GAINING MOMENTUM 2018 Annual Report
With record profitability, a modern and technologically advanced fleet, a strong balance sheet, and
innovative career paths for our drivers and non-driving associates alike, we are Driving Results and
our business is Gaining Momentum.
Today, U.S. Xpress is the fifth largest asset-based truckload carrier in a market of over 500,000
carriers operating in 48 states with our focus on the eastern half of the country, an attractive market
with solid population growth and a robust infrastructure supporting continued growth. At year end,
our fleet consisted of approximately 6,900 tractors and 16,000 trailers providing the necessary scale
to service the needs of our national customers.
DRIVING
RESULTS
16%
During 2018 we delivered
operating revenue of $1.8
billion, an increase of 16%
over 2017
$50M 260BPS
Operating income of $78.9
million, compared to $28.6
million in 2017
Operating ratio of 95.6%, a
260 bps improvement
330BPS
$0.83 $1.59
$140M
Adjusted operating ratio* of
94.1%, a 330 bps improvement
Net income attributable
to controlling interest of
$24.9 million, or $0.83 per
diluted share
Adjusted net income
attributable to controlling
interest* of $48.1 million or
$1.59 per diluted share
$139.9 million of liquidity at
year end, $416.0 million of
net debt, and $238.4 million
of total stockholders’ equity
* Adjusted operating ratio, adjusted net income, and adjusted earnings per share are non-GAAP financial measures.
Please see the reconciliation of adjusted operating ratio on page 37 and the reconciliation of adjusted net income
and adjusted earnings per share on page 84 of this annual report.
U.S. XPRESS ENTERPRISES, INC. // 2018 ANNUAL REPORT // 1
OUR
COMPETITIVE
STRENGTHS
INDUSTRY LEADING TRUCKLOAD
OPERATOR WITH SIGNIFICANT SCALE
COMPLEMENTARY MIX
OF SERVICES
LONG-STANDING
CUSTOMER BASE
As the fifth largest asset-
based truckload carrier in the
country, we gain economies of
scale on major expenditures
such as tractors, trailers, fuel
and overall infrastructure.
Our service offerings have
unique characteristics and
are subject to differing
market forces, which allow
us to respond effectively
through economic cycles.
Our blue chip customer
base includes numerous
Fortune 500 companies with
national footprints, and the
relationships with our top
ten customers exceed ten
years on average.
MODERN FLEET AND
MAINTENANCE PROGRAM
Designed to optimize life
cycle investment and
minimize operating costs,
our fleet represents our
largest capital investment,
a visible representation of
our brand for customers and
drivers, and a large portion
of our controllable costs.
2
2018 AWARDS
& RECOGNITION
INCLUDE:
FED EX GROUND SUPERIOR
PEAK PERFORMANCE AWARD
DOLLAR GENERAL DEDICATED
CARRIER OF THE YEAR
PROCTOR AND GAMBLE
CARRIER OF THE YEAR
WHIRLPOOL DEDICATED
CARRIER OF THE YEAR
OUR TOP 10
CUSTOMERS
(ALPHABETIC)
AMAZON
DOLLAR GENERAL
DOLLAR TREE
FED EX
THE HOME DEPOT
KROGER
PROCTER & GAMBLE
TARGET
TRACTOR SUPPLY CO.
WALMART
MOTIVATED MANAGEMENT TEAM
DEDICATED TO SAFETY
TECHNOLOGY LEADER
Our management team
is made up of a mix of
industry veterans from
successful competitors and
high-performing internal
candidates, highly motivated
to perform in our transparent,
metric-driven environment.
We provide our professional
drivers with the latest safety
tools including anti-collision
technology and forward-
facing event recorders,
while coaching them to use
best practices.
Using the latest trailer
tracking technology,
equipping our fleet for safety
and efficiency, and deploying
the first competencies-based
driving simulator training,
we are demonstrating our
commitment to putting
technology to work for our
drivers, our Company and
ultimately our stockholders.
U.S. XPRESS ENTERPRISES, INC. // 2018 ANNUAL REPORT // 3
AT U.S. XPRESS WE’VE
ALWAYS KNOWN OUR
GREATEST STRENGTH, OUR
CORE, IS OUR DRIVERS
At the heart of U.S. Xpress is our roster of industry-leading
drivers. We are constantly looking to hire and retain the best
and brightest to represent U.S. Xpress through initiatives like
day one medical benefits, college scholarships, driver
development, and weekly free lunches. Jaime Mount
represents the best of U.S. Xpress’ driver fleet.
An Army veteran who served in Iraq, Jaime Mount joined
U.S. Xpress’ team in 2015, after graduating from trucking
school. Mount liked the idea of a stable good-paying job that
would provide for his family, and also allow him to travel
across the country.
Since joining, Mount has quickly risen through the ranks
establishing himself, and his co-driver Joel, as one of the
leading teams within the fleet. During his tenure Mount has
served as a road team captain, a mentor to new drivers, and
even a temporary dispatcher. In 2018 Mount was recognized
for driving the most miles on his team with over 250,000
miles on the road. Mount also played a key role in the
curriculum development of U.S. Xpress’ new Professional
Driver Development Program, a completely transformed
course which utilizes an interactive technology-driven
approach to provide U.S. Xpress drivers with the knowledge,
skills and abilities necessary for millions of miles of safe and
efficient driving.
Mount is currently enrolled in U.S. Xpress’ Full Ride
program, a college scholarship program for drivers and their
families, and is working towards earning his bachelor’s
degree in Information Technology. He hopes to use that
degree to help the U.S. Xpress IT team.
4
“ DRIVING FOR U.S. XPRESS HAS
PROVIDED ME AND MY FAMILY
EVERYTHING WE NEED RIGHT NOW; A
STABLE JOB THAT PAYS WELL WITH THE
OPPORTUNITY FOR ADVANCEMENT, THE
ABILITY FOR ME TO EARN A COLLEGE
DEGREE AND I LOVE THE SENSE OF
AUTONOMY AND THE ABILITY TO SEE
OUR COUNTRY THAT MY JOB ALLOWS.”
Jaime Mount, Professional Driver
U.S. XPRESS ENTERPRISES, INC. // 2018 ANNUAL REPORT // 5
LETTER TO OUR SHAREHOLDERS
2018 PROVED
TO BE A
REMARKABLE
YEAR FOR
U.S. XPRESS.
Eric Fuller // President and Chief Executive Officer
In 2018, we achieved record
financial results, completed our
Initial Public Offering on the New
York Stock Exchange, and launched
our Full Ride Program driver
retention initiative. Our many
achievements would not have been
possible without the hard work of
our almost 9,000 employees across
the country who I would like to
thank for their tireless efforts.
HISTORY & TRANSFORMATION
To better understand our successes, it is important to review
the Company’s history and the cultural and operational
transformation that has taken place. U.S. Xpress was founded
in 1985 on the footing of an entrepreneurial culture, focused on
revenue growth. In fact, the Company completed 28 acquisitions
over 20 years and was the fastest truckload carrier to achieve
$1.0 billion in revenues in the history of our industry. Despite
this record-setting growth, the Company was unable to
improve its profitability having averaged a 98% operating ratio
from 2000 to 2015.
As a result, the difficult decision was made to replace senior
management. I, along with Eric Peterson, assumed our
positions in 2015, with the goal of improving the execution and
profitability of the Company. In order to achieve this, we
needed to change our culture and bring in the expertise
necessary to drive our transformation. Through a combination
of internal promotions of high-achieving individuals and
external hires from across our industry, we replaced more
than 70 of our top 94 executives and senior managers.
6
We started to change the Company’s culture from the top
down as we focused the entire organization on execution
where we outlined weekly goals and metrics to be achieved.
We call this “Win the Week.” At the conclusion of each week,
we would review our execution, understand what went well
and what did not, and then outline those goals and metrics to
be achieved in the next week. Through this discipline, we are
changing the culture of U.S. Xpress to a results-oriented,
data-driven mindset and are driving execution improvement.
We also began managing the business by core metrics with a
focus on Rate, Truck Count, Utilization and Cost. We have
designed and implemented sustainable initiatives with the goal
of improving these core metrics and, ultimately, our adjusted
operating ratio, which has lagged our publicly traded industry
peers by more than 700 basis points prior to 2015.
In 2015, we set our focus on asset optimization and enhancing
the life cycle of our fleet by redesigning our fleet renewal and
maintenance programs. This was designed to improve
reliability, minimize downtime, and reduce maintenance
costs on the older tractors in our fleet. The initiative has been
proven in our results as our average fleet maintenance cost
per mile has decreased as our average fleet age increased.
Asset utilization was also a focus in the first year of our
turnaround. We analyzed our total truckload and brokerage
freight demand through the development of proprietary
optimization software focused on yield. This allows our
segments to operate as one company, increasing freight
selectivity for assets while significantly increasing
Brokerage volumes which provide additional solutions for
our customers.
In September of 2017 we began a new load planning initiative
in our Over the Road division in which we experienced over a
5% utilization improvement in the first week.
decision to transition to a more variable cost model to
support cross border freight with Mexico. This strategic
decision reflects the latest step in the Company’s
transformation as we methodically evaluate our capital
allocation, improve our operational execution, and target
industry-leading profitability.
Taken together, our initiatives have enabled U.S. Xpress to
deliver sustainable adjusted operating ratio improvement
which can be clearly seen in our fourth quarter 2018 financial
results where we delivered a 92.5% adjusted operating ratio*,
representing a 280 basis point improvement, year over year.
We measure our success by the adjusted operating ratio that
our team delivers as we work to increase earnings. The
fourth quarter of 2018’s performance represents the sixth
consecutive quarter of adjusted operating ratio improvement
and is the best adjusted operating ratio that we have
delivered in 20 years.
While our initiatives have enabled us to work towards
sustainable adjusted operating ratio improvement, we believe
there is continued significant room for further expansion as our
newer initiatives, load planning and fleet management produce
even greater results as we continue to improve our operational
execution, and target industry-leading profitability.
OUR DRIVERS
Our achievements would not be possible without our drivers
who are our most important asset and central to our
success. As a result, we have implemented a series of
initiatives designed to improve driver satisfaction, including a
fleet management program designed to proactively solve
potential challenges that our drivers will face. We believe this
program will minimize driver challenges while improving
utilization and ultimately improving driver satisfaction and,
therefore, retention.
Most recently, we made the decision to exit our U.S. - Mexico
operations which we announced in January of 2019. Through
our extensive review of our operations, we evaluated our
aggregate investment in our U.S. - Mexico operations and
determined that we were not earning an appropriate return
on capital. Additionally, we were also experiencing lane
inefficiencies in the U.S., as serving freight to and from the
border did not maximize revenue per mile or meet our other
network planning priorities. As a result, we made the
We also launched our Full Ride program in September which
allows our drivers and their dependents the opportunity to
earn a bachelor’s or master’s degree in the field of their
choice at no cost to them. This program offers our drivers
and their families the life-changing opportunity to attend
college at a time when it is becoming increasingly expensive
and unattainable to many. We also believe the Full Ride
program will attract people to our industry who may have
not previously thought about driving a truck.
U.S. XPRESS ENTERPRISES, INC. // 2018 ANNUAL REPORT // 7
WE HAVE TRULY TRANSFORMED U.S.
XPRESS WHICH IS EXCITING AS WE LOOK
TO THE OPPORTUNITIES AHEAD.
This past February, we launched our new Professional Driver
Development program and the opening of our redesigned
development center in Tunnel Hill, Georgia. Created by truck
driving professionals, the program replaces lecture-style
classes with technology, driving simulators, and best in class
learning and development techniques. This program
showcases our continued commitment to a better quality of
life for drivers, establishing U.S. Xpress as an industry
leader as the largest truckload carrier to implement a
competency-aligned simulator program.
Between our new Professional Driver Development program,
our Full Ride scholarship program, day one medical benefits,
and advanced truck technology, we are giving our greatest
assets, our drivers, the tools to further grow and develop
professionally. In addition, we will have a focus on technology,
which will continue to improve our drivers’ lifestyle, including
digital load matching, automated load acceptance and
prioritization, and working towards our ultimate goal of the
frictionless order.
LOOKING AHEAD
Our strategic initiatives were developed with an emphasis on
managing the business by core metrics including Rate, Truck
Count, Utilization and Cost, delivering an adjusted operating
ratio significantly better than our historical average and
closing the gap on our peers. In 2018, we delivered our third
consecutive year of adjusted operating ratio improvement.
Looking ahead to 2019, we anticipate moderate economic
growth with a more balanced relationship of freight demand
and available truckload capacity which we expect to drive
mid-single digit rate increases. Against this backdrop, when
combined with our initiatives, we expect to achieve a fourth
consecutive year of adjusted operating ratio improvement.
To conclude, I am pleased with our results in 2018 and excited
with the opportunities that I see ahead as we strive to achieve
our goal of delivering industry leading profitability.
8
Eric Fuller, President and Chief Executive Officer
GAINING MOMENTUM 2018 Annual Report
Cautionary Note Regarding Forward-looking Statements
BUSINESS
This Annual Report (this “Annual 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 Annual Report, 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,
capital 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, future customer relationships, future use of dedicated contracts, 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, including improvements in our Adjusted Operating Ratio and working capital, any
statements regarding future economic conditions or performance, any statement of plans, strategies, and objectives
of management for future operations, including the anticipated impact of such plans, strategies, 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, future fluctuations in fuel costs and fuel surcharge revenue, including the future effectiveness of our fuel
surcharge program, strategies for managing fuel costs, future fluctuations in operating expenses and supplies, future
fleet size and management, the market value of used equipment, including gain on sale, future residual value
guarantees, any statements concerning proposed acquisition plans, new services or developments, the anticipated
impact of legal proceedings on our financial position and results of operations, among others, are forward-looking
statements. Such statements may be identified by their use of terms or phrases such as “believe,” “may,” “could,”
“expects,” “estimates,” “projects,” “anticipates,” “plans,” “intends,” 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 section entitled “Risk Factors,” set forth below. Readers should review and consider the
factors discussed in “Risk Factors,” along with various disclosures in our press releases, stockholder reports, and
other filings with the Securities and Exchange Commission (“SEC”).
All such forward-looking statements speak only as of the date of this Annual Report. 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.
References in this Annual Report to “we,” “us,” “our,” or the “Company” or similar terms refer to U.S. Xpress
Enterprises, Inc., and its subsidiaries.
GENERAL
Our Business
We are the fifth largest asset-based truckload carrier in the United States by revenue, generating over $1.8 billion in
total operating revenue in 2018. 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 December 31, 2018, our fleet consisted of approximately 6,900 tractors and approximately 16,000 trailers,
1
including approximately 1,650 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 federal electronic
log mandate. Our terminal network is established and capable of handling significantly larger volumes without
meaningful additional investment. In June 2018, we completed our initial public offering (the “IPO”).
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. Over the last four years, we have recruited and developed new executive and operational
management teams with significant industry experience and instilled a new culture of professional management. These
changes, which are ongoing, helped us to maintain relatively stable profitability during the weak truckload market of
2016 and early 2017, and drive significant improvements to profitability during the strong truckload market beginning
in the second half of 2017.
Our Service Offerings
We organize our service offerings into two reportable segments, Truckload and Brokerage. The Truckload segment
offers asset-based truckload services, including the over-the-road (“OTR”) and dedicated contract services described
below. Our Brokerage segment is principally engaged in non-asset-based freight brokerage services. We believe many
customers seek truckload operators that offer both asset-based and non-asset-based services to help ensure capacity
will be available as needed. We believe that each of our service offerings, on a stand-alone revenue basis, would
represent one of the largest participants in its respective market.
Below is a brief overview of our service offerings:
Approximate
% of 2018
Revenue(1)
51%
Description
(cid:132) Transports a full trailer of freight for a single customer from origin to
destination, typically without intermediate stops or handling
(cid:132) Short-term contracts and spot moves that include irregular route
moves without volume and capacity commitments
(cid:132) Tractors are operated with one driver or a team of two drivers to
handle more time-sensitive, higher margin freight
(cid:132) Routes are generally between 450 and 1,050 miles in length
(cid:132) Fuel surcharge programs help us offset most of the negative impact of
rising fuel prices associated with loaded or billed miles
32%
(cid:132) Contractually assigned equipment, drivers and on-site personnel to
address customers’ needs for committed capacity and service levels
(cid:132) Multi-year initial contract term with guaranteed volumes and pricing
(cid:132) We have renewed substantially all of our dedicated contracts after the
initial contract term
(cid:132) Fuel costs are typically more predictable and less volatile under the
fixed and variable pricing of these contracts
(cid:132) Historically, our dedicated contract customers generally adjust pricing
to account for driver wage increases, although these adjustments may
not be contractually required
15%
(cid:132) Non-asset-based freight brokerage service through which loads are
contracted to third-party carriers
(cid:132) Allocation strategy designed to maximize profitability of our
Truckload fleet before outsourcing loads to third-party carriers
(cid:132) In the past 12 months, we have utilized the capacity of approximately
20,000 third-party carriers
)
%
3
8
(
d
a
o
l
k
c
u
r
T
OTR
Dedicated
Contract
Brokerage
(1)
Based on revenue, before fuel surcharge. Approximately 2% of revenue is attributable to detention and other
ancillary services.
While we primarily operate in the eastern half of the United States, we provide services into and out of Mexico. In
January 2019, we sold our interest in Xpress Internacional. Even following our sale of Xpress Internacional, we expect
2
to have business to and from Mexico via a more variable cost model using third party carriers. During 2018, 2017
and 2016, substantially all of our operating revenue was generated in the United States.
Customer Relationships
We maintain a diverse, long-standing customer base that includes many Fortune 500 companies, including Amazon,
Dollar General, Dollar Tree, FedEx, Home Depot, Kroger, Procter & Gamble, Target, Tractor Supply and Walmart.
Our customers fall within a broad spectrum of geographies and end markets, including retail, food and beverage,
e-commerce and packages, manufacturing and consumer products. No other category comprised more than
five percent of the end markets we served at December 31, 2018. Relationships with our top ten customers exceed ten
years on average. For the year ended December 31, 2018, our largest customer, Walmart Inc., accounted for
approximately 12% of our revenue, excluding fuel surcharge.
Tractor and Trailer Fleets
We operate a modern fleet of approximately 5,300 company-owned tractors and approximately 16,000 trailers, and
we also contract for additional tractor capacity through approximately 1,650 independent contractors, who provide
both the tractor and a driver and, except for the trailer, which we generally provide, bear the operating expenses of
each load. Our company tractor fleet continues to adopt the most advanced technology in today’s market including
electronic logging devices (“ELDs”), electronic speed limiters, electronic roll stability, improved aerodynamics and
fuel efficiency technologies, enhanced tractor connectivity with remote updating capabilities, improved automatic
transmissions, lane departure and collision warning / avoidance systems and upgraded braking systems. Each of our
company tractors is also equipped with onboard communication units that offer real time freight positioning to our
customers and instant communication between our drivers and us, and we are currently equipping our tractors with
event recorders. We believe event recorders will give us the ability to better train our drivers with respect to safe
driving behavior, which in turn may help reduce insurance costs over time.
Tractors and trailers represent our most substantial capital investments. In general, we expect to operate a tractor for
approximately 475,000 miles, which when averaged across our fleet as of December 31, 2018 equates to
approximately 4.5 years of operation (while most major components are under warranty) and a trailer for up to
10 years or more of operation. We depreciate or finance our equipment over their useful lives and down to salvage
values that we expect to represent fair market value at the expected time of sale. Our ongoing capital expenditures are
significant, and our annual depreciation expense is expected to be approximately equal to maintenance capital
expenditures, net of proceeds of dispositions, assuming a constant percentage of leased versus owned equipment and
a constant trade cycle. In practice, we vary our trade cycle and financing based on the market for new and used tractors,
the quality, dependability and cost per mile to operate the equipment, our capital budget, expected tax benefits and
other factors. Based on the volumes we purchase, we believe that we have a cost advantage in the procurement of new
tractors and trailers compared to the prices paid by small trucking companies.
Our company tractors had an average age of approximately 2.4 years at December 31, 2018. During 2019, we expect
to continue to replace tractors as they reach approximately 475,000 miles, which we expect will result in an average
tractor age of approximately 1.5 years at December 31, 2019.
Our Competitive Strengths
We believe the following competitive strengths provide us with a strong foundation to continue to improve our
profitability and stockholder value:
Industry leading truckload operator with significant scale
As the fifth largest asset-based truckload carrier in the United States in 2018 by total operating revenue, we believe
our large scale provides us with significant benefits. These benefits include economies of scale on major expenditures
such as tractors, trailers and fuel, as well as our overall infrastructure. Additionally, we can offer an enhanced value
proposition for large customers who seek efficiency in sourcing capacity from a limited number of carriers and flexible
capacity to accommodate seasonal surge volumes. Our established and well-maintained terminal network is capable
of handling meaningfully larger volumes without meaningful additional investment.
Complementary mix of services to afford flexibility and stability throughout economic cycles
Our service offerings have unique characteristics and are subject to differing market forces, which we believe allows
us to respond effectively through economic cycles.
3
OTR
OTR business involves short-term customer contracts without pricing or volume guarantees that allow us to benefit
from periods of supply and demand imbalance and price volatility. This is the largest part of our business and the
overall truckload market, which is currently benefiting from strength in pricing and volumes.
Dedicated
Dedicated business features committed rates, lanes and volumes under contracts that generally afford us greater
revenue predictability over the contract period and help smooth the impact of market cycles. Additionally, our
dedicated contract service offering generally has higher driver retention rates than our OTR service offering, which
we believe is because our professional drivers prefer the more predictable time at home that dedicated routes offer. In
addition, this increased visibility allows us to commit and invest fleet resources with a more predictable return profile.
Brokerage
Brokerage capacity allows us to aggregate volume and to flex the amount allocated to our own fleet with freight cycles.
Typically, we allocate more loads to our OTR fleet during slow freight demand to keep our assets productive, and
more loads to third-party carriers during higher freight demand to maintain control over customer freight and make a
margin on outsourcing the moves. By retaining control over significantly more freight than we are able to serve with
our own assets, and allocating the available loads first to our own tractors, we have more choices for optimizing the
utilization and pricing of our fleet every day and throughout market cycles.
Long-standing, diverse and resilient customer base
We maintain a long-standing customer base that includes many Fortune 500 companies with national footprints,
including Amazon, Dollar General, Dollar Tree, FedEx, Home Depot, Kroger, Procter & Gamble, Target, Tractor
Supply and Walmart. As of December 31, 2018, relationships with our top ten customers exceeded ten years on
average. Our portfolio of blue-chip customers allows us to benefit from the less cyclical and more-stable demand from
grocery and dollar stores in addition to increasing demand due to secular growth trends in end-markets such as
e-commerce. We also benefit from significant cross-selling opportunities among large key customers, as all of our top
ten customers use at least two of our three service offerings, which allows us to have multiple points of contact with
our customers and take advantage of varying bid cycles.
Modern fleet and maintenance system designed to optimize life cycle investment and minimize operating costs
Our fleet represents our largest capital investment, a visible representation of our brand for customers and drivers and
a large portion of our controllable costs. We select, maintain and dispose of our fleet based on rigorous analysis of our
investments and operating costs.
Our modern and well-maintained fleet consisted of approximately 5,300 company tractors with an average age of
approximately 2.4 years and approximately 16,000 trailers at December 31, 2018. We also contracted for
approximately 1,650 tractors provided by independent contractors at December 31, 2018. We equip our tractors with
carefully selected components based on initial cost, maintenance requirements, warranty coverage, safety and
efficiency advantages, driver preference and resale value. Our company tractor fleet is technologically advanced and
equipped with safety and efficiency features, including using electronic logs since 2012, electronic speed limiters,
automatic transmissions, lane departure and collision warning systems, air disc brakes and high performance wide
brake drums and electronic roll stability. In addition, we have installed forward-facing event recorders in our company
tractors, which we expect to further enhance our safety program and reduce insurance and claims costs over time.
Over the past several years, we have developed a disciplined and effective in-house maintenance program designed
to actively manage these assets based on customized timetables for preventive maintenance and replacement of parts.
We believe this approach, coupled with our in-house maintenance facilities and in-house technicians dedicated to fleet
maintenance, helps us effectively manage our maintenance cost per mile, keeps drivers on the road efficiently and
creates an attractive asset and record for resale.
Motivated management team focused on tactical execution and leadership in the truckload market
Our management and operations team has been carefully assembled to obtain a mix of industry veterans from
successful competitors and high-performing internal candidates, all of whom are motivated to perform in our
transparent, metric-driven environment. Our President and Chief Executive Officer, Eric Fuller, has over 19 years of
experience at U.S. Xpress and has been responsible for developing the team and spearheading our transformation
program over the last three years. Our management team’s compensation and ownership of our common stock provide
4
further incentive to improve business performance and profitability. In addition, with active positions in industry
associations, such as the American Trucking Associations, Inc. (“ATA”), our management team provides us with a
key role in the discussions that we believe are shaping the future of the industry. We believe our leadership team is
well-positioned to execute our strategy and remains a key driver of our financial and operational success.
Our Strategies
We believe we possess the scale, infrastructure and service offerings to compete effectively in our markets. We believe
our opportunity for further improvement is significant, and our strategies are designed to enhance stockholder value.
Complete the implementation of our tactical initiatives and pursue additional strategic initiatives through
technology
•
Fine-tune our Load Planning Initiative to maximize use of drivers’ hours-of-service
• Realize the benefits of our Fleet Management Initiative finalized in late 2018
• Continue to develop regional freight market balance and density through our Customer Service Initiative
• Access additional cost saving opportunities as a result of more efficient workflow environments
• Continue developing a graph database platform that uses real-time information and machine learning to
enhance load planning capabilities
Grow profitably as appropriate to the market cycle
•
Continue to leverage our service mix to manage through all market cycles
• Grow our revenue base prudently with a focus on dedicated contract service and brokerage by
cross-selling our services with existing customers and pursuing new customer opportunities
• Maximize profitability for new freight across OTR and brokerage operations by selectively
allocating freight to company assets
•
Seek favorable dedicated service contracts and brokerage freight to manage
• Capitalize on current favorable truckload environment
• Continue to secure rate increases in all of our service offerings
•
Strategically expand our fleet based on expected profitability and driver availability, including
through our company-sponsored independent contractor lease program (which has grown from
zero drivers in the second quarter of 2017 to approximately 850 drivers at December 31, 2018)
• Leverage current market conditions to accelerate timeline for enhancement of network
Capitalize on technological change and developments
•
•
Use our scale and relationships to gain early access to technological advances and evaluate the costs and
benefits
Pursue artificial intelligence to accommodate individual drivers’ preferences with the goal of improving
driver satisfaction and retention
• Apply data analytics across the billions of dollars of freight spend we see every year to capture and
optimize the execution of our customers’ loads and our network
•
Partner with manufacturers to test, evaluate and refine electric, autonomous and other advanced vehicle
technology
•
Pursue blockchain technology to secure supply chains and our information
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Maintain flexibility through long-term enterprise planning and conservative financial policies
• Maximize our free cash flow generation by managing expenses, taxes and capital expenditures
•
•
Prioritize growth in dedicated contract services, which offers more predictable revenue streams and
greater asset productivity
Prioritize growth in brokerage, which requires limited capital investment and affords network-balancing
freight volumes
• Monitor capital allocation to improve long-term return on invested capital
• Maintain a conservative leverage profile
Company Drivers
Professional truck drivers are the backbone of our success and the heart of the Company. Responsibility for driver
retention flows throughout our organization and every office and maintenance employee is expected to take the
necessary steps to keep our drivers satisfied and productive. Keeping our drivers satisfied and safe is the guiding
principle behind our modern fleet, training programs and driver compensation. Company drivers are eligible to
participate in our health care plan and certain voluntary plans, including life insurance and disability plans, dental and
vision plans and our 401(k) plan.
Our drivers are subject to certain hiring guidelines related to driving history, accident and safety history, physical
standards and drug and alcohol testing. Upon meeting certain criteria, applicants are invited to attend an orientation at
one of our service centers. The on-site orientation is focused on introducing a driver to the concepts and training
necessary to be a successful, professional driver, including training related to safety, life on the road, our operations
and equipment and electronic log operation. The on-site orientation also includes a road test.
Independent Contractors
In addition to the company drivers that we employ, we enter into contracts with independent contractors. Independent
contractors operate their own tractors (although some employ drivers they hire) and provide their services to us under
contractual arrangements. Except for generally providing independent contractors with the use of our trailers, they are
responsible for the ownership and operating expenses and are compensated by us primarily on a rate per mile basis.
By operating safely and productively, independent contractors can improve their own profitability and ours. We
believe that the fleet of independent contractors we engage provides significant advantages that primarily arise from
the motivation of business ownership. Independent contractors tend to produce more miles per tractor per week. As
of December 31, 2018, the approximately 1,650 independent contractors we engage comprised approximately 26% of
our available capacity, as measured by tractor count.
Services offered to independent contractors include insurance, maintenance and fuel. Through our wholly owned
insurance captive subsidiary, Xpress Assurance, Inc. (“Xpress Assurance”), independent contractors can purchase
occupational accident, physical damage and other types of insurance. Independent contractors also are able to procure
at their expense fuel and maintenance services at our truckload service centers.
Employment
As of December 31, 2018, we employed approximately 8,912 employees, of whom approximately 6,478 were drivers,
approximately 323 were maintenance technicians and approximately 2,111 were office employees, including
operations staff, sales and marketing, recruiting, safety and other support personnel. None of our domestic employees
are covered by a collective bargaining agreement. Our former Mexican subsidiary, Xpress Internacional, had a
collective bargaining agreement with its Mexican employees on substantially the same employment terms required by
Mexican law. In January 2019, we sold our interest in Xpress Internacional which employed approximately 650
employees as of December 31, 2018.
Insurance
We retain high deductibles on a significant portion of our claims exposure and related expenses associated with third
party bodily injury and property damage, employee medical expenses, workers’ compensation, physical damage to
our equipment and cargo loss. See “Risk Factors.” We currently carry the following material types of insurance, which
generally have the retention amounts, maximum benefits per claim and other limitations noted:
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•
•
•
commercial automobile liability excess coverage approximately $300.0 million of coverage per
occurrence subject to a $3.0 million retention per occurrence with annual aggregate limits within the
$3.0 to $10.0 million layer of $14.0 million and a three-year policy aggregate of $28.0 million;
general liability, business auto liability and excess employer’s liability coverage: approximately $300.0
million of coverage per occurrence subject to a $25,000 deductible per occurrence for general liability
claims, $50,000 deductible per occurrence for business auto claims and $500,000 deductible for excess
employer’s liability:
cargo damage and loss: $2.0 million limit per tractor or trailer subject to a $250,000 retention per
occurrence;
• workers’ compensation/employers’ liability: statutory coverage limits subject to a $500,000 retention
for each accident or disease;
•
•
•
•
•
•
employment practices and wage and hour liability: $25.0 million aggregate limit in coverage subject to
a $1.0 million retention for employment practices and $2.5 million retention for wage and hour for either
a single claim or a class action;
directors’ and officers’ insurance: $75.0 million aggregate limit of coverage subject to a $1.0 million
retention with various sub-limits;
fiduciary liability policy: $10.0 million aggregate limit of coverage subject to a $10,000 retention;
employee healthcare: we retain each employee health care claim and maintain stop loss insurance of
$1.0 million;
crime insurance: $5.0 million of coverage subject to a $100,000 retention; and
underground storage tank liability: $5.0 million in coverage with a $10,000 deductible.
Regulation
Transportation Regulations
Our operations are regulated and licensed by various government agencies, including the Department of
Transportation (“DOT”), Environmental Protection Agency (“EPA”) and the Department of Homeland security
(“DHS”). These and other federal and state agencies also regulate our equipment, operations, drivers and third-party
carriers.
The DOT, through the Federal Motor Carrier Safety Administration (“FMCSA”), imposes safety and fitness
regulations on us and our drivers, including rules that restrict driver hours-of-service. Changes to such hours-of-service
rules can negatively impact our productivity and affect our operations and profitability by reducing the number of
hours per day or week our drivers may operate and/or disrupting our network. While the FMCSA has proposed and
implemented such changes in the past, no such changes are currently formally proposed. However, the FMCSA
recently indicated it may be soon soliciting feedback from industry stakeholders regarding future hours-of service
changes. Any future changes to hours-of-service rules could materially adversely affect our results of operations and
profitability.
There are two methods of evaluating the safety and fitness of carriers. The first method is the application of a safety
rating that is based on an onsite investigation and affects a carrier’s ability to operate in interstate commerce. We
currently have a satisfactory DOT safety rating for our U.S. operations under this method, which is the highest
available rating under the current safety rating scale. If we were to receive a conditional or unsatisfactory DOT safety
rating, it could materially adversely affect our business, as some of our existing customer contracts require a
satisfactory DOT safety rating. In January 2016, the FMCSA published a Notice of Proposed Rulemaking outlining a
revised safety rating measurement system, which would replace the current methodology. Under the proposed rule,
the current three safety ratings of “satisfactory,” “conditional” and “unsatisfactory” would be replaced with a single
safety rating of “unfit,” and a carrier would be deemed fit when no rating was assigned. Moreover, the proposed rules
would use roadside inspection data in addition to investigations and onsite reviews to determine a carrier’s safety
fitness on a monthly basis. Under the current rules, a safety rating can only be given upon completion of a
comprehensive onsite audit or review. Under the proposed rules, a carrier would be evaluated each month and could
be given an “unfit” rating if the data collected from roadside inspections, investigations and onsite reviews did not
meet certain standards. The proposed rule underwent a public comment period extending into May 2016 and several
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industry groups and lawmakers have expressed their disagreement with the proposed rule, arguing that it violates the
requirements of the Fixing America’s Surface Transportation Act (the “FAST Act”), and that the FMCSA must first
finalize its review of the Compliance, Safety, Accountability program (“CSA”) scoring system, described in further
detail below. Based on this feedback and other concerns raised by industry stakeholders, in March 2017, the FMCSA
withdrew the Notice of Proposed Rulemaking related to the new safety rating system. In its notice of withdrawal, the
FMCSA noted that a new rulemaking related to a similar process may be initiated in the future. Therefore, it is
uncertain if, when or under what form any such rule could be implemented.
In addition to the safety rating system, the FMCSA has adopted the CSA program as an additional safety enforcement
and compliance model that evaluates and ranks fleets on certain safety-related standards. The CSA program analyzes
data from roadside inspections, moving violations, crash reports from the last two years and investigation results. The
data is organized into seven categories. Carriers are grouped by category with other carriers that have a similar number
of safety events (e.g., crashes, inspections or violations) and carriers are ranked and assigned a rating percentile to
prioritize them for interventions if they are above a certain threshold. Currently, these scores do not have a direct
impact on a carrier’s safety rating. However, the occurrence of unfavorable scores in one or more categories may
(i) affect driver recruiting and retention by causing high-quality drivers to seek employment with other carriers,
(ii) cause our customers to direct their business away from us and to carriers with higher fleet rankings, (iii) subject
us to an increase in compliance reviews and roadside inspections, (iv) cause us to incur greater than expected expenses
in our attempts to improve unfavorable scores or (v) increase our insurance expenses, any of which could adversely
affect our results of operations and profitability.
Under the CSA, these scores were initially made available to the public in five of the seven categories. However,
pursuant to the FAST Act, which was signed into law in December 2015, the FMCSA was required to remove from
public view the previously available CSA scores while it reviews the reliability of the scoring system. During this
period of review by the FMCSA, we will continue to have access to our own scores and will still be subject to
intervention by the FMCSA when such scores are above the intervention thresholds. A study was conducted and
delivered to the FMCSA in June 2017 with several recommendations to make the CSA program more fair, accurate,
and reliable. In late June 2018, the FMCSA provided a report to Congress outlining the changes it may make to the
CSA program in response to the study. Such changes include the testing and possible adoption of a revised risk
modeling theory, potential collection and dissemination of additional carrier data and revised measures for
intervention thresholds. The adoption of such changes is contingent on the results of the new modeling theory and
additional public feedback. Therefore, it is unclear if, when and to what extent such changes to the CSA program will
occur. However, any changes that increase the likelihood of us receiving unfavorable scores could materially adversely
affect our results of operations and profitability.
Following the 2001 terrorist attacks, the DHS and other federal, state and municipal authorities implemented and
continue to implement various security measures, including checkpoints and travel restrictions on large trucks. The
Transportation Safety Administration requires that each driver who applies for or renews his or her license for carrying
hazardous materials is not a security threat. This requirement has reduced the pool of qualified drivers who are
permitted to transport hazardous materials. These regulations also could complicate the matching of available
equipment with hazardous material shipments, thereby increasing our response time and our empty miles on customer
shipments. As a result, we could possibly fail to meet certain customer needs or incur increased expenses to do so,
either of which could materially adversely affect our business, financial condition and results of operations.
In November 2015, the FMCSA published its final rule related to driver coercion, which took effect in January 2016.
Under this rule, carriers, shippers, receivers, or transportation intermediaries that are found to have coerced drivers to
violate certain FMCSA regulations (including hours-of-service rules) may be fined up to $16,000 for each offense.
The final rule requiring the use of ELDs was published in December 2015. This rule requires drivers of commercial
motor vehicles that are required to keep logs to be ELD-compliant by December 2017. Enforcement of this rule was
phased in, as states did not begin putting tractors out of service for non-compliance until April 1, 2018. However, on
a state-by-state basis, carriers were subject to citations for non-compliance with the rule after the December 2017
compliance deadline. For those carriers who had automatic onboard recording devices (“AOBRDs”) installed prior to
the December 2017 compliance deadline, the deadline to be fully compliant is December 2019. We currently use
AOBRDs and intend to be fully converted to ELDs by the December 2019 deadline. We do not believe that the
conversion from AOBRDs to ELDs will have any material impact on our operations. However, we believe that more
effective hours-of-service enforcement under this rule may improve our competitive position by causing all carriers
to adhere more closely to hours-of-service requirements.
In December 2016, the FMCSA issued a final rule establishing a national clearinghouse for drug and alcohol testing
results and requiring motor carriers and medical review officers to provide records of violations by commercial drivers
of FMCSA drug and alcohol testing requirements. Motor carriers will be required to query the clearinghouse to ensure
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drivers and driver applicants do not have violations of federal drug and alcohol testing regulations that prohibit them
from operating commercial motor vehicles. This rule is scheduled for implementation in early 2020 and may reduce
the number of available drivers in an already constrained driver market.
Other rules have been recently proposed or made final by the FMCSA, including (i) a rule requiring the use of speed
limiting devices on heavy duty tractors to restrict maximum speeds, which was proposed in 2016, and (ii) a rule setting
forth minimum driver-training standards for new drivers applying for commercial driver’s licenses for the first time
and to experienced drivers upgrading their licenses or seeking a hazardous materials endorsement, which was made
final in December 2016, with a compliance date in February 2020. In July 2017, the DOT announced that it would no
longer pursue a speed limiter rule, but left open the possibility that it could resume such a pursuit in the future. The
effect of these rules, to the extent they become effective, could result in a decrease in fleet production and driver
availability, either of which could materially adversely affect our business, financial condition and results of
operations.
In March 2014, the Ninth Circuit Court of Appeals held that California state wage and hour laws are not preempted
by federal law. The case was appealed to the Supreme Court of the United States, which denied certiorari in May
2015, and accordingly, the Ninth Circuit Court of Appeals decision stood. However, in December 2018, the FMCSA
granted a petition filed by the ATA and in doing so determined that federal law does preempt California’s wage and
hour laws, and interstate truck drivers are not subject to such laws. The FMCSA’s decision has been appealed by labor
groups, and multiple lawsuits have been filed in federal courts seeking to overturn the decision, and thus it’s uncertain
whether it will stand. Other current and future state and local wage and hour laws, including laws related to employee
meal breaks and rest periods, may also vary significantly from federal law. As a result, we, along with other companies
in our industry, are subject to an uneven patchwork of wage and hour laws throughout the United States. In the past,
certain legislators have proposed federal legislation to preempt state and local wage and hour laws; however, passage
of such legislation is uncertain. If federal legislation is not passed, we will either need to comply with the most
restrictive state and local laws across our entire fleet, or revise our management systems to comply with varying state
and local laws. Either solution could result in increased compliance and labor costs, driver turnover and decreased
efficiency.
Tax and other regulatory authorities, as well as independent contractors themselves, have increasingly asserted that
independent contractor drivers in the trucking industry are employees rather than independent contractors and our
classification of independent contractors has been the subject of audits by such authorities from time to time. Federal
legislation has been introduced in the past that would make it easier for tax and other authorities to reclassify
independent contractors as employees, including legislation to increase the recordkeeping requirements for those that
engage independent contractor drivers and to increase the penalties for companies who misclassify their employees
and are found to have violated employees’ overtime and/or wage requirements. Additionally, federal legislators have
sought to abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent
contractors if they are following a long-standing, recognized practice, extend the Fair Labor Standards Act to
independent contractors and impose notice requirements based on employment or independent contractor status and
fines for failure to comply. Some states have put initiatives in place to increase their revenue from items such as
unemployment, workers’ compensation and income taxes and a reclassification of independent contractors as
employees would help states with this initiative. Recently, courts in certain states have issued decisions that could
result in a greater likelihood that independent contractors would be judicially classified as employees in such states.
Further, class actions and other lawsuits have been filed against certain members of our industry seeking to reclassify
independent contractors as employees for a variety of purposes, including workers’ compensation and health care
coverage. Taxing and other regulatory authorities and courts apply a variety of standards in their determination of
independent contractor status. If independent contractors we contract with are determined to be employees, we would
incur additional exposure under federal and state tax, workers’ compensation, unemployment benefits, labor,
employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax
withholdings.
Environmental Regulations
From time to time we engage in the transportation of hazardous substances. Additionally, some of our tractor terminals
are located in areas where groundwater or other forms of environmental contamination could occur. Our operations
involve the risks of fuel spillage or seepage, environmental damage, and hazardous waste disposal, among others.
Certain of our facilities have wash facilities, waste oil or fuel storage tanks and fueling islands. If we are involved in
a spill or other accident involving hazardous substances, if there are releases of hazardous substances we transport, if
soil or groundwater contamination is found at our facilities or results from our operations, or if we are found to be in
violation of applicable laws or regulations, we could be subject to cleanup costs and liabilities, including substantial
fines or penalties or civil and criminal liability, any of which could have a materially adverse effect on our business,
financial condition and results of operations.
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In August 2011, the National Highway Traffic Safety Administration (the “NHTSA”) and the EPA adopted a new
rule that established the first-ever fuel economy and greenhouse gas standards for medium and heavy-duty vehicles,
including the tractors we employ (the “Phase 1 Standards”). The Phase 1 Standards apply to tractor model years 2014
to 2018 and require the achievement of an approximate 20 percent reduction in fuel consumption by the 2018 model
year, which equates to approximately four gallons of fuel for every 100 miles traveled. In addition, in February 2014,
President Obama announced that his administration would begin developing the next phase of tighter fuel efficiency
and greenhouse gas standards for medium-and heavy-duty tractors and trailers (the “Phase 2 Standards”). In October
2016, the EPA and NHTSA published the final rule mandating that the Phase 2 Standards will apply to trailers
beginning with model year 2018 and tractors beginning with model year 2021. The Phase 2 Standards require nine
percent and 25 percent reductions in emissions and fuel consumption for trailers and tractors, respectively, by 2027.
We believe these requirements will result in additional increases in new tractor and trailer prices and additional parts
and maintenance costs incurred to retrofit our tractors and trailers with technology to achieve compliance with such
standards, which could materially adversely affect our business, financial condition, results of operations and
profitability, particularly if such costs are not offset by potential fuel savings, but we cannot predict the extent to which
our operations and productivity will be impacted. In October 2017, the EPA announced a proposal to repeal the Phase 2
Standards as they relate to gliders (which mix refurbished older components, including transmissions and
pre-emission-rule engines, with a new frame, cab, steer axle, wheels and other standard equipment). The outcome of
such proposal is still undetermined as the EPA continues to consider congressionally requested investigations into the
legality of the proposal and the merits of an anti-glider study that was published four days after the proposal became
official. Additionally, implementation of the Phase 2 Standards as they relate to trailers has been delayed due to a
provisional stay granted in October 2017 by the U.S. Court of Appeals for the District of Columbia, which is
overseeing a case against the EPA by the Truck Trailer Manufacturers Association, Inc. regarding the Phase 2
Standards.
The California Air Resources Board (“CARB”) also adopted emission control regulations that will be applicable to
all heavy-duty tractors that pull 53-foot or longer box-type trailers within the State of California. The tractors and
trailers subject to these CARB regulations must be either EPA SmartWay certified or equipped with low-rolling
resistance tires and retrofitted with SmartWay-approved aerodynamic technologies. Enforcement of these CARB
regulations for 2011 model year equipment began in January 2010 and have been phased in over several years for
older equipment. In order to comply with the CARB regulations, we submitted a large fleet compliance plan to CARB
in June 2010. In addition, in February 2017 CARB proposed California Phase 2 standards that would generally align
with the federal Phase 2 Standards, with some minor additional requirements, and as proposed would stay in place
even if the federal Phase 2 Standards are affected by action from President Trump’s administration. In February 2019,
the California Phase 2 standards became final. Thus, even if the trailer provisions of the Phase 2 Standards are
permanently removed, we would still need to ensure the majority of our fleet is compliant with the California Phase 2
standards, which may result in increased equipment costs and could adversely affect our operating results and
profitability. We will continue monitoring our compliance with the CARB regulations. Federal and state lawmakers
also have proposed potential limits on carbon emissions under a variety of climate-change proposals. Compliance with
such regulations has increased the cost of our new tractors, may increase the cost of any new trailers that will operate
in California, may require us to retrofit certain of our pre-2011 model year trailers that operate in California and could
impair equipment productivity and increase our operating expenses. These adverse effects, combined with the
uncertainty as to the reliability of the newly designed diesel engines and the residual values of these vehicles, could
materially increase our costs or otherwise materially adversely affect our business, financial condition and results of
operations.
In order to reduce exhaust emissions, some states and municipalities have begun to restrict the locations and amount
of time where diesel-powered tractors may idle. These restrictions could force us to purchase on-board power units
that do not require the engine to idle or to alter its drivers’ behavior, which could result in increased costs.
In addition to the foregoing laws and regulations, our operations are subject to other federal, state and local
environmental laws and regulations, many of which are implemented by the EPA and similar state agencies. Such
laws and regulations generally govern the management and handling of hazardous materials, discharge of pollutants
into the air, surface water and other environmental media, and groundwater preservation and disposal of certain
various substances. We do not believe that our compliance with these statutory and regulatory measures has had a
material adverse effect on our business, financial condition and results of operations.
Food Safety Regulations
In April 2016, the Food and Drug Administration published a final rule establishing requirements for shippers, loaders,
carriers by motor vehicle and rail vehicle and receivers engaged in the transportation of food, to use sanitary
transportation practices to ensure the safety of the food they transport as part of the Food Safety Modernization Act
(“FSMA”). This rule sets forth requirements related to (i) the design and maintenance of equipment used to transport
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food, (ii) the measures taken during food transportation to ensure food safety, (iii) the training of carrier personnel in
sanitary food transportation practices and (iv) maintenance and retention of records of written procedures, agreements
and training related to the foregoing items. These requirements will take effect for larger carriers such as us in April
2017. The FSMA is applicable to us not only as a carrier, but we are also considered a shipper when acting in the role
of broker. We believe we have been in compliance with the FSMA since the compliance date. However, if we are
found to be in violation of applicable laws or regulations related to the FSMA, we could be subject to substantial fines,
penalties and/or criminal liability, any of which could have a material adverse effect on our business, financial
condition and results of operations.
Executive and Legislative Climate
The regulatory environment has changed under the administration of President Trump. In January 2017, the President
signed an executive order requiring federal agencies to repeal two regulations for each new one they propose and
imposing a regulatory budget, which would limit the amount of new regulatory costs federal agencies can impose on
individuals and businesses each year. We do not believe the order has had a significant impact on our industry.
However, the order, and other anti-regulatory action by the President and/or Congress may inhibit future new
regulations and/or lead to the repeal or delayed effectiveness of existing regulations. Therefore, it is uncertain how we
may be impacted in the future by existing, proposed or repealed regulations.
For further discussion regarding these laws and regulations, please see the section entitled “Risk Factors.”
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. Over the past several years, we have seen increases
in demand at varying times, including surges between Thanksgiving and the year-end holiday season.
Available Information
Our website address is investor.usxpress.com. Our Annual Report on Form 10-K, our quarterly reports on Form 10-
Q, our current reports on Form 8-K and all other reports filed with the Securities and Exchange Commission pursuant
to Section 13(a) or 15 (d) of the Securities Exchange Act of 1934, can be obtained free of charge by visiting our
website. Information contained in or available through our website is not incorporated by reference into, and you
should not consider such information to be part of, this Annual Report. The SEC maintains an internet site that contains
reports, proxy and information statements, and other information regarding issuers that file electronically with the
SEC at www.sec.gov.
We are a Nevada corporation. We were founded by Max Fuller and Patrick Quinn in 1985 and commenced operations
in the transportation business in 1986.
RISK FACTORS
When evaluating the Company, the following discussion of risk factors, which contains forward-looking statements
as discussed in “Cautionary Note Regarding Forward-looking Statements” above, should be considered in conjunction
with the other information contained in this Annual Report. If we are unable to mitigate and/or are exposed to any of
the following risks in the future, then there could be a material, adverse effect on our business, financial condition and
results of operations.
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.
The truckload industry is highly cyclical, and our business is dependent on a number of factors that may have a
negative impact on our results of operations, many of which are beyond our control. We believe that some of the most
significant of these factors are economic changes that affect supply and demand in transportation markets, such as:
•
•
recessionary economic cycles, such as the period from 2007 through 2009;
changes in customers’ inventory levels and practices, including shrinking product/package sizes, and in
the availability of funding for their working capital;
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•
•
•
•
•
excess truck capacity in comparison with shipping demand;
driver shortages and increases in drivers’ compensation;
industry compliance with ongoing regulatory requirements;
fluctuations in foreign exchange rates and imposition of domestic or foreign trade tariffs; and
downturns in customers’ business cycles, including as a result of declines in consumer spending.
Several of the above factors were evident in the 2016 freight environment, which led to higher inventories, weakened
demand and pressure on rates. Similar conditions in the future could have a material adverse effect on our business,
financial condition and results of operations.
Additionally, economic conditions that decrease shipping demand or increase the supply of available tractors and
trailers can exert downward pressure on rates and equipment utilization, thereby decreasing asset productivity. The
risks associated with these factors are heightened when the U.S. economy is weakened. Some of the principal risks
during such times are as follows:
• we may experience low overall freight levels, which may impair our asset utilization;
•
•
•
certain of our customers may face credit issues and cash flow problems that may lead to payment delays,
increased credit risk, bankruptcies and other financial hardships that could result in even lower freight
demand and may require us to increase our allowance for doubtful accounts;
freight patterns may change as supply chains are redesigned, resulting in an imbalance between our
capacity and our customers’ freight demand;
customers may solicit bids for freight from multiple trucking companies or select competitors that offer
lower rates from among existing choices in an attempt to lower their costs, and we might be forced to
lower our rates or lose freight;
• we may be forced to accept more loads from freight brokers, where freight rates are typically lower, or
may be forced to incur more non-revenue miles to obtain loads; and
•
lack of access to current sources of credit or lack of lender access to capital, leading to an inability to
secure financing on satisfactory terms, or at all.
We are also subject to cost increases outside our control that could materially reduce our profitability if we are unable
to increase our rates sufficiently. Such cost increases include, but are not limited to, increases in fuel prices, driver
and office employee wages, purchased transportation costs, interest rates, taxes, tolls, license and registration fees,
insurance, revenue equipment and related maintenance, tires and other components and healthcare and other benefits
for our employees. Further, we may not be able to appropriately adjust our costs to changing market demands. In order
to maintain high variability in our business model, it is necessary to adjust staffing levels to changing market demands.
In periods of rapid change, it is more difficult to match our staffing level to our business needs.
In addition, events outside our control, such as deterioration of U.S. transportation infrastructure and reduced
investment in such infrastructure, strikes or other work stoppages at our facilities or at customer, port, border or other
shipping locations, trade tariffs, actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism,
military action against a foreign state or group located in a foreign state or heightened security requirements could
lead to wear, tear and damage to our equipment, driver dissatisfaction, reduced economic demand and freight volumes,
reduced availability of credit, increased prices for fuel or temporary closing of the shipping locations or U.S. borders.
Such events or enhanced security measures in connection with such events could impair our operating efficiency and
productivity and result in higher operating costs.
Changing impacts of regulatory measures could impair our operating efficiency and productivity, decrease our
revenues and profitability and result in higher operating costs. In addition, declines in the resale value of revenue
equipment can affect our profitability and cash flows. From time to time, various U.S. federal, state or local taxes are
also increased, including taxes on fuel. We cannot predict whether, or in what form, any such tax increase applicable
to us will be enacted, but such an increase could materially adversely affect our profitability.
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Increases in driver compensation or difficulties attracting and retaining qualified drivers could materially adversely
affect our profitability and ability to maintain or grow our fleet.
Like many truckload carriers, we experience substantial difficulty in attracting and retaining sufficient numbers of
qualified drivers, which includes the engagement of independent contractors. Our industry is subject to a shortage of
qualified drivers. Such shortage is exacerbated during periods of economic expansion, in which alternative
employment opportunities, including in the construction and manufacturing industries, which may offer better
compensation and/or more time at home, are more plentiful and freight demand increases, or during periods of
economic downturns, in which unemployment benefits might be extended and financing is limited for independent
contractors who seek to purchase equipment, or the scarcity or growth of loans for students who seek financial aid for
driving school. Regulatory requirements, including those related to safety ratings, ELDs and hours-of-service changes
and an improved economy could further reduce the pool of eligible drivers or force us to increase driver compensation
to attract and retain drivers. We have seen evidence that stricter hours-of-service regulations adopted by the DOT in
the past have tightened, and, to the extent new regulations are enacted, may continue to tighten, the market for eligible
drivers. The lack of adequate tractor parking along some U.S. highways and congestion caused by inadequate highway
funding may make it more difficult for drivers to comply with hours-of-service regulations and cause added stress for
drivers, further reducing the pool of eligible drivers. We believe that the required implementation of ELDs in
December 2017 and enforcement thereof in April 2018 has and may further tighten such market. A shortage of
qualified drivers and intense competition for drivers from other trucking companies will create difficulties in
maintaining or increasing the number of our drivers and may restrain our ability to engage independent contractors.
We have implemented driver pay increases to address this shortage. The compensation we offer our drivers and
independent contractor expenses are subject to market conditions, and we may find it necessary to further increase
driver compensation, change the structure of our driver compensation and/or become subject to increased independent
contractor expenses in future periods, which could materially adversely affect our growth and profitability.
In addition, we suffer from a high turnover rate of drivers and our turnover rate is higher than the industry average
and compared to our peers. This high turnover rate requires us to spend significant resources recruiting a substantial
number of drivers in order to operate existing revenue equipment and subjects us to a higher degree of risk with respect
to driver shortages than our competitors. Our use of team-driven tractors in our expedited service offering requires
two drivers per tractor, which further increases the number of drivers we must recruit and retain in comparison to
operations that require one driver per tractor. We also employ driver hiring standards, which could further reduce the
pool of available drivers from which we would hire. If we are unable to continue to attract and retain a sufficient
number of drivers, we could be forced to, among other things, continue to adjust our compensation packages or operate
with fewer tractors and face difficulty meeting shipper demands, either of which could materially adversely affect our
growth and profitability.
Our engagement of independent contractors to provide a portion of our capacity exposes us to different risks than
we face with our tractors driven by company drivers.
Our contracts with independent contractors are governed by the federal leasing regulations, which impose specific
requirements on us and the independent contractors. If more stringent federal leasing regulations are adopted,
independent contractors could be deterred from becoming independent contractor drivers, which could materially
adversely affect our goal of maintaining our current fleet levels of independent contractors.
Pursuant to our fuel surcharge program with independent contractors, we pay independent contractors we contract
with a fuel surcharge that increases with the increase in fuel prices. A significant increase or rapid fluctuation in fuel
prices could cause our costs under this program to be higher than the revenue we receive under our customer fuel
surcharge programs.
We provide financing to certain qualified independent contractors. If we are unable to provide such financing in the
future, due to liquidity constraints or other restrictions, we may experience a decrease in the number of independent
contractors we are able to engage. Further, if independent contractors we engage default under or otherwise terminate
the financing arrangement and we are unable to find a replacement independent contractor or seat the tractor with a
company driver, we may incur losses on amounts owed to us with respect to the tractor.
If the independent contractors we contract with are deemed by regulators or judicial process to be employees, our
business, financial condition and results of operations could be materially adversely affected.
Tax and other regulatory authorities, as well as independent contractors themselves, have increasingly asserted that
independent contractor drivers in the trucking industry are employees rather than independent contractors, and our
classification of independent contractors has been the subject of audits by such authorities from time to time. Federal
legislation has been introduced in the past that would make it easier for tax and other authorities to reclassify
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independent contractors as employees, including legislation to increase the recordkeeping requirements for those that
engage independent contractor drivers and to increase the penalties for companies who misclassify their employees
and are found to have violated employees’ overtime and/or wage requirements. Additionally, federal legislators have
sought to abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent
contractors if they are following a long-standing, recognized practice, to extend the Fair Labor Standards Act to
independent contractors and to impose notice requirements based on employment or independent contractor status and
fines for failure to comply. Some states have put initiatives in place to increase their revenue from items such as
unemployment, workers’ compensation and income taxes, and a reclassification of independent contractors as
employees would help states with this initiative. Recently, courts in certain states have issued decisions that could
result in a greater likelihood that independent contractors would be judicially classified as employees in such states.
Further, class actions and other lawsuits have been filed against certain members of our industry seeking to reclassify
independent contractors as employees for a variety of purposes, including workers’ compensation and health care
coverage. In addition, companies that use lease-purchase independent contractor programs, such as us, have been more
susceptible to reclassification lawsuits, and several recent decisions have been made in favor of those seeking to
classify independent contractor truck drivers as employees. Taxing and other regulatory authorities and courts apply
a variety of standards in their determination of independent contractor status. If the independent contractors with
whom we contract are determined to be employees, we would incur additional exposure under federal and state tax,
workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well
as potential liability for employee benefits and tax withholdings, and our business, financial condition and results of
operations could be materially adversely affected.
We have a history of net losses.
We have generated a profit in two of the last five years. Improving profitability depends upon numerous factors,
including our ability to successfully execute both our ongoing and planned strategic initiatives, such as increasing our
fleet efficiency and utilization, decreasing driver turnover and further refinement of our business mix profile. We may
not be able to improve profitability in the future. If we are unable to improve our profitability, our liquidity, business,
financial condition and results of operations may be materially adversely affected.
We may not be successful in achieving our business strategies.
Many of our business strategies require time, significant management and financial resources and successful
implementation. Consequently, we may be unable to effectively and successfully implement our business strategies.
We also cannot ensure that our operating results, including our operating margins, will not be materially adversely
affected by future changes in and expansion of our business, including the expected expansion of our dedicated
contract service and brokerage service offerings, or by changes in economic conditions. Despite the implementation
of our operational and tactical strategies, we may be unsuccessful in achieving a reduction in our operating ratio and
Adjusted Operating Ratio in the time frames we expect or at all. Further, our results of operations may be materially
adversely affected by a failure to further penetrate our existing customer base, cross-sell our services, secure new
customer opportunities and manage the operations and expenses of new or growing services. There is no assurance
that we will be successful in achieving any of our business strategies. Even if we are successful in executing our
business strategies, we still may not achieve our goals.
We operate in a highly competitive and fragmented industry, and numerous competitive factors could impair our
ability to improve our profitability and materially adversely affect our results of operations.
Numerous competitive factors could impair our ability to improve our profitability and materially adversely affect our
results of operations, including:
• we compete with many other truckload carriers of varying sizes and service offerings (including
intermodal) and, to a lesser extent, with (i) less-than-truckload carriers, (ii) railroads and (iii) other
transportation and brokerage companies, several of which have access to more equipment and greater
capital resources than we do;
• many of our competitors periodically reduce their freight rates to gain business, especially during times
of reduced growth in the economy, which may limit our ability to maintain or increase freight rates or to
maintain or expand our business or may require us to reduce our freight rates in order to maintain
business and keep our equipment productive;
• we may increase the size of our fleet during periods of high freight demand during which our competitors
also increase their capacity, and we may experience losses in greater amounts than such competitors
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during subsequent cycles of softened freight demand if we are required to dispose of assets at a loss to
match reduced freight demand;
• we may have difficulty recruiting and retaining drivers because our competitors offer better
compensation or working conditions;
•
•
some of our larger customers are other transportation companies and/or also operate their own private
trucking fleets, and they may decide to transport more of their own freight;
some shippers have reduced or may reduce the number of carriers they use by selecting preferred carriers
as approved service providers or by engaging dedicated providers, and we may not be selected;
• many customers periodically solicit bids from multiple carriers for their shipping needs and this process
may depress freight rates or result in a loss of business to competitors;
•
•
•
•
consolidation in the trucking industry may create other large carriers with greater financial resources and
other competitive advantages, and we may have difficulty competing with them;
advances in technology may require us to increase investments in order to remain competitive, and our
customers may not be willing to accept higher freight rates to cover the cost of these investments;
our competitors may have better safety records than us or a perception of better safety records;
higher fuel prices and, in turn, higher fuel surcharges to our customers may cause some of our customers
to consider freight transportation alternatives, including rail transportation;
• the U.S. Xpress brand name is a valuable asset that is subject to the risk of adverse publicity (whether
or not justified), which could result in the loss of value attributable to our brand and reduced demand for
our services;
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•
•
competition from freight brokerage companies may materially adversely affect our customer
relationships and freight rates;
our competitors may have better technology that may lead to increased operating efficiencies, reduced
costs, a better ability to recruit drivers and more demand for their services, and
economies of scale that procurement aggregation providers may pass on to smaller carriers may improve
such carriers’ ability to compete with us.
We retain high deductibles on a significant portion of our claims exposure, which could significantly increase the
volatility of, and decrease the amount of, our earnings and materially adversely affect our results of operations.
We retain high deductibles on a significant portion of our claims exposure and related expenses associated with
third-party bodily injury and property damage, employee medical expenses, workers’ compensation, physical damage
to our equipment and cargo loss. We currently retain a deductible of approximately $3.0 million per occurrence for
automobile bodily injury and property damage through our captive risk retention group and up to $500,000 per
occurrence for workers’ compensation claims, both of which can make our insurance and claims expense higher or
more volatile than if we maintained lower retentions. Effective September 1, 2018, we have a $3.0 million retention
and an aggregate limit of $14.0 million in our $3.0 to $10.0 million layer of excess insurance coverage for automobile
bodily injury and property damage. Prior to September 1, 2018, our retention for auto liability was $5.0 million per
occurrence and we were responsible for the first $5.0 million aggregate in the $5.0 million to $10.0 million layer of
excess insurance coverage for automobile bodily injury and property damage. Additionally, with respect to our
third-party insurance, reduced capacity in the insurance market for trucking risks can make it more difficult to obtain
both primary and excess insurance, can necessitate procuring insurance offshore, and could result in increases in
collateral requirements on those primary lines that require securitization.
Prior to September 2015, our liability coverage had a limit of $100.0 million per occurrence. Given the increasingly
high verdicts in trucking accident cases and our accident experience, among other factors, we increased our liability
coverage limit to $300.0 million per occurrence. If any claim were to exceed coverage limits, we would bear the excess
in addition to our other retained amounts. Our insurance and claims expense could increase, or we could find it
necessary to raise our retained amounts or decrease our coverage limits when our policies are renewed or replaced. In
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addition, although we endeavor to limit our exposure arising with respect to such claims, we also may have exposure
if carriers hired by our Brokerage segment are inadequately insured for any accident. Our results of operations and
financial condition may be materially adversely affected if (i) these expenses increase, (ii) we are unable to find excess
coverage in amounts we deem sufficient, (iii) we experience a claim in excess of our coverage limits, (iv) we
experience a claim for which we do not have coverage or for which our insurance carriers fail to pay or (v) we
experience increased accidents. We have in the past, and may in the future, incur significant expenses for deductibles
and retentions due to our accident experience.
If we are required to accrue or pay additional amounts because claims prove to be more severe than our recorded
liabilities, our financial condition and results of operations may be materially adversely affected.
We accrue the costs of the uninsured portion of pending claims based on estimates derived from our evaluation of the
nature and severity of individual claims and an estimate of future claims development based upon historical claims
development trends. Actual settlement of our retained claim liabilities could differ from our estimates due to a number
of uncertainties, including evaluation of severity, legal costs and claims that have been incurred but not reported. Due
to our high retained amounts, we have significant exposure to fluctuations in the number and severity of claims. If we
are required to accrue or pay additional amounts because our estimates are revised or the claims ultimately prove to
be more severe than originally assessed, our financial condition and results of operations may be materially adversely
affected.
Insuring risk through our captive insurance companies could materially adversely affect our operations.
We utilize two captive insurers to transfer or fund risks. Mountain Lake Risk Retention Group, Inc. (“Mountain Lake
RRG”) is a state-regulated, captive risk retention group owned by two of our operating subsidiaries, U.S. Xpress, Inc.
and Total Transportation of Mississippi LLC (“Total”). Mountain Lake RRG writes the primary auto insurance
liability policies for U.S. Xpress, Inc. and Total; a portion of this risk is transferred to Mountain Lake RRG and the
remaining risk is retained as a deductible by the insured subsidiaries. Through our second captive insurer, Xpress
Assurance, we participate as a reinsurer in certain third party risks related to various types of insurance policies sold
to drivers who carry passengers in tractors and independent contractors engaged by U.S. Xpress, Inc. and Total. The
use of the captives necessarily involves retaining certain risks that might otherwise be covered by traditional insurance
products, and increases in the number or severity of claims that Mountain Lake RRG and Xpress Assurance insure
have in the past, and could in the future, materially adversely affect our earnings, business, financial condition and
results of operations.
Increases in collateral requirements that support our insurance program and could materially adversely affect our
operations.
To comply with certain state insurance regulatory requirements, cash and/or cash equivalents must be paid to certain
of our third-party insurers, to state regulators and to our captive insurance companies and restricted as collateral to
ensure payment for anticipated losses. Significant future increases in the amount of collateral required by third-party
insurance carriers and regulators would reduce our liquidity and could materially adversely affect our business,
financial condition, results of operations and capital resources.
Our captive insurance companies are subject to substantial government regulation.
Our captive insurance companies are regulated by state authorities. State regulations generally provide protection to
policy holders, rather than stockholders, and generally involve:
•
•
approval of premium rates for insurance;
standards of solvency;
• minimum amounts of statutory capital surplus that must be maintained;
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limitations on types and amounts of investments;
regulation of dividend payments and other transactions between affiliates;
regulation of reinsurance;
regulation of underwriting and marketing practices;
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•
approval of policy forms;
• methods of accounting; and
•
filing of annual and other reports with respect to financial condition and other matters.
These regulations may increase our costs, limit our ability to change premiums, restrict our ability to access cash held
by these subsidiaries and otherwise impede our ability to take actions we deem advisable.
Increased prices for new revenue equipment, design changes of new engines, volatility in the used equipment
market, decreased availability of new revenue equipment and the failure of manufacturers to meet their obligations
to us could materially adversely affect our business, financial condition, results of operations and profitability.
We are subject to risk with respect to higher prices for new tractors. We have experienced an increase in prices for
new tractors over the past few years, and the resale value of the tractors has not increased to the same extent. Prices
have increased and may continue to increase, due, in part, to government regulations applicable to newly manufactured
tractors and diesel engines and due to the pricing discretion of equipment manufacturers in periods of high demand,
such as this one. More restrictive EPA and state emissions standards have required vendors to introduce new engines.
Compliance with such regulations has increased the cost of our new tractors and could impair equipment productivity,
result in lower fuel mileage and increase our operating expenses. These adverse effects, combined with the uncertainty
as to the reliability of the vehicles equipped with the newly designed diesel engines and the residual values realized
from the disposition of these vehicles, could increase our costs or otherwise materially adversely affect our business,
financial condition and results of operations as the regulations become effective.
A depressed market for used equipment could require us to trade our revenue equipment at depressed values or to
record losses on disposal or impairments of the carrying values of our revenue equipment that is not protected by
residual value arrangements. Used equipment prices are subject to substantial fluctuations based on freight demand,
supply of used tractors, availability of financing, the presence of buyers for export to foreign countries and commodity
prices for scrap metal. If there is a deterioration of resale prices, it could have a material adverse effect on our business,
financial condition and results of operations. Trades at depressed values, decreases in proceeds under equipment
disposals and impairments of the carrying values of our revenue equipment could materially adversely affect our
business, financial condition and results of operations.
Tractor and trailer vendors may reduce their manufacturing output in response to lower demand for their products in
economic downturns or shortages of component parts. A decrease in vendor output may materially adversely affect
our ability to purchase a quantity of new revenue equipment that is sufficient to sustain our desired growth rate and to
maintain a late-model fleet. Moreover, an inability to obtain an adequate supply of new tractors or trailers could have
a material adverse effect on our business, financial condition and results of operations.
Certain of our revenue equipment financing arrangements have balloon payments at the end of the finance terms equal
to the values we expect to be able to obtain in the used market. To the extent the used market values are lower than
such balloon payments, we may be forced to sell the equipment at a loss and our results of operations would be
materially adversely affected.
Our profitability may be materially adversely impacted if our capital investments do not match customer demand
for invested resources or if there is a decline in the availability of funding sources for these investments.
The truckload industry generally, and our truckload offering in particular, is capital intensive and asset heavy, and our
policy of maintaining a young, technology-equipped fleet requires us to expend significant amounts in capital
expenditures annually. The amount and timing of such capital expenditures depend on various factors, including
anticipated freight demand and the price and availability of assets. If anticipated demand differs materially from actual
usage, our capital-intensive Truckload segment may have too many or too few assets. Moreover, resource
requirements vary based on customer demand, which may be subject to seasonal or general economic conditions.
During periods of decreased customer demand, our asset utilization may suffer, and we may be forced to sell
equipment on the open market or turn in equipment under certain equipment leases in order to right size our fleet. This
could cause us to incur losses on such sales or require payments in connection with equipment we turn in, particularly
during times of a softer used equipment market, either of which could have a material adverse effect on our
profitability. Our ability to select profitable freight and adapt to changes in customer transportation requirements is
important to efficiently deploy resources and make capital investments in tractors and trailers (with respect to our
Truckload segment) or obtain qualified third-party carriers at a reasonable price (with respect to our Brokerage
segment).
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We expect to pay for projected capital expenditures with cash flows from operations, proceeds from equity sales or
financing available under our existing debt instruments. Although our business volume is not highly concentrated, our
customers’ financial failures or loss of customer business may materially adversely affect us. If we were unable to
generate sufficient cash from operations, we would need to seek alternative sources of capital, including financing, to
meet our capital requirements. In the event that we are unable to generate sufficient cash from operations or obtain
financing on favorable terms in the future, we may have to limit our fleet size, enter into less favorable financing
arrangements or operate our revenue equipment for longer periods, any of which could have a materially adverse
effect on our profitability.
Upgrading our tractors to reduce the average age of our fleet may not increase our profitability or result in cost
savings as expected or at all.
Upgrades of our tractor fleet may not result in an increase in profitability or cost savings. Expected improvements in
operating ratio may lag behind new tractor deliveries, primarily because in executing a tractor fleet upgrade, we may
experience costs associated with preparing our old tractors for trade, and our new tractors for integration into our fleet,
and lost driving time while swapping revenue equipment. Further, tractor prices have increased and may continue to
increase, due in part to government regulations applicable to newly manufactured tractors and diesel engines. See “—
Increased prices for new revenue equipment, design changes of new engines, volatility in the used equipment market,
decreased availability of new revenue equipment and the failure of manufacturers to meet their obligations to us could
materially adversely affect our business, financial condition, results of operations and profitability.”
In addition, we cannot be certain that an agreement will be reached on price, equipment trade-ins or other terms that
we deem favorable. If we do enter an agreement for the purchase of new tractors, we could be exposed to the risk that
the new tractor deliveries will be delayed. Accordingly, we are subject to an increased risk that upgrades of our tractor
fleet will not result in the operational results, cost savings and increases in profitability that we expect.
Difficulty in obtaining materials, equipment, goods and services from our vendors and suppliers could adversely
affect our business.
We are dependent upon our suppliers for certain products and materials, including our tractors, trailers and chassis.
We manage our OTR fleet to an approximate 475,000 mile trade cycle with an average tractor age of approximately
2.4 years as of December 31, 2018. Accordingly, we rely on suppliers of our tractors, trailers and components to
maintain the age of our fleet. If we fail to maintain favorable relationships with our vendors and suppliers, or if our
vendors and suppliers are unable to provide the products and materials we need or undergo financial hardship, we
could experience difficulty in obtaining needed goods and services because of production interruptions, limited
material availability or other reasons, or we may not be able to obtain favorable pricing or other terms. As a result,
our business and operations could be adversely affected.
We are dependent on systems, networks and other information technology assets (and the data contained therein)
and a failure in the foregoing, including those caused by cybersecurity breaches, could cause a significant
disruption to our business.
Our business depends on the efficient and uninterrupted operation of our systems, networks and other information
technology assets (and the data contained therein). This includes information and electronic data interchange systems
that we have developed, both by creating these systems in-house or by adapting purchased or off-the-shelf applications
to suit our needs. Our information and electronic data interchange systems are used for receiving and planning loads,
dispatching drivers and other capacity providers, billing customers and load tracking and storing the data related to
the foregoing activities. We also maintain information security policies to protect our systems, networks and other
information technology assets (and the data contained therein) from cybersecurity breaches and threats, such as
hackers, malware and viruses; however, such policies cannot ensure the protection of our systems, networks and other
information technology assets (and the data contained therein). We currently maintain our hardware systems and
infrastructure at our Chattanooga, Tennessee headquarters, along with an off-site secondary data center and computer
equipment at each of our truckload service centers. If we are unable to prevent system violations or other unauthorized
access to our systems, networks and other information technology assets (and the data contained therein), we could
be subject to significant fines and lawsuits and our reputation could be damaged, or our business operations could be
interrupted, any of which could have a material adverse effect on our financial performance and business operations.
Our operations, and those of our technology and communications service providers are vulnerable to interruption by
fire, natural disasters, power loss, telecommunications failure, network disruptions, cyber-attacks, terrorist attacks,
Internet failures, malicious intrusions, computer viruses and other events that may be beyond our control. Although
we attempt to reduce the risk of disruption to our business operations through redundant computer systems and
networks, backup systems and a disaster recovery off-site alternate location, there can be no assurance that such
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measures will be effective. If any of our critical information technology assets fail or become otherwise unavailable,
whether as a result of a cybersecurity breach, upgrade project or otherwise, we would have to perform certain functions
manually, which could temporarily impact our ability to manage our fleet efficiently, respond to customers’ requests
effectively, maintain billing and other records reliably, and bill for services and prepare financial statements accurately
or in a timely manner. Although we maintain business interruption insurance, it may be inadequate to protect us in the
event of an unforeseeable and extreme catastrophe. Any significant system failure, upgrade complication, security
breach or other system disruption could interrupt or delay our operations, damage our reputation, cause us to lose
customers or impact our ability to manage our operations and report our financial performance, any of which could
have a material adverse effect on our business, financial condition and results of operations. In addition, we are
currently dependent on a single vendor platform to support certain information technology functions. If the stability
or capability of such vendor is compromised and we were forced to migrate to a new platform, it could materially
adversely affect our business, financial condition and results of operations.
Our existing and future indebtedness could limit our flexibility in operating our business or adversely affect our
business and our liquidity position.
We have significant amounts of indebtedness outstanding, including obligations under a new credit facility (the
“Credit Facility”) we entered into in June 2018 that contains a $150.0 million revolving component (the “Revolving
Facility”) and a $200.0 million term loan component (the “Term Facility”), equipment installment notes, capital leases
and secured notes . Such amounts of indebtedness, as of December 31, 2018, include the Term Facility in the amount
of $195.0 million, the Revolving Facility with an outstanding amount of $0, equipment installment notes of
$184.9 million, capital lease obligations of $20.3 million and secured notes payable of $18.9 million. While our goal
is to reduce our leverage, our indebtedness may increase from time to time in the future for various reasons, including
fluctuations in results of operations, capital expenditures and potential acquisitions. Any indebtedness we incur and
restrictive covenants contained in financing agreements governing such indebtedness could:
• make it difficult for us to satisfy our obligations, including making interest payments on our debt
obligations;
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•
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limit our ability to obtain additional financing to operate our business;
require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing our ability
to use our cash flow to fund capital expenditures and working capital and other general operational
requirements;
expose us to the risk of increased interest rates relating to any of our indebtedness at variable rates;
limit our flexibility to plan for and react to changes in our business and/or changing market conditions;
place us at a competitive disadvantage relative to some of our competitors that have less, or less
restrictive, debt than us;
limit our ability to pursue acquisitions or cause us to make non-strategic divestitures; and
increase our vulnerability to general adverse economic and industry conditions, including changes in
interest rates or a downturn in our business or the economy.
The occurrence of any one of these events could have a material adverse effect on our business, financial condition
and results of operations or cause a significant decrease in our liquidity and impair our ability to pay amounts due on
our indebtedness. Significant repayment penalties may limit our flexibility. In addition, our Credit Facility contains
usual and customary restrictive covenants for a facility of this nature including, among other things, restrictions on
our ability to incur additional indebtedness or issue guarantees, to create liens on our assets, to make distributions on
or redeem equity interests, to make investments, to transfer or sell properties or other assets and to engage in mergers,
consolidations, or acquisitions, and requires us to meet specified financial ratios and tests.
In the future, we may need to obtain additional financing that may not be available or, if it is available, may result
in a reduction in the percentage ownership of our then-existing stockholders.
We may need to raise additional funds in order to:
•
finance unanticipated working capital requirements, capital investments or refinance existing
indebtedness;
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•
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•
•
develop or enhance our technological infrastructure and our existing products and services;
fund strategic relationships;
respond to competitive pressures; and
acquire complementary businesses, technologies, products or services.
If the economy and/or the credit markets weaken, or we are unable to enter into capital or operating leases to acquire
revenue equipment on terms favorable to us, our business, financial results and results of operations could be
materially adversely affected, especially if consumer confidence declines and domestic spending decreases. If
adequate funds are not available or are not available on acceptable terms, our ability to fund our strategic initiatives,
take advantage of unanticipated opportunities, develop or enhance technology or services or otherwise respond to
competitive pressures could be significantly limited. If we raise additional funds by issuing equity or convertible debt
securities, the percentage ownership of our then-existing stockholders may be reduced, and holders of these securities
may have rights, preferences or privileges senior to those of our then-existing stockholders.
Fluctuations in the price or availability of fuel or surcharge collection may increase our costs of operation, which
could materially adversely affect our profitability.
Fuel is one of our largest operating expenses. Diesel fuel prices fluctuate greatly due to factors beyond our control,
such as political events, terrorist activities, armed conflicts, commodity futures trading, depreciation of the dollar
against other currencies and hurricanes and other natural or man-made disasters, each of which may lead to an increase
in the cost of fuel. Fuel prices also are affected by the rising demand for fuel in developing countries, including China,
and could be materially adversely affected by the use of crude oil and oil reserves for purposes other than fuel
production and by diminished drilling activity. Such events may lead not only to increases in fuel prices, but also to
fuel shortages and disruptions in the fuel supply chain. Because our operations are dependent upon diesel fuel,
significant diesel fuel cost increases, shortages, rationings, or supply disruptions would materially adversely affect our
business, financial condition and results of operations.
Fuel also is subject to regional pricing differences and is often more expensive on the West Coast of the United States,
where we have operations. Increases in fuel costs, to the extent not offset by rate per mile increases or fuel surcharges,
have a material adverse effect on our operations and profitability. While we have fuel surcharge programs in place
with a majority of our customers, which historically have helped us offset the majority of the negative impact of rising
fuel prices associated with loaded or billed miles, we also incur fuel costs that cannot be recovered even with respect
to customers with which we maintain fuel surcharge programs, such as those associated with non-revenue generating
miles, the time when our engines are idling and fuel for refrigeration units on our refrigerated trailers. Moreover, the
terms of each customer’s fuel surcharge program vary, and certain customers have sought to modify the terms of their
fuel surcharge programs to minimize recoverability for fuel price increases. In addition, because our fuel surcharge
recovery lags behind changes in fuel prices, our fuel surcharge recovery may not capture the increased costs we pay
for fuel, especially when prices are rising. This could lead to fluctuations in our levels of reimbursement, which have
occurred in the past. During periods of low freight volumes, shippers can use their negotiating leverage to impose fuel
surcharge policies that provide a lower reimbursement of our fuel costs. There is no assurance that our fuel surcharge
program can be maintained indefinitely or will be sufficiently effective. Our results of operations would be negatively
affected to the extent we cannot recover higher fuel costs or fail to improve our fuel price protection through our fuel
surcharge program.
As of December 31, 2018, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.
We operate in a highly regulated industry, and increased direct and indirect costs of compliance with, or liability
for violations of, existing or future regulations could have a material adverse effect on our business.
We have authority to operate in the United States, as granted by the DOT, Mexico (as granted by the Secretaría de
Comunicaciones y Transportes), and various Canadian provinces (as granted by the Ministries of Transportation and
Communication in such provinces). In the United States, we are also regulated by the EPA, the DHS and other agencies
in states in which we operate. Our company drivers, independent contractors and third-party carriers also must comply
with the applicable safety and fitness regulations of the DOT, including those relating to drug and alcohol testing,
driver safety performance and hours-of-service. Matters such as weight, equipment dimensions, exhaust emissions,
fuel efficiency and hazardous material transportation, storage and disposal are also subject to government regulations.
We also may become subject to new or more restrictive regulations relating to fuel efficiency, exhaust emissions,
hours-of-service, drug and alcohol testing, ergonomics, on-board reporting of operations, collective bargaining,
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security at ports, speed limiters, driver training and other matters affecting safety or operating methods. Future laws
and regulations may be more stringent, require changes in our operating practices, influence the demand for
transportation services or require us to incur significant additional costs. Higher costs incurred by us, or by our
suppliers who pass the costs onto us through higher supplies and materials pricing, or liabilities we may incur related
to our failure to comply with existing or future regulations could adversely affect our results of operations. In addition,
the Trump administration has indicated a desire to reduce regulatory burdens that constrain growth and productivity
and also to introduce legislation such as infrastructure spending that could improve our growth and productivity, to
the extent implemented.
In January 2016, the FMCSA proposed changes to the DOT’s safety rating system, which would determine unfit
carriers on a monthly basis using roadside inspection data in addition to investigations and onsite reviews. This change
was expected to significantly increase the number of carriers deemed unfit and potentially unable to continue to
operate. In March 2017, in response to significant objection by the industry, the FMCSA withdrew the proposed
changes but noted that new rulemaking related to a similar process may be initiated in the future. Therefore, it is
uncertain if, when or under what form any such new rule could be implemented. In addition, The FMCSA is currently
in the process of making changes to the CSA program that are contingent on the results of a new modeling theory and
public feedback. However, the nature of such changes is unknown. New rulemaking related to the DOT’s safety rating
system or changes to the CSA program that impacts our safety rating or CSA scores could materially adversely affect
our results of operations.
In December 2016, the FMCSA issued a final rule establishing a national clearinghouse for drug and alcohol testing
results and requiring motor carriers and medical review officers to provide records of violations by commercial drivers
of FMCSA drug and alcohol testing requirements. Motor carriers will be required to query the clearinghouse to ensure
drivers and driver applicants do not have violations of federal drug and alcohol testing regulations that prohibit them
from operating commercial motor vehicles. The compliance date for this rule is early 2020. In addition, other rules
have been recently proposed or made final by the FMCSA, including (i) a rule requiring the use of speed limiting
devices on heavy duty tractors to restrict maximum speeds, which was proposed in 2016 and (ii) a rule setting forth
minimum driver-training standards for new drivers applying for commercial driver’s licenses for the first time and to
experienced drivers upgrading their licenses or seeking a hazardous materials endorsement, which was made final in
December 2016 with a compliance date in February 2020. In July 2017, the DOT announced that it would no longer
pursue a speed limiter rule, but left open the possibility that it could resume such a pursuit in the future. The effect of
these rules, to the extent they become effective, could result in a decrease in fleet production and/or driver availability,
either of which could materially adversely affect our business, financial condition and results of operations.
Recent court decisions have determined that certain state wage and hour laws are not preempted by federal law.
Although the FMCSA recently determined that federal law does preempt California’s wage and hour laws, and
interstate truck drivers are not subject to such laws. Such determination by the FMCSA is currently being appealed.
Current and future state and local wage and hour laws, including laws related to employee meal breaks and rest periods,
may vary significantly from federal law. As a result, we, along with other companies in our industry, are subject to an
uneven patchwork of wage and hour laws throughout the United States. Legislation to preempt state and local wage
and hour laws has been proposed in the past; however, passage of such legislation is uncertain. If federal legislation
is not passed, we will either need to comply with the most restrictive state and local laws across our entire fleet, or
revise our management systems to comply with varying state and local laws. Either solution could result in increased
compliance and labor costs, driver turnover and decreased efficiency, any of which could adversely affect our results
of operations.
The NHTSA, the EPA and certain states, including California, have adopted regulations that are aimed at reducing
tractor emissions and/or increasing fuel economy of the equipment we use. Certain of these regulations are currently
effective, with stricter emission and fuel economy standards becoming effective over the next several years. Other
regulations have been proposed that would similarly increase these standards. The effects of these regulations have
been and may continue to be increases in new tractor and trailer prices, additional parts and maintenance costs,
impaired productivity and uncertainty as to the reliability of the newly designed diesel engines and the residual values
of our equipment. Such effects could materially adversely affect our business, financial condition and results of
operations.
Changes in existing regulations and implementation of new regulations, such as those related to trailer size limits,
emissions and fuel economy, hours-of-service, mandating ELDs and drug and alcohol testing, could increase capacity
in the industry or improve the position of certain competitors, either of which could negatively impact pricing and
volumes or require additional investments by us. The short and long term impacts of changes in legislation or
regulations are difficult to predict and could materially adversely affect our results of operations.
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Safety-related evaluations and rankings under CSA could materially adversely affect our profitability and
operations, our ability to maintain or grow our fleet and our customer relationships.
Under the CSA program, fleets are evaluated and ranked against their peers based on certain safety-related standards.
As a result, our fleet could be ranked poorly as compared to peer carriers. We recruit and retain first-time drivers to
be part of our fleet, and these drivers may have a higher likelihood of creating adverse safety events under CSA. The
occurrence of future deficiencies could affect driver recruitment by causing high-quality drivers to seek employment
with other carriers or limit the pool of available drivers or could cause our customers to direct their business away
from us and to carriers with higher fleet safety rankings, either of which would materially adversely affect our
business, financial condition and results of operations. In addition, future deficiencies could increase our insurance
expenses. Additionally, competition for drivers with favorable safety backgrounds may increase, which could
necessitate increases in driver-related compensation costs. Further, we may incur greater than expected expenses in
our attempts to improve unfavorable scores. Since our driver turnover is higher than the industry average, any events
that decrease the pool of available drivers or increase the competition for drivers may have a disproportionately
negative impact on us versus our competitors.
Certain of our subsidiaries are currently exceeding the established intervention thresholds in one or more of the seven
CSA safety-related categories. Based on these unfavorable ratings, we may be prioritized for an intervention action or
roadside inspection, either of which could materially adversely affect our business, financial condition and results of
operations. In addition, customers may be less likely to assign loads to us. While we have put procedures in place in
an attempt to address areas where we are exceeding and have in the past exceeded the thresholds, we cannot assure
you these measures will be effective.
In December 2015, Congress passed the FAST Act, which calls for significant CSA reform. The FAST Act directs
the FMCSA to conduct studies of the scoring system used to generate CSA rankings to determine if it is effective in
identifying high-risk carriers and predicting future crash risk. This study was conducted and delivered to the FMCSA
in June 2017 with several recommendations to make the CSA program more fair, accurate and reliable. In late June
2018, the FMCSA provided a report to Congress outlining the changes it may make to the CSA program in response
to the study. Such changes include the testing and possible adoption of a revised risk modeling theory, potential
collection and dissemination of additional carrier data and revised measures for intervention thresholds. The adoption
of such changes is contingent on the results of the new modeling theory and additional public feedback. Thus, it is
unclear if, when and to what extent such changes to the CSA program will occur. However, any changes that increase
the likelihood of us receiving unfavorable scores could materially adversely affect our results of operations and
profitability.
Receipt of an unfavorable DOT safety rating could have a material adverse effect on our operations and
profitability.
We currently have a satisfactory DOT rating for our U.S. operations, which is the highest available rating under the
current safety rating scale. If we were to receive a conditional or unsatisfactory DOT safety rating, it could materially
adversely affect our business, financial condition and results of operations as customer contracts may require a
satisfactory DOT safety rating, and a conditional or unsatisfactory rating could materially adversely affect or restrict
our operations.
The FMCSA has proposed regulations that would modify the existing rating system and the safety labels assigned to
motor carriers evaluated by the DOT. Under regulations that were proposed in 2016, the methodology for determining
a carrier’s DOT safety rating would be expanded to include the on-road safety performance of the carrier’s drivers
and equipment, as well as results obtained from investigations. Exceeding certain thresholds based on such
performance or results would cause a carrier to receive an unfit safety rating. The proposed regulations were
withdrawn in March 2017, but the FMCSA noted that a similar process may be initiated in the future. If similar
regulations were enacted and we were to receive an unfit or other negative safety rating, our business would be
materially adversely affected in the same manner as if we received a conditional or unsatisfactory safety rating under
the current regulations. In addition, poor safety performance could lead to increased risk of liability, increased
insurance, maintenance and equipment costs and potential loss of customers, which could materially adversely affect
our business, financial condition and results of operations.
We face litigation risks that could have a material adverse effect on the operation of our business.
Our business is subject to the risk of litigation by employees, applicants, independent contractor drivers, customers,
vendors, government agencies and other parties through private actions, class actions, administrative proceedings,
regulatory actions and other processes. Recently, we and several other trucking companies have been subject to
lawsuits, including class action lawsuits, alleging violations of various federal and state wage and hour laws regarding,
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among other things, minimum wage, meal and rest periods, overtime eligibility and failure to pay for all hours worked.
A number of these lawsuits have resulted in the payment of substantial settlements or damages by other carriers.
These types of cases have increased since March 2014 when the Ninth Circuit Court of Appeals held that the
application of California state wage and hour laws to interstate truck drivers is not preempted by federal law. The case
was appealed to the Supreme Court of the United States, which denied certiorari in May 2015, and accordingly, the
Ninth Circuit Court of Appeals decision stood. However, in December 2018, the FMCSA granted a petition filed by
the ATA and in doing so determined that federal law does preempt California’s wage and hour laws, and interstate
truck drivers are not subject to such laws. The FMCSA’s decision has been appealed by labor groups and multiple
lawsuits have been filed in federal courts seeking to overturn the decision, and thus it’s uncertain whether it will stand.
Other current and future state and local wage and hour laws, including laws related to employee meal breaks and rest
periods, may also vary significantly from federal law. As a result, we, along with other companies in the industry, are
subject to an uneven patchwork of wage and hour laws throughout the United States. In the past, certain legislators
have proposed federal legislation to solidify the preemption of state and local wage and hour laws applied to interstate
truck drivers; however, passage of such legislation is uncertain. If federal legislation is not passed, we may either need
to comply with the most restrictive state and local laws across our entire fleet, or revise our management systems to
comply with varying state and local laws. Either solution could result in increased compliance and labor costs, driver
turnover and decreased efficiency.
The outcome of litigation, particularly class action lawsuits, such as our pending wage and hour class action lawsuit,
and regulatory actions, is difficult to assess or quantify, and the magnitude of the potential loss relating to such lawsuits
may remain unknown for substantial periods of time. See “Legal Proceeding.” Additionally, the cost to defend
litigation may also be significant. Not all claims are covered by our insurance (including wage and hour claims), and
there can be no assurance that our coverage limits will be adequate to cover all amounts in dispute. To the extent we
experience claims that are uninsured, exceed our coverage limits, involve significant aggregate use of our retention
amounts, or cause increases in future premiums, the resulting expenses could have a material adverse effect on our
business, financial condition and results of operations.
In addition, we may be subject, and have been subject in the past, to litigation resulting from trucking accidents. The
number and severity of litigation claims may be worsened by distracted driving by both truck drivers and other
motorists. These lawsuits have resulted, and may result in the future, in the payment of substantial settlements or
damages and increases of our insurance costs. For example, in April 2015, a tractor operated by Total was involved
in an accident that resulted in five fatalities, as well as injuries to additional passengers in the impacted vehicles. We
expect all claims related to that accident will be resolved within our aggregate coverage limits.
We are a defendant in purported class action lawsuits arising out of our IPO and we may be involved in additional
litigation in the future. Such lawsuits could result in substantial costs and divert management's attention.
In 2018, a purported class action lawsuit alleging violations of federal securities laws was filed naming us and certain
of our officers and directors as defendants. Plaintiffs also named as defendants the underwriters in our IPO. Since
then, several other actions making substantially the same allegations have been filed. The plaintiffs in these lawsuits
generally allege that our registration statement and prospectus related to our IPO contained materially false or
misleading statements. These lawsuits may divert financial and management resources that would otherwise be used
to benefit our operations. Although we deny the material allegations in the lawsuits and intend to defend ourselves
vigorously, defending the lawsuits could result in substantial costs. No assurances can be given that the results of these
matters will be favorable to us. In addition, we may be the target of securities-related litigation in the future, both
related and unrelated to the existing class action lawsuits. Such litigation could divert our management’s attention and
resources, result in substantial damages, costs and expense and have an adverse effect on our business, financial
condition and results of operations.
We are generally obligated to indemnify our current and former directors and officers in connection with lawsuits and
related litigation or settlement amounts. We maintain director and officer insurance to protect us from such lawsuits,
however, we are responsible for meeting certain deductibles under the policies. In addition, we cannot assure you that
such policies will adequately protect us from lawsuits or that costs and expenses related to lawsuits will not exceed
the coverage provided under such policies. Further, as a result of the pending lawsuits, the costs of director and officer
insurance may increase and the availability of coverage may decrease. As a result, we may not be able to maintain our
current levels of director and officer insurance at a reasonable cost, or at all, which might make it more difficult to
attract qualified candidates to serve as executive officers or directors. The effect of these lawsuits involving our
officers and directors and the resolution of these matters may result in significant damages, costs and expenses, which
could have a material adverse impact on our business, financial condition and results of operations.
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We evaluate these and other litigation claims and legal proceedings to assess the probability of unfavorable outcomes
and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish
reserves or disclose the relevant litigation claims or legal proceedings, as appropriate. These assessments and estimates
are based on the information available to management at the time and involve a significant amount of management
judgment. Actual outcomes or losses may differ materially from our current assessments and estimates, and any
adverse resolution of litigation pending or threatened against us could have a material adverse impact on our business,
financial condition and results of operations.
Management and key employee turnover or failure to attract and retain qualified management and other key
personnel, could materially adversely affect our business, financial condition and results of operations.
We depend on the leadership and expertise of our executive management team and other key personnel to design and
execute our strategic and operating plans. While we have employment agreements in place with these executives,
there can be no assurance we will continue to retain their services and we may become subject to significant severance
payments if our relationship with these executives is terminated under certain circumstances. Further, turnover,
planned or otherwise, in these or other key leadership positions may materially adversely affect our ability to manage
our business efficiently and effectively, and such turnover can be disruptive and distracting to management, may lead
to additional departures of existing personnel and could have a material adverse effect on our operations and future
profitability. We must recruit, develop and retain a core group of managers to realize our goal of expanding our
operations, improving our earnings consistency and positioning ourselves for long-term operating revenue growth.
We have several major customers, and the loss of, or significant reduction of business with, one or more of them
could have a material adverse effect on our business, financial condition and results of operations.
A significant portion of our revenue is generated from a small number of major customers, the loss of, or significant
reduction of business with, one or more of which could have a material adverse effect on our business. For the year
ended December 31, 2018, our top 25 customers, based on revenue, accounted for approximately 70.9% of our
revenue; our top ten customers, approximately 56.6% our revenue; our top five customers, approximately 38.7% of
our revenue; and our largest customer, Walmart Inc., accounted for approximately 11.8% of our revenue, in each case,
calculated excluding fuel surcharge. A substantial portion of our freight is from customers in the retail industry. As
such, our volumes are largely dependent on consumer spending and retail sales, and our results may be more
susceptible to trends in unemployment and retail sales than carriers that do not have this concentration. In addition,
our major customers engage in bid processes and other activities periodically (including currently) in an attempt to
lower their costs of transportation. We may not choose to participate in these bids or, if we participate, may not be
awarded the freight, either of which circumstances could result in a reduction of our freight volumes with these
customers. In this event, we could be required to replace the volumes elsewhere at uncertain rates and volumes, suffer
reduced equipment utilization or reduce the size of our fleet. Failure to retain our existing customers, or enter into
relationships with new customers, each on acceptable terms, could materially impact our business, financial condition,
results of operations and ability to meet our current and long-term financial forecasts.
Economic conditions and capital markets may materially adversely affect our customers and their ability to remain
solvent. Our customers’ financial difficulties can negatively impact our results of operations and financial condition
and our ability to comply with the covenants under our debt agreements, especially if they were to delay or default on
payments to us. Generally, we do not have contractual relationships that guarantee any minimum volumes with our
customers, and we cannot assure you that our customer relationships will continue as presently in effect. Our dedicated
contract service offering is typically subject to longer term written contracts than our OTR service offering. However,
certain of these contracts contain cancellation clauses, including our “evergreen” contracts, which automatically renew
for one year terms but that can be terminated more easily. There is no assurance any of our customers, including our
dedicated contract customers, will continue to utilize our services, renew our existing contracts, or continue at the
same volume levels. Despite the existence of contractual arrangements with our customers, certain of our customers
may nonetheless engage in competitive bidding processes that could negatively impact our contractual relationship.
In addition, certain of our major customers may increasingly use their own truckload and delivery fleets, which would
reduce our freight volumes. A reduction in or termination of our services by one or more of our major customers,
including our dedicated contract customers, could have a material adverse effect on our business, financial condition
and results of operations.
In addition, the size and market concentration of some of our customers may allow them to exert increased pressure
on the prices, margins and non-monetary terms of our contracts.
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We depend on third-party service providers, particularly in our Brokerage segment, and service instability from
these providers could increase our operating costs and reduce our ability to offer brokerage services, which could
materially adversely affect our revenue, business, financial condition, results of operations and customer
relationships.
Our Brokerage segment is dependent upon the services of third-party carriers, including other truckload carriers. For
this business, we do not own or control the transportation assets that deliver our customers’ freight and we do not
employ the providers directly involved in delivering the freight. These third-party providers may seek other freight
opportunities and/or require increased compensation in times of improved freight demand or tight truckload capacity.
If we are unable to secure the services of these third parties or if we become subject to increases in the prices we must
pay to secure such services, our business, financial condition and results of operations may be materially adversely
affected, and we may be unable to serve our customers on competitive terms. Our ability to secure sufficient equipment
or other transportation services may be affected by many risks beyond our control, including equipment shortages in
the transportation industry, particularly among contracted truckload carriers, interruptions in service due to labor
disputes, driver shortage, changes in regulations impacting transportation and changes in transportation rates.
We may not make acquisitions in the future, which could impede growth, or if we do, we may not be successful in
integrating any acquired businesses, either of which could have a material adverse effect on our business.
Historically, a key component of our growth strategy has been to pursue acquisitions of complementary businesses.
We currently do not expect to make any material acquisitions over the next few years, which could impede growth. If
we do make acquisitions, we cannot assure that we will be successful in negotiating, consummating or integrating the
acquisitions. If we succeed in consummating future acquisitions, our business, financial condition and results of
operations, may be materially adversely affected because:
•
some of the acquired businesses may not achieve anticipated revenue, earnings or cash flows;
• we may assume liabilities that were not disclosed to us or otherwise exceed our estimates;
• we may be unable to integrate acquired businesses successfully, or at all, and realize anticipated
economic, operational and other benefits in a timely manner, which could result in substantial costs and
delays or other operational, technical or financial problems;
•
acquisitions could disrupt our ongoing business, distract our management and divert our resources;
• we may experience difficulties operating in markets in which we have had no or only limited direct
experience;
• we could lose customers, employees and drivers of any acquired company;
• we may incur additional indebtedness; and
• we may issue additional shares of our Class A common stock, which would dilute the ownership of our
then-existing stockholders.
We are subject to certain risks arising from our Mexican operations.
We have operations in Mexico, representing approximately 3.0% of our revenue in 2018, excluding fuel surcharge.
Even following our sale of Xpress Internacional, we expect to have business to and from Mexico through a more
variable cost model using third party carriers. As a result, we are subject to risks of doing business internationally,
including fluctuations in foreign currencies, changes in the economic strength of Mexico, difficulties in enforcing
contractual obligations and intellectual property rights, burdens of complying with a wide variety of international and
U.S. export and import laws, economic sanctions and social, political and economic instability. We must also comply
with applicable anti-corruption and anti-bribery laws such as the U.S. Foreign Corrupt Practices Act and local laws
prohibiting corrupt payments to government officials. We cannot guarantee compliance with all applicable laws, and
violations could result in substantial fines, sanctions, civil or criminal penalties, competitive or reputational harm,
litigation or regulatory action and other consequences that might adversely affect our results of operations and our
consolidated performance.
In addition, if we are unable to maintain our Free and Secure Trade (“FAST”), Business Alliance for Secure Commerce
(“BASC”) and U.S. C-TPAT certification statuses, we may have significant border delays, which could cause our
Mexican operations to be less efficient than those of competitor truckload carriers also operating in Mexico that obtain
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or continue to maintain FAST, BASC and C-TPAT certifications. We also face additional risks associated with our
foreign operations, including restrictive trade policies and imposition of duties, taxes or government royalties imposed
by the Mexican government, to the extent not preempted by the terms of the North American Free Trade Agreement
(“NAFTA”) or its proposed replacement, the United-States-Mexico-Canada Agreement (“USMCA”), which is
waiting congressional approval. In addition, changes to NAFTA, USMCA (if enacted) or other treaties governing our
business could materially adversely affect our international business. It is also uncertain how the USMCA, if enacted,
will impact foreign trade and our Mexican operations. Factors that substantially affect the operations of our business
in Mexico may have a material adverse effect on our overall results of operations. Additionally, the management team
for our Mexican operations is relatively small and each member of the management team has significant impact on
the performance and results of our Mexican operations. The loss of one or more of the management members could
have a negative effect on our Mexican revenue and results of operations and on our consolidated performance.
Changes to trade regulation, quotas, duties or tariffs, caused by the changing U.S. and geopolitical environments
or otherwise, may increase our costs and materially adversely affect our business.
Actions by the Trump administration have led to the imposition of tariffs on certain imported steel and aluminum. The
implementation of these tariffs, as well as the imposition of additional tariffs or quotas or changes to certain trade
agreements, could, among other things, increase the costs of the materials used by our suppliers to produce new
revenue equipment or increase the price of fuel. Such cost increases for our revenue equipment suppliers would likely
be passed on to us, and to the extent fuel prices increase, we may not be able to fully recover such increases through
rate increases or our fuel surcharge program, either of which could have a material adverse effect on our business.
Our business depends on our reputation and the value of the U.S. Xpress brand, and if we are unable to protect
our brand name or proprietary and other intellectual property rights, our competitive position may be harmed.
We believe that the U.S. Xpress brand name symbolizes high-quality service and reliability and is a significant sales
and marketing tool to which we devote substantial resources to promote and protect. Adverse publicity, whether or
not justified, related to activities by our drivers, independent contractors or agents, such as accidents, customer service
issues or noncompliance with laws, could tarnish our reputation and reduce the value of our brand. With the increased
use of social media outlets, adverse publicity can be disseminated quickly and broadly, making it difficult for us to
respond effectively. Damage to our reputation and loss of value in our brand could reduce the demand for our services
and have a material adverse effect on our financial condition and results of operations, and require additional resources
to rebuild our reputation and restore the value of our brand.
In addition, we depend on the protection of our proprietary and other intellectual property rights, including service
marks, trademarks, domain names, patents, copyrights, confidential information and similar intellectual property
rights. We rely on a combination of laws and contractual restrictions with employees, independent contractors,
customers, suppliers, affiliates and others to establish and protect these proprietary and other intellectual property
rights. Despite our efforts to protect our proprietary and other intellectual property rights, third parties may use our
proprietary and other intellectual property information without our authorization and may otherwise misappropriate,
infringe or violate the same, and efforts to prevent or police such unauthorized use or misappropriation, including
instituting litigation, may consume significant resources, which could materially adversely affect our business, distract
our management and divert our resources.
Developments in labor and employment law and any unionizing efforts by employees could have a material adverse
effect on our results of operations.
We face the risk that Congress, federal agencies or one or more states could approve legislation or regulations
significantly affecting our businesses and our relationship with our employees, such as the previously proposed federal
legislation referred to as the Employee Free Choice Act, which would have substantially liberalized the procedures
for union organization. None of our domestic employees are currently covered by a collective bargaining agreement,
but any attempt by our employees to organize a labor union could result in increased legal and other associated costs.
Additionally, given the National Labor Relations Board’s “speedy election” rule, our ability to timely and effectively
address any unionizing efforts would be difficult. If we entered into a collective bargaining agreement with our
domestic employees, the terms could materially adversely affect our costs, efficiency and ability to generate acceptable
returns on the affected operations. Our former Mexican subsidiary, Xpress Internacional, had a collective bargaining
agreement with its Mexican employees on substantially the same employment terms required by Mexican law. We
disposed of our interest in Xpress Internacional in January 2019.
Additionally, the Department of Labor issued a final rule in 2016 raising the minimum salary basis exemption from
overtime payments for executive, administrative and professional employees. The rule increases the minimum salary
from the current amount of $23,660 to $47,476 and up to 10% of non-discretionary bonus, commission and other
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incentive payments can be counted towards the minimum salary requirement. The rule was scheduled to go into effect
on December 1, 2016. However, the rule was temporarily enjoined from going into effect in November 2016, and later
invalidated in August 2017, after several states and business groups filed separate lawsuits against the Department of
Labor challenging the rule. However, any future rule similar to this rule that impacts the way we classify certain
positions, increases our payment of overtime wages or increases the salaries we are required to pay to currently exempt
employees to maintain their exempt status may have a material adverse effect on our business, financial condition and
results of operations.
Seasonality and the impact of weather and other catastrophic events affect our operations and profitability.
Our tractor productivity decreases during the winter season because inclement weather impedes operations and some
shippers reduce their shipments after the winter holiday season. Revenue may also be adversely affected by inclement
weather and holidays, since revenue is directly related to available working days of shippers. At the same time,
operating expenses increase and fuel efficiency declines because of engine idling and harsh weather creating higher
accident frequency, increased claims and higher equipment repair expenditures. We also may suffer from
weather-related or other unforeseen events such as tornadoes, hurricanes, blizzards, ice storms, floods, fires,
earthquakes and explosions. These events may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or
routes, affect regional economies, damage or destroy our assets or adversely affect the business or financial condition
of our customers, any of which could materially adversely affect our results of operations or make our results of
operations more volatile.
Our total assets include goodwill and other intangibles. If we determine that these items have become impaired in
the future, net income could be materially adversely affected.
As of December 31, 2018, we had recorded goodwill of $57.7 million and other intangible assets of $28.9 million
primarily as a result of certain customer relationships connected with certain acquisition-related transactions and trade
names. Goodwill represents the excess of the consideration paid by us over the estimated fair value of identifiable net
assets acquired by us. We may never realize the full value of our goodwill or intangible assets. Any future
determination requiring the write-off of a significant portion of goodwill or other intangible assets would have a
material adverse effect on our business, financial condition and results of operations.
Uncertainties in the interpretation and application of the 2017 Tax Cuts and Jobs Act could materially adversely
affect our tax obligations and effective tax rate.
In December 2017, the U.S. enacted comprehensive tax legislation, commonly referred to as the 2017 Tax Cuts and
Jobs Act (the “Act”). The new law requires complex computations not previously required by U.S. tax law. As such,
the application of accounting guidance for such items is currently uncertain. Further, compliance with the new law
and the accounting for such provisions require preparation and analysis of information not previously required or
regularly produced. In addition, the U.S. Department of Treasury has broad authority to issue regulations and
interpretative guidance that may significantly impact how we will apply the law and impact our results of operations
in future periods. Accordingly, while we have provided a provisional estimate on the effect of the new law in our
accompanying audited financial statements, further regulatory or U.S. generally accepted accounting principles
(“GAAP”) accounting guidance for the law, our further analysis on the application of the law, and refinement of our
initial estimates and calculations could materially change our current provisional estimates, which could in turn
materially affect our tax obligations and effective tax rate. There are also likely to be significant future impacts that
these tax reforms will have on our future financial results and our business strategies. In addition, there is a risk that
states or foreign jurisdictions may amend their tax laws in response to these tax reforms, which could have a material
adverse effect on our results.
The price of our Class A common stock may fluctuate significantly.
The trading price of our Class A common stock has been and is likely to continue to be volatile and subject to wide
price fluctuations in response to various factors, many of which are beyond our control, including those described
above and the following:
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actual or anticipated fluctuations in our quarterly or annual financial results;
the financial guidance we may provide to the public, any changes in such guidance or our failure to meet
such guidance;
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failure of industry or securities analysts to maintain coverage of us, changes in financial estimates or
downgrades of our Class A common stock or our sector by any industry or securities analysts that follow
us or our failure to meet such estimates;
downgrades in our credit ratings or the credit ratings of our competitors;
(cid:120) market factors, including rumors, whether or not correct, involving us or our competitors;
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unfavorable market reactions to allegations regarding the safety of our or our competitors' services and
costs or negative publicity arising out of any potential litigation and/or government investigations
resulting therefrom;
fluctuations in stock market prices and trading volumes of securities of similar companies;
sales or anticipated sales of large blocks of our Class A common stock;
short selling of our Class A common stock by investors;
limited "public float" in the hands of a small number of persons whose sales or lack of sales of our
Class A common stock could result in positive or negative pricing pressure on the market price for our
Class A common stock;
our ability to satisfy our ongoing capital requirements and unanticipated cash needs or adverse market
reaction to any additional indebtedness we may incur or securities we may issue in the future;
additions or departures of key personnel;
announcements of new commercial relationships, acquisitions or other strategic transactions, or entry
into new markets or exit from markets by us or our competitors;
failure of any of our initiatives, including our growth strategy, to achieve commercial success;
regulatory or political developments;
changes in accounting principles or methodologies;
litigation or governmental investigations;
negative publicity about us in the media and online; and
general financial market conditions or events.
Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and
continue to affect the market prices of equity securities of many companies. These fluctuations sometimes have been
unrelated or disproportionate to the operating performance of those companies. In addition, certain index providers,
such as FTSE Russell and S&P Dow Jones, have announced restrictions that limit or preclude inclusion of companies
with multiple-class share structures in certain indexes. Because of our dual-class structure, we may be excluded from
these indexes and we cannot assure you that other stock indexes will not take similar actions. Given the sustained flow
of investment funds into passive strategies that seek to track certain indexes, exclusion from stock indexes would
likely preclude investment by many of these funds and could make our Class A common stock less attractive to other
investors. These and other factors may cause the market price and demand for our Class A common stock to fluctuate
substantially, which may limit or prevent investors from readily selling their shares of Class A common stock and
may otherwise adversely affect the price or liquidity of our Class A common stock.
We previously identified material weaknesses in our internal control over financial reporting. If our remediation
of these material weaknesses is not effective, or if we identify additional material weaknesses in the future or
otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately
or timely report our financial condition or results of operations, which may adversely affect investor confidence in
us and, as a result, the value of our Class A common stock.
28
Prior to the IPO, we were not required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-
Oxley Act and were therefore not required to make a formal assessment of the effectiveness of our internal controls
over financial reporting for that purpose. Since the IPO, we have been required to comply with the SEC's rules
implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which has required management to certify financial
and other information in our quarterly and annual reports and provide an annual management report on the
effectiveness of controls over financial reporting. Though we will be required to disclose changes made in our internal
controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal
controls over financial reporting pursuant to Section 404 (including an auditor attestation on management's internal
controls report) until our annual report on Form 10-K for the fiscal year ending December 31, 2019.
As disclosed in “Controls and Procedures” of this report, during the course of preparing for our IPO, we identified
material weaknesses in our internal control over financial reporting. We are currently in the process of remediating
these material weaknesses. However, there is no assurance that we will effectively remediate these material
weaknesses or that we will not identify additional material weaknesses in our internal control over financial reporting
in the future.
If we fail to effectively remediate the material weaknesses in our control environment, if we identify future material
weaknesses in our internal controls over financial reporting, or if we are unable to comply with the demands that have
been placed upon us as a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, in a
timely manner, we may be unable to accurately report our financial results, or report them within the timeframes
required by the SEC. We also could become subject to sanctions or investigations by the NYSE, the SEC or other
regulatory authorities. In addition, if we are unable to assert that our internal control over financial reporting is
effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness
of our internal control over financial reporting, when required, investors may lose confidence in the accuracy and
completeness of our financial reports, we may face restricted access to the capital markets and our stock price may be
adversely affected.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, our
market or our competitors, or if they change their recommendations regarding our Class A common stock in a
negative way, the price and trading volume of our Class A common stock could decline.
The trading market for our Class A common stock is influenced by the research and reports that industry or securities
analysts may publish about us, our business, our market or our competitors. If any of the analysts who cover us change
their recommendation regarding our Class A common stock in a negative way, or provide more favorable relative
recommendations about our competitors, the price of our Class A common stock would likely decline. If any analyst
who covers us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the
financial markets, which in turn could cause our Class A common stock price or trading volume to decline.
The large number of shares eligible for public sale in the future, or the perception of the public that these sales
may occur, could depress the market price of our Class A common stock.
The market price of our Class A common stock could decline as a result of (i) sales of a large number of shares of our
Class A common stock, particularly sales by our directors, employees (including our executive officers) and
significant stockholders, and (ii) a large number of shares of our Class A common stock being registered or offered
for sale (including upon the conversion of Class B shares for Class A shares and the subsequent sale by the holders
thereof). These sales, or the perception that these sales could occur, may depress the market price of our Class A
common stock. Any shares of Class B common stock sold by the selling stockholders will automatically convert to
Class A common stock upon such sale. In addition to the sale of existing Class A shares, our charter does not limit the
conversion of shares of Class B common stock into shares of Class A common stock upon transfer by the holders
thereof and as a result, all of the shares of Class B common stock may be converted into shares of Class A common
stock, which could have a negative effect on the market price of the outstanding shares of Class A common stock.
The dual class structure of our common stock has the effect of concentrating voting control with certain members
of the Fuller and Quinn families (or trusts for the benefit of any of them or entities owned by any of them), which
limits or precludes the ability of other stockholders to influence corporate matters.
Our Class B common stock has five votes per share, and our Class A common stock has one vote per share.
Stockholders who hold shares of Class B common stock, Messrs. Max Fuller and Eric Fuller and Ms. Pate
(collectively, the "Qualifying Stockholders") and certain trusts for the benefit of any of them or their family members
29
or certain entities owned by any of them or their family members (collectively with the Qualifying Stockholders, the
"Class B Stockholders"), hold approximately 70.1% of the voting power of our outstanding capital stock. Because of
the five-to-one voting ratio between our Class B common stock and Class A common stock, the Class B Stockholders
collectively will continue to control a majority of the combined voting power of our common stock and therefore be
able to control all matters submitted to our stockholders for approval so long as the shares of Class B common stock
represent at least 16.7% of all outstanding shares of our Class A common stock and Class B common stock. This
concentrated control will limit or preclude the ability of our other stockholders to influence corporate matters for the
foreseeable future. The interests of the Class B Stockholders may conflict with the interests of our other stockholders,
and they may take actions affecting us with which other stockholders disagree. For example, the Class B Stockholders
could take actions that would have the effect of delaying, deterring or preventing a change in control or other business
combination that might otherwise be beneficial to us and our stockholders. In addition, certain of the Class B
Stockholders have been engaged from time to time in certain related party transactions with us. Further, Messrs. Eric
Fuller and Max Fuller and Mses. Pate and Janice Fuller, the wife of Max Fuller, have entered into a voting agreement
(the "Voting Agreement") under which each has granted a voting proxy with respect to the shares of Class B common
stock subject to the voting agreement. Mr. Eric Fuller and Ms. Janice Fuller have initially designated Mr. Max Fuller
as his or her proxy and Mr. Max Fuller and Ms. Pate have each initially designated Mr. Eric Fuller as his or her proxy.
Accordingly, upon death or incapacity of any of Messrs. Eric Fuller or Max Fuller or Ms. Pate, voting control would
remain concentrated with certain members of the Fuller and/or Quinn families.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A
common stock, except for transfers among certain members of the Fuller and Quinn families (or trusts for the benefit
of any of them or entities owned by any of them) effected for estate planning or charitable purposes. The conversion
of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting
power of those holders of Class B common stock who retain their shares in the long term.
Furthermore, as a "controlled company" within the meaning of the NYSE rules, we qualify for and, in the future, may
opt to rely on, exemptions from certain corporate governance requirements, including having a majority of
independent directors, as well as having nominating and corporate governance and compensation committees
composed entirely of independent directors. If in the future we choose to rely on such exemptions, the interests of our
Qualifying Stockholders may differ from those of our other stockholders and the other stockholders may not have the
same protections afforded to stockholders of companies that are subject to all of the corporate governance rules for
NYSE-listed companies. Our status as a controlled company could make our Class A common stock less attractive to
some investors or otherwise harm our stock price.
We do not currently expect to pay any cash dividends.
The continued operation and growth of our business will require substantial funding. Accordingly, we do not currently
expect to pay any cash dividends on shares of our common stock. Any determination to pay dividends in the future
will be at the discretion of our Board of Directors and will depend upon our results of operations, financial condition,
contractual restrictions, including restrictive covenants contained in our financing agreements, restrictions imposed
by applicable law, capital requirements and other factors our Board of Directors deems relevant. Additionally, under
our Credit Facility, our subsidiaries are restricted from paying cash dividends except in limited circumstances.
Accordingly, in order for stockholders to realize a gain on their investment, the price of our common stock would
need to increase, which may never occur. Investors seeking cash dividends in the foreseeable future should not
purchase our common stock.
The requirements of being a public company may strain our resources and divert management’s attention, which
could lower our profits or make it more difficult to run our business.
As a public company, we have incurred and will incur significant legal, accounting and other expenses that we would
not have incurred as a private company, including costs associated with public company reporting requirements. We
also have incurred and will incur costs associated with complying with the Exchange Act and the Sarbanes-Oxley Act
and related rules implemented by the SEC and the NYSE. Complying with these reporting and other regulatory
requirements will continue to be time consuming and will result in increased costs to us and could have a negative
effect on our business, financial condition and results of operations. The expenses incurred by public companies
generally for reporting and corporate governance purposes have been increasing. In addition, our management will
need to continue to devote a substantial amount of time to ensure that we comply with all of these requirements. These
laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including
director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more
30
difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as
our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be
subject to delisting of our Class A common stock, fines, sanctions and other regulatory action and potentially civil
litigation.
Provisions in our charter documents or Nevada law may inhibit a takeover, which could limit the price investors
might be willing to pay for our Class A common stock.
Our Second Amended and Restated Articles of Incorporation ("Articles of Incorporation"), our Amended and Restated
Bylaws ("Bylaws"), and Nevada corporate law contain provisions that could delay, discourage or prevent a change of
control or changes in our Board of Directors or management that a stockholder might consider favorable. For example,
our Articles of Incorporation authorize our Board of Directors to issue preferred stock without stockholder approval
and to set the rights, preferences and other terms thereof, including voting rights of those shares; our Articles of
Incorporation do not provide for cumulative voting in the election of directors, which would otherwise allow holders
of less than a majority of stock to elect some directors; our Class B common stock possesses disproportionate voting
rights; and our Bylaws provide that a stockholder must provide advance notice of business to be brought before an
annual meeting or to nominate candidates for election as directors at an annual meeting of stockholders. These
provisions will apply even if the change may be considered beneficial by some of our stockholders, and thereby
negatively affect the price that investors might be willing to pay in the future for our Class A common stock. In
addition, to the extent that these provisions discourage an acquisition of our company or other change in control
transaction, they could deprive stockholders of opportunities to realize takeover premiums for their shares of our
Class A common stock.
Our Articles of Incorporation designate the Eighth Judicial District Court of Clark County of the State of Nevada
as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our
stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us
or our directors, officers or employees.
Our Articles of Incorporation provide that, unless we consent in writing to an alternative forum, the Eighth Judicial
District Court of Clark County of the State of Nevada will be the sole and exclusive forum for any and all actions,
suits or proceedings, whether civil, administrative or investigative or that asserts any claim or counterclaim brought
in our name or on our behalf, any derivative action (i) asserting a claim of breach of a fiduciary duty owed by any of
our directors, officers or employees to us or our stockholders, (ii) arising or asserting a claim arising pursuant to any
provision the Nevada Statutes, our Articles of Incorporation or our Bylaws or (iii) asserting a claim that is governed
by the internal affairs doctrine, in each such case subject to the Eighth Judicial District Court of Clark County having
personal jurisdiction over the indispensable parties named as defendant. Any person purchasing or otherwise acquiring
any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision
of our Articles of Incorporation. This choice of forum provision may limit our stockholders' ability to bring certain
claims, including claims against our directors, officers or employees, in a judicial forum that the stockholder finds
favorable and therefore may discourage lawsuits with respect to such claims. Stockholders who do bring a claim in
the Eighth Judicial District Court of Clark County could face additional litigation and related costs in pursuing any
such claim, particularly if they do not reside in or near Nevada. The Eighth Judicial District Court of Clark County
may also reach different judgments or results than would other courts, including courts where a stockholder
considering an action may be located or would otherwise choose to bring the action, and such judgments or results
may be more favorable to us than to our stockholders. Alternatively, if a court were to find this provision of our
Articles of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions
or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which
could have a material adverse effect on our business, financial condition or results of operations.
PROPERTIES
Our headquarters is located in Chattanooga, Tennessee. We own or lease truck terminals throughout the continental
United States. A truck terminal may include fleet operations, equipment maintenance, driver orientation/training, fuel
station and equipment parking. We believe that our facilities are in good condition and have sufficient capacity to
meet our current needs. The following table provides information regarding our headquarters, truckload service centers
and other facilities in the United States:
31
Owned
or
Leased Description of Activities at Location
Location
Arizona—Tempe ........................ Leased Office
Florida—Jacksonville ................. Owned Office, Maintenance, Training, Parking
Georgia—Ellenwood .................. Owned Office, Maintenance, Fuel, Parking
Georgia—Tunnel Hill ................. Owned Office, Maintenance, Training, Fuel, Parking
Illinois—Chicago ........................ Leased Office
Illinois—Markham ..................... Leased Office, Maintenance, Training, Fuel, Parking
Indiana—Indianapolis ................. Owned Office, Maintenance, Fuel, Parking
Minnesota—Elk River ................ Leased Office
Mississippi—Olive Branch ......... Owned Office, Maintenance, Training, Parking
Mississippi—Richland ................ Owned Office, Maintenance, Training, Fuel, Parking
Ohio—Springfield ...................... Owned Office, Maintenance, Training, Fuel, Parking
Pennsylvania—Shippensburg ..... Owned Office, Maintenance, Training, Fuel, Parking
South Carolina—Duncan ............ Leased Maintenance, Parking
Tennessee—Brentwood .............. Leased Office
Tennessee—Chattanooga ............ Owned Headquarters (2 facilities)
Tennessee—Loudon ................... Owned Office, Maintenance, Parking
Texas—Irving ............................. Leased Office, Maintenance, Training, Fuel, Parking
Texas—Laredo ........................... Leased Office, Maintenance, Parking
Segment(s)
that use Location
Brokerage
Truckload
Truckload
Truckload
Brokerage
Truckload
Truckload
Brokerage
Truckload
Truckload
Truckload
Truckload
Truckload
Brokerage
Truckload & Brokerage
Truckload
Truckload
Truckload
In addition to the facilities listed above, we lease property located in Grand Prairie, Texas to Parker Global Enterprises,
Inc., an entity in which we hold a 45% investment, and have various lots throughout the United States that are used
for equipment parking. All of our owned real property has been pledged as collateral under our Credit Facility or other
third-party financings.
LEGAL PROCEEDINGS
We are involved in various 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 13 of the accompanying consolidated financial
statements, and is incorporated herein by reference.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Class A common stock is traded on The New York Stock Exchange, under the symbol “USX.”
Holders of Record
As of February 19, 2019, we had approximately nine stockholders of record of our Class A common stock; however,
we estimate our actual number of stockholders is much higher because a substantial number of our shares are held of
record by brokers or dealers for their customers in street names. As of February 19, 2019, Messrs. Eric and Max
Fuller and Ms. Lisa Quinn Pate, together with certain trusts for the benefit of any of them and certain entities owned
by any of them, owned all of the outstanding Class B common stock.
Dividend Policy
We currently intend to retain all available funds and any future earnings for use in the development and expansion of
our business, the repayment of debt and for general corporate purposes. Any future determination to pay dividends
and other distributions will be at the discretion of our Board of Directors. Such determinations will depend on then-
existing conditions, including our financial condition and results of operations, contractual restrictions, including
restrictive covenants contained in our financing agreements, capital requirements and other factors that our Board of
Directors may deem relevant.
32
Use of Proceeds
On June 13, 2018, the Registration Statement on Form S-1 (Registration No. 333-224711) for our IPO was declared
effective by the SEC. The offering commenced on June 14, 2018 and did not terminate until the sale of all of the
shares offered. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. LLC acted as co-lead
managing underwriters for the IPO.
We registered an aggregate of 20,764,400 shares of our Class A common stock (including 1,388,000 shares offered
for sale by certain of our stockholders named in our prospectus dated June 13, 2018, filed with the SEC pursuant to
Rule 424(b) of the Securities Act, which is deemed to be part of our Registration Statement on Form S-1 (File No.
333-224711), as amended (“Prospectus”) and 2,708,400 shares registered to cover the underwriters’ option to purchase
additional shares, which were also offered for sale by certain of our stockholders). On June 18, 2018, we closed our
IPO, in which we sold 16,668,000 shares of our Class A common stock and the selling stockholders sold 4,046,400
shares of our Class A common stock. The shares sold and issued in the IPO included the full exercise of the
underwriters’ option to purchase additional shares from the selling stockholders. The shares were sold at a public
offering price of $16.00 for an aggregate gross offering price of approximately $332.2 million. We received net
proceeds of approximately $250.0 million, after deducting underwriting discounts and commissions of approximately
$16.7 million, but before deducting offering expenses. At the time of the IPO we had approximately $4.8 million in
unpaid offering expenses. Thus, we received net proceeds of approximately $246.6 million, after deducting
underwriting discounts and commissions and offering expenses. We used approximately $237.7 million of the net
proceeds to repay (i) our then-existing term loan facility, including breakage fees, (ii) a portion of the borrowings
outstanding under our then-existing revolving credit facility and (iii) a 2007 term note and (b) approximately $7.5
million of the net proceeds for the purchase of the Tunnel Hill, Georgia, real estate we historically have leased from
Q&F Realty, a related party. Except for the purchase of the Tunnel Hill, Georgia real estate from Q&F Realty, a
related party, none of the expenses were paid to, and none of the net proceeds were used to, make payments to our
directors, officers or persons owning 10% or more of our common stock, or to their associates or our affiliates. There
has been no material change in the planned use of proceeds from our IPO as described in our Prospectus.
Securities Authorized for Issuance under Equity Compensation Plans
See “Equity Compensation Plan Information” of this Annual Report for certain information concerning shares of our
Class A and Class B common stock authorized for issuance under our equity compensation plans.
Issuer Purchases of Equity Securities
We did not purchase any of our Class A or Class B common stock during the year ended December 31, 2018.
SELECTED FINANCIAL DATA
The selected financial data set forth below is not necessarily indicative of results of future operations and should be
read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations”
and the Company's consolidated financial statements and notes thereto included in this Annual Report.
Operating revenue
Income from operations(1)
Net income (loss)
Net income (loss) attributable to controlling
interest
Basic earnings (loss) per share
Diluted earnings (loss) per share
Operating ratio
2018
2017
As of December 31,
2016
(in thousands)
$ 1,804,915 $ 1,555,385 $ 1,451,205 $ 1,541,103 $ 1,727,491
36,940
(13,678)
27,731
(15,974)
47,613
4,692
28,608
(3,937)
78,906
26,106
2014
2015
24,899
0.84
0.83
95.6%
(4,060)
(0.64)
(0.64)
98.2%
(16,524)
(2.59)
(2.59)
98.1%
4,102
0.64
0.64
96.9%
(14,153)
(2.22)
(2.22)
97.9%
Total assets
Total debt, including capital lease obligations and
current portion
Stockholders' equity (deficit)
910,487
820,571
639,431
776,495
733,047
424,566
238,387
605,538
(41,105)
431,022
(37,168)
488,390
(21,194)
497,167
(27,827)
(1)
During the fourth quarter of 2018, we incurred an impairment charge of $10.7 million related to our
disposition of Xpress Internacional interest in January 2019.
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This management's discussion and analysis of financial condition and results of operations should be read together
with “Business” in this Annual Report, as well as the consolidated financial statements and accompanying footnotes
in this Annual Report. This discussion contains forward-looking statements as a result of many factors, including those
set forth under “Risk Factors” and “Cautionary Note Regarding Forward-looking Statements” of this Annual Report,
and elsewhere in this report. These statements are based on current expectations and assumptions that are subject to
risks and uncertainties. Actual results could differ materially from those discussed.
Overview
We are the fifth largest asset-based truckload carrier in the United States by revenue, generating over $1.8 billion in
total operating revenue in 2018. 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 December 31, 2018, our fleet consisted of approximately 6,900 tractors and approximately 16,000 trailers,
including approximately 1,650 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 infrastructure is established and capable of handling significantly larger
volumes without meaningful additional investment.
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. Over the last four years, we have recruited and developed new executive and operational
management teams with significant industry experience and instilled a new culture of professional management. These
changes, which are ongoing, helped us to maintain relatively stable profitability during the weak truckload market of
2016 and early 2017, and drive significant improvements to profitability during the strong truckload market beginning
in the second half of 2017. This momentum was reflected in 2018, which produced a 260 basis point improvement in
our operating ratio, compared to 2017, and a 330 basis point improvement in our Adjusted Operating Ratio for the
same period. For the definition of Adjusted Operating Ratio and a reconciliation to the most directly comparable
GAAP measure, see “Use of Non-GAAP Financial Information.” We expect to see year-over-year quarterly operating
ratio improvement through 2019, absent changes in macroeconomic conditions.
Total revenue for 2018 increased by $249.5 million to $1.8 billion as compared to 2017. The increase was primarily
a result of a 9.6% increase in our average revenue per loaded mile (excluding fuel surcharge revenue), a 40.2% increase
in brokerage revenue to $69.6 million, and a $44.6 million increase in fuel surcharge revenue. Excluding the impact
of fuel surcharge revenue, revenue increased $204.9 million to $1.6 billion, an increase of 14.5% as compared to the
prior year.
Operating income for 2018 was $78.9 million which compares favorably to the $28.6 million achieved in 2017. Our
net income attributable to controlling interest of $24.9 million in 2018 represents our highest net income earned in
Company’s history.
We continue to see an erosion of professional driver availability. As a result, 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. 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.
34
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. While we primarily operate in the eastern half of the
United States, we provide services into and out of Mexico. In January 2019, we sold our interest in Xpress
Internacional. Even following our sale of Xpress Internacional, we expect to have business to and from Mexico
through a more variable cost model using third party carriers. 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
37.5% of our Truckload operating revenue, and approximately 38.0% of our Truckload revenue, before fuel surcharge,
for 2018, 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 and revenue
and miles from services in Mexico.
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 do not record an asset or
liability on our consolidated balance sheet, and the lease payments in respect of such equipment are reflected in our
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 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 capital leases
and operating leases with individual decisions being based on competitive bids, tax projections and contractual
restrictions. We expect our vehicle rents, depreciation and amortization and interest expense will be impacted by
35
changes in the percentage of our revenue equipment acquired through operating leases versus equipment owned or
acquired through capital leases. Because of the inverse relationship between vehicle rents and depreciation and
amortization, we review both line items together.
Approximately 25% of our total tractor fleet was operated by independent contractors at December 31, 2018.
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.
Use of Non-GAAP Financial Information
In addition to our net income and operating ratio determined in accordance with GAAP, we evaluate operating
performance using certain non-GAAP measures, including Adjusted Operating Ratio. We define Adjusted Operating
Ratio as operating expenses, net of fuel surcharge revenue, IPO related costs, impairment of assets held for sale and
gain or loss on fuel purchase arrangements, expressed as a percentage of revenue before fuel surcharge revenue. We
believe the use of Adjusted Operating Ratio allows us to more effectively compare periods, while excluding the
potentially volatile effect of changes in fuel prices (including with respect to our fuel purchase arrangements in prior
years). We focus on our Adjusted Operating Ratio as an indicator of our performance from period to period. We
believe our presentation of Adjusted Operating Ratio is useful because it provides investors and securities analysts the
same information that we use internally to assess our core operating performance.
The non-GAAP information provided is used by our management and may not be comparable to similar measures
disclosed by other companies, because of differing methods used by other companies in calculating Adjusted
Operating Ratio. The non-GAAP measures used herein have limitations as analytical tools, and you should not
consider them 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.
36
The table below compares our GAAP operating ratio to our non-GAAP Adjusted Operating Ratio.
Year Ended December 31,
2016
2017
2018
(dollars in thousands)
Consolidated GAAP Presentation
Total operating revenue
Total operating expenses
Operating Income
Operating ratio
Consolidated Non-GAAP Presentation(1)
Total operating revenue
Fuel Surcharge
Revenue, before fuel surcharge
Total operating expenses
Adjusted for:
Fuel Surcharge
IPO related costs
Impairment of assets held for sale
Fuel purchase arrangements
Adjusted total operating expenses
Adjusted Operating Income
Adjusted Operating Ratio
$1,804,915 $ 1,555,385 $ 1,451,205
1,726,009 1,526,777 1,423,474
27,731
$
98.1%
28,608 $
98.2%
78,906 $
95.6%
$1,804,915 $ 1,555,385 $ 1,451,205
(182,832) (138,212) (103,182)
1,622,083 1,417,173 1,348,023
1,726,009 1,526,777 1,423,474
–
–
(8,424)
(6,437)
(10,693)
–
(182,832) (138,212) (103,182)
–
–
(7,983)
1,526,047 1,380,141 1,312,309
35,714
$
97.4%
37,032 $
97.4%
96,036 $
94.1%
(1)
Adjusted Net Income and Adjusted Earnings Per Share are also non-GAAP financial measures presented in
this Annual Report. Please see the reconciliation of those measures on page 84 of this Annual Report.
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.
A summary of our revenue generated by type for the periods indicated is as follows:
Revenue, before fuel surcharge
Fuel surcharge
Total operating revenue
2018
Year Ended December 31,
2017
(in thousands)
$ 1,622,083 $ 1,417,173 $ 1,348,023
182,832 138,212 103,182
$ 1,804,915 $ 1,555,385 $ 1,451,205
2016
For 2018, our total operating revenue increased by $249.5 million, or 16.0%, compared to 2017, and our revenue,
before fuel surcharge increased by $204.9 million, or 14.5%. The primary factors driving the increases in total
operating revenue and revenue, before fuel surcharge, were improved pricing in each of our segments and increased
volumes in our Brokerage segment combined with increased fuel surcharge revenues. Based on our experience during
the beginning of 2019, we expect contract rates to increase between five to eight percent year-over-year from 2018
and to outpace cost inflation, absent changes in the macroeconomic environment.
37
For 2017, our total operating revenue increased by $104.2 million, or 7.2%, compared to 2016, and our revenue, before
fuel surcharge, increased by $69.2 million, or 5.1%. The primary factors driving the increases in total operating
revenue and revenue, before fuel surcharge, were increased fuel surcharge revenues combined with increased volumes
at our Brokerage segment and improved pricing in each of our segments.
A summary of our revenue generated by segment for the periods indicated is as follows:
Truckload revenue, before fuel surcharge
Fuel surcharge
Total Truckload operating revenue
Brokerage operating revenue
Total operating revenue
2018
2016
Year Ended December 31,
2017
(in thousands)
$ 1,379,266 $ 1,243,955 $ 1,198,392
182,832 138,212 103,182
1,562,098 1,382,167 1,301,574
173,218 149,631
$ 1,804,915 $ 1,555,385 $ 1,451,205
242,817
In 2018 and 2017, our operations in Mexico represented approximately 3% and 4%, respectively, of our revenue,
excluding fuel surcharge. In January 2019, we sold our interest in Xpress Internacional. Even following our sale of
Xpress Internacional, we expect to have business to and from Mexico through a more variable cost model using third
party carriers.
The following is a summary of our key Truckload segment performance indicators, before fuel surcharge and
excluding miles from services in Mexico, for the periods indicated. Average tractors, average company-owned tractors
and average independent contractor tractors exclude tractors in Mexico.
Year Ended December 31,
2018
2016
2017
OTR
Average revenue per tractor per week
Average revenue per loaded mile
Average revenue miles per tractor per week
Average tractors
Dedicated contract
Average revenue per tractor per week
Average revenue per loaded mile
Average revenue miles per tractor per week
Average tractors
Consolidated truckload
Average revenue per tractor per week
Average revenue per loaded mile
Average revenue miles per tractor per week
Average tractors
Average company-owned tractors
Average independent contractor tractors
$ 3,917 $ 3,500 $ 3,367
$ 2.041 $ 1.853 $ 1.792
1,879
3,863
1,919 1,889
3,562 3,788
$ 3,717 $ 3,598 $ 3,532
$ 2.259 $ 2.089 $ 2.086
1,693
2,322
1,645 1,723
2,701 2,440
$ 3,831 $ 3,539 $ 3,429
$ 2.127 $ 1.940 $ 1.895
1,809
6,185
5,361
824
1,801 1,824
6,263 6,228
4,880 5,434
794
1,383
For 2018, our Truckload revenue, before fuel surcharge increased by $135.3 million, or 10.9%, compared to 2017.
The primary factors driving the increase in Truckload revenue were a 9.6% increase in revenue per loaded mile due
to increased contract rates and increased pricing in the spot market compared to 2017, combined with consistent
average available tractors, due to a stronger freight environment and our continued focus on executing our operating
initiatives. Fuel surcharge revenue increased by $44.6 million, or 32.3%, to $182.8 million, compared with $138.2
million in 2017. The DOE national weekly average fuel price per gallon averaged approximately $0.525 per gallon
higher in the year ended December 31, 2018 compared to 2017. The increase in fuel surcharge revenue relates to the
increased fuel prices compared to 2017.
For 2017, our Truckload revenue, before fuel surcharge increased by $45.6 million, or 3.8%, compared to 2016. The
primary factors driving the increase in Truckload revenue were a 2.4% increase in revenue per loaded mile, combined
with a slight increase in average revenue miles per tractor and average available tractors, due to a stronger freight
environment and our operating improvements. During mid-2017, the freight market began improving from its 2016
and early 2017 state and strengthened throughout the remainder of the year and into 2018. Fuel surcharge revenue
increased by $35.0 million, or 33.9%, to $138.2 million, compared with $103.2 million in 2016. The DOE national
weekly average fuel price per gallon averaged approximately $0.352 per gallon higher in 2017 compared with 2016.
38
The increase in fuel surcharge revenue relates to the increased fuel prices combined with an approximate 1.3% increase
in revenue miles compared with 2016.
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 years ended December 31, 2018, 2017, and 2016.
Gross margin percentage
Year Ended December 31,
2018 2017 2016
13.5% 13.9 %
13.4%
For 2018, our Brokerage revenue increased by $69.6 million, or 40.2%, compared to 2017. The primary factors driving
the increase in Brokerage revenue were a 13.5% increase in load count combined with a 23.5% increase in average
revenue per load. Average revenue per load improved due to stronger pricing and higher fuel prices.
For 2017, our Brokerage revenue increased by $23.6 million, or 15.8%. The primary factors driving the increase in
Brokerage revenue were a 9.4% increase in load count combined with a 5.6% increase in average revenue per load.
Average revenue per load improved due to a stronger freight market and higher fuel prices.
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. Expense line items relating to
fuel costs are also affected by the fuel purchase arrangements that were in place through December 31, 2017. We
believe that our fuel surcharge program adequately protects us from risks relating to fluctuating fuel prices, and
accordingly, we terminated all fuel purchase arrangements as of December 31, 2017, and do not expect to enter into
fuel purchase arrangements in the near term.
Salaries, Wages, and Related Expenses
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 periods indicated:
Year Ended December 31,
2017
2018
2016
Salaries, wages and benefits
% of total operating revenue
% of revenue, before fuel surcharge
(dollars in thousands)
$535,994 $543,735 $510,599
35.2%
37.9%
35.0%
38.4%
29.7%
33.0%
For 2018, salaries, wages and benefits decreased $7.7 million, or 1.4%, compared with 2017. This decrease in absolute
dollar terms was due primarily to $13.1 million lower driver wages as our company driver miles decreased 11.4% as
compared to 2017, a $4.0 million gain on life insurance offset by compensation expense related to the payout of our
stock appreciation rights (“SARs”) and IPO bonuses totaling $6.4 million. During 2018, our group health and workers’
compensation expense decreased 12.6% due in part to positive trends in both group health and workers’ compensation
claims combined with decreased driver headcount. Our OTR driver pay on a per mile basis increased as a result of
higher utilization and incentive-based pay as compared to 2017. 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.
39
For 2017, salaries, wages and benefits increased $33.1 million, or 6.5%, compared with 2016. This increase in absolute
dollar terms was primarily due to increased driver wages associated with a 6.8% increase in dedicated contract
revenue, driver pay increases in our OTR service offering combined with a 26.7% increase in workers' compensation
and group health claims compared to 2016. Nondriver payroll increased 6.6% due in part to merit increases during the
second half of 2016.
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. Additionally, in the years ended December
31, 2017 and 2016, our fuel expense included approximately $8.4 million and $8.0 million, respectively, in net losses
under fuel purchase arrangements. These arrangements were terminated as of December 31, 2017. We believe our
fuel surcharge program adequately protects us from risks relating to fluctuating fuel prices. We do not expect to enter
into fuel purchase arrangements in the near term.
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 periods indicated:
Fuel and fuel taxes
% of total operating revenue
2018
Year Ended December 31,
2017
(dollars in thousands)
$ 227,525 $ 219,515 $ 186,257
12.8%
14.1%
12.6%
2016
For 2018, fuel and fuel taxes increased $8.0 million, or 3.7%, compared with 2017. The increase in fuel and fuel taxes
was primarily the result of an increase in diesel fuel prices compared with 2017, partially offset by decreased company
driver miles. The average DOE fuel price per gallon increased 19.6% to $3.18 per gallon in 2018 compared with 2017.
For 2017, fuel and fuel taxes increased $33.3 million, or 17.9%, compared with 2016. The increase in fuel and fuel
taxes was primarily the result of an increase in diesel fuel prices compared with 2016, partially offset by a 1.0%
improvement in miles per gallon associated with our investments in a more fuel-efficient fleet. The average DOE fuel
price per gallon increased 15.3% to $2.66 per gallon in 2017 compared with 2016.
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) and gain or loss on fuel purchase arrangements 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:
Total fuel surcharge revenue
Less: fuel surcharge revenue reimbursed to independent contractors
Company fuel surcharge revenue
Total fuel and fuel taxes
Less: company fuel surcharge revenue
Less: fuel purchase arrangements
Net fuel expense
% of total operating revenue
% of revenue, before fuel surcharge
2016
2018
41,898
Year Ended December 31,
2017
(dollars in thousands)
$ 182,832 $ 138,212 $ 103,182
14,928
19,877
88,254
$ 140,934 $ 118,335 $
$ 227,525 $ 219,515 $ 186,257
88,254
140,934 118,335
7,983
8,424
90,020
92,756 $
6.0%
6.2%
6.7%
6.5%
—
86,591 $
4.8%
5.3%
$
For 2018, net fuel expense decreased $6.2 million, or 6.6%, compared with 2017. The decrease in net fuel expense
was primarily due to the 11.4% decrease in company driver miles as compared to 2017. During 2018, our independent
40
contractors comprised 22.1% of our average total tractor fleet compared to 12.7% in 2017. 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).
For 2017, net fuel expense increased $2.7 million, or 3.0%, compared with 2016. The increase in net fuel expense was
primarily the result of an increase in diesel fuel prices compared with 2016, partially offset by a 1.0% improvement
in miles per gallon associated with our investments in a more fuel-efficient fleet. The average DOE fuel price per
gallon increased 15.3% to $2.66 per gallon in 2017 compared with 2016 and was largely offset by increases in fuel
surcharge revenues.
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 capital leases versus equipment
leased through operating leases. We use a mix of capital 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 capital 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 capital 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 periods indicated:
2018
Year Ended December 31,
2017
(dollars in thousands)
2016
Vehicle rents
Depreciation and amortization, net of (gains) losses on sale of property
Vehicle rents and depreciation and amortization, net of (gains) losses on
$
78,639 $
97,954
74,377 $ 109,466
71,597
93,369
sale of property
% of total operating revenue
% of revenue, before fuel surcharge
Average tractors owned as % of total company fleet
Average trailers owned as % of total company fleet
$ 176,593 $ 167,746 $ 181,063
12.5%
13.4%
27.8%
78.4%
10.8%
11.8%
61.4%
71.8%
9.8%
10.9%
64.9%
62.5%
For 2018, vehicle rents increased $4.3 million, or 5.7%, compared with 2017. The increase in vehicle rents was
primarily due to increased trailers financed under operating leases combined with the higher cost of new trailers
partially offset by decreased tractors financed under operating leases. Depreciation and amortization, net of (gains)
losses on sale of property, increased $4.6 million, or 4.9%, compared with 2017. This increase was primarily due to
an increase in loss on sale of equipment of $5.1 million compared to 2017. During 2019, we currently plan to replace
owned tractors with new owned tractors as they reach approximately 475,000 miles. Additionally, we expect to replace
our tractor lease maturities with a mix of owned and leased replacements as we convert a portion of our leased tractors
to owned. As a result of our 2019 replacement cycle, we expect our average age to decline to approximately 1.5 years
as we exit the year. Our mix of owned and leased equipment may vary over time due to tax treatment, financing
options and flexibility of terms, among other factors.
For 2017, vehicle rents decreased $35.1 million, or 32.1%, compared with 2016. The decrease in vehicle rents was
primarily due to the conversion of approximately 2,700 tractors from leased to secured financing in March 2017,
partially offset by an increase in the number of trailers financed under operating leases and the higher cost of new
41
trailers. Depreciation and amortization, net of (gains) losses on sale of property, increased $21.8 million, or 30.4%,
compared with 2016. This increase was primarily due to the refinancing of approximately 2,700 tractors originally
financed under operating leases to long-term debt financing. In conjunction with this refinancing, we took ownership
of tractors with an acquisition value of approximately $250.8 million and subsequently recorded them as additions to
property and equipment. As a result of the transaction, we experienced reduced vehicle rents, offset by increased
tractor depreciation and interest expense. The replacement notes have similar monthly payments as the original
operating leases and are not expected to materially change our future cash obligations.
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 periods indicated:
Purchased transportation
% of total operating revenue
% of revenue, before fuel surcharge
2018
Year Ended December 31,
2017
(dollars in thousands)
$ 481,945 $ 308,624 $ 275,691
19.0%
20.5%
19.8%
21.8%
26.7%
29.7%
2016
For 2018, purchased transportation increased $173.3 million, or 56.2%, compared with 2017. The increase in
purchased transportation was primarily due to the 74.2 % increase in average independent contractors, the $69.6
million increase in Brokerage revenue and $22.0 million in additional fuel surcharge reimbursement to independent
contractors compared to 2017.
For 2017, purchased transportation increased $32.9 million, or 11.9%, compared with 2016. The increase in purchased
transportation was primarily due to the $23.6 million increase in Brokerage revenue and $4.9 million in additional
fuel surcharge reimbursement to independent contractors combined with a 2.9% increase in average independent
contractors compared to 2016.
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:
Purchased transportation
Less: fuel surcharge revenue reimbursed to independent contractors
Purchased transportation, net of fuel surcharge reimbursement
% of total operating revenue
% of revenue, before fuel surcharge
2016
2018
Year Ended December 31,
2017
(dollars in thousands)
$ 481,945 $ 308,624 $ 275,691
14,928
$ 440,047 $ 288,747 $ 260,763
18.0%
19.3%
24.4%
27.1%
18.6%
20.4%
19,877
41,898
For 2018, purchased transportation, net of fuel surcharge reimbursement, increased $151.3 million, or 52.4%,
compared with 2017. The increase in purchased transportation was primarily due to the 74.2% increase in average
independent contractors combined with the $69.6 million increase in Brokerage revenue compared to 2017. This
expense category will fluctuate with the number and percentage of loads hauled by independent contractors and third-
party carriers, as well as the amount of fuel surcharge revenue passed through to independent contractors. 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 and recruit independent contractors.
Our recent success in growing our lease-purchase program and independent contractor drivers have contributed to
increased purchased transportation expense. If we are successful in continuing these efforts, we would expect this line
item to increase as a percentage of total operating revenue and revenue, before fuel surcharge.
42
For 2017, purchased transportation, net of fuel surcharge reimbursement, increased $28.0 million, or 10.7%, compared
with 2016. The increase in purchased transportation was primarily due to the $23.6 million increase in Brokerage
revenue combined with a 2.9% increase in average independent contractors compared to 2016.
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
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 periods indicated:
Operating expenses and supplies
% of total operating revenue
% of revenue, before fuel surcharge
2018
Year Ended December 31,
2017
(dollars in thousands)
$ 118,064 $ 126,700 $ 124,102
8.6%
9.2%
6.5%
7.3%
8.1%
8.9%
2016
For 2018, operating expenses and supplies decreased by $8.6 million, or 6.8%, compared with 2017. This decrease
was attributable primarily to decreased trailer maintenance expense as the average age has declined by 10 months
from the average age at December 31, 2017, combined with a reduction in tractor maintenance expense as a result of
increased independent contractors compared to 2017. Independent contractors accounted for 22.1% of the total
average tractors compared to 12.7% in the prior year. Our tractor age at December 31, 2018 increased by
approximately 4 months compared to 2017. Generally, as equipment ages, the maintenance costs increase on a per-
mile basis.
For 2017, operating expenses and supplies increased by $2.6 million, or 2.1%, compared with 2016. This increase was
attributable primarily to increased driver hiring costs offset by decreased maintenance and tire expenses related to
successful implementation of proactive internal maintenance initiatives, despite the impact of an increased fleet age.
During 2017, our tractor maintenance cost per mile remained constant despite the average tractor fleet age increasing
eight months, due in part to our preventive maintenance initiatives.
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. We renewed our liability insurance policies on September 1, 2018 and reduced our deductible to $3.0
million per occurrence.
The following is a summary of our insurance premiums and claims expense for the periods indicated:
2018
Year Ended December 31,
2017
(dollars in thousands)
2016
Insurance premiums and claims
% of total operating revenue
% of revenue, before fuel surcharge
$
85,075 $
4.7%
5.2%
77,430 $
5.0%
5.5%
69,722
4.8%
5.2%
For 2018, insurance premiums and claims increased by $7.6 million, or 9.9%, compared with 2017. The increase in
insurance and claims was primarily due to increased severity of liability claims combined with increased frequency
of physical damage claims compared to 2017. During the fourth quarter of 2017, we began installing event recorders
on our tractors, and we had installed event recorders in substantially all of our tractors in our fleet as of the second
quarter of 2018. We believe event recorders will give us the ability to better train our drivers with respect to safe
driving behavior, which in turn may help reduce insurance costs over time. We expect to begin seeing measurable
results from the event recorder installation in the second half of 2019.
43
For 2017, insurance premiums and claims increased by $7.7 million, or 11.1%, compared with 2016. The increase in
insurance and claims was primarily due to increased frequency of physical damage claims combined with increased
auto liability insurance premiums. Our auto liability premiums increased approximately $2.3 million for the policy
year beginning September 1, 2016 and increased an additional $0.2 million for the policy year beginning September
1, 2017. The insurance market for excess liability coverage tightened during 2016 as one of the larger domestic
insurance carriers exited the market.
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:
2018
Year Ended December 31,
2017
(dollars in thousands)
2016
General and other operating expenses
% of total operating revenue
% of revenue, before fuel surcharge
$
66,412 $
3.7%
4.1%
61,575 $
4.0%
4.3%
54,004
3.7%
4.0%
For 2018, general and other operating expenses increased by $4.8 million, or 7.9%, compared with 2017, primarily
due to approximately $2.6 million of costs related to our IPO, increased professional and administrative expenses and
higher driver hiring related costs. Excluding the impact of IPO-related expenses, we expect general and other operating
expenses to increase in the future due in part to higher driver recruiting costs related to continued tightening of the
driver market.
For 2017, general and other operating expenses increased by 14.0% compared with 2016, due in part to a settlement
related to a class action lawsuit, combined with increased legal and professional expenses along with higher driver
hiring related costs.
Impairment of Assets Held for Sale and Equity Method Investments
In January 2019, we sold our 95% ownership of Xpress Internacional for approximately $4.5 million in cash and an
additional estimated $8.5 million in cash, $6.0 million of which will be received over 8.5 years. As a result of the
disposition, we incurred an impairment charge of $10.7 million during 2018. In addition to the disposition of Xpress
Internacional, we disposed of our south of the border equity method investments in Dylka Distribuciones Logisti-K,
S.A. de C.V. and XPS Logisti-K Systems, S.A.P.I. de C.V. and recorded an impairment charge of $0.9 million in
2018. Our residual 10% investment plus preferred stock in XGS was extinguished in December 2018 and we recorded
an impairment charge of $0.9 million.
Interest
Interest expense consists of cash interest, amortization of original issuance discount and deferred financing fees and
purchase commitment interest related to our obligation to acquire the remaining equity interest in Xpress Internacional.
In January 2019, we sold our equity interest in Xpress Internacional and were relieved of this obligation.
The following is a summary of our interest expense for the periods indicated:
Interest expense, excluding non-cash items
Original issue discount and deferred financing amortization
Purchase commitment interest
Interest expense, net
$
$
2016
2018
Year Ended December 31,
2017
(in thousands)
46,665 $
3,791
(698)
49,758 $
33,330 $
1,728
(192)
34,866 $
41,778
5,517
883
48,178
For 2018, interest expense decreased $14.9 million compared to the same period in 2017, primarily due to decreased
equipment and revolver borrowings combined with lower interest rates related to our term loan compared to 2017.
Based on the repayment of our prior credit arrangements in connection with the IPO, along with the entry into our
44
existing Credit Facility, we expect our interest expense will continue to be lower on a period-over-period basis in the
near term.
During 2017, interest expense increased $4.9 million, primarily due to the conversion of approximately 2,700 tractors
from operating leases to secured financing in March 2017.
Overview
LIQUIDITY AND CAPITAL RESOURCES
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, operating leases and proceeds from equipment sales.
We make substantial net capital expenditures to maintain a modern company tractor fleet, refresh our trailer fleet and
strategically expand our fleet. During 2019, we currently plan to replace owned tractors with new owned tractors as
they reach approximately 475,000 miles. Additionally, we expect to replace our tractor lease maturities with a mix of
owned and leased replacements as we convert a portion of our leased tractors to owned. As a result of our 2019
replacement cycle, we expect the average age of our tractor fleet to decline to approximately 1.5 years as we exit the
year. Our mix of owned and leased equipment may vary over time due to tax treatment, financing options and
flexibility of terms, among other factors.
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 or as debt on our balance sheet. See “—Off-Balance Sheet Arrangements.” 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
In June 2018, we entered our Credit Facility that contains the $150.0 million Revolving Facility and the $200.0 million
Term Facility. The Credit Facility contains an accordion feature that, so long as no event of default exists, allows us
to request an increase in the borrowing amounts under the Revolving Facility or the Term Facility by a combined
maximum amount of $75.0 million. 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 agent’s prime rate plus an applicable
margin that was set at 1.25% through September 30, 2018 and adjusted quarterly thereafter between 0.75% and 1.50%
based on our consolidated net leverage ratio. Eurodollar rate loans will accrue interest at London Interbank Offered
Rate, or a comparable or successor rate approved by the administrative agent, plus an applicable margin that was set
at 2.25% through September 30, 2018 and adjusted quarterly thereafter between 1.75% and 2.50% based on our
consolidated net leverage ratio. The Credit Facility requires payment of a commitment fee on the unused portion of
the Revolving Facility commitment of between 0.25% and 0.35% based on our consolidated net leverage ratio. In
addition, the Revolving Facility includes, within its $150.0 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 $15.0 million.
The Term Facility has scheduled quarterly principal payments between 1.25% and 2.50% of the original face amount
of the Term Facility plus any additional amount borrowed pursuant to the accordion feature of the Term Facility, with
the first such payment being made on the last day of our fiscal quarter ending September 30, 2018. The Credit Facility
will mature on June 18, 2023.
Borrowings under the Credit Facility are prepayable at any time without premium and are subject to mandatory
prepayment from the net proceeds of certain asset sales and other borrowings. The Credit Facility is secured by a
pledge of substantially all of our assets, excluding, among other things, certain real estate and revenue equipment
financed outside the Credit Facility.
45
The Credit Facility contains restrictive covenants including, among other things, restrictions on our ability to incur
additional indebtedness or issue guarantees, to create liens on our assets, to make distributions on or redeem equity
interests, to make investments, to transfer or sell properties or other assets and to engage in mergers, consolidations,
or acquisitions. In addition, the Credit Facility requires us to meet specified financial ratios and tests.
At December 31, 2018, the Revolving Facility had issued collateralized letters of credit in the face amount of $31.7
million, with $0 million borrowings outstanding and $118.3 million available to borrow.
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. At December 31, 2018, the Company was in
compliance with all financial covenants prescribed by the Credit Facility.
See Notes 10 and 11 to the accompanying consolidated financial statements for additional disclosures regarding our
debt and leases.
Cash Flows
Our summary statements of cash flows for the periods indicated are set forth in the table below:
Net cash provided by operating activities
Net cash used by investing activities
Net cash provided by (used in) financing activities
Operating Activities
2018
Year Ended December 31,
2017
(in thousands)
85,394 $
(166,089) (211,211)
66,186 131,771
$ 112,347 $
2016
76,989
(11,347)
(64,707)
For 2018, we generated cash flows from operating activities of $112.3 million, an increase of $27.0 million compared
to 2017. The increase was due primarily to a $76.9 million increase in net income adjusted for noncash items, partially
offset by a $41.0 million increase in the change in our operating assets and liabilities combined with $9.0 million of
paid in kind interest. The increase in net income adjusted for noncash items was primarily attributable to a 9.6%
increase in revenue per loaded mile, increased volumes, overall improved operating performance and lower interest
expense in 2018 as compared to 2017, partially offset by increased operating expenses and general and other corporate
expenses. Our operating assets and liabilities increased $41.0 million during 2018 as compared to 2017, due in part to
a decrease in accounts payable and other accrued liabilities related to timing of payments, increased accounts
receivable related to increased operating revenue and increased prepaid insurance and licenses due to auto liability
prepaid premiums.
For 2017, we generated cash flows from operating activities of $85.4 million, an increase of $8.4 million compared to
2016. The increase was due to a $19.5 million increase in net income adjusted for noncash items, offset by an $11.1
million increase in our operating assets and liabilities. The increase in net income adjusted for noncash items was
primarily attributable to improved operating performance during 2017 as compared to 2016, especially during the
fourth quarter. Most notably, revenue, before fuel surcharge, grew $69.2 million, or 5.1%, year over year, due to rate
and volume increases as our business strengthened. Our operating assets and liabilities increased $11.1 million,
primarily due to a $45.2 million increase in accounts receivable related to increased operating revenue for the quarter
ended December 31, 2017 as compared to the same quarter in 2016, partially offset by a $31.6 million increase in
accounts payable also attributable to increased operations and due to the timing of payments.
Investing Activities
For 2018, net cash flows used in investing activities were $166.1 million, a decrease of $45.1 million compared to
2017. This decrease is primarily the result of decreased equipment purchases as compared to the same period in 2017.
During the first quarter of 2017, we converted approximately 2,700 tractors under operating leases to secured
financing. We expect our capital expenditures for calendar year 2019 will approximate $170.0 million to $190.0
million and will be funded with cash from operations and secured debt. Approximately $45.0 million of the expected
total capital expenditures relates to replacing leased equipment with owned equipment.
For 2017, net cash flows used in investing activities were $211.2 million, an increase of $199.9 million compared with
2016. This increase is primarily the result of our conversion of approximately 2,400 tractors financed with operating
leases to secured financing classified as cash purchases.
46
Financing Activities
For 2018, net cash flows generated by financing activities were $66.2 million, a decrease of $65.6 million compared
to 2017. The decrease is partially due to decreased revenue equipment borrowings as compared to 2017. During the
first quarter of 2017, we converted approximately 2,700 tractors under operating leases to secured financing. In
addition, during June 2018, we completed our IPO and received approximately $246.6 million in cash net of expenses.
The proceeds from the IPO were primarily used to pay down existing debt resulting in a net decrease of approximately
$236.2 million.
For 2017, net cash flows provided by financing activities were $131.8 million, an increase of $196.5 million compared
with 2016. The increase in inflows resulted from the conversion of revenue equipment operating leases to secured
financing.
Working Capital
As of December 31, 2018, we had a working capital surplus of $21.3 million, representing a $71.0 million increase in
our working capital from December 31, 2017, primarily resulting from increased customer receivables combined with
decreased accounts payable, offset by increased accrued wages and benefits. 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 December 31, 2018, we had a working capital
surplus of $83.3 million, compared with a working capital deficit of $23.8 million at December 31, 2017.
As of December 31, 2017 and 2016, we had a working capital deficit of $49.8 million and surplus of $19.1 million,
respectively. Excluding balloon payments and the lease conversion transaction included in the current maturities of
long-term debt as of December 31, 2017 and 2016, we had a working capital surplus of $28.1 million and $30.3
million, respectively.
Working capital deficits are common to many trucking companies that operate by financing revenue equipment
purchases through borrowing or capitalized leases. When we finance revenue equipment through borrowing or
capitalized leases, the principal amortization scheduled for the next twelve months is categorized as a current liability,
although the revenue equipment is classified as a long-term asset. Consequently, each purchase of revenue equipment
financed with borrowing or capitalized leases 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.
Contractual Obligations and Commercial Commitments
The table below summarizes our contractual obligations as of December 31, 2018:
Less than
1 year
1-3
years
Payments Due by Period
3-5
years
(in thousands)
More than
5 years
Total
Long-term debt obligations(1)
Capital lease obligations(2)
Operating lease obligations(3)
Purchase obligations(4)
Other obligations(5)
Total contractual obligations(6)
$ 123,525 $
7,801
60,303
162,850
1,103
81,527 $ 241,559 $
2,853
11,650
36,635
77,934
—
—
—
2,815
$ 355,582 $ 173,926 $ 281,047 $
297
22,196 $ 468,807
22,601
14,080 188,952
— 162,850
3,918
—
36,573 $ 847,128
(1)
(2)
(3)
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 December 31, 2018.
Including interest obligations on capital lease obligations.
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 October 2027. 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,
47
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 $28.2 million
at December 31, 2018. 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.
We had commitments outstanding at December 31, 2018 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.
Represents a commitment to purchase remaining 5% interest in Xpress Internacional in 2020, based on
projected earnings calculation and to fund the remaining purchase price of a small truckload carrier we
acquired in 2017. In January 2019, we sold our interest in Xpress Internacional and the related put
commitment was extinguished and is reflected in long term liabilities related to assets held for sale in our
consolidated balance sheets.
(4)
(5)
(6)
Excludes deferred taxes and long or short-term portion of self-insurance claims accruals.
Off-Balance Sheet Arrangements
We leased approximately 2,121 tractors and 6,360 trailers under operating leases at December 31, 2018. Operating
leases have been an important source of financing for our revenue equipment. Tractors and trailers held under
operating leases are not carried on our consolidated balance sheets, and lease payments in respect of such equipment
are reflected in our consolidated statements of operations in the line item “Vehicle rents.” Our revenue equipment
rental expense was $78.6 million in 2018, compared with $74.4 million in 2017. The total amount of remaining
payments under operating leases as of December 31, 2018 was approximately $189.0 million, of which $181.8 million
was related to revenue equipment. The lease terms 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 $28.2 million as of December 31, 2018. The
residual value of a portion of the related leased tractor equipment is covered by repurchase or trade agreements
between us and equipment manufacturers. We expect the fair market value of the equipment at the end of the lease
term will be approximately equal to the residual value.
INFLATION
Inflation in the price of revenue equipment, tires, diesel fuel, health care, operating tolls and taxes and other items has
impacted our operating costs over the past several years. A prolonged or more severe period of inflation in these or
other items would adversely affect our results of operations unless freight rates correspondingly increase. Historically,
the majority of the increase in fuel costs has been passed on to our customers through a corresponding increase in fuel
surcharge revenue, making the impact of the increased fuel costs on our results of operations less severe. Inflation
related to other costs is not directly covered from our customers through a surcharge mechanism. Because these
potential cost increases would be relatively consistent across the industry, we would expect corresponding rate
increases generally to offset these increased costs over time. If these and other costs escalate and we are unable to
recover such costs timely with effective fuel surcharges and rate increases, it would have an adverse effect on our
operations and profitability.
CRITICAL ACCOUNTING POLICIES
In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of
results of operations and financial position in the preparation of our financial statements in conformity with GAAP.
Actual results could differ significantly from those estimates under different assumptions and conditions. We believe
that the following discussion addresses our most critical accounting policies, which are those that are most important
to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective
and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently
uncertain.
Recognition of Revenue
We adopted ASU 2014-09 effective January 1, 2018 by using the modified retrospective transition approach and
recognizing the cumulative effect of the change in retained earnings for all contracts. The primary impact of adopting
Accounting Standards Codification (“ASC”) 606 is the earlier recognition of revenue for loads that are in route as of
48
the balance sheet date. Under previous GAAP, we recognized revenue and direct costs when shipments were delivered.
Under ASC 606, we are required to recognize revenue and related direct costs over time as the shipment is being
delivered. The adoption of ASC 606 resulted in a positive cumulative adjustment to opening equity of approximately
$1.5 million.
We generate revenues primarily from shipments executed by our Truckload and Brokerage operations. Those
shipments are our performance obligations, arising under contracts we have entered into with customers. Under the
terms of a contract, revenue is recognized when obligations are satisfied, which occurs over time with the transit of
shipments from origin to destination. Fuel, driver wages and purchased transportation are similarly accrued over time.
This is appropriate as the customer simultaneously receives and consumes the benefits as we perform our obligation.
Revenue is measured as the amount of consideration we expect to receive in exchange for providing services. The
most significant judgment used in recognition of revenue is the determination of percent of total miles to be driven
for a completed trip as the basis for determining the amount of revenue to be recognized for partially fulfilled
obligations. Accessorial charges for fuel surcharge, loading and unloading, stop charges, and other immaterial charges
are part of the consideration we receive for the single performance obligation of delivering shipments. Contracts
entered into with our customers do not contain material financing components.
Certain incremental revenue-related costs associated with obtaining a contract are capitalized. The majority of revenue
contracts with our customers have a duration of one year or less and do not require any significant start-up costs, and
as such, costs incurred to obtain contracts associated with these contracts are expensed as incurred. For contracts with
durations exceeding one year, incremental start-up costs are capitalized and amortized on a straight line basis over the
contract period which materially represents the period of revenue generation. Capitalized start-up costs are immaterial
to us for all periods presented.
Through our Brokerage operations, we outsource the transportation of the loads to third-party carriers. We are a
principal in these arrangements, and therefore records revenue associated with these contracts on a gross basis. We
have the primary responsibility to meet the customer’s requirements. We invoice and collect from our customers and
also maintain discretion over pricing. Additionally, we are responsible for selection of third-party transportation
providers to the extent used to satisfy customer freight requirements.
Income Taxes
Significant management judgment is required in determining our provision for income taxes and in determining
whether deferred tax assets will be realized in full or in part. Deferred tax assets and liabilities are measured using
enacted tax rates that are expected to apply to taxable income in years in which the temporary differences are expected
to be recovered or settled. When it is more likely than not that all or some portion of specific deferred tax assets, such
as state tax credit carry-forwards or state net operating loss carry-forwards will not be realized, a valuation allowance
must be established for the amount of the deferred tax assets that are determined to be not realizable.
The determination of the combined tax rate used to calculate our provision for income taxes for both current and
deferred income taxes also requires significant judgment by management. We value the net deferred tax asset or
liability by using enacted tax rates that we believe will be in effect when these temporary differences are recovered or
settled. We use the combined tax rates at the time the financial statements are prepared since more accurate information
is not available. If changes in the federal statutory rate or significant changes in the statutory state and local tax rates
occur prior to or during the reversal of these items or if our filing obligations were to change materially, this could
change the combined rate and, by extension, our provision for income taxes. We account for uncertain tax positions
in accordance with ASC 740, Income Taxes and record a liability when such uncertainties meet the more likely than
not recognition threshold.
Property and Equipment
Property and equipment are carried at cost. Depreciation of property and equipment is computed using the straight-line
method for financial reporting purposes and accelerated methods for tax purposes over the estimated useful lives of
the related assets (net of estimated salvage value or trade-in value). We generally use estimated useful lives of three
to five years for tractors and 10 or more years for trailers with estimated salvage values ranging from 25% to 50% of
the capitalized cost. The depreciable lives of our revenue equipment represent the estimated usage period of the
equipment, which is generally substantially less than the economic lives. The residual value of a substantial portion
of our equipment is covered by repurchase or trade agreements between us and the equipment manufacturer.
Periodically, we evaluate the useful lives and salvage values of our revenue equipment and other long-lived assets
based upon, but not limited to, our experience with similar assets including gains or losses upon dispositions of such
assets, conditions in the used equipment market and prevailing industry practices. Changes in useful lives or salvage
49
value estimates, or fluctuations in market values that are not reflected in our estimates, could have a material impact
on our financial results. Further, if our equipment manufacturer does not perform under the terms of the agreements
for guaranteed trade-in values, such non-performance could have a materially negative impact on financial results.
We review our property and equipment whenever events or circumstances indicate the carrying amount of the asset
may not be recoverable. An impairment loss equal to the excess of carrying amount over fair value would be
recognized if the carrying amount of the asset is not recoverable.
Goodwill and Other Intangible Assets
When testing for goodwill impairment, we first assess qualitative factors to determine whether it is necessary to
perform the two-step quantitative goodwill impairment test. We are not required to calculate the fair value of a
reporting unit unless we determine, based on the qualitative review, that it is more likely than not that its fair value is
less than its carrying amount. Current guidance includes events and circumstances for us to consider when conducting
the qualitative assessment. In the fourth quarter of 2018, we evaluated goodwill using the qualitative factors prescribed
to determine whether to perform the two-step quantitative goodwill impairment test. The assessment of qualitative
factors requires judgment, including identification of reporting units, evaluation of macroeconomic conditions,
analysis of industry and market conditions, measurement of cost factors and identification of entity-specific events
(such as financial performance).
In evaluating these qualitative factors, we determined that it was necessary to perform the quantitative goodwill
impairment test, due to the decline in our stock price. The quantitative analysis showed that the fair value of our
Truckload reporting unit is greater than its carrying amount. Therefore, the second step of the quantitative test was not
necessary.
Trade names are valued based on various factors including the projected revenue stream associated with the intangible
asset. The Company’s trade names have an indefinite life. In 2013, we adopted ASU 2012-02, Testing Indefinite-Lived
Intangible Assets for Impairment, which allows companies to waive comparing the fair value of indefinite-lived
intangible assets to their carrying amounts in assessing the recoverability of these assets if, based on qualitative factors,
it is more likely than not that the fair value of the indefinite-lived intangible assets is greater than their carrying
amounts. In the fourth quarter of 2018, the Company performed the qualitative assessment of its indefinite-lived
intangible assets and concluded it was more likely than not that the fair value of each of the assets is greater than its
carrying amount. Therefore, the Company concluded it was not necessary to perform the quantitative impairment test.
Claims and Insurance Accruals
Claims and insurance accruals consist of estimates of cargo loss, physical damage, group health, liability (personal
injury and property damage) and workers’ compensation claims and associated legal and other expenses within our
established retention levels. Claims in excess of retention levels are generally covered by insurance in amounts we
consider adequate. Claims accruals represent the uninsured portion of pending claims including estimates of adverse
development of known claims, plus an estimated liability for incurred but not reported claims and the associated
expense. Accruals for cargo loss, physical damage, group health, liability and workers’ compensation claims are
estimated based on our evaluation of the type and severity of individual claims and historical information, primarily
our own claims experience, along with assumptions about future events combined with the assistance of independent
actuaries in the case of workers’ compensation and liability. Changes in assumptions as well as changes in actual
experience could cause these estimates to change in the near future.
Workers’ compensation and liability claims are particularly subject to a significant degree of uncertainty due to the
potential for growth and development of the claims over time. Claims and insurance reserves related to workers’
compensation and liability are estimated by a third-party actuary and we refer to these estimates in establishing the
reserve. Liability reserves are estimated based on historical experience and trends, the type and severity of individual
claims and assumptions about future costs. Further, in establishing the workers’ compensation and liability reserves,
we must take into account and estimate various factors, including, but not limited to, assumptions concerning the
nature and severity of the claim, the effect of the jurisdiction on any award or settlement, the length of time until
ultimate resolution, inflation rates in health care and in general, interest rates, legal expenses and other factors. Our
actual experience may be different than our estimates, sometimes significantly. Changes in assumptions made in
actuarial studies could potentially have a material effect on the provision for workers’ compensation and liability
claims. Additionally, if any claim were to exceed our coverage limits, we would have to accrue for and pay the excess
amount, which could have a material adverse effect on our financial condition, results of operations and cash flows.
50
Lease Accounting and Off-Balance Sheet Transactions
We are liable for residual value guarantees in connection with certain of our operating leases of certain revenue
equipment. If we do not purchase this leased equipment from the lessor at the end of the lease term, we are liable to
the lessor for an amount equal to the shortage (if any) between the proceeds from the sale of the equipment and an
agreed value up to a maximum shortfall per unit. For certain of these tractors, we have residual value agreements from
manufacturers at amounts sufficient to satisfy our residual obligation to the lessors. For all other equipment (or to the
extent we believe any manufacturer will refuse or be unable to meet its obligation), we are required to recognize
additional rental expense to the extent we believe the fair market value at the lease termination will be less than our
obligation to the lessor. We believe that proceeds from the sale of equipment under operating leases would exceed the
payment obligation on substantially all operating leases. The estimated values at lease termination involve
management judgments.
Recent Accounting Pronouncements
See Note 2 of the accompanying consolidated financial statements for information about recent accounting
pronouncements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk is affected by changes in interest rates. Historically, we have used a combination of fixed rate and
variable rate obligations to manage our interest rate exposure. Fixed rate obligations expose us to the risk that interest
rates might fall. Variable rate obligations expose us to the risk that interest rates might rise. We currently do not have
any interest rate swaps although we may enter into such swaps in the future.
We are exposed to variable interest rate risk principally from our Credit Facility. We are exposed to fixed interest rate
risk principally from equipment notes and mortgages. At December 31, 2018, we had net borrowings totaling $425.9
million comprised of $195.0 million of variable rate borrowings and $230.9 million of fixed rate borrowings.
Accordingly, holding other variables constant (including borrowing levels), the earnings impact of a one-percentage
point increase/decrease in interest rates would not have a significant impact on our consolidated financial statements.
Fuel is one of our largest expenditures. The price and availability of diesel fuel fluctuate due to changes in production,
seasonality and other market factors generally outside our control. Most of our customer contracts contain fuel
surcharge provisions to mitigate increases in the cost of fuel. Fuel surcharges to customers do not fully recover all fuel
increases because customers generally pay surcharges on a mileage basis and therefore do not generally pay for fuel
consumed while traveling out-of-route or non-revenue generating miles, while the tractor is idling and in certain other
instances. We believe that our fuel surcharge program adequately protects us from risks relating to fluctuating fuel
prices, and accordingly, we terminated all fuel purchase arrangements as of December 31, 2017, and do not expect to
enter into fuel purchase arrangements in the near term. We cannot predict the extent to which fuel prices will increase
or decrease in the future or the extent to which fuel surcharges could be collected.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of U.S. Xpress Enterprises, Inc. and subsidiaries, including the consolidated
balance sheets as of December 31, 2018 and 2017, and the related consolidated statements of comprehensive income
(loss), of stockholders’ deficit and of cash flows for each of the three years in the period ended December 31, 2018,
together with the related notes, and the report of PricewaterhouseCoopers LLP, our independent registered public
accounting firm as of December 31, 2018 and 2017, for each of the three years in the period ended December 31, 2018
are set forth at pages 54 through 83 in this report.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change in or disagreement with accountants on accounting or financial disclosure during our two
most recent fiscal years.
Evaluation of Disclosure Controls and Procedures
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 December 31, 2018. This evaluation is performed to determine if our disclosure controls
51
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 weaknesses described below and the Company’s
evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were not effective as of
December 31, 2018.
Material Weaknesses in Internal Control over Financial Reporting as of December 31, 2018
As described in our Prospectus, during the course of preparing for our IPO, we identified material weaknesses in our
internal control over financial reporting, some of which continue to exist as of December 31, 2018. 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 a company’s annual or interim financial statements will not
be prevented or detected on a timely basis. We did not maintain effective internal control over financial reporting
related to the control activities component of Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission, the COSO framework. The control activities
material weakness contributed to the following additional material weaknesses: (i) ineffective design of information
technology general computer controls with respect to program development, change management, computer
operations, and user access; (ii) ineffective design of controls over income tax accounting; and (iii) insufficient
evidential matter to support design of our controls. These deficiencies did not result in a material misstatement to our
annual or interim consolidated financial statements. However, there is a risk that these deficiencies could result in
misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or
detected.
Remediation of a Component of a Previously Disclosed Material Weakness
The material weakness related to the ineffective design of information technology general computer controls with
respect to program management, change management, computer operations, and user access also included a
component related to inappropriate segregation of duties with respect to creating and posting journal entries. We have
remediated the component of the material weakness related to segregation of duties over creating and posting journal
entries by designing, implementing, and testing controls to ensure that journal entries posted into the general ledger
are reviewed by a separate individual, thus resulting in proper segregation of duties.
Changes in Internal Control Over Financial Reporting
We are currently in the process of remediating the above material weaknesses and have taken numerous steps to
enhance our internal control environment and address the underlying causes of the material weaknesses. These efforts
include designing and implementing the appropriate IT general computer controls and controls over income tax
accounting. In addition, we are enhancing our process to retain evidential matter that supports the design and
implementation of our controls. We are committed to maintaining a strong internal control environment, and we expect
to continue our efforts to ensure the material weaknesses described above are remediated. While we intend to complete
our remediation process as quickly as possible, we cannot estimate a time when the remediation will be complete.
Other than the implementation of these additional controls, there were no changes in our internal control over financial
reporting that occurred during the quarter ended December 31, 2018 that have materially affected, or that are
reasonably likely to materially affect, our internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting
This Annual Report does not include a report of management's assessment regarding internal control over financial
reporting or an attestation report of our registered public accounting firm due to a transition period established by rules
of the SEC for newly public companies.
Limitations on Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable
assurance of achieving the desired control objectives. Our management, including our CEO and CFO, recognize that
any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and
cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide
absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of
fraud, if any, have been detected.
52
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table provides certain information, as of December 31, 2018, with respect to our compensation plans
and other arrangements under which shares of our Class A common stock are authorized for issuance.
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
Weighted average exercise
price of outstanding options,
warrants and rights
(b)
Number of securities
remaining eligible for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
854,118(1)
$
16.00(2)
5,051,998(3)
-
854,118
$
-
16.00
-
5,051,998
(1) Represents 406,116 shares of Class A common stock underlying unvested Class A RSUs granted under our
Restricted Membership Units Plan (the “RMUP”) prior to the IPO and 156,509 shares of Class A common
stock underlying unvested Class A RSUs, 114,233 shares of Class A common stock underlying unvested
Class A restricted stock awards and 177,260 shares of Class A common stock underlying unexercised Class
A options granted under our 2018 Omnibus Incentive Plan (the “Incentive Plan”).
(2) The weighted-average exercise price does not reflect the shares that will be issued in connection with the
settlement of RSUs and restricted stock awards, since they have no exercise price.
(3) Includes 2,751,998 Class A shares available for issuance under the Incentive Plan and 2,300,000 Class A
shares available for issuance under our Employee Stock Purchase Plan.
The following table provides certain information, as of December 31, 2018, with respect to our compensation plans
and other arrangements under which shares of our Class B common stock are authorized for issuance.
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
Weighted average exercise
price of outstanding options,
warrants and rights
(b)
995,558(1)
$
-
995,558
$
-(2)
-
-
Number of securities
remaining eligible for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
-
-
-
(1) Represents unvested Class B RSUs granted under the RMUP prior to the IPO.
(2) There is no weighted-average exercise price since RSUs have no exercise price.
53
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of U.S. Xpress Enterprises, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of U.S. Xpress Enterprises, Inc. and its subsidiaries
(the “Company”) as of December 31, 2018 and December 31, 2017, and the related consolidated statements of
comprehensive income (loss), stockholders’ equity (deficit) and cash flows for each of the three years in the period
ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2018 and December 31, 2017, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that
our audits provide a reasonable basis for our opinion.
Birmingham, Alabama
March 6, 2019
We have served as the Company's auditor since 2015.
54
U.S. Xpress Enterprises, Inc.
Consolidated Balance Sheets
December 31, 2018 and 2017
(in thousands, except share amounts)
2018
2017
Assets
Current assets
Cash and cash equivalents
Customer receivables, net of allowance of $59 and $122 at December 31, 2018 and 2017,
$
9,892 $
9,232
respectively
Other receivables
Prepaid insurance and licenses
Operating supplies
Assets held for sale
Other current assets
Total current assets
Property and equipment, at cost
Less accumulated depreciation and amortization
Net property and equipment
Other assets
Goodwill
Intangible assets, net
Other
Total other assets
Total assets
Liabilities, Redeemable Restricted Units and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable
Book overdraft
Accrued wages and benefits
Claims and insurance accruals, current
Other accrued liabilities
Liabilities associated with assets held for sale
Current maturities of long-term debt
Total current liabilities
Long-term debt, net of current maturities
Less unamortized discount and debt issuance costs
Net long-term debt
Deferred income taxes
Long-term liabilities associated with assets held for sale
Other long-term liabilities
Claims and insurance accruals, long-term
Commitments and contingencies (Notes 13)
Redeemable restricted units
Stockholders' Equity (Deficit)
$
$
Common stock Class A, $.01 par value, 140,000,000 and 30,000,000 shares authorized at
December 31, 2018 and 2017, respectively, 32,859,292 and 6,384,877 issued and outstanding
at December 31, 2018 and 2017, respectively
Common stock Class B, $.01 par value, 35,000,000 and 0 authorized at December 31, 2018 and
2017, respectively, 15,486,560 and 0 issued and outstanding at December 31, 2018 and 2017,
respectively
Additional paid-in capital
Accumulated deficit
Stockholders' equity (deficit)
Noncontrolling interest
Total stockholders' equity (deficit)
Total liabilities, redeemable restricted units and stockholders' equity (deficit)
$
See Notes to Consolidated Financial Statements
55
190,254
20,430
11,035
7,324
33,225
13,374
285,534
898,530
(379,813)
518,717
57,708
28,913
19,615
106,236
910,487 $
63,808 $
-
24,960
47,442
8,120
6,856
113,094
264,280
312,819
(1,347)
311,472
19,978
8,353
7,713
60,304
-
-
186,407
21,637
7,070
8,787
3,417
12,170
248,720
835,814
(371,909)
463,905
57,708
30,742
19,496
107,946
820,571
80,555
3,537
20,530
47,641
13,901
-
132,332
298,496
480,472
(7,266)
473,206
15,630
-
14,350
56,713
-
3,281
329
64
155
251,742
(17,335)
234,891
3,496
238,387
910,487 $
-
1
(43,459)
(43,394)
2,289
(41,105)
820,571
U.S. Xpress Enterprises, Inc.
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31, 2018, 2017 and 2016
(in thousands, except per share amounts)
2018
2017
2016
Operating revenue
Revenue, before fuel surcharge
Fuel surcharge
Total operating revenue
Operating expenses
Salaries, wages, and benefits
Fuel and fuel taxes
Vehicle rents
Depreciation and amortization, net of (gain) loss on sale of property
Purchased transportation
Operating expenses and supplies
Insurance premiums and claims
Operating taxes and licenses
Communications and utilities
General and other operating expenses
Impairment of assets held for sale
Total operating expenses
Operating income
Other expense (income)
Interest expense, net
Gain on sale of Xpress Global Systems
Early extinguishment of debt
Impairment of equity method investments
Equity in loss of affiliated companies
Other, net
$ 1,622,083 $ 1,417,173 $ 1,348,023
182,832 138,212 103,182
1,804,915 1,555,385 1,451,205
78,639
97,954
535,994 543,735 510,599
227,525 219,515 186,257
74,377 109,466
71,597
93,369
481,945 308,624 275,691
118,064 126,700 124,102
69,722
13,432
8,604
54,004
-
1,726,009 1,526,777 1,423,474
27,731
85,075
14,133
9,575
66,412
10,693
77,430
13,769
7,683
61,575
-
78,906
28,608
34,866
-
7,753
1,804
381
136
44,940
33,966
7,860
26,106
1,207
49,758
(1,026)
-
-
1,350
(350)
49,732
(21,124)
(17,187)
(3,937)
123
48,178
-
-
-
3,202
773
52,153
(24,422)
(8,448)
(15,974)
550
Income (loss) before income tax provision (benefit)
Income tax provision (benefit)
Net total and comprehensive income (loss)
Net total and comprehensive income attributable to noncontrolling interest
Net total and comprehensive income (loss) attributable to controlling
interest
Earnings (loss) per share
Basic earnings (loss) per share
Basic weighted average shares outstanding
Diluted earnings (loss) per share
Diluted weighted average shares outstanding
$
24,899 $
(4,060) $
(16,524)
$
$
0.84 $
29,470
0.83 $
30,133
(0.64) $
6,385
(0.64) $
6,385
(2.59)
6,385
(2.59)
6,385
See Notes to Consolidated Financial Statements
56
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U.S. Xpress Enterprises, Inc.
Consolidated Statements of Cash Flows
December 31, 2018, 2017 and 2016
(in thousands)
2018
2017
2016
Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
$
26,106 $
(3,937) $
(15,974)
Early extinguishment of debt
Impairments of assets held for sale and equity method investments
Equity in loss of affiliated companies
Gain on life insurance proceeds
Deferred income tax provision (benefit)
Provision for losses on receivables
Depreciation and amortization
Losses on sale of equipment
Share based compensation
Original issue discount and deferred financing amortization
Interest paid-in-kind
Gain on sale of Xpress Global Systems
Purchase commitment interest (income) expense
Changes in operating assets and liabilities:
Receivables
Prepaid insurance and licenses
Operating supplies
Other assets
Accounts payable and other accrued liabilities
Accrued wages and benefits
Net cash provided by operating activities
Investing activities
Payments for purchases of property and equipment
Proceeds from sales of property and equipment
Proceeds on life insurance
Acquisition of business
Other
Net cash used in investing activities
Financing activities
Borrowings under lines of credit
Payments under lines of credit
Borrowings under long-term debt
Payments of long-term debt
Payments of financing costs and original issue discount
Proceeds from issuance of 16,668,000 shares, net of expenses
Payments of long-term consideration for business acquisition
Settlement of forward contract
Repurchase of membership units
Book overdraft
Net cash provided by (used in) financing activities
Cash included in assets held for sale
Net change in cash and cash equivalents
Cash and cash equivalents
Beginning of year
End of year
Supplemental disclosure of cash flow information
Cash paid during the year for interest
Cash paid (refunded) during the year for income taxes
Supplemental disclosure of significant noncash investing and financing activities
Lease conversion
Capital lease additions
Capital lease extinguishments
Assumption of debt
Property and equipment amounts accrued in accounts payable
Financing costs accrued in accounts payable
Uncollected proceeds from asset sales
7,753
12,497
381
(4,000)
5,691
104
90,831
7,123
2,248
1,728
(7,516)
-
(192)
(8,972)
(4,006)
725
(3,438)
(21,020)
6,304
112,347
(223,939)
55,370
2,980
-
(500)
(166,089)
292,332
(321,665)
362,013
(504,180)
(4,166)
246,616
(1,010)
-
(217)
(3,537)
66,186
(11,784)
660
-
-
1,350
-
(20,156)
-
91,340
2,029
673
3,791
1,452
(1,026)
(698)
(32,051)
45
(510)
(529)
41,930
1,691
85,394
(240,417)
32,183
-
(2,219)
(758)
(211,211)
387,973
(358,640)
224,102
(118,834)
(5,844)
-
-
-
(523)
3,537
131,771
-
5,954
-
-
3,202
-
(12,245)
9
65,775
5,822
520
5,517
1,817
-
883
13,114
(1,322)
498
(1,857)
10,291
939
76,989
(54,710)
43,723
-
-
(360)
(11,347)
344,681
(344,680)
47,847
(102,126)
(3,780)
-
-
(2,200)
(299)
(4,150)
(64,707)
-
935
$
$
$
9,232
9,892 $
3,278
9,232 $
2,343
3,278
47,406 $
1,603
44,073 $
(208)
33,696
1,834
- $
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1,146
-
1,213
-
2,671
34,169 $
1,505
222
5,377
1,196
1,162
424
-
-
6,035
-
-
-
879
See Notes to Consolidated Financial Statements
58
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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 and Mexico, 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.
U.S. Xpress Enterprises, Inc. completed its initial public offering in June 2018 (the “IPO” or the “offering”).
Prior to the offering U.S. Xpress Enterprises, Inc. was wholly owned by New Mountain Lake Holdings, LLC
(“New Mountain Lake”). New Mountain Lake was formed on October 12, 2007 solely for the purpose of taking
U.S. Xpress Enterprises, Inc. private and holding 100% ownership of U.S. Xpress Enterprises, Inc.
Immediately prior to the effectiveness of the offering, we completed a series of transactions (collectively, the
“Reorganization”) pursuant to which New Mountain Lake merged with and into the Company, with the
Company continuing as the surviving corporation.
In connection with the Reorganization, we adopted the Second Amended and Restated Certificate of
Incorporation of the Company, and converted into and exchanged the issued and outstanding membership units
of New Mountain Lake immediately prior to the Reorganization for the Company’s common stock. We
provided for the issuance of 4.6666667 shares of Class A common stock for each Class B non-voting
membership unit in New Mountain Lake and 4.6666667 shares of Class B common stock for each Class A
voting membership unit in New Mountain Lake. The holders of Class A common stock are entitled to one vote
per share and the holders of Class B common stock are entitled to five votes per share. In the offering, the
Company sold 16,668,000 shares of Class A common stock at a price of $16 per share to the public and received
net proceeds of $246.6 million, after deducting underwriting discounts and commissions and offering expenses.
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
Principles of Consolidation
The 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.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
(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. Significant estimates include useful lives of property and
equipment and related salvage value, claims reserves for liability and workers’ compensation claims and
valuation allowance for deferred tax assets.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investment instruments with an original maturity of three
months or less.
59
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Customer Receivables and Allowances
Customer receivables are recorded at the invoiced amount, net of allowances for uncollectible accounts and
revenue adjustments. The allowances for uncollectible accounts and revenue adjustments are based on
historical experience as well as any known trends or uncertainties related to customer billing and account
collectability. The Company reviews the adequacy of its allowance for doubtful accounts on a quarterly basis.
Past due balances over contractual payment terms and exceeding specified amounts are reviewed individually
for collectability. Receivable balances are written off when collection is deemed unlikely.
Operating Supplies
Operating supplies consist primarily of parts, materials and supplies for servicing the Company’s revenue and
service equipment. Operating supplies are recorded at the lower of cost (on a first-in, first-out basis) or market.
Tires purchased as part of revenue and service equipment are capitalized as part of the cost of the equipment.
Replacement tires are charged to expense when placed in service.
Assets Held for Sale
Assets held for sale are comprised of revenue equipment no longer being utilized in continuing operations
which are available and ready for sale. Assets held for sale are no longer subject to depreciation and are
recorded at the lower of depreciated book value or fair market value less selling costs. The Company expects
to sell these assets within the next twelve months. At December 31, 2018, assets held for sale included revenue
equipment of approximately $5.2 million and assets of a business held for sale of approximately $28.0 million.
At December 31, 2017, assets held for sale was comprised solely of revenue equipment. See Note 5, Assets
Held for Sale for more discussion related to the sale of our interest in Xpress Internacional S.A. de C.V. (Xpress
Internacional) during January 2019.
Property and Equipment
Property and equipment are carried at cost. Depreciation of property and equipment is computed using the
straight-line method for financial reporting purposes and accelerated methods for tax purposes over the
estimated useful lives of the related assets (net of salvage values ranging from 25.0% to 50.0% of revenue
equipment). The Company periodically evaluates the estimated useful lives and salvage values of its revenue
equipment, due to changes in business needs and expected usage of the equipment. Upon the retirement of
property and equipment, the related asset cost and accumulated depreciation are removed from the accounts
and any gain or loss is included in depreciation and amortization expense in the Company’s consolidated
statements of comprehensive income. Expenditures for normal maintenance and repairs are expensed.
Renewals or betterments that affect the nature of an asset or increase its useful life are capitalized.
Impairment of Long Lived Assets
The Company reviews its long-lived assets, including property and equipment, for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Expected
future cash flows are used to analyze whether an impairment has occurred. If the sum of the expected
undiscounted cash flows is less than the carrying value of the long-lived asset, then an impairment loss is
recognized. We measure the impairment loss by comparing the fair value of the asset to its carrying value.
Fair value is determined based on a discounted cash flow analysis or the appraised value of the assets, as
appropriate.
Goodwill
In 2013, the Company adopted Accounting Standards Update (ASU) 2011-08, Testing Goodwill for
Impairment, which allows companies to first assess qualitative factors to determine whether it is necessary to
perform the two-step quantitative goodwill impairment test. Under this standard, the Company would not be
required to calculate the fair value of a reporting unit unless the Company determines, based on the qualitative
review, that it is more likely than not that its fair value is less than its carrying amount. The standard includes
events and circumstances for the Company to consider when conducting the qualitative assessment.
60
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The quantitative impairment test consists of two different steps. The first step identifies potential impairment
by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value
exceeds its carrying amount, goodwill is not considered impaired and the second step of the test is unnecessary.
If the carrying amount of a reporting unit’s goodwill exceeds its fair value, the second step measures the
impairment loss, if any. The second step compares the implied fair value of goodwill with the carrying amount
of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination. If the carrying amount of goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to that excess.
The Company performs an annual goodwill impairment analysis at the reporting unit level as of October 1 each
year or when an event occurs which might cause or indicate impairment. In the fourth quarter of 2018, the
Company performed the quantitative impairment test of goodwill due to the decline in our stock price and
concluded that the fair value of our Truckload reporting unit is greater than its carrying amount. The Company
performed the qualitative assessment in the fourth quarter of 2017 and concluded it was more likely than not
that the fair value of the Truckload reporting unit was greater than its carrying amount.
Intangible Assets
Customer relationships are valued as part of acquisition-related transactions using the income appraisal
methodology. The income appraisal methodology includes a determination of the present value of future
monetary benefits to be derived from the anticipated income, or ownership, of the subject asset. The value of
customer relationships includes the value expected to be realized from existing contracts as well as from
expected renewals of such contracts and is calculated using unweighted and weighted total undiscounted cash
flows as part of the income appraisal methodology. Customer relationships are amortized over seven to fifteen
years. The Company tests intangible assets with definite lives for impairment if conditions exist that indicate
the carrying value may not be recoverable. There was no impairment of customer relationships in 2018 and
2017.
Trade names are valued based on various factors including the projected revenue stream associated with the
intangible asset. The Company’s trade names have an indefinite life and are not amortized. In the fourth
quarter of 2018 and 2017, the Company performed the qualitative assessment of its trade name assets and
concluded it was more likely than not that the fair value of each of the assets is greater than its carrying amount.
Therefore, the Company concluded it was not necessary to perform the quantitative impairment test.
Book Overdraft
Book overdraft represents outstanding checks in excess of current cash levels. The Company funds its book
overdraft from its line of credit and operating cash flows.
Deferred Financing Costs
The Company presents debt issuance costs as a direct deduction from the related debt, consistent with debt
discounts. Debt issuance costs associated with revolving line-of-credit arrangements are presented as an asset.
All such debt issuance costs are amortized ratably over the term of the arrangement. Term loan debt issuance
costs excluding original issue discount, net of accumulated amortization were $1.3 million and $6.5 million at
December 31, 2018 and 2017, respectively. Revolver gross debt issuance costs were $1.5 million and $3.2
million at December 31, 2018 and 2017, respectively, offset by accumulated amortization of $0.2 million and
$2.5 million at December 31, 2018 and 2017, respectively. Debt issuance cost amortization expense excluding
original issue discount was $1.6 million, $3.4 million and $4.9 million in 2018, 2017 and 2016, respectively.
Recognition of Revenue
The Company generates revenues primarily from shipments executed by the Company’s Truckload and
Brokerage operations. Those shipments are the Company’s performance obligations, arising under contracts
we have entered into with customers. Under such contracts, revenue is recognized when obligations are
satisfied, which occurs over time with the transit of shipments from origin to destination. This is appropriate
61
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
as the customer simultaneously receives and consumes the benefits as the Company performs its obligation.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing
services. The most significant judgment used in recognition of revenue is the determination of miles driven as
the basis for determining the amount of revenue to be recognized for partially fulfilled obligations. Accessorial
charges for fuel surcharge, loading and unloading, stop charges, and other immaterial charges are part of the
consideration we receive for the single performance obligation of delivering shipments. Contracts entered into
with our customers do not contain material financing components.
The majority of revenue contracts with our customers have a duration of one year or less and do not require
any significant start-up costs, and as such, costs incurred to obtain contracts associated with these contracts are
expensed as incurred. For contracts with durations exceeding one year, incremental start-up costs are
capitalized and amortized on a straight line basis over the contract period which materially represents the period
of revenue generation. Incremental capitalized start-up costs totaled $3.3 million with accumulated
amortization of $1.5 million at December 31, 2018 and are included in other currents assets in our consolidated
balance sheets.
Through the Company’s Brokerage operations, the Company outsources the transportation of the loads to third-
party carriers. The Company is a principal in these arrangements, and therefore records revenue associated
with these contracts on a gross basis. The Company has the primary responsibility to meet the customer’s
requirements. The Company invoices and collects from its customers and also maintains discretion over
pricing. Additionally, the Company is responsible for selection of third-party transportation providers to the
extent used to satisfy customer freight requirements.
The timing of revenue recognition, billings, cash collections, and allowance for doubtful accounts results in
billed and unbilled receivables on our consolidated balance sheet. The Company receives the unconditional
right to bill when shipments are delivered to their destination. We generally receive payment within 40 days
of completion of performance obligations. Unbilled receivables recorded on the consolidated balance sheet
were $2.9 million at December 31, 2018 and are included in customer receivables in the consolidated balance
sheets. The amount of revenue to be recognized related to the Company’s remaining performance obligations
was $2.4 million at December 31, 2018.
The following table presents the effect of the adoption of Accounting Standard Codification 606 “Revenue
from Contracts with Customers” (ASC 606) on our consolidated financial statements for the year ended
December 31, 2018 (in thousands, except per share amounts):
As Reported for the
Year Ended
December 31, 2018
Adjustments
Due to
ASC 606
Under
ASC 605
For the
Year
Ended
December
31, 2018
Consolidated Statement of Comprehensive Income (Loss)
$
Operating revenues
Total operating expenses
Operating income
Income before income tax provision
Income tax provision
Net income
Net income attributable to controlling interest
Basic earnings per share
Basic weighted average shares outstanding
Diluted earnings per share
Diluted weighted average shares outstanding
$
1,804,915
1,726,009
78,906
33,966
7,860
26,106
24,899
0.84
29,470
0.83
30,133
(945) $ 1,805,860
1,727,856
78,004
33,064
7,598
25,466
24,259
0.82
29,470
0.81
30,133
(1,847)
902
902
262
640
640
0.02
29,470
0.02
30,133
62
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Reported
Balance at
December 31, 2018
Adjustments
Due to
ASC 606
Under
ASC 605
Balance at
December
31, 2018
$
Consolidated Balance Sheet
Customer receivables
Other current assets
Total current assets
Total assets
Accounts payable
Other accrued liabilities
Deferred income taxes
Accumulated deficit
Stockholders' equity (deficit)
Total stockholders' equity (deficit)
Total liabilities, redeemable restricted units and
stockholders' equity (deficit)
$
190,254
13,374
285,534
910,487
63,808
8,120
19,978
(17,335)
234,891
238,387
2,906 $ 187,348
11,562
1,812
280,816
4,718
905,769
4,718
61,916
1,892
349
7,771
19,600
378
(19,434)
2,099
232,792
2,099
236,288
2,099
910,487
4,718
905,769
As Reported for the
Year Ended
December 31, 2018
Adjustments
Due to ASC
606
Under
ASC 605
For the
Year
Ended
December
31, 2018
$
26,106
(8,972)
(3,438)
(21,020)
5,691
640 $
945
(1,348 )
(499 )
262
25,466
(9,917)
(2,090)
(20,521)
5,429
Operating Cash Flows
Net income
Receivables
Other assets
Accounts payable and other accrued liabilities
Deferred income tax provision
$
Income Taxes
Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statements carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the
period that includes the enactment date.
The Company evaluates the need for a valuation allowance on deferred tax assets based on whether it believes
that it is more likely than not all deferred tax assets will be realized. A consideration of future taxable income
is made as well as on-going prudent feasible tax planning strategies in assessing the need for valuation
allowances. In the event it is determined all or part of a deferred tax asset would not be able to be realized,
management would record an adjustment to the deferred tax asset and recognize a charge against income at
that time.
The Company’s estimate of the potential outcome of any uncertain tax issue is subject to its assessment of
relevant risks, facts and circumstances existing at that time. The Company accounts for uncertain tax positions
in accordance with ASC 740, Income Taxes, and records a liability when such uncertainties meet the more
likely than not recognition threshold. Potential accrued interest and penalties related to unrecognized tax
benefits are recognized as a component of income tax expense.
63
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The Act subjects a US shareholder to tax on Global Intangible Low-Taxed Income (GILTI) earned by certain
foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed
Income, states that an entity can make an accounting policy election to either recognize deferred taxes for
temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related
to GILTI in the year the tax is incurred as a period expense only. The Company has elected the latter method
and will provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only.
Concentration of Credit Risk
Concentrations of credit risk with respect to customer receivables are limited due to the large number of entities
comprising the Company’s customer base and their dispersion across many different industries. Revenues from
the Company’s largest customer accounted for 11.8% of total consolidated revenues before fuel surcharge
during 2018. The Company performs ongoing credit evaluations and generally does not require collateral.
Foreign Currency
Foreign currency activity is reported in accordance with ASC 830, Foreign Currency Matters. The loss from
foreign currency transactions is included in the consolidated statements of comprehensive income as a
component of other expense. (Gains) losses were $0.1 million, $(0.3) million and $0.8 million for the years
ended December 31, 2018, 2017 and 2016, respectively.
Stock-Based Compensation
The Company has stock-based compensation plans that provide for grants of equity to its management 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. Stock-based
compensation is recognized over the period for which an employee is required to provide service in exchange
for the award. Stock-based compensation expense is included in salaries, wages, and benefits in the
consolidated statements of comprehensive income.
Claims and Insurance Accruals
Claims and insurance accruals consist of cargo loss, physical damage, group health, liability (personal injury
and property damage) and workers’ compensation claims and associated legal and other expenses within the
Company’s established retention levels. Claims in excess of retention levels are generally covered by insurance
in amounts the Company considers adequate. Claims accruals represent the uninsured portion of the loss and
if we are the primary obligor, the insured portion of pending claims at December 31, 2018 and 2017, plus an
estimated liability for incurred but not reported claims and the associated expense. Accruals for cargo loss,
physical damage, group health, liability and workers’ compensation claims are estimated based on the
Company’s evaluation of the type and severity of individual claims and future development based on historical
trends. At December 31, 2018 and 2017, the amount recorded for both workers’ compensation and auto
liability were based in part upon actuarial studies performed by a third-party actuary.
At December 31, 2018 and 2017, the Company had a claim accrual and corresponding receivable for the
amount above its self-insured retention of $0.4 million and $0.8 million, respectively, which the Company
believes should be sufficient to resolve the remaining claims. The Company believes the insurers will provide
their portion of the remaining claims.
Investment in Affiliated Companies
The Company consolidates operating companies in which it has a controlling financial interest. The usual
condition for a controlling financial interest is ownership of a majority of the voting interest. Operating
companies in which the Company is able to exercise significant influence but does not control are accounted
for under the equity method. The Company accounted for its 10% investment in Xpress Global Systems (XGS)
under the equity method of accounting as it was deemed to have significant influence due to the structure of
XGS. During December 2018, our interest in XGS was extinguished and we recognized an impairment charge
of $0.9 million.
64
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Recently Issued Accounting Standards
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. The provisions of this update are effective for fiscal
years beginning after December 15, 2019. The Company has evaluated the provisions of the pronouncement
and does not expect the adoption of ASU 2018-02 will have a material impact on the consolidated financial
statements.
In February 2016, the FASB issued ASU 2016-02, as amended by subsequent accounting standard updates
(collectively, “Topic 842”), to increase transparency and comparability by recognizing right-of-use assets
(ROU assets) and lease liabilities on the balance sheet and disclosing key information about the leasing
arrangements. Topic 842, through an alternative transition method, permits an entity to adopt the provisions of
ASU 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption without adjustment to the financial statements for periods prior to adoption. ASU 2016-02
also provides an election for a package of practical expedients which permits an entity to not reassess whether
any expired or existing contracts contain leases, the classification of the lease, and any initial direct costs. We
expect to apply these practical expedients as part of our adoption.
The adoption of this guidance on January 1, 2019 is expected to result in our recording between $175.0 to
$185.0 million of ROU assets and lease liabilities on our consolidated balance sheet as of January 1, 2019 for
leases that were classified as operating leases under ASC 840. The implementation will not have an impact on
our debt-covenant compliance under our current agreements. The ASU requires increased disclosures which
will be included in our quarterly and annual consolidated financial statements beginning with our 2019
reporting periods.
Recently Adopted Accounting Standards
In March 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-05, “Income Taxes
(Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” The
standard adds SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the
view of the SEC Staff regarding application of Topic 740, Income Taxes, in the reporting period that includes
December 22, 2017 - the date on which the Act was signed into law. The application of this guidance did not
have a material impact on the consolidated financial statements. See Note 4, Income Taxes.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments,” which addresses eight specific cash flow issues with the objective
of reducing the existing diversity in practice. Entities must apply the guidance retrospectively to all periods
presented but may apply it prospectively if retrospective application would be impracticable. The provisions
of this update are effective for fiscal years beginning after December 15, 2017. The Company adopted ASU
2016-15 effective January 1, 2018. The application of this guidance did not have a material impact on the
consolidated financial statements.
The Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” effective
January 1, 2018 by using the modified retrospective transition approach and recognizing the cumulative effect
of the change in retained earnings. The primary impact of adopting ASC 606 is the earlier recognition of
revenue for loads that are in route as of the balance sheet date. Prior to adopting ASC 606, the Company
recognized revenue and direct costs when shipments were delivered. Under ASC 606, the Company is required
to recognize revenue and related direct costs over time as the shipment is being delivered. ASC 606 also
requires substantial new disclosures regarding the nature, amount, timing and uncertainty of recognized
revenue, which are provided under the heading “Recognition of Revenue” above. The adoption of ASC 606
resulted in a cumulative positive adjustment to opening equity at December 31, 2017 of approximately $1.5
million.
65
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
3.
Business Acquisition
On March 20, 2017, the Company acquired certain assets and assumed certain liabilities of a small truckload
carrier who had acted in the capacity of a sales and asset agent for the Company. The purchase price of $10.6
million consisted of $2.2 million cash payments in 2017, $3.0 million to be paid in three equal installments
each anniversary date and the assumption of $5.4 million in debt related to revenue equipment. The allocation
of the purchase price consisted of $5.9 million in property and equipment, $2.2 million in goodwill, $2.5
million in customer relationships and $5.4 million in debt. The customer relationships are being amortized over
a period of seven years. Pro forma financial information is not presented because such amounts are not
significant to the Company’s consolidated financial statements.
4.
Income Taxes
The components of earnings (loss) before income taxes are as follows (in thousands):
Domestic
Mexico
Income (loss) before Income Taxes
2018
$
$
27,262 $
6,704
33,966 $
2017
(27,722) $
6,598
(21,124) $
2016
(32,218)
7,796
(24,422)
The income tax provision (benefit) for 2018, 2017 and 2016 consists of the following (in thousands):
Current
Federal
State
Mexico
Deferred
Federal
State
Mexico
Income tax provision (benefit)
2018
2017
2016
$
$
(1,358) $
911
2,616
2,169
(31) $
605
2,396
2,970
847
314
2,636
3,797
5,113
788
(210)
5,691
7,860 $
(21,190)
79
954
(20,157)
(17,187) $
(11,248)
(1,139)
142
(12,245)
(8,448)
A reconciliation of the income tax provision (benefit) as reported in the consolidated statements of
comprehensive income to the amounts computed by applying federal statutory rate of 21% for 2018 and 35%
for 2017 and 2016, respectively is as follows (in thousands):
Federal income tax at statutory rate
State income taxes, net of federal income tax benefit
Nondeductible per diem paid to drivers
Xpress Internacional activity
Tax credits
Provision to return adjustment
Valuation allowance
Foreign transition tax on deemed distribution
Global intangible low-taxed income (GILTI)
Tax Act impact of federal rate change
Basis difference on assets held for sale
Change in reserve for uncertain tax positions and settlements
Affirmative issue - imputed interest expense
Non-taxable life insurance death benefit
Expiration of federal capital loss carryforward
Excess tax benefits on share-based compensation
66
$
2018
2017
2016
7,132 $
1,319
1,182
1,616
(1,611)
35
2,433
(30)
1,217
-
(2,524)
(3,278)
1,223
(1,004)
1,826
(651)
(7,437) $
(597)
2,476
76
(970)
248
950
2,315
-
(14,723)
-
146
(1,223)
-
-
-
(8,714)
(727)
2,556
466
(1,005)
(1,659)
(22)
-
-
-
-
100
-
-
-
-
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Deferred Mexican withholding tax
Other, net
Income tax provision (benefit)
(876)
(149)
7,860 $
876
676
(17,187) $
-
557
(8,448)
$
At December 31, 2018, our analysis is complete for amounts recorded related to the Act. The final amount of
the one-time transition tax imposed by the Act was favorably adjusted by $0.2 million from the original
provision provided in the December 31, 2017 financial statements. There were no other material adjustments
related to the impact of the Act.
Prior to the enactment of the Act, the Company was indefinitely reinvested with respect to undistributed
earnings of foreign subsidiaries. At December 31, 2017, the Company changed its assertion and established a
deferred tax liability of $0.9 million related to foreign withholding taxes that it would incur should it repatriate
these historic earnings. As of December 31, 2018, the Company had an executed letter of intent to sell the stock
of the foreign subsidiaries for which it had previously reflected the $0.9 million deferred tax liability. Since
the Company no longer expects to repatriate these earnings in the future and, instead, sold the stock of these
foreign subsidiaries on January 17, 2019, it has fully reversed the related deferred tax liability. As a result of
the Company’s disposal of its interests in all foreign subsidiaries on January 17, 2019, there are no longer any
undistributed earnings from foreign subsidiaries that can be indefinitely reinvested.
The tax effect of temporary differences that give rise to significant portions of deferred tax assets and liabilities
at December 31, 2018 and 2017, consists of the following (in thousands):
Deferred tax assets
Allowance for doubtful accounts
Insurance and claims reserves
Compensation and employee benefits
Net operating loss and credit carryforwards
Net federal capital loss carryforward
Capital lease obligations
Investment in subsidiaries
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Property and equipment
Intangibles
Prepaid license fees
Other
Total deferred tax liabilities
Net deferred tax liability
2018
2017
$
$
1,333 $
22,503
2,973
53,552
-
4,782
6,660
551
(5,826)
86,528 $
$
97,073 $
8,007
974
452
$ 106,506 $
19,978 $
$
1,099
24,261
2,355
15,225
1,826
6,512
1,540
3,487
(3,393)
52,912
56,570
8,392
1,014
2,566
68,542
15,630
The Company had approximately $0 and $8.7 million of federal capital loss carryforwards, $177.7 million and
$13.5 million of federal operating loss carryforwards, $122.3 million and $82.9 million of state operating loss
carryforwards and $0.6 million and $0.5 million of state tax credit carryforwards at December 31, 2018 and
2017, respectively. The federal capital loss expired in 2018. Federal operating losses created before 2018 of
$27.0 million expire in years 2036 through 2037 while federal losses created in 2018 of $150.7 million do not
expire and may be carried forward indefinitely. The federal credit carryforward of $9.1 million will begin to
expire in the years 2034 through 2038. The state loss carryforwards of $122.3 million begin to expire in the
year 2020 and forward, depending on the state and may be used to offset otherwise taxable income. State tax
credit carryforwards of $0.6 million expire in the years 2019 through 2028.
The Company has a valuation allowance of $5.8 million and $3.4 million at December 31, 2018 and 2017,
respectively, to offset the tax benefit of certain state operating loss carryforwards, state credit carryforwards,
and federal capital loss carryforwards. The valuation allowance increased by $2.4 million and decreased $0.1
million during the years ended December 31, 2018 and December 31, 2017, respectively, due to the expiration
67
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
of a federal capital loss, the addition of capital deferred tax assets, and the change in certain separate company
state operating loss carryforwards and certain state tax credit carryforwards which the Company does not
currently believe it will be able to utilize before the applicable expiration date of each item.
Deferred tax valuation allowances
Fiscal year ended
December 31, 2016
December 31, 2017
December 31, 2018
Balance at
beginning of
period
Charges to
costs
and expenses
Charges
to other
accounts
Deductions
Balance
at end
of
period
$
$
$
3,583 $
3,530 $
3,393 $
- $
1,081 $
5,654 $
(31) $
- $
- $
22 $ 3,530
1,218 $ 3,393
3,221 $ 5,826
For the years ended December 31, 2018, 2017 and 2016, the Company had a balance of unrecognized tax
benefits of $0.8 million, $5.5 million and $5.2 million respectively, which is a component of other long-term
liabilities.
Beginning balance
Additions based on tax positions taken in prior years
Reductions as a result of a lapse of the applicable statute of limitations
Balance at December 31
$
$
5,506 $
829
(5,506)
829 $
5,200 $
306
-
5,506 $
5,200
-
-
5,200
2018
2017
2016
Interest and penalties related to uncertain tax positions are classified as income tax expense in the consolidated
statement of comprehensive income. This amounted to $0.1 million, $0.1 million and $0.1 million for 2018,
2017 and 2016, respectively.
Only tax years 2014 and forward remain subject to examination by federal and state tax jurisdictions, other
than the current IRS audit. This audit is focused on amended federal income tax returns filed for 2009-2012
and relates only to reported changes in fuel tax credits and agricultural chemicals security credits. Due to events
related to this IRS exam that occurred in 2018, the Company has released the reserve related to these items.
As of December 31, 2018, we estimate that it is reasonably possible that unrecognized tax benefits may
decrease up to $0.8 million in the next 12 months due to the resolution of these tax matters. The resolution of
these unrecognized tax benefits would impact the Company's tax expense between $0 and $0.7 million,
exclusive of interest.
5.
Assets Held for Sale
During December 2018, we entered into a letter of intent to sell 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 transaction closed on January 17, 2019. 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. The results of operations from the business classified as assets held for sale were
not material to our consolidated revenues or consolidated operating income. 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.
Amounts classified as assets and liabilities held for sale at December 31, 2018 related to the disposal group
outlined above within the consolidated balance sheet are as follows (in thousands):
Total current assets of business held for sale
Property, plant and equipment
Other assets
Total disposal group assets held for sale
68
$
$
28,038
10,635
994
39,667
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Total current liabilities associated with assets held for sale
Long-term liabilities associated with assets held for sale
Total liabilities associated with assets of business held for sale
Held for sale impairment charge
Fair value of disposal group held for sale
$
$
6,856
8,353
15,209
11,629
$
12,829
The amount of the impairment is equal to carrying value of the long-term assets.
6.
Property and Equipment
The cost and lives at December 31, 2018 and 2017, are as follows (in thousands):
Land and land improvements
Buildings and building improvements
Revenue and service equipment
Furniture and equipment
Leasehold improvements
Computer software
Approximate
Lives
10(cid:237)40 years
3(cid:237)15 years
3(cid:237)7 years
lesser of useful life or lease
terms
1(cid:237)7 years
Cost
2017
2018
$ 22,130 $ 20,880
85,317 79,820
648,648 597,644
47,482 46,524
23,027 25,387
71,926 65,559
$898,530 $835,814
The Company recognized $85.9 million, $86.0 million and $56.6 million in depreciation expense in 2018, 2017
and 2016, respectively. The Company recognized $7.1 million, $2.0 million and $5.8 million of losses on the
sale of equipment in 2018, 2017 and 2016, respectively, which is included in depreciation and amortization
expense in the consolidated statements of comprehensive income. The Company enters into capital leases for
certain revenue equipment with terms ranging from 24 - 100 months. At December 31, 2018 and 2017,
property and equipment included capitalized leases with costs of $39.5 million and $46.1 million, and
accumulated amortization of $18.1 million and $19.8 million, respectively. Amortization of capital leases is
also included in depreciation expense. The Company recognized $3.1 million, $3.8 million and $7.8 million
of computer software amortization expense in 2018, 2017 and 2016, respectively. Accumulated amortization
for computer software was $60.2 million and $57.8 million as of December 31, 2018 and 2017, respectively.
7.
Goodwill
Our Truckload reporting unit is the only reporting unit that has goodwill. The carrying amounts of Truckload
goodwill are as follows at December 31, 2018 and 2017, respectively (in thousands):
Balance at December 31, 2016
Acquisition Activity
Balance at December 31, 2017
Balance at December 31, 2018
Total
55,508
2,200
57,708
57,708
$
$
Goodwill increased in 2017 as a result of the acquisition of a small truckload carrier.
69
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
8.
Intangible Assets
The gross amount of the customer relationships was $21.7 million as of December 31, 2018 and 2017,
respectively. As a result of the acquisition in 2017, the Company recorded a customer relationship asset in the
amount of $2.5 million. The Company recognized $1.8 million, $1.6 million and $1.3 million of amortization
expense in 2018, 2017 and 2016 and accumulated amortization was $16.1 million and $14.3 million as of
December 31, 2018 and 2017, respectively. The weighted average remaining useful life for the customer
relationships was 4.0 and 4.8 years at December 31, 2018 and 2017, respectively.
The gross carrying value of the indefinite lived trade names was $23.3 million as of December 31, 2018 and
2017, respectively.
Scheduled amortization expense related to customer relationships for future years is as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
9.
Equity Investments
Customer
Relationship
1,694
$
1,679
1,393
345
345
115
5,571
$
In November 2012, the Company acquired a 38% ownership in XPS Logisti-K Systems, S.A.P.I. de C.V.
(“Logisti-K”), a Mexican based third party logistics business, for $0.5 million, with the remaining 62% interest
owned by management of Logisti-K. In September 2013, the Company acquired a 30% neutral investment in
Dylka (Distribuciones Logisti-K S.A. de C. V. (“Dylka”), an intra-Mexican carrier for $1.0 million. During
2016, the Company contributed $0.4 million in additional capital to Dylka based on its pro rata share. The
remaining 70% interest is owned by the management of Dylka with these shareholders also representing 42%
ownership of Logisti-K. The Company has provided the combined companies a $5.0 million working capital
loan. At December 31, 2018 and 2017, the outstanding amount of the working capital loan was $4.9 million
plus accrued interest. During 2011 and 2012, the Company obtained common unit ownership interests in
DriverTech, LLC (DriverTech). DriverTech is a provider of onboard computers designed for in-cab use and
related software for the trucking industry. The Company owns 27.73% and certain members of management
of the Company own 16.16%. The remaining 56.11% is owned by other investors.
Per review of the terms of Logisti-K, Dylka and DriverTech’s operating agreements, the Company has
determined that these investments are variable interest entities. The daily operations of the businesses are the
activities of Logisti-K, Dylka and DriverTech that most significantly impact their economic performance and
these activities are directed by other investors. Accordingly, the power to direct the activities of Logisti-K,
Dylka and DriverTech is provided by other investors and, thus, USX is not the investments’ primary
beneficiary. Accordingly, the Company accounts for these investments under the equity method of accounting.
The carrying values of Logisti-K and Dylka were $0 and $0 million at December 31, 2018, respectively and
$0 and $0.6 million, respectively at December 31, 2017. The carrying value of our investment in DriverTech
was $0 at December 31, 2018 and 2017, respectively.
In conjunction with the sale of Arnold Transportation, Inc. (Arnold) to Parker Global Enterprises, Inc. (Parker),
the Company received common stock representing 45% of the outstanding equity interests of Parker. The
investment in Parker is accounted for under the equity method of accounting and was initially recognized at
fair value of $10.4 million on January 2, 2013. The carrying amount of the Company’s investment in Parker
was $0 as of December 31, 2018 and 2017.
In April 2015, we sold our interest in XGS and received common stock representing 10% of the outstanding
equity interests of XGS valued at $0.2 million, and $5.0 million preferred stock. The investment in XGS was
70
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
accounted for under the equity method of accounting and was initially recognized at fair value of $5.2 million
on April 13, 2015. The carrying amount of the Company’s investment in XGS was $0 and $1.3 million as of
December 31, 2018 and 2017, respectively. During December 2018, the Company’s residual 10% investment
along with our preferred stock was extinguished and we recognized an impairment charge of $0.9 million.
Summarized financial information for the Company’s equity investments aggregated as of December 31, 2018,
2017 and 2016 is as follows (in thousands):
Current assets
Non-current assets
Total Assets
Current liabilities
Non-current liabilities
Total Liabilities
Net Liabilities
Total operating revenue
Operating expenses
Operating income (loss)
Net loss
10.
Long-Term Debt
As of December 31,
2018
2017
$ 23,325 $ 37,131
29,297 43,718
52,622 80,849
54,733 66,726
83,085 89,723
137,818 156,449
$ (85,196) $ (75,600)
For the Years Ended
December 31,
2017
2016
2018
$158,414 $243,311 $233,905
151,523 247,384 240,157
(6,252)
$ (3,679) $ (12,023) $ (16,917)
(4,073)
6,891
Long-term debt at December 31, 2018 and 2017 consists of the following (in thousands):
2018
2017
$
- $ 193,177
29,333
-
-
195,000
Term loan agreement, maturing May 2020, terminated June 2018, effective interest rate
of 12.2%
Line of credit, maturing March 2020, terminated June 2018
Term loan agreement, interest rate of 4.8% at December 31, 2018, maturing June 2023
Revenue equipment installment notes with finance companies, weighted average interest
rate of 5.0% and 4.7% at December 31, 2018 and 2017, due in monthly installments
with final maturities at various dates through December 2025, secured by related
revenue equipment with a net book value of $197.1 million and $315.7 million in
December 2018 and 2017
Note payable to limited liability company owned in part by certain officers of the
Company, interest rate of 13.0% at December 31, 2017, maturing November 2020,
terminated June 2018
-
25,516
184,867 310,850
Mortgage note payables, interest rates ranging from 5.25% to 6.99% at December 31,
2018 and 2017 due in monthly installments with final maturities as various dates
through September 2031, secured by real estate with a net book value of $24.1 million
and $24.7 million at December 2018 and 2017
Capital lease obligations, maturing at various dates through April 2024
Other
Less: Unamortized discount and debt issuance costs
Less: Current maturities of long-term debt
71
18,861
20,313
6,872
20,033
27,761
6,134
425,913 612,804
(7,266)
(113,094) (132,332)
$ 311,472 $ 473,206
(1,347)
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
New Credit Facility
In June 2018, we entered into a new credit facility (the “Credit Facility”) that contains a $150.0 million
revolving component (the “Revolving Facility”) and a $200.0 million term loan component (the “Term
Facility”). The Credit Facility contains an accordion feature that, so long as no event of default exists, allows
us to request an increase in the borrowing amounts under the Revolving Facility or the Term Facility by a
combined maximum amount of $75.0 million. 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 agent’s
prime rate plus an applicable margin that was set at 1.25% through September 30, 2018 and adjusted quarterly
thereafter between 0.75% and 1.50% based on our consolidated net leverage ratio. Eurodollar rate loans will
accrue interest at London Interbank Offered Rate, or a comparable or successor rate approved by the
administrative agent, plus an applicable margin that was set at 2.25% through September 30, 2018 and adjusted
quarterly thereafter between 1.75% and 2.50% based on our consolidated net leverage ratio. The Credit Facility
requires payment of a commitment fee on the unused portion of the Revolving Facility commitment of between
0.25% and 0.35% based on our consolidated net leverage ratio. In addition, the Revolving Facility includes,
within its $150.0 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 $15.0 million. The Term Facility has scheduled
quarterly principal payments between 1.25% and 2.50% of the original face amount of the Term Facility plus
any additional amount borrowed pursuant to the accordion feature of the Term Facility, with the first such
payment occurring on the last day of our fiscal quarter ending September 30, 2018. The Credit Facility will
mature on June 18, 2023.
Borrowings under the Credit Facility are prepayable at any time without premium and are subject to mandatory
prepayment from the net proceeds of certain asset sales and other borrowings. The Credit Facility is secured
by a pledge of substantially all of our assets, excluding, among other things, certain real estate and revenue
equipment financed outside the Credit Facility.
The Credit Facility contains restrictive covenants including, among other things, restrictions on our ability to
incur additional indebtedness or issue guarantees, to create liens on our assets, to make distributions on or
redeem equity interests, to make investments, to transfer or sell properties or other assets and to engage in
mergers, consolidations, or acquisitions. In addition, the Credit Facility requires us to meet specified financial
ratios and tests, including a maximum leverage ratio and a minimum interest coverage ratio.
At December 31, 2018, the Revolving Facility had issued collateralized letters of credit in the face amount of
$31.7 million, with $0 borrowings outstanding and $118.3 million available to borrow and the Term Facility
had $195.0 million outstanding.
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. At December 31, 2018,
the Company was in compliance with all financial covenants prescribed by the Credit Facility.
Old Term Loan Agreement
At December 31, 2017, the Company had an outstanding term loan in the amount of $193.2 million. The term
loan had scheduled quarterly principal payments of $0.7 million, with the final payment of all then-outstanding
principal at maturity. The term loan bore interest, at a rate equal to LIBOR plus an applicable margin ranging
from 10.0% to 11.5%, subject to a LIBOR floor. The effective interest rate for the term loan at December 31,
2017 was 12.2%, including the effect of original issue discount as discussed below.
During 2016, we incurred fees and prepayment costs associated with an amendment of $3.7 million, of which
$2.7 million was charged to interest expense with the remaining $1.0 million recorded as deferred financing
costs. During 2017, we incurred fees associated with amendments in the amount of $5.5 million, of which $4.1
million was recorded as deferred financing costs and $1.4 million in third party fees charged to interest expense.
72
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Original issue discount was recorded as an offset to long-term debt and was amortized over the term of the
respective obligation using the effective interest method. Unamortized original issue discount was $0.8 million
as of December 31, 2017. Associated amortization expense was $0.1 million, $0.4 million and $0.6 million in
2018, 2017 and 2016, respectively.
In June 2018, the Company repaid this term loan with proceeds from the offering and incurred a loss on early
extinguishment of debt. The loss resulted from the write-off of unamortized discount and debt issuance costs
of $0.6 million and $5.3 million, respectively, payment of fees to lenders of $1.4 million and third party fees
of $0.1 million.
Old Line of Credit
At December 31, 2017, the Company had $29.3 million outstanding on its $155 million senior secured
revolving credit facility. The revolving facility was secured by a first lien on the Company’s trade accounts
receivable and certain related assets and a second lien on substantially all other assets other than assets securing
other debt. The facility bore interest dependent on the excess availability on the facility at the base rate, as
defined, plus an applicable margin of 0.75% to 1.50% or LIBOR plus an applicable margin of 1.75% to 2.50%.
At December 31, 2017, the interest rate on the facility was LIBOR plus 2.0%.
During 2017, the Company paid $0.3 million in lender amendment and legal fees.
In June 2018, in connection with the offering and entering into the New Credit Facility, the Company repaid
and terminated this revolving credit facility and incurred a loss on early extinguishment of debt. The loss
resulted from the write-off of debt issuance costs of $0.2 million and payment of fees to lenders of $0.1 million.
Debt Maturities
As of December 31, 2018, the scheduled principal payments of long-term debt, excluding unamortized
discount and debt issuance costs and capital leases are as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
11.
Leases
$ 106,383
27,960
26,938
47,021
178,888
18,410
$ 405,600
The Company leases certain revenue and service equipment and office and terminal facilities under long-term
noncancelable operating lease agreements expiring at various dates through October 2027. Rental expense
under noncancelable operating leases was approximately $78.5 million, $75.7 million and $111.0 million in
2018, 2017 and 2016, respectively. Revenue equipment lease terms for new equipment are generally three to
five years for tractors and five to eight years for trailers. The lease terms generally represent the estimated
usage period of the equipment, which is generally substantially less than the economic lives. The Company
leases certain of its revenue equipment under capital lease agreements. The terms of the capital leases expire
at various dates through April 2024. Certain revenue equipment leases provide for guarantees by the Company
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 $28.2 million at December 31, 2018.
The residual value of a portion of the related leased revenue equipment is covered by repurchase or trade
agreements between the Company and the equipment manufacturer.
73
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Approximate aggregate minimum undiscounted future rentals payable under these capital and operating leases
for each of the next five years and thereafter are as follows (in thousands) and exclude approximately $9.3
million of future minimum lease payments related to Xpress Internacional:
2019
2020
2021
2022
2023
Thereafter
Less: Amount representing interest
Less: Current portion
Capital Operating
60,303
$ 7,797 $
42,632
7,564
35,302
4,086
20,751
1,427
15,884
1,427
14,080
297
22,598 $ 188,952
(2,285)
20,313
(6,711)
$13,602
12. Related-Party Transactions
The Company had a $25.5 million note payable to a limited liability company controlled by certain officers of
the Company as of December 31, 2017. The Company repaid the note in the amount of $26.6 million which
included paid in kind interest of $8.6 million as of June 2018.
The Company leased a terminal facility from entities owned by the two principal stockholders of New
Mountain Lake and their respective family trusts. The lease agreement was set to expire in 2020. Rent expense
of approximately $0.5 million, $0.9 million and $1.0 million was recognized in connection with these leases
during 2018, 2017 and 2016, respectively. In June 2018, the Company purchased the terminal facility for $7.5
million with proceeds from the offering.
The Company and two principal stockholders of the Company collectively own 44.1% of the outstanding stock
of DriverTech. Total payments by the Company to this provider were $1.5 million, $1.5 million and $1.9
million in 2018, 2017 and 2016, respectively, primarily for communications hardware. This product is
designed specifically for in-cab use on a Windows platform to enhance communications with the driver.
In connection with the sale of Arnold to Parker, the Company entered into a number of agreements with Parker.
Under the Transition Services Agreement, the Company agreed to perform certain services for Parker, such as
accounting, payroll, human resources, information technology and others. Parker paid the Company
approximately $0.2 million, $0.2 million and $0.3 million under this agreement during 2018, 2017 and 2016,
respectively.
The Company entered into a ten-year lease with Arnold for the use of real property located in Grand Prairie,
Texas. Arnold paid the Company approximately $0.4 million, $0.4 million and $0.4 million under these
agreements during 2018, 2017 and 2016, respectively.
In September 2014, the Company entered into an agreement with Arnold, pursuant to which the Company a)
assumed certain assets and liabilities of Arnold b) canceled certain leases of equipment and real estate to
Arnold, c) hired certain Arnold employees, and d) entered into certain subleases of equipment from Arnold.
In conjunction with the transaction, Arnold agreed to a one-time payment of $5.0 million to the Company
contingent on the sale of the business.
At December 31, 2018 and 2017, $3.1 million and $3.3 million was due from Arnold and was included in other
receivables in the accompanying consolidated balance sheets, respectively.
74
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
13. 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
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.
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 putative class includes current and former truck drivers employed
by us who worked or work in California after the completion of their training while residing in California since
December 23, 2011 to present. 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. The matter is currently in discovery, and a jury trial has been requested. There is
currently no trial date set. 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.
Telephone Consumer Protection Act Claim
A class action was filed against our subsidiary U.S. Xpress, Inc. in the U.S. District Court for the Western
District of Virginia on December 11, 2017 and amended on March 7, 2018, alleging violations of the Telephone
Consumer Protection Act, for two separate proposed classes. The putative classes include all persons within
the United States to whom the Company either initiated a telephone call to a cellular telephone number using
an automatic telephone dialing system or initiated a call to a residential telephone number using an artificial or
pre-recorded voice at any time from December 11, 2013 to present. The lawsuit seeks statutory damages for
each violation, injunctive relief and attorneys’ fees and costs. The Company successfully moved to dismiss
the claims related to calls made to residential lines on grounds that the plaintiff lacked standing to assert such
claims. The Court denied the Company’s Motion to Dismiss claims for all purported class members residing
outside the State of Virginia for lack of personal jurisdiction. The matter is currently in discovery and is set for
trial beginning January 13, 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.
Shareholder Claims
As set forth below, between November 2018 and February 2019, five substantially similar putative securities
class action complaints were filed against us and certain other defendants. These matters are not yet in
discovery. 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 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 misleading statements
in the registration statement and prospectus filed with the 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
75
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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 Section 11 and 15 of the Securities
Act against the same defendants as in the action commenced on November 21, 2018.
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 Section 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 Section 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 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 Section 11 and 15 of the Securities
Act against the same defendants as in the action commenced on November 21, 2018.
The complaints in all the actions listed above allege that the Company made false and 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 suffered damages. We believe the allegations made in the complaints
are without merit and intend to defend ourselves vigorously against the complaints relating to such actions.
The Company has letters of credit of $31.7 million outstanding as of December 31, 2018. The letters of credit
are maintained primarily to support the Company’s insurance program.
The Company had cancelable commitments outstanding at December 31, 2018 to acquire revenue equipment
for approximately $162.9 million in 2019. These purchase commitments are expected to be financed by
operating leases, long-term debt, proceeds from sales of existing equipment, and cash flows from operations.
14.
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.
76
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The following is a summary of the Incentive Plan restricted stock and restricted stock unit activity from June
13, 2018 to December 31, 2018:
Unvested at June 13, 2018
Granted
Forfeited
Unvested at December 31, 2018
Weighted
Average
Grant
Date Fair
Value
Number
of
Units
-
287,232 $
16,490
270,742 $
-
14.30
16.00
14.20
The restricted stock grants vest over periods of one to four years. The Company recognized compensation
expense of $1.0 million during 2018. At December 31, 2018, the Company had $2.8 million in unrecognized
compensation expense related to the above restricted stock awards which is expected to be recognized over a
period of approximately 3.3 years.
The following is a summary of the Incentive Plan stock option activity from June 13, 2018 to December 31,
2018:
Unvested at June 13, 2018
Granted
Forfeited
Unvested at December 31, 2018
Weighted
Average
Grant
Date Fair
Value
Number
of
Units
-
192,203 $
14,943 $
177,260 $
-
6.09
6.09
6.09
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 $0.3 million during 2018. The fair value of the stock option grant was
estimated using the Black-Scholes method as of the grant date using the following assumptions:
Strike price
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected term (in years)
$ 16.00
2.91%
0%
32.67%
6.25
At December 31, 2018, the Company had $0.8 million in unrecognized compensation expense related to the
stock option awards which is expected to be recognized over a period of approximately 3.5 years.
Stock Appreciation Rights
In June 2015, the Company approved the 2015 Stock Appreciation Rights Plan. The purpose of the plan was
to attract and retain the best available personnel for positions of substantial responsibility and to provide
incentive to employees to promote the success of the Company’s business. Each holder of an award had the
right to receive a cash payment amounting to the difference between the grant price and the fair market value
of the Company’s Class A common stock on the exercise date. These awards were subject to time-based and
performance-based vesting conditions. For each grant, the number of shares awarded was determined based on
a performance condition relating to certain financial results of the Company. Awards granted vested ratably
over a service period of 5 years. The awards were accounted for as liability classified compensatory awards
under ASC 710 and valued using the intrinsic value method, as permitted by ASC 718 for nonpublic entities,
with changes to the value recognized as compensation expense during each reporting period.
77
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
In conjunction with the offering, the Company vested all remaining stock appreciation rights (“SARS”) and
settled the resulting liabilities related thereto. As a result, the Company recorded additional compensation
expense in the amount of $3.2 million in the second quarter of 2018.
The following is a summary of the Company’s SARS activity for 2018, 2017 and 2016:
Outstanding at December 31, 2015
Granted
Exercised
Canceled or expired
Outstanding at December 31, 2016
Granted
Exercised
Canceled or expired
Outstanding at December 31, 2017
Granted
Exercised
Canceled or expired
Outstanding at December 31, 2018
Number
of
Units
76,125 $
-
1,450
2,175
72,500
-
2,175
5,075
65,250
-
63,250
2,000
-
Grant
Date
Exercise
Price
9.95
-
9.95
9.95
9.95
-
9.95
9.95
9.95
-
9.95
9.95
-
The Company recognized compensation expense of $3.4 million, $0.3 million and $0.2 million during 2018,
2017 and 2016, respectively.
Restricted Stock Units
In August 2008, the U.S. Xpress Enterprises board approved the 2008 Restricted Stock Plan that provided for
restricted membership unit awards in New Mountain Lake in order to compensate the Company’s employees
and to promote the success of the Company’s business.
Redeemable restricted units were subject to certain put rights at the option of the holder or upon the occurrence
of an event that was not solely under the control of the Company. Under the terms of the stock plan, a portion
of the units held by employees of the Company for at least nine months could be put back to the Company at
the option of the holder during a specified period each year and under certain circumstances after termination.
These equity instruments were redeemable at fair value and were classified as temporary equity on the 2017
consolidated balance sheets in accordance with ASC 480.
As part of the Reorganization (see Note 1), all of the redeemable restricted units of New Mountain Lake were
converted into restricted stock units of the Company, with the same vesting schedules. Therefore, we refer to
redeemable restricted units issued prior to the Reorganization as restricted stock units. At the time of
conversion, the restricted stock unit amounts were reclassified to additional paid in capital. The following is a
summary of the Company’s restricted stock unit activity for 2018, 2017 and 2016:
78
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Unvested at December 31, 2015
Granted
Vested
Forfeited
Unvested at December 31, 2016
Granted
Vested
Forfeited
Unvested at December 31, 2017
Granted
Vested-pre IPO
Forfeited-pre IPO
Unvested at June 13, 2018
Conversion in connection with IPO
Unvested post-IPO
Vested-post IPO
Forfeited post IPO
Unvested at December 31, 2018
Weighted
Average
6.73
9.96
8.97
9.30
6.79
10.37
6.62
7.69
9.14
-
7.74
7.52
9.62
Number
of
Units
277,992
20,000
55,492
5,000
237,500
292,500
69,333
14,667
446,000 $
-
105,307
6,667
334,026
4.6666667
1,558,787
144,667
12,446
1,401,674 $
2.06
2.67
1.99
2.00
The vesting schedule for these restricted unit grants range from 3 to 7 years. The Company recognized
compensation expense of $0.9 million, $0.7 million and $0.5 million during 2018, 2017 and 2016, respectively.
At December 31, 2018, the Company had approximately $2.2 million in unrecognized compensation expense
related to restricted units, which is expected to be recognized over a period of approximately 4.1 years. The
fair value of the restricted units and corresponding compensation expense was determined using the income
approach.
15.
Employee Benefit Plan
The Company has a 401(k) retirement plan covering substantially all employees of the Company, whereby
participants may contribute a percentage of their compensation, as allowed under applicable laws. The Plan
provides for discretionary matching contributions by the Company. Participants are 100% vested in participant
contributions. The Company recognized $1.7 million in expense under this employee benefit plan each year
for 2018, 2017 and 2016.
The Company has a nonqualified deferred compensation plan that allows eligible employees to defer a portion
of their compensation. Participants can defer up to 85% of their base salary and up to 100% of their bonus for
the year. Each participant is fully vested in all deferred compensation and earnings; however, these amounts
are subject to general creditor claims until distributed to the participant. The total liability under the deferred
compensation plan was $3.0 million and $3.1 million as of December 31, 2018 and 2017, and is included in
other long-term liabilities in the accompanying consolidated balance sheets. The Company purchased life
insurance policies to fund the future liability. The life insurance policies had a value of $2.9 million and $2.1
million as of December 31, 2018 and 2017, respectively and are included in other assets in the consolidated
balance sheets. During 2018, the Company recorded a death benefit gain of $4.0 million for one of its insured.
16.
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 standards.
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
79
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
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
Level 2
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.
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).
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 liabilities measured at fair value at December 31, 2018 and 2017 (in
thousands):
Liabilities
Forward Contract
Liabilities
Forward Contract
2018
Fair
Value
Input
Level
$ 1,793
3
2017
Fair
Value
Input
Level
$ 1,985
3
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 years ended December 31, 2018, 2017 and 2016(in
thousands):
Balance at beginning of year
Cash Settlement
Forward Contract Adjustment
Balance at end of year
2018 2017 2016
$ 1,985 $ 2,683 $ 4,000
- 2,200
883
$ 1,793 $ 1,985 $ 2,683
-
(192)
(698)
During 2016, the Company purchased a 5% interest in Xpress Internacional for $2.2 million and had a
commitment to purchase the remaining 5% interest no later than 2020, based on an earnings calculation. The
obligation was considered a physically settled forward contract and the commitment liability was included in
other accrued liabilities and other long-term liabilities on the accompanying balance sheets. In January 2019,
the Company disposed of its interest in Xpress Internacional and the commitment was reclassified to long term
liabilities associated with assets held for sale at December 31, 2018. This liability is classified as Level 3 under
the fair value hierarchy and is based on earnings calculation. The carrying amount of this commitment is
accreted through interest to equal the settlement amount at each reporting date.
The carrying values of cash and cash equivalents, customer and other receivables and accounts payable are
reasonable estimates of their fair values because of the short maturity of these financial instruments. Interest
80
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
rates that are currently available to us for issuance of long-term debt with similar terms and remaining
maturities are used to estimate the fair value of our long-term debt, which primarily consists of revenue
equipment installment notes. The fair value of our revenue equipment installment notes approximated the
carrying value at December 31, 2018, as the weighted average interest rate on these notes approximates the
market rate for similar debt. Borrowings under our revolving Credit Facility approximate fair average interest
rate on these notes approximates the market rate for similar debt.
17.
Income (Loss) per Share
Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to common stockholders
by the weighted average shares of common stock outstanding during the period, without consideration for
common stock equivalents. Prior to the offering, there were no common stock equivalents which could have
had a dilutive effect on earnings (loss) per share. The Company excluded 448,002 equity awards from our
diluted shares for the year ended December 31, 2018 as inclusion would be anti-dilutive.
The basic and diluted earnings (loss) per share calculations for the years ended December 31, 2018, 2017 and
2016 are presented below (in thousands, except per share amounts):
2018
Net income (loss)
$26,106 $ (3,937 ) $(15,974 )
Net income attributable to noncontrolling interest
550
1,207
Net income (loss) attributable to common stockholders $24,899 $ (4,060 ) $(16,524 )
2017 2016
123
Basic weighted average of outstanding shares of
common stock
Dilutive effect of equity awards
Diluted weighted average of outstanding shares of
common stock
29,470 6,385 6,385
-
663
-
30,133 6,385 6,385
Basic earnings (loss) per share
Diluted earnings (loss) per share
$
$
0.84 $ (0.64 ) $ (2.59 )
0.83 $ (0.64 ) $ (2.59 )
18.
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 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. During the year ended December
31, 2018, the Truckload segment accounted for approximately 87% of consolidated revenue.
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.
During the year ended December 31, 2018, the Brokerage segment accounted for approximately 13% of
consolidated revenue.
81
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The following table summarizes our segment information (in thousands):
Year Ended December 31,
2017
2016
2018
Revenues
Truckload
Brokerage
Total Operating Revenue
Operating Income
Truckload
Brokerage
Total Operating Income
$ 1,562,098 $ 1,382,167 $ 1,301,574
149,631
$ 1,804,915 $ 1,555,385 $ 1,451,205
173,218
242,817
$
$
69,088 $
9,818
78,906 $
25,200 $
3,408
28,608 $
25,962
1,769
27,731
A measure of assets is not applicable, as segment assets are not regularly reviewed by the Chief Operating
Decision Maker (CODM) for evaluating performance or allocating resources.
Information about the geographic areas in which the Company conducts business is summarized below (in
thousands) as of and for the years ended December 31, 2018, 2017 and 2016. Operating revenues for foreign
countries include revenues for (i) shipments with an origin or destination in that country and (ii) other services
provided in that country. If both the origin and destination are in a foreign country, the revenues are attributed
to the country of origin. As of December 31, 2018, the long-lived assets of our Mexican operations were
impaired to a balance of $0.
Year Ended December 31,
2016
2017
2018
$1,751,556 $1,504,926 $1,402,023
53,359
49,182
$1,804,915 $1,555,385 $1,451,205
50,459
$ 518,717 $ 459,021 $ 303,520
6,220
$ 518,717 $ 463,905 $ 309,740
4,884
-
Revenues
United States
Foreign countries
Mexico
Total
Long-lived Assets
United States
Foreign countries
Mexico
Total
82
U.S. Xpress Enterprises, Inc.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
19. Quarterly Financial Data
2018:
Operating revenues
Operating income(1)
Net income(1) (2)
Basic earnings per share
Diluted earnings per share
2017:
Operating revenues
Operating income
Net income (loss)(3)
Basic earnings (loss) per share
Diluted earnings (loss) per share
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 425,708 $ 449,758 $ 460,227 $ 469,222
21,142
6,996
0.14
0.14
22,892
16,129
0.33
0.33
20,018
615
0.04
0.04
14,854
1,159
0.18
0.18
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 363,676 $ 370,350 $ 390,126 $ 431,233
12,457
9,499
1.49
1.49
11,534
(675)
(0.11)
(0.11)
2,689
(8,452)
(1.32)
(1.32)
1,928
(4,432)
(0.69)
(0.69)
(1) Fourth quarter 2018 results include an impairment charge of $10.7 million related to assets of business
held for sale.
(2) Fourth quarter 2018 results include an impairment charge of $1.8 million related to equity method
investments.
(3) Fourth quarter 2017 results include the impact of the Tax Cuts and Job Act.
83
NON-GAAP RECONCILIATION - ADJUSTED NET INCOME AND EARNINGS PER
SHARE (UNAUDITED)(1)
(in thousands, except per share data)
GAAP: Net Income (Loss) attributable to
controlling interest
Adjusted for:
Income tax provision (benefit)
Income (loss) before income taxes attributable to
controlling interest
Fuel purchase arrangements
Debt extinguishment costs in conjunction with
IPO(2)
Impairment of assets held for sale and other equity
method investments(3)
IPO-related costs(4)
Adjusted income (loss) before income taxes
Adjusted income tax provision (benefit)
Non-GAAP: Adjusted Net Income (Loss)
attributable to controlling interest
GAAP: Earnings per diluted share
Adjusted for:
Income tax provision (benefit) attributable to
controlling interest
Income (loss) before income taxes attributable to
controlling interest
Fuel purchase arrangements
Debt extinguishment costs in conjunction with
IPO(2)
IPO-related costs(4)
Impairment of assets held for sale and other equity
method investments(3)
Adjusted income (loss) before income taxes
Adjusted income tax provision (benefit)
Non-GAAP: Adjusted Net Income (Loss)
attributable to controlling interest
Quarter Ended December 31, Year Ended December 31,
2018
2017
2018
2017
$
$
$
$
$
6,997 $
9,499 $
24,899 $
(4,060)
6,779
(9,984)
7,860
(17,187)
13,776 $
-
-
12,497
-
26,273
6,779
(485) $
6,063
32,759 $
-
(21,247)
8,424
-
7,753
-
-
-
5,578
4,699
12,497
6,437
59,446
11,380
-
-
(12,823)
(1,618)
19,494 $
879 $
48,066 $
(11,205)
0.14 $
1.49 $
0.83 $
(0.64)
0.14
(1.56)
0.26
(2.69)
0.28 $
-
(0.07) $
0.95
1.09 $
-
(3.33)
1.32
-
-
0.25
0.53
0.14
-
-
-
0.88
0.74
0.26
0.21
0.41
1.97
0.38
-
-
-
(2.01)
(0.25)
$
0.39 $
0.14 $
1.59 $
(1.75)
(1) Adjusted Operating Ratio is also non-GAAP financial measure presented in this Annual Report. Please
see the reconciliation of this measure on page 37 of this Annual Report.
(2) In connection with the IPO, we recognized an early extinguishment of debt charge related to our then
existing term loan.
(3) During the fourth quarter, we incurred impairment charges related to the exit of our U.S.- Mexico
cross border business and dispositions of other equity method investments.
(4) During the second quarter, we incurred one time expenses for the IPO related to pay out of our SARs
program and deal bonuses totaling $6,437.
84
STOCK PERFORMANCE GRAPH
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed”
with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act
of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically
incorporates such information by reference into such filing.
The following graph compares the cumulative total stockholder return on our Class A common stock to the cumulative
total return of the Standard and Poor’s 500 Stock Index, the Dow Jones U.S. Transportation Index, and a customized
peer group for the period from June 14, 2018 through December 31, 2018. The peer group consists of ArcBest Corp.,
Werner Enterprises, Inc., Marten Transport, Ltd., Hub Group, Inc., Covenant Transportation Group, Inc., Forward Air
Corporation, Heartland Express, Inc., Landstar System, Inc., Roadrunner Transportation Systems, Inc., P.A.M.
Transportation Services, Inc., Universal Logistics Holdings, Inc., Schneider National, Inc., Saia, Inc., USA Truck,
Inc., and YRC Worldwide Inc. The comparison assumes $100 was invested on June 14, 2018, in our Class A common
stock and in each of the foregoing indices and peer group and assumes reinvestment of dividends. The stock
performance shown on the graph below represents historical stock performance and is not necessarily indicative of
future stock price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN*
Among U.S. Xpress Enterprises, Inc., the S&P 500 - Total Returns Index,
the Dow Jones US Transportation Average Index, and a Peer Group
$120
$100
$80
$60
$40
$20
$0
6/14/18
6/18
9/18
12/18
U.S. Xpress Enterprises, Inc.
S&P 500 - Total Returns
Dow Jones U.S. Transportation Average
Peer Group
*$100 invested on 6/14/18 in stock or 5/31/18 in index, including reinvestment of dividends.
Fiscal year ending December 31.
U.S. Xpress Enterprises, Inc.
S&P 500 - Total Returns
Dow Jones U.S. Transportation Average
Peer Group
6/14/18
6/18
9/18
12/18
100.00
100.00
100.00
100.00
90.77
100.62
96.29
97.32
82.73
108.37
106.28
99.98
33.63
93.72
85.99
76.16
Prepared by Research Data Group, Inc. Used with permission. All rights reserved. Copyright© 2019 Standard &
Poor's, a division of S&P Global.
85
CORPORATE INFORMATION
EXECUTIVE MANAGEMENT
CORPORATE HEADQUARTERS
U.S. Xpress Enterprises, Inc.
4080 Jenkins Road
Chattanooga, TN 37421
STOCK EXCHANGE
The Company’s ticker symbol on the New
York Stock Exchange is USX.
STOCK TRANSFER AGENT
American Stock Transfer & Trust
Company, LLC
Telephone: 800.937.5449
ANNUAL MEETING OF STOCKHOLDERS
U.S. Xpress Enterprises, Inc’s
stockholders are invited to attend our
2019 Annual Meeting of Stockholders,
which will be held on Thursday, May 9,
2019 at 11:00 a.m. Eastern Daylight Time.
The meeting will be held at our corporate
headquarters, located at 4080 Jenkins
Road, Chattanooga, Tennessee 37421.
INVESTOR RELATIONS
For additional financial documents
and information, please visit our investor
relations website at investor.usxpress.com.
Please contact us by phone at
833.879.7737 or by sending an e-mail
to investors@usxpress.com.
Eric Fuller
President and Chief Executive Officer
Max Fuller
Executive Chairman
Eric Peterson
Chief Financial Officer and Treasurer
Leigh Anne Battersby
EVP, Corporate General Counsel,
and Secretary
Matt Herndon
Chief Operating Officer
BOARD OF DIRECTORS
Max Fuller
Executive Chairman and Director
of the Company
Phillip V. Connors
Lead Independent Director of the Company,
Principal of Philip V. Connors & Associates, LLC
Jon F. Beizer
Director of the Company, Investment Partner at
Western Technology Investments
Edward “Ned” H. Braman
Director of the Company, Retired Audit
Partner at Ernest & Young LLP
Eric Fuller
President, Chief Executive Officer and
Director of the Company
Dennis A. Nash
Director of the Company, Chief Executive Officer
and Chairman of Kenan Advantage Group, Inc.
Lisa Quinn Pate
Chief Administrative Officer and Director
of the Company
John C. Rickel
Director of the Company, Senior Vice President
and Chief Financial Officer of Group 1
Automotive, Inc.
U.S. Xpress Enterprises, Inc. // 4080 Jenkins Road // Chattanooga, TN 37421 // usxpress.com