U.S. Xpress Enterprises, Inc. Class A

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the U.S. Express Enterprises, Inc. Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press star one. Thank you. It's my pleasure to turn today's call over to Mr. Matt Garvey, Vice President of Investor Relations. Sir, please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to the U.S. Express fourth 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 are subject to a number of risks and uncertainties that can cause actual results to differ materially. These risk factors are described in U.S. 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 useful in evaluating our performance. The presentation of this additional information should not be considered an 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 also have posted an updated supplemental presentation to accompany today's discussion on our website at investor.usexpress.com. We will be referencing portions of the supplement as part of today's call. And with that, I'd like to turn the call over to Eric Fuller.

Thank you, Matt, and good afternoon, everyone. Today, I'd like to discuss high-level results across our business in the fourth quarter. What gives me confidence that we are moving in the right direction and following Eric Peterson's financial commentary on the quarter, I will provide our current outlook for the freight market. 2022 was a year of transition for US Express. As we executed our realignment plan, transitioned our OTR operations back to a more traditional model focused on ensuring freight is delivered on time and in a cost-effective manner for our customers, and recently transitioned all truckload and brokerage operations under one leader, Justin Harness. The heavy lifting associated with our realignment plan is complete, and we began to see cost savings in the fourth quarter from the actions we have taken since early September. Overall, I was pleased with the progress we made in our OTR division and with our cost takeout initiatives from our realignment plan. Improvement in underlying metrics, including fleet availability, service level, and utilization give me the confidence that we're moving in the right direction. From a financial results perspective, our spot market exposure more than offset these operational gains and cost savings from our realignment plan. Conversations with our customers continue to evolve. Our back to the basics message and our progress to date continue to resonate well with them and has been instrumental in helping to add some incremental load volume despite the weak freight market. Feedback from our customers indicate that many are still working through some level of inventory destocking. Our pipeline of OTR freight opportunities is extremely robust, and we expect to make meaningful progress reducing our spot market exposure as we navigate through bid season and begin to service new awards. Our customer base is heavily focused on industry-leading companies and defensive segments of the economy, including discount retail, consumer non-durables, and retail grocery, which positions us well in the current market. The value we deliver for our customers is evident from the fact that many of our top customers have partnered with us for over a decade or longer and use more than one of our service offerings. Our business development team continues to proactively add new logos to our customer base, We're excited to support these new customers and demonstrate the value proposition of partnering with US Express every day. Turning to our truckload segment, we generated truckload revenue net of fuel of $397 million, a sequential decrease of approximately $5 million, primarily due to the spot market rates declining sequentially. Consistent with what we said on our third quarter earnings call, we exited the fourth quarter with a fleet that was approximately the same size as that which we exited the third quarter. We will continue to be focused on improving the mix and profitability at our current fleet size. Turning to our OTR division, in the fourth quarter, although peak didn't materialize, we continued to make progress driving accountability through our OTR fleet. Our service levels continued to improve. our percentage of empty miles decreased, and we continue to improve the overall quality of our OTR professional drivers as sourcing qualified professional drivers continues to ease. Exiting the fourth quarter, the structure and discipline has been implemented into our fleet operations, and we are seeing the benefit of this in our current utilization levels. While we still expect some modest incremental improvement to utilization from these efforts, To immediately improve our utilization, we need to add more freight to our network. As I mentioned earlier, our ability to service the freight we do get from our customers at a high level is critical to adding more contracted freight. Turning to our dedicated division. Our dedicated division exited the year with another strong quarter. This service offering continues to resonate well with customers due to its unique value proposition, which includes exceptionally high service levels. As we said last quarter, we want to work closely with our customers to identify additional opportunities where our dedicated offering is a good fit for them. For 2023, we are targeting approximately 2,800 tractors in this fleet, but could increase that depending on customer needs. Turning to brokerage, our brokerage segment generated revenue of $78 million and sequentially performance was similar in the fourth quarter compared to the third quarter. Adding more freight to our network will not only benefit our assets, but should also benefit the top line in brokerage. Our margin performance has benefited from a lower capacity acquisition costs with gross margins of 20% plus for the last three quarters. In addition, margins in the fourth quarter benefited from some project capacity that we provided customers, which helped contribute to our 92 operating ratio in the quarter. In the first quarter of 2023, we could see some margin pressure as we won't have the benefit of this project work. Looking ahead to 2023, I am confident that we are moving in the right direction as our operational issues were concentrated in our OTR division. We spent much of 2022 putting the building blocks in place to correct these issues. As I said earlier, the heavy lifting has been completed with fleet ops and we are seeing improvement in our underlying metrics, including service level, driver availability, percentage of empty miles, and utilization. The market remains challenging, but it will turn, and when it does, we expect our financial results to reflect the work we put into the business in 2022. With that, I'd like to turn the call over to Eric Peterson.