U.S. XPRESS ENTERPRISES, INC. The unaudited condensed consolidated financial statements include the accounts
of
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), as well as the adequacy of working
capital and liquidity, expected capital expenditures, expected fleet age and mix
of owned versus leased equipment, expected impact of technology, our strategic
initiatives, our ability to profitably scale and achieve operational
efficiencies in Variant, as well as our Brokerage segment, future performance of
our Dedicated division, including pricing and margins, future customer
relationships, future fluctuations in purchased transportation expense and fuel
surcharge reimbursement, future driver market conditions and driver turnover and
retention rates, any projections of earnings, revenues, cash flows, dividends,
capital expenditures, operating ratio, margins, or other financial items,
expected cash flows, expected operating improvements, any statements regarding
future economic conditions or performance, any statement of plans, strategies,
programs and objectives of management for future operations, including the
anticipated impact of such plans, strategies, programs and objectives, future
rates and prices, future utilization, future depreciation and amortization,
future salaries, wages, and related expenses, including driver compensation,
future insurance and claims expense, future fluctuations in fuel costs and fuel
surcharge revenue, including the future effectiveness of our fuel surcharge
program, strategies for managing fuel costs, future fleet size and management,
including allocation of trucks among Variant, Dedicated and legacy
Over-the-Road, any statements concerning proposed acquisition plans, new
services or developments, the anticipated impact of legal proceedings on our
financial position and results of operations, and the anticipated effect of the
COVID-19 pandemic and any related vaccination mandates, 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
All such forward-looking statements speak only as of the date of this Form 10-
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Overview
We are one of the largest asset-based truckload carriers in
Executive Summary
For much of our history, we focused primarily on scaling our fleet and expanding our service offerings to support sustainable, multi-faceted relationships with customers. More recently, we have focused on our core service offerings and refined our network to focus on shorter, more profitable lanes with more density, which we believe are more attractive to drivers. We believe we have the strategy, management team, revenue base, modern fleet, and capital structure that position us very well to execute upon our initiatives, drive further operational gains, and deliver long term value for our stockholders.
We are currently focused on three main priorities. The first is optimizing our Truckload network and resulting average revenue per tractor per week through repositioning equipment and allocating capacity to our Dedicated service offering and Variant, our digital fleet, from certain underperforming portions of our Over-the-Road ("OTR") service offering. The second is improving the experience of our professional truck drivers, including their safety and security. And, the third is advancing our technology initiatives centered on digitization of our loads and business, automated load acceptance and prioritization. During 2020 and through 2021, we continued to see tangible, financial benefits of our strategic initiatives focused on utilizing technology to improve our processes, accelerate the velocity of our business, reduce the number of our preventable accidents, improve our customers' and drivers' satisfaction, and lower our costs.
We intend to continue to further develop these digital initiatives that we believe are re-engineering our Company to be a market leader in growth and profitability over the next decade. We believe the result of these initiatives will provide for a more scalable model with significantly lower costs.
Total revenue for the third quarter of 2021 increased by
Operating income for the third quarter of 2021 was
We are continuing to focus on our driver centric initiatives, such as increased miles and modern equipment, to both retain the professional drivers who have chosen to partner with us and attract new professional drivers to our team. During the second quarter of 2020 we launched our digital fleet, Variant, which is largely recruited, planned, dispatched and managed using artificial intelligence and digital platforms. Variant is a completely new paradigm for operating trucks in an OTR environment that is provided to the driver through a proprietary app-based driver experience. We developed the concept as a hypothesis in 2018 based in part on the business models of the digital freight brokerages. As digital brokers began to enter the market utilizing cutting edge technology and a new operating model, we believed there was an opportunity to take this approach and apply it to our asset based business in order to drive improved profitability and growth. During 2019, we began building our technology leadership and teams to construct the necessary databases,
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applications, and processes to launch a pilot fleet with a small number of
trucks in the fourth quarter of 2019. The test proved successful and we
expanded the pilot fleet to approximately 100 trucks in the first quarter of
2020. Given the positive results of the first quarter pilot we moved to a full
production model, scaling the business to approximately 700 trucks at the end of
2020. During the first quarter of 2021, we completed phase one of our plan and
converted a total of 951 OTR solo trucks, with the lowest returns, to our
Variant platform. During the second quarter of 2021, we grew Variant by an
additional 209 trucks while eliminating approximately 300 trucks in our
underperforming legacy OTR fleet. Variant exited the third quarter with 1,283
tractors and contributed to the total tractor count growing sequentially for the
first time since the second quarter of 2020. We remain on track to meet our goal
of reaching 1,500 or more trucks in Variant, which would represent an annualized
revenue run rate of
While we believe our margins will expand as we continue to convert more of our
trucks to our Variant platform, we also see tremendous growth opportunity given
the highly fragmented nature of the
During 2020, we purchased a small business with a technology platform and an experienced and talented team. Their approach to the brokerage business is to utilize a digital framework for handling transactions which we expect to be scalable. Importantly, we believe this platform will enable our team to continue scaling the business and drive a high level of growth in the years to come. Our team processed 82.7% of our Brokerage transactions digitally in the third quarter of 2021. We continue to grow revenue, load count, and the percentage of transactions processed on our digital platform in our Brokerage segment in line with our near-term profitability expectations for this business. Our focus remains on capturing market share and growing load count from a more diverse customer base, building out our carrier network density, and delivering purpose built technological products to our customers. We believe these actions will all positively contribute to operating margin improvement in the Brokerage segment at scale.
In our Dedicated division, our team successfully addressed pricing in certain Dedicated accounts as a result of driver and capacity cost inflation. As a result, our overall Dedicated rates increased 3.2% in the third quarter. As we closed the quarter our rates exiting the quarter were up approximately 7.0% sequentially compared to the rates in the second quarter of this year and we expect to see that rate improvement benefit our operating income beginning in the fourth quarter.
We expect freight demand to remain strong throughout fourth quarter 2021 given the broader economic recovery and tailwinds that it is experiencing as a result of the Federal Government's stimulus package, which had a notable impact on our operations in the first half of this year. On the supply side, the market for experienced drivers remains challenging, which is keeping a lid on supply. Additionally, chip shortages and supply chain constraints are impacting new tractor builds, which is also supportive of a favorable supply-demand balance over the near term. These conditions are expected to continue to support spot market rates in excess of contract rates. As a result, we expect our Truckload rates to be up 2-4% sequentially and to modestly exceed anticipated cost inflation in the fourth quarter.
Investment in TuSimple
On
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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.
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
We are typically paid a predetermined rate per load or per mile for our Truckload services. We enhance our revenue by charging for tractor and trailer detention, loading and unloading activities and other specialized services. Consistent with industry practice, our typical customer contracts (other than those contracts in which we have agreed to dedicate certain tractor and trailer capacity for use by specific customers) do not guarantee load levels or tractor availability. This gives us and our customers a certain degree of flexibility to negotiate rates up or down in response to changes in freight demand and trucking capacity. In our dedicated contract service offering, which comprised approximately 41.5% of our Truckload operating revenue, and approximately 42.0% of our Truckload revenue, before fuel surcharge, for 2020, we provide service under contracts with fixed terms, volumes and rates. Dedicated contracts are often used by our customers with high service and high priority freight, sometimes to replace private fleets previously operated by them.
Generally, in our Truckload segment, we receive fuel surcharges on the miles for
which we are compensated by customers. Fuel surcharge revenue mitigates the
effect of price increases over a negotiated base rate per gallon of fuel;
however, these revenues may not fully protect us from all fuel price increases.
Our fuel surcharges to customers may not fully recover all fuel increases due to
engine idle time, out of route miles and non-revenue generating miles that are
not generally billable to the customer, as well as to the extent the surcharge
paid by the customer is insufficient. The main factors that affect fuel
surcharge revenue are the price of diesel fuel and the number of revenue miles
we generate. Although our surcharge programs vary by customer, we generally
attempt to negotiate an additional penny per mile charge for every
The main factors that affect our operating revenue in our Truckload segment are the average revenue per mile or load we receive from our customers, the percentage of miles for which we are compensated and the number of shipments and miles we generate. Our primary measures of revenue generation for our Truckload segment are average revenue per loaded mile and average revenue per tractor per period, in each case excluding fuel surcharge revenue.
In our Truckload segment, our most significant operating expenses vary with miles traveled and include (i) fuel, (ii) driver related expenses, such as wages, benefits, training and recruitment and (iii) costs associated with independent contractors (which are primarily included in the "Purchased transportation" line item). Expenses that have both fixed and
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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 condensed consolidated balance sheet, and the lease payments in respect of such equipment are reflected in our condensed consolidated statement of comprehensive income (loss) in the line item "Vehicle rents." When we finance revenue equipment acquisitions with secured financing, the asset and liability are recorded on our condensed consolidated balance sheet, and we record expense under "Depreciation and amortization" and "Interest expense." Typically, the aggregate monthly payments are similar under operating lease financing and secured financing. We use a mix of finance leases and operating leases with individual decisions being based on competitive bids, tax projections and contractual restrictions. Because of the inverse relationship between vehicle rents and depreciation and amortization, we review both line items together.
Approximately 18.6% of our total tractor fleet was operated by independent
contractors at
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.
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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
A summary of our revenue generated for the three and nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(dollars in thousands) (dollars in thousands)
Revenue, before fuel surcharge $ 451,824 $ 403,679 $ 1,306,998 $ 1,190,463
Fuel surcharge 39,316 27,790 109,923 96,051
Total operating revenue $ 491,140 $ 431,469 $ 1,416,921 $ 1,286,514 For the quarter ended
For the nine months ended
A summary of our revenue generated by segment for the three and nine months
ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(dollars in thousands) (dollars in thousands)
Truckload revenue, before fuel surcharge
39,316 27,790 109,923 96,051
Total Truckload operating revenue 400,320 375,499 1,147,773 1,134,039
Brokerage operating revenue 90,820 55,970 269,148 152,475
Total operating revenue $ 491,140 $ 431,469 $ 1,416,921 $ 1,286,514
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The following is a summary of our key Truckload segment performance indicators,
before fuel surcharge for the three and nine months ended September 30, 2021 and
2020.
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Over the road
Average revenue per tractor per week $ 3,770 $ 3,680 $ 3,776 $ 3,566
Average revenue per mile $ 2.421 $ 2.047 $ 2.286 $ 1.921
Average revenue miles per tractor per week 1,558 1,798 1,651 1,856
Average tractors 3,413 3,684 3,384 3,781
Dedicated
Average revenue per tractor per week$ 4,340 $ 4,065 $ 4,274 $ 4,085 Average revenue per mile$ 2.527 $ 2.353 $ 2.455 $ 2.360 Average revenue miles per tractor per week 1,717 1,728 1,741 1,731 Average tractors 2,520 2,710 2,575 2,717
Consolidated
Average revenue per tractor per week$ 4,012 $ 3,843 $ 3,991 $ 3,783 Average revenue per mile$ 2.468 $ 2.173 $ 2.361 $ 2.097 Average revenue miles per tractor per week 1,625 1,768 1,690 1,804 Average tractors 5,933 6,394 5,959 6,498
For the quarter ended
For the nine months ended
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 and nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020Gross margin percentage 11.2 % 6.7 % 12.3 % 6.1 %
For the quarter ended
For the nine months ended
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margin was due to the increase in revenue per load of 66.5% exceeding the 55.5%
increase in cost per load as compared to the same period in 2020. During the
nine months ended
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 and
nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(dollars in thousands) (dollars in thousands)
Salaries, wages and benefits $ 158,942 $ 137,541 $ 445,445 $ 412,889
% of total operating revenue 32.4 % 31.9 % 31.4 % 32.1 %
% of revenue, before fuel surcharge 35.2 % 34.1 % 34.1 % 34.7 %
For the quarter ended
decreased company driver miles, an increase of
For the nine months ended
In the near term, we believe salaries, wages and benefits will increase as a result of a tight driver market, wage inflation and higher healthcare costs. As a percentage of revenue, we expect salaries, wages and benefits will fluctuate based on our ability to generate offsetting increases in average revenue per total mile and the percentage of revenue generated by independent contractors and brokerage operations, for which payments are reflected in the "Purchased transportation" line item.
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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 and nine
months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(dollars in thousands) (dollars in thousands)
Fuel and fuel taxes $ 46,715 $ 33,208 $ 130,902 $ 103,265
% of total operating revenue 9.5 % 7.7 % 9.2 % 8.0 %
% of revenue, before fuel surcharge 10.3 % 8.2 % 10.0 % 8.7 %
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:
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(dollars in thousands) (dollars in thousands)
Total fuel surcharge revenue $ 39,316 $ 27,790 $ 109,923 $ 96,051
Less: fuel surcharge revenue
reimbursed to independent
contractors 8,001 6,838 24,083 25,360
Company fuel surcharge revenue 31,315 20,952 85,840 70,691
Total fuel and fuel taxes $ 46,715 $ 33,208 $ 130,902 $ 103,265
Less: company fuel surcharge
revenue 31,315 20,952 85,840 70,691
Net fuel expense $ 15,400 $ 12,256 $ 45,062 $ 32,574
% of total operating revenue 3.1 % 2.8 % 3.2 % 2.5 %
% of revenue, before fuel
surcharge 3.4 % 3.0 % 3.4 % 2.7 %
For the quarter ended
For the nine months ended
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
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programs, the percentage of uncompensated miles, the percentage of revenue generated by independent contractors, and the percentage of revenue generated by team-driven tractors (which tend to generate higher miles and lower revenue per mile, thus proportionately more fuel cost as a percentage of revenue).
Vehicle Rents and Depreciation and Amortization
Vehicle rents consist primarily of payments for tractors and trailers financed with operating leases. The primary factors affecting this expense item include the size and age of our tractor and trailer fleets, the cost of new equipment and the relative percentage of owned versus leased equipment.
Depreciation and amortization consists primarily of depreciation for owned tractors and trailers. The primary factors affecting these expense items include the size and age of our tractor and trailer fleets, the cost of new equipment and the relative percentage of owned equipment and equipment acquired through debt or finance leases versus equipment leased through operating leases. We use a mix of finance leases and operating leases to finance our revenue equipment with individual decisions being based on competitive bids and tax projections. Gains or losses realized on the sale of owned revenue equipment are included in depreciation and amortization for reporting purposes.
Vehicle rents and depreciation and amortization are closely related because both line items fluctuate depending on the relative percentage of owned equipment and equipment acquired through finance leases versus equipment leased through operating leases. Vehicle rents increase with greater amounts of equipment acquired through operating leases, while depreciation and amortization increases with greater amounts of owned equipment and equipment acquired through finance leases. Because of the inverse relationship between vehicle rents and depreciation and amortization, we review both line items together.
The following is a summary of our vehicle rents and depreciation and
amortization for the three and nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(dollars in thousands) (dollars in thousands)
Vehicle rents $ 22,700 $ 20,956 $ 65,710 $ 64,168
Depreciation and amortization,
net of (gains) losses on sale of
property 19,509 25,785 65,096 77,871
Vehicle rents and depreciation
and amortization of property and
equipment $ 42,209 $ 46,741 $ 130,806 $ 142,039
% of total operating revenue 8.6 % 10.8 % 9.2 % 11.0 %
% of revenue, before fuel
surcharge 9.3 % 11.6 % 10.0 % 11.9 %
For the quarter ended
For the nine months ended
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For calendar year 2021, excluding any change in our percentage allocation of
owned versus leased equipment due to available financing terms, we expect to
spend approximately
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 and
nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(dollars in thousands) (dollars in thousands)
Purchased transportation $ 159,152 $ 125,997 $ 458,302 $ 373,117
% of total operating revenue 32.4 % 29.2 % 32.3 % 29.0 %
% of revenue, before fuel surcharge 35.2 % 31.2 % 35.1 % 31.3 %
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 Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(dollars in thousands) (dollars in thousands)
Purchased transportation $ 159,152 $ 125,997 $ 458,302 $ 373,117
Less: fuel surcharge revenue
reimbursed to independent
contractors 8,001 6,838 24,083 25,360
Purchased transportation, net
of fuel surcharge
reimbursement $ 151,151 $ 119,159 $ 434,219 $ 347,757
% of total operating revenue 30.8 % 27.6 % 30.6 % 27.0 %
% of revenue, before fuel
surcharge 33.5 % 29.5 % 33.2 % 29.2 %
For the quarter ended
For the nine months ended
If industry-wide trucking capacity continues to tighten in relation to freight demand, we may need to increase the amounts we pay to third-party carriers and independent contractors, which could increase this expense category on an absolute basis and as a percentage of total operating revenue and revenue, before fuel surcharge, absent an offsetting increase in revenue. We continue to actively attempt to expand our Brokerage segment.
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Operating Expenses and Supplies
Operating expenses and supplies consist primarily of ordinary vehicle repairs and maintenance costs, driver on-the-road expenses, tolls and driver recruiting and training costs. Operating expenses and supplies are primarily affected by the age of our company-owned and leased fleet of tractors and trailers, the number of miles driven in a period and driver turnover.
The following is a summary of our operating expenses and supplies expense for
the three and nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(dollars in thousands) (dollars in thousands)
Operating expenses and supplies
7.9 % 7.9 % 7.5 % 7.9 %
% of revenue, before fuel surcharge 8.6 % 8.4 % 8.1 % 8.5 %
For the quarter ended
For the nine months ended
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 and nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(dollars in thousands) (dollars in thousands)
Insurance premiums and claims $ 18,242 $ 17,835 $ 58,952 $ 65,141
% of total operating revenue 3.7 % 4.1 % 4.2 % 5.1 %
% of revenue, before fuel surcharge 4.0 % 4.4 % 4.5 % 5.5 %
For the quarter ended
For the nine months ended
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We believe we have an opportunity to continue to reduce our claims expense over time as a result the successful launch of Variant, our digital fleet, which is currently experiencing fewer preventable accidents per million miles than our OTR legacy fleet from 2019, combined with the suspension of our OTR student program. During the first nine months of 2021 we experienced approximately 36% fewer preventable accidents than we did in the comparable prior year period which we believe contributed greatly to our lower insurance and claims expense despite higher premiums. Although a decrease in frequency in claims reduced our expense during the year, to the extent we have an increase in severity these savings could be partially or fully offset.
Liquidity and Capital Resources
Overview
Our business requires substantial amounts of cash to cover operating expenses as well as to fund capital expenditures, working capital changes, principal and interest payments on our obligations, lease payments, letters of credit to support insurance requirements and tax payments when we generate taxable income. Recently, we have financed our capital requirements with borrowings under our Credit Facility, cash flows from operating activities, direct equipment financing, finance leases, operating leases and proceeds from equipment sales.
We believe we can fund our expected cash needs, including debt repayment, in the short-term with projected cash flows from operating activities, borrowings under our Credit Facility and direct debt and lease financing we believe to be available for at least the next 12 months. Over the long-term, we expect that we will continue to have significant capital requirements, which may require us to seek additional borrowings, lease financing or equity capital. We have obtained a significant portion of our revenue equipment under operating leases, which are not reflected as net capital expenditures. The availability of financing and equity capital will depend upon our financial condition and results of operations as well as prevailing market conditions.
Sources of Liquidity
Credit Facility
On
The Credit Facility is a five-year facility scheduled to terminate on
Borrowings under the Credit Facility are subject to a borrowing base limited to
the lesser of (A)
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revenue equipment, plus (iv) the lesser of (a) 80.0% the fair market value of
eligible real estate or (b)
The Credit Facility includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the Credit Facility may be accelerated, and the lenders' commitments may be terminated. The Credit Facility contains certain restrictions and covenants relating to, among other things, dividends, liens, acquisitions and dispositions, affiliate transactions, and other indebtedness.
At
Cash Flows
Our summary statements of cash flows for the nine months ended
Nine Months Ended
September 30,
2021 2020
(dollars in thousands)
Net cash provided by operating activities $ 70,304 $ 101,914
Net cash used in investing activities $ (71,052) $ (95,270) Net cash provided by (used in) financing activities
Operating Activities
The decrease in cash flows from operating activities was due primarily to a
Investing Activities
For the nine months ended
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Financing Activities
The increase in net cash flows provided by financing activities is due in part
to decreased payments for other financing activities combined with borrowings in
excess of debt repayments of
Working Capital
As of
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, borrowings under our Credit Facility, direct debt and lease financing, 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
The Company had cancelable commitments outstanding at
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
Contractual Obligations
During the nine months ended
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Critical Accounting Policies
We have reviewed our critical accounting policies and considered whether any new
critical accounting estimates or other significant changes to our accounting
policies require any additional disclosures. There have been no significant
changes to our accounting policies since the disclosures made in our Annual
Report on Form 10-K for the year ended
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