U.S. Xpress shows no marked improvement at Variant
The numbers at the Variant initiative at U.S. Xpress are not getting better.
U.S. Xpress (NYSE: USX) began breaking out performance statistics for Variant — its startup tech-driven truckload company within a legacy truckload company — in the fourth quarter of last year. So far, those numbers are not indicating success for the truckload carrier’s bold move to remake its business.
One selling point for Variant was its unique way of compensating drivers would result in less turnover. But the turnover rate in the second quarter was 150% after coming in at 148% in Q1 and 74% in Q2 of 2021. It then trended up to 81% and 95%, respectively, in the final two quarters of 2021 before blowing out this year.
The size of the Variant fleet continued to grow, standing at 1,889 at the end of Q2, up from 1,691 in Q1. That is now about half the company’s over-the-road fleet, according to the earnings release.
On the company’s earnings call — where no analysts asked questions in a departure from recent presentations — CEO Eric Fuller focused on a consistent theme: The company needs Variant to get bigger to have its fixed cost structure spread out among more trucks and its utilization also needs to improve.
“Continuing to increase our overall tractor count … will help lower our fixed costs as a percentage of revenue and realize better tractor economics over a larger fleet,” Fuller said.
Growth has been ongoing in the third quarter, he added. Variant is up about 200 trucks since the end of the second quarter.
Fuller said the continuing climb of the turnover rate at Variant is due in part by “disruption” caused by reorganization. Variant’s first president, Cameron Ramsdell, was fired late last year.
Utilization, defined as average revenue miles per tractor per week, “has to get back to where it was a few quarters ago,” Fuller said.
The decline in that metric at Variant has been stark. In the first three months of 2021, the first quarter from which data was released, utilization at Variant was 1,828. In the latest quarter, that figure had slid to 1,573. That is higher than the 1,522 recorded for the fourth quarter of last year, but marked a decline sequentially from the Q1 figure of 1,593.
In the slide presentation issued by U.S. Xpress in conjunction with the earnings release, the company outlined several points on what improved utilization can do to the its bottom line:
“Every (approximately) 50 miles of incremental utilization per tractor in our Variant fleets adds approximately 1% to operating margin.”
“We have an opportunity to improve revenue per tractor per week by (approximately) $625 and weekly operating income per tractor by (approximately) $205 by restoring utilization to its prior levels. This would represent annualized incremental revenue of (approximately) $68 million and operating income of (approximately) $23 million.”
Variant also has been touted as being built to provide better safety numbers. The preventable accidents per million miles declined to 7.87 in Q2 from 8.12 in the first three months of the year.
Although the truck count at Variant was higher, revenue rose only slightly as it moved from a first quarter of healthy rates to one where they are declining. Second-quarter company revenue was $87.7 million, compared to $83.5 million in Q1.
Overall, U.S. Xpress revenue was $553.7 million, up from $475 million in the second quarter of 2021. On an operating basis, the company was profitable, posting operating income of $6.46 million. That is down from $8.9 million a year ago but marked a significant turnaround from the first quarter when an operating loss of $210,000 was reported.
But net income was a loss of $554,000, or negative 1 cent per share. A year ago, net income was 37 cents per share. Sequentially, net income was a loss of 17 cents in Q1. Net income was impacted by an insurance claim from an accident that occured before U.S. Xpress returned to public capital markets in 2018.
On the earnings call, CFO Eric Peterson said the size of the claim was $3.4 million.
U.S. Xpress managed to barely eke out a positive operating ratio in its truckload division, coming in at 99.8%, a deterioration from the 97.7% in Q2 of 2021 and a minuscule improvement from the 99.9% of Q1.
But the company’s brokerage unit had significant improvement in its operating ratio (OR). After posting an OR of 100.5% in the first quarter, that number jumped to 93.7% in Q1, which also represented improvement from the 99.8% posted in Q2 of last year. Falling spot rates generally are supportive of the bottom line in truck brokerage operations as capacity can be secured in the declining spot market to fill the obligations of contracted freight booked at a higher number.
Another strong point for U.S. Xpress was its Dedicated division. Average revenue per tractor per week rose to $4,913 from $4,336 a year ago, and $4,709 in the first quarter.
The end result was an OR for the company as a whole of 98.8% and an adjusted OR of 99.5%.
The impact of that claim from an accident several years ago was a factor in the negative-5 cents per share net income figure, which SeekingAlpha said missed forecasts by 9 cents. But the $553.7 million in revenue beat forecasts by $3.34 million.
U.S. Xpress stock closed at $3.29 before the earnings release. It is down 65% from its Oct. 21 high of $9.40 but has gained 19.2% in the last month.
Disclosure: FreightWaves founder and CEO Craig Fuller retains ownership of U.S. Xpress shares through his family trust.
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