USA Truck Inc (USAK) 2020 Q4 法說會逐字稿

Good morning, and welcome to the USA Truck Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note that 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, Rob. Good morning, and welcome to USAT Capacity Solutions Fourth 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 of the company's earnings press release and the company's most recent SEC public filings.

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

I'll now turn the time over to Zach.

Thank you, Mike. We want to thank everyone for joining us on the call today, and we appreciate your interest in and support of USA Truck. As we stated in the earnings release last night, this was the best quarterly adjusted earnings per share in company history. This is a direct result of the initiatives that we have laid out in past calls to increase our trucking utilization, grow our dedicated service offering, continuously optimize our network and increase our USAT Logistics segment load count.

While we still expect to improve on these initiatives in future quarters, the fourth quarter showed improvement in all of these areas. However, the fourth quarter was not without challenges as the recruitment of professional drivers continued to tighten throughout the industry. Increasing governmental regulation, COVID-relating driving, school closures and increased governmental unemployment benefits have all impacted our recruitment of drivers.

These constraints make it difficult to recruit drivers, however -- but they do drive up price in the marketplace, positively impacting both of our segments by increasing our base revenue per loaded mile in Trucking and our revenue per load in USAT Logistics.

If you'll please turn with me to Slide #3, we'll do a brief review of our financial results. Consolidated base revenue was up 36.3% excluding fuel, and consolidated quarterly operating revenues came in at $158.8 million, which represents a 28% increase year-over-year.

Consolidated adjusted operating ratio for the quarter was 93.2%, down from 102.8% in the prior year, primarily driven by improvements in our base revenue per mile, loaded miles per available tractor and our deadhead percentage in our Trucking segment and increases in revenue per load in our USAT Logistics segment, while controlling our cost structure. Our adjusted earnings per diluted share was $0.70.

Turning to Slide 4. Trucking-based revenues, excluding fuel, were up 20.3% to $96.4 million compared to $80.1 million for the fourth quarter of 2019. Operating revenue before intersegment eliminations increased $12.1 million or 13.2% to $104.3 million. Our Trucking segment generated $6.7 million in adjusted operating income and a 93% adjusted operating ratio, which is the fourth -- which is the best fourth quarter Trucking operating ratio in over a decade.

The primary driver of these results was a $0.39 increase in base revenue per loaded mile when compared to the fourth quarter of 2019, and this is a result of our network and pricing initiatives, as we discussed on prior calls and in improved market.

Utilization increased 46 miles per truck per week or approximately 3% from the fourth quarter of 2019 related to our continued regionalization strategy. These rate and utilization outcomes positively affected base revenue per available tractor per week, which increased $684 or 21.6% year-over-year for the fourth quarter.

Our deadhead percentage for the fourth quarter of 2020 improved by 80 basis points from the third quarter. The average available tractor count for the fourth quarter of 2020 was 1,907, which is a 2.2% decrease when compared to the fourth quarter of 2019. This truck count decrease is a result of continuing to moderate our fleet to improve asset utilization within our optimized network.

Turning to Slide #6, we'll review the results of our USAT Logistics segment. Revenue before intersegment eliminations increased $31.7 million from the fourth quarter of 2019 or 94.3% to $65.3 million. Our Logistics segment generated $3.4 million in adjusted operating income and had a 94.6% adjusted operating ratio. Gross margin dollars increased sequentially by $3.5 million to $9.3 million in the quarter. Gross margin percentage for the fourth quarter of 2020 was 14.3% versus 11.5% for the comparable quarter of 2019.

Load count increased to 32,600 loads during the fourth quarter from 32,100 loads in the third quarter of 2020, an increase of 1.5% and an increase -- increased by 26.2% or approximately 6,800 loads year-over-year. The primary drivers of these results were an increase in revenue per load of approximately 53.8% and only a 49% increase in purchased transportation cost per load. This market environment drove our margin per load up to $286 per load from $150 per load year-over-year.

If you turn with me to Slide 7, we'll highlight some key balance sheet and liquidity measures. As of December 31, 2020, total debt and finance lease liabilities were $154.3 million, and total stockholders' equity was $84.7 million. Net debt was $154.2 million, and our net debt to adjusted EBITDA for the trailing 12-months ended was 2.7x, down from 3.5x in Q3. This represents a net debt decrease of $16.7 million from Q3 of 2020 and a 0.8 turn improvement in our leverage ratio.

The company had approximately $56 million available to borrow under its credit facility, as of December 31, 2020. And given the challenges of 2020, we were able to pay down approximately $24.4 million in total debt and finance leases, while taking delivery of 189 new tractors during the year.

Looking ahead into 2021, we expect normal cycle net CapEx of $40 million to $50 million.

And with that, I'll turn the call over to James for a discussion of business and current initiatives.

Great. Thanks a lot, Zach, and good morning to everyone. This quarter represents a higher watermark, thus far, in the history of the company in terms of, not only adjusted earnings per share, but also in terms of intersegment collaboration, teamwork, cultural transformation and the culmination of a great group of people pulling in the same direction.

I'm reminded of the great Ralph Waldo Emerson quote, "that which we persist in doing becomes easier, not that the nature of the task has changed, but our ability to do has increased."

The team here at USA Truck has bought into the winner's mindset required to set and keep a consistent cadence and a rhythm of the business. And in so doing, has executed the self-help initiatives we have now discussed for over 3 years. It's a bit anticlimactic. We set the right path. We are executing on the initiatives we laid out, and the results have followed. Just as Emerson observed, we see things getting easier in a sense as we follow the self-help playbook. Our decision makers are emboldened and empowered. Our teams are delivering consistently improving results, the segments are working together seamlessly and we have become more nimble and results oriented.

Before we begin, we want to give a brief update on our COVID-19 response and what we're doing in the realm of diversity and inclusion. Our COVID-19 response remains on track. The USA Truck team is mostly working remotely. Travel is still limited to business-critical, and our semester view of on-site work arrangements has the next return to the workday slated for July 5. As we shared last quarter, it relieves organizational and employee stress to be definitive about our plans over a longer time horizon. So our next assessment will be in the early summer.

As we noted previously, our efforts to become even more diverse and even more inclusive in our business are moving forward. In January, our executive team made the decision to formally recognize Dr. Martin Luther King Jr. day as an official company holiday. I am proud of our team for making that important change.

This month, we are celebrating Black History Month with a number of speakers and activities throughout the enterprise. We're taking diversity and inclusion at USA Truck very seriously, and you should all expect even more from us in the future. Our ultimate goal is to be a leader in industry in terms of fair, equitable and equal treatment and inclusion of all people.

Now let's get started. We have updates today on market dynamics and segment performance in the quarter, our progress in our self-help transformational initiatives and finally, I'll speak a bit about the outlook.

The fourth quarter demand dynamic was a continuation of the robust back half of the third quarter, and the demand profile was a step function higher than the COVID-19-related slowdown we witnessed earlier in the year. This step function was driven by traditional seasonality that was bolstered by a second wave of COVID-19 surge demand. EDI turndowns at USA Truck in the quarter were 8x higher than the fourth quarter of 2019, partly owing to the strong market and partly owing to our improved bid execution, which has substantially increased the number of loads that we are tendered each and every day. Demand remained consistently strong throughout the quarter, and the financial results within the quarter were relatively consistent month-over-month.

The fourth quarter had 3 of the 4 best revenue and profitability months of the year at USA Truck. We believe the market will remain strong for several quarters because of structural industry capacity challenges that are not quickly resolved.

Inventory levels remain low, driver availability remains a challenge for all the reasons we noted in our release and there does not appear to be a rush of capacity into the marketplace. This remains a significant 2-dimensional market play. Supply and demand dynamics support a strong trucking market and the key economic drivers of this dynamic are not quickly resolved.

Now I'd like to talk about the Trucking segment. As we look at our fourth quarter results in the Trucking segment, everything we said in the third quarter can be copied and pasted. The third quarter was the best third quarter OR in over a decade. And now on the heels of that result, this fourth quarter is the best fourth quarter OR we've seen in the last 15 years. The quarter was simply a continuation of what we did so well in the third quarter, a direct result of our self-help initiatives.

Zach reviewed some of the signposts of progress that we consider the normal indicators when you look at Trucking, in terms of base revenue per tractor, base rate per loaded mile, loaded miles per available truck and deadhead percentage. So I won't go into any more details on those, but refer to the release and Zack's comments for more information.

Several key initiatives in the Trucking segment are worth noting. Regionalization, I think sometimes it's easy to forget that we began regionalization in 2020. The regionalization strategy we deployed in the year continued to gain momentum throughout the end of the year and has affected all of our key operating metrics. Through our efforts to regionalize, we have recognized higher utilization, better deadhead miles, lower maintenance costs and higher driver retention rates. Our regional operators were able to bring regionally optimized strategies to bear.

In some cases, building shuttle operations, in other cases, executing on short haul and local opportunities and yet in others, working with customers to build out denser local networks that drove better service for the customer and densification for USA Truck.

This team has adopted a rigorous, data-driven, daily approach to managing all of the normal trucking operating metrics in addition to a few less obvious ones. Our discipline resembles what one would expect to see at some of the best companies in the world, and that is a direct reflection of the experienced team we have assembled.

Intersegment collaboration between our Logistics business and our Trucking segment reached an all-time high, yet again. This phenomenon is expected by most asset companies that enter the non-asset space, but the intersegment collaboration at USA Truck -- excuse me, the intersegment collaboration has proven elusive for most. We believe our success here at USA Truck is more a statement about the culture of collaboration, nurtured by our leaders than a fundamental construct of the business.

During the third quarter -- or excuse me, during the fourth quarter, we averaged just 3% of our truckload business in the spot market. But we were able to access the spot environment through a collaboration with our Logistics team, whereby Logistics customer freight moved on USA Truck assets. It made up 12% of the truckload business, excluding Davis and dedicated. This created a margin upside, while supporting customer commitments in our Logistics space that was almost entirely supported by our owner operators in the fleet. It was a true win-win.

Our pricing discipline is worth noting as well. As evidenced by our high number of tenders and high number of EDI turndowns, it is clear that our pricing and network strategy, borne of the learnings from past challenges has succeeded in providing access to network-rich freight opportunities, abundant optionality in selecting freight and more certainty in execution.

As noted earlier, we actually only had a small percentage, about 3% of our freight on company trucks in brokered freight. By far, the preponderance of our business was customer contracted freight in our network.

Driver retention is another item I'd like to touch on. It improved to the best levels in 5 years. For the quarter, driver turnover was under 80%. We'd love to say that this is a result of a more thoughtful and comprehensive retention effort, which it may be, but more than anything, it's a signal of a culture and full synchronicity. Our people are communicating better, our teams are happier. And as a result, our retention measures have outperformed the industry.

And finally, dedicated. In the third quarter, we noted that our dedicated OR had slipped as a result of the many start-ups during the year. Dedicated truck count is up another 27% year-over-year and is a great growth engine that is vital to our long-term success. The challenge remains finding drivers to seat these trucks. We have over 150 additional contracted trucks that we are working to actively seat today. Our long-term view remains that dedicated needs to be 50% of our asset base.

Now let's move to the Logistics segment. The Logistics segment is a high-powered revenue engine that we will depend on for future growth. Now that we have been able to get enough throughput to sustain profitability, we need to grow this invested capital-friendly business rapidly.

In the quarter, our revenue per load increased to over $2,000 per load, a contextually high number. It is more typically in the $1,800 range, historically, but has been much lower, the last 2 years. The health of the market was helpful, and we expect it to moderate, a bit, going forward.

The gross margin percentage story is fantastic. Our team has been benchmarked against some of the automated solutions that are available in the marketplace. In fact, we use some of them and routinely buys better than the marketplace. And then, of course, load count and volume, which we've talked about for the last 3 quarters.

We continued the trend that we've seen over the last several quarters in putting up near record highs. Load count was up sequentially and was up 26.2% year-over-year. Driving volumes through this model will be the express intent of our team in Logistics going forward.

We believe that even if margins are compressed, as they were in the historically challenging 2019 and first half of 2020, then we need enough volume to drive fixed cost coverage and incremental contribution dollars, and we'll do that through increasing our load count and volume.

We want to share what we believe are some amazing results from our team. They get better every quarter. The first one is, USAT Logistics revenue per employee is up 152% year-over-year and every month, in the fourth quarter, saw base revenue per employee over $225,000 in the month for the first time in our history.

The second point is that USAT Logistics loads per employee is up 35% year-over-year. So their capacity for throughput, individually, has increased.

And third, each month in the quarter, it was one of the 3 highest revenue months in the history of the segment. It goes without saying that the fourth quarter of 2020 was the highest revenue quarter in the history of the Logistics segment. We kind of joke about run rating around here, but that's a near $250 million run rate.

Let's recap. Logistics-based revenue grew in the quarter and had the 3 highest revenue months in the history of the business. Margins were up, revenue per load went higher than expected, while improving revenue and load per employee efficiency improved 152% and 35%, respectively.

Just as we did in the last 2 quarters, we improved execution and lowered costs significantly, both year-over-year and sequentially. The discipline and cadence of this business has us pushing for significant growth going forward. Scaling this model can be highly accretive with minimal capital investment.

Now I'd like to give you an update on our progress on transformational self-help initiatives. Our view of the original self-help story in the truckload space. We have been consistent in addressing our self-help initiatives since 2017. We are more enthused about our prospects for change now than at any time in the last several years. We have done a ton. We've managed the age of our fleet. We've completed the acquisition of Davis. We closed down high cost facilities, managed headcount aggressively, regionalize the business, lowered our maintenance costs, expanded our dedicated business and supercharged our Logistics business.

We believe this company is well positioned to leverage these improvements in whatever market we face. While the trajectory of our recovery is unknowable, we expect freight will improve further through 2021. Capacity has come out of the market, and the challenges to that are not short-term fixes. We truly are in the midst of a dual threat supply side and demand side resurgence, and we have worked tirelessly to be able to take advantage of it. These factors are all positive for USA Truck.

We remain focused on ways to increase utilization, improve revenue per available tractor and drive profitable Logistics load count growth. The initiatives we outlined in prior quarters are moving ahead and bearing fruit. This presentation marks the final time we'll discuss the 2020-specific self-help initiatives we've shared in the past. Needless to say, 2020 went sideways pretty quickly, but we pivoted, and while many of the touchstones, we laid out, had to be understandably reprioritized, we feel it's just good process to come back to them in this presentation. And I believe you'll find these on Slide 8 in the presentation.

The first initiative is increasing utilization of the existing fleet. As we reported, utilization moved ahead 3% in the quarter year-over-year.

The second is increasing our team presence in utilization. We made an intentional pivot here in light of the pandemic. We continue to focus on slip seat and shuttle arrangements as a direct response to market challenges, and it continues to drive results in overall utilization.

Next is network optimization. All the footwork we did to optimize our network profitability model, the implementation of a cadence and discipline in reviewing and refining the market opportunities and the rigor of approaching customers has paid off. 17.9% base rate improvement in the quarter and a 21.6% improvement in revenue per available tractor per week are remarkable evidence of our commitment to getting the network right.

Additionally, our network density has nearly doubled since we began the work of restructuring the network in 2017. The current market provides an opportunity to uplift and upgrade the network with improved pricing and improved network characteristics. We are actively refining the network, using our proprietary network value model to call the lowest yielding freight in exchange for better options.

Next is growing the dedicated business. As noted earlier, we have done a tremendous job securing dedicated opportunities. Start-ups have proved challenging from both the cost and execution standpoint, but we are confident that this business will return to its normalized operating conditions. And this is important, just that move alone, will be worth 200 basis points of performance improvement to the Trucking segment. Customers want dedicated capacity more than ever, and we have over 150 confirmed trucks in the immediate contracted pipeline. We remain ahead of schedule on this critical initiative.

The next initiative is driver retention. We now are seeing improved driver retention at USA Truck, and we expect that trend to continue. Fourth quarter turnover was under 80%. We have made significant cultural investment into communicating more clearly, more regularly and more positively with our constituent groups. We also believe that the benefit of regionalization in building relationships with drivers is paying dividends.

And finally, driving Logistics load count. We covered this comprehensively earlier. We're just so proud of what this team has accomplished. We are well ahead of schedule on this initiative.

Now let me shift to the outlook. The demand environment remains strong. We continue to see EDI turndowns that 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 market has its challenges. The toughest headwind at the moment remains finding qualified drivers to join our team. There is a trifecta of sorts going on and the Drug and Alcohol Clearinghouse has resulted in over 55,000 drivers being appropriately displaced from the eligible pool of drivers. Schools continue to struggle in light of COVID challenges. Licensing agencies continue to have difficulty renewing licenses. And drivers, in some cases, are electing not to return to driving in light of other available sources of funds.

Pricing levels have moderated in the market to what we would call seasonally normal fourth quarter to first quarter trends. But overall, pricing is beginning to reflect the market realities of a challenging driver market, much higher insurance costs and driver wage pressures. Ours was up just over 10% year-over-year. It was composed half in truckload incentives, and the rest is a result of dedicated mix. And yet, as we analyze the 10-year trend of contract pricing, the trend only reflects an annualized 2% to 3% increase over that time horizon. So we think it's pretty fair.

Now referring to slide, I think it's Slide 9 in the presentation. I'd like to walk -- quickly walk you through the touchstones, we will return to each call for the remainder of 2021. Just to orientate everyone to the slide, the middle is literally the badge backer that every USA Truck employee carries, reminding us of the 3 key results we are working together to achieve in 2020. The right side reflects the specific objectives, all of which have metrics that we are managing internally. And then the left side are the related touchstones that we will discuss with you and update quarterly on our progress.

The Trucking segment OR improvement indicator. As noted a couple of times here today, we plan to see improved Trucking OR year-over-year of 200 basis points or more.

Logistics load count growth. Our target is 10% annualized growth in profitable load count growth with an internal goal that exceeds that amount. Dedicated growth of 10% truck count growth or more in the year -- excuse me, 15% truck count growth or more in the year. We are wholly committed to making dedicated half of our asset fleet. Doing so profitably, provides a stable profit base from which to grow. And then finally, being the employer of choice. We expect to improve our driver turnover by 10% or more in the year, and we will report back on that regularly.

The fourth quarter of 2020 was the best adjusted EPS quarterly performance in the company's history. We said in the third quarter call that USA Truck's best days are ahead and coming quickly, and we meant it. There is still a ton of work to do here. And with the strategy, cadence, focus, execution and people we have in this business, we believe we are finally moving in the industry position we always thought possible. As we have said often, we see this revival as the best transportation story in the industry.

With that, Rob, we'll turn it back over to you to take us into questions.

(Operator Instructions)

And our first question is from the line of Jason Seidl with Cowen.

Congratulations on an impressive fourth quarter. You're slightly above me. I want to talk a little bit about your regionalization effort because I think that's sort of where a lot of the success is emanated from in the Trucking space.

Could you talk about how much you think is left as we go throughout the year? And should we see sort of a step down in the improvement as we lap in the fourth quarter and talk about like sort of where you have the most room to grow, whether you're looking at your deadhead miles utilization, maintenance costs and driver retention?

Yes. So you actually just answered the question for us. But let me kind of take a little bit of license in answering it. First and foremost, we have relatively easier comps going into Q1 and Q2. Last Q1 and Q2 were not particularly good for us, and we were just launching into that initiative.

We obviously talk about this a lot internally. We kind of think we're 75% of the way there in terms of getting our people hired, getting the regional offices stood up, getting our cadence of business going. But each of the characteristics that you hit on are exactly right.

We have opportunities to improve utilization, which we are seeing. We kind of barely touched on it in the call, but we've got a bunch of kind of shuttle operations that we're running that have proven to be really awesome kind of productivity enhancers for us, but they're also fantastic from a driver standpoint, wherein we're kind of meeting loads halfway and taking longer length of haul turns and getting drivers home multiple times during the week. So utilization is certainly one of those.

Maintenance cost remains a big opportunity. One of the things we do, we do a heat map analysis that we update every quarter. And really the ROI that we use, we're not even really thinking about the opportunity cost of incremental utilization. We use maintenance cost as the main driver for our next investment. And so we expect that we'll be identifying a couple of more regional operations that we can add to the network over the next 12 months to help us reduce that over-the-road expense even further.

And then finally, you hit on what's probably the biggest one, which is our driver retention and reducing driver turnover. We just believe -- I talk a lot around here about Maslow's hierarchy of needs and a lot of people don't like to talk about. Once you get past security, safety, food and shelter, everyone wants to be loved, and that L word isn't used a lot in business, but drivers want expressions of affection as well. They want to be -- they want to have personal relationships.

And so as we've seen regionalization really take root, I mean, I said on the call that in the fourth quarter driver turnover was less than 80%. Our January turnover was less than 60%. We just are having exceptional results in the personal relationships that our regionalized leaders are having with our drivers.

Then finally, maybe going beyond the scope of your question a little bit, I would tell you, we still have one region that just kind of woefully underperforms the rest of the regions. And so when you asked -- in asking it, do we think there will be a fall off? I think the acceleration of savings improvement, you're right. That rate of improvement will slow down, but it's still upward into the ride.

And the one region you said is sort of woefully underperforming, is there any particular region -- excuse me, reason for that?

Yes. I mean there are a couple of reasons. One is, it's a tough part of the country to do business in, a lot of people struggle there. The second is, we have some turnover challenges there. And the third reason is, we have some facility challenges. The geography was hard to find the building. So instead of having a co-located maintenance and driver facility, they're separated by about a 10 or 12-minute drive. That sounds trivial. It's a big problem. So we're going to fix that this year, and we expect to see much improved results down there.

Okay. That's makes sense. I have 2 more, and then I'll turn it over to somebody else. James, you talked about getting half your fleet over to the dedicated side. You saw good growth, I think, in the fourth quarter. Talk about some of the challenges in doing that because everybody seems to be going after dedicated in this type of marketplace.

Yes. It's really interesting. So first of all, the challenges are obviously in start up, right? And I'm kind of trying to sort my thoughts here. Let me back up further. One of the challenges that may not be as obvious to everyone is trying to make the decision about where to allocate assets. So I was actually talking to our dedicated leader yesterday, and I was very pleased that he was able to play back to me what I think my job is. And this is what I tell people in the company, my job is to manage culture, to manage asset allocation and to manage risk.

And on the asset allocation piece, when you've got a truckload business that's producing historically high revenues per available tractor, it takes a little bit of -- I don't know if it's really courage, but it takes a bit of commitment to stick to your guns, right? And so we made -- one of the tough parts of managing that is sticking to our guns that this is, in fact, our long-term strategy, which it is, and we reiterate that.

In terms of the challenges executing the business, start-up can be a challenge. We said in our last release, so I'm not too hesitant to mention it here. Again, some of our start-up has been in the dollar store space. Well, that dollar store business is hard because the trucks, it's not drop and hook freight. It's every stick of freight gets touched by the driver. They're unloading the trucks at the facility. So the challenges of starting that up and finding drivers that want to do that kind of work is difficult. That's one.

Two is, in terms of starting up the businesses, you have to secure facilities. You've got to set up your IT. You've got to make a fairly significant upfront investment in -- small as it may be, the infrastructure of these kind of satellite locations. And that costs money.

And then finally, the particulars of each business and the start-up aside, just getting the rhythm of being able to repeatably kind of wash, rinse, repeat that business takes a little bit of time. Now all of that said, we've done this very capably for over a decade. I mean that business typically runs in the high 80s to low 90s. And as we get this new business to that level, which we expect to do this year, we expect it will contribute about 200 bps to the overall Trucking segment. So we're really excited because it's a very clear line of sight to that deliverable.

Zack, did I miss anything?

No. The only thing that I would add is what you said about commitment to the strategy, I think, is important because when you look at those dedicated opportunities, those aren't generally, 1 year you go in and you obtain the business. It's usually a 2-year to 3-year cycle before you obtain it.

So I think that is important that we stay committed to that 50% number that we've laid out a couple of years ago. That was our goal. So I agree with that.

Okay. That's very, very helpful. I wanted to talk lastly about some of your productivity on the Logistics side. I think revenue per employee could be a function of the market at times. However, loads per employee, being up 35%, was a very impressive number. Could you talk about sort of how much is left there? And what role technology might play in helping you move the needle further?

Yes. So this might be a little bit of an underwhelming answer. So I literally was talking to our leader yesterday. And if he were on the call, what he would say to you, it's all about culture. And for a guy like me, that's -- I'm trained as a finance professional. Like that's what I've done for a career. That's a hard answer for me to accept. But in fact, what has occurred is we have had this incredible cultural transformation in the business where we have a cadence in our approach. We have the right reward system setup. We have the right managers leading the business. And it has translated to this remarkable quarter-over-quarter constant improvement in productivity.

Our team, our leadership team, I don't know if I've ever talked to you about this, Jason, but we like to read kind of management books, and I gave him a break this time, and we're reading a non-management book called Boys in the Boat. And I'm from Seattle. It resonates a lot with me. It's about the 1936 U.S. Olympic team, 8-man rowing team that won the gold medal. And they talk in that book about how a boat finds its swing. This is kind of mercurial and almost mythical. Jim Collins talks about it as a flywheel, right? That team has just hit this incredible cadence.

Now that said, what role has technology played? We have partnered, and we've talked about this in the past, with some outside technology platforms that have allowed us to use predictive kind of AI to help us identify when you have recurring capacity options on freight types.

So let me give you an example. We would have a capacity provider who hauls a certain type of freight that has a certain price, distance and freight characteristics, whether it's based on the type of accessorials ahead. We can use that AI platforms to help us match that kind of future customer freight back to that capacity provider in proactive ways.

And so we do that. We have 4 or 5 different things that we've experimented with. We haven't named really any of them publicly other than our FourKites relationship, which we have talked about, which helps us on the track and trace.

So there's nothing really Star Trekky other than our belief around tech is, while everybody has to be a tech company these days, we don't have a big enough balance sheet to finance some of those innovations. And so we have looked to the ecosystem to identify providers that have that kind of tech and leverage our relationships with them. And that's probably all I'll say about that, but it is a really important part to this cadence that I discussed.

I hope that answers your question.

(Operator Instructions)

The next question comes from the line of Jack Atkins with Stephens.

Congrats on a great quarter, guys. I guess if we could maybe dig in for a moment on, James, some of the targets that you laid out in the presentation there, specifically, I guess, I'd like to start on the OR improvement at Trucking of about 200 basis points.

Could you maybe kind of, if you could, just sort of break that down a little bit between what you're trying to do with the fleet because if I heard you correctly, to one of Jason's answers or answers to one of Jason's questions, you said the dedicated alone, that mix could be about a 200 basis point improvement to your Trucking OR. But when you think about the mix changes to the business, the rate that you're getting and then the network improvements, kind of that can you break that 200 basis point goal down between those 3 buckets? Or however else you'd like to look at it?

Yes, for sure. So it's interesting. You're kind of -- you're catching me in my own web here. So you've known us long enough to know that we try to under-promise and over deliver. This is a really exciting call for us because we see a line of sight in dedicated alone, to get to that number.

We've always said that our truckload business should improve 200 to 300 bps a year. And so I think there's probably an incremental opportunity, if you weight it of another 100 to 150 bps just in the truckload space alone.

Truckload hung up or the Trucking segment, I should say, hung up a 93% OR in the quarter, and that very easily could have been a 91%. So I don't mean to be nebulous, and I'm not trying to hide from your question, but in terms of mix changes, network improvement and just operational improvement, we had the first half of the year that wasn't fantastic. And so if you think about the things that are likely to drive our improvement, it's mostly around network improvement, and it's mostly around utilization characteristics. And so we feel very well positioned on price.

You might remember from 4 years ago when we got here, we did an analysis to understand our underlying business, orders of magnitude and in order of importance, it's price, seated trucks and utilization in that order. Price is handled through the network. We're working diligently on seating the trucks. We've already taken our unseated truck count down by 43% since the end of the quarter. So we're doing a really nice job. Largely on the efforts are recruiting, substantially on the efforts of our retention and then, of course, utilization.

So if I had to kind of attribute another 100, 150 basis points beyond this goal, I'd say it's mostly going to be -- I'd say half and half of network improvement and utilization, Zack?

Yes. I think network improvement, as we continue to optimize the network and get our ideal network, that will also yield. Like you mentioned earlier, when it comes to maintenance costs, as we stand up those facilities, we have a lot of room in maintenance cost...

That's true.

Right, that we can drive further cost reductions through. So over the course of the year, there'll probably be some opportunities for us to get into some different markets to reduce that over-the-road spend.

Okay. No, that makes sense. And thank you for sort of kind of painting that picture for us. I guess within Logistics, if we could talk about that for a moment. I think an adjusted OR this year of about 98%, same as last year. Obviously, there are a lot of different moving pieces in terms of what was happening specifically within the fourth quarter. How are you thinking about what's a good margin goal there, maybe not for '21, but I guess, longer term? Is it more of in that 4% to 6% operating margin? Is that realistic for Logistics longer term? Just trying to think about where you could take that over time.

Yes. I think so. Probably on the lower end of that for many of the reasons we've discussed before, right? So we actually had a special topic at a recent board meeting where our Logistic leader came in and did a white paper kind of exploring the corners of this market space. With the digital freight brokers that have come in, you've got what I would call some kind of irrational competitors that are willing to take losses quarter-after-quarter, year after year. But none of them, in aggregate, make up a big enough piece of the market to really drive that number into the ground. And so I just want to kind of retell our story, and you alluded to the 98% for the year. You're right. But remember that, that had Q1 and Q2 results that were both over 100% in OR.

One of the things we realized, exiting last year, was, if we treated this like a supermarket model, meaning low margin, high throughput, we could create enough op income to fund the business. And we really feel like, Jack, that we should never lose money in this business. And so we feel like the first half of the year was an anomalous kind of experience. Now that said, there's a big debate internally about because James is saying, "hey, let's go grow this business a lot. It doesn't require a lot of capital other than some net working capital that's hung up in the receivables and payables."

Now that we've figured out how to put a lot of kind of stuff through this goose, how do we go drive it really, really hard and use it as a growth engine. And some of the debate has been, "Jeez, James, if you want us to do that, there's likely to be margin compression."

And I just like to have fun with numbers, Jack. So there's not great data on the size of this market space, but let's say it's $100 billion. If we're doing $200 million of that, I mean, you can do the math. We are a minuscule sliver of market ownership there. And I believe that you can still grow this thing with margin positive contribution. So that's why I say, I'm hedging a little bit in my heart to heart, I believe you can grow this in the 4% to 6% range, the team feels like I might need to give them a little margin relief in the name of growth.

We recently commissioned a study with a bank that we do a lot of work with to help us understand what would drive value from a stockholder-shareholder standpoint, and it won't surprise anyone on this call that in orders of importance, the #1 most important thing is to improve your operating performance, operating margin, which is what we're doing on the asset side.

And the second thing -- it's about half as impactful to stock price, but the second thing is profitable growth. And so we intend to use this business for the profitable growth piece of the equation. And now on the asset side, we intend to just continue to knuckle down and expand the margins.

I hope that answered your question.

No, it does. That makes a lot of sense. I guess, maybe following up on that, and then I've got 1 last question, I'll turn it over. But we've heard other asset carriers over the course of this earnings season talking about doing a lot of power-only moves within their Logistics segment, utilizing their trailer fleet and sort of leveraging that part of their asset base.

Can you maybe talk about that? Do you guys do that currently? Is there an opportunity to do that, overtime, to maybe help fuel that growth within Logistics as well?

Yes. So we laugh at that. We have a business that we call our Plus P business, Plus Power. Our customers all know about it. We've been doing it for 11 years, Jack. This isn't new to us. And so I -- everyone on our team will tell you this. I joke about all the time, I got an A in everything in grad school, except marketing. I got a B in marketing, and so you don't want me being your marketing guy.

We, I think, have failed investors a little bit and not being louder about that. So we have recently kind of commenced some campaigns. You'll see a lot more kind of in our digital marketing and in our campaigns to our customers to make it clear. Jack, that program, first of all, it's not innovative, not new. We've been doing it for over a decade. And secondly, we're better at it than anybody else.

All right. James, you may not have made an A in marketing in grad school, but it sounds like you've definitely improved your skill. So that's good.

So last question, and I'll turn it over. But you're targeting dedicated fleet growth of about 15% year-over-year, is that by year-end, I guess? So is that year-end number versus the beginning of the year number? And then how should we think about fleet, total fleet, including your regular route business over the course of the year?

Yes. So this is where the team will probably reach for the mute button pretty quickly, but I've got my arms around the phone. So again, under-promise, over deliver. That is an annual goal, but we can achieve that kind of growth in the first half. It just comes down to seating trucks. I mean, we -- I said it in my prepared remarks, we literally have 150 contracted trucks that are unseated today in the dedicated space, and so just filling those alone will -- would easily surpass that mark.

In addition to that, there's another, call it, 110 trucks that customers have allowed us to take on above and beyond the contract if we can seat them. So there's just a massive opportunity here for us. In terms of the entire fleet complexion, we have been really disciplined about our capital allocation. Part of it was, look, I'll be honest, the -- coming out of 2019, the balance sheet wasn't that great. And so we were not trying to grow our fleet. You don't want to kill the goose that laid the golden egg. So it is our intent to keep the entire fleet basically flat year-over-year.

The growth that we may have would be in the owner-operator space. Our team, and I don't want to go into a lot of details because it's nuanced, but the nuance is where is important. Our team has been able to grow the owner-operator fleet, even in this robust kind of spot market. And my experience is then, they behave more like mercenaries. And when the spot market goes crazy, they leave the safety and security of an asset-based carrier to go apply their trade on their own. That didn't happen this year.

And I think it's unique at USA Truck because of some of the special programs we have, utilizing technology that gives them access, direct access via our own internal load board to freight. And so if we grow in the asset business, it will be an owner-operator alone. So just to recap, as we talk about going 50-50, dedicated in our truckload business, that means the truckload space is understandably and intentionally going to shrink a little bit. In favor of growing the dedicated business. And that said, I mean, we think it's a sound approach, right? The dedicated business typically runs day in and day out, keep the trains running at a 90% OR. If we can do that and have that stability in all types of market conditions, it will allow us to be more opportunistic in the future in kind of furious markets.

I hope that answered your question.

It does. It makes a lot of sense to me. And congrats on a great quarter.

Great. Thanks a lot, Jack.

Thank you. We have reached the end of the question-and-answer session, and I will now turn the call over to Mr. James Reed for closing remarks.

Great. Thanks, Rob. 2020 has been a year, none of us will ever forget. And while the tragedy, trials of life, the election and human suffering, all warrants our remembering and learning from, I will always remember it for another reason, too. 2020 was the year USA Truck began to show its potential as a business. Behind that business is an amazing group of people with boundless potential. The uncomparable Henry Aaron, who sadly, we lost just a couple of weeks ago, said, "I never doubted my ability, but when you hear all your life, you're inferior, it makes you wonder if the other guys have something you've never seen before. If they do, I'm still looking for it."

I'm not saying we're the Henry Aaron of Trucking, but I am saying what we've always said that there is latent opportunity for success here at USA Truck, and we are just starting to tap into that potential. This team and this business have always had the potential for success and now is a time for us to finally and ultimately, close the performance gap with the competition.

One of my favorite Henry Aaron quotes is what Joe Adcock said of him. He said this, "trying to sneak a fastball past Hank Aaron is like trying to sneak the sunrise past a rooster." I hope the same will one day be said about the team here at USA truck that when we had opportunities, we seize them.

Finally, I want to thank our customers who stood by us the last several years and have made the revival of this company and our drivers among our country's heroes during the pandemic and our company's heroes every day for doing what they do. Both our customers and our drivers, thank you.

They're the real pros, and we're proud of them. Now it's time for us to get back to work. We still have a ways to go. Thank you very much.

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