U.S. Xpress: ‘Inflection point’ reached with over 900 carriers carrying Variant brand

Truckload carrier is now operating two infrastructures, adding to costs, but change is coming, says CEO Fuller

Photo: U.S. Xpress

U.S. Xpress’ (NYSE: USX) first-quarter earnings release and subsequent conference call with analysts gave CEO Eric Fuller an opportunity to start putting some numbers on the impact of its Variant initiative, a truckload carrier inside a truckload carrier. 

One number that was not released for Variant: an operating ratio. But for what is believed to be the first time since the tech-driven alternative to U.S. Xpress’ legacy business was announced last year, a figure on mileage was provided.

Variant’s first-quarter utilization was 1,815 average revenue miles per tractor per week, the company said. But utilization if weather-impacted February was stripped out was 1,864 miles. Other unspecified operating metrics “held stable,” Fuller said on the call Thursday, according to a transcript provided by SeekingAlpha. 

Fuller said on the call with analysts that Variant’s business so far has a large exposure to Texas. 


Comparisons with the company’s truckload operations as a whole have some inconsistencies because the companywide figure without February included was not disclosed and Fuller’s comments indicated that Variant may have been hit harder by the weather than the company as a whole. But the over-the-road operations at U.S. Xpress turned in an average revenue miles per tractor figure of 1,715, 100 miles less than the Variant figure. The dedicated division figure was 1,736.

The mileage figures were just one part of a case laid out by U.S. Xpress management on the earnings call that the Variant initiative is continuing full throttle and has begun to hit an “inflection point” where it will make larger contributions to the company’s financial picture.

“As Variant scales through 2021, we believe we will hit an inflection point, whereby Variant’s higher profitability will begin to meaningfully impact total company profitability,” Fuller said in his opening remarks on the conference call.

One place where Variant now can be seen as a financial drag is that even as the tractor fleet at U.S. Xpress starts to skew toward more revenue from Variant tractors — it was 11.8% for the quarter, up sequentially from 9.4% — the infrastructure governing the legacy fleet is still in place. 


As CFO Eric Peterson said on the earnings call, maintenance of that infrastructure is occurring even as the total amount of miles driven at U.S. Xpress is declining as the shift is being made to Variant. Additionally, the dedicated division is getting more selective in its business. 

Peterson said maintenance of the total infrastructure is necessary because the “traditional and digital platforms require different types of personnel … and we made a strategic decision not to downsize valuable personnel for the short term, willing to rehire them in a tight labor market.”

The end result is that the fixed cost per mile at the company was 39 cents per mile for the quarter, according to a chart provided by the company. That is 6 cents per mile more than a year ago. But that is a transition cost, Peterson said, describing it as “temporary but necessary.”

And Fuller said that Variant is at a size now where the fixed cost can start to return to 30 cents per mile. Variant ended the quarter having exceeded its goal of 900 tractors, ending Q1 with 951. When the 900 tractor point was reached, Fuller said, U.S. Xpress believes that a breakeven point was passed and “we were starting to inflect positive from an overall corporate standpoint.”

Although an OR was not given for Variant, Fuller went on to say that if overhead is stripped out of the equation, Variant records an OR about 1200 basis points better than the legacy business. With the 900-tractor mark having been passed — note that is a U.S. Xpress-calculated breakeven figure — “as we grow and scale and take more of that fixed cost and spread it out over more miles … we really get the benefit,” Fuller said.

U.S. Xpress as a whole did record a significant improvement in truckload OR, improving 150 bps to 98.2% from 99.7%. However, those numbers pale in comparison to ORs turned in at other truckload carriers like Marten (NASDAQ: MRTN) and Heartland Express (NASDAQ: HTLD), both of which turned in sub-90% ORs in the first quarter. 

Fuller also fielded a question about the company’s dedicated division, which lags many of its peers. Analyst Jack Atkins of Stephens asked Fuller if it was “reasonable to think that U.S. Xpress’ dedicated business can see an operating ratio with an 8-handle on it.”

Returning to a theme he has brought up on other calls, Fuller said that the dedicated division also is being overhauled, with a particular focus on only chasing business that makes sense. 


In the past at U.S. Xpress, Fuller said, rates would be targeted in the dedicated division “but it was always led with the caveat, whatever you do, don’t lose the business.”

There is now a “completely different approach,” he said. A total of about 1,000 trucks in the dedicated division were identified as underperformers, with subsequent instructions to get the business they generated back to a profitable basis.  

“And if it means that the customer is going to put that business out to bid and they can’t meet that requirement, then we are willing to walk away from that business,” Fuller said. “And I can tell you that is a completely different mindset than what we have had in the past.”

He added that many dedicated rates have been renegotiated and will be kicking in this quarter, improving the profitability of that division over the balance of the year. 

Other notable points from the U.S. Xpress earnings call:

— While the company may have exceeded its 900-tractor Variant goal, Fuller said he thought it might end up higher than where it landed. “We were running at a pace that I thought we would probably have more than 1,000 trucks,” he said. But then the stimulus bill was passed, with various forms of benefits, “and we did see a little bit of a falloff in our recruiting numbers once the stimulus payment went out and so that has created a little bit of a headwind,” he said. (Tim Crawford of Tenstreet discussed that phenomenon more broadly on a recent edition of the Drilling Deep podcast.) Fuller said the driver situation “is probably more difficult than anything I’ve ever seen in my entire career, and I envision if we get an infrastructure bill, it’s only going to get worse.”

— Heavy debt loads have long been an issue at U.S. Xpress. But Peterson said debt at the end of the quarter was 2.2 times trailing 12-month EBITDA. It was 4.2 times a year ago. 

Disclosure: FreightWaves founder and CEO Craig Fuller retains ownership of U.S. Xpress shares through his family trust.

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