, we saw customers enter into longer than normal surge type commitment some even stretching into the middle of next year.
<unk>.
And we had abundant freight throughout the quarter with a strong acceleration in September that has continued into October.
Pricing remains very strong as we have secured rate increases with each of our top five customers among many other customers.
We have worked on nearly all of our dedicated customers to implement price increases and we've been disciplined in ensuring all right activities continued to enhance our price position, we expect the contract rate environment to remain robust through the end of the year and into 2022 and already have pricing in place that once annualized in 2022 will result in low double.
Digit rate increases.
The same supplied issues supply side issues, we witnessed in Q2 persisted in Q3, the availability of drivers and replacement tractors from Oems are real headwind and as a result, the cost to recruit a driver remains high and equipment costs. If one can get the equipment are rising quickly. Some Oems are reporting bill of material cost increases.
5% to $6000 trailer.
Trailer costs are up almost 50% in the last three years and insurance while in more control than years past is still up.
All of those factors are structural and relatively similarly experienced across the sector, even amongst private fleet.
And as a result, this cost pressure ultimately support sustained price strength going forward.
Have a unique view on demand or supply, we expect the balance to remain in our favor though through 2022.
Tractor availability from Oems continues to be a significant headwind as I mentioned, but we have managed it and mitigated it well recall that at the end of 2020, we procured an additional 189 tractors that we opportunistically introduced to our fleet. We're not clairvoyant, we had no idea that CPU shortages with com.
<unk> the supply chain for trucks, but we were very lucky and made a great decision. When we had the chance and as a result, we're in a good spot from an age of fleet standpoint, with an average age of our trucks at two eight years.
We have met recently and more than one with each of the Oems and we still expect to receive all of the trucks. We had in our 2021 plan. We have about 150 trucks yet to be built that are committed for the quarter.
So looking ahead on this front, we have worked to diversify diversify our OEM alignment to ensure we see no disruption and are able to further reduce our age of fleet in accordance with our stated strategy. The challenges associated with this are pretty clear older fleets are more costly to maintain and had negative effects on driver retention.
The good news is we see our age of fleet getting younger even as we have many trucks already built and ready for delivery as we sit here today, we expect the age of fleet to reduce in the next quarter and beyond.
I'd like to now talk about the trucking segment, when we talk a lot in our day to day cadence here at USA truck.
Our trucking segment and I've recently taken this thing and it's very Peter Drucker ish.
Like just as Drucker talk we manage.
The exceptions in our daily cadence and because the asset based business have historically performed and therefore been an exception they warrant our attention owing to that focus and attention. Our trucking segment continues to improve and has some solid momentum heading into the fourth quarter core and vitally important metrics like rate per loaded mile Red.
Per truck in empty miles continue to improve and that was manifest in the segment adjusted operating ratio improvement of 50 basis points year over year and year to date or improvement of over 300 basis points.
I wanted to elaborate a bit on asset utilization, it's important to understand the dynamic within this segment and so I'll do my best to explain why we saw declines in productivity in terms of miles per tractor.
This segment is composed of two interoperable and interdependent variations on our trucking business. The first is traditional irregular route truckload and the second is our dedicated and quasi dedicated business. The traditional truckload business accounted for approximately 63% of our trucks in this segment in the quarter, while the dedicated and quasi dedicated.
It accounted for the remainder.
Our traditional truckload business actually saw improvement in utilization, both sequentially and year over year, which we believe is directly attributable to our regionalization efforts that we just launched in 2020, so theres just a little over a year old.
The decentralized regional structure is finding success in keeping trucks running more and more miles even as industry averages decline, we want to be cautious about this though our real focus is on revenue and profits not miles miles per tractor have always been a proxy for profit, but we know that our high revenue truck with lower miles.
And thus fewer variable cost inputs as a more profitable truck. So it is dynamic and that notwithstanding we have put more and more miles on the trucks.
There in mind that this segment includes independent contractor owner operators, who are actually running fewer miles even if they make more money.
And this robust pricing environment, we would expect that to change a bit if and when pricing moderate so on the dedicated and quasi dedicated side, it's become a bigger and bigger part of the business rising to 37% of the truck count in the quarter within this segment those trucks saw decline in utilization sequentially and year over year of 6% and five.
5% respectively.
Important to understand that our shift towards this type of dedicated business is intentional and measured our stated strategic goal is to have 50% of our revenue and profits and dedicated businesses by the end of 2024 in this segment and this is the best environment to make that investment and that shift in <unk>.
Customers are more aware now than ever of the gaps in their trucking capacity specifically in supply chain generally and as a result are more willing to move long term commitments in the dedicated configurations. As we've noted on prior calls ramping these businesses can be daunting and dilutive in the early stages. We have added 50 trucks to our dedicated business in <unk>.
21, and the ramp up of those businesses and the incurring of non capitalized both startup costs like hiring new staff setting up new office locations moving unproductive equipment into position, where it can be productive the inevitable drive return of startup until the model is refined and other inefficiencies that we all experienced in the industry.
Have been a drain on utilization and frankly profit in that part of this segment.
But we're materially through the startup phase and solve the underlying LR in these accounts improve sequentially in the quarter and expect that to continue for the foreseeable future our growth in dedicated is an investment in the future predictability and stability of company earnings.
Now on to network improvements in this segment right has been good in this environment as all the reported challenges in capacity generation, coupled with market wide strong demand has combined to great effect and yet there are different go to market strategies that yield materially different pricing outcomes in the marketplace. Our model as outlined last quarter is to work on a consultative.
Basis with customers to have ongoing dialogue about price on a lane by lane basis. The feedback on this approach has been amazing.
A customer just this week tell us we could have any land we want at market rates because of this approach and two weeks ago. One of our largest customers told me we are in their top tier performance on tender acceptance and service levels in this environment and as a result, they would uncap our opportunities and allow us to grow even further it is nuanced, but our constituent.
Need to understand that because of our network approach, we are getting differentiated and highly profitable outcomes in these interactions and developing trust with our customers.
And so our 22, 2% and rate improvement in the quarter is partly driven by market forces and mostly driven by intentional designed architected and targeted for the most profitable outcomes as we stated last quarter our evolved network over the last several years began by optimizing the freight we had and now we are.
Architected the freight we desire.
Our tier one moves a measure of the most desirable terminal to terminal moves or effectuate. It by managing the bid process over the course of many years and many bid cycles and then executed by our operations team.
These have increased 63% over the last four quarters, while our least desirable out of network moves have reduced by nearly 40% over that same time period in simple terms, we are managing the poorest yielding freight out of our network, we're getting more of the highest yielding freight and our tier one lane and we're expanding density and these are all great things.
I'd now like to finish up on this segment by talking about driver retention and driver recruitment driver retention and recruitment remains and will remain for the foreseeable future among our highest business priorities the.
The cost of recruiting a driver has increased approximately 18% year over year, we continue to utilize the most targeted and tech enabled methods available to recruit and train drivers and we'll continue to do so we did see a minor uptick in driver turnover in the quarter, but it remains below 80%, which is strong relative to the market and wonderful compared to.
Our past performance, we do this through a variety of means we have discussed at length previously, but the real secret is in our culture that values all key members, especially our drivers pay was up approximately 13% sequentially as we previously discussed changes in pay structure.
That that shift focus to base increases that were implemented early in the quarter and a pretty significant portion of that pay increase was related to dedicated onboarding.
Let's now move to the logistics segment logistics had a record third quarter in both revenues and profits. This business is a significant contributor to our business and now makes up 46, 4% of base revenues and this quarter accounted for 41, 6% of consolidated adjusted operating income and now appears likely to this business.
Could generate over $300 million in revenues in the year and more than $12 5 million in operating income over that same time period. A data point. We think is often lost on outside observers. This business alone adds significant value and worth to our company that we continue to believe is absent in the market.
This business will continue to grow rapidly as we see emerging opportunity in the logistics space.
A highly capable and efficient engine through which to drive that business and see our segment performance as a best in class organization with best in class results.
Probably the most important thing accomplished in the quarter other than record profits and revenues in the quarter is the addition of 10% more people in a legendarily tough employment market.
<unk> already highlighted the key performance indicators from the segment in his remarks, but I'd like to add some emphasis to a few noteworthy efficiency gains the gains that continued through the quarter on the load count and volume front load count was down by just a few hundred loads sequentially, but up 14, 4% year over year the ability to produce high load count is critically important.
In any market condition, if margin compression Israel and it maybe long term, having the throughput to harvest profit is critically important in all market conditions, we look at productivity productivity on a per employee basis.
See the quarter is a great launching point for future growth. The addition of head count in the quarter is an investment in our future volume growth and we expect a net next growth spurt of volume to come in Q1, as a training and new hires that have recently been hired ramp and grow into productive capacity.
Next is USA logistics revenue per employee is up another 51, 4% year over year. We continue to emphasize this because it's just simply remarkable this reflects a multi quarter trend of increasing productivity that bodes well for our future growth.
<unk> margin dollars per employee it was eye popping again this quarter, our logistics team produced over $100000 in gross margin dollars employees.
Margin dollars per employee excuse me in the quarter for the third time in our history. This represents a $36000 increase per employee or over year or 55, 9% improvement year over year, and finally, USA logistics loads per employee is up 10, 6% year over year, our people processes and tools.
We're all getting better and better each quarter by almost any measure.
Volume remains the story in this segment, we believe that the supermarket model of high throughput in a comparatively low margin market is the way to succeed in this business and that is why we focus on employee efficiency and productivity, while managing transactional costs, but we anticipated we were nearing.
And kind of the limit of employee performance and so we began developing an employee training and Onboarding program with a targeted high volume recruiting plan earlier in 2021, we launched the recruitment and training early and sought materialized with a full go live just in this third quarter. So we had done some some ramping earlier in <unk>.
<unk> earlier in the year and it really went live in the third quarter.
During the quarter, we ended up hiring over 10% more employees and we have early signs in the fourth quarter of even greater recruiting success.
These new hires who have completed or soon will be completing training are expected to get to productive throughput levels as I discussed earlier by middle of Q1, and we're very excited about this training program. It's early.
Early recruiting success and the early signs of its emerging productivity.
So as I typically do I'd like to talk about the outlook and so we'd like to share some thoughts about that with you the business environment remains healthy in both segments of our business. Our trucking team is improving core operations optimizing our freight network and steadily improving financial performance over time, they're doing everything we've asked them to do and our.
<unk> business is leveraging a high service high throughput model and a healthy pricing environment to create what we believe is one of the very best logistics businesses in North America.
The toughest headwind remains finding qualified drivers to join our team, but our retention has gone from being a perennial weakness to an undeniable strength and pricing is healthy and customers are more interested in than ever in finding innovative solutions that address their cost headwinds, while allowing us to optimize our network. It is a very constructive environment.
Now referring to slide eight I think it is.
We will just update everyone on our 2021 Touchstones that were introduced.
Earlier in the year. The first is the trucking segment or we're ahead of plan on this measure the goal was a 200 basis point improvement year to date, and so far our trucking hours actually improved 250 basis points, even despite the challenges as I mentioned the dedicated business that we see material progress on next as logistics load count growth our targets, 10% annualized.
Load count growth year to date, we're at 14% and then dedicated growth we have a goal of 10% truck count growth or more dedicated is actually up 15% year over year and we have about 180 truck that we have sold but we've yet to see given the challenges. We mentioned earlier about finding drivers and then finally being an employer of choice we expect to it.
Our driver turnover by 10% or more on the year, our third quarter results and year to date turnover is under 880%, which significantly outperforms our goal.
Last quarter, we gave an update on our strategic intentions going forward and I just want to give a very brief update on that there are three strategic priorities. The first is expanded densify our asset business East of I 35, as noted earlier, our tier one lane density is improved 64% year to date and the most important indicator of the success of the Kantar.
<unk> or improvement in the trucking segment.
Second is doubling the logistics business. This goal is well ahead of schedule of 2024 goal of $400 million of topline revenue seems to be readily and reached barring any significant downturn in the marketplace the pricing landscape and finally, reducing the asset <unk>. Despite the previously discussed equipment challenges we expect.
<unk> age of fleet in the fourth quarter and if all trucks are received which we believe could be slightly at risk than we believe the average age of the fleet drops below two and a half years, but we believe that will be mitigated at worst in the first quarter of 2022.
The combined effect of the strategic thrust outlined above is an organization with topline revenues of just over $1 billion.
Blended our long term blended or of 93 to 94, and an EPS of $4 25 to $4 50, and we reiterate those views as.
As we considered this strategic plan in the context of our recent results, we expect to see corresponding value creation for shareholders USA truck remains one of the best stories in this space and this quarterly result serves to further the case that we have made structural and sustainable change USA.
USA truck has returned leverage levels to below two times, we've improved liquidity, we've delivered profitable results in 13 of last 17 quarters. We have delivered record quarterly EPS results in the last five consecutive quarters and we have 12 months trailing adjusted EPS of $2 19, which is the highest of all time for this company and while the stock has shown recent.
Signs of life, we believe it trades in a band that belies the real value creation that has clearly been achieved and accomplished here. Our story remains unchanged. It's the original self help get well start story in the transportation space.
<unk> to improve pricing network to feed trucks and improved revenue utilization.
And to grow a world class logistics business with consistent high volume throughput remains unchanged USA truck is steadily making progress on our way to consistent improved results just like we've repeatedly said over the last four plus years and we expect more to come in the next few quarters, so with that Karen I'll turn it back over to you for questions.
Okay.
Thank you the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time.
We're using a speaker phone and we ask that you pick up your handset while posing your question to provide the best sound quality again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time, we will take our first question from Elliot Alper with Cowen. Please go ahead.
Great. Thank you. Thanks for the question I guess on the trucking side.
I believe the guidance implies some sequential or improvement in the fourth quarter.
I guess, how should we think about the variables that are contributing to that and kind of.
What does that timeline look like for when you start up costs are incurred versus when you start seeing some real benefits to the bottom line.
So sorry, I missed the very first part of that question could you restate that.
Yes on the trucking side the <unk> guidance.
License sequential improvement in the fourth quarter kind of the variables that are going into that versus what we saw in <unk>.
Okay wonderful. Thank you so as I noted in the commentary there are a couple of key components to that segment right. One is our traditional truckload business and the other one is the dedicated business and.
And the same segment because of the inter operative.
Comparability in the interdependence of those but they do have some different characteristics. So on the truckload side.
That business.
Without giving you detailed monthly or performance.
<unk> really one of the best months in the history of the business in September and October look even better so as we look at our internal forecast, we've got great volume throughput there we've got great productivity in terms of revenue per tractor.
And we've got great daily kind of revenue trends at this point in the month.
A day or two left in the month.
Things are looking.
Looking really good in the quarter. So that's just fundamental good pricing good volume dynamics and great execution by our team.
That business on the dedicated side, which I mentioned earlier.
We think we hit that.
Valley in terms of financial performance in.
In Q2 with that business. There are a lot of startup costs a lot of efficiencies what youre doing is youre moving assets from either truckload to a dedicated configuration and it's very difficult to do that profitably and you've even not to opine on other people's performance, but you have seen that as other kind of heavily dedicated operators have.
<unk> during the year to do that well, we've actually done it a little bit better I think we've remained profitable in that segment, but not in that part of the segment, but not as profitable as we liked it so sorry to be so long winded, what we really think is that dedicated stands to contribute positively.
<unk> to our performance.
In the fourth quarter, so just to summarize.
Q4, it looks like three solid months, whereas <unk>.
Q3 September was really the shining star and we expect the dedicated business to perform even better. So Zach did I mess anything up in order to get that right and I think on the dedicated side I mean, we've seen that through the broader market and a lot of a lot of commentary out there and like you said I mean now is the time to do with their shippers are more open to those dedicated opportunities and it sets us up.
With our long term long term strategy. So we think its theyre atmos.
Okay. Thanks, and then I guess.
You talked about the low double digit increases.
I guess, how is that factoring into some of the driver pay increases Youre seeing you talked about the a plus 18% for retention cost recruitment costs.
Kind of how did those two work together with the pricing front I'm curious if you had any thoughts on kind of the vaccine mandate that might play out.
Oh, let me write that down so I forgot to address that.
So on the first two points.
The double digit growth.
You don't have to do this but I would encourage you to go back and look at our past earnings releases over the last four years.
We're generally pretty conservative in those estimates and the way that we do it is we have pricing by customer by lane and we build out I call. It a waterfall I'm not even sure what our pricing team called it but we get a really good look of forward pricing given what we've already got in the system of course at this point in the year and the only thing that you wouldn't have.
Your line of sight to as any remaining bids in the last 60 days of the year here and we have a good view of what we think those are going to be so if.
If you take the annualized effect of price increases that we've got in place we know that our whole portfolio is bound to be in the double digits, and we're hedging a little bit saying low double digits.
Great question on the driver pay front, so I didn't really elaborate on this in our prepared comments, but.
Part of the challenge in dedicated across the industry is as you.
Startup these dedicated businesses some of them require.
Some challenging dynamics like drivers unloading trucks are working.
Having challenging backing scenarios et cetera, and so you have to pay them a lot more so part of what Youre seeing is some basic kind of expected increases in driver pay and part of what Youre seeing is a shift change and a greater mix towards more and more dedicated.
All of that said in this environment as we approach our customers too. We just have the best relationships I think we've ever had with them owing to a lot of work over the last few years, they're very very open to supporting price increases that go to driver pay and im not I don't mean that to say that.
It's Pandora's box and it's helping you can get whatever you want but I mean to say is when you go with real data highlighting what the real marketplace looks like and outlining real benefits that accrue to the customer as a result, they are actually quite reasonable about that and so even as we think about driver pay increases internally.
We generally believe that customers will help us in that and thats been our experience. This year. So hopefully that addresses that part of your question I'll now talk about your question on the vaccine mandate.
This is such an important issue to our employees and we try we talked about this all the time when it comes to risk mitigation and risk management, we try to hit it down the middle of the fairway and so we hope when you hear these costs you don't actually know what our individual positions are politically personally religiously right, we were going to hit it down the middle of fairway. So.
If and when there is a mandate we would comply.
And we started when the president first outlined his desire to do this we began as an executive management team, having a conversation about okay. How would we gather the data how would we make vaccines more readily accessible to all our employees how can we work with our vendors to provide testing sites and so we'd be.
Done, creating a contingency plan around that assuming that the mandate is going to happen and that's kind of how our management team works, we're very good at managing and mitigating risk and so we're moving ahead as if it were to be implemented and we've got real cogent operational plans to go execute on that so that's kind of point number one.
Point number two we align ourselves with.
Lobbying groups and industry associations that represent our views in the American Trucking Association has done a very good job representing our view that we share which is that we believe transportation should have an exemption just like it does in Canada.
For this type of mandate and Thats, our position for now, but just to reiterate.
We will comply with whatever mandate comes down and then finally and this is probably more for our employees that are on the call then for our investors.
Although we hope our employees our investors as well.
As you know.
We just had a management meeting yesterday with our top 50 leaders and we've talked to them about this very issue and so we've prepared the entire organization to go forward with or without the mandate.
And we're ready so and then this is the part where it is this just the gospel according to James.
As terrible as it would be to manage as difficult as it would be to execute we do believe that there would be a material impact on the availability of drivers as a result of the mandate. If it were to go in I think some of my peers think that's a terrible thing I believe freight goes I'm not exaggerating to eight to $10 a mile that happen.
Like there is severe consequences to another capacity constrained even as we're in one of the most constrained environment that we've ever seen historically.
Okay, great. Thank you I appreciate it.
Our next question comes from Jack Atkins with Stephens. Please go ahead Sir.
Okay, great good morning, and thanks for taking my questions.
So I guess to start off with I I hope, we don't see eight to $10.
Right I don't know if thats good for the economy James.
I think youre right I would agree if we see.
The mandate go through obviously that would create a lot of.
The pressure on <unk>.
I guess, maybe just kind of following up on that on that.
I had a thought though let's say that there is some sort of exemption, but it requires testing regular testing.
How do you how do you prepare the organization for that and what impact could that have on Utah.
Utilization and maybe out of route miles have you maybe kind of maybe talk through that.
We have actually so as I mentioned earlier, we have been on the road talking to Oems, we've done that at industry events and add those industry events are our other co travelers and so.
<unk>.
I think my instinct is to hesitate here, but I'm not going to because I think all of my peers, our peers could benefit from this line of thinking which is we believe that we have in networks. In route partners think fueling locations think shippers <unk>, where we could have the opportunity to execute.
Testing strategies, we actually approached our fueling providers. This last week to see if they would be interested in that they said no. One had actually approached them about that again I don't think that should be a unique differentiated competitive advantage for USA truck I think if we can pull that off with our fueling partners. It's something we should all combined to accomplish so that's kind of where our.
<unk> is a one fueling supplier was very open to that idea and committed to take it back and we're going to work urgently with them to see if we can figure that out I personally had to do a test for an event that I went through the other day I went to a drugstore got the swab in the drive thru handed to them in 25 minutes later I knew my.
Imagine Jack if we could do that.
At our fueling providers.
No I think that makes a lot of sense.
Glad to hear on the partner side maybe.
Maybe shifting gears going back to.
Your story specifically yeah.
Okay.
Would be curious to get your thoughts James on obviously, you've had significant improvement in profitability. This year youre seeing youre seeing very robust rate as well.
But at the same time.
The tension in the freight markets.
I think it's obviously, creating some productivity issues.
You talked about a moment ago is there a way to think about how that's impacting overall profitability. I know you guys are doing a good job.
Mitigating that.
Carnal initiatives within Europe.
One way operations, but I would imagine it still has to be weighing on profitability to some degree maybe maybe.
Muting, what would be an even even more significant improvement in overall profitability.
Yes, sorry, Jack I don't know if our phones cutting out of my ears arent, working so youre, referring to which headwind.
Sorry, Jamie probably on my end.
I was just kind of I was just kind of asking you about.
The issues around productivity, which alright.
Guys are doing a good job mitigating that with some internal initiatives.
Within your one way business, but.
I think it just the broader <unk>.
And in the freight markets.
Are having a negative impact on overall profitability and I would just would be curious if you could maybe give us some thoughts on on that yes, great. So sorry, I missed that really critical part of the question. So as you look at reduced productivity. I mean, there are a couple of really interesting factors at play certainly some of it could be congestion in the port.
And the challenge of getting freight availability and all that stuff.
But there are some really other.
<unk> fascinating dynamic so one that we've kind of briefly touched on before is I think there's this idea, especially in the community that might be on this call and us around the table that everyone's a capitalist.
And that doesn't seem to be true with the driving community I mean, I love to tell the story of a few years ago is at an industry conference and there was a driver of the year were being recognized and I said Wow, how great is it to be a driver. He said, it's awesome I make the same money I've always made and I'm working less and less and less.
Really is.
Not to imply that our drivers are monolithic because they're not but we are seeing in our owner operator ranks as they're able to keep high revenue per truck on their truck in this environment. They are driving fewer models, we see with our own drivers as their paychecks go up theyre mild productivity goes down. So that's a really interesting dynamic another interesting dynamic, which I know you know.
Is with the advent, which it's really been the last 15 to 20 years of distribution centers in our fulfillment centers getting closer and closer and closer.
It becomes harder to maintain equipment flexibility and those configurations, you need more trailers. There is more than an hour times theres more drops in pickups, and just operational friction involved because youre drought year, driving less and hooking up and dropping more and so there is a dynamic there where length of hauls.
Trunk and inevitably that has an impact as well.
And then I think finally, you just got.
You've just got in an environment, where.
Customers are struggling themselves on their docs and this is a new variable we have lots of customers, who will tell us we're having trouble unloading your trailers not because we don't have the facilities, but we cant get people to come to work, it's more than once in the last quarter that the lack of availability a dockworker.
There's have impacted our ability to to turn the trucks. So those things youre right that was our overall, having a little bit of a drag.
On performance and I think as you alluded to in your question. The entire industry has seen that reduction in productivity and in fact those are the three that I can think about the top my head can you think of any others. No. Thank you I think you hit it I don't think there's really much to add okay great.
Good question Jack.
That's helpful. James Thank you. Thank you.
Maybe a couple of other ones and I'll turn it over.
Maybe thinking strategically about.
Relationships between your shipper customers and their carrier partners like yourself.
Trucking companies like USA truck that can provide consistent servicing capacity.
I've got to think that as we look forward there.
There is the potential for a change in the relationship between shippers and carriers.
Maybe more of a partnership.
Longer term relationships.
Instead of its annual bid cycle process, where one side is trying to get.
The advantage over the other every other year.
How are the discussions with your customers going around maybe longer term partnerships longer term maybe agreements around price that they can give you better visibility into into your network.
I've got to think that would maybe help driver turnover as well.
Yeah. So that's a wonderful question so.
I'll just answer it with kind of some some tales of recent meetings that we've had we met with a customer a very large retailer recently, who said look.
Who you aspired to be in 17, 18, and 19, we werent really sure if USA truck could do it but you guys have delivered on that promise. So much. So that we had an artificial cap on you and we're going to on cap because we believe in the enterprise. So theres, an element of our execution and our ability to deliver on our <unk>.
Promises, that's really resonating with our customers and they trust us and that has and in this environment. There is nothing thats more valuable economically or emotionally than trust.
So that has been a huge huge assets of our business.
Then what you just said about the potential kind of eventuality of strategic partnerships and thinking more long term that same customer asked us and they don't do this with many of their.
They are carriers asked us if we'd be willing to enter a very very small rank of their suppliers, who they enter into long term agreements with because and I love that you asked the question I talked about this a lot actually here in our building.
Our people sometimes forget.
That our customers are the procurement and shipping department of.
These large companies and as such they have internal customers and as a guy that's been a lifetime CFO internal customers like Cfos don't like variability in pricing don't like uncertainty don't like the inability to forecast.
I shouldn't say I mean, I don't mean this in a joking way, but I often ask our people to put themselves in the shoes of the customers we deal with everyday procurement professionals aren't getting raises and bonuses. This year because they are way over budget and they've been Super challenge. So to the extent, we can solve those problems for them long term, they're interested and we.
We're interested in as you said it provides some assurances and some predictability for them and for US and then finally.
Ill just say.
You didn't ask this but I just opportunistically want to sit here and those same conversations. So I've had investors asked me in the past like with all the digital freight brokerage is in all of the small houses and all of the load boards why would they ever use you for logistics and there are lots and lots of reasons, but one of the main reasons is with the profits we make we reinvest in ASP.
And in growing our logistics business and our customers value that more than I can explain on this call. They value. The fact that we are an asset provider that also has a really really strong logistics presence and that reinvestment in assets and this is what I think people forget a lot even in the non asset business at the end of the day that freight moves on a truck.
And we have trucks, so I hope that answered your question Jack really insightful question. It does thanks, thanks for that James.
Last one and I'll turn it over but.
Obviously, what's left.
Potential volatility related to the vaccine mandate al just for a moment, because who can know the impact that could have to the broader market but.
Think about your business and how you're positioned going into 2022 and beyond.
You guys have the 2024 targets out there.
But I'd say, if I think back historically, you've talked about 100 150 basis points of operating ratio improvement regardless of the freight cycle as you sort of look forward.
How are you feeling about the potential there maybe exceed the top end of that understanding you guys decide to stay on the conservative side, but just with the way the market is shaping up going into 'twenty two from a rate perspective.
You guys are getting traction on the recruiting side, how do you kind of put all that together and think about the potential for margin improvement next year.
We're really positive on that front I mean, one of the things I know that most of the people on this call understand us.
These particularly the truckload businesses or asset intensive businesses and actually you can't see it but I'm using my hands to articulate a fulcrum RSC thought right.
Once you clear the profit hurdle and get to the right side of the income statement. It accrues very quickly to your benefit and so in our long term goals and we explain this fairly detailed last quarter.
We've only got.
Less than historical averages of price increases assumed in our forward model. So we've been very conservative on that front and even with that conservative assumption.
The low number of shares that we have very quickly shifts to a much higher EPS profile and I would say and I tried to kind of paint. This picture of my prepared comments that we are well ahead of the plan that we laid out.
That's very encouraging thank you again for the time I appreciate it guys. Thanks Jack.
And there appear to be no further questions at this time I'll turn the floor back to back over to Mr. Reid for closing remarks, great. Thanks Darren.
This earnings call preparation may have been the toughest one for us to do over the last four and a half years, it's kind of boring to say, we said what we said we would do we did it in the results are what we expected, but that's exactly where we are is a very quick reminder, we have revived a near flatline asset business by focusing on pricing network engineering and driver experience.
To improve key underlying metrics that performance, we've added terminal locations completely overhauled our maintenance program gone to regionalization completely restructured our customer base and created a cultural transformation amongst our team.
In that time, we've seen a 500 year flood went through an industry transition to <unk> group through the industry turned down in 2019 and come out of a global pandemic in the best condition. This company has seen in decades.
On the asset light side, we have grown the business in terms of revenue profitability efficiency and breadth over that same period and do that same experience set.
We also have done other things that didn't make our main commentary today, we've invested in it we have been recognized as one of the most innovative companies in the industry.
We built partnerships with fledgling software companies.
<unk> capacity construct and we've been at the heart of figuring out how to leverage digital solutions, while having an actual real life trucks show up when freight needed to be moved customers coworkers stockholders in our communities are recognizing that USA truck really has delivered on our vision of improving the lives of everyone who interacts with us.
Like many I was inspired by the recent World series <unk> by Charlie Martin The Atlanta Braves pitcher who suffered a broken leg during the game and kept pitching he went on to retire three more batteries afterwards before being forced by his coaches to leave the game lots of athlete even mediocre ones have played entered but charlie's effort and.
Commitment are inspiring because they demonstrate what we all know, but sometimes fail to do that effort and commitment our behaviors. We can all exhibit in the face of adversity, we all have to be elite athletes to show either of those attributes.
Didn't exercise recently were asked our team to put their hands above their head and go ahead I invite you to do so right now or at least imagine it. So put your hands on but we had and then I ask them to reach a little higher we can always reach a little higher I was told one there is nothing worse in life than unrealized potential and I think I buy into that Mr. Morton will.
Never live a life of regret at least in reflecting on the 2021 World series because he knows he gave everything to the effort.
Another man, who gave absolutely everything he had to as Cogs was our founder Mr. Robert Pella.
He was a legend in our industry known for his ability to profitably and precisely execute he was a mentor to many and a hero to us here at USA truck after years away and unaffiliated with the business, we were able to reengage with Mr. Pal and build a fantastic relationship with him. He is an example to me of complete and total commitment.
Also had a cautionary tale built into it USA truck's last decade before our team arrived was completely heartbreaking to Mr. Paul When you give it everything you risk everything.
It is one of the proudest accomplishments in my personal and professional life that we were able to repair and invest in our relationship with Mr. Pal and that he saw this great company. His great company returned to a condition he could be proud as I am so proud of our team here at USA truck for believing in their own potential for following us into a fire that few.
You have believes we can endure and forgetting USA truck back on its own great path like Mr. Powell. These folks have given a lot and in his memory. We're all recommitted to give even more Mr. Paolo passed away on October seven 2021. This is a great loss for his family for our community and for USA truck and for me personally.
He will always be remembered by us as we strive to become the absolute best company. We can be thanks for your time today.
This does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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Yeah.
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