U.S. Xpress Enterprises, Inc. Class A

Good afternoon. My name is Devin, and I will be your conference operator today. At this time, I would like to welcome everyone to the U.S. Express Enterprises, Inc. Third Quarter 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star and then the number one on your telephone keypad. Matt Garvey, you may begin your conference.

Thank you, operator, and good afternoon, everyone. Welcome to the U.S. Express third quarter 2022 earnings call. Eric Fuller, U.S. Express's president and CEO, will lead our call today, joined by Eric Peterson, our CFO, who will discuss our financial results. Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they're subject to a number of risks and uncertainties that can cause actual results to differ materially. These risk factors are described in US Express's most recent Form 10-K filed with the SEC. 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 helpful 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 on the Investor section of our website. We have 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. And with that, I would like to turn the call over to Eric Fuller.

Thank you, Matt, and good afternoon, everyone. Today, I would like to provide an update on our realignment plan, discuss high-level results across our business, and following Eric Peterson's financial commentary on the quarter, I'll provide our outlook for the fourth quarter. Last month, we announced a significant realignment plan designed to improve operating profitability and cash flow, as well as reduce balance sheet leverage. At that time, we also announced an estimated $25 million in annualized cost reductions. We've already taken the actions to drive this cost out of the company, and we'll begin to see the benefit to our earnings in the fourth quarter. Since that time, we've identified an additional $3 million in annualized costs that we will begin taking out of the business in the fourth quarter. Eric Peterson will provide more detail on those costs shortly. While our realignment plan has allowed us to take significant costs out of our business, it was really designed to allow us to get back to the basics of trucking, focusing on blocking and tackling, and delivering freight for our customers at a high service level and then a cost-effective manner. During the quarter, we hosted more than 100 people, including key customers, at our Partnership Customer Summit here in Chattanooga. It was great to spend time in person with our customers, understanding their evolving needs, and updating them on the value proposition of U.S. Express. Feedback from the summit was positive, and we look forward to deepening our customer relationships over the coming quarters. Since we announced our realignment plan, we have had constructive conversations with several of our top customers who are excited about the direction of the company. Their sentiment is high, and our back-to-basics message is resonating well. As a reminder, our customer mix is heavily focused on industry-leading companies in defensive segments of the economy, including discount retail, consumer non-durables, and retail groceries, which positions us well in the current market. Many of our top customers have been with us for 10 years or more and used more than one of our service offerings. Our business development team has proactively added new logos to our customer base throughout the year, and we're excited to successfully support these new customers and demonstrate the value of partnering with U.S. Express. Turning to our truckload segment, we generated truckload revenue net of fuel of $402 million, an increase of 11% year-on-year. The increase in revenue is from a combination of an increase in total truckload rate per mile and 715 additional tractors compared to the third quarter of 2021. The tractor growth was primarily in our OTR fleet, but we also saw growth in our dedicated business. In the past, we spoke about the importance of growing our overall fleet size to improve our financial performance. However, with more than 700 additional tractors combined with our recent realignment announcement and associated cost takeout initiatives, we'll be focused on improving the mix and profitability at our current fleet size. Turning to our OTR division, as a reminder, During the third quarter, we realigned our entire OTR operations along with our brokerage business under Justin Harness into our newly created Highway Services Division. Justin was instrumental in turning around the financial performance of our dedicated division over the previous 18 months and has hit the ground running in his new role focused on getting back to the basics of trucking. and improving overall utilization, which is the key to improve truckload operating results. In the third quarter, we made progress driving more accountability within our OTR fleet, which included improving overall driver availability, lowering our percentage of empty miles, increasing our service levels for our customers, and retaining the higher performing drivers. Our ability to source qualified professional OTR drivers has improved, and combined with our plans to hold our fleet size steady, we expect to improve the overall quality of our OTR professional drivers in the coming quarters. Finally, with increased driver availability, we need to book more freight to see further improvements in utilization. In terms of mix, We were successful in adding more contracted loads to our network in the quarter, however, not at a fast enough pace to keep up with our truck count growth in the quarter. Therefore, our mix to spot the contract rate was consistent with the second quarter of 2022, and overall OTR revenue per mile declined 2.7% sequentially. Our back-to-basics approach has been well-received by our customers and is crucial to winning more contracted business. which we expect to make continued sequential progress in the coming quarters. Turning to dedicated, our dedicated division continues a strong execution in the quarter with exceptionally high service levels for our customers. Interest in our dedicated offerings continue to grow, and we are staying close with our customers to identify additional opportunities where we can service them at a high level while maintaining our current margin profile and providing attractive careers for our professional drivers. We continue to see opportunities to modestly add tractor count and dedicated, which would be accretive to our overall truckload earnings. We see incremental opportunity to improve margins and dedicated through responsible growth, modest improvement in utilization, and lower driver turnover. Turning to brokers. Our brokerage segment generated revenue of $75 million, a decrease of 17% compared to the third quarter of 2021. The decline in revenue was due to lower overall load count year over year, primarily due to prioritizing freight allocation to our asset-based fleet, and consequently, brokering out less freight. However, this segment once again benefited from lower capacity acquisition costs due to the stock market conditions, which contributed to a second consecutive quarter of 20% plus gross margins. Given that we are targeting flat sequential fleet growth, if we continue to add more volume to our overall network, it will be accretive to the top line in brokerage. We want to grow our brokerage segment, however, We're only going to do that in a profitable manner, and we continue to target a mid-90s OR in this business in the quarters ahead. And with that, I will turn the call over to Eric Peterson.