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Focus appears to be shifting from Variant to ‘blocking and tackling’ at U.S. Xpress

After announcement of cost cutting, CEO talks about getting back to basics

Eric Fuller, CEO of U.S. Xpress, left; a Variant truck, right. (Photo: Jim Allen/FreightWaves)

The Variant initiative at U.S. Xpress is not dead. CEO Eric Fuller made that clear Thursday during a conference call with analysts.

In response to an analyst question, Fuller even said the company will continue to order both red trucks for the traditional U.S. Xpress color scheme and gray trucks, the color of Variant.

But there is little doubt from the conference call that Variant as the future of U.S. Xpress (NYSE: USX) has been moved aside. 

“I wouldn’t say 100 percent that Variant is dead,” Fuller said in response to a question from Morgan Stanley’s Ravi Shanker. “Variant as a brand has value from a driver’s perspective, and a lot of the technology has value. But with all that said, we are kind of skinnying down the strategy.”

The call came a day after the truckload carrier announced it was laying off an undetermined number of workers — the departures occurring in August — and slicing other costs to save $25 million per year at a company that has mostly missed the freight bull market of the last year and where the stock price has dropped more than 70% in the past 12 months.

Variant is being folded into a larger Highway Services group that will include its legacy over-the-road truckload business as well as brokerage. Dedicated operations will be a separate segment within U.S. Xpress. 

In his prepared remarks, Fuller only mentioned Variant in passing when discussing the reorganization, a far cry from quarterly earnings calls where the technology-driven Variant was front and center in his discussion of the company’s future. The rest of the focus on Variant came in response to analyst questions — of which there were several. That’s a far cry from the company’s most recent quarterly earnings call with analysts, where no analysts registered to be on the call. 

“Previous management was very focused on a true startup strategy,” Fuller said of Variant. “[It was] a lot of things being thrown up against the wall. We have to get a lot more narrow in our focus. We need to be targeted on what we’re working on. The big thing is that we saw a big drop in utility and that drop is making drivers less money, and that has really driven our turnover.”

The numbers back up Fuller’s statement on “utility.” In the second quarter, average revenue miles per tractor per week at U.S. Xpress on a consolidated basis — dedicated and truckload — was 1,607 miles, compared to 1,722 in Q2 of 2021. In the first quarter, the total was 1,577, compared to 1,724 miles in 2021’s Q1. 

Turnover at U.S. Xpress has long been an issue with the company, and Variant and its various approaches toward driver retention were supposed to help fix that. But in the last two quarters, turnover at Variant was 150%. Turnover in the legacy OTR business was not disclosed.

Fixing that, Fuller said, goes back to the issue of “utility.”

“I think when you look at turnover in our industry, when it is really bad, it is usually equated to a lack of utility,” Fuller said. 

Other issues such as “nice trucks” are “ancillary,” Fuller said. Ultimately, he added, “None of it matters if the drivers aren’t making enough money. We need to get our utility up.”

Fuller made several references during the call to “the basics … blocking and tackling.”

Ken Hoexter of Bank of America kicked off the questioning with a pointed query, pointing out the company since it went public in 2018 had multiple strategies, so why did Fuller think his latest one would be successful?

“I would not say that our strategy has changed four times,” Fuller said. “Some of the things we did didn’t work. Some of the things we did worked but are buried from a results standpoint.”

Thrown into a market that is getting weaker, the company, Fuller said, is “focusing on getting back to the basics, blocking and tackling and driving near-term results is the right answer. We think we can get to profitability through these moves and can start to build upon that and position ourselves for the next upcycle market.”

Asked by an analyst whether the company had considered “strategic alternatives,” including being acquired, Fuller said it had “looked at everything and we continue to look at everything.”

But in the end, management decided against a significant change in its ownership structure,  Fuller said.

“We believe this business has a value that we can get back to, and we need to do that before we start to talk about what’s next,” Fuller said. A first step, he added, might involve getting down to an operating ratio of 95-96% with positive cash flow. 

Referring to the $25 million in annualized cost reductions announced by U.S. Xpress a day before the conference call, Fuller said if those expenditures are reduced, “we think we can get to a valuation three or four times from what we are worth today. And then we can think about what our next strategy needs to be.”

U.S. Xpress stock closed Wednesday at $2.52 and was little changed in early Thursday trading. It is down more than 70% from its 52-week high.  

Fuller said U.S. Xpress remains focused on an OR in the low 90% or high 80% range, “but we need a ways to get there and we need a bit of an upcycle to get there.” The OR at U.S. Xpress in the second quarter came in exactly at 100% for the consolidated operations. 

Part of the company’s strategy will involve a reduction in capital expenditures to less than $100 million in 2023 after expected spending this year of $150 million, which is not being reduced. That will mean an increase in the company’s tractors running an additional 100,000 miles during their lifetime with U.S. Xpress, increasing their average age to 27 months from 22 months by the end of 2023. CFO Eric Peterson said the company believes the lengthening will have “minimal impact on maintenance costs.”

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

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.