U.S. Xpress Enterprises, Inc.
Q2 2020 Earnings Call Transcript

Published: 29 Jul 2020

[Operator:]

Good afternoon, ladies and gentlemen and welcome to the U.S. Xpress Second Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Brian Baubach, Senior Vice President, Corporate Finance. Please go ahead, sir.

[Brian Baubach:]

Thank you, operator and good afternoon everyone. We appreciate your participation in our second quarter 2020 earnings call. With me here today are Eric Fuller, President and Chief Executive Officer and Eric Peterson, Chief Financial Officer. As a reminder, a replay of this call will be available on the Investors section of our website through August 6, 2020. We have also posted an updated and more detailed supplemental presentation to accompany today’s discussion on our website at investor.usxpress.com. We will be referencing portions of this supplement as part of today’s call. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, beliefs, estimates, plans and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our 2019 10-K filed on March 4, 2020 as supplemented by our first quarter 2020 Form 10-Q filed on May 6, 2020. We do not undertake any duty to update such forward-looking statements. Additionally, during today’s call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release. At this point, I will turn the call over to Eric Fuller.

[Eric Fuller:]

Thank you, Brian and good afternoon. On today’s call, I will review our second quarter results and the success that we are achieving as a result of our technology and cost management initiatives. Eric Peterson will review our financial results in more detail and I will then conclude with a review of our market outlook. The four main themes that we hope you take away are

[Eric Peterson:]

Thank you, Eric and good afternoon. Operating revenue for the 2020 second quarter was $422.5 million, an increase of $8.6 million as compared to the year ago quarter. The increase was primarily attributable to increased revenues in the company’s Truckload division of $16.2 million, an increase of $6.6 million in Brokerage revenue and partially offset by decreased fuel surcharge revenues of $14.2 million. Excluding the impact of fuel surcharges, second quarter revenue increased $22.8 million to $394 million, an increase of 6.1% as compared to the prior year quarter. We posted operating income of $16.3 million in the second quarter of 2020, which compares favorably to operating income of $8.8 million in the 2019 second quarter. Our operating ratio for the second quarter of 2020 was 96.1% as compared to 97.9% in the prior year quarter. This improvement in earnings was the result of our 3.5% improvement in utilization in our Over-the-Road division, the 2.6% increase in average revenue per tractor per week in our Dedicated division, a reduction in our – both our fixed and variable costs and partially offset by a lower rate per mile and an operating loss in our Brokerage segment. Slide #8 of our supplemental materials contains a representative bridge of our 470 basis point operating ratio improvement from the first quarter. I am happy to report that our truckload adjusted operating ratio improved 350 basis points to 94.1% from 97.6% in the prior year quarter. This significant improvement was achieved despite a 3.2% reduction in our revenue per mile and is primarily due to improved utility related to our new digital fleet, continued strengthening of our Dedicated division, our ongoing aggressive actions on reducing costs and certain temporary industry tailwinds in the second quarter such as lower than average fuel costs. With respect to reducing costs, some of our larger ongoing initiatives that contributed to cost reductions in the quarter and that are designed to continue lowering our costs in future quarters are as follows. First, we expect to continue to harvest the savings of recent changes to our student training programs that Eric spoke about earlier. Second, as a result of improving operational efficiency, in late 2019 we determined that we could reduce our trailer fleet by up to 1,800 trailers with no impact on revenues. Through June, over 1,100 trailers have been removed from our truckload operations with no impact on revenues and we are working to remove the remaining additional trailers over the next few quarters. Third as our cost-conscious culture evolves in our procurement department, which we began in 2018, continues to mature we expect continual incremental cost savings each quarter over the next year. For scale and magnitude, this department is on budget to achieve over $5 million in annual run-rate savings for the full 2020 calendar year, with over $4 million run-rate achieved through the second quarter. Finally, we will focus on capital allocation as we continue to allocate tractors away from certain underperforming portions of our Over-the-Road fleet and move them to more profitable areas such as Dedicated and our newly formed digital fleet. We expect the combination of these initiatives to reduce our costs as a percentage of revenue and to support continued margin expansion over time. We believe we have additional runway to continue reducing both fixed and variable costs over the next several quarters, which will allow for continued progress on earnings as the temporary tailwinds such as lower fuel prices experienced in the second quarter subside. Net income for the second quarter of 2020 was $9.5 million, which compares to net income of $2.7 million in the prior year quarter. Adjusted net income attributable to controlling interest for the second quarter of 2020 was $9.5 million compared to $2.9 million in the 2019 quarter. Earnings per diluted share were $0.18 for the second quarter of 2020. Turning to our balance sheet, we had $381.6 million of net debt and $140.4 million of liquidity, defined as cash and cash equivalents plus availability under our revolving credit facility. I am very pleased with the progress that we have made as we improved our liquidity by approximately $45 million, while our leverage declined by almost a full turn to 3.3x net debt to trailing 12-month EBITDA, both as compared to the end of the 2020 first quarter. We are taking a conservative approach with respect to our liquidity, leverage and capital expenditures until we have greater certainty concerning the pace and extent of the economic recovery. As we discussed on our first quarter call, we reduced our planned net capital expenditures for 2020 to be in a range of $100 million to $120 million, which includes a previously discussed $20 million transaction that carried over from the fourth quarter of 2019. Through the second quarter of 2020, net capital expenditures were $65 million, including the $20 million carryover. As a result of our current capital plan, the average age of our company tractor fleet is expected to approximate 22 months as we exit the year. Lastly, interest expense for the second quarter was $4.9 million and we expect interest expense to be approximately $20 million for the full year of 2020. With that, I would like to turn the call back to Eric Fuller for concluding remarks.

[Eric Fuller:]

Thank you, Eric. To conclude, we are very optimistic about the future of U.S. Xpress. We believe our digital initiatives, cost management programs and other internal improvement efforts afford us the opportunity to improve our operating efficiency in ways that will add to or mitigate the impact of the freight environment. For the third quarter, we expect to report a modest sequential improvement in our margins despite expected headwinds in the form of higher fuel prices, continued pressure on our brokerage margins and rising healthcare costs, whether we achieve improvement and the magnitude will depend on our own performance as well as a number of factors outside our control, such as regional responses to the pandemic, government economic stimulus programs and consumer spending. Regardless of the economic backdrop, we expect to do better than just the external forces would indicate. In terms of the freight market, demand improved through the quarter and that has continued into July, allowing for a correction in soft spot market conditions that pressured spot rates more than 30% below contract in April. After the lows of April, spot rates increased sequentially through the end of the quarter. This trend has continued into July to where spot rates now slightly exceed contract rates and the number of loads that we are currently turning down are consistent with 2018 levels. The higher spot market should benefit us in our uncommitted OTR capacity, but could restrain our progress on margin expansion in our Brokerage division. The largest positives from rates are expected to come from sustained spot market strength that leads to contract re-pricing over the next several quarters. Although we are optimistic about the market conditions as we move through the balance of 2020 and into 2021 due in part to our customers demonstrated resiliency throughout the pandemic, we expect periods of volatility and will continue to manage the company conservatively with a real focus on expense discipline and liquidity given the dramatic rise in new COVID-19 cases across much of the country. While the economic outlook is somewhat uncertain, we remain very positive given the many opportunities that we have in front of us to improve our profitability, including a further development of the frictionless order, conversions of underperforming tractors into our digital fleet, and the benefits of further streamlining our operations. Overall, I remain very excited for the future of U.S. Xpress. We expect our internal initiatives around digitization and cost management, combined with our continued strength in Dedicated and an improving rate outlook have us well positioned to continue improving our margins through 2021. Thank you again for your time today. Operator, please open the call for questions.

[Operator:]

Thank you. [Operator Instructions] Thank you. And our first question comes from the line of Ravi Shanker with Morgan Stanley.

[Ravi Shanker:]

Thank you. Good evening, everyone. Very interesting on the digital fleet, can you give us a little more color here specifically? Do you think this is a tool that works better in a weak market compared to a tight one? namely, do you expect to get the same level of incremental benefits in terms of utilization if the market re tightens up in the back off of the year also, what does it look like in terms of tech spend is that something that needs to go up over time and does this expand to your whole fleet over time as well?

[Eric Fuller:]

Yes, thanks, Ravi. Yes, I think there is a big focus on the digital fleet. And really, our belief is definitely agnostic to market conditions that the way that that we’ve designed this fleet is really to be highly optimized to drive efficiency and drive better utilization. And we believe we can achieve that regardless of the market condition. So I think that either in a weak market or even in an exceptionally strong market we can out index our legacy fleet to the same tune that we have been doing. And that, that’s our long term intention. Obviously we think this is we built this to be scalable. Our intention is to scale it as we have laid out in the materials, long term, we think we can go to about 2100 tractors, within probably the next, couple of years, we can have about 2100 tractors converted into this model. I think at that point, obviously, we would look at, whether there is additional growth or those type of things that we can look at, but I think that there is a lot of opportunity here over the next couple quarters and maybe even to into the next couple years as it relates to conversions from our underperforming areas into this digital fleet. As it relates to technology spend. Obviously, we already have quite a bit of technology spin that is already that’s already been recognized. I would say there’s probably some small additional spend that we will have to take on. But for the most part, the spin the run rate is already in our numbers. And so I don’t expect a significant ramp up from where we are today. We have a, we have a team that is operating in Atlanta. And that teams, really just right across the interstate from Georgia Tech. We put that team together a couple quarters ago. And so that has been in our numbers for quite a while now. And so we feel comfortable that we don’t have to make significant other investments on top of.

[Ravi Shanker:]

Got it. And just this follow-up you have been pretty open through the quarter 2019 kind of pointing out that the way you calculate your spot rate is probably different than the rest of your peers and maybe the rest of the industry and your spot rates are running at all time lows through most of 2019. It will be helpful to know kind of how much you have seen that bounce off the bottom, and kind of how far are we doing kind of getting back up to may be a normalized rate or even a peak rate? How much further do we have from here do you think?

[Eric Fuller:]

Yes, so if you look at how we define spot, we define spot as any phrase that we don’t have an agreed rate to. So it could be one of our long term contract customers. And if we don’t have an agreed rate to, we got to give a onetime rate or even a project great. When we call that spot where others may call just broker freight spot, we have a broader definition for it. If you look at the opportunities that are out there today, I mean, the spot trade opportunities are vast. I mean, we are turning down a lot of freight. There is a lot of opportunities in the market. Our biggest thing right now is trying to manage the balance between our commitments and trying to take advantage of what we think is a premium market that will probably stay this way for quite a while.

[Ravi Shanker:]

Understood. Thank you.

[Eric Fuller:]

Thank you.

[Operator:]

Our next question is from the line of Jack Atkins with Stephens. Please proceed with your questions.

[Jack Atkins:]

Hey, guys. Good afternoon and thanks for taking my questions. So I guess Eric just to go back to the digital fleet for a moment, just so we can understand a little bit more about, what all that exactly means. So, could you kind of walk us through the mechanics of, a conversion from a, a company and please the company metal into a digital truck it is sort of hard are you going out of truck to match up an owner operator with a certain piece of freight just kind of walk through the mechanics of how that conversion works exactly?

[Eric Fuller:]

Yes. I mean, so if you look at how we built the model, we wanted to build something from the ground up that was completely in our minds and completely different business model than the legacy business model. And so we brought Cameron and we had this business model idea, but essentially what we have really told him is what we wanted to do was to use new technology, cutting-edge technology, I love the technology that was being brought from venture capital from a lot of the digital brokers and leverage that technology, which we actually thought was a better fit more for asset-based trucking than even brokerage. And so we said, take those type of – that type of technology and rebuild the truckload asset based business model with everything that we have learned over the last 30 years and all the things that we have done right and others have done right and others have done wrong and take all that to kind of redesign the business model. And we believe that’s what we did. And so, we have really highly optimized, highly automated a lot of the functionality within the day-to-day both on the office side and even the driver side. And the focus is around prioritizing the driver making their life easier, making the job easier and trying to drive utilization and pay for the driver ultimately. If you look at the model, it’s not your traditional fleet manager where they have 50 trucks, it is a – it really operates in a very different manner. And so, we believe that the manner that we have developed is built for true optimization. I actually think that we can get better results that we have been getting as the model matures and as we continue to go on. Right now, it’s all company drivers. So, we have got all company drivers. I have mentioned previously that part of the problem is we have got to go outside our fleet now to find drivers for this model and partially because we do have higher expectations around experience, around less accidents. And we also want somebody that is kind of a little bit more comfortable operating in automated or digital environment. Not all drivers are going to be a fit for this model. It does require a little bit more of self-starter, someone that really is comfortable working with different types of technology. And so that’s the type of driver that we are really trying to focus on.

[Jack Atkins:]

Okay, okay, that makes sense. And I guess just one quick follow-up on that though. I mean, as you kind of go outside of the company driver pool here going forward, does that free up your company driver, your company trucks to then pursue it, other maybe more lucrative freight opportunities in this improving backdrop, that’s kind of the idea?

[Eric Fuller:]

Well, potentially. I mean, I think those lucrative opportunities can also be taken advantage of by this digital fleet. So, we have built it so that it’s nimble, and it doesn’t have to – it’s not like a dedicated type model where there is certain freight that is consistent that the model was built so that it is flexible regardless of the environment. So, when the market is strong and there is a lot of opportunities from the spot perspective, then that this fleet can also take advantage of those opportunities. So yes, I think, but I think if you look at the conversions as I mentioned the drivers probably won’t convert, but a lot of that equipment probably will. So over time, as we bring in a digital drive fleet – driver for the digital fleet, then we will probably unseat one from one of our less profitable areas and move that equipment over. So over time, you will see a migration from that, that bucket of 2,100 trucks that have been underperforming into this digital fleet over time.

[Jack Atkins:]

Okay, I got it. Got it. And then one last question, I will turn it over. But Eric, you mentioned that you expect to see margin improvement within the business because of these initiatives through the end of FY ‘21. Is that a quarter-over-quarter sequential comment that you expect to see improvement as you move through the year or is that more of a comment on ‘21 versus ‘20 just trying to understand the context there? Thank you.

[Eric Fuller:]

Yes. I mean, I think we can have sequential improvement for the next few quarters. I think obviously as you get into Q4 to Q1, that switchover is always tricky. So, I wouldn’t make that comment relative to that quarter. But if you look at as long as we continue to execute our strategy, which we believe we will and we continue to grow the trucks in the digital fleet, we continue to manage costs appropriately, like we have been over the last couple of quarters, then we think we can kind of get some semblance of some sort of sequential improvement, obviously taking into account some sort of seasonality. We talked about being around 400 trucks in our digital fleet in the second quarter. We are now today sitting at 475 trucks in the digital fleet. And as we go out over the next quarter or two, we really expect to grow and our long – and our plan, as mentioned before, was to get to at least 900 trucks total within that fleet by the end of Q1 2021.

[Jack Atkins:]

Okay, great. Thank you.

[Eric Fuller:]

Thank you.

[Operator:]

Our next question is from the line of Scott Group with Wolfe Research. Please proceed with your questions.

[Scott Group:]

Hey, thanks. Afternoon, guys.

[Eric Fuller:]

Hi, good afternoon.

[Scott Group:]

So, Eric, you talked about your thought that the strength in the spot market would be sustainable. And I am just curious what gives you that confidence in the sustainability? And then is this more regional or would you call it broad-based tightness at this point?

[Eric Peterson:]

Yes, it’s definitely broad-based. It’s really widespread. Now, I will caution you, I mean, I have confidence, but obviously this COVID situation can obviously change that relatively quickly. And so, that’s one situation that has us nervous. But absent anything major from a shutdown perspective, we feel very confident that the next, probably four to six quarters we will see a really robust market and maybe even longer than that. I think one of the big dynamics we are seeing is on the supply side. You look at this year alone there has been 100,000 less CDLs issued this year than the comparable time last year. And it’s because there were a number of schools that were shutdown, you have had this – obviously this with unemployment benefit that’s come in and so you have a lot less drivers coming into the market. You also have a number of drivers that have been excluded through the drug and alcohol database as well. And so we think it’s likely that is by the end of this year, it could be anywhere from 150,000 to 200,000 drivers could come out of the market and within this calendar year. And I think that’s pretty significant. I think the big significant piece is those schools that are typically feeding drivers – there is going to be long time before they are able to get up to full capacity. Most of those schools are operating at about 50% capacity today. And even with social distancing and things as they start to get more students, they are still going to have a hard time getting back up to full speed. And so I think you are going to have a lag for quite a while and that supply isn’t going to come back into the market we believe as quick as maybe it has in previous cycles.

[Scott Group:]

Okay. And then I am guessing there is not a whole lot going on right now in terms of contract pricing negotiations, but if there is, would love to hear what’s going on? But I guess I am wondering how you are thinking about 2021 bid season starting up in a few months. What do you think is a realistic outcome for 2021 pricing at this point? I know it’s….

[Eric Peterson:]

Yes, I mean – yes, I don’t know that I am ready necessarily to stick my neck out on 2021. And like I said, there is still a little bit of uncertainty around some other factors. But I think we definitely feel positive at where we stand today in relation to 2021 as we start to move into where spot as a premium obviously to contract, that’s a positive environment when we go into a bid season. So as long as we maintain that which we believe we will absent some something macro, then I think we feel pretty good about bid season this next year.

[Scott Group:]

Okay. And then just last one for me, so utilization in the Over-the-Road was up nicely year-over-year. Do you have a sense on the monthly trends there in utilization and then what you are seeing so far in July?

[Eric Peterson:]

For the most – most of the quarter was up, so it wasn’t like it was a single spike. It was a lot of it was related to the conversion that we made of tractors into this digital fleet. And so that’s been probably that was probably the biggest impact. And like I said, it was mostly flattish through April, May, June, probably more May, June. And then July roughly a little bit of the same.

[Scott Group:]

That’s right.

[Eric Peterson:]

Okay, thank you for the time guys. Appreciate it.

[Operator:]

Our next question is coming from the line of Brian Ossenbeck with JPMorgan. Please proceed with your question.

[Brian Ossenbeck:]

Hey, good evening. Thanks for taking the questions. Maybe a couple more on the digital fleet, I see the initial results on Slide 5 of the presentation, is there – are you able to parse that out for the stronger rate in freight environment, maybe how are those trending as the fleet gets bigger and you get better lessons learned here into July. So, just wanted to see how precise you are able to kind of parse out of this initially here, the digital fleet, which looks like it was actually launched in a pretty volatile time as well. So, lot of moving parts just wanted to hear how you are able to really parse out what’s this new progress versus something might take a little bit longer to prove out?

[Eric Fuller:]

Yes. So, those initial results we are seeing the same type of results that we have seen throughout this whole model. So, if you see the 20% or greater utilization versus our legacy OTR model, an improvement of over 70%, driver turnover rate 5x more trucks for operational employee, all of those things are continuing to track better safety, better service. And so the thing that we have been the most excited about, we launched the pilot in late 2019, and we saw these results were 25 trucks and the 50 trucks. And as we have ramped, we have not hit of an inflection point where we are starting to see those results start to go negative, we are continuing to see that same level of positive results. And so, so far, we are really excited about the opportunities and like I said, it was really intentionally built to be scalable. So, our belief is that it is scalable and we can achieve these types of results as we scale and that is our intention as we go to that full 900 trucks by the end of Q1 2021 and then obviously as we ramped it even larger numbers over the next couple of years.

[Brian Ossenbeck:]

Got it. So, on that point, the ultimate size or at least stands now the 2,100 is that where the digital and the high-performing tractor sort of crossover or is that – is there any constraints on what type of freight or what the shippers need to do to get plugged into the system? If anything, so maybe you can put some context around the 2,100 obviously vis-à-vis how you get there and what are the factors building that up?

[Eric Fuller:]

Yes. So the 2,100 is our underperforming tractors. And to be fair, those tractors in most cycles have been what’s dragging our results down and those tractors have lost money for a period of time. So, our initial is to convert those tractors into much more profitable model. Obviously, at that point, once we get 2,100 trucks or so in this model or we move some of those tractors over into Dedicated where they are more profitable as well, but only moving into this digital fleet, but as we move all of our tractors and they are all making a return that is acceptable, then obviously at that point, we will evaluate, do we look for net growth or do we then move additional trucks from less profitable areas into more profitable areas. And that’s a decision that we will make down the road. But we are not ready to make that decision today. And probably that does probably depend a little bit about what we are dealing with in the market at that given time. But we think that we want to really try to focus on these 2,100, because they are the ones that have been dragging earnings down and as we get them out of our fleet and into more profitable areas, then you are going see our results obviously align with that.

[Brian Ossenbeck:]

Okay. Last quick one then you mentioned drivers being sort of bottleneck at least for the time being. Is there anything that shippers or the freight profile that it could be a limitation or maybe even opportunity? If how hard is it to get a new shipper on board with digital fleet or if there is even anything that they were going to be realized if that change is happening?

[Eric Fuller:]

Yes. So, this is really – so you hit on it. I mean, this really is a driver-facing initiative. And so for the most part, at least as it exists today, there is not a lot of visibility to this from our customer base. And now, there is a little bit of characteristics of freight that may work better. But like I said, the model really is optimized, built to optimize whatever we have in our system. And so it doesn’t necessarily have to have a specific kind of freight. But obviously, as we go through bid cycles, we can improve the efficiency of the fleet by bringing in more favorable freight that will drive the optimization even further. And so I think that as we go through re-pricing and bid cycles, that’s where we are going to have even greater opportunity as we bring freight in. I do think it could potentially be a limiting factor not at 400 trucks or 500 trucks, but as we start getting into that 1,000, 2,000 range, we will want to make sure that we are bringing freight in that really fit with the optimization, the network optimization model we are trying to build.

[Brian Ossenbeck:]

Okay, great. Thanks, Eric.

[Eric Fuller:]

Thank you.

[Operator:]

Our next question is coming from the line of Ken Hoaxter with Bank of America. Please proceed with your question.

[Ken Hoaxter:]

Hey, great. Good afternoon and congrats on the new program and the early benefits. And if we could just dig into that the phrase selectivity a little bit and the program itself is this simply what a driver is getting some sort of technology iPhone, whatever to that that’s directly telling them to select what freight they are and route they are going to is this pre selecting the freight for them so they are not making any choices of where to go? And is that moving away from the driver manager concepts that you mentioned getting rid of some employees because that so just want to understand that this system picking the routes, the driver now finds again automatically where to go, what’s changing literally for the driver?

[Eric Fuller:]

Yes, it’s not so from a driver perspective as it relates to the freight, it’s not much different in the past it was it was selected by a load planner who was making that match today, the system is optimizing those matches. So it from that perspective, it’s not much different for the driver. But the difference in the model is that the optimization by using the technology we can get much better matches that are going to drive efficiency, drive utilization, drive velocity for the driver. So we see better satisfaction from that standpoint because drivers are making more money. They're staying busier. Those type of things. What we are really not looking into I think that a reduction in headcount is something that can occur through this model, but that is not really where our big focus is our big focus is around being able to leverage the technology to drive better results, and we think that by having a highly automated and optimized model, that is where we can get better results, not necessarily just from taking people out of out of the model. And so I think there, there will be some opportunities for those, employees to move into other areas where there may be some other opportunities. But really this model is, really based around trying to automate and optimize most of the functionality. So it is not just the dispatch function or a load planning function, but it’s all the way through. There is heavy automation and optimization in the recruiting functionality and through all of the different other functionalities of this model.

[Ken Hoaxter:]

And is this more optimizing the freight route again, you mentioned the shipper has not changed yet. So it’s not eliminating bids that you have already had or choosing different lanes. It’s optimizing existing freight that you already had. So it’s not going through a bid season that’s going to change the margins or scale of what you can achieve?

[Eric Fuller:]

Right. I wouldn’t exactly like it’s dealing with the freight that we already had, that we are already committed to, and just maybe, better optimizing and speed and the velocity of that existing freight. I think as we go through bid seasons, that’s where you are going to see this model get even better from an optimization standpoint, because we will be able to align what we are bidding on with actually with the network that this model is building.

[Ken Hoaxter:]

And you mentioned kind of you are running at the 94% range now, I guess is their thoughts as the other Eric in terms of incremental margins or thought, on potential as you roll this out where this could target I know you had a lot of other plans with casualty expense and other things that you have been working on, but is there something from this program that you can talk to in terms of implement the margin capability?

[Eric Peterson:]

Yes, I’d say right now, you know, looking at a fleet of 400 tractors, and they are getting 20% better utilization, and 70% better turnover, compared to the tractors that were in there. We have talked before that, that turnover really has cost on every single line item on our financial statements. So that turnover drops, we will see costs come down, and safety is a big one. We mentioned that the safety results we are seeing this from this fleet are significantly better. So as far as you know, tailwinds, as this fleet grows, which we said is not going to be linear, but as it grows, as it grows, I think incrementally you’ll see both fixed and variable costs, come down, we have these professional drivers in there, you will have lower insurance costs. You won’t need as much equipment, because you have lower turnovers, so you need fewer unseated tractors in WIP so to speak. And I think on the cost basis, it will go on and on.

[Ken Hoaxter:]

Sorry, just one last one more to go. What’s that timeframe to getting a driver turned over? I mean, is it why can’t this be done, I guess at a faster rate or what’s the delay that has to happen as you convert?

[Eric Fuller:]

Yes, I mean, it’s attracting – it’s attracting drivers into the model that fit the requirements. And so obviously as we are trying to go out into the market and explain to drivers as this is new and this is digital and this improves their potential to utilization and those type of things, that’s a little bit of a sell. I mean, obviously, being in business, any company being in business for 35 years, you have some residual reputation out there and you are going out into – out into the driving population and they have some preconceived notions about what U.S. Xpress can and can’t do from a utilization standpoint and everything through that whole model and so we are having to sell something that’s a little different. So, we will do it and we are getting some success there. But it’s just not going to be one of those things that you can just do overnight. It’s going to be a process as we kind of build to it.

[Ken Hoaxter:]

Thanks. Appreciate the time.

[Eric Fuller:]

Thank you.

[Eric Peterson:]

Thanks, Ken.

[Operator:]

Thank you. At this time, we have reached the end of our question-and-answer session. And I will now turn the call back to Eric Fuller for closing remarks.

[Eric Fuller:]

Okay. Well, we appreciate everybody on the call today and looking forward to telling more of the story as things develop and looking forward to telling you next quarter where we are at and what type of success we are continuing to see. So thank you.

[Operator:]

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.