U.S. Xpress Announces Realignment Plan

Realignment plan is primarily focused on improving its Over-the-road (OTR) operations with limited impact to its Dedicated and Brokerage businesses

U.S. Xpress Enterprises, Inc. announced a realignment plan focused on improving operating profitability and cash flow as well as reducing balance sheet leverage.

Company Comments

“Today’s announcement is in the long-term best interests of U.S. Xpress. Our vision to build a digitally enabled OTR fleet was ambitious and achieved certain successes, but with the freight market softening, it is important that we right size our cost structure for the current environment to protect our corporate health, our commitments to our customers, and our stockholders’ investment,” said Eric Fuller, President & CEO. “The investments we made in our digital enablement initiatives over the last few years will be incorporated into our newly realigned divisions. Our business will comprise two divisions: Dedicated and Highway Services. Dedicated will continue to operate as it does currently, while Highway Services will encompass our legacy OTR, Variant, and Brokerage operations. We believe this model will allow for the optimal allocation of all available OTR freight across Company and third-party capacity, allowing selectivity for our assets while providing additional capacity for our customers.”

Organizational Realignment

Justin Harness will lead both the operational and commercial functions of the OTR and Brokerage businesses, serving as President of Highway Services.

Brandon Danneffel who most recently served as Senior Vice President of Brokerage, will replace Mr. Harness, as the President of Dedicated. Prior to joining U.S. Xpress, Mr. Danneffel worked at Whirlpool Corporation where he held roles of increasing responsibility across operations, merchandising, sales, and marketing.

Mr. Fuller commented, “Justin led the turnaround of our Dedicated division over the last year and a half and will assume overall responsibility for the newly created Highway Services division. We believe Brandon’s experience will be invaluable in the Dedicated division, where strong performance requires close partnerships with customers. The priorities of our Dedicated and Brokerage businesses will not change with today’s announcement.”

Mr. Fuller noted, “Our goal is to make the realignment as seamless as possible for our customers and professional drivers. We are focused on improving capacity, cost and service levels for our customers, and our realignment plans are not anticipated to impact the ability of our professional drivers to service our customers. Behind the scenes, we expect to gain benefits from improved network planning as well as more effectively allocating freight between Company and third-party assets and the cost reduction measures, we are undertaking.”

Financial Impact

As part of the realignment plan, the Company has identified significant personnel efficiencies as a result of eliminating organizational overlaps and duplicative functions. In total, these efficiencies are expected to reduce annualized wage costs by approximately $20.0 million beginning in the fourth quarter of 2022. The Company expects to incur severance related charges due to this workforce reduction initiative of $0.6 million in its third quarter financial results.

In connection with this workforce reduction initiative and the ongoing impact of remote work, the Company is undergoing a real estate footprint rationalization focused on divestitures of non-core real estate holdings. During the third quarter, the Company terminated the lease agreement for its Atlanta office and expects to incur a charge of $1.2 million related to this action in its third quarter financial results. The Company expects to generate annualized savings of approximately $2.0 million from the lease termination beginning in the fourth quarter. The Company is reviewing additional divestiture opportunities in its real estate portfolio with the intent to use any proceeds from these divestitures to pay down outstanding debt.

Finally, the Company has eliminated approximately $3.0 million in additional annualized costs from all other areas of the business. In total, with the combination of personnel savings, savings from the real estate consolidation, and other cost reductions just mentioned, the Company has eliminated approximately $25.0 million in annualized costs.

Liquidity Update

The Company’s liquidity (cash balances plus availability under the Company’s revolving credit facility) remains strong, at greater than $135.0 million as of August 31, 2022, and the Company expects its liquidity to improve over the balance of the year.

Guidance

The Company is experiencing an increase in insurance and claims expense as claim settlements have accelerated and courts work to clear the backlog of cases which were delayed during the pandemic. Based on the quarter-to-date, the Company expects approximately $15.0 million in additional insurance and claims expense, primarily driven by one large claim, in its third quarter financial results as compared to its 2022 second quarter financial results.

The Company continues to expect capital expenditures, net of proceeds to be approximately $150.0 million for 2022. However, the Company is targeting net capital expenditures of less than $100 million for 2023 as it implements a revised trade cycle management initiative and reduces software development costs. The 2023 net capital expenditure expectation assumes scheduled deliveries and trades for the balance of 2022 remain on schedule.

The Company continues to expect $18 million of interest expense for the full year 2022.

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