U.S. Xpress Enterprises, Inc. Class A

Good afternoon, ladies and gentlemen, and welcome to the U.S. Express first quarter 2021 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn this call over to Mr. Brian Baalbeck, Senior Vice President of Corporate Finance. Please go ahead, sir. You may begin.

Thank you, Operator, and good afternoon, everyone. We appreciate your participation in our first quarter 2021 earnings call. With me here today are Eric Fuller, President and Chief Executive Officer, and Eric Peterson, Chief Financial Officer. Additionally, Cameron Ramsdell, President of Variant, and Joel Gard, President of Express Technologies, are here to answer questions. As a reminder, a replay of this call will be available on the Investors section of our website through April 29th of 2021. We've also posted an updated supplemental presentation to accompany today's discussion on our website at investor.usexpress.com. We will be referencing portions of this supplement as part of today's call. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, beliefs, estimates, plans, and prospects. Such statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our 2020 10-K, filed on March 2nd of 2021. We do not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered an isolation or a substitute for results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release. At this point, I'll turn the call over to Eric Pollack.

Thank you, Brian. This afternoon, I'll review our first quarter results and provide an update on our digital initiatives designed to accelerate revenue growth, expand our profitability, and improve our return on capital. Eric Peterson will review our financial results in more detail, and I will then conclude with a review of our market outlook. On today's call, there are five main themes that we hope you take away. First, we continue to successfully execute against our strategic plan to improve our profitability while doubling revenues over the next four years. To accomplish this, we are allocating investment and capital to our higher return digital businesses while taking capital out of our lower return legacy OTR business. Second, We exceeded our goal of growing variant to 900 tractors by the end of the first quarter, having grown to more than 950 tractors and remain on track to meet or exceed our goal of growing variant to 1500 tractors by the end of this year. Third, as we invest in scale variant, we are carrying duplicative costs as we are essentially running two OTR companies, one with higher profitability and returns and one with lower profitability and returns. As Variant scales through 2021, we believe we will hit an inflection point whereby Variant's higher profitability will begin to immediately impact total company profitability. Fourth, our digital brokerage platform handled 67% of our transactions this quarter. This tech-enabled platform allows our team to scale our brokerage business as revenues rapidly grow. We made significant progress addressing customer pricing in certain dedicated accounts through the first quarter related to the driver and capacity cost deflation that we experienced in 2020 fourth quarter. We expect this improved pricing to contribute to improve dedicated division results as the year continues. Turning to our operations in more detail, we started the year strong as our legacy OTR tractors invariantly performed better than typical seasonality through January. That said, severe weather that swept through Texas and the Midwest in February caused many of our key customers in both our OTR and dedicated divisions to temporarily close. This impacted our utilization across all of our operations given their reliance on those areas most affected by weather. In fact, it wasn't until the first week of March until our customers' volumes started to return to more seasonal levels. Variant was not immune given its reliance on the Texas market, which was most impacted by weather. This can be seen in variant utilization, which was 1,815 average revenue miles per tractor per week for the first quarter. Excluding February from our results, Variant utilization was 1,864 average revenue miles per tractor per week, while its key operating metrics held stable. Despite the severe weather, we were able to grow variant to more than 950 tractors in the first quarter, up 36% sequentially as compared to approximately 700 tractors in variant at year end, and exceeding our goal of 900 tractors. Importantly, we are reducing our invested capital in our lower-return legacy OTR fleet while increasing our average variant tractor count. This is the mixed shift that is occurring and is one of the primary reasons why our total company tractor count has declined year over year. Looking forward, we remain on track to meet or exceed our goal of 1,500 tractors in variant by year-end at our current hiring rate, and would project to increase total fleet size during the second half of the year. At this scale, Variant would generate a revenue run rate of approximately $300 billion. The growth in Variant's tractor count contributed to very strong Variant revenue growth as revenues increased 30% sequentially to $39.5 million in the first quarter of 2021 as compared to the fourth quarter of 2020. It's important to re-emphasize that we are incurring some duplicative expenses as we grow variant and shrink our legacy fleet as we are essentially running two separate OTR companies, which is suppressing our profitability over the near term. As variant scales and begins to absorb more overhead, we expect to see our total company profitability improve beginning in the second half of this year. From an operational perspective, variance metrics of utilization, turnover, and accidents per million miles all held steady as we scaled the fleet through the first quarter when excluding the impact of weather. The improved operating metrics, as compared to our legacy fleet, are partly due to our optimization engine, which dynamically routes our drivers. Earlier this month, we launched the second version of variance optimization engine, which incorporates yield into its decision-making. We believe our Optimizer 2.0 will have a positive impact on revenue per total mile and add to the fleet's profitability. The early results of our new Optimizer are promising, and as a result, we will begin disclosing average revenue per tractor per week as a fifth key metric for variance. Turning to our brokerage segment, and as we touched on last quarter, we purchased a small technology company with a scalable platform and an experienced and talented team in April of last year, which utilizes an innovative platform for handling brokerage transactions. This digital platform enables our people to handle more loads, which improves both productivity and profitability, while allowing us to really scale the business. The benefits can be seen in our first quarter results, where our digital platform handled 67% of our brokerage segment's transactions as compared to 15% of transactions in the first quarter of 2020. This, along with a more balanced ratio of spot-to-contract mix, contributed to the segment's strong revenue growth and profitability as first quarter revenues increased 62% year-over-year, 81.4 million, and our operating ratio improved more than 1,000 basis points to 98.4%. The brokerage segment delivered operating income of $1.3 million in the 2021 first quarter as compared to an operating loss of $4.9 million in the year-ago first quarter. Importantly, our digital platform is a key driver to our goal of scaling revenues and profitability. Turning to our financial results in more detail, our first quarter truckload operating ratio improved to 98.2% or 150 basis points improvement over the prior year. This improvement was primarily the result of higher rate per mile combined with lower claims expense and other costs partially offset by higher driver wages and independent contractor costs, along with fewer average tractors in the quarter as we strategically scaled down our legacy OTR fleet. Our over-the-road segment experienced a year-over-year increase in spot rates given the favorable supply-demand dynamics in the market. This helped to drive average revenue per tractor per week higher by 7.5% as compared with the year-ago first quarter. This was primarily the result of a 16% increase in average revenue per mile partially offset by a 7.3% reduction in average miles per tractor. Turning to our dedicated divisions, Average revenue per tractor per week, excluding fuel surcharges, increased $87 per tractor per week, or 2.1%, as compared to the year-ago first quarter. The average revenue per tractor per week achieved in the first quarter of 2021 was $4,155. The increase was primarily the result of a 1.4% increase in revenue miles per tractor per week. and a 0.8% increase in average revenue per mile. I am also pleased with the significant progress that our team achieved addressing customer pricing in certain dedicated accounts through the first quarter, given the driver and capacity cost inflation that we experienced in the 2024 quarter. As we look forward to the balance of the year, we believe all of our businesses are firmly positioning the company to deliver on our goal to growing our digital business and achieving scale benefits, which will begin to drive meaningful margin expansion as we exit the year. To conclude, I am pleased with our progress this quarter and wanted to highlight another very important initiative to me personally and our company, which is corporate sustainability. In February, we launched our inaugural corporate responsibility report, which we plan on releasing annually. This report represents our commitment to exceeding traditional environmental and social responsibility standards as we strive to build a workplace grounded in ethical behavior, compassion, and equality. I'm proud of the strides that we have made as a team towards supporting these important initiatives and promoting environmental sustainability. As part of this inaugural report, we have established ambitious goals, including the 60% reduction of our carbon footprint by 2035, and doubling our community engagement over the next five years. We have also established a Diversity and Inclusion Council designed to foster real change within our company. We understand this is a journey and are very proud of the course that we have charted for Yost Express. Let me now turn the call over to Eric Peterson for a review of our financial results.