U.S. Xpress Enterprises, Inc. (NYSE: USX) is one of the largest asset-based truckload carriers in the United States, generating over $2.2 billion in total operating revenue in 2022. The company provides transportation services primarily throughout the United States, with a focus in the densely populated and economically diverse eastern half of the country. U.S. Xpress offers customers a broad portfolio of services using its own truckload fleet and third-party carriers through its asset-light freight brokerage network.
As of March 31, 2023, the company's fleet consisted of approximately 7,200 tractors and 15,100 trailers, including around 1,000 tractors provided by independent contractors. U.S. Xpress' terminal network is well-established and capable of handling significantly larger volumes without meaningful additional investment.
Business Overview
U.S. Xpress has two reportable segments: Truckload and Brokerage. The Truckload segment offers asset-based truckload services, including over-the-road (OTR) trucking and dedicated contract services. The company's OTR service offering provides solo and expedited team services through one-way movements of freight over routes throughout the United States. The dedicated contract service offering devotes the use of equipment to specific customers and provides services through long-term contracts.The Brokerage segment is principally engaged in asset-light freight brokerage services, where loads are contracted to third-party carriers. For this segment, U.S. Xpress relies on brokerage employees to procure third-party carriers, as well as information systems to match loads and carriers.
Financials
In the fiscal year 2022, U.S. Xpress reported annual revenue of $2,161,170,000 and a net loss of $38,863,000. The company's annual operating cash flow was $43,464,000, while its annual free cash flow was -$155,670,000.For the first quarter of 2023, the company reported total operating revenue of $492,726,000, a decrease of 4.7% compared to the same period in 2022. This decrease was primarily driven by a $42,350,000 decline in Brokerage revenue, partially offset by a $15,888,000 increase in Truckload revenue and a $2,043,000 increase in fuel surcharge revenue.
The company's operating loss for the first quarter of 2023 was $29,854,000, compared to an operating loss of $210,000 in the same period of 2022. This decrease in profitability was primarily due to increased insurance claims and premiums of $18,780,000, a 3.5% decrease in average revenue per mile, higher net fuel costs, and a $3,000,000 charge related to the proposed merger with Knight-Swift Transportation Holdings Inc.
Segmental Performance
Truckload Segment
In the Truckload segment, U.S. Xpress generates revenue by transporting freight for its customers in its OTR and dedicated contract service offerings. The company's OTR service offering provides solo and expedited team services through one-way movements of freight, while the dedicated contract service offering devotes the use of equipment to specific customers and provides services through long-term contracts.For the first quarter of 2023, Truckload revenue, before fuel surcharge, increased by $15,845,000, or 4.3%, to $386,244,000 compared to the same period in 2022. This increase was primarily due to a 12.5% increase in available tractors, partially offset by a 3.5% decrease in average revenue per mile and a $13,300,000 decrease in miscellaneous revenues.
Brokerage Segment
In the Brokerage segment, U.S. Xpress retains the customer relationship, including billing and collection, and outsources the transportation of the 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.Brokerage operating revenue decreased by $42,350,000, or 45.1%, to $51,578,000 in the first quarter of 2023 compared to the same period in 2022. This decrease was primarily due to a 51.2% decrease in load count, partially offset by a 12.5% increase in average revenue per load.
Liquidity
U.S. Xpress has financed its capital requirements with borrowings under its $250 million revolving credit facility, cash flows from operating activities, direct equipment financing, operating leases, and proceeds from equipment sales. The company makes substantial net capital expenditures to maintain a modern company tractor fleet and refresh its trailer fleet.As of March 31, 2023, the company had a working capital deficit of $124,145,000, representing a $44,672,000 decrease from March 31, 2022. Excluding balloon payments in the current maturities of long-term debt and current portion of operating lease liabilities, the company had a working capital deficit of $11,845,000 as of March 31, 2023, compared to a working capital deficit of $49,545,000 at March 31, 2022.
Proposed Merger with Knight-Swift Transportation Holdings Inc.
On March 20, 2023, U.S. Xpress entered into an Agreement and Plan of Merger with Knight-Swift Transportation Holdings Inc. and Liberty Merger Sub Inc., a wholly-owned subsidiary of Knight-Swift. The merger agreement provides that Merger Subsidiary will be merged with and into U.S. Xpress, with U.S. Xpress surviving as an indirect subsidiary of Knight-Swift.The obligations of the parties to consummate the merger are subject to the satisfaction or waiver of customary closing conditions, including the adoption of the merger agreement and the merger by U.S. Xpress' stockholders, the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and the absence of any outstanding law, regulation, or order that prevents, materially restrains, materially impairs, or makes illegal the consummation of the merger.
Risks and Challenges
U.S. Xpress faces several risks and challenges that could impact its financial performance and future prospects. These include:1. Fluctuations in fuel prices and the effectiveness of the company's fuel surcharge program 2. Availability and retention of qualified drivers and independent contractors 3. Increased insurance premiums and claims costs 4. Intense competition in the truckload and freight brokerage industries 5. Regulatory changes and compliance requirements 6. Potential disruptions to the company's operations due to factors such as weather, accidents, or equipment failures