U.S. Xpress Enterprises, Inc. Class A

Good afternoon, ladies and gentlemen, and welcome to the U.S. Express Second 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 the call over to Matt Garvey, Vice President, Investor Relations. Please go ahead, sir.

Matt Garvey Thank you, Operator, and good afternoon, everyone. My name is Matt Garvey, and I recently joined U.S. Express as Vice President of Investor Relations. I'm coming over from Teradata, an enterprise software company based in California, and I'm really excited about joining U.S. Express at such an exciting time for the industry. I'm looking forward to meeting with you all in the future. We appreciate your participation in our second 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 investor section of our website through July 29th, 2021. We have also posted an updated supplemental presentation to accommodate today's discussion on our website at investors.usexpress.com. We will be referencing portions of the 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 Security Investigation 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, 2021, as supplemented by our first quarter form 10-Q filed on April 30th, 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 in isolation, nor as 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'd like to turn the call over to Eric Fuller.

Eric Fuller Thank you, Matt. This afternoon, I'll review our second quarter results and provide an update on our digital transformation, which we expect will positively impact our overall financial results beginning in the second half of the year. Eric Peterson will then 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 three main themes that I want to discuss. First, We continue to successfully grow the tractor count invariant, exiting the quarter with 1,160 tractors. Despite the tight driver market, invariance metrics continue to outperform our legacy OTR fleet. Second, Express Technologies, our brokerage segment, more than doubled revenue year-over-year to $96.5 million and processed approximately 75% of its transactions digitally this quarter. And Lastly, we continue to make progress addressing customer pricing in certain dedicated accounts through the second quarter related to driver and capacity cost inflation. Turning to Variant, I am pleased with the significant progress that we made in the second quarter as we grew the tractor count by more than 20%, exiting the quarter with 1,160 tractors, remaining on track to exit 2021 with 1,500 or more tractors in the Variant fleet. As Eric Pickerson will detail later, we believe the second quarter marked a low point of our total fleet size, and each incremental tractor added to Variant will positively impact total company profitability going forward. Additionally, we launched a second generation of our optimizer in Variant, which incorporates yield and miles into its decision-making. We saw this positively contribute in the quarter as revenue per tractor per week increased almost 20% to $4,000 on 13% fewer revenue miles per tractor compared with the second quarter of the prior year. Variance revenue per mile increased 37% compared with the second quarter of the prior year, while miles per tractor were lower as the optimizer prioritized freight with higher yield in addition to total miles. In the second quarter last year, the Variant fleet was small, and we expect comparisons to become more meaningful as the optimizer's features mature and Variant's fleet count grows. Including revenue protracted per week, we now have five key metrics where Variant is performing better than the legacy OTR fleet. We continue to estimate that Variant delivers an operating ratio 1,200 basis points better than a legacy fleet, which is comprised of approximately 700 basis points improvement due to improved revenue protracted per week, 300 BIPs improvement due to lower turnover, and 200 BIPs improvement due to reduced claims expense. Although you can't see the progress that Varian is making in our second quarter consolidated financial results, Due to the reduction in overall fleet size, from my perspective, it is incredibly exciting to see Variant continue to achieve every milestone that we have laid out to measure the division's success. We expect Variant's growth to overtake the legacy OTR attrition in the second half of the year and lead to higher overall tractor count and margin expansion as we exit 2021. Turning to brokerage, The second quarter revenues more than doubled year-over-year to $96.5 million, and our operating ratio improved 920 basis points to 99.8%. In the near term, we are happy to grow revenue at a roughly break-even OR as we build out our network density and demonstrate the value proposition of increased transportation solutions with our customers. In the second quarter, Brokerage processed approximately three-quarters of its transactions digitally, compared to 22% in the second quarter of the prior year. Our improved results were driven by operational gains as we handled freight more efficiently over our digital platform, combined with a more balanced mix of spot versus contract pricing. It's important to note that we are committing ourselves to an aggressive, yet methodical growth strategy within our brokerage segments. Over the last few quarters, we've been hard at work reestablishing a more resilient foundation for our brokerage segment so that our investments in technology and innovation can lead to compounding success. Significantly improved results in the last four quarters are indicative of these resiliency efforts taking root. Currently, we've been developing our brokerage model of the future from the ground up by utilizing technology designed to not only improve the efficiency of our operations, but also to provide a superior level of service for both our carrier network and shipper customers. We provide our carriers with freight exclusively customized to their locations, hours of service, and preferences, while also providing them with business enablement tools that go beyond the usual transactional freight acquisition toolset in a traditional broker-carrier relationship. This is a key differentiator in helping us build out our carrier network density as we rapidly scale our brokerage segment. The rapid growth in our brokerage segment is not only benefiting our marketplace and third party carriers, but is also a key component to our broader digital strategy. As brokerage scales digitally, we can further optimize freight selection across our assets and provide enhanced transportation solutions for our customers, which will help deepen our relationships. Turning to dedicated, through the second quarter, the team continued to successfully address pricing in certain dedicated accounts, which led to an overall increase in rate across the portfolio of 3%. Although we have made progress to date, there is still more work to be done. We will continue to address price-to-value mismatches in our dedicated portfolio by either raising rates or exiting those accounts. Historically, we focused too hard on maintaining business even if it was zero margin, but we will no longer be doing that. With our variant fleet growing and demonstrating continued success, we can move underperforming tractors from dedicated into variant, a lever that we didn't have in the past. And now, let me turn the call over to Eric Peterson for a review of our financial results.