USA Truck Inc (USAK) 2021 Q1 法說會逐字稿

Good morning and welcome to the USA Truck First Quarter 2021 Earnings Conference Call. (Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Mike Stephens, Senior Vice President, Finance, Strategy and Investor Relations. Please go ahead.

Thank you, Sherry. Good morning and welcome to USAT Capacity Solutions First Quarter Earnings Conference Call. Joining us this morning from the company are James Reed, President and CEO; and Zach King, Senior Vice President and CFO. We thank you for joining us today.

In order to help you better understand USAT Capacity Solutions and its results, some forward-looking statements could be made during the call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risks. For a more complete discussion of factors that could affect the company's future results, please refer to the Forward-Looking Statements section in the company's earnings press release and the company's most recent SEC public filings.

In order to provide more meaningful comparisons, certain information discussed on the conference call, including non-GAAP financial measures, could be -- or as outlined and described in the tables in our earnings press release.

I'll now turn the time over to James.

Great. Thanks, Mike, and good morning, everyone.

The first quarter performance at USA Truck is nearly a carbon copy of what occurred in the last 2 quarters that we have reported. It was a record quarter in the history of the company as our team delivered the best Q1 adjusted operating income and adjusted earnings per share in our history. We really want to act like we've been here before. This team has set forward a self-improvement path, has relentlessly pursued that path and is now delivering on the vision we laid out together.

What we are seeing at USA Truck is a self-fulfilling prophecy of what is possible with an aligned culture, willing people and capable operators who know how to execute the business. Winning never gets old, but expecting to win becomes a habit, and we expect this trend to continue.

Let me remind everyone of just a few of the things we have done to get to this point in the company's history and to deliver these historic results.

First, we redefined our operating network. Our once fragmented network has gone through evolutionary changes to maximize yield on a real-time basis. Our proprietary network value model guides our pricing, routing and planning decisions on a daily basis.

Next, we have relearned and retooled our pricing methodology. The lessons learned from the past have been implemented to ensure we always have abundant freight in all market conditions. And we are disciplined about always getting a fair price for our services.

The next point is that we have created a new culture, focused on improving the lives of all stakeholders. Truckers said execution eats strategy for breakfast. And we have found that execution is a cultural phenomenon, and together, execution fueled by culture is an immutable force.

The next point is that we have transitioned to a regionalized network. This is a big deal. Our truckload business is operating in quasi-independent regions, where the operations leaders manage the market and the results. All politics are local, translates to local presence, drives better performance.

Next, we reopened a thoughtful network of repair facilities to lower our operating costs. A redefined and predictable network leads to data-driven decisions to colocate repair facilities in the places they are most needed and where costs can best be impacted. And we have done that with the reopening of Chicago, the opening of Carlisle, the addition of Atlanta and the acquisition of our Waxahachie, Texas facility. We remain thoughtful in our approach, and it is paying off.

We also completely reshaped the management team. And it's sobering to realize the number of changes we made to get the stability and experience we've gotten. No one on the senior leadership team was in their role when I arrived in 2016. Not one person.

The next point is that we have reconstituted our customer base to include cyclical and countercyclical balance in the system. We now have complementary seasonal and year-round business partners who round out a revenue stream and service network that resembles the best in the business. We are more consistent and more predictable in our service offering because of this intentional shift.

The next point is that we have completely overhauled our technology platforms. Our TMS, optimization, driver app, load boards, ELD, in-cab communications, in-cab recorders and the interconnected application beds that we have created are all new or completely retooled in the last 4-plus years. This makes us more efficient, gives us better data and drives automation and speed in our decision-making.

And finally, we have improved logistics efficiency measures dramatically through technology, process and tools and, most importantly, our people that have made for a business that performs at best-in-class levels of execution.

My point in summarizing just some of the ground that we have already tried is to say that our results are not accidental. They are not solely driven by a robust market, but they are the outcome of a thoughtful, intentional, well-planned and now well-executed plan to create a market leader. This is just the beginning. Today, we will offer updates on the market dynamics and segment performance in the quarter; our progress in our self-help transformational initiatives; and finally, on the outlook.

I'll now turn the time over to Zach to discuss the financial results. Go ahead, Zach.

Thank you, James. We continue to make progress on the initiatives we have outlined on our prior calls of continuously optimizing our network to maximize base revenue per tractor per week and increasing our USAT Logistics segment load count. Our Trucking segment utilization slid back slightly, primarily related to the weather events that occurred in February and our strategy to transition more trucks to our dedicated business unit as our dedicated business unit utilization is approximately 10% less than our Truckload business unit. However, the transition of our trucks to our dedicated business unit should provide some stability in our operating efficiencies over time.

If you'll please turn with me to Slide #3, we'll do a brief review of our financial results.

Base revenue was up 28%, excluding fuel, and consolidated quarterly operating revenues came in at $158.5 million, which represents a 25% increase year-over-year.

Consolidated adjusted operating ratio for the quarter was at 95.6%, down from 101.7% in the prior year. This was primarily driven by improvements in our base revenue per mile within our Trucking segment, which was driven by network optimization and some market uplift, the increases in our -- in revenue per load in our USAT Logistics segment while controlling our cost structure.

Our adjusted earnings per diluted share was $0.43.

Turning to Slide #4. Trucking operating revenues before intersegment eliminations increased $9.1 million or 9.7% to $103.1 million. Base revenues, excluding fuel, were up 12.2% to $92.8 million compared to $82.7 million for the first quarter of 2020.

Our Trucking segment generated $3.9 million in adjusted operating income and a 95.8% adjusted operating ratio. The primary driver of these results was a 40.5% increase in base revenue per loaded mile when compared to the first quarter of 2020.

Utilization decreased 14 miles per truck per week or approximately 0.9% for the first quarter of 2021. As I mentioned in my opening statements, a portion of this decrease was related to February weather and a portion was related to our initiative to increase trucks within our dedicated business unit. These rate and utilization outcomes positively affected base revenue per available tractor per week, which increased $591 or 18.3% year-over-year for the first quarter.

Our deadhead percentage for the first quarter of 2021 improved by 160 basis points year-over-year, and the average available tractor count for the first quarter was 1,892, which is a 4.2% decrease when compared to the first quarter of 2020.

Turning to Slide #6, we will review the results of our USAT Logistics segment.

Revenue before intersegment eliminations increased $32.6 million from the first quarter of 2020 or 90.9% to $68.4 million. Our Logistics segment generated $2.5 million in adjusted operating income and had a 96.1% adjusted operating ratio.

Gross margin dollars increased $4.3 million to $8.2 million in the quarter. And gross margin percentage for the first quarter of 2021 was 12% versus 11.1% for the comparable quarter in 2020.

Load count increased approximately -- to approximately 33,100 loads during the first quarter from 32,600 loads in the fourth quarter of 2020, an increase of 1.5% and an increase of 21.4% or approximately 5,900 loads year-over-year. The primary drivers of these results were an increase in revenue per load of approximately 57.1% and a 55.6% increase in purchased transportation cost per load, therefore creating margin percent expansion year-over-year. This market environment drove up our margin per load to $249, up from $146 at last year.

If you'll turn with me to Slide #7, we will highlight some key balance sheet and liquidity measures.

As of March 31, 2021, total debt and finance lease liabilities were $148.3 million.

Net debt was $145.6 million.

And our net debt-to-adjusted EBITDA for the trailing 12 months ended was 2.3x, down from 2.7x in Q4. This represents a net debt decrease of $8.6 million from the fourth quarter of 2020 and a 0.4 turn improvement in our leverage ratio.

The company had approximately $67 million available to borrow under its credit facility as of March 31, 2021.

Looking ahead into 2021, we expect normal-cycle CapEx of $30 million to $40 million.

And with that, I'll now turn the call back over to James to offer more insight into the quarter and our outlook.

Great. Thanks a lot, Zach. So first, I'm going to talk about the dynamics in the quarter, and then I'll go into the segment performance.

The quarter started off strong in a continued robust inventory replenishment cycle and economic recovery. Seasonally and historically, January demand was marginally better than anticipated, while February, as has been noted amongst pundits and peers, was a tough month as weather challenges hit many of our markets. That setback in weather cost us about $0.04 in EPS in the quarter and 35 miles in trucking productivity in the quarter.

March was historic. The combined effect of the weather in February and the capacity challenges related to driver availability resulted in a market that had higher demand related to catch-up required from February and lower relative available capacity. And so March rate per loaded mile was bolstered through repositioning fees and a robust spot market that helped make March one of the best months in a very long time from both the revenue and profitability standpoint.

EDI turndown spiked in March as a result of the market we just described. But we're over 2,000 EDI turndowns per day in the quarter and remain in that same range through April. We still believe the market will remain strong for several quarters due to structural industry-wide capacity challenges that are not quickly resolved. Inventory levels remain relatively low, driver availability remains a challenge, and there does not appear to be a rush yet of capacity into the marketplace. Add to this the impact of the worldwide chip shortage on new truck deliveries, and we think we have a sustained, healthy transportation market for a while.

Now let me talk about the Trucking segment. A major focus for this team has been improving the core underlying asset business that was a hallmark of operational success for the first 20 years of USA Truck's existence. Most of those who follow us know that this business languished for the better part of the decade, which is why we had to implement a self-help revival of the company. We are not ready to declare victory by any means, but we have made an immense amount of progress and now have 3 consecutive quarters with the best performance in the history of the segment.

As Zach noted earlier, many of the core underlying metrics like rate per loaded mile, revenue per truck and empty mile percentage continued to improve in the quarter. One outlier metric was the very slight reduction in loaded miles per available tractor per week, which was affected by both weather and some intentional movement into dedicated and quasi-dedicated businesses Zach discussed.

As we noted in our last release, the dedicated business is an area of intentional expansion as a means to bring long-term stability to the business to sustain consistent contractual business. Those are all great things that typically contribute consistent, predictable profitability as well. Those accounts also typically run fewer miles in a traditional OTR fleet and thereby reduce productivity in terms of miles but should increase profits.

We'd like to update everyone on a few critical observations from the quarter in the Trucking segment.

Network improvements. Our network reengineering has been a work in progress since 2017. We initially defined market areas that we would limit our freight loads to, essentially bringing discipline to a network that previously chased freight without much structure or thought. We have subsequently gone through several iterations that ultimately led in 2020 to the creation of our proprietary network value model. The result of this evolutionary change is a cadence process of managing out the lowest-yielding freight on a daily basis, using that information to bid new lanes that worked toward the highest yields and then executing operationally on those plans.

Fundamentally, we prioritize freight with the best overall characteristics for profitability when considered in the context of the network. That means that price is not always the determining factor in selecting freight. A load that most positively contributes overall to profit is the load we select.

We have seen an increase in yield as a result of this approach, and that all drops to the bottom line of over 6% per load in the last year and a load density per lane improvement of 42% over that same time period. This is also a key driver in improving deadhead and empty miles across the enterprise.

The next point is driver retention. Our driver retention was fantastic in the quarter, better than industry averages and 35% better in absolute terms than last year. It may be the most noteworthy accomplishment we have had in the context of the current marketplace. As we noted last quarter, this is a result of a team that is communicating better, creating driver jobs that lead to happier and higher-performing teams. And as a result, our retention measures have outperformed the industry.

It is true that we are experiencing a historically challenging recruiting environment, and that's why we see our retention performance as a competitive advantage. While others are struggling with retention, ours has improved to our all-time best levels of performance.

Our approach is multifaceted. Our culture is permeating our actions. We have taken specific actions in soliciting and acting on employee feedback using innovative technology and surveys. We've done meaningful and consistent driver outreach, and we have been able to create driver jobs that are desirable and inherently result in better retention.

Next is technology and artificial intelligence in our decision-making. We have discussed in the past our move towards using technology to make optimized tendering and planning recommendations. We deployed the first -- we've deployed this, excuse me, first at our data subsidiary in 2020 and has since tested the tools in the core USA Truck truckload business. We are rolling out the optimizer in Q2 and expect to be fully deployed in the first part of the third quarter. We expect this to have positive impacts on further optimizing yields and improving profitability in this segment.

We have deployed a number of tools that utilize AI in the day-to-day operations of the business. One that we have found to be a distinct competitive advantage in recruiting owner/operators and retaining all drivers is our proprietary internal load board. We call it USAT Driver Connect. This is an entirely automated process technology whereby drivers select, plan and dispatch themselves without any additional intervention. It is a true technology-driven, self-selecting solution that our drivers absolutely embrace. And as of today, we have over 600 drivers utilizing that system.

Finally in this segment, I want to talk about dedicated a little bit more.

We have noted in the last couple of quarters the challenging start-up environment, especially in hiring drivers in the dedicated business. The February weather events disproportionately affected dedicated as those trucks are in position and configured to support specific customers at specific locations. In fact, there was one point where we had 228 dedicated trucks that were not moving at all for about a week's time.

While the quarter was again challenging from a profit standpoint, we remain optimistic and see accretive upside from this business and expect to see that improvement in the current year. It is worth noting that the business grew in truck count by 6% sequentially and 20% year-over-year.

Next, I'd like to talk about our Logistics segment. The Logistics segment continues its march as a high-throughput revenue and margin engine. The first quarter represents the highest-revenue quarter in the history of the segment. We remain committed to growing this business rapidly as we see emerging opportunity in the logistics space, have a highly capable and efficient engine through which to drive that business and see our segment performance as a best-in-class organization with best-in-class results.

Zach already highlighted the key performance indicators from this segment in his prepared remarks, but I would like to add some emphasis to a few noteworthy efficiency gains that continued through the quarter: load count and volume.

Our load count continues to be strong. Q1 volumes were up 1.5% sequentially and 21.7% year-over-year. This is critically important in any market condition. If margin compression is real, and it may be long term, having the throughput to harvest profits is critically important.

Next, USAT Logistics revenue per employee is up another 97% year-over-year. We continue to emphasize this because it is simply astounding. The last 12 months year-over-year growth by quarter have been, starting in Q2 2020, up 33.6%, up 79.8%, up 135.3% and now up 96.5%.

And finally, USAT Logistics loads per employee is up 25% year-over-year. Going back to Q1 of 2019, our logistics load count per employee is up over 64%. Our people, processes and tools are all getting better and better each and every quarter.

The Logistics story is straightforward. Higher revenue per load is being pushed by the market at large, but the team continues to set records in terms of revenue, load count and margin per employee. Even with the high throughput of volumes, the team found a way to expand margins year-over-year. That's a winning formula that we expect to see over and over again in the coming quarters and years.

Let me just offer some brief thoughts on the outlook.

Everything we said about the outlook in our Q4 earnings call remains true. The demand environment remains strong, EDI turndowns are roughly 4x the weekly load capacity of our asset network, we have abundant dedicated opportunities and a clear line of sight that we believe will improve consolidated trucking OR by the end of the year, and we have a best-in-class brokerage business that just gets stronger quarter after quarter and is poised to provide growth to the enterprise.

The toughest headwind remains finding qualified drivers to join our team. But our retention has gone from being a perennial weakness to an undeniable strength.

Pricing has rationalized to reflect the realities of the challenging driver market, much higher insurance costs and driver wage pressures. Customer activity around prices has been unusually robust as customers are scrambling to bid and rebid freight in an effort to secure capacity. Our pricing and volume activity or the number of loads that we bid on was up 64% year-over-year as a result.

We continue to have a full pipeline in traditional asset-based freight, dedicated opportunities and brokerage alike. Pricing pressures remain upward, though we have rerated with all but 2 of our top-tier customers, and those will both be completed and implemented by July. And we anticipate that the actualization of those bids will result in additional increases in our base rate per loaded mile.

Now just in conclusion and referring to Slide 8, we'll update everyone on our 2021 touchstones that were introduced in last quarter's conference call.

The first is Trucking segment OR. We are finding new and innovative ways to improve our segment OR every single day. We see yield improvement yet to come in our bid and network strategy, as outlined previously. We think there are efficiencies to be gained in our asset management, specifically with our trailers. We see real OR expansion as a result of dedicated operational improvements returning to form. And we think there is a significant opportunity in deploying our optimization solution in planning and dispatch, which will happen this quarter. So if you look at the slide, we put a green checkmark right next to these because, well, they're all green.

Now the next one is USAT Logistics load count growth. Our target is 10% annualized profitable load count growth with an internal goal that exceeds that. We deployed what we are calling API pricing in the quarter and see this as yet another competitive advantage versus our competition. Essentially, our team can use AI to auto-price, auto-accept tenders and, using our driver load board, auto-plan and auto-dispatch a truck. This is an incredible innovation that will gain steam as it currently is used with a small subset of our customers. We are actively working to extend this capability to other customers as well.

Next is dedicated growth. Our goal in dedicated growth is 10% truck count growth or more. We are committed to growing our dedicated service offering. Doing so profitably provides a stable profit base from which to grow. This first quarter saw dedicated growth of nearly 20% in truck count year-over-year.

And finally, we want to be the employer of choice. We expect to improve our driver turnover by 10% or more in the year, and our first quarter result exceeded that. It was literally 35% better than the prior year.

So with that, Sherry, those are my prepared comments. We can move to questions now. And then after the questions, I will have some closing remarks. Thank you.

(Operator Instructions) Our first question is from Jack Atkins with Stephens.

Great. Congrats on a great quarter.

Thanks, Jack.

Thanks, Jack.

So James, I guess maybe going back to something in your prepared comments. But when I think about the goals that you've outlined over the last several years, I think a big portion of it has been network optimization, sort of getting the business set up for freight cycles, both good and bad. And when you kind of think about sort of where we are right now just from a freight market perspective, you've got your -- you pick a freight out there. And so do you feel like you've got the network optimized like you wanted moving forward?

And sort of as we think about the -- how the next couple of years play out, obviously it's -- there's a lot of goodness happening right now from a rate perspective and from a demand perspective. But how do you think all this network effort sets you up for when freight markets become a bit more challenging at some point in the future?

Yes, Jack, that's a great question. So we view robust markets like this as the perfect time to upgrade, refine and improve your network. And so you're exactly right. And you've followed us for a long time, so you kind of know the genesis of things.

The first order of business when we got here -- I used to describe our network. It's like a pickup sticks game that was spread out all over the table, and we kind of had to move the sticks and do the best we could with what we had to get as much density as we could in the lane. We have subsequently moved to more and more a value-driven model. And I don't want to go into a lot of details, but I'm glad to, if needed, where we really prioritize what we call Tier 1 lanes, which are market-to-market moves in the markets where we have a presence; Tier 2 lanes, which we have a market presence in either the origination or the destination; and then Tier 3, which take us kind of out of our core market. And so we've been really, really disciplined about managing that process.

Just to give you a specific example in answering your question. As we look year-over-year at the number of loads that we have as primary tenders, contracted loads, we have increased our number of loads that are contracted to us as primary tenders by 14% since Q1 of last year.

So I think in answer to your question and evidence of the good work that our team is doing, we are using this opportunity, not only the rate, I mean, we want to be partners with our customers. We're not trying to be super opportunistic with them. We're kind of reshuffling the deck to get freight that really fits in our idealized networks, and then we're getting more of it. And that's where that bullet point comes from, about 14% increase year-over-year in the number of contracted base freight that's in our system. So I hope that's helpful.

No, it absolutely is. And I guess that's a key point. And this isn't just sort of taking price when you can, this is restructuring the network and fundamentally improving revenue per truck per week, which is sticky, much more so through cycles than just grabbing rate on an upswing through the cycle. Is that a fair way to think about it?

It's an absolutely fair way to think about it. And in fact, we would tell you that we oftentimes don't take the highest-paying freight in designing that network. This network value tool that we use really helps us understand the network effect that a load might have on us. So the impact of the freight characteristics, whether it's drop and hook or how it looks on the pickup or delivery side, what the time slots are, what the average dwell times are in the markets, et cetera, et cetera, et cetera. And so often, we will prioritize a lower-paying load over a higher paying load because of the net effect.

And I'll just add one thing. While I appreciate you asking the question, and you're exactly right that this reflects a lot of progress, we still have some runway. One of the things I tried to mention in the call is, we are working on implementing our optimization tools. And not to sound kind of like a backwards group of folks, but everybody in our industry, the best performers anyway, already have this capability. And so we think by adding in our optimization capability this quarter, it's really going to help us improve that even further.

Okay. That's fantastic. And then shifting gears to Logistics for a minute. Obviously, there's a lot of market tailwind out there right now, but you guys are also working on a lot of company-specific items to increase productivity, and you talked about that in your prepared comments as well. When you look at that 21% load count growth on relatively flat headcount overall, how are you thinking about what's really market share gains versus just overall a strong market backdrop and shippers just desperately needing capacity? I guess I'm trying to figure out what's sticky and what's not as the cycle ebbs and flows within Logistics.

Yes. So I think the best way to answer that is that historically, our contract business with our customers, even in Logistics, well, especially in Logistics, fits almost all contracts on the asset side. And Logistics has been 50% to 60%. And as we look at our data, that hasn't changed in this cycle. So what we are continuing to move is -- more than 50% of it is customer contract business, and we see that as kind of sustained business over time that helps bolster that business case for a long-term play.

Okay. No, that makes sense as well. Last question and I'll hand it over. When you think about operating ratio in the second quarter, obviously you should see some sequential improvement just with normal seasonality. If I look back to 2018, it was in that, call it, 250 to 300 basis points of sequential improvement. Lots of moving pieces this year. Weather was a little bit of a headwind in the first quarter. A lot of repricing has already taken place. How are you guys thinking about what's a reasonable assumption for truckload -- asset-based truckload, operating ratio improvement as we think about first quarter to second quarter?

Yes. I'll take a shot at this and then ask Zach to chime in and maybe give you a little bit better answer.

I don't obviously want to put a marker out there in terms of OR improvement. What we have said historically is that we kind of expect 300 to 400 bps improvement in OR in that business, year-over-year-over-year. And we're still committed to that, and we think that's definitely possible.

Some of the great things that will happen in the quarter, of course, you mentioned that you've got the seasonality. April has started off really strong. And if May, even though we have the Memorial Day holiday, and June, which is historically always robust, stand up to what we think is going to happen, I think the underlying assumption in your question is exactly spot on, it should be very accretive to that business.

And then the other things that we're doing, the self-help initiatives in terms of improving our trailer turns, in terms of implementing the optimization solution, those will probably take another quarter or so to flush through because they'll really be fully implemented in Q3.

And then I did mention just casually in the prepared remarks that we have 2 of our biggest customers whose bids implement 1 in the quarter and 1 just after the quarter. So I don't think we'll see a lot of like native upward pricing pressure. I think our rate will be relatively similar to where it was in the first quarter.

So I'm not trying to dance around your question, but I think you're right. I just don't want to put a specific number out there. Zach, how would you modify that answer?

Yes. No, I would say pretty much the same thing. Whenever you look at our first quarter performance, where our rate was and our utilization, it was impacted by a little bit of weather. But in the first quarter, we started to see some of our initiatives over time start to take hold a little bit. I mean if you look at ops and maintenance, you saw that come down. That was the result of a lot of internalizing of maintenance costs. That's when Carlisle -- the Carlisle shop in the first quarter of '20 versus -- or, sorry, first quarter of '21 versus first quarter of '20 it was fully functioning, and Waxahachie. So you started to see some of those initiatives take hold. I think you'll continue to see that in the second quarter.

But you also have external forces out there, right? I think James made mention to truck availability. You've got -- our fleet is going to be aging. And getting those new trucks into our fleet with some of the shutdowns we've had due to chips or availability of parts. Our fleet may age a little bit, so we may incur a little bit more maintenance costs there. There's just a lot of factors kind of externally that may impact that second quarter number, especially as we try to refresh the fleet.

(Operator Instructions) Our next question is from Jason Seidl with Cowen and Company.

I wanted to focus a little bit on the Logistics segment since there's a lot of extremely strong growth going on there. I'm surprised to see sort of your gross margins up, especially in your 50% contract, I think you said. Can you talk about what's going on there? I think you alluded to some of the productivity measures in terms of that sort of whopping, I think you said, like a 97% increase in revenue per headcount. How long do you think we should see that productivity continue to increase before it starts to plateau? And how should we think about gross margins as we go through the year?

Yes. That was a really great question. So I heard 3 questions there: kind of what happened, how does efficiency look going forward and what do you think for the rest of the year.

So in terms of how we expanded margin, it's a really interesting phenomenon that we see here. And we know the data, and I can tell you by customer, by load where it's happening and how it's happening. But if George Henry, who runs that business for us, were to say anything, he would tell you it's 100% about the people. We've invested just a ton of energy in our organization about improving the culture. And there's this kind of crazy phenomenon in the Logistics businesses in particular where people's comp is often tying to margin creation or to load volume. And people don't always behave the way that you think that they will, and people tend to hit the top tier of their earnings and then they level out. Well, our team has been able to power through that, and it's 100% the power of people. That's one thing I'll say.

The second thing I'll say, and I mentioned this to our Board the other day, USA Truck has become a destination employer for many people in the logistics business. And in the last couple of quarters, we've been able to get some really high-powered talent that has come to us and done a great job bringing us some accounts that has some good margin profile. Nothing crazy but kind of market-plus a little bit. And so if you were to net all of that out, I would just say it's people, people, people, honestly.

I even mentioned this in a prior call, and I won't name who we worked with, but we've been working with a technology platform that has some really, really cool stuff out there. And we have found in certain markets where we have certain levels of density and a specific presence in terms of our history and the capacity base that we actually buy better than some of the automated solutions that are out there. And so we're hugely bought into using technology to increase the throughput, increase the efficiency and certainly increase the profits. But there's an element of people make the difference here, and you got to know when to use one and when to use the other. And so I think George and his team are doing a fantastic job there.

In terms of the margin profile going forward, we've talked a lot in the past about potential margin compression related specifically to the free flow of information in the digital freight brokerages that are out there. I still see that as a real challenge.

And so I would expect, Jason, that margin is going to stay maybe a little bit below what we've put up in the first quarter but not a lot. I think the number on a gross margin level is probably kind of 10% to 12%. Certainly, our internal talk is not that. We do everything that we can to keep the margins healthy and robust. But I just think with the environment, it's probably 10% to 12% for a while till kind of all the players shake out. And that's okay. And the reason it's okay is because it's a supermarket model, right? High throughput, slim margins. You can make a lot of cash and make an -- and we've been doing the math lately, make really good returns on invested capital, really good IRR. So we feel pretty good about that. So I hope I answered your question.

No, no, James, you did. As I look at it, I mean, it looks like this year, you're -- given what you put up in the first quarter, even if we see a little margin compression, you're still probably looking with seasonally at going beyond $10 million in operating income.

And as I look out there in the marketplace now and see some of the private transactions that have been going on in the marketplace, a lot of these logistics companies are selling well in excess of 10x. So when I'm looking at your market cap and I'm looking at what sort of logistics operation you have, there seems to be a disconnect between what you guys are putting up and what's going on in the marketplace. So I'm just trying to get to the bottom of that as an analyst here and try to figure it all out.

Well, hey, I sure appreciate you saying that. I mean -- and you know I can't opine necessarily on the price, but I can opine on my opinion, which is, I guess, redundant in some ways. But yes, I agree with you.

And we have conversations all the time about how big does this need to be to -- in order to rerate us, in order to get credit for just the amazing work that our team is doing. And they are doing a great job, and I really appreciate you recognizing that from a valuation standpoint.

Well, it's interesting because one of the major logistics players on their call the other day said that they've seen multiples as high as 14x in the market, which seems almost on the insane side maybe, but that's just one man's opinion.

I wanted to talk a little bit more -- go back to the truck side of things. You mentioned weather, cost forces. Can you break weather up between revenue and expense? Is that possible?

Yes. I think Zach is probably better positioned to do that, so I'll chime in quickly. Well, he's kind of preparing the numbers there. But from a revenue and expense standpoint, I mentioned that we had -- the one most greatly impacted, our dedicated business.

It was really interesting. I mean there was like a 7- to 10-day stretch where we basically weren't getting any revenue on 228 trucks, which is not our full dedicated business, by the way, but there were specific areas of the country that were just literally shut down. And so of course, that hurt us from a revenue standpoint. But interestingly enough, this is -- while there are material fixed costs related to this business, there's also a lot of variable costs. And so we had some variable cost relief as a result of that.

Zach, are you guys there ready to answer -- address the revenue and expense question?

Yes. We'll take a shot at it, and we can also clarify after the call if we need to.

Whenever we're quantifying the impact of the weather, it looks like, for utilization on our trucks, it cost us about 35 miles per truck for the quarter. And then as James mentioned, I mean, a lot of the costs associated with operating that truck are variable. So maybe we did have a marginal amount of maybe additional winch-outs and things like that. But on the expense side, there probably wasn't a huge expense burden as a result of the weather. Is that enough of an explanation, Jason, for your modeling?

Yes. No, that's perfect. So it's more on the revenue side as we sort of look at it. Last question and I'll turn it over to somebody else here, James and team.

You talked about how you've gone through and really been able to take up your pricing, and then you've hit most of your major customers except for the top 2, and that's going to be in July. So as we clear July, what total percentage of your business would you say has been repriced to current market conditions?

Yes. So as of July, I'd say all of it. One of the unique things that we did last year that we pointed out in our Q3 earnings call, but I don't think we emphasized it enough is that when we -- well, go back to Q2 even.

We made a decision in Q2 of last year when COVID was going crazy and nobody was sure what was going on and rates were dropping. I just kind of joke sometimes in the second day of business school, in your ops class, you learn that when you have excess capacity, you should be willing to sell at variable cost-plus. And so we made the decision last Q2 to keep our trucks running. And when Q3 hit, our trucks -- and you go look, you compare our results to the other truckload carriers' results comparatively Q2 to Q3. We had the best quarter of anybody. And we attribute that to kind of like working out in the weight room. We never let our muscle fatigue. We just kept working.

And so when we got to Q3, we went to our customers proactively and said, hey, look -- and we didn't do it with everybody, but we did it in certain parts of our network that were the lowest performing and not accretive to the business. And we raised prices out of the cycle, and we've done that consistently. And then, of course, we participated in the bid cycle with everyone.

And so as you look at where we sit, I feel like we're in the best position we've ever been in, in terms of our customer relationships are very positive. I don't think anyone feels like we've abused them at all, and we don't feel like they've abused us. It's been very copacetic and very kind of participative.

And then the last 2 customers, Jason, I'm speaking of have been very cooperative even in the process I just described, and they're just going through their annual bid process. And it is a challenge because they were the last 2 to fully rerate, but they're 2 of our biggest, best, most valued customers with whom we have the most enduring relationships. So we're really excited about that.

We do think there's a little bit of upside, Jason, built into the model. So -- and I'll just tell you what it is. As I said, because of the timing of those things, we don't think that's going to impact Q2 very much. But as we look to Q3, we think there's another kind of $0.04 to $0.06 of upside pursuant to that. So 100% of the business will have been rerated at that point, and then we're back into the cycle with our customers that are on annual bid cycles that are kind of Q3 and beyond.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to James for closing remarks.

Great. Thanks, Sherry.

Well, recently, one of my dear friends, who works in the snow sports industry, said, "Last year's SKUs were good for last year's snow." That's how it reminded me of something attributed to Babe Ruth. He said, "Yesterday's home runs don't win today's games." And they are both right. And those sentiments apply in our business. While USA Truck has accomplished much, we still have a lot of upside and need to focus on the future.

I hope we were abundantly clear here today. The market is very good, and that has helped everyone in this space. And we expect it will continue to be strong for several quarters to come.

We also believe that the data supports and that we have clearly demonstrated that USA Truck has accomplished much in executing our self-help opportunities with many opportunities and results yet to come.

Our opportunities for further margin expansion and growth were discussed in this call. We expect our dedicated business will grow and improve margin contribution this year.

We still see pricing upsides in each of our core asset businesses. We have margin upside by deploying freight optimization tools, and that, too, will occur this year. We are having great success in using technology to increase efficiency and profits in our business. Our driver retention is best-in-class, and our Logistics business is among the best in the marketplace.

In short, we see clearly the opportunity to continue our improvement in financial and operational performance as a result across our enterprise for the foreseeable future.

This is a great story that we expect will continue to improve through all waves of the cycle. And we think that's pretty exciting for all stakeholders.

Thanks for your time and have a great day.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.