US Xpress Enterprises Inc (USX) 2007 Q1 法說會逐字稿

Good day everyone, and welcome to the U.S. Xpress Enterprises 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. Tripp Sullivan of Corporate Communications. Please go ahead, sir.

Good morning. Thank you for joining this U.S. Xpress conference call. On the call today will be Pat Quinn, Co-Chairman; Ray Harlin, Chief Financial Officer; and Jeff Wardeberg, Chief Operating Officer. Before we begin, I would like to cover the Safe Harbor language.

Certain statements made in this conference call may be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and Section 27A of the Securities Act of 1933 as amended. You should consider carefully the risk and uncertainties described in our press release issued last night and various disclosures and filings with the Securities and Exchange Commission. The Company disclaims any obligation to update or revise any forward-looking statement to reflect actual results or changes and the fact affecting the forward-looking information.

I will now turn the call over to Ray Harlin. Ray?

Good morning. We will briefly discuss the results of our operations for the first quarter of 2007. And following these comments, we will be glad to respond to any questions.

Consolidated revenues for the quarter increased 20.4% to $360.9 million. Excluding the effect of fuel surcharges, revenues increased 20.6% to $316.6 million. We incurred a net loss for the 2007 first quarter of $2.6 million or $0.17 per share versus net income of $734,000 or $0.05 per share in the prior year first quarter.

Our truckload revenues excluding fuel surcharges increased 22.3% to $295.2 million. This increase was driven by the inclusion of Arnold and Total for the full 2007 quarter versus only one month in the prior year quarter. Additionally, our base U.S. Xpress truckload business increased revenues by approximately 4% based on a slight increase in revenue miles and a 3.5% increase in our revenue per revenue mile.

Truckload operating income declined to a loss of $1.2 million, compared to operating income of $4.4 million in the prior year quarter. As we stated in our release, our truckload results in the quarter were negatively impacted by lower-than-expected freight demand and severe winter weather, which negatively impacted utilization and increased costs. Additionally, rising fuel prices in the second half of the quarter negatively impacted earnings per share by approximately $0.03 per share compared to the prior year quarter.

Utilization, as measured by revenue miles per tractor in the period, declined 8.1% to 22,166 miles due in part to the relatively soft freight demand and the severe weather. Other factors contributed to the decline in utilization includes the 6.9% decline in length of haul to 480 miles, which reflects primarily the inclusion of Arnold's operations in 2007 for the full quarter. Arnold's average length of haul is approximately 390 miles. Our rate per revenue mile increased 3.2% to $1.60 compared to $1.55 in the prior year quarter, primarily due to the 3% increase from rates in our U.S. Xpress truckload operations.

Our Xpress Global operations performed well in the quarter. Although, revenues were essentially flat on a year-over-year basis at 22.6 million, operating income improved $1.5 million versus $369,000 in the 2006 first quarter.

From a balance sheet perspective, our long-term debt, including current maturities and our securitization facility was $357.8 million and stockholders' equity was $246.3 million at March 31, 2007. The level of our debt has been impacted over the last 12 months by our decision to substantially reduce the average age of our tractor fleet prior to the introduction of the new 2007 emission engines.

Over the last 12 months, we have taken delivery of over 3000 tractors. And following the completion of the pre-buy of tractors in the second quarter, the average age of our fleet will approach 1.4 years. The pre-buy along with a relatively young tractor trailer fleet with an average age of 4.1 years provides us with the opportunity to reduce capital expenditures on revenue equipment over the next 12 months and use our cash flow to reduce outstanding debt.

From an overall perspective, we are disappointed with our results for the quarter except for the outstanding performance of our Xpress Global operations. Although profitable in March, our truckload operations were significantly impacted in January and February by the sluggish freight demand and severe weather. Freight demand improved in March and April to date compared to the first half of the quarter but remains below prior years. We're focused on improving productivity and profitability of our truckload operations and expect improved operating results for the remainder of 2007.

We would be glad to respond to any of your questions at this point in time.

(Operator Instructions). David Ross, Stifel Nicolaus.

Could you just talk a little bit about the truckload operation -- operator were roughly breakeven, how Arnold and Total contributed to that versus the U.S. Xpress operation? And I know that within the U.S. Xpress operation, there's the long haul and the regional and if you could just give a little more caller on how each of the units fared?

Arnold and Total on a combined basis contributed a positive operating earnings of approximately $1.7 million. And then therefore, we had a negative in the U.S. Xpress operating earnings of around $3 million.

And then, I guess you talked about the regional business -- had been losing money in the fourth quarter and was losing money again in the first quarter. When do you see that operation really breaking even and getting positive? Is that a second-quarter event, third quarter?

Part of that obviously depends on freight demand. But as in prior years, we have experienced improved operating results in that regional fleet as the year progresses.

And then, at Xpress Global Systems, your operating income was up nicely, revenues roughly flat on a year-over-year basis. Can you talk a little bit about the effect of the economy, the home improvement or housing sector on that business and what you see there going forward?

No, traditionally in the carpet industry when you have a slowdown in homebuilding or home improvement, it actually increases the LTL segment of it because there's not as much truckload of carpets shipped, so you have more opportunities in the LTL arena. They have actually usually sometimes have done quite well in prior slowdowns. It looks like that's kind of the case this time. Their volume has held quite nicely.

Daniel Cohen, Northstar Capital.

Just a question on pricing, what you guys are seeing in the marketplace. A little color there in terms of bids and what your thoughts are.

Certainly, there's rate pressure in the marketplace right now. As for trends for us, it's a little difficult to tell until some of these bid results start rolling in, which is going to be as early as next week through like mid-May.

I can tell you our strategy in pricing has been to focus on improving our truck utilization and reducing our deadhead. So some of the rates that we're after are going up. Some were holding at stable levels. And where we can get an upgrade and improve our network, we're getting competitive. Undoubtedly, looking forward in this environment, rate increases are going to be very, very difficult to obtain. So I guess those would be my color commentary on pricing right now.

Is that more in the spot market or contract market or both?

We're seeing it in all markets.

Nick Farwell, The Arbor Group.

Just to add onto the rate question while we're on that, can you talk a little bit about rates by groups or by division? Can you give us any sense for say team versus rail versus dedicated versus solo?

For the quarter?

Yes. Currently, just the current environment.

Current, within our -- within U.S. Xpress, we had around a 3% increase in rates. So if you look at our regional solo business, that is consistent. We had rate increases there. Our team business is about on par, just a slight increase year-over-year in our team business. Our rail operations as far as rate is about flat. And I think that covers a summary of how our rates went in the quarter.

Can you talk a little bit about your intermodal business this year relative to last year and whether you're seeing any signs in the current environment of freight moving off of trains back onto trucks?

First of all, Nick, as you know, our rail product is not containers. It's trailer on flatcar. And we have seen a decrease in that business. We're off about 25% in the first quarter as far as volume in the rail side of the business. As far as conversion from back to truck, Jeff, you may comment on that.

Nick, what we're seeing right now is that the container side of intermodal on the international side is growing. The domestic side is down. I think that in terms of truck conversions, it's too early to tell that's going to happen and to any great degree right now. So I'm kind of planning that we're going to have to make our own freight available for our truck assets.

In the past -- help me with this, Jeff -- but it was my impression over the last say two to three years with improved rail service that that has -- and changes in gateways -- that that has taken some freight off the road and put it on the rails with container or otherwise.

I would say that's fair.

There's little doubt about that. On the long haul business, that's very true.

I'm just wondering if you get -- this is a fungible -- I'm asking the question; I don't know that. But I would assume it's fungible to the extent that if rates in the rail sector try to remain at the current level and I've listened to three or four of the railroad companies comment how their rates have held up very well and they expect them to hold up. Given your business is obviously competitive, it would seem to me that there would be some opportunity for, as you describe, a conversion. Again, we are early in the year but I'm just curious.

Outside of a significant increase in demand, I'm not sure that you will see a big conversion. The other aspect of that too is when you put the rate plus the fuel surcharge, which was the increase in fuel costs, has put the surcharge up to quite high. So you have to add that in when you compare the price as a shipper.

Yes, right. But they are getting it both on rails as well as you guys. I mean they obviously -- I'm assuming they look at it net-net.

It doesn't increase quite as relative on the rail as it does on the truck.

Off to the next topic and that is -- can you talk a little bit about whether the shift in the calendar Easter in particular this year has had any implications you could tell on your business and how April has been say the last I don't know week or two?

Easter didn't seem to have the -- sometimes that Easter week when the Easter holiday occurs a week after the end of the quarter is a very down week. It didn't appear to be that this year. So it appeared to be in normal ranges. And April, like you said, is not what we would like you to see but it's not horrible either.

Just to conclude then, it would appear as if obviously January and February, you lost some -- I'm just going to make up a number, say $0.20 or $0.25 and probably made a modest amount in March to offset that to lose the $0.17. And April is profitable in concert with March but probably not as profitable as last year.

Without commenting on -- generally, the month after you get out of January and February on a historical basis are profitable months for U.S. Xpress.

Chaz Jones, Morgan Keegan.

I don't mean to beat the rate question to death, but could you maybe give us a sense for how much the lower length of haul in the quarter played into the year-over-year increase in rates?

Very little for us because the U.S. Xpress length of haul didn't change that dramatically. So the major increase came from the U.S. Xpress side of the business.

Okay, that 3% you referenced, right?

And Arnold's length of haul actually went up a little bit.

Yes. So from an average standpoint, that's not driven by length of haul change as far as our rate increase year over year.

And then it seemed like you guys were sort of indicating that that's probably going to be tough to sustain over the course of the year, that type of rate improvement as we look at --

Yes, as we go through the year, obviously it depends on spot market demand. Our rates went up throughout the year last year. And so, expect to have a 3% increase year over year in each quarter going forward based on where we are at this point in time may be a little optimistic. So you have to work on freight selection and the other factors.

Could you maybe just talk about that current driver market I guess in regards to recruiting retention? Is it any easier than you guys have maybe seen it the last couple of years?

Yes, it's a little easier than it's been the last couple of years. It's not at all robust but we are holding our own. We're filling the trucks that we need filled.

Are you guys going to tap this better driver market to grow the fleet at all this year? I have heard a few carriers indicate that, that regardless of freight demand if you can get drivers, you just -- you have got to go get them.

No, that's not part of our strategy.

So we shouldn't expect a whole lot of fleet growth looking out to the rest of the--?

Absent some unknown opportunity that could come that we don't have today. You can't -- somebody gives us a big dedicated fleet opportunity that we don't know about today, then that could change that. But no, there's no plan to systematically increase that.

And then last thing I had here, I think Ray, did you say the revenue for Xpress truckload was up 4% year over year?

That's correct.

Could you give us a sense for what kind of the revenue was at Arnold and Total?

Arnold was relatively flat and Total was down slightly.

Donald Broughton, A.G. Edwards.

Gross CapEx for '07 and net CapEx for '07, what do you -- I understand you made a bit of a pre-buy. So what do you expect it to fall to in '07?

I expect our total in '07 to be in the $70 million range -- I mean at the net. I don't have the gross number. So the net number should be in the $70 million range.

And you will generate about $80 million in depreciation. So when you say debt retirement, what are we talking here, $10 million?

No, we're talking -- we've already spent almost $30 million of that CapEx already. So, our debt retirement I would expect it to be closer to the $50 million range.

So, $10 million of depreciation in excess of net CapEx plus $40 million plus from operating activities from net income essentially?

Go through that once more time?

Well, if depreciation exceeds net CapEx by $10 million, then -- and you're going to lower debt by $50 million, then that means you're going to have to generate $40 million in net income after tax. Or am I missing something here?

What we'll have is 60 -- approaching 60 -- without going through all the numbers -- and we can do that later -- we will have $60 million in depreciation plus earnings offset by in the area of $30 million to $40 million in CapEx.

Now I'm confused, Max. You had $19.5 million in depreciation in the first quarter alone --

Right.

-- which would suggest that you are on a run rate of around $80 million for the full year.

But why don't you just talk from this point on? We've spent $30 million of CapEx. That means potentially we would have in the area of $30 million to $40 million in additional CapEx for the rest of the year.

But at the end of the year, if you've spent (multiple speakers) in total for the year if you spent $70 million net on CapEx and you've generated $80 million in depreciation, then that's a $10 million disparity. You're going to have to come up with $40 million for the year total in net income after tax in order to reduce debt by $50 million.

Not net income after tax. I don't pay on my taxes.

I think we can cover details later. We don't pay our taxes with sheltered. Much of them are deferred. And we can go through the details later. But the numbers were based on our present anticipated operations for the remainder of the year.

All right. I will welcome the opportunity to chat with you off-line.

Be glad to.

(Operator Instructions). Justin Yagerman, Wachovia Securities.

You've got to get up pretty early to get in the beginning of this queue. I just wanted to touch on the tractor count because ending tractors above average tractors in the quarter, you said you're not growing much this year. Is that just timing of trades?

The average tractors are up because of Arnold and Total in the quarter primarily plus some U.S. Xpress.

Right. But even on a sequential basis, I think ending tractors were up slightly or up fourth quarter.

About 4.7%. And we've added a few over the last year to our U.S. Xpress fleet.

But there's no plans to substantially increase that from this point forward.

So that's kind of where it's at and we should expect pretty much --

I mean if we increase, it will probably be in the dedicated area.

And then I was just trying to understand with the mix shift going on -- and I guess you were trying to say that there wasn't much. But on a year-over-year basis, when you look at things, there was. Does that imply that U.S. Xpress had over a 3% increase in its revenue per loaded mile to get to a combined increase of 3.2% for the quarter on a year-over-year basis? Because if you are taking into account the lower length of haul, you would expect to see some compression on that. So am I thinking about that the right way? Or, is there something else going on?

No, we have a lower length of haul. But you've got a lot of moving parts here. And in the U.S. Xpress, we were slightly over 3% just in the U.S. Xpress segment of our business, which is not impacted by length of haul.

In the Arnold side, we've had an increase in length of haul and some rate compression. And in the Total, they've had some rate compression. So all in all, it is the law of averages, the way the averages are working. But, the 3% is not driven by length of haul I guess is the way to put it.

That is fair. Let's see -- can we talk about I guess run rate for XGS for the rest of the year? If we look at last year and how that trended, should we be looking at Q1 as kind of -- because this is the best quarter we've seen out of them in a while here, especially in this quarter. Can we think about that as kind of a flat-line run rate now -- well not flat-lined but a run rate--?

I mean from a historical perspective, Xpress Global's best quarters are the second and third quarter from the seasonality standpoint. First and fourth quarters are the toughest quarters for them, so they have performed very well in a tough quarter from a seasonality standpoint.

Fundamentally, should we infer that that business has gotten to a point where that's what we should expect going forward?

They have a lot of programs to increase their business and diversify their business a little bit with specialty LTL and things like that. But, we don't expect double-digit growth in their year-over-year revenues as we look forward.

And then another question on tax rate, obviously didn't get a great look at what things are doing this quarter because there are probably a lot of puts and takes when you at a loss. But what should we be expecting for the rest of the year? And there was an article on this per diem stuff and the IRS taking a closer look at that. Is that something you guys are thinking about and what should we expect out of that?

We had a per diem program, and that's primarily why you see our rate in the 45% plus range. And I think based on where we are right now, we would expect it to be in that 45%-46% range as we look forward.

And with no further questions, I will turn the conference back over to Mr. Harlin for any additional or closing remarks.

Thank you for attending our call and we look forward to talking next quarter.

Thank you.

Thank you, and that will conclude today's call. We thank you for your participation, and you may disconnect at this time.