USX - U.S. Xpress Enterprises Inc. (USX) Q4 2022 Earnings Call Transcript
U.S. Xpress Enterprises, Inc. (USX)
Q4 2022 Earnings Conference Call
February 9, 2023, 5:00 PM ET
Company Participants
Matt Garvie - Vice President, Investor Relations
Eric Fuller - President and CEO
Eric Peterson - Chief Financial Officer
Conference Call Participants
Ken Hoexter - Bank of America
Christyne McGarvey - Morgan Stanley
Brian Ossenbeck - JPMorgan
Presentation
Operator
Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the U.S. Xpress Enterprises, Inc. Fourth Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]
Thank you. It’s my pleasure to turn today’s call over to Mr. Matt Garvie, Vice President of Investor Relations. Sir, please go ahead.
Matt Garvie
Thank you, Operator, and good afternoon, everyone. Welcome to the U.S. Xpress fourth quarter 2022 earnings call. Eric Fuller, U.S. Xpress’ President and CEO, will lead our call today; joined by Eric Peterson, our CFO, who will discuss our financial results.
Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that can cause actual results to differ materially. These risk factors are described in U.S. Xpress’ most recent Form 10-K filed with the SEC. We undertake no duty or obligation to update our forward-looking statements.
During today’s call, we will discuss certain non-GAAP measures, which we believe can be helpful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release.
As a reminder, a replay of this call will be available on the Investors section of our website. We also have posted an updated supplemental presentation to accompany today’s discussion on our website at investor.usxpress.com. We will be referencing portions of this supplement as part of today’s call.
And with that, I’d like to turn the call over to Eric Fuller.
Eric Fuller
Thank you, Matt, and good afternoon, everyone. Today, I’d like to discuss high level results across our business in the fourth quarter. What gives me confidence that we are moving in the right direction and following Eric Peterson’s financial commentary on the quarter, I will provide our current outlook for the freight market.
2022 was a year of transition for U.S. Xpress, as we executed our realignment plan, transitioned our OTR operations back to a more traditional model focused on ensuring freight is delivered on time and in a cost effective manner for our customers and recently transitioned all Truckload and Brokerage operations under one leader, just in harness.
The heavy lifting associated with our realignment plan is complete and we began to see cost savings in the fourth quarter from the actions we have taken since early September. Overall, I was pleased with the progress we made in our OTR division and with our cost takeout initiatives from our realignment plan. Improvement in underlying metrics, including fleet availability, service level and utilization give me the confidence that we are moving in the right direction.
From a financial results perspective, our spot market exposure more than offset these operational gains and cost savings from our realignment plan. Conversations with our customers continue to evolve. Our back to the basics message and our progress to-date continue to resonate well with them and has been instrumental in helping to add some incremental load volume despite the weak freight market.
Feedback from our customers indicates that many are still working through some level of inventory destocking. Our pipeline of OTR freight opportunities is extremely robust, and we expect to make meaningful progress reducing our spot market exposure, as we navigate through bid season and begin to service new awards.
Our customer base is heavily focused on industry-leading companies and defensive segments of the economy, including discount retail, consumer nondurables and retail grocery, which positions us well in the current market. The value we deliver for our customers is evident from the fact that many of our top customers have partnered with us for a decade or longer and use more than one of our service offerings.
Our business development team continues to proactively add new logos to our customer base. We are excited to support these new customers and demonstrate the value proposition of partnering with U.S. Xpress every day.
Turning to our Truckload segment. We generated Truckload revenue net of fuel of $397 million, a sequential decrease of approximately $5 million, primarily due to the spot market rates declining sequentially.
Consistent with what we said on our third quarter earnings call, we exited the fourth quarter with a fleet that was approximately the same size as that which we exited the third quarter. We will continue to be focused on improving the mix and profitability at our current fleet size.
Turning to our OTR division. In the fourth quarter, although peak didn’t materialize, we continue to make progress driving accountability through our OTR fleet. Our service levels continue to improve, our percentage of empty miles decreased and we continue to improve the overall quality of our OTR professional drivers, as sourcing qualified professional drivers continues to ease.
Exiting the fourth quarter, the structure and discipline has been implemented into our fleet operations and we are seeing the benefit of this in our current utilization levels. While we still expect some modest incremental improvement utilization from these efforts, to meaningfully improve our utilization, we need to add more freight to our network. As I mentioned earlier, our ability to service the freight we do get from our customers at a high level is critical to adding more contracted freight.
Turning to our Dedicated division. Our Dedicated division exited the year with another strong quarter. This service offering continues to resonate well with customers due to its unique value proposition, which includes exceptionally high service levels.
As we said last quarter, we want to work closely with our customers to identify additional opportunities where our Dedicated offering is a good fit for them. For 2023, we are targeting approximately 2,800 tractors in this fleet, but could increase that depending on customer needs.
Turning to Brokerage. Our Brokerage segment generated revenue of $78 million and sequentially performance was similar in the fourth quarter compared to the third quarter. Adding more freight to our network will not only benefit our assets, but should also benefit the topline and Brokerage.
Our margin performance has benefited from a lower capacity acquisition cost, with gross margins of 20% plus for the last three quarters. In addition, margins in the fourth quarter benefited from some project capacity that we provided customers, which helps contribute to our 92% operating ratio in the quarter. In the first quarter of 2023, we could see some margin pressure, as we won’t have the benefit of this project work.
Looking ahead to 2023, I am confident that we are moving in the right direction as our operational issues were concentrated in our OTR division. We spent much of 2022 putting the building blocks in place to correct these issues.
As I said earlier, the heavy lifting has been completed with fleet ops and we are seeing improvement in our underlying metrics, including service level, driver availability, percentage of empty miles and utilization. The market remains challenging, but it will turn and when it does, we expect our financial results to reflect the work we put into the business in 2022.
With that, I’d like to turn the call over to Eric Peterson.
Eric Peterson
Thank you, Eric, and good afternoon, everyone. This afternoon I would like to discuss our financial performance in the fourth quarter, as well as capital allocation priorities and provide some financial guidance before turning the call back to Eric to provide our freight market outlook.
Turning to our performance in the fourth quarter. We generated revenue, excluding fuel surcharge of $475.2 million, a decrease of 0.5% compared to the third quarter of 2022. Consistent with the last few quarters, we are focused on the sequential progress of the business, and therefore, my commentary will focus on comparisons to the third quarter of 2022 unless noted otherwise.
Turning to adjusted operating loss. Total adjusted operating loss was $5.7 million, a sequential improvement of $15.8 million compared to the third quarter. Sequentially, our spot market exposure was a headwind that could not be overcome by our significant cost reductions executed this year and our improved results in both Dedicated and Brokerage. Our spot rates declined another $0.20 per mile sequentially, which contributed to a $0.06 per mile decrease in our overall over the road rate per mile.
In addition, in our rising fuel environment, this business also has an adverse impact on our net fuel expense, as most of these spot loads don’t have fuel surcharge revenue associated with them. As a result, our net fuel expense increased an additional $0.02 per mile compared to the third quarter. This combination led to an overall $7.7 million headwind to our results.
Spot rates continue to be at record discounts compared to the contractual rates. For illustrative purposes, had our spot rate spend at par with our contractual rates in the fourth quarter, operating income would have been better by $25.6 million.
Keep in mind, we believe the headwind from our current spot market exposure is transient as, one, we add more contracted loads to our network through the current bid season, which is well underway, and two, the spot market rates recover from record discounts as compared to contractual rates.
In terms of positive sequential contributions in the fourth quarter, realignment plan related cost savings totaled $8 million and included reduced office wages of $5.5 million and an additional $2.5 million in other fixed cost savings.
On an annualized basis, this represents $32 million in fixed cost and savings, which compares favorably to our prior expectation of $28 million, which we disclosed on our third quarter call. In addition, incremental Brokerage operating income of $2.4 million and the $0.04 per mile increase in Dedicated rates were also positives in the quarter.
Turning to capital expenditures. For the full year, net capital expenditures, which primarily relate to tractors and trailers was $153.1 million, compared to $97 million in 2021. The year-over-year increase was due primarily to anticipated equipment deliveries in 2021, which were delivered in 2022, as well as fewer proceeds from the sale of used equipment.
In our earnings supplement, we have provided a slide, which includes our net CapEx by category. Looking at the other two categories, both general and other, which primarily relates to renovations in our terminal network and technology which is primarily capitalized wages from our IT development efforts decreased year-over-year. Our technology-related CapEx was $24.5 million, a decrease of $7.9 million compared to 2021.
Keep in mind that our realignment plan, which included a meaningful reduction in the size of our IT organization, didn’t commence until September, and therefore, we expect our 2023 technology related CapEx to decline on a year-over-year basis, once again, as our leaner tech work will focus on concentrating their efforts on fewer, higher value projects. For 2023, we are currently expecting net capital expenditures to be less than $75 million.
Our equipment is currently in excellent condition and the average age of our tractors is approximately 2 years old. Given our equipment is in such good condition and well maintained primarily through our in-house preventative maintenance program, we believe that we will not require significant capital expenditures during 2023.
As we have said in the past, the per mile increase in maintenance costs from aging our fleet in a disciplined manner is significantly less than the incremental per mile cost of new equipment. We intend to take advantage of these to pay down debt and lower our leverage profile in 2023.
Turning to net debt. At the end of the fourth quarter, net debt, which we define as long-term debt, including current maturities less cash balances was $481.9 million, compared to $369.8 million at the end of 2021. Over the next year, we expect to pay down debt and decrease our leverage through our disciplined capital allocation approach, divestitures of non-core real estate assets and improved earnings as the market turns.
After the close of the quarter and not reflected in our fourth quarter results, we sold a terminal, which was previously being leased to an unaffiliated company. The sale generated cash proceeds of $6.5 million, which we used to pay down debt.
Turning to liquidity. At the end of the fourth quarter, liquidity, which we define as cash plus availability under the company’s revolving credit facility was $106.1 million and we generated $43.5 million in cash from operations for the full year. Our overall liquidity position exiting the fourth quarter remained strong, providing us with ample liquidity to fund our business and serve our customers.
As a reminder, we use cash generated from operations, together with our revolver to fund day-to-day operations, and use separate loan financing and lease arrangements to fund our equipment obligations. In 2023, we expect cash flow and liquidity to improve, as a result of lower net CapEx, improved operating profitability, and cash flows and debt repayment.
Turning to guidance. To assist with your models, we expect the following; flat overall truck count as we focus on improving our mix and profitability at our current fleet size; moderate sequential improvement and utilization in our over-the-road fleet for at least the first half of the year; further sequential improvement in the second half is dependent on adding more freight to our network. In addition, for the full year, we expect the following, interest expense between 26 and $28 million and net capital expenditures of less than $75 million.
Looking ahead to 2023, our priorities are clear; one, we must add more freight to our network to take advantage of our significant operational improvements; two, reduce our spot market exposure in our over-the-road business; and three, we must continue to manage expenses, deploy capital in a prudent manner and reduce our overall debt levels.
With that, I’d like to turn the call back to Eric Fuller for our outlook.
Eric Fuller
Thank you, Eric. Looking out to 2023, we are anticipating a soft market for at least the first half of the year, as shippers continue to work through higher than usual inventory levels and there is too much capacity in the market relative to demand.
In terms of capacity, although we haven’t seen evidence in the spot rate, we continue to expect smaller carriers to exit the market in the coming quarters as spot loads are less profitable, due to lower spot rates and increased delivery related costs, including higher fuel, equipment, maintenance and insurance costs.
We continue to have an easier time sourcing qualified professional drivers and we have observed prices continue to soften in the used equipment market, both of which suggests some capacity is leaving the market albeit slowly. As far as how these dynamics will influence rates in 2023, there is still a lot of uncertainty about the rate environment.
From our perspective, we will continue to price business in a manner that reflects the value we deliver for our customers and we are aggressively adding more contracted freight to our network, which should help to alleviate some of the volatility in our OTR rates as we progress through the year.
In terms of 2023 priorities, we will continue to focus on what we can control, which includes; one, continuing to execute on the basics; two, servicing our customers at a high level; and three, reducing our spot market exposure. We expect the benefits from these initiatives, combined with cost savings from our realignment plan to positively impact our financial results as the market turns.
And with that, Operator, we are ready to take questions.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from Ken Hoexter with Bank of America. Your line is open.
Ken Hoexter
Hey. Good afternoon. Hey. It’s Ken Hoexter from BofA.
Eric Fuller
Yeah.
Ken Hoexter
So, Eric, I want to talk a bit about this drive from spot to -- well, first of all, where do you see spot versus cost of operations now, right? Maybe tell us how that is relative to cash costs? And then do we fear that you are converting to contract at the bottom right, is there a drive to say, hey, we want to get all this stuff on contract and then do you make a push that we are just doing this to get freight on the network, and therefore, we lock in the wrong rates, maybe walk me through that thought process, so we see how you progress in 2023?
Eric Fuller
Sure, Ken. I mean if you look at where we started this down cycle, I mean we were in a different mode. We had a different strategy, and unfortunately, we had too much exposure to spot relative to our overall truck count and so we have gone through this period with way too much spot exposure.
And if you look at the gap between spot and contracted times, it’s been as much as $1 a mile. And so, as we look at converting over into contracts, we can get a big pickup, even if we have to get a little bit lower than we would like from a contract perspective.
So we are being selective on what contract business we are taking. We are trying to partner with people that we value from a relationship standpoint and those that we think have value long-term, but we do think that switching from spot to contract will have a meaningful impact to our results in this cycle and then will set us up to better manage our portfolio of freight and our network in the next cycle.
Ken Hoexter
And did you clarify how much was spot versus contract in the OTR?
Eric Fuller
Yeah. Eric, I don’t know if we disclose that?
Eric Peterson
Yeah. We hadn’t talked about it, but what Eric just said is, at times it was $1 per mile. But that’s -- he wasn’t saying that it was $1 per mile lower for the entire quarter, but just saying it reached levels as low as the dollar per mile.
Ken Hoexter
No. No. I meant the mix. What -- I think in the past you said, what, 30% of the base is spot exposed, do you talk about what percent is spot versus contract now?
Eric Peterson
Yeah. It’s approximately -- yeah, I think, we disclosed that in the last quarter. We said approximately 30% of that over-the-road fleet and it’s slightly higher than that in the fourth quarter, but relatively consistent.
Ken Hoexter
Okay. And then, Eric, you talked about not growing the fleet and I thought you said in your commentary, it was flat, but I thought it was up and I am talking OTR, right? Wasn’t it up 200 sequentially in third quarter from second quarter and then another almost $200 million in the fourth quarter. So it seems like you have been growing or is your commentary that we are going to not grow it going? I am just trying to understand the difference there between what I am seeing on the numbers?
Eric Peterson
Yeah.
Eric Fuller
We have our…
Eric Peterson
Yeah. Go ahead.
Eric Fuller
Yeah. I was going to say, those are averages is what you are seeing to the average fourth quarter is higher than the average third quarter, but the exit rate of the third quarter and the exit rate of the fourth quarter were consistent.
Ken Hoexter
So that means you added and then removed, so what is that just deliveries and then you get rid of them through the quarter?
Eric Fuller
No. I mean if you look at how managing a truck count is, I mean, when you are talking turnover anywhere from 80% to over 100%, there is -- truck count kind of moves around. It’s not something that I can sit here and say, we are going to be at this truck count and we are going to stay flat to that all the way through the quarter. It moves around. It could move around as much as 150 to 200 trucks at our size.
And so that’s typical in any quarter and we try to manage that inflow and outflow. But if you hit, say for example, if you were to have a weather event or something like that, we could not get the drivers in for orientation that week and that could greatly impact our truck count. And in some cases, a single week like that could impact your truck count by 40 or 50 trucks and so you can have a big impact on that with some small movement.
And so, we are always trying to manage it to this level. We are not -- over the next -- last two quarters and going forward, we have no plans to change our truck count or try to grow or shrink. But if you look at the average on a quarterly basis, it may look like it’s moving around 100 or 150 and that’s just normal operations.
Ken Hoexter
Got it. So that’s more seated truck count, right? So you are just not counting the non-seated, is that how to look at it?
Eric Fuller
Well, because we are kicking that. The non-seeded, we are usually trying to -- if we don’t see that we are typically trying to divest of it.
Ken Hoexter
Got it. And then one last one for me, just to understand the math. Eric, you were -- Peterson, you were saying, we are moving kind of from CapEx, right, so reducing CapEx, but the liquidity available, but you are putting more of the -- I am trying to understand what you were saying there, the CapEx is not -- might not be cash CapEx, it might be more leverage, but that doesn’t count in your total leverage or did I not catch that in the right way?
Eric Peterson
Yeah. I will just recap to be completely clear. What we are disclosing is that we have net CapEx for 2023 will be less than $75 million. And just to clarify there, too, we also have -- still have some noncore real estate assets on the market and so to the extent we sell and execute those transactions, we will give you another update and it will be even lower than the $75 million we are anticipating now.
Liquidity, that’s where we talked, we are really just talking about the availability in our revolver, and since our CapEx is so low, we will generate some cash, we believe in 2023, which will increase our overall liquidity. So same liquidity was $106 million at the end of the year. I am saying my liquidity at the end of 2023, we believe that it’s going to be a number higher than that and we won’t burn through our liquidity during the year.
Overall leverage, we had a challenging year in 2022, particularly in the third quarter, with over a $20 million operating loss that we believe that we are not going to have losses to that extent during 2023.
So as these quarters roll off, not only will we have lower debt or earnings to be better, which will improve our overall leverage. I mean that’s really our focus during the year is just try and get as efficient as possible with the capital that’s already deployed and not throw new capital out there.
Ken Hoexter
I know I asked the few. I appreciate the time. Thanks for the thoughts and good luck for the bid season.
Eric Peterson
Thanks, Ken.
Eric Fuller
Okay. Thanks, Ken.
Operator
Your next question is from the line of Ravi Shanker with Morgan Stanley. Your line is open.
Christyne McGarvey
Hey. This is Christyne on for Ravi. Thanks for taking my question.
Eric Fuller
Hi, Christyne.
Christyne McGarvey
Hey. I also want to circle back to the spot contract mix. As you guys think about targeting more of that contract rate, is there a particular mix that you are looking to target either year end or even longer out that you think is kind of the right balance going forward and as you look to do that this year. Any thoughts on the ability to kind of keep the contract rate either up or limit kind of how much price you have to give away to get that volume into the contract side of the business?
Eric Fuller
Yeah. I mean if you look at it from a mix perspective, we would like to be below 20% as a percentage of mix of the over-the-road division or around 10% overall revenue and that’s probably going to take us into that next upcycle before we can accomplish that. But that’s our focus right now.
It’s slow, and like I said, we are not just giving rate up just to get contract, we are doing it methodically and we are doing it very targeted. And so, it really -- it’s going to be a slow, slow build through the next couple of quarters until we get a more favorable market and then that will allow us to shift the portfolio a lot quicker.
As it relates to rate, it really depends, if we are seeing a gap of $1 a mile between spot and contract, which is not something we see every single week, but in many weeks we have. We are willing to give up a decent amount of rate on the contract side. It just depends on the lane and it’s got to be something that’s going to be a direct trade one-for-one.
I wouldn’t want to go and add a contract lane and not be able to reduce a spot lane. But if we can make that switch and it still benefits our network and hopefully benefits our network from an efficiency and utility standpoint favorably, then there’s some give that we are willing to give on rates. I can’t really say what it would be in certain lanes. I mean it could be -- we could be willing to close the gap by $0.15, $0.20, and in some cases, they may not be as much. It just really depends.
Christyne McGarvey
Got it. Okay. Really appreciate the detail on that. Maybe switching gears a little bit on the utilization, if I could ask a follow-up. Just have one point of clarification, when you mentioned that the utilization has sort of improved, but if I look through the supplemental deck, it looks like the total number of miles actually declined sequentially. So is that just like a per day comment, given you call it, kind of number of holidays or an exit rate comment, maybe you can just clarify sort of what the improved utilization comment was pointing to?
Eric Peterson
Yeah. This is Eric Peterson. Looking at our sequential utilization third quarter to fourth quarter, when I look at a normal working week, we are seeing absolute improvements in our over-the-road fleet and we are doing that by managing our drivers better in availability.
But if you look at the year-over-year comp, say, fourth quarter to fourth quarter, you can see that in the numbers better, where there was the same number of holidays. Yes, sequentially, the decline in utility, that was driven by the calendar.
Christyne McGarvey
Got it. Okay. But the…
Eric Fuller
But also I think it’s relative to the exit rate, too. So as we exited Q4 and going into Q1, we have seen significant improvement in our utility and that’s in -- what I would argue is potentially even a less favorable freight market.
So we have gone from Q4 to Q1 with a significant weakness in the market, less volumes available to us, but we have actually increased utility and I think that’s a significant -- I think that shows that we have made some significant improvement in our model and we are really set up for when the market really turns to take full advantage of the additional volume.
Christyne McGarvey
Got it. That’s really helpful. And maybe actually brings to a second question on the utilization front. I think in the opening remarks, you noted that the second half, any sort of further improvement in utilization in the second half would be contingent on getting some freight back into the network. Is the implication of that, that the first half sequential improvement is more idiosyncratic sort of in your control, even in the context of the spot market, maybe you can just kind of parse that out a little bit more for us?
Eric Fuller
Yeah. I think we can make some small incremental improvements on a week-by-week basis. Now how the calendar falls and all that may create some noise in a quarterly basis. But for our purposes, operationally, I see improvements on a pretty much sequential basis.
And so I see us getting better, we are getting better utility, we are being able to perform with the same, if not worse conditions, and so that’s made us pretty optimistic about where we are going when the market turns. But looking for some big significant increase in utility to the tune of 10% or something like that, we are going to have to wait until the market turns before we see something to that magnitude.
Christyne McGarvey
Got it. Understood. Really appreciate all the time. Thanks very much.
Eric Fuller
Thank you.
Operator
[Operator Instructions] Your next question is from Brian Ossenbeck with JPMorgan. Your line is open.
Brian Ossenbeck
Hey. Good afternoon, guys. Thanks for the time.
Eric Fuller
Hey, Brian.
Brian Ossenbeck
Eric Fuller, just to follow-up on that last comment, just to make sure I understood, it sounded like you are saying conditions were actually a bit worse currently, I guess, maybe coming out of the fourth quarter. So maybe I just didn’t catch that right. But either way, if you can just give us an update on kind of where things stand versus the weak peak and your level of confidence and we might have actually seen the worst of this cycle from a demand perspective, obviously, the recovery is still to be determined, but where do things stand right now in January?
Eric Fuller
Yeah. I think that comment was probably more of a seasonal type comment. Any time you are going from Q4 into that January low, you typically see a little bit of a dip. We have seen that from a volume perspective.
I think if anything, things have bottomed out, I don’t see it getting necessarily worse. We see that rates have kind of bottomed. We have seen that volumes and demand seems to have bottomed at this point.
And so we believe that there is a market, the market will turn, and a likelihood, given macro conditions, and I think, that that’s the big unknown, but given macro conditions that there’s a good likelihood that we could have a turn in the second half of this year.
Demand actually is decently strong and could get -- will get stronger when we get through the inventory correction. I think that we have some of our retailers that have over inventory, and as they work that inventory up, we will start to see demand come back.
And so as long as demand stays strong, then right now, we are also then waiting on the other side of the coin, which is supply and the supply in the market is coming out. We are seeing supply come out. We are hearing it from a lot of different vendors. We are hearing from a number of people in the industry. We are hearing -- we are seeing it in our Brokerage division and so we know capacity is coming out.
But unfortunately, right now, it’s not coming out quick enough. I think there’s a lot of what I call zombie trucking companies out there that are kind of barely staying alive and kind of making it through the day, but they are not cash flowing.
And eventually, they are not going to be able to continue operating and those guys have to come out of the market for the market really to turn and I think that will probably happen over the next couple of quarters.
Brian Ossenbeck
Okay. Got it. So when you roll all this together, maybe some improvement in utilization bottoming out of conditions here, do you think -- in the cost savings you outlined earlier, do you have visibility to profitability for the Truckload business in the first quarter, would that take a little bit longer, maybe it’s back half of the year. What are you thinking about return to profitability and the confidence around that or the conditions you need to see to really -- to turn back into the degree?
Eric Fuller
Yeah. So we have too much exposure to spot and that creates a big headwind from a rate perspective. As we mentioned in our release, had spot rates just been equal to contracts, we would have had additional -- roughly additional $25 million in income this quarter. So that would have been very impactful, obviously, and really that rate is what’s dragging us down and so the problem is, I can’t outrun that rate per se.
So I think it will continue to be a drag on us and will make profitability tough until we get to a little bit more favorable rate market. We don’t need a rate market where spot’s running $1 above contract or anything like that, but if we can get to a closer to equilibrium, where spot starts to come up closer to contracts, then we can start making money.
And we are really well positioned, we have got our costs in the right place, we feel like our costs are very much in line with our peers and we are really set up to really take off, as soon as this market takes off, but we do need a little bit of that rate to come back.
Brian Ossenbeck
One quick follow-up for Eric Peterson, just on the divestments, you mentioned the one that happened after the quarter. Is there a way to size what’s up for sale in terms of either buildings or other pieces of the real estate? And then I think even in the slides you mentioned there’s maybe some cost reduction opportunities around that as well, I don’t know if that’s meaningful or not, but some commentary on that would be helpful.
Eric Peterson
Yeah. If you look at our corporate headquarters, which is in Chattanooga, Tennessee, we have our main building and then we had an auxiliary building across the street meaningful and that’s what’s on the market right now and we anticipate being able to generate some cash to pay down debt during this year.
And as if there’s a transaction and it becomes -- once it gets executed, we will be sure to give everyone an update on that, let everyone know what we did with the funds and what that did to the liquidity and our debt levels.
Brian Ossenbeck
And is there an expense component of that or is it just more cash and liquidity?
Eric Peterson
Yeah. The expense report, I mean, you see where interest rates are right now. So to the extent you have a meaningful property that you are selling and we are a net debt organization, there could be a couple of million dollars a year in annualized savings and on the interest line item, then property and real estate taxes, you are no longer paying, utilities you are no longer paying and so, I’d say, in the grand scheme, those are probably a smaller number than the overall interest expense, but it’s still a number.
And the point is on the cost savings, that’s our focus now, we are not trying to build an infrastructure that can help double the revenues of where we are now. We are looking at our current footprint and trying to be as efficient as possible.
And as we do that, the mindset really changes of the organization, we will be able to, I think, continue to identify waste and it will just be a process. Maybe not big numbers from quarter-to-quarter, but the point is with the mindset, there will be A number from quarter-to-quarter of cost savings.
Brian Ossenbeck
Okay. Understood. Thanks for the time. Appreciate it.
Eric Fuller
Thanks, Brian.
Operator
There are no further questions at this time. I would now like to turn the call back to Mr. Eric Fuller.
Eric Fuller
Great. Really appreciate everybody attending the call. We are focused and we believe we have the plan in place to get this thing turned around. We do admittedly need a little bit of the market to help us, but we have got the right strategy, we have got the right team and we have got a plan in place that we are executing and we see the results and so we are really excited to share those over the next couple of quarters as we start to see the market turn back positive. Appreciate it and we will talk next quarter.
Operator
Ladies and gentlemen, thank you for participating. This concludes today’s conference call. You may now disconnect.
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U.S. Xpress Enterprises, Inc. (USX) Q4 2022 Earnings Call Transcript