Since US Xpress is going back to basics, there’s no mention of the Variant

If there was any doubt that the Variant initiative was dead within US Xpress, just search for the word Variant in the company’s latest earnings release or the accompanying slideshow.

You won’t find it.

Seven weeks after CEO Eric Fuller said on a conference call with analysts that US Xpress would be “shutting down” the Variant technology initiative, the complete lack of mention in the trucking company’s third-quarter earnings report released Thursday suggests that while future trucks will be equipped with the name Variant and the color grey, but that doesn’t matter for the future of the company.

This call in early September was accompanied by the announcement of a major restructuring and numerous redundancies. In it, Fuller said the company was back to “lock and hold.” In the earnings supplement released for the quarter, the company stated that “our ‘back to basics’ message is resonating with our customers.”

Once the variant is eliminated, Fuller’s post-conference call with analysts could be read as a manifesto of sorts for a company that reported an operating rate well above 100% for the quarter despite being impacted by a large $25.7 million in insurance claims that affect the bottom line.

“We are committed to turning this model on its head and operating at high margins and high profitability,” he said. Referring to the layoffs announced in early September, Fuller said the company had a quarter “where we had to do some things to cut costs and really focus on having a clean quarter.” The changes made will result in a company where, after a few more quarters, we’ll have “a cleaner income statement to work with.”

Initial cost savings from the September reorganization were reported as $25 million, but US Xpress said the company identified $3 million in additional costs.

One major change is that US Xpress plans to keep its fleet size unchanged. In the quarters that the Variant model was introduced, it was said that a larger fleet to reduce overhead per truck was needed for the Variant to be successful. Now the size of the fleet should remain unchanged. US Xpress reported that it has 6,648 tractors in its fleet, up from 5,933 a year ago.

It’s this kind of decision to abandon growth as a goal that has prompted Fuller to outline his plans for the immediate future. “We’re looking at the costs and margins and over time we’re going to get this model to a really healthy level and then we can figure out how to go from there,” he said.

The end result of US Xpress was an operating loss that would have been a small profit but for the insurance claims. The company’s operating loss was $22.7 million, less than insurance claims. With that loss, the company’s consolidated adjusted operating rate was 104.5%, compared to 98.5% a year ago.

Revenue was $547.8 million versus $491.1 million. This number includes revenue from fuel surcharges. Excluding the impact of fuel, sales were $477.4 million, up from $451.8 million a year earlier.

During the call, Fuller repeatedly mentioned the need for improved utilization, for which data can be found in average miles per tractor per week. For the truck division, utilization was flat year-on-year at 1,558 miles. This is a slight improvement on the 1,537 registered in the second quarter.

In the Dedicated division, utilization fell from 1,717 in the previous year to 1,632 average revenue miles per tractor per week. Sequentially, that number dropped from 1,704. In its prepared statement released with the results, the company said the decline in dedicated unit occupancy was “due to the shift in customer mix toward more grocery and discount retail outlets during the quarter.”

In the supplemental stats and commentary released along with the earnings, US Xpress said its goal is to return to the company’s OTR usage of an average of 1,825 miles.

The outlook for the freight market was mostly bleak. Fuller spoke of a “non-existent high season”.

Although no figures were provided for driver turnover rates at US Xpress, an enduring problem that Variant appeared to be solving until it deteriorated significantly, Fuller said the company’s “ability to find professional drivers is improving with the weakening market.” Has”. With increased driver availability will come the need to book more freight and increase utilization, he added.

Fuller also pointed to the implications of brokers’ role in the trucking business, a perspective that mirrors what independent owners and operators have often said about the brokerage community — in other words, the so-called “war of the brokers.”

Fuller said he expects truck capacity to be reduced through a combination of rising costs and falling rates. And one of the reasons there isn’t a direct correlation between costs and fees — a divergence that was the focus of a question asked by one analyst — is the influence of intermediaries.

“If you look at brokers, they got a bigger slice of the pie than ever before,” Fuller said.

This growing market share has resulted in transparency and tariffs that better reflect supply and demand. “The brokers created this dynamic of real supply and demand and created the volatility in the spot market,” he said. “You’re seeing volatility over the last five or six years like we’ve never had before.”

The “emergence of a lot of great running backs” is a major reason, Fuller said. “In the end, the drivers see what capacity they can buy and don’t worry about what it ultimately costs from a team perspective.”

This clashes with the reality of “many immature airlines” that don’t fully understand their cost base, Fuller said. “And they’re going to keep struggling and probably going bankrupt, and I think it’s the brokerage market that’s going to do that.”

One analyst noted that US Xpress’ decision to launch its IPO in 2018 was to reduce its debt burden. But the company’s net debt was listed in its third-quarter 2018 results — its second as a public company — at $278.7 million. The company’s net debt was reported at $341.8 million in its most recent quarterly report, up from $313.2 million at the end of 2021.

In light of the hike, Fuller was asked about deleveraging: what else can be done?

As an argument for a possible reduction in debt, he mentioned, among other things, that the age of his fleet at around two years is “very good in terms of age”. The company also hopes to reduce capital expenditures and is considering divesting some non-essential properties. “There are a number of actions that can be taken to reduce this global debt.”

Disclosure: FreightWaves Founder and CEO Craig Fuller retains ownership of US Xpress stock through his family trust.

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