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Conditions will continue to support a strong spot market and contract renewal environment
U.S. Xpress Enterprises, Inc. has announced results for Q2, 2021. Operating revenue of US$475.0 million was up 12.4%, compared to US$422.5 million. Operating income of US$8.9 million halved compared to US$16.3 million whilst net income attributable to controlling interest of US$19.1 million more than doubled compared to US$9.5 million.
For the H1, 2021 period, revenue increased 8.3% to US$925.8 million. Operating income grew 34.1% to US$16.9 million whilst net income increased to US$21.6 million from US$0.3 million.
During Q2, the Company continued to execute its digital transformation plan, which underpins a goal to double revenue and significantly expand margins over the next four years. The key foundation points of the plan are to grow the Variant fleet, expand digital brokerage, and continually optimise freight selection algorithms. Over time, the Company expect these goals to lead to higher revenue and lower cost per transaction.
Variant’s fleet grew to 1,160 tractors in Q2 and remains on track to meet a goal of 1,500 tractors by the end of this year, Brokerage segment revenue more than doubled, and revenue per tractor in OTR Truckload operations increased approximately 8.0% compared with Q2, 2020 on a healthy mix of 23.0% higher revenue per mile and 12.0% fewer miles per tractor.
Operationally, Q2 results in the Brokerage and Dedicated divisions were positive. Brokerage revenue increased 110.0% year-over-year while gross margin expanded, and the percentage of digital transactions increased to 74.7%, and the segment swung to profitability versus a loss in Q2 last year. Meanwhile, average revenue per tractor in Dedicated improved 5.0% to a new Q2 record of US$4,336 per week.
While the freight market has been robust, the Company’s financial results were impacted by a lower overall tractor count, tight driver market, and the duplicative cost structure required to build and develop Variant while reducing underperforming portions of the legacy OTR fleet. Exiting the second quarter, the Company believe it has hit the inflection point where Variant’s fleet has achieved the scale to grow at a pace faster than the expected remaining contraction of the legacy OTR fleet, and it believes it can grow overall tractor count sequentially. A larger fleet comprised of a higher percentage of more profitable Variant tractors is consistent with the long-term vision of revenue and margin expansion.
Operating revenue was US$475.0 million, an increase of US$52.5 million compared to the second quarter of 2020. The increase in operating revenue was primarily attributable to revenue growth in the Company’s Brokerage segment and increased fuel surcharge revenue compared to Q2, 2020 offset by lower Truckload segment revenues. Excluding the impact of fuel surcharges, Q2 revenue increased US$43.6 million to US$437.5 million, an increase of 11.1% compared to Q2, 2020.
Operating income for Q2, 2021 was US$8.9 million compared to US$16.3 million in Q2, 2020. The decline in operating income was primarily driven by lower fixed cost coverage resulting from lower tractor count and increases in technology and personnel expenses as well as higher net fuel costs. These factors more than offset improved Brokerage margin and continued improvement in claims experience. Operating ratio for Q2, 2021 was 98.1% compared to 96.1% in Q2, 2020.
Net income attributable to controlling interest for Q2, 2021 was US$19.1 million compared to US$9.5 million in Q2, 2020. Excluding the US$14.9 million net of tax, unrealised gain on the Company’s investment in TuSimple, adjusted net income attributable to controlling interest for Q2, 2021 was US$4.2 million, compared to US$9.5 million in Q2, 2020.
The Truckload segment achieved an operating ratio of 97.7%. Truckload revenue declined modestly, primarily due to a lower average tractor count, which more than offset higher average revenue per tractor per week. The increase in revenue per tractor per week, a key measure of asset utilisation, was primarily the result of a more favourable freight market, along with the implementation of Variant’s Optimizer 2.0, which optimises for revenue per total mile in addition to total miles per tractor.
In the OTR division, average revenue per tractor per week increased US$279 or 7.8% compared to Q2, 2020. This improvement primarily reflected a 22.8% increase in average revenue per mile, partially offset by a 12.2% reduction in average miles per tractor.
The Dedicated division’s average revenue per tractor per week increased US$214 or 5.2% compared to Q2, 2020 on 4.1% higher average revenue per mile and 1.1% higher revenue miles per tractor.
Brokerage segment revenue increased to US$96.5 million in Q2, 2021 compared to US$46.0 million in Q2, 2020, primarily as a result of the better rate environment, higher fuel costs, and the conversion of the Company’s portfolio from 77.3% contract and 22.7% spot in Q2, 2020 to 52.6% and 47.4%, respectively in Q2, 2021. Brokerage operating income was US$0.2 million in Q2, 2021 compared to an operating loss of US$4.2 million in Q2, 2020.
Looking ahead, the Company continues to expect strong freight demand for the balance of 2021 given the broader economic recovery and tailwinds from the Federal Government’s stimulus package, which had a notable impact on the Company’s operations in H1, 2021. On the supply side, the market for professional drivers remains challenging, which is helping to keep supply tight. These conditions are expected to continue to support a strong spot market and contract renewal environment through the remainder of 2021.
From a cost perspective, inflationary pressure and higher fixed costs will continue to pressure margins until Variant growth exceeds legacy OTR decline. The Company believes the overall fleet reached its low point towards the end of Q2, 2021 and expects total fleet size to begin growing in Q3, with Variant becoming an increasing percentage of the fleet.