USA Truck, Inc.

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, Taryn. Good morning and welcome to USAT Capacity Solutions' third quarter earnings conference call. Joining us this morning from the company are James Reed, President and CEO, and Zach King, Senior Vice President and CFO. Thank you for joining us today. In order to help you better understand USAT 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 more complete discussion of factors that could affect the company's future results, please refer to the forward-looking statement section of the company's earnings press release and the company's most recent SEC public filings. In order to provide you more meaningful comparisons, certain information discussed on the conference call could include non-GAAP financial measures as outlined and described in the tables in our earnings press release. I'll now turn the time over to James.

Great. Thanks, Mike, and good morning, everyone. The third quarter performance at USA Truck represents the fifth consecutive quarter record-setting results, and 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. The 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 and 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 have cracked that code, we're now growing the team. And if the company observer looks 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 at USA Truck had learned to lose. The challenge, of course, in that mindset 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 is more hungry, more opportunistic, and more frustrated with the missed opportunities than we are relishing in results. Winners 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, and even more opportunities to stabilize our 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 in trailing 12-month adjusted earnings per share. We remain dissatisfied with the public market's pace in 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 performance. 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 in 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'll please turn with me to slide number three, we'll do a quick 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, which continues to be driven by our network optimization initiative and market uplift, and increases in revenue per load and load count in our USAT logistics segments. Our adjusted earnings per diluted share was $0.57. 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%. Our trucking segment generated $4.8 million in adjusted operating income and a 95.3% adjusted operating ratio. The primary driver of these results was a 50 cent 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 and capacity demand within the broader market causing rates to rise. Utilization decreased 26 miles per truck per week or approximately 1.7% in the third quarter of 2020. A portion of this decrease is the 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 affected 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 1,857, which represents a 5.7% decrease when compared to the third quarter of 2020. Turning to slide number six, we will review the results of our USAT logistics segment. Revenue before eliminations increased $29.5 million from the third quarter of 2020, or 56.7%, to $81.6 million. Our logistics segment generated $3.4 million in 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 36,800 loads during the third quarter of 2021 from the 32,100 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 you'll turn with me to slide number seven, we'll highlight some of our key balance sheet and liquidity measures. As of September 30th, 2021, 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 1.8 times, down from two times in Q2. This represents a net debt decrease of $7.2 million from Q2 2021 and a 0.2 turn improvement in our leverage ratio. The company had approximately 96.3 million available to borrow under its credit facility as of September 30th, 2021. Looking at the remaining months of 2021, we expect 20 to 30 million in 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 can negatively impact our operations and maintenance costs 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, Zach.

The same tinderbox 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 freight with many of our best customers. We saw customers enter into longer-than-normal surge-type commitments, some even stretching into the middle of next year. 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 with nearly all of our dedicated customers to implement price increases, and we have been disciplined in ensuring all rate activities continue 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 supply-side issues we witnessed in Q2 persisted in Q3, The availability of drivers and replacement tractors from OEMs are real headwinds. 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 costs increases of $5,000 to $6,000. 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 fleets. And as a result, this cost pressure ultimately supports sustained price strength going forward. We don't 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 are not clairvoyant. We had no idea that CPU shortages would compromise 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 2.8 years. We have met recently and more than once 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've worked to 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 have negative effects on driver retention. But 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. We talk a lot in our day-to-day cadence here at USA Truck about about our trucking segment. And I've recently taken to saying it is very Peter Drucker-ish, like just as Drucker taught, 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, revenue per truck, and empty miles continued to improve, and that was manifest in a segment-adjusted operating ratio improvement of 50 basis points year-over-year and year-to-date OR improvements of over 300 basis points. I want 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 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 they're 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 a high-revenue truck with lower miles and thus fewer variable cost inputs is a more profitable truck. So it is dynamic, and that notwithstanding, we have put more and more miles on the truck. Bear in mind that this segment includes independent contractor owner-operators who are actually running fewer miles even as they make more money in this robust pricing environment. We would expect that to change a bit if and when pricing moderates. 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 the segment. Those trucks saw a decline in utilization sequentially and year over year of 6% and 5% respectively. It's important to understand that our shift toward this type of dedicated business is intentional and measured. Our stated strategic goal is to have 50% of our revenue and profits in dedicated businesses by the end of 2024 in this segment, and this is the best environment to make that investment and that shift in. Customers are more aware now than ever of the gaps in their trucking capacity specifically and supply chains generally, and as a result, are more willing to move long-term commitments into dedicated configurations. As we have 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 2021, and the ramp-up of those businesses and the occurring of non-capitalizable startup costs like hiring new staff, setting up new office locations, moving unproductive equipment into position where it can be productive, the inevitable driver turn of startup until the model is refined, and other inefficiencies that we all experience in the industry have been a drain on utilization and, frankly, profits in that part of this segment. But we are materially through the startup phase and saw the underlying OR 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. Rate 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. We had a customer just this week tell us we could have any lane 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 of 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 constituents 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% in rate improvement in the quarter is partly driven by market forces and mostly driven by intentional design, 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 architecting the freight we desire. Our Tier 1 moves, a measure of the most desirable terminal-to-terminal moves, are effectuated 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 in our Tier 1 lanes, 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 remain and will remain for the foreseeable future among our highest business priorities. 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 will 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 team members, especially our drivers. Pay was up approximately 13% sequentially. As we previously discussed, changes in pay structure, 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. It now appears likely that 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. have 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. Zach 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 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 is real, and it may be long-term, having the throughput to harvest profits is critically important in all market conditions. We look at productivity on a per-employee basis. and see the quarter as a great launching point for future growth. The addition of headcount in the quarter is an investment in our future volume growth, and we expect the next growth spurt of volume to come in Q1 as the training and new hire that have recently been hired ramp and grow into productive capacity. Next is USAT logistics revenue per employee. It's 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. Next is margin dollars per employee. It was eye-popping again this quarter. Our logistics team produced over $100,000 in gross margin dollars per employee margin dollars per employee, excuse me, in the quarter for the third time in our history. This represents a $36,000 increase per employee year-over-year or 55.9% improvement year-over-year. And finally, USAT logistics loads per employee is up 10.6% year-over-year. Our people, processes, and tools are 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 the end, 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 saw it materialize with a full go-live just in this third quarter. So we had done some ramping earlier and testing 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 recruiting success and the early signs of its emerging productivity. So as I typically do, I 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 the freight network, and steadily improving financial performance over time. They're doing everything we've asked them to do. And our logistics 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 parental weakness to an undeniable strength. And pricing is healthy, and customers are more interested 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'll just update everyone on our 2021 touchstones that were introduced today. 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, trucking OR has actually improved 250 basis points, even despite the challenges I mentioned in the dedicated business that we see material progress on. Next is logistics load count growth. Our target is 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 trucks 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 improve our driver turnover by 10% or more in the year. Our third quarter result in year-to-date turnover is under 80%, 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 expand and densify our asset business east of I-35. As noted earlier, our Tier 1 lane density has improved 64% year-to-date, and the most important indicator of this success is the continued OR improvement in the trucking segment. Second is doubling the logistics business. This goal is well ahead of schedule. A 2024 goal of $400 million of top-line revenue seems to be readily in reach, barring any significant downturn in the marketplace or pricing landscape. And finally, reducing the asset fleet age. Despite the previously discussed equipment challenges, we expect improved age of fleet in the fourth quarter. And if all trucks are received, which we believe could be slightly at risk, then 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 top-line revenues of just over a billion dollars, a long-term blended OR of 93 to 94, and an EPS of 425 to 450, and we reiterate those views. As we consider 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've made structural, sustainable change. USA Truck has returned leverage levels to below two times. We've improved liquidity. We've delivered profitable results in 13 of the 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. 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 story in the transportation space. The plan to improve price and network, to seat trucks and improve 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, Taryn, I'll turn it back over to you for questions.

Thank you. The floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. If you're using a speakerphone, 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 1 on your telephone keypad at this time. We'll take our first question from Elliot Alper with Cowan. Please go ahead.

Great. Thank you. Thanks for the question. I guess on the trucking side, I believe the guidance applies in sequential owner improvement in the fourth quarter. I guess how should we think about the variables that are contributing to that and kind of what does the timeline look like for when your startup costs are incurred versus when you start seeing some real benefits to the bottom line?

Sorry, Elliot. I missed the very first part of that question.

Could you restate that? Yeah, so on the trucking side, the OR guidance implies some sequential improvement in the fourth quarter, kind of the variables that are going into that versus what we saw in 3Q.

Oh, yeah. 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, you know, they are in the same segment because of the interoperability and 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, had really one of the best months in the history of the business in September. And October looks 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. You know, we've got a day or two left in the month. Things are looking really good in the quarter. So that's just fundamental, good pricing, good volume dynamics, and great execution by our team. That's that business. On the dedicated side, which I mentioned earlier, I really think we hit a valley in terms of financial performance. in Q2 with that business. There were a lot of startup costs, a lot of deficiencies. What you're doing is you're moving assets from either truckload to a dedicated configuration, and it's very difficult to do that profitably. And you've even, you know, not to opine on other people's performance, but you've seen that as other kind of heavily dedicated operators have struggled during the year to do that well. We've actually done it a little bit better, I think. We've remained profitable in that part of the segment, but not as profitable as we'd like to. Sorry to be so long-winded. What we really think is that dedicated stands to contribute positively to our performance in the fourth quarter. Just to summarize, Q4 looks like three solid months, whereas You know, Q3, September was really the shining star, and we expect the dedicated business to perform even better. So, Zach, did I mess anything up there?

No, I think you got that right. And I think on the dedicated side, I mean, we've seen that through the broader market and a lot of commentary out there. And like you said, I mean, now is the time to do it. Our shippers are more open to those dedicated opportunities, and it sets us up, you know, with our long-term strategy. So we think it's the right move.

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 you're seeing? You talked about the plus 18% for retention costs or recruitment costs. Kind of how do 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 here.

Oh, let me write that down so I forget to address that. So on the first two points of just the double-digit growth, you don't have to do this, but I'd 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 calls 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, the only thing that you wouldn't have line of sight to is 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 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, you know, 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 or having challenging backing scenarios, et cetera. And so you have to pay them a lot more. So part of what you're seeing is some basic kind of expected increases in driver pay. And part of what you're seeing is a shift change and a greater mix towards more and more dedicated businesses. All of that said, in this environment, as we approach our customers, who we just have the best relationship 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 I don't mean that to say that it's Pandora's box and it's open, you can get whatever you want. What I mean to say is when you go with real data and highlighting what the real marketplace looks like, and outlining real benefits that accrue to the customer as a result, they're 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 that's 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. You know, this is such an important issue to our employees. And we try, we talk 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 calls, you don't actually know what our individual positions are politically, personally, religiously, right? We're going to hit it down the middle of the fairway. So if and when there's 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 could we work with our vendors to provide testing sites? And so we've begun 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. That's kind of point number one. Point number two, we align ourselves with lobbying groups and industry associations that represent our views. And the American Trucking Association has done a very good job representing a 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 that's 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 than for investors, although we hope our employees are investors as well, is We just had a management meeting yesterday with our top 50 leaders, and we 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. And then this is the part where – this is 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 a mandate if it were to go in. I think some of my peers think that's a terrible thing. I believe freight goes, and I'm not exaggerating, to $8 to $10 a mile if that happens. There's severe consequences to another capacity constraint, even as we're in one of the most constrained environments that we've ever seen historically.

Okay, great. Thank you. Appreciate it.

Our next question comes from Jack Atkins with Stevens. Please go ahead, sir.

Okay, great. Good morning, and thanks for taking my questions. So I guess to start off with, I hope we don't see $8 to $10 per mile freight. I don't know if that's good for the economy, James, but I think you're right. I would agree if we see – the mandate go through, obviously that would create a lot of pressure on capacity. I guess maybe just kind of following up on that line of thought, though, let's say that there is some sort of exemption, but it requires testing, regular testing. How do you prepare the organization for that, and what impact could that have on utilization and maybe outer route miles? Have you kind of maybe thought 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 at those industry events are our other co-travelers. And so, you know, I... 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-network, in-route partners, think fueling locations, think shippers, consignees, 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 combine to accomplish. That's kind of where our head is. 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 to the other day. I went to a drugstore, got the swab, you know, in the drive-through, handed it to them, and 25 minutes later I knew my result. Imagine, Jack, if we could do that, you know, at our fueling providers.

Yep. I think that makes a lot of sense, and I'm glad to hear there's buy-in on the partner side. Maybe shifting gears, going back to your story specifically, I would be curious to get your thoughts, James, on obviously you've had significant improvement in profitability this year. You're seeing very robust rate as well. But at the same time, the The tension in the freight markets, I think it's obviously creating some productivity issues for Tractor, and you talked about that 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 with some internal initiatives within your one-way operations, but I would imagine it still has to be weighing on profitability to some degree, maybe muting what would be an even more significant improvement in overall profitability.

Yeah, sorry, Jack. I don't know if our phone's cutting out or if my ears aren't working. So you're referring to which headwind?

Sorry, James. Probably on my end on the phone. No, I was just kind of asking you about The issues around productivity, which you guys are doing a good job mitigating that with some internal initiatives within your one-way business. But I've got to think just the broader congestion in the freight markets are having a negative impact on overall profitability. And I just would be curious if you could maybe give us some thoughts on that.

Yeah, 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 ports and the challenge of getting freight availability and all that stuff. But there are some really other... fascinating dynamics. 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 this story of a few years ago, I was at an industry conference and there was a driver of the year 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. I mean, it really is, not to imply that our drivers are monolithic, because they're not, but we're seeing in our owner-operator ranks, as they're able to keep high revenue per truck on their truck in this environment, they're driving fewer miles. We see with our own drivers, as their paychecks go up, their mile productivity goes down. So that's a really interesting dynamic. Another interesting dynamic, which I know you know, is with the advent, which, you know, it's really been the last 15 to 20 years, of distribution centers and now fulfillment centers getting closer and closer and closer, it becomes harder to maintain equipment flexibility in those configurations. You need more trailers. There's more in-and-out times. There's more drops and pickups and just operational friction sometimes. involved because you're driving less and hooking up and dropping more. And so there's a dynamic there where length of hauls have shrunk, and inevitably that has an impact as well. And then I think finally, you know, you've just got an environment where you Customers are struggling themselves on their docks, 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 can't get people to come to work. It's more than once in the last quarter that the lack of availability of dock workers have impacted our ability to turn the truck. So those things, you know, you're right. Those are 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, Zach, those are the three that I can think of off the top of my head. Can you think of any others? No, I think you hit it.

I don't think there's really much to add. Okay, great. That's a good question, Jack.

Okay. All right. Well, that's helpful, James. Thank you. Maybe a couple other ones, and I'll turn it over. But I guess maybe thinking strategically about relationships between your shipper customers and their carrier partners like yourself, larger trucking companies like USA Truck that can provide consistent service and capacity. I've got to think that as we look forward, there are is the potential for a change in the relationship between shippers and carriers, maybe more of a partnership that could be formed, longer-term relationships, instead of this annual bid cycle process where one side is trying to get an 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 that can give you better visibility into your network, and I've got to think that would maybe help driver turnover as well.

Yeah. So that's a wonderful question. So, you know, I'll just answer it with kind of some tales of recent meetings that we've had. You know, we met with a customer, a very large retailer recently, who said, look, You know, who you aspired to be in 17, 18, and 19, we weren't 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 uncap you because we believe in the enterprise. So there's an element of our execution and our ability to deliver on our promises that's really resonating with our customers today. And they trust us. And in this environment, there's nothing that's more valuable economically or emotionally than trust. So that has been a huge, huge asset to our business. Then what you just said about, you know, the potential kind of eventuality of strategic partnerships and thinking more long-term, that same customer said, asked us, and they don't do this with many of their carriers, asked us if we would be willing to enter a very, very small rank of their suppliers who they enter into long-term agreements with. And I love that you asked the question. I talk about this a lot, actually, here in our building. I think our people sometimes forget that our customers are the procurement and shipping departments of 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. And 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 every day. Procurement professionals aren't getting raises and bonuses this year because they're way over budget and they've been super challenged. So to the extent we can solve those problems for them long-term, they're interested and we're interested. And as you said, it provides some assurances and some predictability for them and for us. And then finally... I'll just say, you know, you didn't ask this, but I just opportunistically want to put this in here. In those same conversations, so I've had investors ask me in the past, like, well, with all the digital freight brokerages and all the small houses and all 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 assets. and in growing the 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, a really insightful question.

It does. Thanks. Thanks for that, James. Last one, and I'll turn it over. But, you know, obviously, let's throw the potential volatility related to the vaccine mandate out just for a moment, because who can know the impact that could have to the broader market. But, you know, as you sort of think about your business and how you positioned it going into 2022 and beyond, you know, I know you guys have the 2024 targets out there. But I think back historically you've talked about 100 to 150 basis points of operating ratio improvement sort of regardless of the freight cycle as you sort of look forward. You know, how are you feeling about the potential to maybe exceed the top end of that, understanding you guys like to stay on the conservative side? But just with the way the market is shaping up going into 22 from a rate perspective, you know, 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.

Yeah, we're really positive on that front. I mean, one of the things I know that most of the people on this call understand is, you know, these particularly truckload businesses are asset-intensive businesses. Actually, you can't see it, but I'm using my hands to articulate a fulcrum or a seesaw, 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 explained this fairly detailed last quarter, you know, we've only got, you know, less than historical averages of price increases assumed in our forward model. So we've been very conservative on the front. And even with that conservative assumption, you know, and the low number of shares that we have, it very quickly shifts to a much higher EPS profile. And I would say, and I tried to kind of paint this picture in my prepared comments, that we're well ahead of the plan that we laid out.

That's very encouraging. Thanks again for the time. Appreciate it, guys.

Thanks, Jack.

And there appear to be no further questions at this time. I'll turn the floor back over to Mr. Reid for closing remarks.

Great. Thanks, Taryn. 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, and the results are what we expected. But that's exactly where we are. As 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 of 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 ELDs, through the industry turndown 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 through 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've built partnerships with fledgling software companies and unique capacity constructs. And we've been at the heart of figuring out how to leverage digital solutions while having an actual, real-life truck 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 heroics by Charlie Morton, the Atlanta Braves pitcher who suffered a broken leg during the game and kept pitching. He went on to retire three more batters afterward before being forced by his coaches to leave the game. Lots of athletes, even mediocre ones, have played injured, but Charlie's effort and commitment are inspiring because they demonstrate what we all know but sometimes fail to do, that effort and commitment are behaviors we can all exhibit in the face of adversity. We don't have to be elite athletes to show either of those attributes. I did an exercise recently where I asked our team to put their hands above their heads. And go ahead. I invite you to do so right now, or at least imagine it. So put your hands above your head. And then I asked them to reach a little higher. We can always reach a little higher. I was told once, 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 his cause was our founder, Mr. Robert Powell. 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. Powell and build a fantastic relationship with him. His example to me of complete and total commitment also had a cautionary tale built into it. USA Trucks' lost decade before our team arrived was completely heartbreaking to Mr. Powell. 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. Powell and that he saw this great company, his great company, return to a condition he could be proud of. I am so proud of our team here at USA Trek for believing in their own potential, for following us into a fire that few have believed we could endure. and for getting USA Truck back on its own great path. Like Mr. Powell, these folks have given a lot, and in his memory, we are all recommitted to give even more. Mr. Powell passed away on October 7, 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.