U.S. Xpress Enterprises, Inc. (NYSE: USX) (the “Company”) today announced results for the third quarter of 2020.

Third Quarter 2020 Financial Highlights

• Operating revenue of $431.5 million compared to $428.5 million in the third quarter of 2019
• Operating income of $15.9 million compared to $3.3 million in the third quarter of 2019
• Operating ratio of 96.3% compared to 99.2% in the third quarter of 2019
• Adjusted operating ratio1, a non-GAAP measure, of 96.1% compared to 99.2% in the third quarter of 2019
• Truckload operating ratio improved 450 basis points to 94.6% from 99.1% in the third quarter of 2019
• Net income attributable to controlling interest of $10.7 million, or $0.20 per diluted share, compared to a loss of $1.4 million in the third quarter of 2019, or a loss of $0.03 per diluted share

Third Quarter Financial Performance

Eric Fuller, President and CEO, commented, “This is an exciting time at U.S. Xpress as we transform our business with the goal of delivering not only peer levels of profitability but also deploy an operating model that is being purposefully built to organically scale over time. Through the third quarter, we continued to scale our digital fleet, adding approximately 100 average tractors representing more than 25% sequential growth as compared with the second quarter. The digital fleet business model, now branded as Variant, continues to prove out, maintaining a more than 20% advantage in utilization, an approximately 70% reduction in driver turnover, and substantially fewer accidents per million miles than the legacy Over-the-Road, or OTR, fleet. This provides real confidence in the scalability of our digital model as we work toward our goal of transitioning an additional 400 underperforming tractors in our legacy OTR solo fleet by the end of the first quarter of 2021 as part of our Phase 1 conversion of 900 tractors.”

Mr. Fuller continued, “Our third quarter truckload operating ratio improved to 94.6% or a 450 basis points improvement over the prior year. The improvement was tempered somewhat by a higher percentage of unseated trucks in our legacy OTR fleet due to increased competition for drivers and suspension of our student program during the second quarter, which contributed to an approximate 6% reduction in miles driven during the quarter. Looking forward, adjustments we have made over the past two months to our digital fleet recruiting program are beginning to deliver increased hiring momentum through October, contract rates are renewing at higher levels, brokerage margins expanded as we exited the quarter, and our consolidated safety record is the best in the Company’s modern history. We believe the efficiency and technology changes we are implementing are gaining momentum and position us to positively impact our profitability through next year.”

Enterprise Update

Operating revenue was $431.5 million, an increase of $3.0 million compared to the third quarter of 2019. The increase was primarily attributable to increased revenues in the Company’s Brokerage division of $9.9 million, an increase of $7.1 million in Truckload revenue, and decreased fuel surcharge revenues of $14.0 million. Excluding the impact of fuel surcharges, third quarter revenue increased $17.0 million to $403.7 million, an increase of 4.4% as compared to the prior year quarter.

Operating income for the third quarter of 2020 was $15.9 million which compares favorably to the $3.3 million in the third quarter of 2019. Operating ratio for the third quarter of 2020 was 96.3% compared to 99.2% in the prior year quarter.

Net income attributable to controlling interest for the third quarter of 2020 was $10.7 million compared to a loss of $1.4 million in the prior year quarter. Earnings per diluted share were $0.20 for the third quarter of 2020 and adjusted earnings per diluted share1 were $0.20.

Truckload Segment

The Truckload segment achieved an operating ratio of 94.6% and an adjusted operating ratio1 of 94.1% for the third quarter of 2020, a 450 and 490 basis point improvement, respectively, compared to the operating ratio of 99.2% and the adjusted operating ratio1 of 99.0% achieved in the third quarter of 2019. This improvement was primarily the result of higher rate per mile combined with lower claims expense and other costs as the Company continued to execute on its digital initiatives while maintaining a focus on reducing fixed and variable costs.

In the OTR division, average revenue per tractor per week increased 5.8% compared with the third quarter of 2019. Primarily the result of a 7.2% increase in average revenue per mile partially offset by a 1.3% decrease in revenue miles per tractor per week.

Mr. Fuller added, “The trucking environment shifted rapidly during the third quarter, which meaningfully impacted spot market rates, driver recruiting and retention costs, and seated truck count. The impact on the third quarter was mixed. Higher rates on the uncommitted portion of our OTR fleet helped drive higher revenue per truck and bodes well for contract renewals and bids over the next several quarters. Because the vast majority of our fleet is under contracts, the expected benefit of higher rates will come over time. However, the strong market caused immediate driver-related cost increases and more unseated trucks. In essence, dramatically improved revenue across a relatively small portion of our fleet supported cost increases across the entire fleet. Meanwhile, the benefits of our strategic shift away from student drivers led to higher unseated trucks in the near term, but also contributed to the best safety performance, as measured by reportable accidents per million miles, in recent memory and sequentially lower claims costs. As the benefits of contract renewals, digital fleet growth, and safety experience compound over coming quarters, we expect the benefits to far outweigh the third quarter costs.”

The Dedicated division’s average revenue per tractor per week increased $54 per tractor per week, or 1.3%, compared to the third quarter of 2019 primarily a result of a 3.7% increase in revenue miles per tractor per week partially offset by a 2.3% reduction in average revenue per mile.

Mr. Fuller concluded, “Our Dedicated division continues to perform at record levels having delivered its sixth consecutive quarter of average revenue per tractor per week in excess of $4,000. We remain focused on organically growing the Dedicated division given the stability that the business provides through economic cycles.”

Digital Fleet (now branded as “Variant”) Conversion Update

The Company continues to make progress on its initiative to have 900 tractors in the digital fleet component of its OTR division by the end of the first quarter of 2021. The average number of tractors in this division increased approximately 100 average tractors to 500 tractors sequentially from the second quarter of 2020. The Company also continues to see improved operating metrics compared to its legacy OTR fleet, including:

• Utilization continues to track ~20% better
• Turnover continues to track ~70% lower
• Accidents per million miles continue to track ~30% lower

Brokerage Segment

The Brokerage segment continues to provide additional selectivity for the Company’s assets to optimize yield while at the same time offering more capacity solutions to customers. Brokerage segment revenue increased to $56.0 million in the third quarter of 2020 compared to $46.0 million in the third quarter of 2019, primarily as a result of increased revenue per load and to a lesser extent an increase in load count. Brokerage operating loss was $4.5 million in the third quarter of 2020 as compared to an operating loss of $0.1 million in the year ago quarter. The Company continues to work on sequentially improving margins in this division.

Liquidity and Capital Resources

At the end of the third quarter 2020, the Company had $154.9 million of liquidity (defined as cash plus availability under the Company’s revolving credit facility), $386.3 million of net debt (defined as long-term debt, including current maturities, less cash balances), and $252.2 million of total stockholders' equity.

The Company expects its net capital expenditures to approximate $100 to $120 million for the full year of 2020, which includes an approximate $20 million transaction that carried over from the fourth quarter of 2019. Through September 30, 2020, net capital expenditures were $95.3 million including the carryover $20 million from 2019.

Outlook

The Company’s baseline assumptions for the balance of 2020 include a general sequential economic recovery that may be volatile nationally or by region at times, increasing inventory re-stocking, tight trucking capacity, and a relatively benign cost inflation outside of driver-related and insurance premium expenses. These conditions are expected to continue to support spot market rates in excess of contract rates and a strengthening contract renewal environment over the next several quarters. Based on these assumptions, the Company expects its internal initiatives around digitization and cost management, combined with continued strength in Dedicated, to have U.S. Xpress well positioned to continue improving its margins through 2021.

Conference Call

The Company will hold a conference call to discuss its third quarter results at 5:00 p.m. (Eastern Time) on October 22, 2020. The conference call can be accessed live over the by phone dialing 1-877-423-9813 or, for international callers, 1-201-689-8573 and requesting to be joined to the U.S. Xpress Third Quarter 2020 Earnings Conference Call. A replay will be available starting at 8:00 p.m. (Eastern Time) on October 22, 2020, and can be accessed by dialing 1-844-512-2921 or, for international callers, 1-412-317-6671. The passcode for the replay is 13711865. The replay will be available until 11:59 p.m. (Eastern Time) on October 29, 2020.

Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the investor relations section of the Company’s website at investor.usxpress.com. The online replay will remain available for a limited time beginning immediately following the call. Supplementary information for the conference call will also be available on this website.

(1) Non-GAAP Financial Measures

In addition to our net income determined in accordance with U.S. generally accepted accounting principles (‘‘GAAP’’), we evaluate operating performance using certain non-GAAP measures, including Adjusted Operating Ratio, Adjusted Operating Income, Adjusted Net Income Attributable to Controlling Interest, and Adjusted EPS (on a consolidated and, as applicable, segment basis). Management believes the use of non-GAAP measures assists investors and securities analysts in understanding the ongoing operating performance of our business by allowing more effective comparison between periods. Further, management uses non-GAAP Adjusted Operating Ratio, Adjusted Operating Income, Adjusted Net Income Attributable to Controlling Interest, and Adjusted EPS measures on a supplemental basis to remove items that may not be an indicator of performance from period-to-period. The non-GAAP information provided is used by our management and may not be comparable to similar measures disclosed by other companies. The non-GAAP measures used herein have limitations as analytical tools and should not be considered measures of income generated by our business or discretionary cash available to us to invest in the growth of our business. You should not consider the non-GAAP measures used herein in isolation or as substitutes for analysis of our results as reported under GAAP. Management compensates for these limitations by relying primarily on GAAP results and using non-GAAP financial measures on a supplemental basis.

Pursuant to the requirements of Regulation G and Regulation S-K, we have provided reconciliations of Adjusted Operating Ratio, Adjusted Operating Income, Adjusted Net Income Attributable to Controlling Interest, and Adjusted EPS to the most comparable GAAP financial measures at the end of this press release.

About U.S. Xpress Enterprises

Founded in 1985, U.S. Xpress Enterprises, Inc. is the nation’s fifth largest asset-based truckload carrier by revenue, providing services primarily throughout 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. Our modern fleet of tractors is backed up by a team of committed professionals whose focus lies squarely on meeting the needs of our customers and our drivers.

Forward-Looking Statements

This press release contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995, as amended. Such statements may be identified by their use of terms or phrases such as "expects," "estimates," "projects," "believes," "anticipates," "plans," "intends," “outlook,” “strategy,” “optimistic,” “will,” “could,” “should,” “may,” “focus,” “seek,” “potential,” “continue,” “goal,” “target,” “objective,” derivations thereof, and similar terms and phrases. In this press release, such statements may include, but are not limited to, statements in the "Outlook" section, statements regarding the freight environment, expected rates, expected margins, future growth of our digital fleet and Dedicated division, expected net capital expenditures, the expected impact of our driver, digital fleet, and other initiatives, and any other statements concerning: any projections of earnings, revenues, cash flows, capital expenditures, compliance with financial covenants, or other financial items; any statement of plans, strategies, or objectives for future operations; any statements regarding future economic or industry conditions or performance; any statements regarding our responses to COVID-19 and the associated economic conditions; and any statements of belief and any statements of assumptions underlying any of the foregoing. Forward-looking statements are based upon the current beliefs and expectations of our management and 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. The following factors, among others, could cause actual results to differ materially from those in the forward-looking statements: general economic conditions, including inflation and consumer spending; political conditions and regulations, including future changes thereto; changes in tax laws or in their interpretations and changes in tax rates; future insurance and claims experience, including adverse changes in claims experience and loss development factors, or additional changes in management's estimates of liability based upon such experience and development factors that cause our expectations of insurance and claims expense to be inaccurate or otherwise impacts our results; impact of pending or future legal proceedings; future market for used revenue equipment and real estate; future revenue equipment prices; future capital expenditures, including equipment purchasing and leasing plans and equipment turnover (including expected trade-ins); fleet age; future depreciation and amortization; changes in management’s estimates of the need for new tractors and trailers; future ability to generate sufficient cash from operations and obtain financing on favorable terms to meet our significant ongoing capital requirements; our ability to maintain compliance with the provisions of our credit agreement; freight environment, including freight demand, rates, capacity, and volumes; future asset utilization; loss of one or more of our major customers; our ability to renew dedicated service offering contracts on the terms and schedule we expect; surplus inventories, recessionary economic cycles, and downturns in customers' business cycles; strikes, work slowdowns, or work stoppages at the Company, customers, ports, or other shipping related facilities; increases or rapid fluctuations in fuel prices, as well as fluctuations in surcharge collection, including, but not limited to, changes in customer fuel surcharge policies and increases in fuel surcharge bases by customers; interest rates, fuel taxes, tolls, and license and registration fees; increases in compensation for and difficulty in attracting and retaining qualified professional drivers and independent contractors; seasonal factors such as harsh weather conditions that increase operating costs; competition from trucking, rail, intermodal, and brokerage (including digital brokerage) competitors; regulatory requirements that increase costs, decrease efficiency, or reduce the availability of drivers, including revised hours-of-service requirements for drivers and the Federal Motor Carrier Safety Administration’s Compliance, Safety, Accountability program that implemented new driver standards and modified the methodology for determining a carrier’s Department of Transportation safety rating; future safety performance; our ability to reduce, or control increases in, operating costs; future third-party service provider relationships and availability; execution of the Company’s current business strategy or changes in the Company’s business strategy; the ability of the Company’s infrastructure to support future organic or inorganic growth; our ability to identify acceptable acquisition candidates, consummate acquisitions, and integrate acquired operations; our ability to adapt to changing market conditions and technologies, including the future use of autonomous tractors; disruptions to our information technology; the cost of and our ability to effectively and efficiently implement technology initiatives; costs, diversion of management’s attention, and potential payments made in connection with the multiple class action lawsuits a stockholder derivative lawsuit arising out of our IPO; changes in methods of determining LIBOR or replacement of LIBOR; credit, reputational and relationship risks of certain of our current and former equity investments; risks arising from our Mexican operations; our ability to maintain effective internal controls without material weaknesses, as well as remediate the existing material weakness; and the impact of the recent coronavirus outbreak or other similar outbreaks. Readers should review and consider these factors along with the various disclosures by the Company in its press releases, stockholder reports, and filings with the Securities and Exchange Commission. We disclaim any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information.

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