U.S. Xpress Enterprises, Inc. Class A

Good afternoon, ladies and gentlemen, and welcome to the U.S. Express Third 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.

Thank you, operator, and good afternoon, everyone. Welcome to the U.S. Express third quarter 2021 earnings call. Eric Fuller, U.S. Express's president and CEO, will lead our call today, followed by Eric Peterson, our CFO, who will discuss our financial results. Additionally, Joel Gard, president of Express Technologies, and Cameron Ramsdell, president of Variant, are here to answer questions. Our discussions today include forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to differ materially. These risk factors are described in U.S. Express's most recent 10-K, filed with the SEC, and in the Form 10-Q for the quarter ended September 30th, 2021, which is expected to be filed with the SEC in the next several days. We undertake no duty or obligation to update our forward-looking statements. 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 or 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. As a reminder, a replay of this call will be available in the investor section of our website. We have also posted an updated supplemental presentation to accompany today's discussion, which is available on our website at investor.usexpress.com. We will be referencing portions of the supplement as a part of today's call. And with that, I would like to turn the call over to Eric Fuller.

Thank you, Matt, and good afternoon, everyone. This afternoon, I'll review our third quarter results and provide an update on our digital transformation. On today's call, there are five main themes that I want to discuss. First and foremost, we sequentially grew our overall truck count in the quarter, which is a key inflection point as growth in variant outpaced attrition in the remainder of our OTR fleet. The variant fleet exited the quarter with 1,283 tractors. Our brokerage segment grew revenue 62% year over year, demonstrating its ability to provide expanded capacity solutions for our customers. We made tremendous progress repricing our dedicated portfolio in Q3 and expect the full quarter of higher rates in Q4 to provide improved margins. We remain committed to investing in Variant and Express Technologies to position our company for long-term profitable growth as we focus on doubling revenue over the next four years. Turning to Variant, we continued to grow the tractor fleet in Variant during the third quarter exiting Q3 with 1,283 tractors, which represents approximately 11% growth sequentially, and we remain on track to exit 2021 with 1,500 or more tractors in the variant fleet, which would represent approximately 120% growth year-over-year. Tractor growth in our variant fleet outpaced attrition in the remainder of our OTR fleet, And I'm pleased to report that our overall truck count grew sequentially, which was what we expected coming out of the second quarter. As a reminder, we launched Variant just under two years ago with five trucks and have grown the business to an annual revenue run rate of approximately $250 million exiting Q3. We believe this is a remarkable accomplishment given the macro environment that we have been navigating over those two years. Since the end of the third quarter, we have added close to 100 additional tractors to Variant. Importantly, we have added to our tractor count while maintaining our safety stats, which is a key part of the incremental operating margin improvement in Variant compared to our legacy OTR fleet. We now expect to return to sequential total tractor growth as Variant's growth has outpaced the contraction in the remainder of our OTR fleet. Turning to Dedicated. Last quarter, we discussed addressing price to value mismatches within our dedicated portfolio of business. And I am pleased to say that the vast majority of those mismatches have been addressed, which led to an increase in overall rates across the portfolio of 3% in the third quarter. Our rate exiting Q3 was up closer to 7% sequentially. And we expect to see that rate improvement benefit our operating income beginning in the fourth quarter. These price increases were necessary to pay our professional drivers competitive wages to provide the service levels that our customers have come to expect from us. Looking ahead for this business, we expect the truck count to hold steady during the fourth quarter of 2021 with modest truck growth in future years as we believe our growth opportunities lie invariant from a truckload perspective. We expect the operating margin in the business to improve steadily long-term as we improved both the professional driver experience as well as our cost discipline and dedicated. Turning to our brokerage segment, Express Technologies grew revenue 62% year-over-year to approximately $91 million. More importantly, gross margin was up 450 basis points compared to the third quarter of 2020. The percentage of loads processed on our digital platform increased to 83% in the quarter. We are in the early innings of our transformation within our brokerage segment to establish a scalable and differentiated digital freight marketplace. We believe doing so not only creates a more resolute operational foundation for our entire business, but enables innovation into adjacent business models as deeper engagement with an expanded network of shippers and carriers is realized. In pursuit of these growth initiatives, we will continue to prioritize responsible revenue and loan growth as we work to demonstrate our value proposition to our carrier and shipper partners. As we continue to build out our network density to help ensure broader operational resilience for U.S. Express and our partners, We continue to target growing this business at a roughly break-even OR in the near term. With that, I would like to turn the call to Eric Peterson to discuss our financial results in more detail.