UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation | (I.R.S. Employer Identification No.) |
or organization) | |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
No ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | |
Non-accelerated filer ☐ | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes | No ☒ |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date April 26, 2021.
Class A Common Stock, $0.01 par value:
Class B Common Stock, $0.01 par value:
TABLE OF CONTENTS
PART I | ||
Page | ||
Item 1. | Unaudited Condensed Consolidated Financial Statements Three Months Ended March 31, 2021 and 2020 | |
3 | ||
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) | 4 | |
5 | ||
Unaudited Condensed Consolidated Statement of Stockholders’ Equity | 6 | |
Notes to Unaudited Condensed Consolidated Financial Statements | 7 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | |
33 | ||
33 | ||
Page | ||
34 | ||
34 | ||
34 | ||
34 | ||
34 | ||
34 | ||
35 |
Page 2
U.S. Xpress Enterprises, Inc.
Unaudited Condensed Consolidated Balance Sheets
March 31, 2021 and December 31, 2020
March 31, | December 31, | |||||
(in thousands, except share amounts) |
| 2021 |
| 2020 | ||
Assets |
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Current assets |
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Cash and cash equivalents | $ | | $ | | ||
Customer receivables, net of allowance of $ |
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Other receivables |
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Prepaid insurance and licenses |
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Operating supplies |
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Assets held for sale |
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Other current assets |
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Total current assets |
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Property and equipment, at cost |
| |
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Less accumulated depreciation and amortization |
| ( |
| ( | ||
Net property and equipment |
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Other assets |
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Operating lease right of use assets |
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Goodwill |
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Intangible assets, net |
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Other |
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Total other assets |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders' Equity |
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Current liabilities |
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Accounts payable | $ | | $ | | ||
Book overdraft |
| |
| — | ||
Accrued wages and benefits |
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Claims and insurance accruals, current |
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Other accrued liabilities |
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Current portion of operating lease liabilities |
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Current maturities of long-term debt and finance leases |
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Total current liabilities |
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Long-term debt and finance leases, net of current maturities |
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Less unamortized discount and debt issuance costs |
| ( |
| ( | ||
Net long-term debt and finance leases |
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Deferred income taxes |
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Other long-term liabilities |
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Claims and insurance accruals, long-term |
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Noncurrent operating lease liabilities |
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Commitments and contingencies (Note 7) |
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Stockholders' equity | ||||||
Common stock Class A, $ |
| |
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Common stock Class B, $ |
| |
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Additional paid-in capital |
| |
| | ||
Retained earnings (deficit) |
| |
| ( | ||
Stockholders' equity |
| |
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Noncontrolling interest |
| |
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Total stockholders' equity |
| |
| | ||
Total liabilities and stockholders' equity | $ | | $ | |
See Notes to Unaudited Condensed Consolidated Financial Statements
Page 3
U.S. Xpress Enterprises, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended March 31, 2021 and 2020
Three Months Ended | ||||||
March 31, | ||||||
(in thousands, except per share amounts) |
| 2021 |
| 2020 | ||
Operating revenue |
|
|
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Revenue, before fuel surcharge | $ | | $ | | ||
Fuel surcharge |
| |
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Total operating revenue |
| |
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Operating expenses |
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Salaries, wages, and benefits |
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Fuel and fuel taxes |
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Vehicle rents |
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Depreciation and amortization, net of (gain) loss on sale of property |
| |
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Purchased transportation |
| |
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Operating expenses and supplies |
| |
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Insurance premiums and claims |
| |
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Operating taxes and licenses |
| |
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Communications and utilities |
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General and other operating expenses |
| |
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Total operating expenses |
| |
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Operating income (loss) |
| |
| ( | ||
Other expense |
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Interest expense, net |
| |
| | ||
Other, net |
| — |
| | ||
| |
| | |||
Income (loss) before income tax provision |
| |
| ( | ||
Income tax provision (benefit) |
| |
| ( | ||
Net total and comprehensive income (loss) |
| |
| ( | ||
Net total and comprehensive income (loss) attributable to noncontrolling interest |
| |
| ( | ||
Net total and comprehensive income (loss) attributable to controlling interest | $ | | $ | ( | ||
Earnings (loss) per share |
|
|
|
| ||
Basic earnings (loss) per share | $ | | $ | ( | ||
Basic weighted average shares outstanding |
| |
| | ||
Diluted earnings (loss) per share | $ | | $ | ( | ||
Diluted weighted average shares outstanding |
| |
| |
See Notes to Unaudited Condensed Consolidated Financial Statements
Page 4
U.S. Xpress Enterprises, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2021 and 2020
Three Months Ended | ||||||
March 31, | ||||||
(in thousands) |
| 2021 |
| 2020 | ||
Operating activities |
|
|
|
| ||
Net income (loss) | $ | | $ | ( | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
| |||
Deferred income tax provision (benefit) |
| |
| ( | ||
Depreciation and amortization |
| |
| | ||
Losses on sale of equipment |
| |
| | ||
Share based compensation |
| |
| | ||
Other |
| |
| | ||
Changes in operating assets and liabilities: |
|
|
| |||
Receivables |
| ( |
| ( | ||
Prepaid insurance and licenses |
| ( |
| ( | ||
Operating supplies |
| ( |
| ( | ||
Other assets |
| ( |
| | ||
Accounts payable and other accrued liabilities |
| |
| | ||
Accrued wages and benefits |
| |
| | ||
Net cash provided by operating activities |
| |
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Investing activities |
|
|
|
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Payments for purchases of property and equipment |
| ( |
| ( | ||
Proceeds from sales of property and equipment |
| |
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Other | — | ( | ||||
Net cash used in investing activities |
| ( |
| ( | ||
Financing activities |
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Borrowings under lines of credit |
| |
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Payments under lines of credit |
| ( |
| ( | ||
Borrowings under long-term debt |
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Payments of long-term debt and finance leases |
| ( |
| ( | ||
Payments of financing costs |
| ( |
| ( | ||
Payments of long-term consideration for business acquisition |
| — |
| ( | ||
Tax withholding related to net share settlement of restricted stock awards |
| ( |
| ( | ||
Proceeds from issuance of common stock under ESPP | | | ||||
Proceeds from long-term consideration for sale of subsidiary |
| |
| | ||
Book overdraft |
| |
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Net cash (used in) provided by financing activities |
| ( |
| | ||
Net change in cash and cash equivalents |
| ( | ( | |||
Cash and cash equivalents |
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Beginning of year |
| |
| | ||
End of period | $ | | $ | | ||
Supplemental disclosure of cash flow information |
|
|
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Cash paid during the year for interest | $ | | $ | | ||
Cash paid (refunded) during the year for income taxes |
| ( |
| | ||
Supplemental disclosure of significant noncash investing and financing activities |
|
|
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Property and equipment amounts accrued in accounts payable | | |
See Notes to Unaudited Condensed Consolidated Financial Statements
Page 5
U.S. Xpress Enterprises, Inc.
Unaudited Condensed Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 2021 and 2020
Additional | Non | Total | ||||||||||||||||
Class A | Class B | Paid | Retained | Controlling | Stockholders' | |||||||||||||
(in thousands, except share amounts) |
| Stock |
| Stock |
| In Capital |
| Earnings (Deficit) |
| Interest |
| Equity | ||||||
Balances at December 31, 2020 | $ | | $ | | $ | | $ | ( | $ | | $ | | ||||||
Share based compensation |
| — |
| — |
| |
| — |
| — |
| | ||||||
Vesting of restricted units |
| |
| |
| ( |
| — |
| — |
| ( | ||||||
Conversion of Class B stock to Class A stock | | ( | — | — | — | — | ||||||||||||
Issuance of common stock under ESPP | | — | | — | — | | ||||||||||||
Net income |
| — |
| — |
| — |
| |
| |
| | ||||||
Balances at March 31, 2021 | $ | | $ | | $ | | $ | | $ | | $ | |
Additional | Non | Total | ||||||||||||||||
Class A | Class B | Paid | Accumulated | Controlling | Stockholders' | |||||||||||||
(in thousands, except share amounts) |
| Stock |
| Stock |
| In Capital |
| Deficit |
| Interest |
| Equity | ||||||
Balances at December 31, 2019 | $ | | $ | | $ | | $ | ( | $ | | $ | | ||||||
Share based compensation |
| — |
| — |
| |
| — |
| — |
| | ||||||
Vesting of restricted units | |
| |
| ( |
| — |
| — | ( | ||||||||
Issuance of common stock under ESPP | | — | | — | — | | ||||||||||||
Net loss | — |
| — |
| — |
| ( |
| ( | ( | ||||||||
Balances at March 31, 2020 | $ | | $ | | $ | | $ | ( | $ | | $ | |
See Notes to Unaudited Condensed Consolidated Financial Statements
Page 6
U.S. Xpress Enterprises, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2021
1. Organization and Operations
U.S. Xpress Enterprises, Inc. and its consolidated subsidiaries (collectively, the “Company”, “we”, “us”, “our”, and similar expressions) provide transportation services throughout the United States, with a focus in the densely populated and economically diverse eastern half of the United States. The Company offers its customers a broad portfolio of services using its own asset-based truckload fleet and third-party carriers through our non-asset-based truck brokerage network. The Company has
Under our Articles of Incorporation, our authorized capital stock consists of
2. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany transactions and accounts have been eliminated.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with Article 10 of Regulation S-X promulgated under the Securities Act of 1933, as amended. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material. In the opinion of management, the accompanying financial statements include all adjustments that are necessary for a fair statement of the results of the interim periods presented, such adjustments being of a normal recurring nature.
Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The December 31, 2020 balance sheet was derived from our audited balance sheet as of that date. The Company’s operating results are subject to seasonal trends when measured on a quarterly basis; therefore operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020.
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform to the current presentation. The reclassification consisted primarily of $
Page 7
Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, which modifies Accounting Standards Codification (“ASC”) 740 to simplify the accounting for income taxes. We adopted ASU 2019-12 effective January 1, 2021 and the application of this guidance did not have a material impact on our financial statements.
3. Income Taxes
The Company’s provision for income taxes for the three months ended March 31, 2021 is based on the estimated annual effective tax rate for the year, plus discrete items, while the provision for income taxes for the three months ended March 31, 2020 is based on the actual effective tax rate for the year to date. The following table presents the provision for income taxes and the effective tax rates for the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended |
| |||||
March 31, |
| |||||
2021 |
| 2020 |
| |||
Income (loss) before income tax provision (benefit) | $ | | $ | ( | ||
Income tax provision (benefit) |
| |
| ( | ||
Effective tax rate | | % |
| | % |
The difference between the Company’s effective tax rate for the three months ended March 31, 2021 and 2020 and the US statutory rate of
4. Investments
Subsequent Event
At March 31, 2021, we held a $
Page 8
5. Long-Term Debt
Long-term debt at March 31, 2021 and December 31, 2020 consists of the following (in thousands):
| March 31, 2021 |
| December 31, 2020 | |||
Line of credit, maturing January 2025 | $ | | $ | — | ||
Revenue equipment installment notes with finance companies, weighted average interest rate of | | | ||||
Mortgage note payables, interest rates ranging from |
| |
| | ||
Other |
| |
| | ||
| |
| | |||
Less: Debt issuance costs |
| ( |
| ( | ||
Less: Current maturities of long-term debt |
| ( |
| ( | ||
$ | | $ | |
Credit Facility
On January 28, 2020, we entered into a new credit facility (the “Credit Facility”) and contemporaneously with the funding of the Credit Facility paid off obligations under our then existing credit facility and terminated such facility. The Credit Facility is a $
The Credit Facility is a
Borrowings under the new Credit Facility are subject to a borrowing base limited to the lesser of (A) $
Page 9
or revolving credit facility or (B) $
The Credit Facility includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the Credit Facility may be accelerated, and the lenders’ commitments may be terminated. The Credit Facility contains certain restrictions and covenants relating to, among other things, dividends, liens, acquisitions and dispositions, affiliate transactions, and other indebtedness.
At March 31, 2021, the Credit Facility had issued collateralized letters of credit in the face amount of $
6. Leases
We have operating and
The table below presents the lease-related assets and liabilities recorded on the balance sheet (in thousands):
Leases |
| Classification |
| March 31, 2021 | |
Assets |
|
|
|
| |
Operating |
| $ | | ||
Finance |
|
| | ||
Total leased assets |
|
| $ | | |
Liabilities |
|
|
|
| |
Current |
|
|
|
| |
Operating |
| $ | | ||
Finance |
|
| | ||
Noncurrent |
|
|
| ||
Operating |
|
| | ||
Finance |
|
| | ||
Total lease liabilities |
|
| $ | |
The table below presents certain information related to the lease costs for finance and operating leases (in thousands):
Three Months Ended | |||||||||
March 31, | |||||||||
Lease Cost |
| Classification |
|
| 2021 |
| 2020 | ||
Operating lease cost |
| Vehicle rents and General and other operating | $ | | $ | | |||
Finance lease cost: |
|
|
|
|
| ||||
Amortization of finance lease assets |
| Depreciation and amortization |
| |
| | |||
Interest on lease liabilities |
| Interest expense |
| |
| | |||
Short-term lease cost |
| Vehicle rents and General and other operating |
| |
|
| | ||
Total lease cost |
|
| $ | | $ | |
Page 10
Three Months Ended | ||||||
March 31, | ||||||
Cash Flow Information |
| 2021 |
| 2020 | ||
Cash paid for operating leases included in operating activities | $ | | $ | | ||
Cash paid for finance leases included in operating activities | $ | | $ | | ||
Cash paid for finance leases included in financing activities | $ | | $ | | ||
Operating lease right-of-use assets obtained in exchange for lease obligations | $ | | $ | | ||
Noncash lease expense was $
March 31, 2021 | |||||
Weighted‑Average | Weighted- |
| |||
Remaining Lease | Average |
| |||
Lease Term and Discount Rate |
| Term (years) |
| Discount Rate |
|
Operating leases |
| | % | ||
Finance leases |
| | % | ||
March 31, 2020 | |||||
Weighted‑Average | Weighted- |
| |||
Remaining Lease | Average |
| |||
Lease Term and Discount Rate |
| Term (years) |
| Discount Rate |
|
Operating leases |
|
| | % | |
Finance leases |
|
| | % |
As of March 31, 2021, future maturities of lease liabilities were as follows (in thousands):
March 31, 2021 | ||||||
| Finance |
| Operating | |||
2021 | $ | | $ | | ||
2022 |
| |
| | ||
2023 |
| |
| | ||
2024 |
| |
| | ||
2025 |
| — |
| | ||
Thereafter |
| — |
| | ||
| |
| | |||
Less: Amount representing interest |
| ( |
| ( | ||
Total | $ | | $ | |
7. Commitments and Contingencies
The Company is party to certain legal proceedings incidental to its business. The ultimate disposition of these matters, in the opinion of management, based in part on the advice of legal counsel, is not expected to have a materially adverse effect on the Company’s financial position or results of operations.
For the cases described below, management is unable to provide a meaningful estimate of the possible loss or range of loss because, among other reasons, (1) the proceedings are in various stages; (2) damages have not been sought; (3) damages are unsupported and/or exaggerated; (4) there is uncertainty as to the outcome of the proceedings, including pending appeals; and/or (5) there are significant factual issues to be resolved. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material adverse effect on our financial condition, though the outcomes could be material to our operating results for any particular period, depending, in part, upon the operating results for such period.
Page 11
California Wage and Hour Class Action Litigation
On December 23, 2015, a former driver filed a class action lawsuit against the Company and its subsidiary U.S. Xpress, Inc. in the Superior Court of California, County of San Bernardino. The Company removed the case from state court to the U.S. District Court for the Central District of California. The district court denied plaintiff’s initial motion for class certification of a class comprised of any employee driver who has driven in California at any time since December 23, 2011, without prejudice, under Rule 26 due to lack of commonality amongst the putative class members. The Court granted the plaintiff’s revised Motion for Class Certification, and the certified class now consists of all employee drivers who resided in California and who have driven in the State of California on behalf of U.S. Xpress at any time since December 23, 2011. The case alleges that class members were not paid for off-the-clock work, were not provided duty free meal or rest breaks, and were not paid premium pay in their absence, were not paid the California minimum wage for all hours worked in that state, were not provided accurate and complete itemized wage statements and were not paid all accrued wages at the end of their employment, all in violation of California law. The class seeks a judgment for compensatory damages and penalties, injunctive relief, attorney fees, costs and pre- and post-judgment interest. On May 2, 2019, the district court dismissed on grounds of preemption the claims alleging failure to provide duty free meal and rest breaks or to pay premium pay for failure to provide such breaks under California law. The Ninth Circuit Court of Appeals recently upheld the administrative ruling that formed the basis for the district court’s ruling. The parties also filed cross-motions for summary judgment on the remaining claims, and the Company filed a motion to decertify the class. The court recently issued its ruling on the pending cross-motions: (1) the court denied the Company’s motion to decertify the class; (2) the court granted the Company’s motion for summary judgment on the plaintiff’s minimum wage claim for non-driving duties such as pre-trip and post-trip inspection, fueling, receiving dispatches, waiting to load or unload, and handling paperwork for the loads for January 1, 2013 forward (leaving the minimum wage claim only for the approximate
time period from December 23, 2011 to December 31, 2012); (3) the court granted the plaintiff’s motion for summary judgment for the time spent taking Department of Transportation-required 10-hour breaks while hauling high value loads in California for solo drivers and for the designated team driver responsible for the load; and (4) the court denied the balance of cross-motions. The plaintiff filed a petition for permission to file an interlocutory appeal of the court’s decision on the minimum wage claim, which the district court and the Ninth Circuit both granted. The appeal is fully-briefed, and the Ninth Circuit set June 10, 2021 as the date for oral argument on the appeal. The district court stayed the trial that had been scheduled to start on February 16, 2021. It will be reset after the appeal is decided. The parties are currently engaged in expert discovery while the appeal is ongoing. We are currently not able to predict the probable outcome or to reasonably estimate a range of potential losses, if any. We intend to vigorously defend the merits of these claims.Stockholder Claims
As set forth below, between November 2018 and April 2019,
As to the Tennessee State Court Cases,
Page 12
and/or traceable to the IPO, and seeks, among other things, compensatory damages, costs and expenses (including attorneys’ fees) on behalf of the putative class.
On June 28, 2019, the defendants filed a Motion to Dismiss the Tennessee State Court Cases for failure to allege facts sufficient to support a violation of Section 11, 12 or 15 of the Securities Act. On November 13, 2020, the court presiding over the Tennessee State Court Cases entered an order, granting in part and denying in part the defendants’ Motions to Dismiss the Consolidated State Court Complaint. The court held that the plaintiffs failed to state a claim for violation of the Securities Act with respect to the majority of statements challenged as false or misleading in the Consolidated State Court Complaint. The court, however, held that the Consolidated State Court Complaint sufficiently alleged violations of the Securities Act with respect to
As to the Federal Court Cases, the operative amended complaint was filed on October 8, 2019 (“Amended Federal Complaint”), which named the same defendants as the Tennessee State Court Cases. The Amended Federal Complaint is made on behalf of a putative class. In addition to claims for alleged violations of Section 11 and 15 of the Securities Act, the Amended Federal Complaint alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) against the Company, its Chief Executive Officer and its Chief Financial Officer. On December 23, 2019, the defendants filed a Motion to Dismiss the Amended Federal Complaint in its entirety for failure to allege facts sufficient to state a claim under either the Securities Act or the Exchange Act. The plaintiffs filed their Opposition to that Motion on March 9, 2020, and the defendants filed their Reply brief on April 23, 2020.
On June 30, 2020, the court presiding over the Federal Court Cases issued its ruling granting in part and denying in part the defendants’ Motions to Dismiss the Amended Federal Complaint. The court dismissed entirely the plaintiffs’ claims for alleged violations of the Exchange Act and further held that the plaintiffs failed to state a claim for violation of the Securities Act with respect to the majority of statements challenged as false or misleading in the Amended Federal Complaint. The court, however, held that the Federal Amended Complaint sufficiently alleged violations of the Securities Act with respect to
As to the New York State Case, on March 14, 2019, a substantially similar putative class action complaint was filed in the Supreme Court of the State of New York, County of New York, by a different plaintiff alleging claims under Sections 11 and 15 of the Securities Act against the same defendants as in the Tennessee State Court Cases. On December 18, 2020, defendants filed a Motion to Dismiss or Stay the New York State Case both on the merits and in deference to the pending actions in Tennessee. On March 5, 2021, the court residing over the New York State Case dismissed the case. Plaintiff has filed a notice of appeal and a motion to vacate the dismissal, which remain pending.
Stockholder Derivative Action
On June 7, 2019, a stockholder derivative lawsuit was filed in the District Court for Clark County, Nevada against
Page 13
result of, among other things, being subjected to the time and expense of the securities class action lawsuits that have been filed relating to the IPO. In addition to a claim for alleged breach of fiduciary duties, the lawsuit alleges claims against the Individual Defendants for unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. The parties have stipulated to a stay of this proceeding pending entry of a final judgment in the Tennessee State Court Cases, Federal Court Case, and the New York State Case. This matter is in the preliminary stages of litigation. We are currently not able to predict the probable outcome or to reasonably estimate a range of potential losses, if any. We believe the allegations made in the complaint are without merit and intend to defend ourselves vigorously in this matter.
Independent Contractor Class Action
On March 26, 2019, a putative class action complaint was filed in the U.S. District Court for the Eastern District of Tennessee against the Company and its subsidiaries U.S. Xpress, Inc. and U.S. Xpress Leasing, Inc. The putative class includes all individuals who performed work for U.S. Xpress, Inc. or U.S. Xpress Leasing, Inc. as lease drivers from March 26, 2016 to present. The complaint alleges that independent contractors are improperly designated as such and should be designated as employees and thus subject to the Fair Labor Standards Act (“FLSA”). The complaint further alleges that U.S. Xpress, Inc.’s pay practices for the putative class members violated the minimum wage provisions of the FLSA for the period from March 26, 2016 to present. The complaint further alleges that the Company violated the requirements of the Truth in Leasing Act with regard to the independent contractor agreements and lease purchase agreements it entered into with the putative class members. The complaint further alleges that the Company failed to comply with the terms of the independent contractor agreements and lease purchase agreements entered into with the putative class members, that it violated the provisions of the Tennessee Consumer Protection Act in advertising, describing and marketing the lease purchase program to the putative class members, and that it was unjustly enriched as a result of the foregoing allegations. We filed a Motion to Compel Arbitration on October 18, 2019. On January 17, 2020, the court granted that motion, in part, compelling arbitration on all of the plaintiff’s claims and denying the plaintiff’s motion for conditional certification of a collective action. The court further stayed the matter pending arbitration, rather than dismissing it entirely. On March 6, 2020, the plaintiff petitioned the court to certify the decision for an interlocutory appeal. The Company filed an opposition to plaintiff’s motion on March 20, 2020, and plaintiff filed her reply on April 3, 2020, purportedly relying, in part, on a recent case from Massachusetts. In response to that newly cited case, the Company was granted leave to file a surreply, which it filed on April 13, 2020. On September 3, 2020, the district court denied Plaintiff’s petition. The plaintiff initiated arbitration on the claims on December 16, 2020. On March 25, 2021, the arbitrator issued a scheduling order, setting a final arbitration hearing for June 6, 2022.There has been no discovery in this matter, and we are currently not able to predict the probable outcome or to reasonably estimate a range of potential losses, if any. We believe the allegations made in the complaint and demand are without merit and intend to defend ourselves vigorously in this matter.
On June 25, 2020, a second putative collective and class action complaint was filed against the Company and its subsidiaries U.S. Xpress, Inc. and U.S. Xpress Leasing, Inc. in the U.S. District Court for the Eastern District of Tennessee. The putative class and collective action includes all current and former over-the-road truck drivers classified as independent contractors who performed work for the Company during the applicable statute of limitations. The complaint alleges that independent contractors are improperly designated as such and should be designated as employees subject to the FLSA. The complaint alleges that U.S. Xpress, Inc.’s pay practices for the putative collective and class members violated the minimum wage provisions of the FLSA for the period from June 25, 2017 to the present. The complaint further alleges that we failed to pay the plaintiff and members of the class for all miles they drove and breached the contract between the parties and that we were unjustly enriched as a result of the foregoing allegations. The plaintiff agreed to submit his claims to individual arbitration and filed an arbitration demand on July 31, 2020. The parties agreed to settle the matter, for a nominal amount and are working to finalize the settlement agreement and to seek court approval of the settlement. The parties will also ask the court to dismiss the case, with prejudice. The Company continues to deny the allegations made in the complaint and demand.
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Other
The Company had letters of credit of $
The Company had cancelable commitments outstanding at March 31, 2021 to acquire revenue equipment and other equipment for approximately $
8. Share-based Compensation
2018 Omnibus Incentive Plan
In June 2018, the Board approved the 2018 Omnibus Incentive Plan (the “Incentive Plan”) to become effective in connection with the initial public offering. The Company had reserved an aggregate of
The following is a summary of the Incentive Plan restricted stock and restricted stock unit activity for the three months ended March 31, 2021:
Weighted | |||||
Number of | Average Grant | ||||
| Units |
| Date Fair Value | ||
Unvested at December 31, 2020 |
| | $ | | |
Granted |
| | | ||
Vested |
| ( |
| | |
Forfeited |
| ( |
| | |
Unvested at March 31, 2021 |
| | $ | |
Service based restricted stock grants vest over periods of
Page 15
The following is a summary of the Incentive Plan stock option activity from December 31, 2020 to March 31, 2021:
Weighted | |||||
Number of | Average Grant | ||||
| Units |
| Date Fair Value | ||
Unvested at December 31, 2020 |
| | $ | | |
Granted |
| — | — | ||
Vested | ( | | |||
Forfeited/Canceled | — | — | |||
Unvested at March 31, 2021 |
| | $ | |
The stock options vest over a period of
At March 31, 2021, the Company had $
Pre-IPO Restricted Stock Units
The following is a summary of the activity related to restricted stock units issued prior to the IPO for the three months ended March 31, 2021:
Number of | Weighted | ||||
| Units |
| Average | ||
Unvested at December 31, 2020 |
| | $ | | |
Vested |
| ( | | ||
Unvested at March 31, 2021 |
| | $ | | |
The vesting schedule for these restricted unit grants range from
Employee Stock Purchase Plan
In June 2018, our Employee Stock Purchase Plan (the “ESPP”) became effective. The Company has reserved an aggregate of
Page 16
9. Earnings per Share
Basic earnings per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average shares of common stock outstanding during the period, without consideration for common stock equivalents. The Company excluded
The basic and diluted earnings per share calculations for the three months ended March 31, 2021 and 2020, respectively, are presented below (in thousands, except per share amounts):
Three Months Ended | ||||||
March 31, | ||||||
| 2021 |
| 2020 | |||
Numerator - Basic | ||||||
Net income (loss) | $ | | $ | ( | ||
Net income (loss) attributable to noncontrolling interest |
| |
| ( | ||
Net income (loss) attributable to common stockholder | $ | | $ | ( | ||
Numerator - Dilutive | ||||||
Net income (loss) | $ | | $ | ( | ||
Net income (loss) attributable to noncontrolling interest |
| ( |
| ( | ||
Net income (loss) attributable to common stockholder | $ | | $ | ( | ||
Basic weighted average of outstanding shares of common stock |
| |
| | ||
Dilutive effect of equity awards |
| |
| — | ||
Dilutive effect of assumed subsidiary share conversion | | — | ||||
Diluted weighted average of outstanding shares of common stock |
| |
| | ||
Basic earnings (loss) per share | $ | | $ | ( | ||
Diluted earnings (loss) per share | $ | | $ | ( |
10. Segment Information
The Company’s business is organized into
The Company’s Brokerage segment is principally engaged in non-asset-based freight brokerage services, where it outsources the transportation of loads to third-party carriers. For this segment, the Company relies on brokerage employees to procure third-party carriers, as well as information systems to match loads and carriers.
Page 17
The following table summarizes our segment information (in thousands):
Three Months Ended | ||||||
March 31, | ||||||
| 2021 |
| 2020 | |||
Revenues |
|
|
|
| ||
Truckload | $ | | $ | | ||
Brokerage |
| |
| | ||
Total Operating Revenue | $ | | $ | | ||
Operating Income |
|
|
|
| ||
Truckload | $ | | $ | | ||
Brokerage |
| |
| ( | ||
Total Operating Income (Loss) | $ | | $ | ( |
A measure of assets is not applicable, as segment assets are not regularly reviewed by the Chief Operating Decision Maker for evaluating performance or allocating resources.
Page 18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The unaudited condensed consolidated financial statements include the accounts of U.S. Xpress Enterprises, Inc., a Nevada corporation, and its consolidated subsidiaries. References in this report to “we,” “us,” “our,” the “Company,” and similar expressions refer to U.S. Xpress Enterprises, Inc. and its consolidated subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.
This report contains certain statements that may be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of earnings, revenues or other financial items; any statement of plans, strategies, outlook, growth prospects or objectives of management for future operations; our operational and financial targets; general economic trends, performance or conditions and trends in the industry and markets; the competitive environment in which we operate; any statements concerning proposed new services, technologies or developments; and any statement of belief and any statements of assumptions underlying any of the foregoing. In this Form 10-Q, statements relating to the impact of new accounting standards, future tax rates, expenses, and deductions, expected freight demand, capacity, and volumes, potential results of a default under our Credit Facility or other debt agreements, expected sources of working capital and liquidity (including our mix of debt, finance leases, and operating leases as means of financing revenue equipment), expected capital expenditures, expected fleet age and mix of owned versus leased equipment, expected impact of technology, our strategic initiatives, our ability to profitably scale Variant, as well as our Dedicated service offering and our Brokerage segment, future customer relationships, future fluctuations in purchased transportation expense and fuel surcharge reimbursement, future driver market conditions and driver turnover and retention rates, any projections of earnings, revenues, cash flows, dividends, capital expenditures, operating ratio, or other financial items, expected cash flows, expected operating improvements, any statements regarding future economic conditions or performance, any statement of plans, strategies, programs and objectives of management for future operations, including the anticipated impact of such plans, strategies, programs and objectives, future rates and prices, future utilization, future depreciation and amortization, future salaries, wages, and related expenses, including driver compensation, future insurance and claims expense, future fluctuations in fuel costs and fuel surcharge revenue, including the future effectiveness of our fuel surcharge program, strategies for managing fuel costs, future fleet size and management, the market value of used equipment, including gain on sale, any statements concerning proposed acquisition plans, new services or developments, the anticipated impact of legal proceedings on our financial position and results of operations, and the anticipated effect of the COVID-19 pandemic, among others, are forward-looking statements. Such statements may be identified by their use of terms or phrases such as “believe,” “may,” “could,” “should,” “expects,” “estimates,” “projects,” “anticipates,” “plans,” “intends,” “outlook,” “strategy,” “target,” “optimistic,” “focus,” “continue,” “will” and similar terms and phrases. Such statements are based on currently available operating, financial and competitive information. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the sections entitled “Item 1A. Risk Factors,” set forth in our Annual Report on Form 10-K for the year ended December 31, 2020. Readers should review and consider the factors discussed in “Item 1A. Risk Factors,” set forth in our Annual Report on Form 10-K for the year ended December 31, 2020, along with various disclosures in our press releases, stockholder reports, and other filings with the SEC.
All such forward-looking statements speak only as of the date of this Form 10-Q. You are cautioned not to place undue reliance on such forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in the events, conditions, or circumstances on which any such statement is based.
Page 19
Overview
We are one of the largest asset-based truckload carriers in the United States by revenue, generating over $1.7 billion in total operating revenue in 2020. We provide services primarily throughout the United States, with a focus in the densely populated and economically diverse eastern half of the United States. We offer customers a broad portfolio of services using our own truckload fleet and third-party carriers through our non-asset-based truck brokerage network. As of March 31, 2021, our fleet consisted of approximately 6,350 tractors and approximately 13,000 trailers, including approximately 1,600 tractors provided by independent contractors. Our terminal network is established and capable of handling significantly larger volumes without meaningful additional investment.
Executive Summary
For much of our history, we focused primarily on scaling our fleet and expanding our service offerings to support sustainable, multi-faceted relationships with customers. More recently, we have focused on our core service offerings and refined our network to focus on shorter, more profitable lanes with more density, which we believe are more attractive to drivers. We believe we have the strategy, management team, revenue base, modern fleet, and capital structure that position us very well to execute upon our initiatives, drive further operational gains, and deliver long term value for our stockholders.
We are currently focused on three main priorities. The first is optimizing our Truckload network and resulting average revenue per tractor per week through repositioning equipment and allocating capacity to our Dedicated service offering and Variant, our digital fleet, from certain underperforming portions of our Over-the-Road (“OTR”) service offering. The second is improving the experience of our professional truck drivers, including their safety and security. And, the third is advancing our technology initiatives centered on digitization of our loads and business, automated load acceptance and prioritization, and our goal of achieving a frictionless order. During 2020 and the first quarter of 2021, we continued to see tangible, financial benefits of our strategic initiatives focused on utilizing technology to improve our processes, accelerate the velocity of our business, reduce the number of our preventable accidents, improve our customers’ and drivers’ satisfaction, and lower our costs.
We intend to continue successfully developing and implementing these digital initiatives that we believe are re-engineering our Company to be a market leader in growth and profitability over the next decade. We believe the result of these initiatives will provide for a more scalable model with significantly lower costs.
Total revenue for the first quarter of 2021 increased by $18.2 million to $450.8 million as compared to the first quarter of 2020. The increase was primarily a result of a 62.1% increase in Brokerage revenue to $81.8 million, partially offset by a decrease of $6.5 million in our Truckload revenue and decreased fuel surcharge revenue of $6.6 million. Excluding the impact of fuel surcharge revenue, first quarter revenue increased $24.8 million to $417.6 million, an increase of 6.3% as compared to the prior year quarter.
Operating income for the first quarter of 2021 was $8.0 million compared to an operating loss of $3.7 million in the first quarter of 2020. We delivered a 98.2% operating ratio for the quarter which is an improvement relative to the 100.8% operating ratio reported in the first quarter of 2020. Our profitability increased largely as a result of a 9.6% increase in revenue per mile combined with lower claims expense and other costs, an increase in our Brokerage revenues and increase in gross margin to 14.0% compared to 3.7% in the prior year quarter partially offset by decreased available tractors and decreased revenue miles per by tractor per week as a result of adverse weather as compared to the prior year quarter.
We are continuing to focus on our driver centric initiatives, such as increased miles and modern equipment, to both retain the professional drivers who have chosen to partner with us and attract new professional drivers to our team. During the second quarter of 2020 we launched our digital fleet, Variant, which is largely recruited, planned, dispatched and managed using artificial intelligence and digital platforms. Variant is a completely new paradigm for operating trucks in an OTR environment that is provided to the driver through a proprietary app-based driver experience. We developed the concept as a hypothesis in 2018 based in part on the business models of the digital freight brokerages. As digital brokers began to enter the market utilizing cutting edge technology and a new operating model, we believed there was an
Page 20
opportunity to take this approach and apply it to our asset based business in order to drive improved profitability and growth. During 2019, we began building our technology leadership and teams to construct the necessary databases, applications, and processes to launch a pilot fleet with a small number of trucks in the fourth quarter of 2019. The test proved successful and we expanded the pilot fleet to approximately 100 trucks in the first quarter of 2020. Given the positive results of the first quarter pilot we moved to a full production model, scaling the business to approximately 700 trucks at the end of 2020. During the first quarter of 2021, we completed phase one of our plan and converted a total of 951 OTR solo trucks, with the lowest returns, to our Variant platform. Phase two of our plan will be to convert an additional 550 trucks over the balance of 2021. We remain on track to meet or exceed our goal of reaching 1,500 Variant tractors, generating approximately 25% of Truckload revenues, by the end of 2021. While the conversion will not be linear, we expect our margins to expand further over time. We believe that we can further scale this platform while maintaining these positive results and continuing to further enhance the capabilities of this new technology. We will continue to focus on implementing and executing our initiatives that we expect will continue to drive sustainable improved performance over time.
While we believe our margins will expand as we continue to convert more of our trucks to our Variant platform, we also see tremendous growth opportunity given the highly fragmented nature of the U.S. trucking market. Our Variant business model directly addresses our drivers’ frustrations as our model delivers higher utilization and pay which has directly contributed to a significant drop in turnover. We expect the growth in Variant, which continues to exceed our expectations, to begin to offset our reduction of underperforming legacy OTR tractors later in the year, with a return to fleet count growth as we exit 2021.
During 2020, we purchased a small business with a technology platform and an experienced and talented team. Their approach to the brokerage business is to utilize a digital framework for handling transactions which we expect to be scalable. Importantly, we believe this platform will enable our team to continue scaling the business and drive a high level of growth in the years to come. Our team processed 67% of our Brokerage transactions digitally in the first quarter of 2021. Our digital platform is enabling our Brokerage segment to profitably scale while offering freight selectivity for Variant. As we drive more volume over our digital platform, we believe our Brokerage segment will become much more scalable and allow us to profitably drive growth as we look to the years ahead.
The Company’s expectation is for freight demand to remain strong throughout 2021 given the broader economic recovery and tailwinds that it is experiencing as a result of the Federal Government’s most recent stimulus package, which is having a notable impact. On the supply side, the market for experienced drivers remains challenging, which is keeping a lid on supply. Additionally, chip shortages and supply chain constraints are impacting new tractor builds, which is also supportive of a favorable supply-demand balance over the near term. These conditions are expected to continue to support spot market rates in excess of contract rates and a strengthening contract renewal environment through the remainder 2021. As a result, we expect contract rates up for renewal in 2021 in our OTR division to increase on average by 10-15% with the driver shortage likely extending the cycle as we believe there could be up to 200,000 fewer drivers in the market compared to 2019.
Subsequent Event
On April 15, 2021, TuSimple completed its initial public offering at a price of $40.00 per share. Our $5.0 million investment consisted of 353,604 shares of TuSimple and will be recorded at fair value beginning with the second quarter of 2021. Changes in the fair value will be recorded as unrealized gain on equity securities in the condensed consolidated statements of comprehensive income (loss).
Reportable Segments
Our business is organized into two reportable segments, Truckload and Brokerage. Our Truckload segment offers truckload services, including OTR trucking and dedicated contract services. Our OTR service offering transports a full trailer of freight for a single customer from origin to destination, typically without intermediate stops or handling pursuant to short-term contracts and spot moves that include irregular route moves without volume and capacity commitments. Tractors are operated with a solo driver or, when handling more time-sensitive, higher-margin freight, a team of two drivers. Our dedicated contract service offering provides similar freight transportation services, but with contractually
Page 21
assigned equipment, drivers and on-site personnel to address customers’ needs for committed capacity and service levels pursuant to multi-year contracts with guaranteed volumes and pricing. Our Brokerage segment is principally engaged in non-asset-based freight brokerage services, where loads are contracted to third-party carriers.
Truckload Segment
In our Truckload segment, we generate revenue by transporting freight for our customers in our OTR and dedicated contract service offerings. Our OTR service offering provides solo and expedited team services through one way movements of freight over routes throughout the United States. Our Variant fleet is included within our OTR service offering. Our dedicated contract service offering devotes the use of equipment to specific customers and provides services through long term contracts. Our Truckload segment provides services that are geographically diversified but have similar economic and other relevant characteristics, as they all provide truckload carrier services of general commodities and durable goods to similar classes of customers.
We are typically paid a predetermined rate per load or per mile for our Truckload services. We enhance our revenue by charging for tractor and trailer detention, loading and unloading activities and other specialized services. Consistent with industry practice, our typical customer contracts (other than those contracts in which we have agreed to dedicate certain tractor and trailer capacity for use by specific customers) do not guarantee load levels or tractor availability. This gives us and our customers a certain degree of flexibility to negotiate rates up or down in response to changes in freight demand and trucking capacity. In our dedicated contract service offering, which comprised approximately 41.5% of our Truckload operating revenue, and approximately 42.0% of our Truckload revenue, before fuel surcharge, for 2020, we provide service under contracts with fixed terms, volumes and rates. Dedicated contracts are often used by our customers with high service and high priority freight, sometimes to replace private fleets previously operated by them.
Generally, in our Truckload segment, we receive fuel surcharges on the miles for which we are compensated by customers. Fuel surcharge revenue mitigates the effect of price increases over a negotiated base rate per gallon of fuel; however, these revenues may not fully protect us from all fuel price increases. Our fuel surcharges to customers may not fully recover all fuel increases due to engine idle time, out of route miles and non-revenue generating miles that are not generally billable to the customer, as well as to the extent the surcharge paid by the customer is insufficient. The main factors that affect fuel surcharge revenue are the price of diesel fuel and the number of revenue miles we generate. Although our surcharge programs vary by customer, we generally attempt to negotiate an additional penny per mile charge for every five cent increase in the U.S. Department of Energy’s (the “DOE”) national average diesel fuel index over an agreed baseline price. Our fuel surcharges are billed on a lagging basis, meaning we typically bill customers in the current week based on a previous week’s applicable index. Therefore, in times of increasing fuel prices, we do not recover as much as we are currently paying for fuel. In periods of declining prices, the opposite is true. Based on the current status of our empty miles percentage and the fuel efficiency of our tractors, we believe that our fuel surcharge recovery is effective.
The main factors that affect our operating revenue in our Truckload segment are the average revenue per mile or load we receive from our customers, the percentage of miles for which we are compensated and the number of shipments and miles we generate. Our primary measures of revenue generation for our Truckload segment are average revenue per loaded mile and average revenue per tractor per period, in each case excluding fuel surcharge revenue.
In our Truckload segment, our most significant operating expenses vary with miles traveled and include (i) fuel, (ii) driver related expenses, such as wages, benefits, training and recruitment and (iii) costs associated with independent contractors (which are primarily included in the “Purchased transportation” line item). Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency and other factors. Our main fixed costs include vehicle rent and depreciation of long term assets, such as revenue equipment and service center facilities, the compensation of non-driver personnel and other general and administrative expenses.
Our Truckload segment requires substantial capital expenditures for purchase of new revenue equipment. We use a combination of operating leases and secured financing to acquire tractors and trailers, which we refer to as revenue equipment. When we finance revenue equipment acquisitions with operating leases, we record an operating lease right of
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use asset and an operating lease liability on our condensed consolidated balance sheet, and the lease payments in respect of such equipment are reflected in our condensed consolidated statement of comprehensive income (loss) in the line item “Vehicle rents.” When we finance revenue equipment acquisitions with secured financing, the asset and liability are recorded on our condensed consolidated balance sheet, and we record expense under “Depreciation and amortization” and “Interest expense.” Typically, the aggregate monthly payments are similar under operating lease financing and secured financing. We use a mix of finance leases and operating leases with individual decisions being based on competitive bids, tax projections and contractual restrictions. Because of the inverse relationship between vehicle rents and depreciation and amortization, we review both line items together.
Approximately 23.5% of our total tractor fleet was operated by independent contractors at March 31, 2021. Independent contractors provide a tractor and a driver and are responsible for all of the costs of operating their equipment and drivers, including interest and depreciation, vehicle rents, driver compensation, fuel and other expenses, in exchange for a fixed payment per mile or percentage of revenue per invoice plus a fuel surcharge pass through. Payments to independent contractors are recorded in the “Purchased transportation” line item. When independent contractors increase as a percentage of our total tractor fleet, our “Purchased transportation” line item typically will increase, with offsetting reductions in employee driver wages and related expenses, net of fuel (assuming all other factors remain equal). The reverse is true when the percentage of our total fleet operated by company drivers increases.
Brokerage Segment
In our Brokerage segment, we retain the customer relationship, including billing and collection, and we outsource the transportation of the loads to third-party carriers. For this segment, we rely on brokerage employees to procure third-party carriers, as well as information systems to match loads and carriers.
Our Brokerage segment revenue is mainly affected by the rates we obtain from customers, the freight volumes we ship through our third-party carriers and our ability to secure third-party carriers to transport customer freight. We generally do not have contracted long-term rates for the cost of third-party carriers, and we cannot assure that our results of operations will not be adversely impacted in the future if our ability to obtain third-party carriers changes or the rates of such providers increase.
The most significant expense of our Brokerage segment, which is primarily variable, is the cost of purchased transportation that we pay to third-party carriers, and is included in the “Purchased transportation” line item. This expense generally varies depending upon truckload capacity, availability of third-party carriers, rates charged to customers and current freight demand and customer shipping needs. Other operating expenses are generally fixed and primarily include the compensation and benefits of non-driver personnel (which are recorded in the “Salaries, wages and benefits” line item) and depreciation and amortization expense.
The key performance indicator in our Brokerage segment is gross margin percentage (which is calculated as Brokerage revenue less purchased transportation expense expressed as a percentage of total operating revenue). Gross margin percentage can be impacted by the rates charged to customers and the costs of securing third-party carriers.
Our Brokerage segment does not require significant capital expenditures and is not asset intensive like our Truckload segment.
Results of Operations
Revenue
We generate revenue from two primary sources: transporting freight for our customers (including related fuel surcharge revenue) and arranging for the transportation of customer freight by third-party carriers. We have two reportable segments: our Truckload segment and our Brokerage segment. Truckload revenue, before fuel surcharge and truckload fuel surcharge are primarily generated through trucking services provided by our two Truckload service offerings (OTR and dedicated contract). Brokerage revenue is primarily generated through brokering freight to third-party carriers.
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Our total operating revenue is affected by certain factors that relate to, among other things, the general level of economic activity in the United States, customer inventory levels, specific customer demand, the level of capacity in the truckload and brokerage industry, the success of our marketing and sales efforts and the availability of drivers, independent contractors and third-party carriers.
A summary of our revenue generated for the three months ended March 31, 2021 and 2020 is as follows:
Three Months Ended | ||||||
March 31, | ||||||
| 2021 |
| 2020 | |||
(dollars in thousands) | ||||||
Revenue, before fuel surcharge | $ | 417,641 | $ | 392,820 | ||
Fuel surcharge |
| 33,119 |
| 39,748 | ||
Total operating revenue | $ | 450,760 | $ | 432,568 |
The primary factors driving the increases in total operating revenue and revenue, before fuel surcharge, were increased volumes and pricing in our Brokerage segment, increased revenue per mile in our Truckload segment, increased miscellaneous revenues offset by decreased fuel surcharge revenues.
As a result of our customer mix we did not experience a decline in overall freight volumes during this COVID-19 pandemic as the majority of our customers did not shutdown. However, our spot rates did suffer a decline early in the second quarter of 2020 due to capacity from other verticals becoming available as their customer base saw a reduction in volumes. During the third quarter of 2020, we saw spot market rates exceed contract rates for the first time in seven quarters, and we expect our contract rates up for renewal in our OTR division in 2021 to increase on average 10-15%.
A summary of our revenue generated by segment for the three months ended March 31, 2021 and 2020 is as follows:
Three Months Ended | ||||||
March 31, | ||||||
| 2021 |
| 2020 | |||
(dollars in thousands) | ||||||
Truckload revenue, before fuel surcharge | $ | 335,801 | $ | 342,344 | ||
Fuel surcharge |
| 33,119 |
| 39,748 | ||
Total Truckload operating revenue |
| 368,920 |
| 382,092 | ||
Brokerage operating revenue |
| 81,840 |
| 50,476 | ||
Total operating revenue | $ | 450,760 | $ | 432,568 |
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The following is a summary of our key Truckload segment performance indicators, before fuel surcharge for the three months ended March 31, 2021 and 2020.
Three Months Ended | ||||||
March 31, | ||||||
| 2021 |
| 2020 | |||
Over the road |
|
|
|
| ||
Average revenue per tractor per week | $ | 3,722 | $ | 3,463 | ||
Average revenue per mile | $ | 2.170 | $ | 1.871 | ||
Average revenue miles per tractor per week |
| 1,715 |
| 1,851 | ||
Average tractors |
| 3,421 |
| 3,835 | ||
Dedicated |
|
|
|
| ||
Average revenue per tractor per week | $ | 4,155 | $ | 4,068 | ||
Average revenue per mile | $ | 2.394 | $ | 2.376 | ||
Average revenue miles per tractor per week |
| 1,736 |
| 1,712 | ||
Average tractors |
| 2,674 |
| 2,703 | ||
Consolidated |
|
|
|
| ||
Average revenue per tractor per week | $ | 3,912 | $ | 3,713 | ||
Average revenue per mile | $ | 2.269 | $ | 2.070 | ||
Average revenue miles per tractor per week |
| 1,724 |
| 1,764 | ||
Average tractors |
| 6,095 |
| 6,538 |
The primary factors driving the decreases in Truckload revenue, were a 6.8% decrease in average available tractors and a 3.9% decrease in average revenue miles per tractor per week as a result of adverse weather as compared to the prior year quarter partially offset by a 9.6% increase in average revenue per mile and an increase of $1.1 million in miscellaneous revenue. The decrease in fuel surcharge revenue primarily relates to an 11.0% decrease in revenue miles combined with decreased fuel prices compared to the same quarter in 2020. The DOE national weekly average fuel price per gallon averaged approximately $0.03 per gallon lower for the first quarter of 2021 compared to the first quarter of 2020.
The key performance indicator of our Brokerage segment is gross margin percentage (Brokerage revenue less purchased transportation expense expressed as a percentage of total operating revenue). Gross margin percentage can be impacted by the rates charged to customers and the costs of securing third-party carriers. The following table lists the gross margin percentage for our Brokerage segment for the three months ended March 31, 2021 and 2020.
Three Months Ended | |||||
March 31, | |||||
| 2021 |
| 2020 |
| |
Gross margin percentage |
| 14.0 | % | 3.7 | % |
The primary factors driving the increase in Brokerage revenue were a 67.2% increase in average revenue per load offset by a 3.0% decrease in load count. The increase in gross margin was due to the increase in revenue per load of 67.2% exceeding the 49.3% increase in cost per load as compared to the same quarter in 2020. During the first quarter of 2021, our Brokerage revenue grew 62.1% compared to the prior year first quarter as we improved our mix of business towards the spot market and away from contract pricing in order to achieve a better balance in our business.
Operating Expenses
For comparison purposes in the discussion below, we use total operating revenue and revenue, before fuel surcharge when discussing changes as a percentage of revenue. As it relates to the comparison of expenses to revenue, before fuel surcharge, we believe that removing fuel surcharge revenue, which is sometimes a volatile source of revenue affords a more consistent basis for comparing the results of operations from period-to-period.
Individual expense line items as a percentage of total operating revenue also are affected by fluctuations in the percentage of our revenue generated by independent contractor and brokerage loads.
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Salaries, Wages and Benefits
Salaries, wages and benefits consist primarily of compensation for all employees. Salaries, wages and benefits are primarily affected by the total number of miles driven by company drivers, the rate per mile we pay our company drivers, employee benefits such as health care and workers’ compensation, and to a lesser extent by the number of, and compensation and benefits paid to, non-driver employees.
The following is a summary of our salaries, wages and benefits for the three months ended March 31, 2021 and 2020:
Three Months Ended |
| ||||||
March 31, | |||||||
| 2021 |
| 2020 |
| |||
(dollars in thousands) |
| ||||||
Salaries, wages and benefits | $ | 142,003 |
| $ | 135,378 | ||
% of total operating revenue |
| 31.5 | % | 31.3 | % | ||
% of revenue, before fuel surcharge |
| 34.0 | % | 34.5 | % |
The increase in salaries, wages and benefits in absolute dollar terms was due primarily to $5.0 million in higher office wages due in part to a 7.8% increase in headcount as we continue to invest in our digital initiatives. We believe our office wages as a percentage of revenue will decrease as we scale our organization. Our driver wages increased $1.8 million despite the 5.4% decrease in company driver miles due primarily to the higher driver pay per mile. During the first quarter of 2021, our group health and workers’ compensation expense remained essentially constant as compared to the same quarter in 2020.
In the near term, we believe salaries, wages and benefits will increase as a result of a tight driver market, wage inflation and higher healthcare costs. As a percentage of revenue, we expect salaries, wages and benefits will fluctuate based on our ability to generate offsetting increases in average revenue per total mile and the percentage of revenue generated by independent contractors and brokerage operations, for which payments are reflected in the “Purchased transportation” line item.
Fuel and Fuel Taxes
Fuel and fuel taxes consist primarily of diesel fuel expense and fuel taxes for our company-owned and leased tractors. The primary factors affecting our fuel and fuel taxes expense are the cost of diesel fuel, the miles per gallon we realize with our equipment and the number of miles driven by company drivers.
We believe that the most effective protection against net fuel cost increases in the near term is to maintain an effective fuel surcharge program and to operate a fuel-efficient fleet by incorporating fuel efficiency measures, such as auxiliary heating units, installation of aerodynamic devices on tractors and trailers and low-rolling resistance tires on our tractors, engine idle limitations and computer-optimized fuel-efficient routing of our fleet.
The following is a summary of our fuel and fuel taxes for the three months ended March 31, 2021 and 2020:
Three Months Ended |
| ||||||
March 31, |
| ||||||
| 2021 |
| 2020 |
| |||
(dollars in thousands) |
| ||||||
Fuel and fuel taxes | $ | 40,404 | $ | 40,207 | |||
% of total operating revenue |
| 9.0 | % | 9.3 | % | ||
% of revenue, before fuel surcharge |
| 9.7 | % | 10.2 | % |
To measure the effectiveness of our fuel surcharge program, we calculate “net fuel expense” by subtracting fuel surcharge revenue (other than the fuel surcharge revenue we reimburse to independent contractors, which is included in purchased transportation) from our fuel expense. Our net fuel expense as a percentage of revenue, before fuel surcharge,
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is affected by the cost of diesel fuel net of surcharge collection, the percentage of miles driven by company tractors and our percentage of non-revenue generating miles, for which we do not receive fuel surcharge revenues. Net fuel expense as a percentage of revenue, before fuel surcharge, is shown below:
March 31, |
| ||||||
| 2021 |
| 2020 |
| |||
(dollars in thousands) |
| ||||||
Total fuel surcharge revenue | $ | 33,119 | $ | 39,748 | |||
Less: fuel surcharge revenue reimbursed to independent contractors |
| 7,660 |
| 11,211 | |||
Company fuel surcharge revenue |
| 25,459 |
| 28,537 | |||
Total fuel and fuel taxes | $ | 40,404 | $ | 40,207 | |||
Less: company fuel surcharge revenue |
| 25,459 |
| 28,537 | |||
Net fuel expense | $ | 14,945 | $ | 11,670 | |||
% of total operating revenue |
| 3.3 | % | 2.7 | % | ||
% of revenue, before fuel surcharge |
| 3.6 | % | 3.0 | % |
The increase in net fuel expenses was primarily the result of a 8.7% increase in the average company fuel price per gallon, a $3.1 million decrease in company fuel surcharge revenue partially offset by a 5.4% decrease in company miles combined with a 2.0% increase in average miles per gallon compared to the same quarter in 2020.
In the near term, our net fuel expense is expected to fluctuate as a percentage of total operating revenue and revenue, before fuel surcharge, based on factors such as diesel fuel prices, the percentage recovered from fuel surcharge programs, the percentage of uncompensated miles, the percentage of revenue generated by independent contractors, and the percentage of revenue generated by team-driven tractors (which tend to generate higher miles and lower revenue per mile, thus proportionately more fuel cost as a percentage of revenue).
Vehicle Rents and Depreciation and Amortization
Vehicle rents consist primarily of payments for tractors and trailers financed with operating leases. The primary factors affecting this expense item include the size and age of our tractor and trailer fleets, the cost of new equipment and the relative percentage of owned versus leased equipment.
Depreciation and amortization consists primarily of depreciation for owned tractors and trailers. The primary factors affecting these expense items include the size and age of our tractor and trailer fleets, the cost of new equipment and the relative percentage of owned equipment and equipment acquired through debt or finance leases versus equipment leased through operating leases. We use a mix of finance leases and operating leases to finance our revenue equipment with individual decisions being based on competitive bids and tax projections. Gains or losses realized on the sale of owned revenue equipment are included in depreciation and amortization for reporting purposes.
Vehicle rents and depreciation and amortization are closely related because both line items fluctuate depending on the relative percentage of owned equipment and equipment acquired through finance leases versus equipment leased through operating leases. Vehicle rents increase with greater amounts of equipment acquired through operating leases, while depreciation and amortization increases with greater amounts of owned equipment and equipment acquired through finance leases. Because of the inverse relationship between vehicle rents and depreciation and amortization, we review both line items together.
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The following is a summary of our vehicle rents and depreciation and amortization for the three months ended March 31, 2021 and 2020:
Three Months Ended |
| ||||||
March 31, |
| ||||||
| 2021 |
| 2020 |
| |||
(dollars in thousands) |
| ||||||
Vehicle rents | $ | 21,463 | $ | 21,877 | |||
Depreciation and amortization, net of (gains) losses on sale of property |
| 22,382 |
| 25,803 | |||
Vehicle rents and depreciation and amortization of property and equipment | $ | 43,845 | $ | 47,680 | |||
% of total operating revenue |
| 9.7 | % | 11.0 | % | ||
% of revenue, before fuel surcharge |
| 10.5 | % | 12.1 | % |
The decrease in vehicle rents was primarily due to decreased short term rents compared to the same quarter in 2020. The decrease in depreciation and amortization, net of (gains) losses on sale of property, is primarily due to a decrease in number of owned tractors combined with a decrease in loss on sale of property and equipment of $1.6 million compared to the same quarter in 2020.
For calendar year 2021, excluding any change in our percentage allocation of owned versus leased equipment due to available financing terms, we expect to spend approximately $130.0 to $150.0 million in net capital expenditures which will keep the average age of our equipment relatively constant. This amount could expand to fund additional profitable growth opportunities. The balance of our equipment procurement will be funded through operating leases.
Purchased Transportation
Purchased transportation consists of the payments we make to independent contractors, including fuel surcharge reimbursements paid to independent contractors, in our Truckload segment, and payments to third-party carriers in our Brokerage segment.
The following is a summary of our purchased transportation for the three months ended March 31, 2021 and 2020:
Three Months Ended |
| ||||||
March 31, |
| ||||||
| 2021 |
| 2020 |
| |||
(dollars in thousands) |
| ||||||
Purchased transportation | $ | 141,661 | $ | 129,754 | |||
% of total operating revenue |
| 31.4 | % | 30.0 | % | ||
% of revenue, before fuel surcharge |
| 33.9 | % | 33.0 | % |
Because we reimburse independent contractors for fuel surcharges we receive, we subtract fuel surcharge revenue reimbursed to them from our purchased transportation. The result, referred to as purchased transportation, net of fuel
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surcharge reimbursements, is evaluated as a percentage of total operating revenue and as a percentage of revenue, before fuel surcharge, as shown below:
Three Months Ended |
| ||||||
March 31, |
| ||||||
| 2021 |
| 2020 |
| |||
(dollars in thousands) |
| ||||||
Purchased transportation | $ | 141,661 | $ | 129,754 | |||
Less: fuel surcharge revenue reimbursed to independent contractors |
| 7,660 |
| 11,211 | |||
Purchased transportation, net of fuel surcharge reimbursement | $ | 134,001 | $ | 118,543 | |||
% of total operating revenue |
| 29.7 | % |
| 27.4 | % | |
% of revenue, before fuel surcharge |
| 32.1 | % |
| 30.2 | % |
The increase in purchased transportation, net of fuel surcharge reimbursement reflected a 49.3% increase in cost per Brokerage load partially offset by a 25.8% decrease in independent contractor miles and a 3.0% decrease in Brokerage load count as compared to the same quarter in 2020. This expense category will fluctuate with the number and percentage of loads hauled by independent contractors and third-party carriers, as well as the amount of fuel surcharge revenue passed through to independent contractors.
If industry-wide trucking capacity continues to tighten in relation to freight demand, we may need to increase the amounts we pay to third-party carriers and independent contractors, which could increase this expense category on an absolute basis and as a percentage of total operating revenue and revenue, before fuel surcharge, absent an offsetting increase in revenue. We continue to actively attempt to expand our Brokerage segment and recruit independent contractors. Our success in growing our lease-purchase program and independent contractor drivers have contributed to increased purchased transportation expense. If we are successful in continuing these efforts, we would expect this line item to increase as a percentage of total operating revenue and revenue, before fuel surcharge.
Operating Expenses and Supplies
Operating expenses and supplies consist primarily of ordinary vehicle repairs and maintenance costs, driver on-the-road expenses, tolls and driver recruiting and training costs. Operating expenses and supplies are primarily affected by the age of our company-owned and leased fleet of tractors and trailers, the number of miles driven in a period and driver turnover.
The following is a summary of our operating expenses and supplies expense for the three months ended March 31, 2021 and 2020:
Three Months Ended |
| ||||||
March 31, |
| ||||||
| 2021 |
| 2020 |
| |||
(dollars in thousands) |
| ||||||
Operating expenses and supplies | $ | 32,515 | $ | 35,730 | |||
% of total operating revenue |
| 7.2 | % | 8.3 | % | ||
% of revenue, before fuel surcharge |
| 7.8 | % | 9.1 | % |
The primary factors driving the decrease in operating expenses and supplies was decreased tractor and trailer maintenance due to 3.2% fewer average company tractors combined with decreased expenses related to the suspension of our OTR student driver training program during the second quarter of 2020 partially offset by increased advertising costs for driver recruiting.
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Insurance Premiums and Claims
Insurance premiums and claims consists primarily of retained amounts for liability (personal injury and property damage), physical damage and cargo damage, as well as insurance premiums. The primary factors affecting our insurance premiums and claims are the frequency and severity of accidents, trends in the development factors used in our actuarial accruals and developments in large, prior year claims. The number of accidents tends to increase with the miles we travel. With our significant retained amounts, insurance claims expense may fluctuate significantly and impact the cost of insurance premiums and claims from period-to-period, and any increase in frequency or severity of claims or adverse loss development of prior period claims would adversely affect our financial condition and results of operations.
The following is a summary of our insurance premiums and claims expense for the three months ended March 31, 2021 and 2020:
Three Months Ended |
| ||||||
March 31, |
| ||||||
| 2021 |
| 2020 |
| |||
(dollars in thousands) |
| ||||||
Insurance premiums and claims | $ | 21,777 | $ | 26,023 | |||
% of total operating revenue |
| 4.8 | % | 6.0 | % | ||
% of revenue, before fuel surcharge |
| 5.2 | % | 6.6 | % |
Insurance premiums and claims decreased primarily due to decreased auto liability and physical damage claims primarily as a result of reduced frequency partially offset by increased auto liability premiums as compared to the same quarter in 2020. We renewed our liability insurance policies effective September 1, 2020 and as a result of the challenging insurance market our premiums increased approximately 30% while our coverage limits decreased to $75.0 million from $300.0 million per occurrence.
We continue to believe we have an opportunity to reduce our claims expense over time as a result the successful launch of Variant, our digital fleet, which is currently experiencing fewer preventable accidents per million miles than our OTR legacy fleet combined with the suspension of our OTR student program. During the first quarter of 2021 we experienced approximately 41% fewer preventable accidents than we did in the comparable prior year quarter which we believe contributed greatly to our lower insurance and claims expense despite higher premiums. Although a decrease in frequency in claims reduced our expense during the year, to the extent we have an increase in severity these savings could be partially or fully offset.
Liquidity and Capital Resources
Overview
Our business requires substantial amounts of cash to cover operating expenses as well as to fund capital expenditures, working capital changes, principal and interest payments on our obligations, lease payments, letters of credit to support insurance requirements and tax payments when we generate taxable income. Recently, we have financed our capital requirements with borrowings under our Credit Facility, cash flows from operating activities, direct equipment financing, finance leases, operating leases and proceeds from equipment sales.
We believe we can fund our expected cash needs, including debt repayment, in the short-term with projected cash flows from operating activities, borrowings under our Credit Facility and direct debt and lease financing we believe to be available for at least the next 12 months. Over the long-term, we expect that we will continue to have significant capital requirements, which may require us to seek additional borrowings, lease financing or equity capital. We have obtained a significant portion of our revenue equipment under operating leases, which are not reflected as net capital expenditures. The availability of financing and equity capital will depend upon our financial condition and results of operations as well as prevailing market conditions.
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At March 31, 2021, we had approximately $28.1 million of outstanding letters of credit, $13.2 million in outstanding borrowings and $162.1 million of availability under our $250.0 million Credit Facility.
Sources of Liquidity
Credit Facility
On January 28, 2020, we entered into the Credit Facility and contemporaneously with the funding of the Credit Facility paid off obligations under our then existing credit facility and terminated such facility. The Credit Facility is a $250.0 million revolving credit facility, with an uncommitted accordion feature that, so long as no event of default exists, allows the Company to request an increase in the revolving credit facility of up to $75.0 million.
The Credit Facility is a five-year facility scheduled to terminate on January 28, 2025. Borrowings under the Credit Facility are classified as either “base rate loans” or “eurodollar rate loans”. Base rate loans accrue interest at a base rate equal to the highest of (A) the Federal Funds Rate plus 0.50%, (B) the Agent’s prime rate, and (C) LIBOR plus 1.00% plus an applicable margin that was set at 0.50% through June 30, 2020 and adjusted quarterly thereafter between 0.25% and 0.75% based on the ratio of the daily average availability under the Credit Facility to the daily average of the lesser of the borrowing base or the revolving credit facility. Eurodollar rate loans accrue interest at LIBOR plus an applicable margin that was set at 1.50% through June 30, 2020 and adjusted quarterly thereafter between 1.25% and 1.75% based on the ratio of the daily average availability under the Credit Facility to the daily average of the lesser of the borrowing base or the revolving credit facility. The Credit Facility includes, within its $250.0 million revolving credit facility, a letter of credit sub-facility in an aggregate amount of $75.0 million and a swingline sub-facility in an aggregate amount of $25.0 million. An unused line fee of 0.25% is applied to the average daily amount by which the lenders’ aggregate revolving commitments exceed the outstanding principal amount of revolver loans and aggregate undrawn amount of all outstanding letters of credit issued under the Credit Facility. The Credit Facility is secured by a pledge of substantially all of the Company’s assets, excluding, among other things, any real estate or revenue equipment financed outside the Credit Facility.
Borrowings under the Credit Facility are subject to a borrowing base limited to the lesser of (A) $250.0 million; or (B) the sum of (i) 87.5% of eligible billed accounts receivable, plus (ii) 85.0% of eligible unbilled accounts receivable (less than 30 days), plus (iii) 85.0% of the net orderly liquidation value percentage applied to the net book value of eligible revenue equipment, plus (iv) the lesser of (a) 80.0% the fair market value of eligible real estate or (b) $25.0 million. The Credit Facility contains a single springing financial covenant, which requires a consolidated fixed charge coverage ratio of at least 1.0 to 1.0. The financial covenant is tested only in the event excess availability under the Credit Facility is less than the greater of (A) 10.0% of the lesser of the borrowing base or revolving credit facility or (B) $20.0 million. Based on excess availability as of March 31, 2021, there was no fixed charge coverage ratio requirement.
The Credit Facility includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the Credit Facility may be accelerated, and the lenders’ commitments may be terminated. The Credit Facility contains certain restrictions and covenants relating to, among other things, dividends, liens, acquisitions and dispositions, affiliate transactions, and other indebtedness.
At March 31, 2021, the Credit Facility had issued collateralized letters of credit in the face amount of $28.1 million, with $13.2 million in borrowings outstanding and $162.1 million available to borrow. We do not anticipate material liquidity constraints or any issues with our ongoing ability to remain in compliance with our Credit Facility.
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Cash Flows
Our summary statements of cash flows for the three months ended March 31, 2021 and 2020 are set forth in the table below:
Three Months Ended | ||||||
March 31, | ||||||
| 2021 |
| 2020 | |||
(dollars in thousands) | ||||||
Net cash provided by operating activities | $ | 15,321 | $ | 20,078 | ||
Net cash used in investing activities | $ | (2,019) | $ | (69,111) | ||
Net cash (used in) provided by financing activities | $ | (14,439) | $ | 48,972 |
Operating Activities
The decrease in cash flows from operating activities was due primarily to a $20.7 million increase in our operating assets, including a $20.3 million increase in accounts receivable, partially offset by a $10.4 million increase in net income adjusted for noncash items combined with a $5.1 million increase in our operating liabilities. Our operating liabilities increased $5.5 million during the three months ended March 31, 2021 as compared to the same period in 2020, due in part to increased accounts payable and claims and insurance accruals related to timing of payments. Our accounts receivable increased primarily as a result of the $18.2 million increase in revenue as compared to the same period in 2020. Our increase in net income adjusted for noncash items was due in part to increased average revenue per mile, increases in our Brokerage gross margin and decreased interest and other expense offset by decreases in our average revenue miles per tractor per week and lower available tractors.
Investing Activities
For the three months ended March 31, 2021, net cash flows used in investing activities were $2.0 million, a decrease of $67.1 million compared to the same period in 2020. We expect our net capital expenditures for calendar year 2021 will approximate $130.0 million to $150.0 million to execute our equipment replacement strategy and will be financed with cash from operations, borrowings on the Credit Facility and secured debt financing. If our growth strategy gains momentum, we may need to increase our capital expenditures to fund additional profitable growth opportunities.
Financing Activities
The increase in net cash flows used in financing activities is primarily due to debt repayments in excess of debt borrowings of $65.1 million as compared to the same period in 2020.
Working Capital
As of March 31, 2021, we had a working capital deficit of $67.0 million, representing a $17.1 million decrease in our working capital from March 31, 2020. When we analyze our working capital, we typically exclude balloon payments in the current maturities of long-term debt and current portion of operating lease liabilities as these payments are typically either funded with the proceeds from equipment sales or addressed by extending the maturity of such payments. We believe this facilitates a more meaningful analysis of our changes in working capital from period-to-period. Excluding balloon payments included in current maturities of long-term debt and current portion of operating lease liabilities as of March 31, 2021, we had a working capital deficit of $32.0 million, compared with a working capital deficit of $20.7 million at March 31, 2020. The decrease in working capital was primarily the result of increased accounts payable and accrued wages and benefits partially offset by increased accounts receivable.
Working capital deficits are common to many trucking companies that operate by financing revenue equipment purchases through borrowing, or lease arrangements. When we finance revenue equipment through borrowing or lease arrangements, the principal amortization or, in the case of operating leases, the present value of the lease payments scheduled for the next twelve months, is categorized as a current liability, although the revenue equipment and operating lease right of use assets are classified as long-term assets. Consequently, each acquisition of revenue equipment financed with borrowing, or lease arrangements decreases working capital. We believe a working capital deficit has little impact on
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our liquidity. Based on our expected financial condition, net capital expenditures, results of operations, related net cash flows, installment notes, and other sources of financing, we believe our working capital and sources of liquidity will be adequate to meet our current and projected needs and we do not expect to experience material liquidity constraints in the foreseeable future.
Off-Balance Sheet Arrangements
The Company had letters of credit of $28.1 million outstanding as of March 31, 2021. The letters of credit are maintained primarily to support the Company’s insurance program.
The Company had cancelable commitments outstanding at March 31, 2021 to acquire revenue equipment and other equipment for approximately $104.6 million during the remainder of 2021. These purchase commitments are expected to be financed by operating leases, long-term debt and proceeds from sales of existing equipment.
Seasonality
In the trucking industry, revenue has historically decreased as customers reduce shipments following the winter holiday season and as inclement weather impedes operations. At the same time, operating expenses have generally increased, with fuel efficiency declining because of engine idling and weather, causing more physical damage equipment repairs and insurance claims and costs. For the reasons stated, first quarter results historically have been lower than results in each of the other three quarters of the year. However, cyclical changes in the trucking industry, including imbalances in supply and demand, can override the seasonality faced in the industry. Over the past several years, we have seen increases in demand at varying times, including surges between Thanksgiving and the year-end holiday season.
Contractual Obligations
During the three months ended March 31, 2021, there were no material changes in our commitments or contractual obligations.
Critical Accounting Policies
We have reviewed our critical accounting policies and considered whether any new critical accounting estimates or other significant changes to our accounting policies require any additional disclosures. There have been no significant changes to our accounting policies since the disclosures made in our Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risks have not changed materially from the market risks reported in our Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2021. This evaluation is performed to determine if our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the
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SEC’s rules and forms. The CEO and CFO have concluded that our disclosure controls and procedures were effective to provide reasonable assurance as of March 31, 2021.
Changes in Internal Control Over Financial Reporting
During the fiscal quarter ended March 31, 2021, there were no material changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various other litigation and claims primarily arising in the normal course of business, which include claims for personal injury or property damage incurred in the transportation of freight. Our insurance program for liability, physical damage and cargo damage involves varying risk retention levels. Claims in excess of these risk retention levels are covered by insurance in amounts that management considers to be adequate. Based on its knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a materially adverse effect on us. Information relating to legal proceedings is included in Note 7 to our unaudited condensed consolidated financial statements, and is incorporated herein by reference.
ITEM 1A. RISK FACTORS
While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be present. Our Annual Report on Form 10-K for the year ended December 31, 2020, in the section entitled "Item 1A. Risk Factors," describe some of the risks and uncertainties associated with our business. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 2021, we did not engage in unregistered sales of securities or any other transactions required to be reported under this Item 2 of Part II on Form 10-Q.
The payment of cash dividends is currently limited by our financing arrangements, including certain covenants under the Credit Facility.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS
Exhibit | Description |
3.1 | |
3.2 | |
31.1# | |
31.2# | |
32.1## | |
32.2## | |
101.INS# | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH# | XBRL Taxonomy Extension Schema Document |
101.CAL# | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF# | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB# | XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE# | XBRL Taxonomy Extension Presentation Linkbase Document |
104# | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
# Filed herewith.
## Furnished herewith.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
U.S. XPRESS ENTERPRISES, INC. | ||
Date: April 30, 2021 | By: | /s/ Eric Peterson |
Eric Peterson | ||
Chief Financial Officer | ||
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