Although a cursory examination of some of the figures on the Variant section of US Xpress appears to show a minimal increase in performance, CEO Eric Fuller warned analysts that the best is yet to come.
“Variant is our company’s growth engine, and strengthening its financial results is vital to our long-term success,” Fuller said on Thursday.
The figures that appeared better at Variant were figures that looked excellent at all freight carriers in the first quarter. For example, Variant’s average revenue per tractor per week increased 8.7 percent from $3,740 in the fourth quarter of 2021 to $4,065 in the fourth quarter of 2022, an increase that would have been easily matched or surpassed by other truckload carriers.
Driver turnover, which was always touted as one of the Variant’s benefits, was a stunning 148 percent in the first quarter, compared to 107 percent in the fourth quarter. That 107 percent figure had already marked the start of a downward trend in the second half of the year, which began with solid turnover rates of 58 percent in the first quarter of 2021 and continued until the end of the year.
Safety was also mentioned as a Variant strength. However, the number of preventable accidents per million kilometers traveled increased to 8.12 from 6.82 in the fourth quarter.
At the conclusion of the quarter, Variant had 1,691 trucks, up from 1,555. This represents an 8.7 percent increase and currently accounts for over half of the company’s over-the-road fleet (as opposed to its Dedicated division). On the call, Fuller stated that the increase was disappointing and fell short of expectations. (By contrast, the truck count at Variant increased 21.2 percent in the third and fourth quarters of 2021.)
Variant generated operating revenue of $84 million in the quarter, excluding fuel, according to Fuller on the earnings call. This represents a 17 percent increase over the previous year. Net of fuel, total operating revenue for US Xpress was $464.3 million for the quarter.
Fuller and CFO Eric Peterson were unfazed during the call, saying that modifications made to Variant’s operating model would eventually work.
If Variant had an elevator speech, it would be that it is a technology-driven truckload carrier within a truckload carrier, focusing on the most efficient use of processes for routing, a team-based approach designed to retain drivers far better than the legacy U.S. Xpress (NYSE: USX) business, and with a management team drawn heavily from the technology world, doing its work in Atlanta rather than the company’s Chattanooga, Tennessee, headquarters.
It also startled the globe when the company’s president, Cameron Ramsdell, was fired in early December.
Fuller stated that U.S. Xpress and Variant management spent most of the first quarter examining Variant’s operations “as we transition from an agile startup to a scalable firm” with “a more disciplined management approach on key metrics and earnings growth.”
In response to a question from J.P. Morgan analyst Brian Ossenback, Fuller stated that after Ramsdell’s departure, U.S. Xpress recruited an “internal process engineering team” to assess how Variant was operating.
“We had the team go in and analyze the workload and processes,” Fuller explained. Many of these procedures were redesigned, and management structures were altered.
Fuller specifically said that the “community” established to handle a certain group of trucks underwent structural alterations.
The issue, he explained, is that while much of the workforce was undergoing training on the new processes, some support operations suffered. Fuller notably mentioned drivers’ failure to get their calls returned in a timely manner, which contributed to Variant’s high turnover rate.
According to Fuller, “all of the revitalized communities are now operational, and we had a considerable improvement in turnover in April compared to March.” According to Fuller, the renovated communities that began functioning in February — the first ones out of the box — have seen the most dramatic gains in production.
U.S. Xpress increased its tractor fleet by 144, with 136 of those coming from Variant. However, U.S. Xpress’ overall tractor count has been declining for several years, and the company’s “fixed costs have grown while tractor count has declined, pressuring our near-term financial results,” according to a slide presentation distributed with the company’s earnings.
The total average number of tractors at US Xpress for the quarter was 6,239, up from 6,095. Fuller believes the company has the infrastructure to support an additional 2,000 seated tractors, “which corresponds to an additional $425 million in income.”
Other highlights from the US Xpress earnings report include:
— Fuller emphasized the company’s Dedicated division’s success, which witnessed a 13.33 percent increase in average revenue per tractor per week and a 17.5 percent increase in average revenue per mile. He stated that drivers recuperating from the December-January surge in the omicron variant of COVID-19 had a significant impact on utilization in the Dedicated segment in January.
— For the quarter, US Xpress’ adjusted operating ratio was 99.4 percent. Truckload carriers Heartland (NASDAQ: HTLD), Marten (NASDAQ: MRTN), and P.A.M. Transportation (NASDAQ: PTSI) all had ORs in the 80s for the quarter.
— At US Xpress, the bottom line is: It reported a $200,000 operating loss, compared to an $8 million operating profit in the first quarter of 2021. It reported $2.8 million in adjusted operating income and a loss per diluted share of 2 cents. According to SeekingAlpha, the 2-cent loss was only 1 penny worse than consensus predictions.
