Q3 2022 US Xpress Enterprises Inc Earnings Call
Good afternoon, My name is Devon, and I will be your conference operator today.
At this time I would like to welcome everyone to the U S Express Enterprises, Inc.
Third quarter 2022 earnings call.
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Matt Garvey you might begin your conference.
Thank you operator, and good afternoon, everyone welcome to the U S Express third quarter of 2022 earnings call.
Eric Feller, you must express as President and CEO will lead our call today joined by Eric Peterson are CFO .
We'll discuss our financial results.
Our discussion today includes four cats and other information that are considered forward looking statements while they.
Statements reflect our current outlook, they're subject to a number of risks and uncertainties.
Cause actual results to differ materially. These risk factors are described in U S Express his most recent Form 10-K filed with the I C C.
We undertake no duty or obligation to update a forward looking statements.
Today's call, we will discuss certain non-GAAP measures, which we believe can be helpful. In evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with the U S gap.
A reconciliation of these non-GAAP measures.
Verbal gaffe measure can be found in our earnings release.
As a reminder, a replay of this call will be available on the investors section of our website.
We have also posted and updated supplemental presentation to accompany today's discussion on our website <unk> Dot U S Express dotcom.
Referencing portions of the supplement as part of today's call.
I would like to turn the call over to Eric Feller.
Thank you Matt.
Afternoon, everyone.
I would like to go out and updated a realignment plan discuss high level results.
[noise] Peterson's financial commentary on the corner.
Nevada outlook for the fourth quarter.
Last month.
It's a significant realignment plan designed to improve operating profitability and cash flow as well as reduce balance sheet leverage.
At that time, we also announced an estimated $25 million annualized cost reductions.
We've already taken the actions to drive this course out of the company and will begin to see the benefit to our earnings in the fourth quarter.
Since that time.
An additional $3 million an annualized costs.
Will begin taking out of the business in the fourth quarter.
Eric Peterson will provide more detail that has caused shortly.
Where were you on that plan has allowed us to take significant costs, none of our business.
Designed to allow us to get back to the basics of truck.
Blocking and tackling.
Liberate freight for our customers at a high service level.
Cost effective manner.
During the quarter, we hosted more than 100 people, including key customers at our partnership with customer summit here in Chattanooga.
He was ready to spend time in person with our customers understanding their bobbing needs.
Dating them on the value proposition of Yours Express.
Feedback from the summit was positive.
The deepening our customer relationships over the coming quarters.
Now start realignment plan.
We've had constructive conversations with several of our top customers.
Excited about the direction of the company.
That is high in our back to basics message is resonating well.
As a reminder, our customer mix is heavily focused on industry, leading companies in defensive segments of the economy.
[noise] discount retail.
Consumer non-durables in retail grocery which positions as well in the current market.
Many of our top customers have been with us for 10 years or more.
More than one of our service offerings.
Our business development team has proactively added new logos to our customer base throughout the year.
You're excited to successfully support these new customers and demonstrate the value of partnering with U S Express.
Turning into a truckload segment.
Generated truckload revenue net of fuel $402 million.
Increase of 11% year over year.
The increase in revenue is from a combination of an increase in total truckload rate per mile.
715, additional tractors compared to the third quarter of 2021.
The character growth was primarily in R. O T R fleet.
Also saw growth in our dedicated business.
In the past, we spoke about the importance of growing our overall fleet size to improve our financial performance. However.
More than 700 additional attractors combined with our recent realignment announcement and associated costs takeout initiatives.
We focused on improving the mix and profitability.
Our current fleet sauce.
Turning to R. O T. R Division as a reminder, during the third quarter, we realized our entire O G. R operations, along with our brokerage business under Justin harness into our newly created highway services Division.
Justin was instrumental in turning around the financial performance of our dedicated division over the previous 18 months and has hit the ground running in his new role focused on getting back to the basics of the truck.
Improving overall utilization, which is the key to improve truckload operating results.
And the third quarter.
Progress driving more accountability within our OTR fleet, which included improving overall driver availability.
Our percentage of empty miles.
<unk> our service levels for our customers.
And retaining the higher performing drivers.
Our ability to source qualified professional OTR drivers as improved.
Combined with our plans to hold our fleet steady we expect to improve the overall quality of R. O T. R professional drivers in the coming quarters.
Finally, with increased driver availability, we need to book morph right to see further improvements.
Realizations.
Okay.
We were successful in adding more contracted loads turned network in the quarter.
However, not at a fast enough pace to keep up with their truck count growth in the quarter.
Therefore, our mix of spot the contract freight was consistent with the second quarter of 2022.
Oh TR revenue per mile declined 2.7% sequentially.
A back to basics approach has been well received by our customers and is crucial to winning more contracted business, which we expect to make continued sequential progress.
Quarters.
Turning to dedicated dedicated division continued as strongly execution in the quarter with exceptionally high service levels for our customers.
Interesting dedicated offerings continue to grow.
We are staying close to their customers to identify additional opportunities, where we can service them at a high level, while maintaining our current margin profile and providing attractive careers for a professional drivers.
We continue to see opportunities to modestly add track your account and dedicated which would be accretive to our overall shrug with earnings.
Incremental opportunity to improve margins and dedicated to responsible growth.
Modest improvement in utilization.
Lower driver turnover.
Turning to brokerage brokerage segment generated revenue of $75 million, a decrease of 17% compared to the third quarter of 2021.
The decline in revenue was due to lower overall load count.
Year over year, primarily due to prioritizing Frank allocation to our asset base fleet.
Consequently broker you're out west right.
However, this segment once again benefiting from lower capacity acquisition costs.
Stock market conditions, which contributed to a second consecutive quarter of 20% plus gross margins.
Given that we are targeting flat sequential fleet growth.
We continue to add more volume to our overall network it will be accretive to the top line and brokerage.
Want to grow our brokerage segment however.
I'll do that and profitable manner.
And we continue to target a mid nineties or in this business in the quarters ahead.
And with that I'll turn the call over to Eric Peterson.
Thank you Eric and good afternoon, everyone.
This afternoon, I would like to discuss our financial performance in the third quarter is where as well as capital allocation priorities and provide some financial guidance before turning to call back to Eric to provide our market outlook.
Turn into our performance in the third quarter.
We generated revenue, excluding fuel surcharge or $477.4 million, an increase to 5.7% year over year increase.
Increased truckload revenues of $49 million or partially offset by a decrease in brokerage segment revenue at $15.3 million.
Turning to adjusted operating loss.
Total adjusted operating loss was $21.5 million, a decrease of $28.1 million from the third quarter of 2021, and a decrease of $24 million sequentially from the second quarter.
We started on prior calls the importance of sequential improvement and with our recently announced realignment plan I will once again focus my commentary on sequential comparisons.
Overshadowing all the progress that we made in the quarter with a record high claims expense, which was primarily due to recent unexpected and adverse developments and two large claims from accidents, which occurred in prior years.
Claim settlements have accelerated in the backlog of cases, which were delayed during the pandemic have started to clear.
For the previous eight quarters, our insurance premiums and clients expert has averaged twenty-three $1 million per quarter.
The third quarter insurance and clients expanse was $43.9 million, an increase of $28 million compared to that eight quarter average.
Despite these unexpected and adverse developments or safety record continues to improve across our fleet.
As are preventable accidents in 2022 are still over 30% lower than our 2019 levels.
In general the remainder of our operating expenses on a per mile basis in the third quarter.
Consistent with the second quarter of 2022.
Positive sequential contributions from our truckload segment two overall adjusted operating income included overall fleet growth and increased dedicated rates.
While the OTR division made progress, adding contracted loads and modestly improving utilization this progress to not offset the decline in overall OTR revenue per mile sequentially and equipment and maintenance related inflation.
Partially offsetting these positive contributions.
Continued decline in spot market rates, which declined approximately 50 cents from the first of the second quarter and approximately 20 more sense from the second to the third quarter for a total of 70 cents per mile.
As a reminder, due to our spot market exposure and a rising fuel environment. This also has an adverse impact on our net fuel expense is the vast majority of the spotless. We service don't have a fuel surcharge mechanism associated with it.
We also encourage miscellaneous unusual expenses, including $1.8 million in charges related to a realignment plan, which included $1.2 million to terminate our least in Atlanta and 600000 severance related expenses. We also incurred an additional 377000 and <unk>.
<unk> from workforce reductions related initiatives and prior quarters.
A $1 million right off of a bankrupt customers receivable, which we no longer expect to collect.
Total these certain expenses negatively impacted adjusted operating expenses by $3.2 million in the third quarter.
Eric mentioned earlier, we have already taken action to pull $28 million, an annualized costs out of the business. These costs are divided into three main buckets salary and wage related of $22 million real estate related or $2 million.
General and other which are primarily bender related expenses of $4 million.
Consistent with what we said on a realignment plan called in early September we did not experience a material contribution from our cost reduction initiatives and the third quarter, but continued to expect to see a more meaningful impact beginning in the fourth quarter as.
As part of getting back to the basics is Eric said earlier, we must restore utilization to previous levels to drive materially better levels of operating income and cash flow. We will continue to allocate capital in a disciplined manner targeting projects that will drive the company forward.
In previous quarters, we spoke about the importance of growing back into our infrastructure to demonstrate the operating leverage in our business model with our recently announced realignment plan. We have made a good start and right sizing our cost structure to anticipated revenue in volumes by taking fixed costs out of the business.
Turning to capital expenditures.
Year to date, net capital expenditures, which relate primarily to tractors and trailers, where $113.8 million compared to $71.1 million for the same period of 2021.
The year over year increase in net Capex was primarily due to lower net proceeds from the sale of used equipment compared to the same period of 2021.
As we stated in our realignment plan call in September we are expecting net capex of less than $100 million in 2023.
The year over year production is mainly predicated on the following number one execution of our more conservative trade cycle initiative in 2023 and two.
Too little to no unexpected delays and anticipated equipment deliveries for the fourth quarter.
In addition, we have already reduced our I T development costs by $10 million on an annualized basis as part of our realignment plan.
Incremental net capex reductions are possible through divestitures of non-core real estate holdings.
Our average age of the tractor fleet was approximately two years at the end of the third quarter, which was consistent with the end of the third quarter of 2021, the combination of our young fleet and strong preventative maintenance program will allow us to execute a more conservative trade cycle program without materially impacting our maintenance cost on a per mile basis.
And allowing our average age of the fleet to remain under two and a half years as we exit 2023. Additionally.
Additionally, keep in mind that the per mile cost increase in new equipment costs are significantly higher than the incremental per mile maintenance costs of aging or flee in a disciplined manner.
As we have stated in the past we use a combination of loan financing agreements and leases to fund our tractor and trailer acquisitions.
In terms of capital allocation going forward, we are focused on allocating capital projects that will drive the business forward in the coming quarters and Deprioritizing other projects, which no longer have adequate return timeframes by either delay.
For canceling the respective project.
Turning to net debt.
At the end of the third quarter net debt, which we defined as long term debt, including current maturities, let's cash balances was $461 $1 million compared to 369 $8 million at the end of 2021.
The next year, we expect our leverage to decrease from improving our overall earnings are disciplined capital allocation approach and divestitures of non core assets.
Turning to liquidity at the end of the third quarter liquidity, which we defined as cash plus availability under the company's revolving credit facility was $131 $1 million.
Generated cash flow from operations of $25.4 million for the first nine months of the year and.
In 2023, we expect cash flow and liquidity to improve from lower related capex and proceeds from the divestitures of non core assets are overall liquidity position entering the fourth quarter remains strong providing us with ample liquidity to fund our business and execute on our current initiatives as a reminder.
Under we used cash generated from operations together with a revolver to fund our day to day operations, while using separate loan financing agreements and lease arrangements to fund our fleet acquisitions.
Turning the guidance to assist with your models, we expect the following for the full year 2022, a low double digit percent blended increase in truckload average rate per mile with OTR contract rates up approximately 15% for the full year and spot rates down approximately 10% for the full year, we expect dedicated rates.
To increase approximately 15% year over year.
Flat sequential overall truck count as we focus on improving our truckload segment profitability.
August sequential improvement in utilization in the fourth quarter as we continued to gain benefits from the additional structure and discipline that has been instituted with the recent creation of our highways services Division. In addition for the full year, we expect the following an effective tax rate between 23 and 26%.
For any discrete items.
Triste expanse of approximately $18 million in net capital expenditures of approximately $150 million.
Finally, with respect to cost savings from a realignment plan. We are currently targeting sequential decline in office wages of approximately $5 million in the fourth quarter as compared to the third quarter keep in mind that overall salaries wages and benefits expense may increase sequentially as driver wages, which comprised a majority.
P&L line item or mileage based with that I will turn the call back to Eric Fuller for our outlook.
Thank you Eric.
<unk>. The overall market, we are experiencing a nonexistent peak season compared to the last two years.
Overall and market demand continues to moderate and excess capacity remains in the market. Despite a combination of fewer spot opportunities and an increasing cost structure, especially for small carriers.
In terms of capacity, we haven't seen evidence in the spot right, but we continue to expect smaller carriers to exit the market in the coming quarters of spot market opportunities are less profitable not.
Not only as a result of declining rates, but also due to increased delivery related costs, including higher fuel equip.
Equipment maintenance and insurance costs and.
In addition.
These market headwinds will likely discourage new carriers from entering the market.
To the extent this dynamic plays out in the market, we would anticipate used equipment prices to decline as well which is already happening.
Finally, we continue to have an easier time sourcing qualified professional drivers in the market.
As for use express we're focused on where we can control to drive continued sequential improvement in in our financial results, namely getting back to the basics, serving our customers at a high level continued cost reduction initiatives to improve our profitability.
And executing on our disciplined capital allocation program prioritizing projects, which we believe will drive the business forward.
Our focus effort to these areas are key to demonstrating the operating leverage potential of our business model.
However, the key to improved operating results remains increasing utilization in arrow Dr Fleet.
And with that operator, we are ready to take questions.
Our first question comes from Ken Holster with Bank of America.
Hey, great good afternoon.
Just wanted to clarify did you say you expect dedicated rates to be up 15%, while spot was down 10% is that a factor of something going on with contract negotiations that you're expecting such a different set trying to make sure I got the numbers right there.
Yeah, most of that numbers bank, Ken This is Eric Peterson, Uhm does or a year over year. So basically we're saying that the dedicated rate for 2022 is going to be approximately 15% higher than than 21. So yeah, three quarters of that rates baked and basically saying we will see you have consistency in the fourth quarter and dedicated compared to what we.
<unk>, Yeah, we wouldn't say a lot of sequential increase and dedicated from here.
Okay.
Okay.
I guess my question that thanks for clarifying that so.
So I guess the goalposts post IPL was was obviously the delever.
You have increased at 100 million in the past year.
Talking about focus on cash flow no more rapidly expanding the fleet.
Obviously these these unknown legal cases that that turned into a loss maybe thoughts on on what else. You can do I think you through and there. There's some non core assets you can sell maybe you could talk a bit about those.
Just obviously the rates are going up so obviously it gets more expensive to keep increasing amount of debt.
And we've got spot rates coming in so I just wanted to see what what actions can be taken.
In that in that deteriorating environment.
Yeah I mean.
Are you working on.
Yeah can I mean, I think we've got a lot of opportunities one hour equipment is in really good shape.
From an age perspective until I think there are some real opportunities there to to look at lowering some of our capex as we go forward I think we also have a.
Some opportunities in real estate, we have some real estate opportunities that we're looking at and that can help us to lower our debt as well and so I think there's.
A number of actions that can be taken and will be taken to help lower that overall.
That number.
What was there something specific when you throughout the non-core where were you addressing anything specifically in the business that that we should look too.
Well.
Variant versus versus you core you Express is there other systems to shut down I just want to understand what opportunities you you've got behind that yeah.
Yeah, we have a specifically we have some property in a building that we are looking to divest of.
And it has a decent amount of value on it and so that would that.
What that is referencing specifically okay.
Alright, and then lastly for me just your macro view you mentioned kind of know peak, maybe maybe a little thoughts on on that as you stretch into next year is there you want to expand on on how things are shaping up it you know as you enter bitchy then.
Yeah, I mean, I think we think right now the market is weak we've seen spot rates it.
Kind of Ah Ah, an all time low.
Think that contract rates are holding up decently and I think that that is really a mechanism of.
The.
Cost environment that we've been over the last two years. So we've seen significant inflation and a number of cost items, whether it be driver pay or equipment.
Arts and tires and everything really went up over the last two years and so the cost basis is significantly different than what it was previously and we believe that leads to a fairly quick correction in the market.
I think we're probably we probably have another slow two quarters to go or so but as we started to get into you know a little bit later into next year may be the midpoint in the next year I think we start to see the markets start to turn.
With some firmness with mainly with supply coming out of the market.
Great great. Thanks for the time American I appreciate it thank you.
Our next question comes from Brian Austin back with J P. Morgan.
Hey, guys. Thanks for taking the question Bryan.
Just to go back to the insurance claims for for a second no Eric Peterson, who gave us the kind of the a quarter average.
This is a decent amount higher but I thought there was another period of time, we had a another claim that popped up. So maybe you can just give us some context that he is just kind of ongoing.
Instances that we should expect continue and maybe just part of the cost of doing business, especially as you mentioned.
Some of that backlog gets cleared and and a lot more of these come to.
Come down the pipe it so I guess, you're expecting more of these and.
What should we make sure that going forward.
Yeah, I would say you have from a severity standpoint over the last four plus years, we've been very fortunate.
If you go back in your lineup, our insurance and claims expense quarter by quarter, you're right you have those spikes.
And that's the nature I think of our industry with where we put our retention limits and are deductibles is that a good quarterback quarter can be the difference of one or two incidents that happen on the over 100, Thousand's uploads that you deliver on a monthly basis and so.
We put a lot of effort into our safety program, our safety record has improved.
By an incredible amount over the last three years are preventable accidents are down over 30%.
But that doesn't mean, you can't have a bad one and so.
We don't anticipate having those bad ones, but they do happen when they do and that's not really predictable, but I think if you look at our track record when.
When you've seen those spikes this quarter is definitely an anomaly.
And has this affected or do you do you think it would affect your premiums and kind of go forward when ray costs when it comes to insurance.
Yeah, I think you know if you look at the premiums that truly overall deductible of $3 million. So we're really on the.
Hook for the majority of our claims up to $3 million, so would not anticipated.
This quarter, having a significant impact on our future premiums.
Alright, and then just one for Eric Fuller.
They're talking about increasing utilization is a is the clear path to get to get to your goals to get.
His margins improving especially on the OTR fleet so.
Isn't that can be a little bit difficult in a softer softer market sounds like you get better availability of drivers. So maybe that helps a little bit but it seems like you're gonna be chaisson volume into a into a weaker environment by a couple of different measures. So.
Let's see what what confidence she hadn't being able to get that especially if you've got some service challenges lately and is there a chance to or.
Maybe it's just too.
Dedicated more because.
Cause it seems like there'd be some decent size growth there as well. So how are you expecting to grow here at what cost us to come out and you can you pivots dedicated.
Yeah, so on the on the market.
It is softer and.
Growing your utility in a market like this is difficult and so I think we are very cognizant of that I would expect slow incremental sequential growth.
But <unk> improvement, but I don't expect some heroic improvement you know one of the things that we identified when when we when Eric and I got down to Atlanta back in December of last year was that we were not managing our driver availability to the level that we needed to.
And so.
The the <unk>.
Front end of how you manage utility was not being manage right. We got our arms around it and change the metric that we look at by over 1000 basis points in a matter of a couple of months and so the.
The point there is that we now have more drivers available to run a revenue miles the problem with that is I don't have the freight to take advantage of it and so we're going to make incremental improvements and it will be slow small incremental improvements in utility.
Until the market starts to to firm a little bit as the market firms and we were able to get more opportunities in the contracts out of the business will be able to significantly change our utility, but it is going to require some level of market turn to make a significant improvement.
Switching to your comment about dedicated.
We are we really are kind of prioritizing dedicated growth at this point, we're keeping our overall.
Total truck count flat.
We think we're at a level that makes sense for our infrastructure.
As we continue to grow and dedicated we would probably continue to bring down our over the road fleet.
To the same degree.
I think the issue is.
Don't need to go chase dedicated opportunities and in this market margins are coming down and dedicated opportunities we are seeing.
There's a little bit more competitiveness and the dedicated opportunities that are available today.
So.
We need to stay disciplined and not chase opportunities, but if we see opportunities to grow and we do see some opportunities to grow we will continue to grow dedicated and anticipate.
Both of dedicated through through the next year or two I mean, I think we'll continue to see growth, but it's an area that we think is important to grow in but it's we want to do it on our terms with the margins that we need to make sense for the business.
And if things were to get softer would you consider cutting back on the on the one way fleet or do you think the size now where you kind of need it based on the footprint that you have.
Yeah, I think it's tough.
He would like to trade.
Trucks and dedicated for over the road. So if we could move over the road equipment into dedicated and then that's how we would bring out over the road fleet down, but if we look at our infrastructure and our footprint, we think that our current truck count as the truck count that we need to continue to maintain going forward.
Okay I understood.
Thank you for the time.
Thank you.
Our next question comes from Scott Group with Wolf Research.
Hey, Thanks, good afternoon guys.
So.
Add back, though the two costs that you talked about.
Truckload would've been profitable in the in the third quarter I guess.
My question is do you think truckloads profitable in the fourth quarter.
I think we've got.
I think that's a tricky answer.
One I don't think we will see cost like we saw in third quarter, you're right. Those are those are square special unique situations that I don't think I'll repeat themselves.
However, we are continuing to see some downward pressure in our over the road rates.
And.
If we can maintain our over the road rates, while maintaining the volumes, we're getting from our customers I think we can be near that breakeven point, but if we continue to see a little bit further deterioration in the right environment.
That's where.
That becomes a little bit harder to do.
Okay, what's your.
Dash gas or best range for how to think about truckload rates next year over the road truck load rates.
Yeah.
I mean, I would say rates for next year is anybody's guess in any yes, you make is going to be wrong right. I mean, I think it's it's tough I think that.
Right now I I think there's gonna be a little bit of some downward pressure on the contract side in the front part of.
Next year, but I think it's really important to note that the costs have significantly in check changed over the last two years and so the inflation in just about every line item has gone up and.
I don't think there's a lot of.
Right to give.
And so I think you'll see a little bit of a probably downward pressure and reduction on the contract side, but I think that.
Because of that dynamic from a cost perspective, you will see a fair amount of supply come out of the market in short order and that will help to kind of flipped the market as we get in kind of halfway through next year.
It's interesting we hear that from not just you here I think we hear that from everybody that the costs are upset prevents that rates from falling.
How come that's not preventing the spot rates from fall despite rates you to center and never been lower alright, how come not cost inflation is not.
Providing a floor for the spot yeah.
I think it comes down to the broker market. If you look at brokers.
Now.
Got in a larger part of the pie than they ever have.
They really have created this true dynamic of true supply and demand that.
Creates the volatility that we see in the spot market and you can just see it over the last five or six years. The volatilities like nothing we've ever seen before and I think they are voluntary facility at least for a period of time is here to stay.
And I think the the emergence of a lot of big brokers is creating Matt.
End of the day. The brokers are just looking for what they can buy capacity at not necessarily worried about what something costs.
The front you know on the on the back in from an equipment standpoint. So.
The problem with that is there's a lot of small carriers that may not understand their cost basis or be things.
They just have to keep running revenue and will do do so at almost any price to kind of stay stay.
Stay you know generating cash and that's a losing proposition for a lot of these small guys. So I think that you've got and you got a lot of unsophisticated carriers in the market newer carriers in the market that I think will continue to struggle.
Those carriers are probably going to go out of business and I think it's.
The end of the day I think it's the broker market that's.
<unk> said environment and pushes those guys out even quicker they almost killed their own capacity.
Yeah that makes sense and then maybe just for Eric Peterson.
Remind us about.
Cause any covenants, we need to just be aware of any minimum liquidity.
Things, we should just keep in mind.
Yeah. Thanks for the question Scott.
One thing we have in place right now, it's a very sustainable capital structure.
We do have a facility in place that has a springing covenant if our liquidity drops below 10%.
The.
Overall availability and so it's F. R liquidity drops below $25 million I have it's bringing fixed charge of one right now at the end of the quarter or liquidity is $130 million add we don't use.
That facility for purchasing of Capex, we have great relationships with OEM captive financing that we're able to do that with so.
We do not have line of sight to our liquidity dropping below $25 million of that covenant would ever be tested. So that's something that obviously does not keep me up at night from a covenant perspective.
And you think net capex below a $100 million.
Yeah next year, we're fairly caught very confident that our net capex will be below a $100 million next year.
Last last thing real quick sorry were there any.
Where their losses on sales this quarter for you guys.
I mean, it was insignificant gains or losses.
Don't have it right in front of me, but it was not significant.
It was a kind of a mixed market.
Appreciate you went from $15 million last quarter up to 23 million this quarter.
Maybe they were just think we had I think some of our Scott some of our write offs that we had and there's there's one time special fees that would've gone through the loss of those losses weren't necessarily on the sale of equipment driving that up but.
But more on some of the special charges.
So what do you think we should model for depreciation going forward.
I would say yeah. If you look at our fleet, we're probably gonna have consisted one burst least.
So.
I don't have it right in front of me Scott I can get you.
H.
Maybe just had that follow up on us.
Yeah, I would say EUR run right. If you were to look back and look at the average.
Our average depreciation what we've had by quarter first second third quarter and if you look at our Capex below a $100 million I'm gonna have inflation on those cap on the on the tractors coming and versus what's coming out and so I think you could see a modest increase in the depreciation from the run rat run rates. If you go back to our cash flows and just strip out the <unk>.
Gains and losses from the depreciation on the face of and then take a modest call. It in the neighborhood of 5% or so up that I will get you pretty close.
Okay. Thank you.
Thank you.
Your next question comes from Ravi Shanker with Morgan Stanley .
Thanks to offer against somebody with a follow up to one of your previous responses.
Makes sense that are taking out these cost now.
Did you see that mistakes structural response to the market place meaning.
If slash when the cycle does come back I mean, who knows what that's like 23 or 24 or whatever but.
Feel like these costs are classier, taking out now need to come back if what you need to come back.
No I don't I mean I.
Our philosophy is right now as we're getting back to the basics and we're really focused on performance.
And that performance is really.
We're no longer looking at growth, we're looking at financial margins in performance and so that cost has no reason to come back.
And we're going to get this model two way really healthy level of overtime and.
Then we can kind of figure out where to go from there, but it's super important that we focus on margins right now and we're not going to.
Deviate from that even if the market returns.
Got it and second maybe at a related question, but it just to clarify.
What was your.
Heavy spot exposure and a third quarter.
And where does it go in for Q and 23 do you think.
Our.
Spot exposure was right around a little bit.
Around that 20% of our overall revenues.
We are focused on bringing that down.
But you know I don't want to be naive.
And a really tough market and so getting.
Trying to get new business at the contract level and do so that doesn't greatly deteriorate. Your rate is a little bit of a balancing act and so that's the.
That's what we're trying to navigate through so I would say that we will we can bring it down slowly and sequentially, but probably not her rogue until the market turns.
Our starts to turn any way.
Got it and just maybe lastly.
Longer term question.
Can you remind us again walk your exposure to owner-operator truck drivers is like what do you think of 85.
And there's some speculation that this becomes.
Somewhat of a national roll with the department of Labor.
Okay recommendations.
How does that impact you guys have that as well.
Yeah, we have a pretty small exposure overall owner operators are are less than 15% of our total fleet.
[laughter].
We're not overly concerned about that I mean, obviously, we're concerned from an industry perspective, and it's something we're watching but it isn't.
A model that we're very heavily invested in and so it is not one that would have a major detrimental effect to ourselves I think it's a big negative for the industry and I think that it could have some long term ramifications to the amount of drivers that wanted to be in the market. There is a lot of drivers that wanna be their own.
Their own bosses and so if you take that opportunity away does that significantly change the capacity in the market and I think that's a real concern but.
I don't think it would negatively impact us as a company.
Got it thank you.
Thank you.
Again, if you would like to ask a question. Please press star and then the number one on your telephone keypad.
There are no further questions at this time Mister Erick Fuller I turn the call back over to you.
Great. Thank you for your time today, and just know that we are.
Absolutely focused on getting this model turned around and operating at a high margin hi.
Hi profitability, we think that we're on the right path. This quarter was a little bit of a quarter, where we had to kind of do some some.
Some things to to take some cost out and and really focus on what I would say, it's kind of a cleanup quarter, but as we get through this quarter and into.
Subsequent quarters, we should have.
We've made significant changes with our head count and other items. We have also been significantly focused on cost items as we get through the next couple of quarters I think we're going to have a cleaner.
Income statement to work with and I think that's gonna bear some fruit over the next few quarters, but thank you for your time today.
This concludes today confidence thank you for it.
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