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spk00: 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.
spk05: 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.
spk07: 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.
spk06: Thank you, Eric, and good afternoon. Operating revenue for the 2021 first quarter was $450.8 million, an increase of $18.2 million as compared to the year-ago quarter. The increase was primarily attributable to increased revenues in the company's brokerage division of $31.4 million, partially offset by a decrease of $6.5 million in truckload revenue and decreased fuel surcharge revenues of $6.6 million. Excluding the impact of fuel surcharges, first quarter revenue increased $24.8 million to $417.6 million, an increase of 6.3% as compared to the prior quarter. We posted operating income of $8 million in the first quarter of 2021, which compares favorably to an operating loss of $3.7 million in the 2020 first quarter. Our operating ratio for the first quarter of 2021 was 98.2% as compared to 100.8% in the prior year quarter. The primary drivers of our improved earnings were, one, improved brokerage margins, Two, a higher rate per mile partially offset by fewer miles and higher driver and owner-operator costs. And three, lower claims expense. Revenue per tractor per week improved 7.5% in our over-the-road division and 2.1% in our dedicated division while we continue to execute on our digital initiatives. Our truckload operating ratio improved 150 basis points to 98.2% from 99.7% in the prior year quarter. While we are certainly encouraged by delivering margin improvement year over year, we expect much more as we return to growth and reduce duplicative platforms. The current reduction of assets in our legacy over-the-road fleet and the redeployment to variant has multiple impacts. First, the net reduction in fleet size resulted in almost 20 million fewer miles for the quarter, or 11.6%, which less efficiently spreads fixed costs on a per-mile basis. Second, running both traditional and digital platforms require different types of personnel. Third, we have a highly trained and experienced staff that we expect to need as tractor growth returns, and we made a strategic decision not to downsize valuable personnel for the short term, only to rehire them in a tight labor market. The combination of these factors contributed to overall fixed costs per mile over our truckload operation that was approximately $0.06 per mile higher in the first quarter of 2021 compared to the prior year quarter, which equates to approximately 300 basis points of truckload operating income. We believe this increased per-mile cost is temporary but necessary as we are laying the foundation to dramatically grow our business and maintain the team and infrastructure while our total truck count temporarily contracts. As we scale over time, we believe that these per-mile costs will decrease below historical levels. This can be seen on page 10 of our supplement where I've included an illustrative slide that demonstrates our historical and expected fixed costs per mile as we scale variance. We believe, as we continue to rapidly grow variant, that we will reach an inflection point where our fixed cost per tractor and per mile driven will reduce below historical levels, which will allow our margins to expand as variant continues to become a larger percentage of our total truckload revenues. Net income for the first quarter of 2021 was $2.5 million, which compares favorably to the $9.2 million loss that we reported in the prior year quarter. Earnings per diluted share were $0.05. Turning to our balance sheet, we had $337.5 million of net debt and $166.5 million of liquidity defined as cash and cash equivalent, plus availability under our revolving credit facility. I'm very pleased with the progress that we have made as our leverage continued to decline to 2.2 times net debt to trailing 12-month EBITDA for the first quarter of 2021 compared to 4.2 times at the end of the 2020 first quarter. Finally, net capital expenditures totaled $2 million for the first quarter of 2021. With that, I'd like to turn the call back to Eric Fuller for concluding remarks. Thank you, Eric.
spk07: As we look ahead, Our core markets have recovered from the weather-related disruptions that occurred through February, and freight demand is running better than normal seasonality through the first two weeks of April. Our expectation is for freight demand to remain strong throughout 2021, given the broader economic recovery and tailwinds that we are experiencing as a result of the federal government's most recent stimulus package, which is having a notable impact. On the supply side, the market for experienced drivers remains challenging, which is keeping a lid on supply. Additionally, ship shortages and supply chain constraints are impacting new tractor builds, which will impact supply over the near term. To conclude, I am proud of our accomplishments through the first quarter as we grew variant to more than 950 tractors as we exited the first quarter. And remain on track to meet or exceed our goal of having 1,500 tractors transition by year end. Continue to scale our digital brokerage platform, having handled 67% of transactions over our tech-enabled platform this quarter. And address critical pricing issues in several of our dedicated accounts, which we believe will yield positive results as the year continues. Over the balance of the year, we intend to continue to redeploy capital from legacy OTR to variant operations to meet our goals of at least 1,500 trucks, a variant run rate of 25% of truckload revenues, and a return to total fleet growth. We believe we are firmly on this path. As a reminder, Cameron Ramsdell, president of Variant, and Joel Gard, President of Express Technologies, are on the call and will be able to add color to questions on variant and our brokerage segment as needed. Thank you again for your time today. Operator, please open the call for questions.
spk00: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation film will indicate your line is in the question queue. you may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star key. One moment while we poll for questions. Our first question comes from the line of Jack Atkins with Stevens. You may proceed with your question.
spk03: Great. Good afternoon, guys. Thanks for taking my questions. Hey, Jack. So, you know, Eric, and... Maybe Cameron, let's take this as well. I guess to start off, when I think about variant and the idea around scaling variant from here, you're obviously making a lot of progress putting additional trucks into service there. But I guess I think folks are just trying to understand how the profitability also scales along with this. And so I think that slide number 10 on the supplemental was helpful, but When we think about the variant fleet today at 900 trucks or 950 trucks, can you help us think about what's the operating ratio on that fleet today? What will the operating ratio be at 1,500 trucks? And then when you get to 2,500 and you start to see that inflection in terms of fixed overhead, what's the operating ratio at that point? I guess we're just trying to understand how this is going to progress from here you know, as we add additional trucks and we can absorb that additional overhead.
spk07: Yeah, so Jack, we don't have all those exact ORs broken out, but I'll give you a little bit. In the sense that internally, we looked at the cost that we had from the fixed cost investment was roughly, we looked at the break-even being about 900 trucks. So as we got over 900 trucks in variance, then we were starting to inflect positives. from an overall corporate standpoint. So we've gotten to that point. So that's one positive. The other positive is if I take the overhead investment out of Variant and just look at the operations, Our variant operations gets about 1,200 basis points better operating ratio than the legacy business today. Now, keep in mind, we've had that fixed cost, so that kind of offsets it. But that was where we kind of got to that 900 to say, hey, now we're starting to inflect positive. If we look out over the next couple of years, we believe that as we get down into that 2,500, 3,000 truck range, that we're starting to get closer to that 2,000 basis points gap between our legacy business and Variant. So from here on out, we should have positive results as we add more trucks to Variant. But really, as we grow and scale and take more of that fixed cost and spread it out over more miles is where we really get the benefit. And you can see that in that slide. We go from, I believe, a high of $0.39 a mile on fixed costs all the way down to $0.20 a mile at roughly 4,000 to 5,000 tractors and variants. So there's some real benefit as we grow and scale this model.
spk03: Okay. Now, that's super helpful, Eric. Thank you for that. I guess kind of moving to a different subject, which is dedicated – When I think about other truckload carriers that are public that kind of disclose their OR and levels of profitability within their dedicated operations, we see mid to low 80s operating ratios for those carriers. Can you help us think through the steps that you guys have taken already to improve profitability within dedicated? And over time, is it reasonable to think that you know us express's dedicated business can see you know an operating ratio with an eight handle on it is that is that realistic or or or not it's very realistic and i'll tell you jack we've made a pretty uh significant pivot in our mindset and i and i'll give you an anecdote in the past
spk07: We were always a company that was a little nervous about making sure that we kept our truck count up to our fixed costs. And so I can tell you forever and always, going back almost 15 or 20 years, we were always talking about we needed X or Y from a rate perspective with the customer, but it was always led with the caveat that whatever you do, don't lose the business. And this year, we have taken a completely different approach. And Eric and I have told the dedicated group that we have to right the ship as it relates to profitability within our dedicated division. And we identified nearly almost 1,000 trucks that were not operating where we wanted those trucks to operate. And so we gave instructions to the dedicated group to go fix that business from a rate perspective. And if it means that the customer is going to put that business out to bid and they can't meet that requirement, then we're willing to walk away from that business. And I can tell you that is a completely different mindset than what we've had in the past. And if it means that we lose an account with 100 trucks, and if we can't get our rate, then we're going to walk away from it. And happy to say that we have taken that aggressive approach through Q1. And so far, we haven't had any business that we've lost. And so things are moving positively because we are getting the rates that we need in the business in order to operate it at a profitable level.
spk03: Okay. Okay. That's really encouraging to hear as well. Last question for me, and I'll turn it over and jump back in queue. But, you know, Eric Peterson, is there a way to think about the weather impact to the first quarter? I know it can be difficult to quantify, but it sounds like you guys have had a pretty significant impact overall, just given where your operations are located. Can you kind of frame up from an earnings perspective how much weather negatively impacted you in the first quarter?
spk06: Yeah, the weather was really tough, especially in Texas, not just in our over the road division, but dedicated as well. And looking at the impacts of utility and some of what it did to our orientation classes, you know, with the drug testing and physical results, you know, getting delayed going through the just our supply chain. I mean, it's really close to 10 cents a share. when you're looking at what that did to our OR. I mean, if you look at our utility on a year-over-year basis, you see that it's down, and that's despite having almost 900 more tractors in our variant fleet that are getting that excess utilization. So I would say close to $0.10 a share.
spk03: Okay. Okay, that's helpful. Thanks again for the time, guys. Appreciate it. Thank you.
spk00: Our next question comes from the line of Robbie Shanker with Morgan Stanley. You may proceed with your question.
spk09: thank you um hi eric eric uh first of all i'll just say that the the increased disclosure on variant is uh is very encouraging and very helpful so uh please keep that coming and i'm sure within a quarter to uh you should be able to get to a point where you can disclose uh or on variant separately as well which uh would be incredibly helpful uh a couple of questions one on slide eight where you kind of give us the legacy versus variant uh metric comparison That took a little bit of a step back from what you gave us last quarter. I mean, was that entirely because of weather, or are you seeing a little bit of diminishing returns as you kind of scale up?
spk10: Hey, Rocky. This is Cameron. Thanks for the question. I think, again, which metrics were you specifically referring to?
spk09: I'm looking at slide 8, the versus legacy change percentage. I think, you know, the preventable accidents, the Delta, I think it was 61% decline, and now it's 54% decline. And hang on, let me just put this here.
spk10: Yeah, I can just speak to all the metrics on there. Obviously, the truck count was in line. The accidents, generally, we did see a pronounced uptick in the number of accidents per million miles during the storms, which is fairly intuitive when weather like that occurs in areas where you're dense. So that's nothing alarming from that standpoint, and that has normalized. The turnover is slightly up on a percentage basis. I will say it is still very much in line and has completely normalized. And the voluntary attribution is also in line with what we discussed last quarter, which is substantially less than the number we published. And utilization, of course, as we've already discussed on this call and in the core earnings transcript, we experienced a step back mainly, again, due to the storms.
spk09: That is incredibly helpful. Thank you for that. And then maybe on slide 10 as well, I mean, this is also a very helpful slide, but just if you can help me understand what I'm seeing here, that inflection point at around 2,000 trucks or so, is that telling me that the the fixed cost of a variant becomes lower than the legacy fleet at that point? Or what exactly is it telling you? Because you're going from 33 to 39, and clearly the fixed cost starts turning – the headwind starts turning lower from this point forward. But what's the point at which it intersects the X-axis?
spk07: Yeah, so traditionally – go ahead, Eric.
spk06: No, I was just going to say, you know, the point of the slides, if you look at that opportunity going from $0.39 to $0.30, that's over 400 basis points of earnings on a truckload level. And so the increase to $0.39 isn't just the investment that we have, you know, in Atlanta with the new infrastructure we're standing up for variant. It's also representative of that legacy over-the-road infrastructure that we're not tearing down. So that's still there. And so if you look at on the previous slide, you know, first quarter over first quarter, we're down over 1,000 tractors in our legacy over-the-road operation, and that infrastructure is still there. And the reason what we said previously is we want to keep that there is because we're continuing to grow variant, and we don't want to, you know, tear down infrastructure just to have to build it back up 12 months later. But going from $0.39 to $0.30 a mile, that's over 400 basis points alone in improved, you know, truckload earnings. And that doesn't take into account the improved per-unit metrics on a variant tractor versus a legacy tractor, the boot.
spk07: Hey, and, Robbie, the $0.30 really is where we have been kind of historically over the last couple of years prior to going to launching a variant. And so that's kind of why we made that kind of that break-even point.
spk09: And the 1,200 basis point difference that you guys speak about, I mean, is that excluding this $0.30? Is that just the variable portion alone, or is that including these gains?
spk06: Yeah, the 1,200 basis points is the variable piece. So this is in addition to it.
spk09: Okay, got it. And just very lastly, kind of Eric Peterson, given all the moving parts here with this kind of ramp down the fixed cost and scaling up the variant fleet with the improved dedicated pricing, brokerage getting traction, but at the same time kind of carrying the fixed costs on the legacy fleet, what do you think OR looks like exiting the year and for 21? Are we looking at getting to 90 OR by the end of the year?
spk06: Yeah, you're not saying all the way to a 90 or by the end of the year. But, you know, as we said previously, as we approach that 1500 trucks invariant in our get healthy plan on some of these dedicated tractors, we can see that number being in the low nineties. Understood. Thanks so much. Thank you.
spk00: Our next question comes from the line of Brian Olsen back with JP Morgan. You may proceed with your question.
spk01: Hey, good afternoon. Thanks for taking the question. Eric Fuller, maybe just start with the bigger picture. Like you mentioned in your economic report, infrastructure demand will create some tension for the trucking jobs. Obviously, it's quite hard to get people and keep them and retain them, whether it's, I mean, maybe a little easier on variant for now, but Is this sort of the environment that you've envisioned where it's really hard to scale the fleet, where you really do need that digital initiative, whether it's in brokerage or on the variant side? And you've talked about technology disruption as well, but just maybe putting that aside, just talking about the cycle. Are we at the point where you say, hey, this is why we're making these pivots, because it is hard to scale the business kind of exactly when you would want to when the market's tight?
spk07: Right. It does make it easier. By having a new brand, a digital brand, light variant, we're actually seeing more traction in the market from a recruiting perspective than we would in our traditional legacy business. And so we do think it helps to differentiate us. So from that regard, I definitely think it's a positive. I mean, if you look at the market, the driver situation is probably more difficult than anything I've ever seen in my entire career. And I envision if we get an infrastructure bill, it's only going to get worse. And so I think we're well positioned to at least see some growth. Now, to be honest with you, that pace of growth has slowed a little bit. We were running at a pace that I thought we would probably end the quarter more over 1,000 trucks, where we were, say, a week or two before the stimulus bill. And we did see a little bit of a fall off in our recruiting numbers once the stimulus payment went out. And so that has created a little bit of a headwind. But I think that we're probably moving past that now. We can get back to a little bit quicker of a trajectory from a growth perspective and variance.
spk01: Okay, got it. I guess the point of the question was to really though is, With this type of market being tight and hard to get drivers, it does seem like this is what you're pivoting the company to be able to grow through. It sounds like that's still valid. I guess the way I'm looking at it is this is sort of your test case. Can you get the scale in this market? That's kind of what you're pivoting the company to. I guess that was more the question. It sounds like you feel like you're on track, even though it slowed down a little bit recently. Is that fair?
spk07: Yeah, and we're still on track, and like I said, it's showing that we have some – that this model really can scale regardless of cycle, and so we feel real confident about it, yeah.
spk01: Okay, great. So I guess on the other part of scale, the digital brokerage rollout, I know that's kind of coming along behind the variant side. You did mention the acquisition. You got some commentary in the slide deck as well. can you or Joel just kind of give us a bit of an update on how things are progressing, what we should expect throughout the rest of the year, the pace of investment, anything to kind of help frame the pace of improvement and kind of where you are at this point in time?
spk08: Yeah, thanks for the question, Brian. This is Joel. I think to start, it's just worth highlighting that The approach to improving some of the fundamentals that we really emphasized last year in parallel with integration of the aqua higher transaction reported in the supplement. All of our internal kind of transformation initiatives are very much on track. We're starting to see some of the. positive indicators of that thus far, and we expect to be able to leverage some of the benefit that we've built up in the trailing quarters here for the rest of this year, which is indicative of the hard work being done by the team right now.
spk01: Okay. Thank you very much for your time. I appreciate it. All right. Thanks, Brian.
spk00: Our next question comes from the line of Scott's group. with Wolf Research. You may proceed with your question.
spk04: Hey, thanks, guys. Good afternoon. Good afternoon. Can I ask, what's a realistic margin expectation for the truckload segment in the second quarter?
spk07: I think we can see a little bit of sequential improvement. But, you know, I don't necessarily, you know, we don't normally, you know, give that type of guidance, but I think we'll see some improvement from where we're at. I mean, our biggest, the improvement where you're going to see is one is dedicated to A lot of the rate increases that we have gotten will go into effect either the beginning of Q2 or into, say, halfway in through Q2. So that will have a positive impact on the quarter. We also will continue to grow our variant truck count as a percentage of our overall truck count, which will improve our earnings as well. So we feel confident. We feel like we're moving in the right direction, and we're going to be making sequential improvement from here on out as we move through the quarters.
spk04: You think we'll see year-over-year improvement relative to that 94 in truckload a year ago net of fuel?
spk07: I think that was a pretty unique comp given the situation. So I don't know that at this point we're not really saying one way or the other. I do think it'll be an improvement sequentially from this previous quarter though.
spk04: Okay. And then when you talk about getting to a low 90s by the end of the year, is that an annual run rate comment or a fourth quarter comment? I'm just trying to understand just because Last pricing cycle in fourth quarter of 18, you got to a low 90s. And so I just want to understand, is this just getting back to where we were because pricing is great, or is there something that's more structurally better?
spk06: Yeah, I would say it's structurally better because our focus right now on a quarterly basis, like we said, isn't to maximize the OR, it's to build this foundation for growth. And so I think the difference, if we get to the low 90s this fourth quarter compared to before, we're doing it with a model that's not done, that's going to continue to scale where we can then continue to make improvements into 2022 and into 2023 as we don't stop our aggressive growth plan, as we said earlier, to double the revenues in four years. If we can get to the low 90s by this fourth quarter and still have that scalable platform, that's going to have a much better feel heading into the subsequent year than the previous time we did that.
spk04: Okay. And just last question, just given the sort of the mixed changes, should we think that utilization turns positive starting in 2Q now that weather's behind us?
spk07: I think the problem with utilization is our truck count, as you see in our slide, I believe it was on slide nine, where we showed that we've lost more trucks in our legacy business than we've added in variant. And that's intentional, but that has obviously a little bit of a negative impact, a headwind on our utilization numbers as we go through that transformation.
spk04: So that has a per tractor impact?
spk07: It does.
spk04: Okay. I'm not sure I followed. Okay. Okay. So it's in the back half of the year when you would expect utilization to turn positive.
spk07: Yeah. And meaning because we have potentially at any given point during the quarter, we may have more unseated tractors than that number.
spk04: Okay. Okay. Got it. All right. Perfect. Thank you, guys. Appreciate the time.
spk00: Our next question comes from the line of Ken Hoekstra with Bank of America. You may proceed with your question.
spk02: Hey, great. Good afternoon, Eric and Eric and team. Can you just, I guess, maybe start off with how many unseated tractors out of the total and are you counting that to get to that utilization? It's all in, right, in terms of your unseated tractors?
spk06: Yeah, our utilization numbers are for available tractors, and we don't disclose what they are, but you can infer that on a sequential basis with that drop in legacy over the road, that it's a higher percentage today than it was in the fourth quarter.
spk02: So how do we reconcile this progress of variant? Is there some point where you're aging out the tractors? I don't know if it's on a three-year cycle, and so in three years, U.S. Express no longer exists and only variant trucks exist. Once you get to that flip point of profitability and performance for variant and distributing the fixed cost that you show?
spk07: Sure. So we do have some tractors. that will not get converted over it's a small percentage of the overall but we do have some tractors but for the most part i would say probably within two to two and a half years we should have all of the tractors that we intend on phasing out and moving over into variant into variant so it's a it's a slow process and there's there's other areas uh that need to be built out in order for us to absorb the entire fleet but that should happen over the next two two and a half years
spk02: So at what point, I'm just trying to reconcile your earlier comment on shutting down or carrying two fixed cost companies. Is there a point where we're migrating everything to one so you don't carry those legacy costs?
spk07: Yeah, I would say within, say, six quarters. I think that we're going to be filling down costs as we go, but we should be able to strip out the majority of the costs within six quarters.
spk02: Strip out, not just distribute it over a wider base of expansion fleet.
spk07: Yeah, both. But, yeah, there will be some costs that will come out, as well as distribute over more miles. But there will be some costs that comes out over probably a six-quarter timeframe.
spk02: All right. Appreciate that. On the dedicated, your average revenue per mile up a slim 0.8%, you talked a lot about repricing that starts, you know, maybe next quarter or mid-next quarter. I mean, this is just so low given the environment. Is this a mix of new and shorter lanes that impacted that average price per mile, or what is holding that back? I mean, basically, since the IPO, you talked about focusing on rates. What is holding that down given the environment we're in?
spk07: Yeah, there is a fair bit of mix. So if you look at some of the areas where we have struggled to staff at full levels has been in our higher paying but less desirable jobs. And so some are higher rated, but less desirable jobs. So in some of those areas, we've been most impacted by this driver situation where some of the places where we were getting the best rates. But then also some of our rate increases, like I said, were either went into effect late Q1 or into Q2. And so we think we'll see a much larger impact to that rate improvement as we go forward.
spk02: So, Eric, I guess my final one, just these are all quick ones, but you're considering doubling the fleet, yet you're still at a 98 OR. Why not focus on conversion and gaining that scale and then growing after you've improved the performance? Or do you only see the improved performance if you add more scale? I don't know, sometimes size changes. You know, it helps when sometimes, you know, you have too many fixed costs you're carrying. So maybe walk us through that to give us confidence that, you know, doubling the fleet is the right way to go.
spk07: No, we're only doubling. We'll double the fleet once we make the conversion. So we're talking about as we move forward, that conversion will happen prior to net fleet growth. And we think that we can do most of that conversion going into the back half of the back half of this year. And there'll be some pockets that may not get completely converted. But for the most part, most of that conversion will happen. And then we move into a net growth stage. So We're not growing with, you know, the conversion is a big part of that. It's more on the front end of that growth strategy. And at that point, our operating ratio in that division will be much better than, you know, what we have seen in our legacy business. And so, therefore, that will drive our decision to grow. If for some reason we didn't get the operating ratio that we expected, in our say variant fleet then we're not going to grow the variant fleet i mean we're not growing it at a 98 we plan on growing it at a really healthy operating ratio in return and we think we'll be there as we move into a growth phase so just to clarify then you mentioned maybe not improving year over year in the second quarter can i don't know if there was anything special other than just a strong market continuing in the third quarter if you're talking low 90s by back half can
spk02: Can we presume by then that third quarter you're seeing year-over-year improvement?
spk07: I think we'll see sequential improvement. I think we'll see sequential improvement from quarter to quarter as we get more trucks invariant, as we get our rates layered back in and dedicated. And so sequential is what I'll commit to. All right. Thank you. Thank you.
spk00: Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Eric Fuller for closing remarks.
spk07: All right. Well, I don't have anything else. I really appreciate the time and look forward to doing this again in a quarter. Thank you.
spk00: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your evening.
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