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US XPRESS ENTERPRISES INC - Quarter Report: 2020 March (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

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:  001-38528

 

Picture 1

 

U.S. Xpress Enterprises, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Nevada

62-1378182

(State or other jurisdiction of incorporation

(I.R.S. Employer Identification No.)

or organization)

 

 

 

4080 Jenkins Road

 

Chattanooga, Tennessee

37421

(Address of principal executive offices)

(Zip Code)

 

(423) 510-3000

(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

Class A Common Stock, $0.01 par value

USX

The New York Stock Exchange

 

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.

 

 

 

Yes 

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).

 

 

 

Yes

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 

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 30, 2020.

Class A Common Stock, $0.01 par value: 33,620,655

Class B Common Stock, $0.01 par value: 15,807,095

 

 

 

 

Table of Contents

TABLE OF CONTENTS

 

 

 

 

PART I
FINANCIAL INFORMATION

 

 

 

Page
Number

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements Three Months Ended March 31, 2020 and 2019

 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets

3

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) 

4

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows

5

 

 

 

 

Unaudited Condensed Consolidated Statement of Stockholders’ Equity (Deficit)

6

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

34

 

 

 

Item 4. 

Controls and Procedures

34

 

 

 

 

 

 

 

PART II
OTHER INFORMATION

 

 

 

Page
Number

 

 

 

Item 1. 

Legal Proceedings

35

 

 

 

Item 1A. 

Risk Factors

35

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

36

 

 

 

Item 3. 

Defaults Upon Senior Securities

36

 

 

 

Item 4. 

Mine Safety Disclosures

36

 

 

 

Item 5. 

Other Information

36

 

 

 

Item 6. 

Exhibits

36

 

 

Page 2

Table of Contents

U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Balance Sheets

March 31, 2020 and December 31, 2019

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

(in thousands, except share amounts)

    

2020

    

2019

Assets

 

 

  

 

 

  

Current assets

 

 

  

 

 

  

Cash and cash equivalents

 

$

5,626

 

$

5,687

Customer receivables, net of allowance of $36 and $63 at March 31, 2020 and December 31, 2019, respectively

 

 

186,009

 

 

183,706

Other receivables

 

 

16,040

 

 

15,253

Prepaid insurance and licenses

 

 

17,110

 

 

11,326

Operating supplies

 

 

7,344

 

 

7,193

Assets held for sale

 

 

15,570

 

 

17,732

Other current assets

 

 

15,945

 

 

15,831

Total current assets

 

 

263,644

 

 

256,728

Property and equipment, at cost

 

 

934,871

 

 

880,101

Less accumulated depreciation and amortization

 

 

(400,452)

 

 

(388,318)

Net property and equipment

 

 

534,419

 

 

491,783

Other assets

 

 

  

 

 

  

Operating lease right of use assets

 

 

280,106

 

 

276,618

Goodwill

 

 

57,708

 

 

57,708

Intangible assets, net

 

 

26,789

 

 

27,214

Other

 

 

30,865

 

 

30,058

Total other assets

 

 

395,468

 

 

391,598

Total assets

 

$

1,193,531

 

$

1,140,109

Liabilities and Stockholders' Equity

 

 

  

 

 

  

Current liabilities

 

 

  

 

 

  

Accounts payable

 

$

79,012

 

$

68,918

Book overdraft

 

 

3,689

 

 

1,313

Accrued wages and benefits

 

 

25,955

 

 

24,110

Claims and insurance accruals, current

 

 

48,734

 

 

51,910

Other accrued liabilities

 

 

6,431

 

 

9,127

Current portion of operating lease liabilities

 

 

68,021

 

 

69,866

Current maturities of long-term debt and finance leases

 

 

81,700

 

 

80,247

Total current liabilities

 

 

313,542

 

 

305,491

Long-term debt, net of current maturities

 

 

362,722

 

 

315,797

Less unamortized discount and debt issuance costs

 

 

(324)

 

 

(1,223)

Net long-term debt

 

 

362,398

 

 

314,574

Deferred income taxes

 

 

18,810

 

 

20,692

Other long-term liabilities

 

 

4,852

 

 

5,249

Claims and insurance accruals, long-term

 

 

59,466

 

 

56,910

Noncurrent operating lease liabilities

 

 

211,694

 

 

206,357

Commitments and contingencies (Note 7)

 

 

 —

 

 

 —

Stockholders' Equity

 

 

 

 

 

 

Common stock Class A, $.01 par value, 140,000,000 shares authorized at March 31, 2020 and December 31, 2019, respectively, 33,560,156 and 33,314,141 issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

335

 

 

333

Common stock Class B, $.01 par value, 35,000,000 authorized at March 31, 2020 and December 31, 2019, respectively, 15,807,095 and 15,687,101 issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

158

 

 

157

Additional paid-in capital

 

 

251,862

 

 

250,700

Accumulated deficit

 

 

(30,198)

 

 

(20,982)

Stockholders' equity

 

 

222,157

 

 

230,208

Noncontrolling interest

 

 

612

 

 

628

Total stockholders' equity

 

 

222,769

 

 

230,836

Total liabilities and stockholders' equity

 

$

1,193,531

 

$

1,140,109

 

See Notes to Unaudited Condensed Consolidated Financial Statements

Page 3

Table of Contents

U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended March 31, 2020 and 2019

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

(in thousands, except per share amounts)

    

2020

    

2019

Operating revenue

 

 

  

 

 

  

Revenue, before fuel surcharge

 

$

392,820

 

$

375,312

Fuel surcharge

 

 

39,748

 

 

40,051

Total operating revenue

 

 

432,568

 

 

415,363

Operating expenses

 

 

  

 

 

  

Salaries, wages, and benefits

 

 

135,394

 

 

124,563

Fuel and fuel taxes

 

 

40,323

 

 

46,904

Vehicle rents

 

 

21,877

 

 

18,976

Depreciation and amortization, net of (gain) loss on sale of property

 

 

25,803

 

 

23,062

Purchased transportation

 

 

129,754

 

 

114,005

Operating expenses and supplies

 

 

29,674

 

 

27,945

Insurance premiums and claims

 

 

26,023

 

 

24,353

Operating taxes and licenses

 

 

3,677

 

 

3,173

Communications and utilities

 

 

2,452

 

 

2,265

General and other operating expenses

 

 

21,259

 

 

17,479

Total operating expenses

 

 

436,236

 

 

402,725

Operating income (loss)

 

 

(3,668)

 

 

12,638

Other expense (income)

 

 

  

 

 

  

Interest expense, net

 

 

5,421

 

 

5,603

Loss on sale of equity method investment

 

 

2,000

 

 

 —

Equity in loss of affiliated companies

 

 

 —

 

 

89

Other, net

 

 

 —

 

 

26

 

 

 

7,421

 

 

5,718

Income (loss) before income tax provision

 

 

(11,089)

 

 

6,920

Income tax provision (benefit)

 

 

(1,857)

 

 

1,901

Net total and comprehensive income (loss)

 

 

(9,232)

 

 

5,019

Net total and comprehensive income (loss) attributable to noncontrolling interest

 

 

(16)

 

 

298

Net total and comprehensive income (loss) attributable to controlling interest

 

$

(9,216)

 

$

4,721

Earnings (loss) per share

 

 

  

 

 

  

Basic earnings (loss) per share

 

$

(0.19)

 

$

0.10

Basic weighted average shares outstanding

 

 

49,217

 

 

48,394

Diluted earnings (loss) per share

 

$

(0.19)

 

$

0.10

Diluted weighted average shares outstanding

 

 

49,217

 

 

49,391

 

See Notes to Unaudited Condensed Consolidated Financial Statements

Page 4

Table of Contents

U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2020 and 2019

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

(in thousands)

    

2020

    

2019

Operating activities

 

 

  

 

 

  

Net income (loss)

 

$

(9,232)

 

$

5,019

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

  

Deferred income tax provision (benefit)

 

 

(1,882)

 

 

1,407

Depreciation and amortization

 

 

22,597

 

 

21,833

Losses on sale of equipment

 

 

3,206

 

 

1,229

Share based compensation

 

 

836

 

 

856

Other

 

 

2,652

 

 

308

Changes in operating assets and liabilities:

 

 

 

 

 

  

Receivables

 

 

(3,183)

 

 

3,560

Prepaid insurance and licenses

 

 

(5,784)

 

 

(4,761)

Operating supplies

 

 

(151)

 

 

(285)

Other assets

 

 

386

 

 

383

Accounts payable and other accrued liabilities

 

 

8,788

 

 

(2,844)

Accrued wages and benefits

 

 

1,845

 

 

(1,226)

Net cash provided by operating activities

 

 

20,078

 

 

25,479

Investing activities

 

 

  

 

 

  

Payments for purchases of property and equipment

 

 

(76,761)

 

 

(36,604)

Proceeds from sales of property and equipment

 

 

9,650

 

 

13,115

Other

 

 

(2,000)

 

 

 —

Sale of subsidiary, net of cash

 

 

 —

 

 

(9,002)

Net cash used in investing activities

 

 

(69,111)

 

 

(32,491)

Financing activities

 

 

  

 

 

  

Borrowings under lines of credit

 

 

147,654

 

 

 —

Payments under lines of credit

 

 

(70,654)

 

 

 —

Borrowings under long-term debt

 

 

142,644

 

 

14,355

Payments of long-term debt and finance leases

 

 

(171,266)

 

 

(31,128)

Payments of financing costs and original issue discount

 

 

(1,255)

 

 

 —

Payments of long-term consideration for business acquisition

 

 

(1,000)

 

 

(990)

Tax withholding related to net share settlement of restricted stock awards

 

 

(91)

 

 

(39)

Proceeds from issuance of common stock under ESPP

 

 

420

 

 

 —

Proceeds from long-term consideration for sale of subsidiary

 

 

144

 

 

 —

Book overdraft

 

 

2,376

 

 

5,233

Net cash (used in) provided by financing activities

 

 

48,972

 

 

(12,569)

Cash included in assets held for sale

 

 

 —

 

 

11,784

Net change in cash and cash equivalents

 

 

(61)

 

 

(7,797)

Cash and cash equivalents

 

 

 

 

 

  

Beginning of year

 

 

5,687

 

 

9,892

End of period

 

$

5,626

 

$

2,095

Supplemental disclosure of cash flow information

 

 

  

 

 

  

Cash paid during the year for interest

 

$

4,215

 

$

5,620

Cash paid (refunded) during the year for income taxes

 

 

243

 

 

(91)

Supplemental disclosure of significant noncash investing and financing activities

 

 

  

 

 

  

Finance lease extinguishments

 

$

 —

 

$

33

Debt obligations relieved in conjunction with the divesture of Xpress Internacional

 

 

 —

 

 

7,109

Property and equipment amounts accrued in accounts payable

 

 

2,397

 

 

 —

See Notes to Unaudited Condensed Consolidated Financial Statements

 

Page 5

Table of Contents

U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Statement of Stockholders' Equity (Deficit)

Three Months Ended March 31, 2020 and 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Non

 

Total

 

 

Class A

 

Class B

 

Paid

 

Accumulated

 

Controlling

 

Stockholders'

(in thousands, except share amounts)

    

Stock

    

Stock

    

In Capital

    

Deficit

    

Interest

    

Equity (Deficit)

Balances at December 31, 2019

 

$

333

 

$

157

 

$

250,700

 

$

(20,982)

 

$

628

 

$

230,836

Share based compensation

 

 

 —

 

 

 —

 

 

836

 

 

 —

 

 

 —

 

 

836

Vesting of restricted units

 

 

 1

 

 

 1

 

 

(93)

 

 

 —

 

 

 —

 

 

(91)

Issuance of common stock under ESPP

 

 

 1

 

 

 —

 

 

419

 

 

 —

 

 

 —

 

 

420

Net loss

 

 

 —

 

 

 —

 

 

 —

 

 

(9,216)

 

 

(16)

 

 

(9,232)

Balances at March 31, 2020

 

$

335

 

$

158

 

$

251,862

 

$

(30,198)

 

$

612

 

$

222,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Non

 

Total

 

 

Class A

 

Class B

 

Paid

 

Accumulated

 

Controlling

 

Stockholders'

(in thousands, except share amounts)

    

Stock

    

Stock

    

In Capital

    

Deficit

    

Interest

    

Equity (Deficit)

Balances at December 31, 2018

 

$

329

 

$

155

 

$

251,742

 

$

(17,335)

 

$

3,496

 

$

238,387

Share based compensation

 

 

 —

 

 

 —

 

 

856

 

 

 —

 

 

 —

 

 

856

Vesting of restricted units

 

 

 —

 

 

 1

 

 

(39)

 

 

 —

 

 

 —

 

 

(38)

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

4,721

 

 

298

 

 

5,019

Balances at March 31, 2019

 

$

329

 

$

156

 

$

252,559

 

$

(12,614)

 

$

3,794

 

$

244,224

 

See Notes to Unaudited Condensed Consolidated Financial Statements

Page 6

Table of Contents

U.S. Xpress Enterprises, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

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 two reportable segments, Truckload and Brokerage. Our Truckload segment offers asset-based truckload services, including over-the-road (“OTR”) trucking and dedicated contract services. Our Brokerage segment is principally engaged in non-asset-based freight brokerage services, where loads are contracted to third-party carriers.

Under our Articles of Incorporation, our authorized capital stock consists of 140,000,000 shares of Class A common stock, par value $0.01 per share, 35,000,000 shares of Class B common stock, par value $0.01 per share, and 9,333,333 shares of preferred stock, the rights and preferences of which may be designated by the Board of Directors.

 

 

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, 2019 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, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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, 2019.

Recently Issued Accounting Standards

On December 18, 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-12, which modifies Accounting Standards Codification (“ASC”) 740 to simplify the accounting for income taxes. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company has not early adopted this guidance and will continue to evaluate the impact on its financial statements.

Page 7

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Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments -Credit Losses (Topic 326) amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. We adopted ASU 2016-13 effective January 1, 2020 and the application of this guidance did not have a material impact on our financial statements.

 

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates Step 2 from the goodwill impairment testing process. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the new standard, a goodwill impairment loss is measured as the excess of the carrying value of a reporting unit over its fair value. We adopted ASU 2017-04 effective January 1, 2020 and the application of this guidance did not have a material impact on our financial statements.

 

 

3.       Divesture of Xpress Internacional

On January 17, 2019, we sold our 95% interest in Xpress Internacional as well as our equity method investments with operations in Mexico (Dylka Distribuciones Logisti-K, S.A. DE C.V. and XPS Logisti-K Systems, S.A.P.I. de C.V.). The purchase price was $4.5 million in cash, a $6.0 million note receivable and approximately $2.5 million in contingent consideration related to the completion of selling 110 tractors. The fair value of the tractors approximated $2.5 million on January 17, 2019. During 2019, we updated the fair value of the tractors to $1.7 million from the previously recorded $2.5 million and recorded an additional net cash receivable for $1.6 million as a result of lower than expected purchase expenses at Xpress Internacional. The results of operations from the business classified as assets held for sale were not material to our consolidated revenues or consolidated operating income. During 2018, we recognized a held for sale impairment in the amount of $11.6 million related to the disposal group as the net carrying value exceeded the fair value. We recognized a subsequent gain during 2019 of $0.8 million.

 

4.        Income Taxes

The Company’s 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 while that for the three months ended March 31, 2019 is based on the estimated annual effective tax rate for the year, plus discrete items. The following table presents the provision for income taxes and the effective tax rates for the three months ended March 31, 2020 and 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

2019

    

Income (loss) before income tax provision (benefit)

 

$

(11,089)

 

$

6,920

 

Income tax provision (benefit)

 

 

(1,857)

 

 

1,901

 

Effective tax rate

 

 

16.7

%  

 

27.5

%  

 

The difference between the Company’s effective tax rate for the three months ended March 31, 2020 and 2019 and the US statutory rate of 21% primarily relates to nondeductible expenses, federal income tax credits, state income taxes (net of federal benefit), and a net increase in valuation allowances.

 

On March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, contains numerous income tax provisions. While the Company continues to evaluate the impact of the CARES Act, it does not currently believe it will have a material impact on the Company’s consolidated financial statements or related disclosures.

 

 

Page 8

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5.        Long-Term Debt

Long-term debt at March 31, 2020 and December 31, 2019 consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

March 31, 2020

    

December 31, 2019

Line of credit, maturing January 2025

 

$

77,000

 

$

 —

Term loan agreement, interest rate of 4.3% at December 31, 2019, terminated January 2020

 

 

 —

 

 

150,000

Revenue equipment installment notes with finance  companies, weighted average interest rate of 4.4% and 4.7% at March 31, 2020 and December 31, 2019, due in monthly installments with final maturities at various dates through March 2027, secured by related revenue equipment with a net book value of $328.3 million and $220.4 million at March 31, 2020 and December 31, 2019

 

 

326,186

 

 

208,252

Mortgage note payables, interest rates ranging from 4.17% to 6.99% at March 31, 2020 and December 31, 2019 due in monthly installments with final maturities at various dates through September 2031, secured by real estate with a net book value of $30.5 million and $20.2 million at March 31, 2020 and December 31, 2019

 

 

26,964

 

 

17,776

Other

 

 

5,868

 

 

8,795

 

 

 

436,018

 

 

384,823

Less: Debt issuance costs

 

 

(324)

 

 

(1,223)

Less: Current maturities of long-term debt

 

 

(79,396)

 

 

(75,596)

 

 

$

356,298

 

$

308,004

 

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 $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 is 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 is 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 new 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

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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

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, 2020, the Credit Facility had issued collateralized letters of credit in the face amount of $32.7 million, with $77.0 million borrowings outstanding and $90.6 million available to borrow.

At March 31, 2020, the Company was in compliance with the financial covenant prescribed by the Credit Facility.

 

 

6.        Leases

We have operating and finance leases with terms of 1 year to 10 years for certain revenue and service equipment and office and terminal facilities.

The table below presents the lease-related assets and liabilities recorded on the balance sheet (in thousands):

 

 

 

 

 

 

 

Leases

    

Classification

    

March 31, 2020

Assets

 

  

 

 

  

Operating

 

Operating lease right-of-use assets

 

$

280,106

Finance

 

Property and equipment, net

 

 

10,293

Total leased assets

 

  

 

$

290,399

 

 

 

 

 

 

Liabilities

 

  

 

 

  

Current

 

  

 

 

  

Operating

 

Current portion of operating lease liabilities

 

$

68,021

Finance

 

Current maturities of long-term debt and finance leases

 

 

2,304

Noncurrent

 

  

 

 

 

Operating

 

Noncurrent operating lease liabilities

 

 

211,694

Finance

 

Long-term debt and finance leases, net of current maturities

 

 

6,100

Total lease liabilities

 

  

 

$

288,119

 

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

    

2020

    

2019

Operating lease cost

 

Vehicle rents and General and other operating

 

$

21,915

 

$

20,167

Finance lease cost:

 

  

 

 

  

 

 

  

Amortization of finance lease assets

 

Depreciation and amortization

 

 

438

 

 

808

Interest on lease liabilities

 

Interest expense

 

 

173

 

 

318

Short-term lease cost

 

Vehicle rents and General and other operating

 

 

2,018

 

 

311

Total lease cost

 

  

 

$

24,544

 

$

21,604

 

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Three Months Ended

 

 

March 31,

Cash Flow Information

    

2020

 

2019

Cash paid for operating leases included in operating activities

 

$

21,915

 

$

20,167

Cash paid for finance leases included in operating activities

 

$

173

 

$

318

Cash paid for finance leases included in financing activities

 

$

2,741

 

$

3,155

 

 

 

 

 

 

 

Operating lease right-of-use assets obtained in exchange for lease obligations

 

$

30,406

 

$

23,975

Operating lease right-of-use assets and liabilities relieved in conjunction with divesture of Xpress Internacional

 

$

 —

 

$

2,018

 

 

 

 

 

 

 

 

 

March 31, 2020

 

 

Weighted‑Average

 

Weighted-

 

 

 

Remaining Lease

 

Average

 

Lease Term and Discount Rate

    

Term (years)

    

Discount Rate

 

Operating leases

 

5.0

 

4.3

%

Finance leases

 

3.2

 

5.4

%

 

 

 

 

 

 

 

 

March 31, 2019

 

 

Weighted‑Average

 

Weighted-

 

 

 

Remaining Lease

 

Average

 

Lease Term and Discount Rate

    

Term (years)

    

Discount Rate

 

Operating leases

 

4.1

 

5.2

%

Finance leases

 

3.4

 

5.3

%

 

As of March 31, 2020, future maturities of lease liabilities were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

    

Finance

    

Operating 

2020

 

$

2,205

 

$

59,324

2021

 

 

4,081

 

 

73,793

2022

 

 

1,423

 

 

65,313

2023

 

 

1,423

 

 

49,694

2024

 

 

296

 

 

23,898

Thereafter

 

 

 —

 

 

41,965

 

 

 

9,428

 

 

313,987

Less:  Amount representing interest

 

 

(1,024)

 

 

(34,272)

Total

 

$

8,404

 

$

279,715

 

 

 

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.

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California Wage and Hour Class Action Litigation

On December 23, 2015, a class action lawsuit was filed against us and our subsidiary U.S. Xpress, Inc. in the Superior Court of California, County of San Bernardino. The case was transferred to the U.S. District Court for the Central District of California. The Plaintiff’s initial proposed class certification (any employee driver who has driven in California at any time since December 12, 2011) was denied by the District Court under Rule 26 due to lack of commonality amongst the claimants.  However, the Court granted the Plaintiff’s revised Motion for Class Certification. 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 12, 2011. The case alleges that class members were not paid for off-the-clock work, were not provided duty free meal or break times, and were not paid premium pay in their absence, were not paid minimum wage for all hours worked, were not provided accurate and complete time and pay records 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 and costs and pre- and post-judgment interest. On May 2, 2019, the 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 parties have also filed cross-motions for summary judgment on the remaining claims, and the Company has filed a motion to decertify the class. The parties have completed supplemental briefing on those motions, and the court has scheduled oral argument on the motions. The matter is currently in discovery, and a jury trial is set to begin on September 1, 2020. 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, eight substantially similar putative securities class action complaints were filed against us and certain other defendants: five in the Circuit Court of Hamilton County, Tennessee (“Tennessee State Court Cases”), two in the U.S. District Court for the Eastern District of Tennessee (“Federal Court Cases”), and one in the Supreme Court of the State of New York (“New York State Court Case”). Two of the Tennessee State Court Cases and one of the Federal Court Cases have been voluntarily dismissed. All of these matters are in preliminary stages of litigation, and discovery has not yet begun. We are currently not able to predict the probable outcome or to reasonably estimate a range of potential losses, if any.

On November 21, 2018, a putative class action complaint was filed in the Circuit Court of Hamilton County, Tennessee against us, five of our officers or directors, and the seven underwriters who participated in our June 2018 initial public offering (“IPO”), alleging violations of Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”). The class action lawsuit is based on allegations that the Company made false and/or misleading statements in the registration statement and prospectus filed with the Securities and Exchange Commission (“SEC”) in connection with the IPO. The lawsuit is purportedly brought on behalf of a putative class of all persons or entities who purchased or otherwise acquired the Company’s Class A common stock pursuant 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 January 23, 2019, a substantially similar putative class action complaint was filed in the Circuit Court of Hamilton County, Tennessee, by a different plaintiff alleging claims under Sections 11 and 15 of the Securities Act against the same defendants as in the action commenced on November 21, 2018. On March 7, 2019, this case was voluntarily dismissed by the plaintiff.

On January 30, 2019, a substantially similar putative class action complaint was filed in the Circuit Court of Hamilton County, Tennessee, by a different plaintiff alleging claims under Sections 11 and 15 of the Securities Act against the same defendants as in the action commenced on November 21, 2018, and also alleging a claim under Section 12 of the Securities Act.

On February 5, 2019, a substantially similar putative class action complaint was filed in the Circuit Court of Hamilton County, Tennessee, by a different plaintiff alleging claims under Sections 11 and 15 of the Securities Act

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against the same defendants as in the action commenced on November 21, 2018, and also alleging a claim under Section 12 of the Securities Act.

On February 6, 2019, a substantially similar putative class action complaint was filed in the Circuit Court of Hamilton County, Tennessee, by different plaintiffs alleging claims under Sections 11 and 15 of the Securities Act against the same defendants as in the action commenced on November 21, 2018. On March 19, 2019, this case was voluntarily dismissed by the plaintiff.

On March 8, 2019, a substantially similar putative class action complaint was filed in the U.S. District Court for the Eastern District of Tennessee by a different plaintiff alleging claims under Sections 11 and 15 of the Securities Act against the same defendants as in the action commenced on November 21, 2018. On May 9, 2019, this case was voluntarily dismissed by the plaintiff.

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 action commenced on November 21, 2018. The parties have stipulated to extend the time for defendants to respond to the complaint in this matter pending resolution of the motions to dismiss filed (or to be filed) in the remaining of the Tennessee State Court Cases and the Federal Court Cases.

On April 2, 2019, a substantially similar putative class action complaint was filed in the U.S. District Court for the Eastern District of Tennessee, by a different plaintiff alleging claims under Sections 11 and 15 of the Securities Act against us and the same five of our officers and directors as in the action commenced on November 21, 2018. Unlike the previously filed complaints, this complaint did not name as defendants any of the seven underwriters who participated in our IPO; however, an amended complaint was filed on October 8, 2019 (“Amended Federal Complaint”) which added all underwriters who participated in the IPO as defendants.

The three remaining Tennessee State Court Cases have been consolidated, and discovery is currently stayed pending a decision on a motion to dismiss filed by the Company and the other defendants. 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 either Section 11, 12 or 15 of the Securities Act. On July 18, 2019, the court presiding over the remaining of the Federal Court Cases issued an order appointing lead plaintiff and lead counsel. Pursuant to a stipulation entered in that matter, the appointed lead plaintiff filed the Amended Federal Complaint on October 8, 2019. 

The Amended Federal Complaint is made on behalf of a putative class that consists of all persons who purchased or otherwise acquired the Class A common stock of USX between June 14, 2018 and November 1, 2018 and who were allegedly damaged thereby. In addition, the Amended Federal Complaint alleges additional violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) against the Company, its Chief Executive Office 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. Plaintiffs filed their Opposition to that Motion on March 9, 2020, and the Company filed its Reply brief on April 23, 2020. There has been no ruling on that Motion, to date.

The complaints in all the actions listed above allege that the Company made false and/or misleading statements in the registration statement and prospectus filed with the SEC in connection with the IPO, and that, as a result of such alleged statements, the plaintiffs and the members of the putative classes suffered damages. The Amended Federal Complaint additionally alleges that the Company, its Chief Executive Officer and its Chief Financial Officer made false and/or misleading statements and/or material omissions in press releases, earnings calls, investor conferences, television interviews, and filings made with the SEC subsequent to the IPO. We believe the allegations made in the complaints are without merit and intend to defend ourselves vigorously in these matters.

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Stockholder Derivative Action

On June 7, 2019, a stockholder derivative lawsuit was filed in the District Court for Clark County, Nevada against five of our executives and all five of our independent board members (collectively, the “Individual Defendants”), and naming the Company as a nominal defendant. The complaint alleges that the Company made false and/or misleading statements in the registration statement and prospectus filed with the SEC in connection with the IPO and that the Individual Defendants breached their fiduciary duties by causing or allowing the Company to make such statements. The complaint alleges that the Company has been damaged by the alleged wrongful conduct as a 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 the filing of an answer or a dismissal in the remaining of the Tennessee State Court Cases or the Federal Court Cases. This matter is in the preliminary stages of litigation and discovery has not yet begun. 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 these matters.

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 us and our 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 with regard to 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 we violated the requirements of the Truth in Leasing Act with regard to the independent contractor agreements and lease purchase agreements we entered into with the putative class members. The complaint further alleges that we failed to comply with the terms of the independent contractor agreements and lease purchase agreements entered into with the putative class members, that we 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 we were unjustly enriched as a result of the foregoing allegations. The defendants filed a Motion to Compel Arbitration on October 18, 2019. On January 17, 2020, the court granted defendants’ motion, in part, compelling arbitration on all of plaintiff’s claims and denying 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, 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.  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 are without merit and intend to defend ourselves vigorously against the complaints relating to such actions.

Other

The Company had letters of credit of $32.7 million outstanding as of March 31, 2020. The letters of credit are maintained primarily to support the Company’s insurance program.

The Company had cancelable commitments outstanding at March 31, 2020 to acquire revenue equipment for approximately $65.8 million during the remainder of 2020.  These purchase commitments are expected to be financed by operating leases, long-term debt and proceeds from sales of existing equipment.

 

 

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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 offering. The Company has reserved an aggregate of 3.2 million shares of its Class A common stock for issuance of awards under the Incentive Plan. Participants in the Incentive Plan will be selected by the Compensation Committee from the executive officers, directors, employees and consultants of the Company. Awards under the Incentive Plan may be made in the form of stock options, stock appreciation rights, stock awards, restricted stock units, performance awards, performance units, and any other form established by the Compensation Committee pursuant to the Incentive Plan.

The following is a summary of the Incentive Plan restricted stock and restricted stock unit activity for the three months ended March 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Number of

 

Average Grant

 

    

Units

    

Date Fair Value

Unvested at December 31, 2019

 

908,088

 

$

8.73

Granted

 

902,775

 

 

4.96

Vested

 

(130,532)

 

 

10.08

Forfeited

 

(20,023)

 

 

11.28

Unvested at March 31, 2020

 

1,660,308

 

$

6.55

 

Service based restricted stock grants vest over periods of one to five years and account for 1,400,308 of the unvested shares. Performance based awards account for 260,000 of the unvested shares and vest based upon achievement of certain performance goals, as defined by the Company. The Company recognized compensation expense related to service based awards of $0.6 million and $0.6 million during the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, the Company had $8.0 million in unrecognized compensation expense related to the service based restricted stock awards which is expected to be recognized over a weighted average period of approximately 3.3 years.

The following is a summary of the Incentive Plan stock option activity from December 31, 2019 to March 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Number of

 

Average Grant

 

    

Units

    

Date Fair Value

Unvested at December 31, 2019

 

359,259

 

$

4.95

Vested

 

(54,307)

 

 

4.41

Forfeited/Canceled

 

(42,515)

 

 

5.00

Unvested at March 31, 2020

 

262,437

 

$

5.05

 

The stock options vest over a period of four years and expire ten years from the date of grant. The Company recognized compensation expense of $0 million and $0.1 million during the three months ended March 31, 2020 and 2019, respectively. The fair value of the stock options granted was estimated using the Black-Scholes method as of the grant date.

 

At March 31, 2020, the Company had $1.0 million in unrecognized compensation expense related to the stock option awards which is expected to be recognized over a weighted average period of approximately 2.6 years. As of March 31, 2020, 92,462 options were exercisable with a weighted average exercise price of $12.12 and a weighted average remaining contractual life of 8.6 years.

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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, 2020:

 

 

 

 

 

 

 

 

 

Number of

 

Weighted

 

    

Units

    

Average

Unvested at December 31, 2019

 

842,888

 

$

2.14

Vested

 

(153,323)

 

 

2.15

Unvested at March 31, 2020

 

689,565

 

$

2.14

 

 

 

 

 

 

 

The vesting schedule for these restricted unit grants range from 3 to 7 years. The Company recognized compensation expense of $0.1 million and $0.2 million during the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, the Company had approximately $1.3 million in unrecognized compensation expense related to restricted units, which is expected to be recognized over a weighted average period of approximately 4.0 years. The fair value of the restricted units and corresponding compensation expense was determined using the income approach.

 

Employee Stock Purchase Plan

In June 2018, our Employee Stock Purchase Plan became effective. The Company has reserved an aggregate of 2.3 million shares of its Class A common stock for issuance of under the ESPP. Eligible employees may elect to purchase shares of our Class A common stock through payroll deductions up to 15% of eligible compensation. The purchase price of the shares during each offering period will be 85% of the lower of the fair market value of our Class A common stock on the first trading day of each offering period or the last trading day of the offering period. The common stock will be purchased in January and July of each year. The Company recognized compensation expense of $0.1 million and $0 million for the three months ended March 31, 2020 and 2019, respectively, associated with the plan.

 

9.       Fair Value Measurements

Accounting standards, among other things, define fair value, establish a framework for measuring fair value and expand disclosure about such fair value measurements. Assets and liabilities measured at fair value are based on one or more of three valuation techniques provided for in the standard.

The standards clarify that fair value is an exit price, representing the amount that would be received to sell an asset, based on the highest and best use of the asset, or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for evaluating such assumptions, the standards establish a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value as follows:

Level 1           Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2          Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs).

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Level 3          Unobservable inputs, only used to the extent that observable inputs are not available, reflect the Company’s assumptions about the pricing of an asset or liability.

 

The following table summarizes the changes in the fair value of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) for the three months ended March 31, 2020 and 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

Balance at beginning of year

 

$

 —

 

$

1,793

Divesture of Xpress Internacional

 

 

 —

 

 

(1,793)

Balance at end of period

 

$

 —

 

$

 —

 

At December 31, 2018, the physically settled forward contract was reclassified to long term liabilities associated with assets held for sale and in January 2019 relieved in conjunction with the disposal of Xpress Internacional.

 

 

10.      Earnings per Share

Basic earnings per share is calculated by dividing net income 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 2,704,772 and 989,717 equity awards for the three months ended March 31, 2020 and 2019, respectively as inclusion would be anti-dilutive.

The basic and diluted earnings per share calculations for the three months ended March 31, 2020 and 2019, respectively, are presented below (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

Net income (loss)

 

$

(9,232)

 

$

5,019

Net income (loss) attributable to noncontrolling interest

 

 

(16)

 

 

298

Net income (loss) attributable to common stockholders

 

$

(9,216)

 

$

4,721

 

 

 

 

 

 

 

Basic weighted average of outstanding shares of common stock

 

 

49,217

 

 

48,394

Dilutive effect of equity awards

 

 

 —

 

 

997

Diluted weighted average of outstanding shares of common stock

 

 

49,217

 

 

49,391

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

(0.19)

 

$

0.10

Diluted earnings (loss) per share

 

$

(0.19)

 

$

0.10

 

 

11.      Segment Information

The Company’s business is organized into two reportable segments, Truckload and Brokerage. The Truckload segment offers asset-based truckload services, including OTR trucking and dedicated contract services. These services are aggregated because they have similar economic characteristics and meet the aggregation criteria described in the accounting guidance for segment reporting. The Company’s OTR service offering provides solo and expedited team services through one-way movements of freight over routes throughout the United States and, prior to the divesture of Xpress Internacional, cross-border into and out of Mexico. The Company’s dedicated contract service offering devotes the use of equipment to specific customers and provides services through long-term contracts. The Company’s dedicated contract service offering provides similar freight transportation services, but does so pursuant to agreements where it makes equipment, drivers and on-site personnel available to a specific customer to address needs for committed capacity and service levels.

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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.

The following table summarizes our segment information (in thousands):

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

Revenues

 

 

  

 

 

  

Truckload

 

$

382,092

 

$

369,119

Brokerage

 

 

50,476

 

 

46,244

Total Operating Revenue

 

$

432,568

 

$

415,363

 

 

 

 

 

 

 

Operating Income

 

 

  

 

 

  

Truckload

 

$

1,200

 

$

9,842

Brokerage

 

 

(4,868)

 

 

2,796

Total Operating Income

 

$

(3,668)

 

$

12,638

 

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. 

 

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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, including the impact of event recorders and our strategic initiatives, future customer relationships, future growth of dedicated contract services, future growth in independent contractors and related purchased transportation expense and fuel surcharge reimbursement, future growth of our lease-purchase program, future driver market conditions and driver turnover and retention rates, any projections of earnings, revenues, cash flows, dividends, capital expenditures, 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, including the impact of the installation of event recorders, driver training and hair follicle testing, future fluctuations in fuel costs and fuel surcharge revenue, including the future effectiveness of our fuel surcharge program, strategies for managing fuel costs, political conditions and regulations, including trade regulation, quotas, duties or tariffs, and any future changes to the foregoing, future fluctuations in operating expenses and supplies, 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, expected progress on internal control remediation efforts,  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 this Form 10-Q and our Annual Report on Form 10‑K for the year ended December 31, 2019. Readers should review and consider the factors discussed in “Item 1A. Risk Factors,” set forth in this Form 10-Q and our Annual Report on Form 10‑K for the year ended December 31, 2019, 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.

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Overview

We are the fifth largest asset‑based truckload carrier in the United States by revenue, generating over $1.7 billion in total operating revenue in 2019. 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, 2020, our fleet consisted of approximately 6,800 tractors and approximately 15,000 trailers, including approximately 2,000 tractors provided by independent contractors. All of our tractors have been equipped with electronic logs since 2012, and our systems and network are engineered for compliance with the recent federal electronic log mandate. Our terminal network and information technology infrastructure are established and capable of handling significantly larger volumes without meaningful additional investment.

COVID – 19 Business Update

 

Operational Update

 

Given the rapid on-set and spread of COVID-19, we moved quickly to enable our office employees to work remotely starting March 16th and during that week transitioned more than 1,400 employees, or over 95% of our corporate office staff, to a work from home environment. Since then, non-remote personnel have largely been limited to employees working on-site at customer locations and shop technicians working in our facilities, all of whom are following strict protocols to ensure their safety.

 

We have instituted policies to facilitate effective communication in this environment.  For non-driving employees, we ensure multiple daily contacts with direct reports and have developed key performance indicators, facilitated by our digital capabilities, to measure our operational effectiveness. We have also implemented a hotline and support staff to ensure employees have access to necessary medical services as well as ensuring an adequate supply of safety equipment, including masks and gloves, for our workers who are on the frontlines, and providing regular cleaning and disinfecting of our facilities. U.S. Xpress’ employees are playing an essential role in the country’s fight against COVID-19 as they work to keep critical supplies moving and store shelves stocked. We are working daily with our drivers to keep them informed and safe in this rapidly changing environment. 

 

To further ensure the safety of our drivers’ and staff, we have instituted mandatory temperature checks for drivers prior to entering our facilities. For new drivers, we have leveraged our new driver training program as well as created a virtual orientation program that allows drivers to complete work remotely and, therefore, avoiding a majority of classroom work. This is an attractive innovation for drivers and has positively contributed to our recruiting efforts.

 

Market and Customer Update

 

We have a strong and diversified customer base with our top 25 customers representing 71% of 2019 revenues. At the peak of the COVID-19 crisis, customers representing 96% of our pre-COVID-19 revenues remained operational, and incremental volumes from those customers more than made up for the non-operational customers. We have not seen a drop in total load volume through April; however, we have experienced a sequential decline in spot rates in April compared with the first quarter of 2020.

 

Liquidity and Capital Resources

 

Due to uncertainties regarding the depth and duration of the economic impact of the COVID-19 crisis, as well as the impact of re-starting various components of the global supply chain at different times, we have considered many different scenarios, including those that would entail a significant multi-quarter degradation of business conditions across our customer base. Based on this analysis, we are managing the business to prudently control expenses and to ensure adequate liquidity even if operating and financial results are significantly and negatively impacted for an extended period.

 

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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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. For 2020 we are 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 from 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.

Total revenue for the first quarter of 2020 increased by $17.2 million to $432.6 million as compared to the first quarter of 2019. The increase was primarily a result of a 4.2%  increase in average tractors, a 9.2% increase in Brokerage revenue to $50.5 million offset by a 2.7% decrease in average revenue per mile. Excluding the impact of fuel surcharge revenue, first quarter revenue increased $17.5 million to $392.8 million, an increase of 4.7% as compared to the prior year quarter.

Operating loss for the first quarter of 2020 was $3.7 million compared to operating income of $12.6 million in the first quarter of 2020. We delivered a 100.8% operating ratio for the quarter which is an increase relative to the 97.0% operating ratio reported in the first quarter of 2019. Our profitability declined largely as a result of our OTR fleet revenue per tractor per week declining 4.2% in the first quarter from $3,616 in 2019 to $3,463 in 2020. This degradation was partially offset by progress in our Dedicated fleet which saw revenue per tractor per week increase 2.7% in the first quarter to $4,068 in 2020 from $3,961 in 2019. In addition, our Brokerage segment saw a decrease in gross margin to 3.7% compared to 17.5% in 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. In an effort to improve driver satisfaction we created a new driver development program. This program provides continuous learning opportunities for our drivers with the goal of providing the knowledge, skills and abilities necessary for a successful career. While still early in its implementation, we are seeing positive results from those drivers who have completed this training versus those who have not. We are optimistic that, over time, this training will improve our drivers’ satisfaction and retention while also reducing their accident rate and the Company’s insurance and claims expense. COVID-19 has allowed us to start upgrading our driver fleet as drivers seek out larger and more stable companies like U.S. Xpress. We will continue to focus on implementing and executing our initiatives that we expect will continue to drive sustainable improved performance over time.

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 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.

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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 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 41.3% of our Truckload operating revenue, and approximately 42.1% of our Truckload revenue, before fuel surcharge, for 2019, 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 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 use asset and an operating lease liability on our consolidated balance sheet, and the lease payments in respect of such equipment are reflected in our consolidated statement of comprehensive income in the line item “Vehicle rents.” When we finance revenue equipment acquisitions with secured financing, the asset and liability are recorded on our 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

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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 27.1% of our total tractor fleet was operated by independent contractors at March 31, 2020. 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.

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.

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A summary of our revenue generated by type for the three months ended March 31, 2020 and 2019 is as follows:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

 

 

(dollars in thousands)

Revenue, before fuel surcharge

 

$

392,820

 

$

375,312

Fuel surcharge

 

 

39,748

 

 

40,051

Total operating revenue

 

$

432,568

 

$

415,363

 

For the quarter ended March 31, 2020, our total operating revenue increased by $17.2 million, or 4.1%, compared to the same quarter in 2019, and our revenue, before fuel surcharge increased by $17.5 million, or 4.7%. The primary factors driving the increases in total operating revenue and revenue, before fuel surcharge, were increased volumes in our Truckload and Brokerage segment, offset partially by decreased pricing. 

To date volumes have remained above 30,000 per week, however we are seeing a sequential reduction in our spot market rates and we are uncertain as to when the market will recover as a result of the COVID-19 pandemic.

A summary of our revenue generated by segment for the three months ended March 31, 2020 and 2019 is as follows:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

 

 

(dollars in thousands)

Truckload revenue, before fuel surcharge

 

$

342,344

 

$

329,068

Fuel surcharge

 

 

39,748

 

 

40,051

Total Truckload operating revenue

 

 

382,092

 

 

369,119

Brokerage operating revenue

 

 

50,476

 

 

46,244

Total operating revenue

 

$

432,568

 

$

415,363

 

The following is a summary of our key Truckload segment performance indicators, before fuel surcharge for the three months ended March 31, 2020 and 2019.  

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

Over the road

 

 

  

 

 

  

Average revenue per tractor per week

 

$

3,463

 

$

3,616

Average revenue per mile

 

$

1.871

 

$

1.985

Average revenue miles per tractor per week

 

 

1,851

 

 

1,822

Average tractors

 

 

3,835

 

 

3,617

Dedicated

 

 

  

 

 

  

Average revenue per tractor per week

 

$

4,068

 

$

3,961

Average revenue per mile

 

$

2.376

 

$

2.337

Average revenue miles per tractor per week

 

 

1,712

 

 

1,695

Average tractors

 

 

2,703

 

 

2,658

Consolidated

 

 

  

 

 

  

Average revenue per tractor per week

 

$

3,713

 

$

3,762

Average revenue per mile

 

$

2.070

 

$

2.128

Average revenue miles per tractor per week

 

 

1,794

 

 

1,768

Average tractors

 

 

6,538

 

 

6,275

 

For the quarter ended March 31, 2020, our Truckload revenue, before fuel surcharge increased by $13.3 million, or 4.0%, compared to the same quarter in 2019. The primary factors driving the changes in Truckload revenue,  were a 

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4.2% increase of average available tractors, a 1.5% increase in average revenue miles per tractor per week offset by a 2.7% decrease in average revenue per mile. During the quarter ended March 31, 2020, our OTR rates decreased 5.7% due primarily to spot market rates declining more than 10% compared to the same quarter in 2019. Our Dedicated rates increased  1.7% during the quarter ended March 31, 2020 as compared to the same period in 2019. Fuel surcharge revenue decreased by $0.3 million, or 0.8%, to $39.7 million, compared with $40.1 million in the same quarter in 2019. The Department of Energy (“DOE”) national weekly average fuel price per gallon averaged approximately $0.104 per gallon lower for the quarter ended March 31, 2020 compared to the same quarter in 2019. The decrease in fuel surcharge revenue primarily relates to decreased fuel prices partially offset by a 7.1% increase in revenue miles compared to the same quarter in 2019.

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, 2020 and 2019.

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

 

Gross margin percentage

 

3.7

%  

17.5

%

 

For the quarter ended March 31, 2020, our Brokerage revenue increased by $4.2 million, or 9.2%, compared to the same quarter in 2019. The primary factor driving the increase in Brokerage revenue was a 28.6%  increase in load count offset by a 15.1% decrease in average revenue per load. We experienced a decrease in our gross margin to 3.7% in the first quarter of 2020 compared to 17.5% due to a $207 decrease in revenue per load partially offset by a $10 decrease in cost per load compared to the same quarter in 2019. We continue to work on improving our gross margin in this segment.

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.

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, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

2019

 

 

 

(dollars in thousands)

 

Salaries, wages and benefits

 

$

135,394

 

$

124,563

 

% of total operating revenue

 

 

31.3

%  

 

30.0

%

% of revenue, before fuel surcharge

 

 

34.5

%  

 

33.2

%

 

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For the quarter ended March 31, 2020, salaries, wages and benefits increased $10.8 million, or 8.7%, compared with the same quarter in 2019. The increases in absolute dollar terms were due primarily to $6.2 million of higher driver wages due in part to a 3.8% increase in company driver miles combined with increased driver pay per mile and a $2.7 million increase in office wages due in part to a 5.3% increase in headcount as we continue to invest in our ongoing initiatives. Our OTR driver pay on a per mile basis increased as a result of higher incentive-based pay as compared to the same quarter in 2019. During the three months ended March 31, 2020, our workers’ compensation expense and group health claims expense increased approximately 25.1%, due to increased group health claims expense and increased workers’ compensation claims as compared to the same quarter in 2019.

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, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

2019

 

 

 

(dollars in thousands)

 

Fuel and fuel taxes

 

$

40,323

 

$

46,904

 

% of total operating revenue

 

 

9.3

%  

 

11.3

%

% of revenue, before fuel surcharge

 

 

10.3

%  

 

12.5

%

 

For the quarter ended March 31, 2020, fuel and fuel taxes decreased $6.6 million, or 14.0%, compared with the same quarter in 2019. The decrease in fuel and fuel taxes was primarily the result of a 10.6% decrease in the average fuel price per gallon, a 5.5%  increase in average miles per gallon,  offset by a 3.8% increase in company driver miles compared to the same quarter in 2019.  

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, 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, 

 

 

    

2020

    

2019

 

 

 

(dollars in thousands)

 

Total fuel surcharge revenue

 

$

39,748

 

$

40,051

 

Less: fuel surcharge revenue reimbursed to independent contractors

 

 

11,211

 

 

10,480

 

Company fuel surcharge revenue

 

 

28,537

 

 

29,571

 

Total fuel and fuel taxes

 

$

40,323

 

$

46,904

 

Less: company fuel surcharge revenue

 

 

28,537

 

 

29,571

 

Net fuel expense

 

$

11,786

 

$

17,333

 

% of total operating revenue

 

 

2.7

%  

 

4.2

%

% of revenue, before fuel surcharge

 

 

3.0

%  

 

4.6

%

 

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For the quarter ended March 31, 2020, net fuel expense decreased $5.5 million, or 32.0%, compared with the same quarter in 2019. During the quarter ended March 31, 2020, the decrease in net fuel expenses was primarily the result of a 10.6% decrease in the average fuel price per gallon, a 5.5%  increase in average miles per gallon,  offset by a 3.8% increase in company driver miles compared to the same quarter in 2019.

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, 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.

The following is a summary of our vehicle rents and depreciation and amortization for the three  months ended March 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

2019

 

 

 

(dollars in thousands)

 

Vehicle rents

 

$

21,877

 

$

18,976

 

Depreciation and amortization, net of (gains) losses on sale of property

 

 

25,803

 

 

23,062

 

Vehicle rents and depreciation and amortization of property and equipment

 

$

47,680

 

$

42,038

 

% of total operating revenue

 

 

11.0

%  

 

10.1

%

% of revenue, before fuel surcharge

 

 

12.1

%  

 

11.2

%

 

For the quarter ended March 31, 2020, vehicle rents increased $2.9 million or 15.3% compared to the same quarter in 2019.  The increase in vehicle rents was primarily due to increased trailers and tractors financed under operating leases compared to the same quarter in 2019. Depreciation and amortization, net of (gains) losses on sale of property and equipment increased $2.7 million, or 11.9%, compared to the same quarter in 2019. The increase in depreciation and amortization is primarily due to increased losses on sale of revenue equipment combined with increased software amortization as compared to the same quarter in 2019.

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We continue to evaluate our planned capital expenditures and now estimate 2020 net capital expenditures to approximate $100.0 to $120.0 million, which includes an approximate $20.0 million transaction that carried over from the fourth quarter of 2019. The reduction from our prior estimate relates primarily to a deferral of a small quantity of planned tractor replacements combined with a reduction in the planned number of new trailer deliveries for the balance of the year. We expect to finance 100% of the acquisition price of new revenue equipment capital expenditures with finance leases or secured equipment notes, with no use of cash or borrowings under our Credit Facility. We will continue to monitor market conditions and may further reduce our planned capital expenditures as necessary.

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, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

2019

 

 

 

(dollars in thousands)

 

Purchased transportation

 

$

129,754

 

$

114,005

 

% of total operating revenue

 

 

30.0

%  

 

27.4

%

% of revenue, before fuel surcharge

 

 

33.0

%  

 

30.4

%

 

For the quarter ended March 31, 2020, purchased transportation increased $15.7 million, or 13.8%, compared to the same quarter in 2019. The increase in purchased transportation was partially due to a 28.6% increase in our Brokerage load count combined with a 18.2% increase in independent contractor miles as compared to the same quarter in 2019.

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 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, 

 

 

    

2020

    

2019

 

 

 

(dollars in thousands)

 

Purchased transportation

 

$

129,754

 

$

114,005

 

Less: fuel surcharge revenue reimbursed to independent contractors

 

 

11,211

 

 

10,480

 

Purchased transportation, net of fuel surcharge reimbursement

 

$

118,543

 

$

103,525

 

% of total operating revenue

 

 

27.4

%  

 

24.9

%

% of revenue, before fuel surcharge

 

 

30.2

%  

 

27.6

%

 

For the quarter ended March 31, 2020, purchased transportation, net of fuel surcharge reimbursement, increased $15.0 million, or 14.5%, compared to the same quarter in 2019. The increase in purchased transportation was partially due a 28.6% increase in our Brokerage load count combined with a 18.2% increase in independent contractor miles as compared to the same quarter in 2019.

Operating Expenses and Supplies

Operating expenses and supplies consist primarily of ordinary vehicle repairs and maintenance costs, driver on‑the‑road expenses, tolls and advertising expenses related to driver recruiting. Operating expenses and supplies are

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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 for the three months ended March 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

2019

 

 

 

(dollars in thousands)

 

Operating expenses and supplies

 

$

29,674

 

$

27,945

 

% of total operating revenue

 

 

6.9

%  

 

6.7

%

% of revenue, before fuel surcharge

 

 

7.6

%  

 

7.4

%

 

For the quarter ended March 31, 2020, operating expenses and supplies increased $1.7 million, or 6.2%, compared to the same quarter in 2019. The increase was primarily due to increased incidental maintenance expenses related to our higher turnover as compared to the same quarter in 2019.

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, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

2019

 

 

 

(dollars in thousands)

 

Insurance premiums and claims

 

$

26,023

 

$

24,353

 

% of total operating revenue

 

 

6.0

%  

 

5.9

%

% of revenue, before fuel surcharge

 

 

6.6

%  

 

6.5

%

 

For the quarter ended March 31, 2020, insurance premiums and claims increased $1.7 million, or 6.9%, compared to the same quarter in 2019. This increase is primarily due to increased liability expense partially offset by decreased physical damage claims expense as we did not experience the same frequency of physical damage claims as compared to the same quarter in 2019. Our increase in liability expense was due primarily to a 7.8% increase in total miles while cost per mile remained essentially constant.

Since the second quarter of 2018, substantially all of the tractors in our fleet have been equipped with event recorders. We continue to believe we have an opportunity to reduce our claims expense over time as a result of (1) having completed the installation of event recorders in 2018, (2) the successful launch of our redeveloped driver training facilities, and (3) our decision to implement hair follicle testing for all of our drivers in the fourth quarter of 2019. While we have not yet seen measurable financial results from these initiatives, we believe our increase in expense in 2020 relative to 2019 would have been greater absent the combination of the above initiatives.

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General and Other Operating Expenses

General and other operating expenses consist primarily of driver recruiting costs, legal and professional services fees, general and administrative expenses and other costs.

The following is a summary of our general and other operating expenses for the periods indicated:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

2019

 

 

 

(dollars in thousands)

 

General and other operating expenses

 

$

21,259

 

$

17,479

 

% of total operating revenue

 

 

4.9

%  

 

4.2

%

% of revenue, before fuel surcharge

 

 

5.4

%  

 

4.7

%

 

For the quarter ended March 31, 2020, general and other operating expenses increased $3.8 million, or 21.6%, compared to the same quarter in 2019. General and other expenses increased primarily due to higher driver hiring costs and other driver related expenses combined with increased terminal rents due to the sale leaseback transaction in the fourth quarter of 2019.

 

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.

At March 31, 2020, we had approximately $32.7 million of outstanding letters of credit, $77.0 million in outstanding borrowings and $90.6 million of availability under our $250.0 million Credit Facility.

 Due to uncertainties regarding the depth and duration of the economic impact of the COVID-19 crisis, as well as the impact of re-starting various components of the global supply chain at different times, we have considered many different scenarios, including those that would entail a significant multi-quarter degradation of business conditions across our customer base. Based on this analysis, we are managing the business to prudently control expenses and to ensure adequate liquidity even if operating and financial results are significantly and negatively impacted for an extended period.

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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 is 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 is 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.

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, 2020, the Credit Facility had issued collateralized letters of credit in the face amount of $32.7 million, with $77.0 million borrowings outstanding and $90.6 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.

Cash Flows

Our summary statements of cash flows for the three months ended March 31, 2020 and 2019 are set forth in the table below:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

 

 

(dollars in thousands)

Net cash provided by operating activities

 

$

20,078

 

$

25,479

Net cash used in investing activities

 

$

(69,111)

 

$

(32,491)

Net cash (used in) provided by financing activities

 

$

48,972

 

$

(12,569)

 

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Operating Activities

For the three months ended March 31, 2020, we generated cash flows from operating activities of $20.1 million, a decrease of $5.4 million compared to the same period in 2019. The decrease was due primarily to a decrease of $12.5 million in net income adjusted for noncash items offset by a $7.1 million decrease in our operating assets and liabilities. Our operating assets and liabilities decreased $7.1 million during the three months ended March 31, 2020 as compared to the same period in 2019, due in part to increased accounts receivable collections, and decreased payments for accounts payable and other accrued liabilities partially offset by an increase in accrued wages and benefit payments related to timing of payments. Our decrease in net income adjusted for noncash items was due in part to decreased revenue per mile combined with the decrease in our Brokerage gross margin.

Investing Activities

For the three months ended March 31, 2020, net cash flows used in investing activities were $69.1 million, an increase of $36.6 million compared to the same period in 2019. This increase is primarily the result of increased revenue equipment purchases of which a part was a carryover from our 2019 planned capital expenditures. We expect our net capital expenditures for calendar year 2020 will approximate $100.0 million to $120.0 million and will be 100% financed with secured equipment notes or finance leases and will not require any use of cash or borrowings under our Credit Facility.

Financing Activities

For the three months ended March 31, 2020, net cash flows provided by financing activities were $49.0 million, an increase of $61.5 million compared to the same period in 2019. The increase is primarily due to $81.4 million of new borrowings related to existing fixed assets of which a portion was used to pay down our terminated term loan.

Working Capital

As of March 31, 2020, we had a working capital deficit of $49.9 million, representing an  $8.3 million decrease in our working capital from March 31, 2019. When we analyze our working capital, we typically exclude balloon payments in the current maturities of long-term debt 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 as of March 31, 2020, we had a working capital deficit of $26.1 million, compared with a working capital surplus of $3.4 million at March 31, 2019.  The decrease in working capital was primarily the result of increased accounts payable and the current portion of operating leases offset by increased assets held for sale.

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 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 $32.7 million outstanding as of March 31, 2020. The letters of credit are maintained primarily to support the Company’s insurance program.

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The Company had cancelable commitments outstanding at March 31, 2020 to acquire revenue equipment for approximately $65.8 million during the remainder of 2020. 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

The table below summarizes our contractual obligations as of March 31, 2020.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due by Period

 

    

Less than

    

 

 

    

 

 

    

More than

    

 

 

 

 

1 year

 

1 ‑ 3 years

 

3 ‑ 5 years

 

5 years

 

Total

 

 

(in thousands)

Long‑term debt obligations(1)

 

$

95,175

 

$

190,607

 

$

158,418

 

$

44,115

 

$

488,315

Finance lease obligations(2)

 

 

2,804

 

 

5,261

 

 

1,363

 

 

 —

 

 

9,428

Operating lease obligations(3)

 

 

78,626

 

 

135,208

 

 

62,099

 

 

38,054

 

 

313,987

Purchase obligations(4)

 

 

65,804

 

 

 —

 

 

 —

 

 

 —

 

 

65,804

Total contractual obligations(5)

 

$

242,409

 

$

331,076

 

$

221,880

 

$

82,169

 

$

877,534

 

(1)Including interest obligations on long-term debt, excluding fees. The table assumes long-term debt is held to maturity and does not reflect events subsequent to March 31, 2020.

(2)Including interest obligations on finance lease obligations.

(3)We lease certain revenue and service equipment and office and service center facilities under long-term, non-cancelable operating lease agreements expiring at various dates through December 2034. Revenue equipment lease terms are generally three to five years for tractors and five to eight years for trailers. The lease terms and any subsequent extensions generally represent the estimated usage period of the equipment, which is generally substantially less than the economic lives. Certain revenue equipment leases provide for guarantees by us of a portion of the specified residual value at the end of the lease term. The maximum potential amount of future payments (undiscounted) under these guarantees is approximately $96.4 million at March 31, 2020. The residual value of a portion of the related leased revenue equipment is covered by repurchase or trade agreements between us and the equipment manufacturer.

(4)We had commitments outstanding at March 31, 2020 to acquire revenue equipment. The revenue equipment commitments are cancelable, subject to certain adjustments in the underlying obligations and benefits. These purchase commitments are expected to be financed by operating leases, long-term debt, proceeds from sales of existing equipment and cash flows from operating activities.

(5)Excludes deferred taxes and long or short-term portion of self-insurance claims accruals.  

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

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changes to our accounting policies since the disclosures made in our Annual Report on Form 10‑K for the year ended December 31, 2019.

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, 2019.

 

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, 2020. 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 SEC’s  rules and forms. Due to the material weakness described below and the Company’s evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were not effective to provide reasonable assurance as of March 31, 2020.

Material Weakness in Internal Control over Financial Reporting

As described in our Annual Report on Form 10K for the year ended December 31, 2019, during the course of preparing for our IPO, we identified material weaknesses in our internal control over financial reporting, one of which continues to exist as of March 31, 2020. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We did not design effective information technology general computer controls with respect to program development, change management, computer operation, and user access to programs and data. This deficiency did not result in a material misstatement to our annual or interim consolidated financial statements.  However, this deficiency could result in misstatements potentially impacting all financial statement accounts and disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.

Remediation Efforts and Status of Remaining Material Weakness

During 2019, we implemented new or enhanced existing controls governing program development, change management, computer operations, and user access to programs and data. However, we believe additional time is needed to demonstrate the sustainability and effectiveness of the established controls before concluding on remediation.

Changes in Internal Control Over Financial Reporting

During the fiscal quarter ended March 31, 2020,  there were no material changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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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, 2019, in the section entitled "Item 1A. Risk Factors," describes some of the risks and uncertainties associated with our business. The information presented below supplements such risk factors and should be read in conjunction with the risk factors included in our Annual Report on Form 10 K for the year ended December 31, 2019. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects.

We could be negatively impacted by the recent Coronavirus (“COVID-19”) outbreak or other similar outbreaks.

The recent outbreak of COVID-19, and any other outbreaks of contagious diseases or other adverse public health developments, could have a materially adverse effect on our financial condition, liquidity, results of operations, and cash flows. The outbreak of COVID-19 has resulted in governmental authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, increased border and port controls and closures, and shutdowns. There is considerable uncertainty regarding such measures and potential future measures, all of which could limit our ability to meet customer demand, as well as reduce customer demand.

Certain of our operations and personnel at our headquarters in Chattanooga, Tennessee, and other locations have already been working remotely, which could disrupt our management, business, finance, and financial reporting teams, and which could intensify over time.  We may experience an increase in absences or terminations among our driver and non-driver personnel due to the outbreak of COVID-19, which could have a materially adverse effect on our operating results.  Further, our operations, particularly in areas of increased COVID-19 infections, could be disrupted, resulting in a negative impact on our operations, results, and overall financial condition.  Negative financial results, uncertainties in the market, and a tightening of credit markets, caused by COVID-19, other similar outbreaks, or a recession, could have a material adverse effect on our liquidity, reduce credit options available to us, make it more difficult to obtain amendments, extensions, and waivers, and adversely impact our ability to effectively meet our short- and long-term obligations.

The outbreak of COVID-19 has significantly increased economic and demand uncertainty. It is likely that the current outbreak or continued spread of COVID-19 will cause an economic slowdown, and it is possible that it could cause a global recession. Risks related to a slowdown or recession are described in our risk factor titled, “Our business is subject to general economic, business and regulatory factors affecting the truckload industry that are largely beyond our control, any of which could have a material adverse effect on our results of operations,” under “Item 1A. Risk Factors” in our Form 10-K for the year ended December 31, 2019.

The extent to which COVID-19 could impact our operations, financial condition, liquidity, results of operations, and cash flows is highly uncertain and will depend on future developments. Such developments may include the geographic spread and duration of the virus, the severity of the disease and the actions that may be taken by various governmental authorities and other third parties in response to the outbreak.

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ITEM 2.           UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarter ended March 31, 2020, 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.

ITEM 6.           EXHIBITS

        

 

 

Exhibit
Number

Description

3.1

Second Amended and Restated Articles of Incorporation of U.S. Xpress Enterprises, Inc., dated and effective as of June 8, 2018 (incorporated by reference to Exhibit 3.1 filed with the Company’s Registration Statement on Form S‑1/A (File No. 333‑224711) filed on June 11, 2018).

3.2

Second Amended and Restated Bylaws of U.S. Xpress Enterprises, Inc., dated and effective as of May 24, 2019 (incorporated by reference to Exhibit 3.2 filed with the Company’s Current Report on Form 8-K filed on filed on May 31, 2019).

10.1#

Credit Agreement, dated as of January 29, 2020, by and among the U.S. Xpress Enterprises, Inc., U. S. Xpress, Inc., Xpress Shell, Inc., U. S. Xpress Leasing, Inc., Total Logistics, Inc., Associated Developments, LLC, and Total Transportation of Mississippi LLC as Borrowers, certain other of the Company’s direct and indirect wholly owned subsidiaries as Guarantors, and Bank of America, N.A., as Administrative Agent, Swingline Lender, and L/C Issuer.

10.2#

Employment and Noncompetition Agreement between U.S. Xpress, Inc. and Robert Pischke. 

10.3#

Employment and Noncompetition Agreement between U.S. Xpress Enterprises, Inc. and Cameron Ramsdell.

31.1#

Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Eric Fuller, the Company’s Principal Executive Officer

31.2#

Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Eric Peterson, the Company’s Principal Financial Officer

32.1##

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Eric Fuller, the Company’s Chief Executive Officer

32.2##

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Eric Peterson, the Company’s Chief Financial Officer

101.INS#

XBRL Instance 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


#     Filed herewith.

##   Furnished herewith.

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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: May 6, 2020

By:

/s/ Eric Peterson

 

 

Eric Peterson

 

 

Chief Financial Officer

 

 

 

 

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