U.S. Xpress Enterprises Inc (USX) Q1 2019 Earnings Call Transcript

U.S. Xpress Enterprises Inc (USX)
Q1 2019 Earnings Call
May. 02, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the U.S. Xpress first-quarter 2019 earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Brian Baubach.

Thank you, you may begin.

Brian Baubach -- Senior Vice President Corporate Finance

Thank you, operator, and good afternoon, everyone. We appreciate your participation in our first-quarter 2019 earnings call. With me today are Eric Fuller, president and chief executive officer; and Eric Peterson, chief financial officer. As a reminder, a replay of this call will be available on the Investor section of our website through May 9, 2019.

We've also posted a supplemental presentation to accompany today's discussion on our website at investor.usxpress.com. Before we begin, let me remind everyone, that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, beliefs, estimates, plans and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements.

Such risks and other factors are set forth in our 2018 10-K, filed on March 6, 2019, and we do not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe can be useful 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 measures can be found in our earnings release. At this point, I'll turn the call over to Eric Fuller.

Eric Fuller -- President and Chief Executive Officer

Thank you, Brian, and good afternoon, everyone. I'd like to start by reviewing our first-quarter results and the progress that we have achieved executing upon our strategic initiatives and then conclude with a review of our market outlook. Eric Peterson will then discuss our first-quarter financial results in more detail before opening the call for questions. I am pleased with our team's execution to the first quarter given the more challenging market backdrop that we encountered as we managed through the closure of our Mexico joint venture and encountered weather disruptions.

Despite these challenges, we delivered a 95.7% adjusted operating ratio for the 2019 first quarter, which is a 40-basis-point improvement from the year-ago quarter and our seventh-consecutive quarter of OR improvement. Our results clearly demonstrate the continued successful implementation of our strategic initiatives as we strive to transform our operations and improve our profitability. While we have achieved a great deal over the last several years, we have much more to accomplish in order to realize our goal. Turning to our segment-level highlights.

In our over the road division, average revenue per tractor per week declined 6.1% compared with the first quarter of 2018. This was a result of a 6.7% decrease in average revenue miles per tractor per week, partially offset by 0.7% increase in our average revenue per mile. The impact on average revenue per tractor per week resulted from unfavorable weather conditions, the transition out of the companies US-Mexico cross-border operations and the less favorable freight environment. Typically, about 80% of our over the road division's volume is contracted and approximately 20% is noncontracted.

In the first quarter, we experienced an 8% increase in our contract rates, while noncontracted spot rates declined more than 20%. Turning to our dedicated division. The average revenue per tractor per week, excluding fuel surcharges, increased to 11.8% in the first quarter of 2019 as compared to the year-ago quarter. The increase was primarily the result of a 7.1% rise in the division's revenue per mile in addition to a 4.4% increase in the division's revenue miles per tractor per week.

The increase in utilization was largely the result of our initiative designed to grow our business with those accounts that offer a more attractive combination of rate and utilization while reducing our business with accounts that have a less attractive blend. We implemented this initiative through 2018, and I am very pleased with the improved execution in the dedicated division over the last two quarters. Brokerage segment revenue decreased to $46.2 million in the first quarter of 2019 as compared to $54.5 million in the first quarter of 2018 on fewer loads and decreased revenues per loads. The revenue decrease was more than offset by a higher gross margin as transportation cost per load decreased significantly due to sourcing third-party capacity more efficiently.

As a result, operating income increased 18.9% to $2.8 million in the first quarter of 2019 as compared to the year-ago quarter. Importantly, the brokerage segment continues to provide additional selectively for our assets to optimize yield, while at the same time, offering more capacity solutions to our customers. I would now like to spend a few minutes reviewing our strategic initiatives designed to deliver improved profitability and the priorities that we have for the year ahead. As we've discussed on previous calls, our management team has been driving a complete overhaul to company strategy and operations in order to improve our execution and profitability.

We have created an execution-oriented structure, whereby we now manage the business by core metrics with the focus on rate, truck count, utilization and cost. We've also designed and implemented initiatives to improve these core metrics. And ultimately, our operating ratio where we strive to meaningfully improve our profitability. As part of our transformation, we have improved our asset optimization through a redesigned fleet-renewal and maintenance program, optimized our asset utilization through the use of proprietary optimization software and implemented our load-planning initiative in our over the road initiative, designed to improve utilization.

The successful implementation of these initiatives have contributed to the significant margin expansion that we have achieved over the last three years. Another key focus for our initiatives is to improve the quality of life for our drivers as we reduced the day-to-day challenges and frustrations that they encounter. Our drivers are critical to our success and are our greatest asset. As a result, we have launched a series of initiatives designed to position U.S.

Xpress as the company of choice for drivers in the industry. One such initiative was the launch of our new driver development program and the opening of our redesigned development center in Tunnel Hill, Georgia this past February. The newly launched program was created with input from our drivers and provides continuous learning opportunities for both new and experienced drivers. The multi-platform program features in-person development sessions; a hands-on commercial motor-vehicle learning lab, where drivers inspect and identify faulty equipment; a competency-aligned simulator program; a driving range, where drivers can practice complicated maneuvers; over a 150 e-learning modules; and ELD practices and device training.

Our goal is to provide our drivers with the knowledge, skills and abilities necessary for successful driving career. Moving to the balance of 2019, our priority continues to be on improving the lifestyle and satisfaction of our drivers, as well as our operations as we focus on technology, including digital load matching, automated load acceptance and prioritization and working toward our ultimate growth of the frictionless order. When you analyze the process from order to cash, what you find is that there are many gates in that process where manual decisions are made. These manual decision points open the door to less-than-optimal decisions, along with the potential for errors, given that data entry is often required.

As we remove more the friction that exists, those errors, which frustrate our drivers, will be reduced, and our driver satisfaction will improve. Our goal over time is to have a frictionless order, which we believe will not only improve driver retention but also reduce costs and optimize freight planning, not to mention improved capacity. As you can see, utilizing technology to improve our operations represents a significant opportunity for U.S. Xpress.

As the trucking industry continues to rapidly evolve, U.S. Xpress will be at the forefront, and we're very excited to have Cameron Ramsdell join our team as President of our newly formed unit U.S. Xpress Ventures. As we announced last week, U.S.

Xpress is internal business unit focused on developing and implementing new asset-based business models and technology strategies. Turning to the market and our outlook. The second-quarter freight environment remains subdued relative to normal seasonality and in comparison to the strongest market in 20 years, which we experienced in the second quarter of 2018. While we expect ongoing improvements in network efficiency from the exit of our Mexico business and then operating efficiencies from our strategic initiatives, the changing market conditions since our fourth-quarter call has changed our expectations on second-quarter earnings.

While we continue to expect our initiatives and an improving market backdrop to allow us to improve our adjusted operating ratio on a sequential basis, we now expect our second-quarter adjusted operating ratio to deteriorate as compared to the year-ago comparable quarter. Importantly, we believe the operating improvements implemented over the past several years has positioned the company to better manage market fluctuations such as those that we are now experiencing. As we look forward, our current guidance of delivering a 93% adjusted operating ratio for the full-year 2019 remains achievable, though, it is dependent on market conditions strengthening through the balance of the second quarter. As a result, we plan to update our full-year adjusted operating ratio guidance when we have better visibility on the freight market and our full-year results.

Despite the more challenging freight market, we have contractually agreed to rate renewals for approximately 40% of our anticipated truckload revenue for 2019 with an average rate increase of approximately 5% since November. While current rate increases have moderated slightly, we believe full-year contract rates will increase in the mid-single-digit range. I would now like to turn the call over to Eric Peterson for a review of our financial results.

Eric Peterson -- Chief Financial Officer

Thank you, Eric, and good afternoon. As Eric discussed, we are pleased with the continued successful execution of our strategic initiatives which enabled our team to manage through a more challenging market backdrop. We offset more challenging market conditions through leveraging our fleet and our brokerage operations and taking advantage of our enhanced dedicated business mix achieved during 2018. In addition, we believe we are well positioned to continue to execute on our current initiatives to drive continued operating ratio improvement.

I'm going to spend a few minutes summarizing our results for the quarter, and we'll focus on the core metrics we use to evaluate and monitor our progress. Operating revenue was $415.4 million, a decrease of $10.3 million compared to the first quarter of 2018. Excluding revenue from our Mexico operations, which were discontinued in January 2019, operating revenue increased $2.9 million, excluding fuel surcharge. The increase was attributable to a 3.8% increase in revenue per mile, mostly offset by decreases of $8.3 million in brokerage revenue.

Operating income for the first quarter of 2019 was $12.5 million, compared to the $14.9 million achieved in the prior-year quarter. Excluding $3.4 million in costs related to the exit of our Mexico operations, our adjusted operating income for the first quarter of 2019 was $15.9 million, which compares to $14.9 million in the first quarter of 2018. As Eric discussed, we delivered a 95.7% adjusted operating ratio for the 2019 first quarter, which is the 40-basis-points improvement from the year-ago quarter. Additionally, our adjusted operating ratio improved by 260 basis points to an adjusted operating ratio of 93.9% from 96.5% for the trailing four quarters ending March 31, 2019 and 2018, respectively.

Net income for the first quarter of 2019 was $4.7 million, compared to $1.2 million in the prior-year quarter. Adjusted net income for the first quarter was $7.3 million and compares favorably to $1.2 million in the prior-year quarter. Adjusted earnings per diluted share were $0.15 for the first quarter of 2019. As we discussed our fourth-quarter call, the exit of our fixed cost investment and our cross-border US-Mexico operations was expected to be a drag on our first-half results as revenues would declined more rapidly than expenses which we experienced in the first quarter.

Looking forward, we expect the headwind to persist into the second quarter, though, at a reduced level before turning neutral in the third quarter. Thereafter, we expect to build an annualized operating income benefit. Importantly, we'll offer customers, both additional capacity within our core U.S. lanes and continued access to cross-border coverage through an asset-light alternative.

Our effective tax rate for the third quarter was approximately 27.5%, and we continue to anticipate our full-year 2019 effective tax rate to be between 27% to 29% that we outlined on the fourth-quarter 2018 call. For the full-year 2019, we continue to expect our cash tax rate to be in the low single digits. Turning to our fleet, we continue to manage our tractors to a 475,000 mile replacement cycle, and we are converting a portion of our leased tractors to owned, and we'll spend approximately $170 million to $190 million in net capex through 2019 to execute that strategy, with approximately $45 million of the total related to replacing leased equipment with owned. As a reminder, when thinking of free cash flow, a normalized net capex figure over a four-year period is approximately $115 million annually, and we expect our net capex to revert to more normalized levels in 2020 and 2021.

During the first quarter of 2019, the company adopted new ASC Topic 842 leases. The new standard requires us to recognize right-of-use assets and a comparable amount of lease liabilities arising from operating leases on the balance sheet. This resulted from in approximately $187 million of assets and a comparable amount of liabilities being recognized on the balance sheet at March 31, 2019. Rent associated with these operating leases was approximately $20 million for the first quarter of 2019 and is reflected under vehicle rent and general and other expenses in our income statement for the 2019 quarter.

The impact on stockholders' equity was immaterial, and the impact on covenant compliance under our credit facility is also immaterial. Capital leases will continue to be recognized on the balance sheet but are now referred as finance leases as required by the new standard. In regards to leverage, we ended the first quarter with $407.1 million of net debt and had $120.4 million of cash in availability under our revolving credit facility. Interest expense for the first quarter was $5.6 million, and we continue to expect interest expense to be approximately $22.0 million for the full year of 2019.

Looking for the remainder of the year, we continue to have opportunities for improvement as our existing driver-centric initiatives mature and as a focus on operational execution. With that, I'd like to turn the call back to Eric Fuller for concluding remarks.

Eric Fuller -- President and Chief Executive Officer

Thank you, Eric. In summary, we are pleased with the progress that we have achieved executing upon our strategic initiatives, enabling us to achieve our seventh-consecutive quarter of adjusted operating ratio improvement in the first quarter and the highest earnings of any first quarter in our company's history. As we've discussed, the outlook for the second quarter remains challenged in comparison to an exceptionally strong 2018 comparable quarter. That said, we continue to have much opportunity and remain well positioned to capitalize on our numerous initiatives aimed at driving operational efficiencies as we work toward our goal of achieving a 100% frictionless order, which will improve the lives and daily routines of our drivers, not to mention, reduce costs and expand our capacity.

As we focus on managing the core metrics within our business, we remain committed to our goal of improving our operations in solidifying U.S. Xpress as a leader within the industry. We look forward to updating everyone on our progress on our second-quarter call. Thank you again for your time today.

Operator, please open the call for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question here is from Ravi Shanker from Morgan Stanley. Please go ahead.

Ravi Shanker -- Morgan Stanley -- Analyst

Thanks. Good evening, guys. So on the OR target for the year, obviously, it's understandable it's going to be dependent on market conditions. But part of the story here also was you guys undertaking a number of cost initiatives to close the gap to peers and so maybe that OR improvement was not as market depend on some of your peers.

So can you help us understand that how much tailwind or opportunity there is in the cost side this year? And kind of, if that's tracking consistent with your initial expectations behind the IPO?

Eric Fuller -- President and Chief Executive Officer

Yes. So this is Eric Fuller. So we had -- obviously, we have focused around a couple of the big factors and driver turnover being one of them. That is an area where we still believe we're going to continue to get traction through the year.

Our big focus -- the big initiative that we have in our operation is around what we're calling the frictionless order. And we believe that's going to greatly improve our driver retention. So we think we can drive a good bit of cost in that area over probably the next, say, four quarters. We also still believe that we're going to get improvement in the insurance line item.

Insurance is the area where we continue to see higher than what we had expected or what we'd hoped for. But with the forward-looking event recorders, we're putting a new program around driver training. We're trying to move more toward -- all of our drivers going to hair follicle testing. We believe that we will start to see some significant results in that area as well.

So those really are our two biggest cost items that we think we can see some improvement over the next couple of quarters.

Ravi Shanker -- Morgan Stanley -- Analyst

OK. Got it. And just on the pricing side, I think your mid-single-digit pricing expectations sounds pretty good and may be ahead of some of your peers. What gives you confidence that you should be able to kind of sustain that rate going into the back half of the year when maybe you could see some more pricing pressure if current trends continue?

Eric Fuller -- President and Chief Executive Officer

Sure. Yes, I think we can -- we will continue to see a little bit of pressure from where we're at today. But we're still having constructive conversations with customers in a positive manner in relation to rate increases for this year. So we feel confident that where the market is -- where we believe the market is going, and we will continue to be able to get decent rate increases on a go-forward basis that will still put us in that mid-single-digit range.

Ravi Shanker -- Morgan Stanley -- Analyst

Great. And if I can just squeeze one more in. Can I just ask you what U.S. X ventures, sounds pretty interesting? Can you just give us maybe two or three top priorities for that venture? And kind of does that involve M&A? Is this homegrown? Kind of, what do expect to see there and maybe some timing on some of the new initiatives?

Eric Fuller -- President and Chief Executive Officer

Sure. I think it's really an exploration about what technology can do for us going forward. If you look at all the money that's getting thrown in to venture capital, all the investments out there, we believe that technology is going to be a big driver of asset-based trucking companies going forward. I think it's going to be an improvement to the overall operations and profitability.

We also think that there's going to be some -- maybe not on the asset side, exactly, but there's going to be some new entrants and some new things that we're going to have to face that maybe we have faced in the past. And we think applying technology to those problems is going to be key to having a lot of them. And so we're going to be exploring exactly what that means. I think today, I would tell you that we are in an infancy stage, but we will be looking at opportunities whether it be an M&A-type opportunities or whether it be looking at some homegrown opportunities to further make better business model-type changes in our existing business or potentially new businesses as we explore what technology can do for us.

And we just think there's a lot of exciting things going on in the market, and we think that we can capitalize if we put a focus on it.

Ravi Shanker -- Morgan Stanley -- Analyst

Great. Thank you.

Eric Fuller -- President and Chief Executive Officer

Thank you.

Operator

Our next question is from Brad Delco from Stephens. Please go ahead.

Brad Delco -- Stephens Inc. -- Analyst

Hey, good afternoon, guys. Eric, I think you kind of touched on this in your comments, but can you sort of help us reconcile the revenue per loaded mile being up 60 basis points versus kind of your comments about mid-single digits? I mean is it just because you have 20% exposure of a spot? I mean why wouldn't we be reducing that and trying to get more trucks into a committed or contractual basis or maybe even in more dedicated?

Eric Fuller -- President and Chief Executive Officer

Yes. So it is in -- it is because of the spot concentration. So absolutely, we are looking at probably more dedicated. The market is probably a little tougher from bringing on new opportunities.

The one thing that we have -- that's been a little bit of a headwind for us is that move out of Mexico where we've had additional capacity that we've had to try to fill. So we've had to go to customers and find new opportunities. And so I think that for us to move some trucks out of these spot environment, we're going to have to probably go to dedicated. But we're doing that, and we are seeing some a little bit of growth in our dedicated area.

And so I think that over time, we'll continue to migrate more into that dedicated arena. I think -- personally, I think that where we're at from our spot exposure though is still decent level of spot exposure. And when you look at a long term -- on a long-term basis, so while it is kind of affecting us today, I think long term, we're in the right position.

Brad Delco -- Stephens Inc. -- Analyst

OK. And then when we think about sort of weather impacting results, would that have -- would you have visibility to know if that impacted your OTR business or dedicated business more? And any comments would be helpful there.

Eric Fuller -- President and Chief Executive Officer

So dedicated, we had a big concentration in the Northeast. And so obviously, any time you've got any kind of weather issues -- winter weather issues, you end up being pretty impacted in those areas. So I would say it's probably a fair mix. But with our concentration of dedicated in the Northeast, we definitely saw a fairly large impact from that business.

The over-the-road piece was typically because the trucks aren't as concentrated, you do end up having trucks probably down for a little bit longer. So when you're ending up having a maintenance-related issue as it relates to weather, that's probably a little bit more impactful in the over the road division. But I would say that both areas were impacted by the weather.

Brad Delco -- Stephens Inc. -- Analyst

OK. And then maybe last one. I appreciate the comments about second quarter and not seeing OR improvement on a year-over-year basis. What is -- maybe this is for Eric Peterson, what's really happening on the cost side that gives you that much visibility.

I mean I feel like it's pretty early into 2Q, and June's probably the most important month, but is there anything specific that's occurred in April, whether a bad accident or something that maybe gives you less confidence in being able to improve margins in this environment?

Eric Peterson -- Chief Financial Officer

Brad, I think the biggest thing right now is our visibility, where we stand today on May 2 as it relates to the quarter from an overall volume standpoint. The freight is a little bit weaker than we would like. And as we get into spring shipping, we would have liked to seen a little bit of a more robust environment than we're seeing today. So that leads us to believe where we stand today that may be the quarter could be a little weaker than we expected.

Now obviously, your quarter's made in May and June. And so things could change, but we felt like it was prudent to go ahead and get that out there. We're not seeing any kind of cost issues as it relates to this quarter that have us concerned at this point.

Brad Delco -- Stephens Inc. -- Analyst

OK. All right, guys. I'll get back in queue. Thanks for the time.

Eric Fuller -- President and Chief Executive Officer

Thank you.

Operator

Our next question is from Scott Group of Wolfe Research. Please go ahead.

Scott Group -- Wolfe Research -- Analyst

Hey, thanks. Afternoon, guys.

Eric Fuller -- President and Chief Executive Officer

Afternoon.

Scott Group -- Wolfe Research -- Analyst

So I just want to follow up on the second-quarter comments. Can you say -- are you including or excluding the Mexico cost? And then what's the base of OR you're using for second-quarter '18?

Eric Fuller -- President and Chief Executive Officer

OK. If you look at our adjusted second-quarter OR for '18, we're comparing that to a 93.4%. The headwinds on the -- we had a $3.4 million adjustment in the first quarter related to Mexico. That adjustment in the second quarter is going to be significantly lower than that $3.4 million.

So it won't really impact the adjusted OR by a meaningful amount.

Scott Group -- Wolfe Research -- Analyst

OK. Helpful. And then as we think about the utilization on the OTR, it was down 7%. Maybe, Eric, what are some of the initiatives to get that better? Are you seeing that start to get better? When can that turn positive? And then on the pricing side, if we look at the rev per loaded mile, up less than a percent.

Even with the pricing -- contract pricing, are we confident that that stays positive in the second quarter?

Eric Fuller -- President and Chief Executive Officer

So on the utilization piece, it really impacted in two areas: weather was a big impact and then just overall freight volumes was an impact. I would say we're not going to have those weather issues in the second quarter. I still think that freight volumes are lighter than we would like, and so that could have a little bit of a drag in our utilization in our over the road division as we go into this quarter, especially in comparison to the previous year. On the contract business, we still think that the contract rates will trend in a positive manner.

And even with that little bit of underlying weakness in the market, we are still getting positive rate increases currently from our customers. So I still feel confident that we will be positive, up, and like we said that mid-single-digit range in contracts for the year.

Scott Group -- Wolfe Research -- Analyst

I guess I was asking about the total revenue per mile.

Eric Fuller -- President and Chief Executive Officer

Oh, I'm sorry. Oh, OK. Oh, we're going to be higher than that. I think that with our exposure to spot, I think that's going to be difficult.

To be higher than --

Scott Group -- Wolfe Research -- Analyst

Understood. And then maybe just lastly for Eric Peterson. Given sort of the backdrop here, any thoughts to maybe slowing in the capex a little bit, maybe doing less of the lease conversions just to generate some cash and pay down some debt?

Eric Peterson -- Chief Financial Officer

Yes. I think it's too early to make that call. I think if we look at why we're here is to stick to our strategy, which we believe is in the best interest of our shareholders over the long run to bring that equipment in. When we do the math, it shows that if we delay that equipment cycle, the operating costs increase significantly.

And it might get a temporary benefit on my net debt for a quarter or free cash flow calculation, but I believe that's absolutely the wrong decision over the longer for the enterprise. And so we're going to stick to our strategy at 475,000 miles. Obviously, if there's an extreme situation or circumstance, then we won't be so bullish on that strategy if we need to make a change. But I don't see us as anywhere near the type of situation right now with our current credit profile and liquidity that would prevent us from executing our strategy.

Scott Group -- Wolfe Research -- Analyst

OK. Makes sense. Thank you, guys. Appreciate the time.

Operator

Our next question is from Ken Hoexter from Bank of America. Please go ahead.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Hey, good afternoon. Eric, can you just quickly clarify, what is your spot exposure now and what was it?

Eric Fuller -- President and Chief Executive Officer

So it's really -- it's right in that 10% of our total revenue or, say differently, 20% of our over the road division, and that really hasn't changed. It's just that obviously the spot rates have changed dramatically, but our overall exposure hasn't changed much.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

And how significantly have you seen the spot rates change whether it's year-to-date, year over year?

Eric Fuller -- President and Chief Executive Officer

I think we're down roughly 20%.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

OK. year over year?

Eric Fuller -- President and Chief Executive Officer

Yes.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

At this point?

Eric Fuller -- President and Chief Executive Officer

Yes.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

OK. So just to come back to, I guess, the first question. I guess I'm little -- still troubled by the lack of improvement on the initiatives. During the IPO process, you talked about all the different programs you were putting in place that were specifically focused irrespective of the market that we're going to see the operating ratio improved.

And even -- last year was the best freight environment in generation, so we should have been setting all-time record. And now we're back to kind of -- it seems like October '17. If you're down 20% on spot rates, that's kind of right around the time of the hurricanes but maybe a little bit before ELDs but not a collapsed market. And if you're talking about rates being up mid-single digits, I'm confused as to why we're not seeing some of the benefits from the initiatives that you made.

Has something gone awry in terms of driver pay or has turnover actually gone against you and increased? Maybe talk a little bit about what's going against some of the initiatives that you have been rolling out?

Eric Peterson -- Chief Financial Officer

OK. I think -- This is Eric Peterson. I believe when I'm looking at the financial results from these initiatives, I think it's fair to say that there are some we haven't made progress on that we'd like. But I think if I step back and look what just happened in the first quarter, it was the best first quarter from an earnings perspective in the enterprise's history.

And I believe in what -- 100% of the people would agree, it was not the strongest market from a first-quarter perspective. To answer your question on where we're behind is these event recorders with the insurance and you look at our insurance expense for the quarter, I believe it was adversely impacted by weather. But I also believe we're not making the progress at the speed of financial return that he probably thought we would. With that said, Eric addressed earlier, with our new training facility that launched in the first quarter of this year and also with the hair follicle testing, we are laser-focused on this forward-facing event recorder that we are going to get the savings.

And just because we don't have it now doesn't mean we're not going to get it. It's a path that we're not recreating anything. Other organizations are doing this successfully. And it's -- just because it's not implemented doesn't mean that it will not be.

And so that's where we are on that initiative. But I guess just to step back, are we where we want to be on an absolute basis on earnings? No. Was it the best quarter in the enterprise's history and are we still progress and do we have initial initiatives that we're launching that we think will accelerate over earnings improvement? Yes.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Thanks for that Eric. And then just on your ability to get to 93% full year, you said you need to see some see strengthening. Is that -- you need to see a strengthening on where? Is it on the volume side as Eric talked about? Maybe not as strong of a second quarter or is it pricing to accelerate? Maybe just walk through on that target.

Eric Fuller -- President and Chief Executive Officer

Yes. I mean I think that a little bit of market pick up as it relates to both volume and rate. If we can just get some -- a little bit of life in the spot market, I think that would go a long way and then get a little bit more volume. As I mentioned, part of our utilization impact has been a lack of volume opportunities in the market.

So we believe with just a little bit of pick up on the demand side, then we can start to see some movement there that I think can get us in that direction. As Eric just mentioned, I still -- we're going to have to see a little bit of life in the initiatives around insurance. That has been an area that admittedly has been disappointing and one that we did talk about on the IPO that we expected to see a little bit of movement there previous to now. So that is an area that we continue to believe that we have put a lot of focus on and investment on.

And we're going to -- we believe we will see some improvement in that area, but that is an area where -- at this point, if there's anything, I would say, disappointing as that we haven't seen that move as of yet.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Just one last one, if I can. We head some other companies talk about Amazon and Walmart bringing business in-house. Have you seen any enterprises pull any dedicated business away from the market? Is that any exposure of yours that we should look to?

Eric Fuller -- President and Chief Executive Officer

No. I'm not seeing anything on the dedicated side at all.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Or over the road?

Eric Fuller -- President and Chief Executive Officer

No. we have seen some stuff on -- that we're really were running mostly in our brokerage division. But we've had two customers -- two larger customers that did pull some business out of the brokerage side and take that in-house. So that's probably been about the only thing that we've seen from somebody moving business back in-house.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Appreciate the time and thoughts. Thanks, guys.

Operator

Our next question is from Brian Ossenbeck from J.P. Morgan. Please go ahead.

Brian Ossenbeck -- J.P. Morgan -- Analyst

Hey, guys. Good afternoon. I just want to come back to the hair follicle testing for a second. Is this something where you're going to see a bit of cost before you get some benefit, potentially on the insurance side? I'm thinking when you make switch you have a higher standard and little bit more cost and probably a little bit more turnover.

So maybe if you can just walk us through that, and if that's the right way to look at it? And if so, where you are in that process? This is going to get a little bit worse before you start to get some improvements and some benefits from it?

Eric Fuller -- President and Chief Executive Officer

Yes. If you look at how we're managing that process is we're doing it a little bit more in a phased approach. You've seen some people who've had probably the most impactful results from an overall truck-count standpoint that went 100% all-in. We have been a little bit more phased in our rollout.

And it's for that reason that we know -- we're trying to overall manage the impact on the negative side. I do believe though that we are seeing some real positive results as it relates to, not only less accidents and insurance-related issues from drivers who have been hair follicle tested, but we're actually seeing less turnover as well. So I feel confident that as we continue to roll this out to the entire fleet, then we can manage any kind of downside issues as it relates to truck count, and we can get through this with a positive impact throughout the entire process.

Brian Ossenbeck -- J.P. Morgan -- Analyst

OK. And then so the timing, is it supposed to be done by the end of the year, I mean, what specifically [Inaudible] would look like?

Eric Fuller -- President and Chief Executive Officer

Yes. Yes, I would say that at this point our plan would be to have the entire fleet under hair follicle testing by the end of the year.

Brian Ossenbeck -- J.P. Morgan -- Analyst

OK. And Eric, one more for you. You talked about this frictionless order concept. And it sounds like there might be something we talk more about in the next couple of quarters.

It sounds like from what you said about the timeline. So maybe you can give a high-level view in terms of what that means in the longer term. And I guess in the intermediate step, what you're looking to accomplish? Is this in brokerage or do you tend to see a lot more of the tech-enabled stuff? Or it does sound like it's going to be more impactful for the drivers, so maybe you're approaching a little bit differently than what we've seen so far in the market.

Eric Fuller -- President and Chief Executive Officer

Yes. I would say we're approaching it a little differently and really focused around on the asset side of our business. So if you look at a typical order, there could be as many as 15 gates. And those 15 gates are points in the order in which either they are some sort of data entry point or some sort of decision has to be made.

Some of those decisions are being made by office employees and that entries being entered by office employees. Some of those gates are actually managed by the drivers. So it creates a level -- it's a couple of issues. One, when you're -- every time you have to enter data, there's a chance that you're going to have errors.

So being able to completely take that data entry piece off the table can reduce the amount of errors I have on my system. But then also, by optimize -- and then I can optimize those gates and make better decisions and make sure that I'm making an optimal decision every time. And then also, by optimizing and potentially even automating the gates on the driver side, I can reduce the amount of friction and frustration that the drivers have. So the drivers aren't constantly having to send information back into us on things going on with them or in their order that we can automate a lot of that.

And so for us, we believe it's probably more impactful on the driver turnover side. So as the drivers job become easier and they don't have that friction in their day-to-day, we can drive the driver -- the driver turnover down. And we think it's going to be extremely impactful as we go through the year. Admittedly, we started this process, what, about three or four months ago.

I can tell you today we're at 0% frictionless. But we believe over this next year, we'll start to drive some of those gates out to where we can automate them, and we're going to make things a lot easier for the drivers and also a lot easier for office employees as well.

Brian Ossenbeck -- J.P. Morgan -- Analyst

OK. And I just want a quick follow-up. Is this an internal process where you're dealing with the U.S. X folks or you have consultants? Is this more off the shelf? What's -- how's this all structured and being handled?

Eric Fuller -- President and Chief Executive Officer

It's mostly internal. We have worked a little bit with some consultants here and there, but for the most part we're doing this internal. And so that's where we think we're going to get the biggest benefit, and we think it will be a differentiator.

Operator

Our next question is from David Ross of Stifel. Please go ahead.

David Ross -- Stifel Financial Corp -- Analyst

Yes. So just a follow up there on the technology costs. Is there any lumpiness to the investments that you are making in the technology around the frictionless order or other? And is it going to flow through mainly in capex or opex?

Eric Peterson -- Chief Financial Officer

Yes. Thanks for the question. This is Eric Peterson. I look at this more of a continuation of what we've been working on.

If you track back to our S-1, this is launched last June, two of our four strategies were technology. And we were using words like AI and graph databases, and we were doing that back then. And then kind of as we've evolved, and we've had these initiatives around the fleet management, the customer service, the load planning, part of those initiatives had a technology component. And as these initiatives evolve, you start putting the investment where you're getting the largest return.

And what we found right now is that on the technology component to those initiatives, they're all ultimately driven around to see the tractor utilization rate and cost is where -- how we focus our initiatives. We see that as we're putting extra investment to the technology piece that we're getting a larger return. And so as we mentioned, the core part of that was a consultant component and then part of that now is bringing some of that talent and ideas in-house to augment the team with perspectives we haven't had before. So right now, we're not talking about a significant capex investment that we're making.

But to the extent that we're walking in trying to enhance the enterprise value and we have a discovery on this initiative where an investment might make a lot of sense relative to the return, then we would do that. But right now, I don't have a plan in place that says, this is how much -- I'm going to have this big lumpy spend in the next month, and then it's going go away. We're just focused on the technology and investing in it as we go along.

David Ross -- Stifel Financial Corp -- Analyst

OK. So no lumpiness in the opex or anything, it just flows through and then..

Eric Peterson -- Chief Financial Officer

Correct.

David Ross -- Stifel Financial Corp -- Analyst

What's the current average fleet age for the tractors and trailers?

Eric Peterson -- Chief Financial Officer

Yes. We're in that mid-27-month range right now. And I think the important with this capex here to point out as we plan on exiting the year at 18 months on the tractors. And so when you're -- and that's why that investment looks heavy in 2019, but I think what really sets us up for the 2020 is having a really young fleet, lower operating cost and a chance to really enhance our earnings as we migrate down to 18 months over that remaining seven months of the year.

David Ross -- Stifel Financial Corp -- Analyst

And what about the trailer side?

Eric Peterson -- Chief Financial Officer

I don't have that exact number in front of me.

David Ross -- Stifel Financial Corp -- Analyst

OK. And you talked about the event recorders, what percent of the fleet now has those event recorders? And when is it going to be 100%?

Eric Fuller -- President and Chief Executive Officer

I mean we're pretty much at 100%. There are some straggler out there. But for the most part, we're at 100% and have been, since mid-summer of last year.

David Ross -- Stifel Financial Corp -- Analyst

OK. And last question is just a clarification. When you talked about a couple customers moving freight from your brokerage division in-house, were they moving it in-house to their own private fleet, in-house to their own in house brokerage or in-house to manage under contract with another carrier?

Eric Fuller -- President and Chief Executive Officer

Not moving into another carrier, in most cases, moving it in-house to manage through potentially their own brokerage.

David Ross -- Stifel Financial Corp -- Analyst

OK. Excellent. Thank you very much.

Operator

This concludes the question-and-answer session. I'd like to turn the floor back to management for any closing comments.

Eric Fuller -- President and Chief Executive Officer

OK. We appreciate everybody's time, and we'll see you in a couple of months. Thank you.

Operator

[Operator signoff]

Duration: 54 minutes

Call participants:

Brian Baubach -- Senior Vice President Corporate Finance

Eric Fuller -- President and Chief Executive Officer

Eric Peterson -- Chief Financial Officer

Ravi Shanker -- Morgan Stanley -- Analyst

Brad Delco -- Stephens Inc. -- Analyst

Scott Group -- Wolfe Research -- Analyst

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Brian Ossenbeck -- J.P. Morgan -- Analyst

David Ross -- Stifel Financial Corp -- Analyst

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