UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to

Commission File Number:  001-38528

U.S. Xpress Enterprises, Inc.

(Exact name of registrant as specified in its charter)

Nevada	62-1378182
(State or other jurisdiction of incorporation	(I.R.S. Employer Identification No.)
or organization)
4080 Jenkins Road
Chattanooga, Tennessee	37421
(Address of principal executive offices)	(Zip Code)

(423) 510-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.01 par value	USX	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b‑2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer   ☒	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date October 31, 2019.

Class A Common Stock, $0.01 par value: 33,278,230

Class B Common Stock, $0.01 par value: 15,687,101

TABLE OF CONTENTS

	PART I FINANCIAL INFORMATION
		Page Number
Item 1.	Unaudited Condensed Consolidated Financial Statements Three and Nine Months Ended September 30, 2019 and 2018
	Unaudited Condensed Consolidated Balance Sheets	3
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Unaudited Condensed Consolidated Statements of Cash Flows	5
	Unaudited Condensed Consolidated Statement of Stockholder’s Equity (Deficit)	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37
	PART II OTHER INFORMATION
		Page Number
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	43

Page 2

U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Balance Sheets

September 30, 2019 and December 31, 2018

	September 30,		December 31,
(in thousands, except share amounts)	2019		2018
Assets
Current assets
Cash and cash equivalents	$	4,442	$	9,892
Customer receivables, net of allowance of $75 and $59 at September 30, 2019 and December 31, 2018, respectively		193,047		190,254
Other receivables		18,345		20,430
Prepaid insurance and licenses		23,221		11,035
Operating supplies		7,706		7,324
Assets held for sale		10,399		33,225
Other current assets		19,057		13,374
Total current assets		276,217		285,534
Property and equipment, at cost		939,889		898,530
Less accumulated depreciation and amortization		(403,891)		(379,813)
Net property and equipment		535,998		518,717
Other assets
Operating lease right of use assets		250,062		—
Goodwill		57,708		57,708
Intangible assets, net		27,642		28,913
Other		31,067		19,615
Total other assets		366,479		106,236
Total assets	$	1,178,694	$	910,487
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable	$	87,161	$	63,808
Book overdraft		3,833		—
Accrued wages and benefits		24,085		24,960
Claims and insurance accruals, current		51,125		47,442
Other accrued liabilities		9,433		8,120
Liabilities associated with assets held for sale		—		6,856
Current portion of operating lease liabilities		70,246		—
Current maturities of long-term debt and finance leases		82,669		113,094
Total current liabilities		328,552		264,280
Long-term debt, net of current maturities		351,492		312,819
Less unamortized discount and debt issuance costs		(1,301)		(1,347)
Net long-term debt		350,191		311,472
Deferred income taxes		20,996		19,978
Long-term liabilities associated with assets held for sale		—		8,353
Other long-term liabilities		6,599		7,713
Claims and insurance accruals, long-term		53,370		60,304
Noncurrent operating lease liabilities		179,600		—
Commitments and contingencies (Notes 7 and 8)		—		—
Stockholders' Equity
Common stock Class A, $.01 par value, 140,000,000 shares authorized at September 30, 2019 and December 31, 2018, respectively, 33,278,230 and 32,859,292 issued and outstanding at September 30, 2019 and December 31, 2018, respectively		333		329
Common stock Class B, $.01 par value, 35,000,000 authorized at September 30, 2019 and December 31, 2018, respectively, 15,687,101 and 15,486,560 issued and outstanding at September 30, 2019 and December 31, 2018, respectively		157		155
Additional paid-in capital		249,665		251,742
Accumulated deficit		(11,388)		(17,335)
Stockholders' equity		238,767		234,891
Noncontrolling interest		619		3,496
Total stockholders' equity		239,386		238,387
Total liabilities, redeemable restricted units and stockholders' equity	$	1,178,694	$	910,487

See Notes to Unaudited Condensed Consolidated Financial Statements

Page 3

U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

Three and Nine Months Ended September 30, 2019 and 2018

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share amounts)	2019		2018		2019		2018
Operating revenue
Revenue, before fuel surcharge	$	386,666	$	413,887	$	1,133,162	$	1,199,553
Fuel surcharge		41,837		46,340		124,566		136,140
Total operating revenue		428,503		460,227		1,257,728		1,335,693
Operating expenses
Salaries, wages, and benefits		134,887		128,117		389,971		400,742
Fuel and fuel taxes		47,460		57,423		141,738		173,516
Vehicle rents		19,470		19,497		57,025		58,912
Depreciation and amortization, net of (gain) loss on sale of property		26,684		24,541		74,498		73,396
Purchased transportation		122,433		129,732		349,017		350,189
Operating expenses and supplies		29,525		30,538		87,438		89,402
Insurance premiums and claims		19,570		25,128		63,189		64,463
Operating taxes and licenses		3,533		3,522		10,112		10,432
Communications and utilities		2,209		2,258		6,659		7,149
General and other operating expenses		19,450		16,579		54,044		49,728
Gain on sale of subsidiary		—		—		(670)		—
Total operating expenses		425,221		437,335		1,233,021		1,277,929
Operating income		3,282		22,892		24,707		57,764
Other expense (income)
Interest expense, net		5,467		4,815		16,366		29,771
Early extinguishment of debt		—		—		—		7,753
Equity in loss of affiliated companies		91		73		270		250
Other, net		—		(133)		26		34
		5,558		4,755		16,662		37,808
Income (loss) before income tax provision		(2,276)		18,137		8,045		19,956
Income tax provision (benefit)		(813)		1,679		1,503		1,081
Net total and comprehensive income (loss)		(1,463)		16,458		6,542		18,875
Net total and comprehensive income (loss) attributable to noncontrolling interest		(17)		329		595		972
Net total and comprehensive income (loss) attributable to controlling interest	$	(1,446)	$	16,129	$	5,947	$	17,903
Earnings (loss) per share
Basic earnings (loss) per share	$	(0.03)	$	0.33	$	0.12	$	0.77
Basic weighted average shares outstanding		48,984		48,296		48,709		23,118
Diluted earnings (loss) per share	$	(0.03)	$	0.33	$	0.12	$	0.76
Diluted weighted average shares outstanding		48,984		49,597		49,289		23,638

See Notes to Unaudited Condensed Consolidated Financial Statements

Page 4

U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2019 and 2018

	Nine Months Ended
	September 30,
(in thousands)	2019		2018
Operating activities
Net income	$	6,542	$	18,875
Adjustments to reconcile net income  to net cash provided by operating activities:
Early extinguishment of debt		—		7,753
Deferred income tax provision		1,018		3,458
Depreciation and amortization		68,813		68,687
Losses on sale of equipment		5,685		4,709
Share based compensation		2,810		1,356
Other		783		(2,091)
Interest paid-in-kind		—		(7,516)
Gain on sale of subsidiary		(670)		—
Changes in operating assets and liabilities:
Receivables		(5,650)		(30,102)
Prepaid insurance and licenses		(12,189)		(9,754)
Operating supplies		(443)		(96)
Other assets		(4,800)		(4,190)
Accounts payable and other accrued liabilities		22,076		(11,531)
Accrued wages and benefits		(729)		5,304
Net cash provided by operating activities		83,246		44,862
Investing activities
Payments for purchases of property and equipment		(127,899)		(125,556)
Proceeds from sales of property and equipment		33,301		36,915
Other		(2,000)		(500)
Sale of subsidiary, net of cash		(6,432)		—
Net cash used in investing activities		(103,030)		(89,141)
Financing activities
Borrowings under lines of credit		56,200		219,332
Payments under lines of credit		(53,300)		(248,665)
Borrowings under long-term debt		78,803		289,943
Payments of long-term debt		(73,472)		(464,375)
Payments of financing costs and original issue discount		(170)		(4,162)
Proceeds from IPO, net of issuance costs		—		246,685
Payments of long-term consideration for business acquisition		(990)		(1,010)
Purchase of noncontrolling interest		(8,659)		—
Tax withholding related to net share settlement of restricted stock awards		(44)		—
Proceeds from issuance of common stock under ESPP		349		—
Repurchase of membership units		—		(217)
Book overdraft		3,833		3,626
Net cash provided by financing activities		2,550		41,157
Cash included in assets held for sale		11,784		—
Net change in cash and cash equivalents		(5,450)		(3,122)
Cash and cash equivalents
Beginning of year		9,892		9,232
End of period	$	4,442	$	6,110
Supplemental disclosure of cash flow information
Cash paid during the year for interest	$	16,102	$	42,306
Cash paid during the year for income taxes		311		1,368
Supplemental disclosure of significant noncash investing and financing activities
Debt obligations relieved in conjunction with the divesture of Xpress Internacional	$	7,109	$	—
Property and equipment amounts accrued in accounts payable		1,622		—
Capital lease extinguishments		40		1,096
Uncollected proceeds from asset sales		1,607		231

See Notes to Unaudited Condensed Consolidated Financial Statements

Page 5

U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Statement of Stockholders' Equity (Deficit)

Three and Nine Months Ended September 30, 2019 and 2018

					Additional				Non		Total
	Class A		Class B		Paid		Accumulated		Controlling		Stockholders'
(in thousands, except share amounts)	Stock		Stock		In Capital		Deficit		Interest		Equity
Balances at December 31, 2018	$	329	$	155	$	251,742	$	(17,335)	$	3,496	$	238,387
Share based compensation		—		—		856		—		—		856
Vesting of restricted units		—		1		(39)		—		—		(38)
Net income		—		—		—		4,721		298		5,019
Balances at March 31, 2019		329		156		252,559		(12,614)		3,794		244,224
Share based compensation		—		—		1,024		—		—		1,024
Vesting of restricted units		3		1		(10)		—		—		(6)
Purchase of noncontrolling interest		—		—		(5,187)		—		(3,472)		(8,659)
Net income		—		—		—		2,672		314		2,986
Balances at June 30, 2019		332		157		248,386		(9,942)		636		239,569
Share based compensation		—		—		930		—		—		930
Issuance of common stock under ESPP		1		—		349		—		—		350
Net loss		—		—		—		(1,446)		(17)		(1,463)
Balances at September 30, 2019	$	333	$	157	$	249,665	$	(11,388)	$	619	$	239,386

					Additional				Non		Total		Redeemable
	Class A		Class B		Paid		Accumulated		Controlling		Stockholders'		Restricted
(in thousands, except share amounts)	Stock		Stock		In Capital		Deficit		Interest		Equity (Deficit)		Units
Balances at December 31, 2017	$	64	$	—	$	1	$	(43,459)	$	2,289	$	(41,105)	$	3,281
Share based compensation		—		—		—		—		—		—		208
Adoption of ASC 606		—		—		—		1,459		—		1,459		—
Dividend of repurchased membership units		—		—		—		—		—		—		(51)
Net income		—		—		—		1,159		223		1,382		—
Balances at March 31, 2018		64		—		1		(40,841)		2,512		(38,264)		3,438
Share based compensation		—		—		238		—		—		238		183
Cancel 6,384,877 US Xpress Enterprises shares		(64)		—		—		64		—		—		—
Issuance of 16,046,624 shares of Class A Stock in Reorganization		160		—		(11)		(149)		—		—		—
Issuance of 15,486,560 shares of Class B Stock in Reorganization		—		155		(6)		(149)		—		—		—
Transfer from temporary equity to permanent equity		—		—		3,455		—		—		3,455		(3,455)
Issuance of 16,668,000 shares of Class A stock in Initial Public Offering, net of underwriting discounts and offering costs		167		—		246,931		—		—		247,098		—
Vesting of restricted stock		1		—		(1)		—		—		—		—
Dividend of repurchased membership units		—		—		—		—		—		—		(166)
Net income		—		—		—		615		420		1,035		—
Balances at June 30, 2018		328		155		250,607		(40,460)		2,932		213,562		—
Share based compensation		—		—		727		—		—		727		—
Issuance of 16,668,000 shares of Class A stock in Initial Public Offering, net of underwriting discounts and offering costs		—		—		(414)		—		—		(414)		—
Net income		—		—		—		16,129		329		16,458		—
Balances at September 30, 2018	$	328	$	155	$	250,920	$	(24,331)	$	3,261	$	230,333	$	—

See Notes to Unaudited Condensed Consolidated Financial Statements

Page 6

U.S. Xpress Enterprises, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2019

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, 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.

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

Basis of Presentation

The unaudited condensed 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.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with Article 10 of Regulation S-X promulgated under the Securities Act of 1933, as amended. The preparation of financial statements in conformity with 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. In the opinion of management, the accompanying financial statements include all adjustments that are necessary for a fair statement of the results of the interim periods presented, such adjustments being of a normal recurring nature.

Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The December 31, 2018 balance sheet was derived from our audited balance sheet as of that date. The Company’s operating results are subject to seasonal trends when measured on a quarterly basis; therefore operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2018.

Leases

We determine if an arrangement is a lease or contains a lease at inception and perform an analysis to determine whether the lease is an operating lease or a finance lease. We measure right-of-use (“ROU”) assets and lease liabilities at the lease commencement date based on the present value of the remaining lease payments. As most of our leases do not provide a readily determinable implicit rate, we estimate an incremental borrowing rate based on the credit quality of the Company and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of each lease. We use this rate to discount

Page 7

the remaining lease payments in measuring the ROU asset and lease liability. We use the implicit rate when readily determinable. We recognize lease expense for operating leases on a straight-line basis over the lease term. For our finance leases, we recognize amortization expense from the amortization of the ROU asset and interest expense on the related lease liability. We do not separate lease and nonlease components of contracts, except for certain leased information technology assets that are embedded within various service agreements. The lease components included in those agreements are included in the ROU asset and lease liability, and the amounts are not significant.

Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term.

Recently Issued Accounting Standards

In January 2017, the FASB issued Accounting Standards Update (“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 2017‑04 will have a material impact on the consolidated financial statements.

Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU 2016‑02, “Leases (Topic 842),” and has subsequently issued supplemental and/or clarifying ASUs (collectively “ASC 842”), in order to increase transparency and comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. We adopted ASC 842 using the modified retrospective approach and applied the transition provisions with an effective date as of January 1, 2019 for leases that existed on that date. Prior period results continue to be presented under ASC 840 based on the accounting originally in effect for such periods. We elected the “package of practical expedients” under ASC 842 which permits us to not reassess our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. We also elected the practical expedient to not reassess certain land easements. We did not elect the use-of-hindsight practical expedient during the transition of ASC 842. Adoption of ASC 842 resulted in the recording of operating lease ROU assets and corresponding operating lease liabilities of approximately $183.0 million. The adoption of ASC 842 also resulted in increased disclosure, including qualitative and quantitative disclosures about the nature, amount, timing, and uncertainty of cash flows arising from leases. See the “Leases” section of this note and Note 6, Leases for additional information.

3.       Divesture of Xpress Internacional

In January 2019, we sold our 95% interest in Xpress Internacional. The purchase price was approximately $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. During the quarter ended June 30, 2019, we updated the fair value of the tractors to $1.8 million from the previously recorded $2.5 million and recorded an additional cash receivable for $1.5 million as a result of lower than expected purchase expenses at Xpress Internacional. The business met the criteria for the presentation as held for sale as of December 31, 2018. The assets of business held for sale were not material to our consolidated revenues or consolidated operating income. We recognized an impairment in the amount of $10.7 million in December 2018, related to the disposal group as the carrying value exceeded the fair value. We recognized  a subsequent gain during the quarter ended June 30, 2019 of $0.7 million.

Page 8

4.        Noncontrolling Interest

In June 2019, we purchased the remaining 10% noncontrolling interest of Total Transportation of Mississippi for a purchase price of $8.7 million. The book value of the noncontrolling interest prior to the equity purchase was $3.5 million and the remaining $5.2 million was a reduction to additional paid in capital.

5.        Income Taxes

The Company’s provision for income taxes for the nine months ended September 30, 2019 and 2018 is based on the estimated annual effective tax rate, plus discrete items. The following table presents the provision for income taxes and the effective tax rates for the three and nine months ended September 30, 2019 and 2018 (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Income (loss) before Income Taxes	$	(2,276)		$	18,137		$	8,045		$	19,956
Income tax provision (benefit)		(813)			1,679			1,503			1,081
Effective tax rate		35.7	%		9.3	%		18.7	%		5.4	%

The difference between the Company’s effective tax rate for the three and nine months ended September 30, 2019 and 2018 and the US statutory rate of 21% primarily relates to nondeductible expenses, nontaxable insurance benefits, federal income tax credits, state income taxes (net of federal benefit), Global Intangible Low-Taxed Income earned by certain foreign subsidiaries, the effect of taxes on foreign earnings and certain discrete items.

6.        Long-Term Debt

Long-term debt at September 30, 2019 and December 31, 2018 consists of the following (in thousands):

	September 30, 2019		December 31, 2018
Line of credit, maturing June 2023	$	2,900	$	—
Term loan agreement, interest rate of 4.3% and 4.8% at September 30, 2019 and December 31, 2018, respectively, maturing June 2023		187,500		195,000
Revenue equipment installment notes with finance  companies, weighted average interest rate of 4.7% and 5.0% at September 30, 2019 and December 31, 2018, due in monthly installments with final maturities at various dates through February 2026, secured by related revenue equipment with a net book value of $225.0 million and $197.1 million at September 30, 2019 and December 31, 2018		210,666		184,867
Mortgage note payables, interest rates ranging from 6.26% to 6.99% at September 30, 2019 and December 31, 2018 due in monthly installments with final maturities at various dates through September 2031, secured by real estate with a net book value of $20.5 million and $24.1 million at September 30, 2019 and December 31, 2018		18,041		18,861
Other		408		6,872