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RRTS > SEC Filings for RRTS > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for ROADRUNNER TRANSPORTATION SYSTEMS, INC.

Form 10-Q for ROADRUNNER TRANSPORTATION SYSTEMS, INC.


8-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the forward-looking statements. Among the factors that could cause actual results to differ materially are the factors discussed in Item 1A "Risk Factors" of Part II below and elsewhere in this Quarterly Report. This discussion and analysis should also be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" relating to our results for the year ended December 31, 2011, set forth in our Form 10-K filed with the Securities and Exchange Commission on March 15, 2012. Overview
We are a leading asset-light transportation and logistics service provider offering a full suite of solutions, including customized and expedited less-than-truckload ("LTL"), truckload and logistics ("TL"), transportation management solutions ("TMS"), intermodal solutions (transporting a shipment by more than one mode, primarily via rail and truck), freight consolidation, inventory management, and domestic and international air. We utilize a broad third-party network of transportation providers, comprised of independent contractors ("ICs") and purchased power providers, to serve a diverse customer base in terms of end market focus and annual freight expenditures. Although we service large national accounts, we primarily focus on small to mid-size shippers, which we believe represent an expansive and underserved market. Our business model is highly scalable and flexible, featuring a variable cost structure that requires minimal investment in transportation equipment and facilities, thereby enhancing free cash flow generation and returns on our invested capital and assets.
We have three operating segments:
Less-than-Truckload. Our LTL business involves the pickup, consolidation, linehaul, deconsolidation, and delivery of LTL shipments throughout the United States and into Mexico, Puerto Rico, and Canada. With a network of 35 LTL service centers and over 200 third-party delivery agents, we employ a point-to-point LTL model that we believe serves as a competitive advantage over the traditional hub and spoke LTL model in terms of faster transit times, lower incidence of damage, and reduced fuel consumption. Our LTL segment also includes domestic and international air transportation services.
Truckload and Logistics. Within our TL business, we arrange the pickup, delivery, and inventory management of TL freight through our network of 30 TL service centers, four freight consolidation and inventory management centers, 14 company dispatch offices, and 71 independent brokerage agents primarily located throughout the eastern United States and Canada. We offer temperature-controlled, dry van, intermodal drayage, and flatbed services and specialize in the transport of refrigerated foods, poultry, and beverages. We believe this specialization provides consistent shipping volume year-over-year. Transportation Management Solutions. Within our TMS business, we offer a "one-stop" transportation and logistics solution, including access to the most cost-effective and time-sensitive modes of transportation within our broad network. Specifically, our TMS offering includes pricing, contract management, transportation mode and carrier selection, freight tracking, freight bill payment and audit, cost reporting and analysis, and dispatch. Our customized TMS offering is designed to allow our customers to reduce operating costs, redirect resources to core competencies, improve supply chain efficiency, and enhance customer service.
Our success principally depends on our ability to generate revenues through our network of sales personnel and independent brokerage agents and to deliver freight in all modes safely, on time, and cost-effectively through a suite of solutions tailored to the needs of each customer. Customer shipping demand, over-the-road freight tonnage levels, and equipment capacity ultimately drive increases or decreases in our revenues. Our ability to operate profitably and generate cash is also impacted by purchased transportation costs, fuel costs, pricing dynamics, customer mix, and our ability to manage costs effectively. Within our LTL business, we typically generate revenues by charging our customers a rate based on shipment weight, distance hauled, and commodity type. This amount is typically comprised of a base rate, a fuel surcharge, and any applicable service fees. Within our TL business, we typically charge a flat rate negotiated on each load hauled. Within our TMS business, we typically charge a variable rate on each shipment, in addition to transaction or service fees appropriate for the solution we have provided to meet a specific customer's needs.
We incur costs that are directly related to the transportation of freight, including purchased transportation costs and commissions paid to our agents. We also incur indirect costs associated with the transportation of freight that include other operating costs, such as insurance and claims. In addition, we incur personnel-related costs and other operating expenses, collectively discussed herein as other operating expenses, essential to administering our operations. We continually monitor all components of our cost structure and establish annual budgets, which are generally used to benchmark costs incurred on a monthly basis.


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Purchased transportation costs within our LTL business represent amounts we pay to ICs or purchased power providers and are generally contractually agreed-upon rates. Purchased transportation costs within our TL business are typically based on negotiated rates for each load hauled. We pay commissions to each brokerage agent based on a percentage of margin generated. Within our TMS business, purchased transportation costs include payments made to our purchased power providers, which are generally contractually agreed-upon rates. Purchased transportation costs are the largest component of our cost structure. Our purchased transportation costs typically increase or decrease in proportion to revenues.
Our ability to maintain or grow existing tonnage levels is impacted by overall economic conditions, shipping demand, and over-the-road freight capacity in North America, as well as by our ability to compete effectively in terms of pricing, safety, and on-time delivery.
The pricing environment in the transportation industry also impacts our operating performance. Our LTL pricing is typically measured by billed revenue per hundredweight often referred to as "yield." Our LTL pricing is dictated primarily by factors such as shipment size, shipment frequency and consistency, length of haul, freight density, and customer and geographic mix. Pricing within our TL business generally has fewer influential factors than pricing within our LTL business, but is also typically driven by shipment frequency and consistency, length of haul, and customer and geographic mix. Since we offer both LTL and TL shipping as part of our TMS offering, pricing within our TMS segment is impacted by similar factors. The pricing environment for all of our operations generally becomes more competitive during periods of lower industry tonnage levels and increased capacity within the over-the-road freight sector. The transportation industry is dependent upon the availability of adequate fuel supplies and the price of fuel. Fuel prices have fluctuated dramatically over recent years. Within our LTL business, our ICs and purchased power providers pass along the cost of diesel fuel to us, and we in turn attempt to pass along some or all of these costs to our customers through fuel surcharge revenue programs. Although revenues from fuel surcharges generally offset increases in fuel costs, other operating costs have been, and may continue to be, impacted by fluctuating fuel prices. The total impact of higher energy prices on other nonfuel-related expenses is difficult to ascertain. We cannot predict future fuel price fluctuations, the impact of higher energy prices on other cost elements, recoverability of higher fuel costs through fuel surcharges, and the effect of fuel surcharges on our overall rate structure or the total price that we will receive from our customers. Depending on the changes in the fuel rates and the impact on costs in other fuel- and energy-related areas, our operating margins could be impacted. Within our TL and TMS businesses, we pass fuel costs through to our customers. As a result, our operating income in these businesses is less impacted by changes in fuel prices. Recent Acquisitions
In February 2012, we acquired all of the outstanding stock of Capital Transportation Logistics ("CTL") for the purpose of expanding our presence within the TMS segment. Headquartered in New Hampshire, CTL primarily provides transportation management solutions on less-than-truckload freight, in addition to truckload brokerage and freight bill audit and payment services. See acquisition footnote 2 within the notes to our unaudited condensed consolidated financial statements included in this report.
In April 2012, we acquired all of the outstanding stock of Grundman Holdings, Inc., which wholly owned both D&E Transport, Inc. and D&E Leasing, Inc. (collectively, "D&E") for the purpose of expanding our presence within the TL segment. Headquartered in Minnesota, D&E is an asset-light flatbed carrier focused primarily on food and agricultural products. See acquisition footnote 2 within the notes to our unaudited condensed consolidated financial statements included in this report.
In June 2012, we acquired all of the outstanding stock of CTW Transport ("CTW") for the purpose expanding our presence within the TL segment. Headquartered in Massachusetts, CTW focuses primarily on refrigerated food products. See acquisition footnote 2 within the notes to our unaudited condensed consolidated financial statements included in this report.
In August 2012, we acquired all of the operating assets of R&M Transportation and all of the outstanding stock of Sortino Transportation (collectively, "R&M") for the purpose of expanding our presence within the TL segment. Headquartered in Nebraska, R&M is an asset-light carrier focused primarily on refrigerated truckload services. See acquisition footnote 2 within the notes to our unaudited condensed consolidated financial statements included in this report. In August 2012, we acquired all of the outstanding stock of Expedited Freight Systems, Inc. ("EFS") for the purpose of expanding our presence within the LTL segment. EFS is a Midwest regional overnight LTL provider based in Wisconsin. See acquisition footnote 2 within the notes to our unaudited condensed consolidated financial statements included in this report.
In November 2012, we acquired all of the outstanding stock of Central Cal Transportation ("Central Cal") for the purpose of expanding our presence within the TL segment. Headquartered in Northern California, Central Cal is an intermodal carrier focused primarily on the transportation of nuts, wine and non-fruit products. See subsequent event footnote 13 within the notes to our unaudited condensed consolidated financial statements included in this report.


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Results of Operations
The following table sets forth, for the periods indicated, summary LTL, TL, TMS,
corporate, and consolidated statement of operations data. Such revenue data for
our LTL, TL, and TMS business segments are expressed as a percentage of
consolidated revenues. Other statement of operations data for our LTL, TL, and
TMS business segments are expressed as a percentage of segment revenues.
Corporate and total statement of operations data are expressed as a percentage
of consolidated revenues.
                            Three Months Ended September 30,                       Nine Months Ended September 30,
                             2012                       2011                       2012                       2011
                             (In thousands, except for %'s)                        (In thousands, except for %'s)
                                    % of                       % of                       % of                       % of
                        $         Revenues         $         Revenues         $         Revenues         $         Revenues
Revenues:
LTL                $ 132,451        47.4  %   $ 126,238        55.8  %   $ 381,121        49.0  %   $ 348,282        57.5  %
TL                   124,212        44.5  %      79,295        35.1  %     333,284        42.8  %     202,592        33.5  %
TMS                   23,955         8.6  %      21,708         9.6  %      67,762         8.7  %      57,213         9.4  %
Eliminations          (1,453 )      (0.5 )%      (1,048 )      (0.5 )%      (3,883 )      (0.5 )%      (2,465 )      (0.4 )%
Total                279,165       100.0  %     226,193       100.0  %     778,284       100.0  %     605,622       100.0  %
Purchased
transportation
costs:
LTL                   95,725        72.3  %      96,645        76.6  %     280,284        73.5  %     263,750        75.7  %
TL                    84,624        68.1  %      53,658        67.7  %     224,038        67.2  %     148,587        73.3  %
TMS                   17,146        71.6  %      16,266        74.9  %      48,508        71.6  %      42,414        74.1  %
Eliminations          (1,453 )     100.0  %      (1,048 )     100.0  %      (3,883 )     100.0  %      (2,465 )     100.0  %
Total                196,042        70.2  %     165,521        73.2  %     548,947        70.5  %     452,286        74.7  %
Net revenues (1):
LTL                   36,726        27.7  %      29,593        23.4  %     100,837        26.5  %      84,532        24.3  %
TL                    39,588        31.9  %      25,637        32.3  %     109,246        32.8  %      54,005        26.7  %
TMS                    6,809        28.4  %       5,442        25.1  %      19,254        28.4  %      14,799        25.9  %
Total                 83,123        29.8  %      60,672        26.8  %     229,337        29.5  %     153,336        25.3  %
Other operating
expenses (2):
LTL                   26,084        19.7  %      22,653        17.9  %      70,230        18.4  %      64,224        18.4  %
TL                    30,664        24.7  %      19,091        24.1  %      85,187        25.6  %      40,028        19.8  %
TMS                    3,869        16.2  %       2,884        13.3  %      10,957        16.2  %       8,858        15.5  %
Corporate              2,077         0.7  %       1,751         0.8  %       5,236         0.7  %       3,985         0.7  %
Total                 62,694        22.5  %      46,379        20.5  %     171,610        22.0  %     117,095        19.3  %
Depreciation and
amortization:
LTL                      627         0.5  %         436         0.3  %       1,688         0.4  %       1,273         0.4  %
TL                     1,603         1.3  %         899         1.1  %       4,247         1.3  %       1,599         0.8  %
TMS                      194         0.8  %         164         0.8  %         574         0.8  %         509         0.9  %
Total                  2,424         0.9  %       1,499         0.7  %       6,509         0.8  %       3,381         0.6  %
Operating income:
LTL                   10,015         7.6  %       6,504         5.2  %      28,919         7.6  %      19,035         5.5  %
TL                     7,321         5.9  %       5,647         7.1  %      19,812         5.9  %      12,378         6.1  %
TMS                    2,746        11.5  %       2,394        11.0  %       7,723        11.4  %       5,432         9.5  %
Corporate             (2,077 )      (0.7 )%      (1,751 )      (0.8 )%      (5,236 )      (0.7 )%      (3,985 )      (0.7 )%
Total                 18,005         6.4  %      12,794         5.7  %      51,218         6.6  %      32,860         5.4  %
Interest expense       1,943         0.7  %       1,222         0.5  %       5,861         0.8  %       2,206         0.4  %
Income before
provision for
income taxes          16,062         5.8  %      11,572         5.1  %      45,357         5.8  %      30,654         5.1  %
Provision for
income taxes           6,190         2.2  %       4,397         1.9  %      17,354         2.2  %      11,648         1.9  %
Net income
available to
common
stockholders       $   9,872         3.5  %   $   7,175         3.2  %   $  28,003         3.6  %   $  19,006         3.1  %

(1) Reflects revenues less purchased transportation costs.

(2) Reflects the sum of personnel and related benefits, other operating expenses, and acquisition transaction expenses.


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Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011
Revenues
Consolidated revenues increased by $53.0 million, or 23.4%, to $279.2 million during the third quarter of 2012 from $226.2 million during the third quarter of 2011, more than half of which was attributable to the impact of recent TL acquisitions.
LTL revenues increased by $6.3 million, or 4.9%, to $132.5 million during the third quarter of 2012 from $126.2 million during the third quarter of 2011. This growth was driven by the acquisition of EFS, which contributed $3.4 million of the revenue increase, as well as quarter-over-quarter organic LTL tonnage growth between 2.0% and 3.0% and ongoing pricing initiatives. Revenue per hundredweight, excluding fuel, decreased 0.3% quarter-over-quarter resulting from the addition of EFS, which has a lower revenue per hundredweight due to freight mix and length of haul.
TL revenues increased by $44.9 million, or 56.6%, to $124.2 million during the third quarter of 2012 from $79.3 million during the third quarter of 2011. The acquisitions of Prime, D&E, CTW, and R&M collectively contributed $31.9 million of the revenue increase. The remaining increase was driven by increases in market pricing and load growth due to the expansion of our IC network as well as the continued increase in the utilization of our TL agent network. TMS revenues increased by $2.3 million, or 10.4%, to $24.0 million during the third quarter of 2012 from $21.7 million during the third quarter of 2011. This growth was primarily driven by new and existing customer growth and the acquisition of CTL, which contributed revenues of $1.6 million during the third quarter of 2012.
Purchased Transportation Costs
Purchased transportation costs increased by $30.5 million, or 18.4%, to $196.0 million during the third quarter of 2012 from $165.5 million during the third quarter of 2011.
LTL purchased transportation costs decreased by $0.9 million, or 1.0%, to $95.7 million during the third quarter of 2012 from $96.6 million during the third quarter of 2011, and decreased as a percentage of LTL revenues to 72.3% from 76.6%. This improvement was primarily a result of ongoing pricing and cost initiatives and additional lane density. Additionally, EFS employee drivers and owned equipment is excluded from purchased transportation costs and included in other operating expenses. Excluding fuel surcharges, our average linehaul cost per mile decreased to $1.24 during the third quarter of 2012 from $1.25 during the third quarter of 2011.
TL purchased transportation costs increased by $30.9 million, or 57.7%, to $84.6 million during the third quarter of 2012 from $53.7 million during the third quarter of 2011. This increase was the result of our TL acquisitions of Prime, D&E, CTW and R&M, which collectively contributed $19.5 million of the increase, as well as the increase in market pricing and increased utilization of our TL agent network. TL purchased transportation costs as a percentage of TL revenues increased to 68.1% during the third quarter of 2012 from 67.7% during the third quarter of 2011, primarily due to the expansion and increased utilization of our IC network.
TMS purchased transportation costs increased by $0.8 million, or 5.4%, to $17.1 million during the third quarter of 2012 from $16.3 million during the third quarter of 2011. TMS purchased transportation costs as a percentage of TMS revenues decreased to 71.6% from 74.9% primarily as a result of higher margin services due to the acquisition of CTL.
Other Operating Expenses
Other operating expenses, which reflect the sum of the personnel and related benefits, other operating expenses, and acquisition transaction expenses shown in our unaudited condensed consolidated statements of operations, increased by $16.3 million, or 35.2%, to $62.7 million during the third quarter of 2012 from $46.4 million during the third quarter of 2011.
Within our LTL business, other operating expenses increased by $3.4 million, or 15.1%, to $26.1 million during the third quarter of 2012 from $22.7 million during the third quarter of 2011. The increase was primarily the result of expanded infrastructure costs to support new business initiatives, the reinstatement of the 401(k) match, and the acquisition of EFS, which contributed $2.9 million of the total increase. EFS employee drivers and owned equipment are included in other operating expenses. As a percentage of LTL revenues, this represented an increase to 19.7% from 17.9%.
Within our TL business, other operating expenses increased by $11.6 million to $30.7 million during the third quarter of 2012 from $19.1 million during the third quarter of 2011, primarily as a result of the acquisitions of Prime, D&E, CTW and R&M, which contributed $9.9 million of the increase, as well as increased insurance costs. As a percentage of TL revenues, this represented an increase to 24.7% from 24.1%, primarily due to Prime's freight and storage expenses being included in other operating expenses.


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Within our TMS business, other operating expenses increased by $1.0 million, or 34.2%, to $3.9 million during the third quarter of 2012 from $2.9 million during the third quarter of 2011, primarily as a result of the acquisition of CTL, which contributed $0.7 million of the total increase. TMS other operating expenses, as a percentage of TMS revenues, increased to 16.2% during the third quarter of 2012 from 13.3% during the third quarter of 2011. Other operating expenses that were not allocated to our LTL, TL, or TMS businesses increased to $2.1 million during the third quarter of 2012 from $1.8 million during the third quarter of 2011. This increase was primarily a result of $0.4 million of incremental infrastructure costs incurred during the third quarter of 2012 offset by a decrease of $0.1 million in acquisition expenses incurred during the third quarter of 2012 compared to the third quarter of 2011. Depreciation and Amortization
Depreciation and amortization was $2.4 million during the third quarter of 2012 and $1.5 million during the third quarter of 2011, reflecting increases in property, plant, and equipment primarily attributable to our acquisitions. Within our LTL business, depreciation and amortization was $0.6 million during the third quarter of 2012 and $0.4 million during the third quarter of 2011. Depreciation and amortization within our TL business was $1.6 million during the third quarter of 2012 and $0.9 million during the third quarter of 2011. Within our TMS business, depreciation and amortization was $0.2 million during both the third quarter of 2012 and 2011.
Operating Income
Operating income increased by $5.2 million, or 40.7%, to $18.0 million during the third quarter of 2012 from $12.8 million during the third quarter of 2011, primarily as a result of the factors above. As a percentage of revenues, operating income increased to 6.4% during the third quarter of 2012 from 5.7% during the third quarter of 2011.
Within our LTL business, operating income increased by $3.5 million, or 54.0%, to $10.0 million during the third quarter of 2012 from $6.5 million during the third quarter of 2011, and increased as a percentage of LTL revenues to 7.6% from 5.2%, primarily as a result of the factors above.
Within our TL business, operating income increased by $1.7 million, or 29.6%, to $7.3 million during the third quarter of 2012 from $5.6 million during the third quarter of 2011, and decreased as a percentage of TL revenues to 5.9% from 7.1%, primarily as a result of the factors above.
Within our TMS business, operating income increased by $0.3 million, or 14.7%, to $2.7 million during the third quarter of 2012 from $2.4 million during the third quarter of 2011, and also increased as a percentage of TMS revenues to 11.5% from 11.0%, primarily as a result of the factors above. Interest Expense
Interest expense increased by $0.7 million to $1.9 million during the third quarter of 2012 from $1.2 million during the third quarter of 2011, primarily attributable to the increase of our outstanding indebtedness resulting from the acquisitions of Prime, CTL, D&E, CTW, R&M and EFS. Income Tax
Income tax provision was $6.2 million during the third quarter of 2012 compared to $4.4 million during the third quarter of 2011. The effective tax rate was 38.5% during the third quarter of 2012 and 38.0% during the third quarter of 2011. The effective income tax rate varies from the federal statutory rate of 35.0% primarily due to state and Canadian income taxes as well as the impact of items causing permanent differences.
Net Income Available to Common Stockholders Net income available to common stockholders was $9.9 million during the third quarter of 2012 compared to $7.2 million during the third quarter of 2011.


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Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011
Revenues
Consolidated revenues increased by $172.7 million, or 28.5%, to $778.3 million during the first nine months of 2012 from $605.6 million during the first nine months of 2011, more than half of which was attributable to the impact of recent TL acquisitions.
LTL revenues increased by $32.8 million, or 9.4%, to $381.1 million during the first nine months of 2012 from $348.3 million during the first nine months of 2011. This reflects year-over-year LTL tonnage growth of 6.8%, driven by new customer growth, expansion into new markets, and existing customer growth. In addition to growth in tonnage and shipments, our revenue per hundredweight including fuel surcharges increased during the year by 3.0%. This increase in revenue per hundredweight reflects increased fuel prices year-over-year and an increase in revenue per hundredweight excluding fuel of 2.6%, which resulted from our pricing initiatives and a continued change in freight mix associated with new business.
TL revenues increased by $130.7 million, or 64.5%, to $333.3 million during the first nine months of 2012 from $202.6 million during the first nine months of 2011. This growth was primarily driven by the acquisitions of Bruenger, Prime, D&E, CTW and R&M, which collectively contributed $108.4 million of the revenue increase. The remaining increase was driven by 11.0% organic growth resulting from increased load growth due to the expansion of our IC network as well as the increased utilization of our TL agent network.
TMS revenues increased by $10.6 million, or 18.4%, to $67.8 million during the first nine months of 2012 from $57.2 million during the first nine months of 2011. This growth was primarily driven by an increase in pricing and organic growth. The acquisition of CTL contributed revenues of $4.0 million during the first nine months of 2012. . . .

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