US Xpress Enterprises Inc (USX) 2003 Q1 法說會逐字稿

Good day everyone, and welcome to the U.S. Xpress Enterprises Incorporated Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Trip Sullivan [ph] of Corporate Communication. Please go ahead, sir.

Thank you, Pam. Good morning. Thank you for joining the U.S. Xpress 2003 First Quarter Conference Call. On the call today will be Max Fuller, Co-Chairman; Ray Harlin, Chief Financial Officer; and Jeff Wardeberg, Executive Vice President of Operations. Before we begin, I would like to cover the Safe Harbor language. This conference call contains certain forward-looking information that is subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Without limitation, these risks and uncertainties include economic recession or downturns in customers' business cycles, rapid fluctuations in fuel pricing or availability, increase in interest rates, and the availability of qualified drivers. We urge you to carefully review and consider the various disclosures made by the company in its press releases and periodic reports on forms 10-K and 10-Q. I'll now turn the call over to Ray Harlin to summarize the operating results for the quarter.

Good morning. We appreciate you joining us today. We will briefly discuss the results of our operations for the quarter. And following my comments, Max Fuller, our Co-Chairman; Jeff Wardeberg, Executive Vice President of Operations for Truckload business will also be available to respond to any questions. During the first quarter, we were pleased that we continued the momentum of year-over-year improvements and the operating results of each of our business units. This was achieved despite racing fuel prices, which averaged over 38% higher than the 2002 first quarter; discount levering conditions (ph) in many parts of the country during 2003, which adversely impacted utilization; and a continuing soft trade environment. All these factors served to limit the extent of improvement in our operating results in 2003 versus first quarter of 2002, but did not prevent us from executing our plan of increasing rates, as well as growing revenues in our regional and dedicated truckload operations and in Xpress Global Systems. Despite these factors, consolidated revenues, excluding the effect of fuel surcharges increased over 7% to 110 million. Our U.S. Xpress Truckload operations increased revenue by 7.3% or 13 million to 190 million. This increase in revenue was driven by 2.8% increase in our revenue per mile and increases realized in our dedicated and regional fleet operations. Our average [indiscernible] for the quarter declined slightly to approximately 810 miles. Revenues of our Xpress Global Systems operation increased by 17.8% to 29 million. Within Xpress Global, our floorcovering logistics revenues increased 9.8% to 18.1 million and our airport-to-airport operations enjoyed revenue growth of 34% to 11 million for the quarter. Turning to operating income, our truckload operating income increased 8.8% to 3 million despite significant increase in fuel prices, which negatively impacted our truckload operating income by over 3 million, compared to the first quarter of 2002 and negatively impacted earnings per share by approximately $0.11 per share. The improved operating income was driven by improved pricing, the increase in revenues, and control over growth in our fixed expenses, which grew at a rate substantially lower than our revenue growth. These improvements were offset to a degree by increased expenses in insurance and claims expense, which on a per mile basis increased 18% resulting from higher premiums on our excess (ph) coverage and increased claims expense. We also incurred increased maintenance expenses on a per mile basis of approximately 11%, primarily as a result of the extended life of our tractor fleet. Operating income of our Xpress Global Systems subsidiary increased to 126,000 from essentially breakeven results in 2002. Operating income and margins improved slightly in our floorcovering operations, as we experienced improved pricing in load factors, especially during the second half of the quarter, as business claims demand was very solid in the first half of the quarter. On a stand-alone basis, the airport-to-airport operations incurred an operating loss, although we were encouraged by the pickup in volumes and improvements in margins experienced by this operations in the latter half of this quarter, as in March, the airport-to-airport operations were a positive contributor to operating income. It also should be noted that from a corporate perspective, our U.S. Xpress Truckload operations received over 6 million in truckload revenues at approximate market rates, from the airport-to-airport business during the first quarter.

From an overall perspective, we reported earnings per share of $0.01 compared to a $0.02 per share loss in 2002 before an $0.08 per share charge for the over extinguished limit debt in 2002. As we previously discussed, the fuel prices had remained comparable to the prior year, first quarter of 2003 earnings per share would have increased to approximately $0.12 per share, a significant improvement in our first quarter results in recent years. We should note that historically, our first quarter represents a difficult operating environment due to normal seasonal softness experienced especially in the long haul trucking market and the floorcovering industry. From a balance sheet perspective, we continue to reduce our outstanding debt, as long-term debt including term maturities (ph), reduced by approximately 9 million since December 31, 2002 to 159 million. Our liquidity remains solid with over 25 million of [revolving borrowing (ph)] under our $100 million revolving credit agreement. As before, we're encouraged by the progress we're making in improving the operations and profitability of each of our business segments. As Max Fuller outlined in our 2002 fourth quarter conference call, our Truckload Management Team is committed to achieving, at a minimum, year-over-year rate increases in the 3% range, reducing debt by 1% and improving utilization as measured by revenue miles per tractor into 1-3% range while maintaining strict control of our overhead expenditures. Each of these factors individually provide significant earnings leverage to U.S. Xpress Enterprises. Although we did not need all of these goals in the first quarter, we continue to believe that these objectives are achievable throughout the remainder of 2003 given the reasonable trade environment.

With regard to our Xpress Global operations, we expect improved margins performance in our Floorcovering Logistics operations, as we are experiencing improving pricing and yields in our existing business. Continued growth in revenues of our airport-to-airport operations along with expected improvements in the efficiency [indiscernible] network should lead to improved margins during the remainder of 2003. With that, we thank you for participating in the call today; and we would be glad to respond to any questions at this time.

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the "*" key followed by the digit "1" on your telephone keypad. If you are on a speakerphone, please be sure your mute function is turned off to allow your signal to reach our equipment. Again, if you do have a question, press "*" "1" on your telephone keypad. We'll go first to Justin Yeagerman [ph] with Bear Stearns.

Hey, guys. How are you doing?

Hello, Justin.

I noticed that intercompany expense was up a bit in the quarter, and I just wanted to get a sense for where that's going to be on an ongoing basis, if it's going to be higher going forward?

You're talking about intercompany revenues.

Yes.

The intercompany revenues will track the growth in Xpress Global's business, because Europe Xpress provides a portion of both the airport-to-airport and the Floorcovering Logistics line-haul. So that should correspond generally with the increase we see in that business.

Okay. And how is April feeling right now in terms of rates going forward?

Actually, so far, April has been a little bit softer than what March was. We settled December fairly strong. We went into January, February which continued to soften somewhat into snows and stuff that we had in February. It came back pretty good in March, and then it softened a little bit in the first two weeks of April. So we think that that's probably a normal trend based on what we've done in the past. So we don't think the economy is sliding back into recession or anything.

Do you expect things to pick up now that we're past Easter or...

Yes. Yes, we do. In fact, we're having a lot of comments from the customers where they are all talking about capacity and they're trying to lock up commitments to make sure that we've got trucks available for them.

At the right rate, right?

What we always like to talk about is, okay, what kind of rate do you want to pay. If their commit (ph) is too low, then we don’t have trucks but if its high enough, then we’ve got trucks.

Well, in terms of if you have or don't have trucks, what are you guys thinking in terms of the remainder of the year as to how you're going to be bringing on tractors? If you're going to be bringing on tractors, and -- what's the owner-operator environment like out there in terms of bringing capacity on?

Actually, we're playing conservative on adding capacity. If we don't have specific business like the dedicated accounts bringing new equipment on, we're playing very conservative. We only had 200, maybe 300 trucks this whole calendar year, unless something really does break in this economy. We're like most of our competitors where we're all looking for a higher yield before we're going to add more capacity to it.

Right.

As far as owner-operators, this is getting much tougher than what it was in the past primarily because there is a number of owner-operators with this higher feel have really squeezed out, out of the business. And I think, this last quarter, we actually saw some reduction in our owner-operator headcount for the same reason.

Sequentially, it looks like you guys were down a little bit. What else have I got here? Just in terms of some cash flow items, where did cash end in the quarter or did you guys do that?

Well, we generally see cash at zero balance basis. We paid down debt by approximately $9 million during the quarter.

Right. And so do you have 25 million left on the revolver?

Yeah, we have availability of 25 million right now on the revolver.

Do you guys have any CAPEX guidance for right now?

We expect for the rest of the year to be in the $30 million range in CAPEX.

Okay. And I guess, just can you comment at all on the rate environment out there on the airport-to-airport business?

It is, I guess, what I would call-- it's firm, not significant increasing going on right at this point in time. But it's not -- it's a firm situation I think is what I'd refer to.

All right. And let me ask just one or two more questions here, and I'll turn over to someone else. What's the average age of your [indiscernible] fleet right now?

It's around 28 months.

28 months, we actually have some equipment going out. Some other equipments going out at this point that should start reducing debt down, as we get deeper into the year.

It should go down. Okay. And just in terms of insurance, you said that you premiums are up. When does your current policy expire, or am missing, or did you just renew it recently and what's you self-insured retention rate?

We renewed September 1 that was expired September 1 of this year. The premium increases are primarily in the excess insurance policies. And yes, another question Jeff, and I'm sorry, the self-insured retention level for liability are the 500,000 on the first million and we also have the 1 million to 3 million layer, and we are covered for everything above that up to a fairly sizeable number.

Okay. Let me turn it over to somebody else. I appreciate it guys. Thanks.

Thank you.

We'll take our next question from Chad Jones [ph] from Stephens Incorporated.

Good morning guys.

Good morning.

Just to turn over to rates again, pretty impressive rate increase despite a pretty soft first quarter, and also I assume you guys are getting pretty hefty fuel surcharge reimbursements. What does that mean for the remainder of the year? Should we be thinking that Xpress will be able get something in the 3% range as we move out through the rest of the year?

I would say that we are going to stick to the stated goal of 3 percent rate increase; it's kind of our target right now.

Okay.

If we see that it's possible to go higher then we certainly will.

And actually that's an average. So some rates will have to be higher and then some will be lower. What we are actually focused on is on lanes where we have less profitability and that is not across the board increase. It's -- the lanes are less desirable, the lanes that are less profitable for us are the ones that we are actually increasing our rates. Some cases we are increasing them high enough where we may actually displace the business because of the commitment that we've got from the customer to handle it. You know, we may want to allocate the truck to someone else who’s willing to pay a higher rate. So you are going to see more and more of that as this economy continues to firm up. Chad just looking at what's happened so far in April, I think, right now feel like we're on target to get that year-over-year very close to the 3% minimum objective we stated in the second quarter.

Okay. Kind of shifting over to when or whether, I know that impact of the quarter, is there any way for us to maybe quantify the overall impact on the quarter?

It's a subjective measurement, but I know the East Coast storm obviously cost us a substantial amount of revenue probably at least a day's worth of revenue, I would say.

Well we had -- at one point we had over 1,500 trucks that were parked for almost two days. Just because that one storm, that doesn’t count the expense that you incurred, that's just for [indiscernible] that’s top line revenue and then you have trucks that need to be towed and just higher expansion -- general because of the higher weather, so it's probably several million total impact.

Right.

So on top of the fuel, it really made it pretty tough quarter.

Could you maybe talk a little about hours of service? I know that legislation is getting ready to hit and kind of what you feel the impact of that may be on operations?

It's really hard to tell at this point. We actually don't have the final version out at this point. So it's quite hard to respond until you really know what you are responding to.

Sure.

We think that the industry may have some issues in available capacity, which could change processing pretty dramatically, you know, in a short period of time if it reduces the number of hours a driver can work. One of proposal is that it will increase the daily, but not increase the total for eight days. So it really depends on how that comes out. Just speculation until we actually see the final release.

Okay, and then one or two more here. Going back to the equipment, I believe if I'm not wrong, you guys have about 1,500 tractors you are replacing this year, is that correct?

That's correct.

Okay and then the new engine was supposed to start hitting in April?

That is correct.

And could you maybe talk to us about, I know it's early, but kind of what your experiences have been so far?

Actually we got to some of the first Detroits (ph) were out before Christmas. At this point the field economy is around 5% off of what we were actually getting before. We are working with the manufacturers to do some things to mitigate, the negative effects of the fuel. One is possibly slowing down the top speed for the truck, which were up in some other areas too. There are several things that can be done, but obviously there is pretty sizable negative impact with the new engine.

And then lastly, could you give us a sense of maybe what, let's say your tractor count was during the quarter or kind of on an average basis I guess.

Average tractor is operating during the quarter were 5507.

Okay. That's all I have. Thanks guys.

Thank you.

We will go next to Doug Cole with Morgan, Keegan.

Good morning, guys.

Hello Doug.

Good morning.

Doug Cole. Hey, talk to us a little bit about the -- I think, Ray, you gave us a figure on increased maintenance expense. I think you gave it on a per mile basis. You know with the current trade plan you have in place -- I mean is that about as high as, is it going to get in your opinion or will we see it -- impact of maintenance a little more before the age of fleet starts to come down a little?

I think Doug it's -- that's probably peaked out. Number one, you have got first quarter, which is lowered utilization so that increases your per mile cost. Our fleet has pretty much peaked out as far as age and will be coming down as we go forward. And usually our maintenance cost improves following the first quarter. So we think we are seeing the top. Max, you may have something more to add.

I think with 1500 trucks that we we’re going to cycle out, that's replacement trucks. That's going to take the very oldish trucks out, replace them with new trucks that have warranties and stuff. So I think we are seeing the highest figure we will see for quite a while. The other thing is tires of most of fleet are -- we have the tires on the trucks that would have been traded and that's one thing that fished up here over the last several months.

Ray, the $30 million CAPEX figure you us, that's for the full year, right?

That's correct.

That's your guidance. So that's kind of at the high end of the range, what you guys have stated before. How many teams did you guys run in the quarter or where does that count going sequentially?

It's down a little bit -- more extant (ph) -- around 800. That don't included teams that are in the dedicated operations that we have and that's just over the road team.

Okay. And that just reflects the growth in regional and truckload- I mean that's not a strategy to reduce that number, that's just...

Actually, it's just change in the mix. If you at our -- the growth areas has been primarily in dedicated and also on the regional where you don't [inaudible] and than also somewhat in Xpress Global.

Okay. Anything else, any color, I mean you guys have -- you talked about in the press release and Ray mentioned it briefly but any more color you can give us on success airport-to-airport pattern, and that's all. Thanks.

I think probably the big plus for airport-to-airport is, it did turn profitable in March. We've got in some areas where we still need to increase the volume of freight. But we are not trying to compete based on the rate; we are trying to compete based on service, and we have a lot of success in that area. If we went out and discounted prices then yes we will probably take on a lot more freight but then we will also hurt the profitability of the industry, so we decide at least compete strictly on the service and not to play the rate game.

Okay. Thank you.

We will take our next question from Michael Latronica with Morgan Joseph.

Hi Max. Hi Ray.

Good morning Michael.

Good morning. Congratulations on a profitable first quarter despite everything.

Just a couple of questions. One is housekeeping. Ray, you mentioned length of hall was 810, could you give me the comp for last year?

Right around 800 and 840.

840. Okay. Last conference call you mentioned, I think that was Max who mentioned maybe work in the surcharge program may take a up a bit, can you talk about any progress you may have made there?

When contracts come up for renewal or discussing change in fuel surcharge programs where we don't take as much of a hit when prices go up. The other thing that affects us on fuel surcharge is the way we compensate owner-operators. And when the price gets real high than the impact to us gets pretty heavy and part of the reason is that we have been compensating our owner-operators slightly heavier than what our customers are compensating us. So we are going to go back to the customer to see if we can recoup more from our customer, because it is a real cost.

Okay. And as capacity gets tighter and tighter, is there a play in the spot market here Max?

I think there is a play in the spot market. I think a lot of 3PL [ph] that have a locked-up capacity, while the customers have a locked-up capacity are going to have to pay up for capacity. So the guys are use to sell things fairly cheaply, may have to pay more for capacity in a tighter market. And it may be a surprise to a lot of the marketplace but the spot market may get expensive than other way around for a period of time here.

So maybe one reallocates trucks on those less profitable routes to spot market freight when it's advantageous?

That's actually what we are doing today.

Okay. Okay, that's all I got. Thank you.

Thank you.

Thank you.

Just a reminder, if you do have a question please press "*" "1" on telephone keypad. We will go next to Ryan Garden [ph] with BB & T Capital Markets.

Hi, good morning. I just have a couple of follow-up questions here. Just on the freight, can you talk a little about that, how it kind of broke down by geography, as well as maybe by the industries you serve, was there one that was particularly noteworthy in the quarter?

If you look at our top 50 accounts as a percent of our truckload revenue, that came in the first quarter at 65%, which is roughly about a 7% improvement over the where they were a year ago.

Okay.

We saw significant improvement in consumer product - in the consumer product category and declines in manufacturing and electronics supplies and that type of thing.

Okay. Anything else?

From a geographic perspective early in the quarter we saw softness in the southeast, and out west and as the month of March rolled around, those areas took care of themselves.

Okay.

And why thanks Texas has still been pretty soft– market, at least North Texas.

That has been soft or solid?

Solid.

Solid. Okay. And then just a question on the rates in the quarter with the 2.8% increase and the loaded rate per mile. Just wondering how much of that was an actual rate increased versus, you know, how much was due to the growth of dedicated and regional business? If there is a ballpark there you guys have?

Not sure we've really got that broke down.

Okay.

And why we're regional is attributing towards its - its really in our opinion we're worn outwith higher rates than we were going out with a year ago. So, I'm not sure I made a distinction at this point in time.

Okay. That is all I have. I appreciate the help.

Thank you.

Our next question comes from Nick Farwell, The Arbor Group.

Ray, Max. Good morning. Again, I just have couple of follow-on questions. I noticed a number of owner-operators declined from fourth to first quarter. I don't recall for the seasonality issue there or is that just further contraction due to the sort of economic and the financial pressures on the owner-operators?

I think we go back and look at the issues of a lot of owner-operators had especially during this last quarter. Fuel prices got to historic highs. I think its 40 - about $0.40 a gallon year-over-year higher than it was a previous year. And even with the fuel surcharge problem that we have in place, some of our owner-operators still weren’t covering all their costs. And therefore it put more pressure on them and we actually lost some. You know, some actually lost their trucks during this period. I think that's going to make owner-operator thing tougher for the whole marketplace over the next several months because a lot of these guys just aren't there anymore.

And Nick, I don’t think that's inconsistent with trend we'll see with other carriers for the quarter.

Yes. And I was curious whether you think that's likely? Any reason why that wouldn't continue and that there'll be -- there may be availability of driver there you may find them more -- to add drivers, you got to make them accompany as opposed to owner-operators?

And we think that's probably true. We're going to continue to push owner-operators, where one plus owner-operators is at least the fuel prices are coming down. And as they come down these guys can at least make it. They got so high that owner-operator -- most trucking companies could make a profit at the level that prices had gotten to it. I think, as we get deeper into this year you'll see we'll continue to bring on owner-operators, but you’ll also see us focusing on our company drivers too.

And also Nick, as the freight environment, if and when it does improve, which we believe it will, this year we'll generate lot more miles from these guys.

And so would you expect over the balance of the year, lets assume you do add an incremental 300 trucks for the full year, would that predominantly come from your own company drivers? And what are the implications of that as opposed to bringing on more owner-operators? Does that have any significant impact in your -- sort of on your profitability, if you will?

I don't think that that magnitude would be significant, obviously. I mean our goal would be, if we were to bring on 300 say incremental trucks because the market wanted it, I would for half of that to be owner-operatored, which would mean 150 owner-operators added for the rest of year based on our past experience, that's not an overwhelming challenge. But if the fuel environment, freight environment stays softer that would be a tough challenge.

In the past you've commented about contraction capacity, have you noticed any incremental or, how would I describe it, important contraction capacity either head-to-head or by specific lanes or region?

It's kind of hard to sit there and count trucks, but when you go to certain market places like say Chicago, we can probably load two loads for every truck that we have in that market. And that's been pretty well the case almost throughout the whole first quarter. If that type of market continues, then it's going to give us pricing power, but that probably shows that there is capacity that has left the market, at least in that region. We see that the same thing happen in other regions, it’s kind of spotty, but you take Chicago, you take Memphis, you take the Carolinas they're all very hot markets for us right now.

And Max do you think that's almost entirely due to contraction and capacity in those specific regions?

We think so.

And the last question I wanted to ask you and that is have you received, I'll call it inordinate price increases into regions such as you described Chicago, Carolinas and Memphis due to some of this - due to say contracted capacity in those specific lanes?

I don't think, we have yet but we may in the future.

And actually one other quick question, you mentioned in your fourth quarter conference call that you had received price increases for almost all regions from your two primary carpet customers, is that price increase now extended itself across the board?

It's not a 100% from the board, but for the specific customers that we're talking about, yes that has been done.

So that's been fully implemented?

That's correct.

Okay. Thank you very much.

Thank you.

We'll take a follow-up Justin Yeagerman with Bear Stearns.

Hi, guys. Just one quick question, I wanted to see you had any more guidance on where the tax rate is going with per diem plan going on?

We provided 50% in the first quarter and for the rest of the year I'm thinking in terms of 50%.

50%?

Yes.

Once again, if you have a question press "*" "1." It appears there are no further questions at this time. I'll turn the conference back over to you Mr. Harlin for any additional or closing comments.

We thank everybody for joining us today. Thank you.

This does conclude today's conference. We do appreciate your participation. You may now disconnect.