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U.S. Xpress execs optimistic in face of another red-ink quarter

When reviewing the fourth-quarter 2022 earnings of U.S. Xpress, the normal course is to compare it to the fourth quarter of 2021. 

But U.S. Xpress (NYSE: USX) made two significant pivots in operating strategy in the past two years — the launch and earlier advocacy of Variant and the withdrawal from it — so a sequential comparison from the third quarter to the fourth might be more valuable. And on the company’s earnings calls with analysts Thursday, CEO Eric Fuller and CFO Eric Peterson did mostly talk about sequential comparisons.

Comparing the fourth quarter of 2022 to 12 months earlier does have the feel of an apples-to-oranges exercise, whereas a sequential comparison is more revealing of whether the company’s latest pivot to “blocking and tackling” is having any impact.

And there are signs that it might be, even as U.S. Xpress posted a money-losing quarter with an operating ratio in excess of 100%, 103% on an adjusted basis for its truckload operations and 101.2% for its consolidated operations. The improvement in the consolidated figure from the truckload number was helped along by a significant improvement in OR for the U.S. Xpress brokerage division.

The bottom line is that U.S. Xpress posted a net loss of $10.5 million in the fourth quarter compared to a loss of just under $5 million a year ago. But the third-quarter net loss was $19.4 million. 

Most of the comparisons to the fourth quarter of 2021 were favorable to U.S. Xpress, suggesting that the Variant initiative a year ago was dragging down the company further than it looked. While the adjusted OR for truckload deteriorated 200 bps from a year ago, other key numbers such as revenue per tractor per week and average revenue per mile per tractor per week were better than a year ago. But with lower rates, over-the-road average revenue per mile fell to $2.417 from $2.481 a year ago.

Comparisons to the third quarter were a mixed bag. Adjusted truckload OR in the third quarter was 106.3%, so the fourth quarter’s 103% was an improvement. Brokerage climbed to an OR of 92.1% from 94.9% in the third quarter. But it occurred against a backdrop of falling spot rates. 

Lower spot rates helped lead to a worse performance in consolidated average revenue per tractor per week, consolidated average revenue per mile (but not by much), and average revenue miles per tractor per week. 

Some of the first changes implemented by U.S. Xpress have come in the form of layoffs. That has not yet had significant impact on the salaries, wages and benefits expenses line, which came in at $187.4 million in the fourth quarter, a savings of just $1 million from the prior quarter. 

However, people costs are just part of the equation, and U.S. Xpress did cut its total operating expenses to $548.1 million from a third-quarter figure of $570.6 million. Fourth-quarter expenses were $11.4 million more compared to the corresponding quarter in 2021.

Interest expense continues to be a burden at U.S. Xpress. That figure totaled $6 million in the quarter, up from $3.7 million last year and an increase from the third quarter of $4.6 million.

And the debt burden rose again; the company listed net debt of $481.9 million at the end of the quarter, up from $252.2 million a year ago and $461.1 million at the end of the third quarter.

Liquidity is also tighter. At the end of the third quarter, the company said it had $106.1 million of liquidity, defined as cash and availability of funds under its revolving credit lines. One quarter earlier, that number was $131.1 million.

On the call, Peterson said U.S. Xpress had “a tough year in leverage” due to the company’s losses, which for the full 2022 came in at a net income loss of $38.8 million compared to a net income profit a year earlier of $11.1 million.

Peterson said the company’s financial position “remains strong” and that U.S. Xpress has “ample liquidity to fund our business.”

Given the company’s expectations of improved operations in 2023 and restraint in capital spending — “We’re not going to be throwing a lot of new capital out there” is how Peterson put it — he said U.S. Xpress expects to improve its leverage position this year.

The mixed performance did not stop Fuller from saying the company’s performance in the quarter “gives me confidence we are moving in the right direction.”

“The heavy lifting is complete,” Fuller said on more than one occasion during the call. The problem, he said, remains that the company’s spot market exposure continues to be excessive “and more than offset these other gains.”

Fuller and Peterson both said there were times during the quarter when the spot rate was running $1 per mile less than contract rates, a wide spread by any measure. Peterson said that during the quarter, about 30% of the company’s OTR miles were in the spot market. 

In response to an analyst question, Fuller said the company would like to get its spot market exposure down to 20% of its OTR operations and 10% of its overall revenues. But that isn’t going to come quickly, he said. “It will probably take us into that next up cycle before we can accomplish that,” Fuller said. 

Given the big difference between spot and contract rates, which was not sustained at a $1-per-mile rate but remained at an unspecified wide number, Fuller was asked whether there was a danger in the company locking itself now into low-priced contracts now as it attempts to reduce its exposure toward less spot and more contract freight. He said that given that spot gap, getting away from that exposure even if it is going to a relatively low contract number is still going to benefit the company. “If I can make that switch if it benefits the network, that’s where I can give some on rates,” he said.

Fuller said U.S. Xpress had seen improvement in the market going into the first quarter compared to the fourth quarter, “so that made us pretty optimistic about where we are going when the market improves.” But he added that any sort of “big significant increase, we’re going to have to wait for the market to turn.”

The chart shows the deterioration in rates on the key LA-Dallas lane between the third and fourth quarters

He later said that both rates and volumes “seem to have bottomed,” but the trucking market is still beset by “a lot of zombie trucking companies out there that are barely making it through the day. They aren’t cash flowing and they will have to come out of the market.” He added that he expects that shakeout to occur over “the next couple of quarters.”

Asked by an analyst when the company might achieve profitability in its truckload operations, he reiterated that it might need a more favorable market for that to occur. “We have too much exposure to spot and that creates a big headwind,” he said. 

“We’ve positioned ourselves to get our costs in the right place and in line with our peers,” he said. But to get back to black ink, Fuller said “we need a little bit of that rate to come back.”

U.S. Xpress has long been seen as having some of the worst driver turnover figures in the industry, and fixing that was always said to be one of the key goals at Variant and its unique approach toward compensation.  Fuller said the company has “continued to improve the overall quality of our drivers” and that the “sourcing of drivers continues to ease.”

Disclosure: FreightWaves founder and CEO Craig Fuller retains ownership of U.S. Xpress shares through his family trust.

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