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USAK > SEC Filings for USAK > Form 10-Q on 8-May-2013All Recent SEC Filings

Show all filings for USA TRUCK INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for USA TRUCK INC


Quarterly Report


Forward-Looking Statements

This report contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are subject to the safe harbor created by those sections, and the Private Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation:
any projections of earnings, revenues, or other financial items; any statement of plans, strategies, and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; and any statements of belief and any statement of assumptions underlying any of the foregoing. Such statements may be identified by their use of terms or phrases such as "expects," "estimates," "projects," "believes," "anticipates," "intends," "plans," "goals," "may," "will," "should," "could," "potential," "continue," "future" and similar terms and phrases. Forward-looking statements are based on currently available operating, financial, and competitive information. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Item 1.A., Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2012. Readers should review and consider the factors that may affect future results and other disclosures by the Company in its press releases, Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.

All such forward-looking statements speak only as of the date of this report. You are cautioned not to place undue reliance on such forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in the events, conditions, or circumstances on which any such information is based.

All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by this cautionary statement.

References to the "Company," "we," "us," "our" and words of similar import refer to USA Truck, Inc. and its subsidiary.

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto and other financial information that appears elsewhere in this report.


The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand USA Truck, Inc., our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and notes thereto and other financial information that appears elsewhere in this report. This overview summarizes the MD&A, which includes the following sections:

Our Business - a general description of our business, the organization of our operations and the service offerings that comprise our operations.

Results of Operations - an analysis of our consolidated results of operations for the periods presented in our consolidated financial statements and a discussion of seasonality, the potential impact of inflation and fuel availability and cost.

Off-Balance Sheet Arrangements - a discussion of significant financial arrangements, if any, that are not reflected on our balance sheet.

Liquidity and Capital Resources - an analysis of cash flows, sources and uses of cash, debt, equity and contractual obligations.

Critical Accounting Estimates - a discussion of accounting policies that require critical judgment and estimates.

Our Business

We operate primarily in the for-hire truckload segment of the trucking industry. Customers in a variety of industries engage us to haul truckload quantities of freight, with the trailer we use to haul that freight being assigned exclusively to that customer's freight until delivery. Our business is classified into three operating and reportable segments: our Trucking operating segment consisting primarily of our Truckload and Dedicated Freight service offerings; our SCS operating segment consisting entirely of our freight brokerage service offering; and our rail Intermodal operating segment.

Substantially all of our base revenue from the three reportable segments is generated by transporting, or arranging for the transportation of, freight for customers and is predominantly affected by the rates per mile received from our customers and similar operating costs.

Our SCS and Intermodal operating segments are intended to provide services which complement our Trucking services, primarily to existing customers of our Trucking operating segment. A majority of the customers using our SCS and Intermodal services are also customers of our Trucking operating segment.

The following tables present the base revenue of our three segments, net of intercompany transactions:

                                Three Months Ended
                                    March 31,
                                2013          2012
Base revenue (in thousands)   $ 79,793     $ 75,937
Percent of revenue                76.1 %       77.6 %

                                Three Months Ended
                                    March 31,
                                2013          2012
Base revenue (in thousands)   $ 21,459     $ 17,595
Percent of revenue                20.5 %       18.0 %

                                Three Months Ended
                                    March 31,
                                 2013         2012
Base revenue (in thousands)   $  3,635      $ 4,291
Percent of revenue                 3.5 %        4.4 %

We generally charge customers for our services on a per-mile basis. The expenses which have a major impact on our profitability are the variable costs of transporting freight for our customers. The variable costs include fuel expense, insurance and claims and driver-related expenses, such as wages and benefits.

Trucking. Trucking includes the following primary service offerings provided to our customers:

Truckload. Our Truckload service offering provides truckload freight services as a medium-haul common carrier. We have provided Truckload services since our inception and we derive the largest portion of our revenue from these services.

Dedicated Freight. Our Dedicated Freight service offering is a variation of our Truckload service, whereby we agree to make our equipment and drivers available to a specific customer for shipments over particular routes at specified times. In addition to serving specific customer needs, our Dedicated Freight service offering also aids in driver recruitment and retention.

Strategic Capacity Solutions. Our SCS operating segment consists entirely of our freight brokerage service offering which matches customer shipments with available equipment of authorized carriers and provides services that complement our Trucking operations. We provide these services primarily to our existing Trucking customers, many of whom prefer to rely on a single carrier, or a small group of carriers, to provide all their transportation needs. To date, a majority of the customers of SCS have also engaged us to provide services through one or more of our Trucking service offerings.

Intermodal. Our rail Intermodal service offering provides our customers cost savings over Truckload with a slightly slower transit speed, while allowing us to reposition our equipment.

Results of Operations

Executive Overview

Financial Results

Base revenue of $104.9 million for the quarter ended March 31, 2013, increased 7.2 % from $97.8 million for the same quarter of 2012. We incurred a net loss of $2.5 million ($0.24 per share) for the quarter ended March 31, 2013, compared to a net loss of $4.9 million ($0.47 per share) for the same quarter of 2012.

Operating Environment

Base revenue improved by 7.2% and operating costs were held to an increase of 3.5%, thus improving operating margin by over 400 basis points. Our operational execution continues to improve, helping us overcome difficult weather conditions across our operating areas and fewer business days due to leap year and an early Easter. We are pleased with our progress, and our top priority is returning to profitability as quickly as possible and restoring shareholder value.

Asset-Based Trucking Operations

Our Trucking segment led the way with a 50.0% improvement in operating results on revenue growth of 5.1% while expenses grew at 1.0%, yielding a 550 basis point improvement.

The yield management initiatives we began implementing during 2012 are gradually improving our freight network. Our loaded length-of-haul increased by 11.8%, and our rate per total mile simultaneously improved by 2.7%. Operationally, we executed better, improving miles per seated truck per week by 2.7%, as we continue to focus on asset productivity.

Most costs associated with our Trucking segment were lower due to a variety of cost control initiatives, including efforts to reduce driver turnover which improved by 22.6 percentage points year over year. We believe significant opportunities exist to remove costs from our operations. Those opportunities are in the areas of equipment operating costs, fuel consumption and safety (in fact, most of the year-over-year increase in insurance and claims dollars was the result of a single claim occurring on the final working day of the quarter). We are conducting a broad assessment of our processes in those three areas, among others, and are designing and deploying initiatives that we believe will unlock the earnings leverage in our Trucking model.

Non-Asset Based Operations

Our SCS segment produced operating income of $1.3 million, and experienced 22.0% base revenue growth, when compared to the same quarter of the prior year. However, less favorable conditions in the marketplace, particularly among seasonal spring shippers, led to slightly compressed gross margins (14.1% vs. 14.4%). Operating margins were further eroded due to an expanded infrastructure to facilitate long-term growth, and we experienced elevated bad debt expense during the quarter. Intermodal experienced better year-over-year results, but remained immaterial to our overall financial results.

Balance Sheet and Liquidity

We believe our balance sheet and sources of liquidity remain adequate to support our operating needs for the foreseeable future. At March 31, 2013, our outstanding debt, less cash, represented 57.5% of our total capitalization, compared to 48.9% at March 31, 2012. At March 31, 2013, we were in compliance with our five-year $125.0 million revolving credit facility and had approximately $15.2 million of available borrowing capacity (net of the minimum availability we are required to maintain of approximately $18.8 million). For the three months ended March 31, 2013, we incurred net capital expenditures of approximately $11.0 million. Our 2013 operating plan anticipates capital expenditures, net of proceeds on sale of assets, of approximately $36.3 million for the remainder of the year.

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Results of Operations - Combined Services

Total base revenue increased 7.2% to $104.9 million for the quarter ended March 31, 2013 from $97.8 million for the same quarter of 2012. We reported a net loss of $2.5 million ($0.24 per share) for the quarter ended March 31, 2013, compared to a net loss of $4.9 million ($0.47 per share) for the comparable prior year period.

Our effective tax rate was 31.5% for the quarter ended March 31, 2013, compared to 35.4% for the same quarter of 2012. Income tax expense varies from the amount computed by applying the federal tax rate to income before income taxes primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences, the most significant of which is the effect of the per diem pay structure for drivers. Due to the partially nondeductible effect of per diem payments, our tax rate will vary in future periods based on fluctuations in earnings and in the number of drivers who elect to receive this pay structure.

Results of Operations - Trucking

Relationship of Certain Items to Base Revenue

The following table sets forth the percentage relationship of certain items to
base revenue of our Trucking operating segment for the periods indicated. Fuel
and fuel taxes are shown net of fuel surcharges.
                                             Three Months Ended
                                                 March 31,
                                               2013         2012
Base Trucking revenue                        100.0  %     100.0 %
Operating expenses and costs:
Salaries, wages and employee benefits         41.4         43.8
Depreciation and amortization                 13.6         14.5
Operations and maintenance                    13.9         13.5
Fuel and fuel taxes                           16.7         17.8
Purchased transportation                       6.3          7.0
Insurance and claims                           6.7          6.3
Operating taxes and licenses                   1.2          1.8
Communications and utilities                   1.2          1.2
Gain on disposal of revenue equipment, net   (0.5)        (0.7)
Other                                          4.5          5.3
Total operating expenses and costs           105.0        110.5
Operating loss                               (5.0)  %    (10.5) %

Key Operating Statistics:
                                                     Three Months Ended
                                                          March 31,
                                                       2013          2012
Operating loss (in thousands) (1)                 $ (3,978)     $ (7,956)
Operating ratio (2)                                   105.0 %       110.5 %
Total miles (in thousands) (3)                       54,618        53,360
Empty mile factor (4)                                  11.0 %        11.8 %
Base Trucking revenue per loaded mile             $   1.642     $   1.613
Average number of tractors in service (5)             2,206         2,230
Unseated tractor percentage                             4.1 %         5.9 %
Average number of seated tractor (6)                  2,116         2,099
Average miles per seated tractor per week             2,008         1,955
Base Trucking revenue per seated tractor per week $   2,933     $   2,783
Average loaded miles per trip                           589           527

(1) Operating loss is calculated by deducting total operating expenses from total revenues.

(2) Operating ratio is calculated by dividing total operating expenses, net of fuel surcharge, by base revenue.

(3) Total miles include both loaded and empty miles.

(4) The empty mile factor is the number of miles traveled for which we are not typically compensated by any customer as a percent of total miles traveled.

(5) Tractors include Company-operated tractors in-service plus tractors operated by independent contractors.

(6) Seated tractors are those occupied by drivers.

Our base Trucking revenue increased 5.1% from $75.9 million to $79.8 million and our operating loss decreased 50.0% from ($8.0 million) to ($3.9 million). The increased revenue was a result of 5.4% more base revenue per seated tractor per week, which was driven by a 2.7% improvement in miles per seated tractor per week and a 2.7% increase in base Trucking revenue per mile. Our yield management initiative implemented during the first quarter of 2013 has resulted in a 62-mile, or 11.8%, increase in our average loaded length-of-haul, which helped us improve operational efficiency. Longer lengths-of-haul, within a regional model, typically require less time in metropolitan areas and at loading and unloading docks, and more time on the road generating revenue.

Overall, our operating ratio improved by 5.5 percentage points of base revenue to 105.0% from 110.5% as a result of the following factors:

Salaries, wages and employee benefits expense decreased by 2.4 percentage points of base Trucking revenue. The improvement was primarily the result of our improved base revenue per mile and miles per seated tractor per week and, to a lesser extent, the result of a 13.1% decrease in our non-driver employee headcount as we work to improve process efficiency throughout our Trucking segment and our tractor-to-non-driver employee ratio. Those improvements were offset by an increase in our driver employee compensation per mile, which we attribute to a highly competitive environment for hiring and retaining qualified drivers in the truckload industry.

Depreciation and amortization expense decreased by 0.9 percentage points of base Trucking revenue. The decrease was primarily the result of our improved base revenue per mile and miles per seated tractor per week. Depreciation and amortization expense may be affected in the future as equipment manufacturers change prices and if the prices of used equipment fluctuate.

Operations and maintenance expense increased by 0.4 percentage points. The increase was primarily due to an increase in maintenance costs on our tractors and trailers. Our average tractor fleet age has increased from 27.9 months to 30.8 months, and our average trailer fleet has increased from 73.5 months to 77.0 months. The year-over-year increase in the average age resulted in higher operating costs and lower warranty recovery.

Fuel and fuel taxes expense decreased 1.1 percentage points of base Trucking revenue. The decrease was primarily due to the increase in our base Trucking revenue per mile. Additionally, our fuel price per gallon, net of fuel surcharge revenue, was 5.4% lower due to improved fuel surcharge recoveries and lower market prices for fuel. Market pricing for fuel is volatile and we expect this expense to fluctuate accordingly in future periods. To help us offset those fluctuations, we are implementing internal initiatives that we anticipate will reduce our fuel consumption through various fuel economy initiatives and a concentrated effort to reduce our empty and out-of-route miles.

Purchased transportation expense, which is comprised of independent contractor compensation and fees paid to Mexican carriers, decreased by 0.7 percentage points of base Trucking revenue. The decrease is primarily the result of a decrease in the fees paid to independent contractors due to the lower fuel prices (we pay our independent contractors 100% of the fuel surcharge associated with the trips they haul).

Other expenses decreased 0.8 percentage points of base Trucking revenue primarily as a result of lower driver recruiting expenses, and to a lesser extent, our improved base revenue per mile and miles per seated tractor per week. During 2012, we reengineered our driver recruiting process, which we believe will reduce costs and improve efficiency.

Results of Operations - Strategic Capacity Solutions

The following table sets forth certain information relating to our SCS segment
for the periods indicated:
                         (in thousands, except gross margin)
                                 Three Months Ended
                                      March 31,
                             2013                   2012
Total SCS revenue (1)  $        27,363        $        26,344
Intercompany revenue           (2,015)                (5,192)
Net revenue            $        25,348        $        21,152

Operating income       $         1,282        $         1,544
Gross margin (2)                  14.1 %                 14.4 %

(1) Includes fuel surcharge revenue.

(2) Gross margin is calculated by taking total SCS revenue less purchased transportation and dividing that amount by total SCS revenue. This calculation includes intercompany revenue and expenses.

SCS net revenue increased 19.8% to $25.3 million from $21.2 million, while operating income decreased 17.0% to $1.3 million from $1.5 million. The decrease in operating income was partially a result of greater purchased transportation cost. Conditions in the marketplace were less favorable, which required us to pay more for transportation services relative to the price paid by our customers. We also incurred $0.2 million of expense related to accounts receivable deemed uncollectible.

Results of Operations - Intermodal Operations

The following table sets forth certain information relating to our Intermodal
operating segment for the periods indicated:
                                 (in thousands, except gross margin)
                                    Three Months Ended March 31,
                                       2013                    2012
Total Intermodal revenue (1)   $        4,801           $        5,708
Intercompany revenue                    (140)                    (155)
Net revenue                    $        4,661           $        5,553

Operating loss                 $        (131)           $        (224)
Gross margin (2)                         14.0   %                 21.5 %

(1) Includes fuel surcharge revenue.

(2) Gross margin is calculated by taking total Intermodal revenue less purchased transportation and dividing that amount by total Intermodal revenue. This calculation includes intercompany revenue and expenses.

Total net revenue from our Intermodal operating segment decreased 16.0% to $4.7 million from $5.6 million. During the fourth quarter of 2012, we began transitioning our Intermodal operating model from an asset-based model using 500 containers leased from a railroad to an asset-light model using our own trailers and containers owned by various railroads. That transition was completed late in the first quarter 2013. While revenue decreased, we reduced our operating loss 41.8% from $0.22 million to $0.13 million by reducing our operating costs by 17.0% as we migrated to the new model. We are focused on revenue growth now that the transition to the new model is complete.


In the trucking industry, revenue generally decreases as customers reduce shipments during the winter holiday season and as inclement weather impedes operations. At the same time, operating expenses increase due primarily to decreased fuel efficiency and increased maintenance costs. Future revenue could be impacted if customers, particularly those with manufacturing operations, reduce shipments due to temporary plant closings. Historically, many of our customers have closed their plants for maintenance or other reasons during January and July.


Most of our operating expenses are inflation sensitive, and we have not always been able to offset inflation-driven cost increases through increases in our revenue per mile and our cost control efforts. The effect of inflation-driven cost increases on our overall operating costs is not expected to be greater for us than for our competitors.

Fuel Availability and Cost

The motor carrier industry is dependent upon the availability of fuel. Fuel shortages or increases in fuel taxes or fuel costs have adversely affected our profitability and will continue to do so. Fuel prices have fluctuated widely, and fuel prices and fuel taxes have generally increased in recent years. We have not experienced difficulty in maintaining necessary fuel supplies. Typically, we are not able to fully recover increases in fuel prices through rate increases and fuel surcharges, primarily because those items do not provide any benefit with respect to empty and out-of-route miles, for which we typically do not receive compensation from customers. We do not have any long-term fuel purchase contracts and we have not entered into any other hedging arrangements that protect us against fuel price increases.

Off-Balance Sheet Arrangements

We do not currently have off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our consolidated financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. From time to time, we enter into operating leases related to facilities and office equipment that are not reflected in our balance sheet.

Liquidity and Capital Resources

On August 24, 2012, we entered into a $125.0 million Revolver with Wells Fargo Capital Finance, LLC, as Administrative Agent and PNC Bank, as Syndication Agent. The Revolver, which expires in 2017, is secured by substantially all of our assets, and can be expanded up to $175.0 million, subject to customary conditions and lender participation. Proceeds received under the Revolver were used, in part, to repay the approximately $75.9 million then outstanding under a credit agreement with a different lender.

During the first quarter of 2013, the maximum amount borrowed under the Revolver, including letters of credit, reached approximately 74.0% of the total amount available at its highest point. We ended the quarter with outstanding borrowings, including letters of credit, equal to approximately 72.8% of the total amount available under the Revolver. The maximum amount borrowed and the percentage of the amount available excluded the accordion feature. In January 2013, the Company's Board of Directors authorized the use of up to $45.0 million in new capital leases under existing facilities through 2013, and at March 31, 2013, we had approximately $34.7 million of availability. At March 31, 2013, we had approximately $15.2 million available under our Revolver (net of the minimum availability we are required to maintain of approximately $18.75 million). Our balance sheet debt, less cash, represents 57.5% of our total capitalization, and we have no material off-balance sheet debt. Our capital leases currently represent 38.5% of our total debt and carry an average fixed rate of 2.2%. Not only does that provide us with a natural hedge against recent London Interbank Offered Rate ("LIBOR") volatility, but it has also freed up availability on our Revolver. We produced $2.5 million in free cash flow (cash flow from operations less cash used in investing activities) during the first quarter of 2013, which was approximately $3.9 million less than the same period in 2012.

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