While US Xpress switches back to basics, there is no mention of 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 its supplemental slideshow.

You won’t find it.

Seven weeks after CEO Eric Fuller said on a conference call with analysts that US Xpress would be “taping down” the tech-driven Variant initiative, the complete lack of mention in the truckload’s third-quarter earnings report released Thursday suggests it is to go on With the Variant name and the gray color scheme, trucks are on the road, but that has nothing to do with the future of the company.

This call in early September came in conjunction with the announcement of a major restructuring and numerous layoffs. In it, Fuller said the company was returning to “blocking and attacking.” In its earnings supplement released for the quarter, the company stated that “our ‘back to basics’ message resonates with our customers.”

With Variant out of the way, Fuller’s post-analyst earnings call could be read as a manifesto of sorts for a company that delivered an operating ratio well above 100% for the quarter, though that was marred by a pair of large insurance claims, which reached a bottom line of 25.7 million US dollars.

“We are fully committed to inverting this model and operating at high margin and high profitability,” he said. Referring to the layoffs announced earlier in September, Fuller said the company had a quarter “where we had to do some things to cut costs and really focus on a cleaning quarter.” Changes will result in a company where we can “work with a cleaner income statement” after a few quarters.

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

One major change is that US Xpress plans to keep its fleet size flat. During the quarters that the Variant model was implemented, a larger fleet to reduce overhead per truck was touted as necessary for Variant’s success. Now the fleet size 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 sort of decision to forego growth as a goal that prompted Fuller to further flesh out his plans for the immediate future. “We’re looking at 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 bottom line at US Xpress was an operating loss that would have been a small gain if not for the insurance claims. The company’s operating loss was $22.7 million, which is less than insurance claims. With this loss, the company’s consolidated adjusted operating rate was 104.5%, compared to 98.5% a year ago.

Revenue increased to $547.8 million from $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 to improve utilization, data for which can be found in average tractor miles per week. For its over-the-road division, it was flat at 1,558 miles compared to last year. That’s a slight improvement from the 1,537 in the second quarter.

In the Dedicated division, utilization fell to 1,632 average revenue miles per tractor per week from 1,717 in the prior year. Sequentially, that number had 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 discount retail and grocery stores during the quarter.”

In the supplemental statistics and commentary report issued in conjunction with the earnings, US Xpress said its goal is to regain the company’s OTR utilization of an average of 1,825 miles.

The prospects in the freight market were mostly bleak. Fuller spoke of a “non-existent high season”.

While US Xpress didn’t report driver turnover figures, Variant apparently managed to fix an enduring problem until it got significantly worse. However, Fuller said the company’s “ability to find professional drivers has improved with the weakening market.” With increased driver availability, there will be a need to book more freight and increase utilization, he added.

Fuller also observed the impact of brokers’ role in the trucking business, a perspective that echoed what independent owners and operators have often said about the brokerage community — in other words, the so-called “broker wars.”

Fuller said he expects there will be a reduction in truck loading capacity due to the combination of rising costs and falling rates. And one of the reasons there isn’t a direct correlation between costs and prices — a divergence that was at the heart of an analyst’s question — is the influence of brokers.

“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 more accurately reflect supply and demand. “The brokers really created this dynamic of real supply and demand and created the volatility in the spot market,” he said. “You can see that in the last five to six years in volatility like we’ve never had before.”

The “emergence of many large brokers” is a major reason, Fuller said. “At the end of the day, brokers are looking for what they can buy capacity for and not worrying about what it will end up costing from an equipment perspective.”

That runs into the reality of “a lot of immature carriers” who don’t fully understand their cost base, Fuller said. “And they’re going to keep fighting and probably going out of business, and I think it’s the brokerage market that’s doing that.”

One analyst noted that US Xpress’ decision to go public in 2018 was to reduce its debt burden. But the company’s net debt was reported as $278.7 million in its third-quarter 2018 earnings — its second as a public company. 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 a factor for a possible reduction in debt, he mentioned, among other things, that the age of the fleet at around two years was “in really good condition in terms of age”. The company also expects to reduce capital expenditures and is considering divesting some non-core properties. “There are a number of actions that can be taken to reduce this overall debt figure.”

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

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