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USAK > SEC Filings for USAK > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for USA TRUCK INC

Form 10-Q for USA TRUCK INC


14-Aug-2013

Quarterly Report


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

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.

Overview

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 three operating segments are classified into two reportable segments: our Trucking operating segment consisting primarily of our Truckload and Dedicated Freight and our Strategic Capacity Solutions ("SCS") operating segment consisting of our freight brokerage service offering and our rail intermodal service offering. We previously reported each operating segment separately; however, this quarter, based on several factors including the relatively small size of Intermodal and the interrelationship of SCS and Intermodal operations, we aggregated Intermodal with the SCS operating segment.

Substantially all of our base revenue 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 chart describes the base revenue of our two reportable segments.

                                                   Trucking
                                Three Months Ended          Six Months Ended,
                                     June 30,                   June 30,
                                2013          2012         2013          2012
Base revenue (in thousands)     81,434       71,846       161,227       147,782
Percent of revenue                73.1 %       69.4 %        74.5 %        73.4 %




                                             SCS and Intermodal
                                Three Months Ended         Six Months Ended,
                                     June 30,                  June 30,
                                2013          2012         2013         2012
Base revenue (in thousands)     30,028       31,674       55,123       53,560
Percent of revenue                26.9 %       30.6 %       25.5 %       26.6 %

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.

Strategic Capacity Solutions. Our SCS operating segment consists of our freight brokerage service offering and our rail intermodal service offering, both of which match customer shipments with available equipment of authorized carriers and provide services that complement our Trucking operations. Additionally, our rail intermodal service offering provides our customers cost savings over Truckload with a slightly slower transit speed. 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.


Results of Operations

Executive Overview

Base revenue of $111.5 million for the quarter ended June 30, 2013, increased 7.7% from $103.5 million for the same quarter of 2012. We incurred a net loss of $1.4 million ($0.14 per share) for the quarter ended June 30, 2013, compared to a net loss of $3.5 million ($0.34 per share) for the same quarter of 2012.

Base revenue increased 7.5% to $216.3 million for the six months ended June 30, 2013, from $201.3 million for the same period of 2012. We incurred a net loss of $3.9 million ($0.38 per share) for the six months ended June 30, 2013, compared to a net loss of $8.4 million ($0.81 per share) for the same period of 2012.

Operating Environment

Operating margins improved by 340 basis points for the six month period ended June 30, 2013 compared to the same period of the prior year. This improvement was primarily due to a 7.7% base revenue growth across our combined services, while operating costs increased only 3.7% (net of fuel surcharge recoveries). We reduced our net loss by 59.9%, marking our second consecutive quarter of material year-over-year improvement in operating results. We believe our turnaround plan gained traction during the June quarter, extending the year-over-year improvements in base revenue, operating income and net loss we achieved during the March quarter.

Asset-Based Trucking Operations

Our Trucking segment continued to lead the turnaround with a 500 basis point improvement in operating margin for the three month period ended June 30, 2013 compared to the same period of the prior year.

Trucking base revenue increased 13.3% year over year on improved asset productivity (miles per seated tractor per week) and more seated tractors. The improved asset productivity was attributable to better operational execution within a more efficient freight network. The improved miles combined with several internal initiatives helped us reduce driver turnover by 31.2 percentage points, which enabled us to increase our seated tractor count year over year.

While Trucking base revenue grew by 13.3%, Trucking operating costs increased only by 8.2% (net of fuel surcharge recoveries). Fixed costs and fuel costs were materially lower year over year due to the execution of several internal initiatives. Despite those cost improvements, we believe substantial opportunity remains to realize more earnings leverage in our Trucking model in the areas of asset productivity, equipment maintenance, insurance and claims, fuel economy and driver retention. Internal efforts to improve those costs are at various stages of implementation, and we are taking measures that we anticipate will accelerate the pace of progress.

Non-Asset Based Operations

Despite 5.2% less base revenue, our SCS segment produced 8.4% growth in operating income increasing to $2.2 million in the second quarter of 2013 from $2.0 million in the second quarter of 2012. SCS has experienced higher operating margins by reducing fixed costs and more effectively leveraging the leaner operating structure. Gross margin decreased to 14.0% from 15.4% in the same quarter a year ago.

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 June 30, 2013, our outstanding debt, less cash, represented 57.7% of our total capitalization, compared to 55.1% at December 31, 2012. At June 30, 2013, we had approximately $23.0 million of available borrowing capacity, up from $15.2 million at March 31, 2013 (in each case, net of the $18.8 million minimum availability we are required to maintain). For the six months ended June 30, 2013, we incurred net capital expenditures of approximately $24.1 million. Our 2013 operating plan anticipates capital expenditures, net of proceeds on sale of assets, of approximately $23.5 million for the remainder of the year.

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

Results of Operations - Combined Services

Total base revenue increased 7.7% to $111.5 million for the quarter ended June 30, 2013 from $103.5 million for the same quarter of 2012. We reported a net loss of $1.4 million ($0.14 per share) for the quarter ended June 30, 2013, compared to a net loss of $3.5 million ($0.34 per share) for the comparable prior year period.

Our effective tax rate was 24.3% for the quarter ended June 30, 2013, compared to 34.3% 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
                                                  June 30,
                                              2013         2012
Base Trucking revenue                        100.0  %      100.0 %
Operating expenses and costs:
Salaries, wages and employee benefits         39.7          44.1
Operations and maintenance                    16.3          13.5
Depreciation and amortization                 13.2          15.4
Fuel and fuel taxes                           11.8          13.0
Insurance and claims                           8.6           7.4
Purchased transportation                       7.3           7.0
Operating taxes and licenses                   2.1           1.9
Communications and utilities                   1.1           1.3
Gain on disposal of revenue equipment, net   (0.5)         (1.0)
Other                                          4.2           6.2
Total operating expenses and costs           103.8         108.8
Operating loss                               (3.8)  %      (8.8) %


Key Operating Statistics:
                                                     Three Months Ended
                                                          June 30,
                                                    2013           2012
Operating loss (in thousands) (1)                 $ (3,108)    $ (6,324)
Operating ratio (2)                                   103.8  %     108.8  %
Total miles (in thousands) (3)                       56,715       49,594
Empty mile factor                                      11.8  %      10.9  %
Base revenue per loaded mile                      $   1.629    $   1.627
Average number of in-service tractors (4)             2,241        2,171
Percentage of in-service tractors unseated              5.6  %      11.6  %
Average number of seated tractors (5)                 2,116        1,919
Average miles per seated tractor per week             2,062        1,988
Base Trucking revenue per seated tractor per week $   2,961    $   2,880
Average loaded miles per trip                           597          527

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

(2) Operating ratio is based upon total operating expenses, net of fuel surcharge revenue, as a percentage of base revenue.

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

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

(5) Seated tractors are those occupied by drivers.

Our base Trucking revenue increased 13.3% from $71.8 million to $81.4 million and our operating loss was $3.1 million compared to $6.3 million for the same quarter of 2012. The increase in our base Trucking revenue resulted primarily from our miles per seated tractor per week increasing 3.7% and our average seated tractor count increasing by 10.3%.

Overall, our operating ratio improved by 5.0 percentage points of base revenue to 103.8% from 108.8% as a result of the following factors:

Salaries, wages and employee benefits expense decreased by 4.4 percentage points of base Trucking revenue predominately due to lower employee benefit costs resulting from more favorable claims experience, and lower non-driver wages due to a smaller non-driver employee head count.

Operations and maintenance expense increased 2.8 percentage points of base Trucking revenue primarily due to a $3.4 million increase in direct repair costs on tractors and trailers, which arose from our more disciplined preventive maintenance program and improved asset utilization that increased associated repairs. While we expect this expense to remain elevated in the near-term, we believe our equipment maintenance strategy will result in lower long-term direct repair costs.

Depreciation and amortization expense decreased by 2.1 percentage points of base Trucking revenue primarily due to 13.3% growth in base Trucking revenue with only a 3.0% increase in Company tractors in-service. Depreciation and amortization expense may be affected in the future as equipment manufacturers change prices and if the prices of used equipment fluctuate. We also have a higher percentage of our Company tractors held for sale, and those tractors are no longer being depreciated.

Fuel and fuel taxes expense decreased 1.2 percentage points of base Trucking revenue. The decrease was primarily due to the recovery of a greater percentage of our fuel costs through fuel surcharge revenue programs with our customers. We experienced higher fuel price discounts relative to market prices for fuel during quarter, and we reduced the number of miles our fleet traveled "out-of-route" for which are not compensated by our customers. Those factors were partially offset by lower fuel economy on our fleet. Fuel costs will continue to be affected in the future by price fluctuations, the terms and collectability of fuel surcharge revenue and the percentage of total miles driven by independent contractors.

Insurance and claims expense increased 1.2 percentage points of base Trucking revenue primarily due to adverse experience on auto liability losses for both new and existing claims. Our Department of Transportation recordable accident frequencies continue to improve and we would expect insurance and claims expense to decrease over the long term, but they will remain volatile from period-to-period.

Reduced gains on the disposal of equipment resulted in 0.5 percentage points greater net cost due to fewer sales of our tractors and trailers and reduced gains per sale. The market for used trailers remains strong, but we have experienced softness in the used tractor markets during 2013. If the used equipment market was to soften or we decided to keep our equipment for a longer period of time, gains on disposal of equipment could decrease.

Other expenses decreased 2.0 percentage points of base Trucking revenue as a result of decreased driver recruiting and training expenses and 13.3% greater base Trucking revenue. Internal driver retention initiatives and increased miles per seated tractor per week resulted in a 31.2 percentage point decrease in our annualized driver turnover rate. The reduced turnover rate, 127 fewer unseated trucks and internal recruiting initiatives enabled us to reduce driver recruiting and training costs by $0.5 million. The market for hiring qualified drivers remains extremely competitive, and we expect long-term costs to increase for recruiting and retention.

Results of Operations - Strategic Capacity Solutions and Intermodal

The following table sets forth certain information relating to our SCS
reportable segment for the periods indicated:
                                     Three Months Ended
                                          June 30,
                                   2013           2012
Total SCS and Intermodal revenue $  36,695     $  44,895
Intercompany revenue               (1,781)       (8,136)
Total Net revenue                $  34,914     $  36,759

Operating income (in thousands)  $   2,163     $   1,995
Gross margin (1)                      14.0 %        15.4 %

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

Total net revenue from SCS decreased 5.0% to $34.9 million from $36.8 million, while operating income increased 8.4% to $2.2 million from $2.0 million.

Net revenue in our SCS brokerage service grew 5.0%, but net revenue from our Intermodal service declined by 46.1%. During the first quarter 2013, we completed a transition in our intermodal service from primarily asset-based to asset light model. The new variable-cost model with considerably less fixed expenses produced a small operating profit (compared to a loss of $0.5 million in the second quarter of 2012), but does not yet have the necessary volume to drive meaningful profitability.

The increased operating income was due to improved gross margin (14.1% compared to 15.0%) in our SCS brokerage service, to lower fixed operating costs in our SCS brokerage service resulting from our internal efforts to scale back growth plans in SCS brokerage operations due to a softer than expected marketplace operating environment, and to the improved performance in our Intermodal service.


Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

Results of Operations - Combined Services

Total base revenue increased 7.5% to $216.3 million for the six months ended June 30, 2013 from $201.3 million for the same quarter of 2012. We reported a net loss of $3.9 million ($0.38 per share) for the six months ended June 30, 2013 as compared to a net loss of $8.4 million ($0.81 per share) for the comparable prior year period.

Our effective tax rate was 29.0% for the six months ended June 30, 2013 compared to 35.0% for the same period 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.

                                             Six Months Ended
                                                 June 30,
                                              2013       2012
Base Trucking revenue                        100.0  %   100.0 %
Operating expenses and costs:
Salaries, wages and employee benefits         40.5       43.9
Operations and maintenance                    15.1       13.5
Fuel and fuel taxes                           14.2       15.5
Depreciation and amortization                 13.4       14.9
Purchased transportation                       6.8        7.0
Insurance and claims                           7.6        6.9
Operating taxes and licenses                   1.7        1.9
Communications and utilities                   1.1        1.3
Gain on disposal of revenue equipment, net   (0.5)      (0.9)
Other                                          4.5        5.7
Total operating expenses and costs           104.4      109.7
Operating loss                               (4.4)  %   (9.7) %



Key Operating Statistics:
                                                         Six Months Ended
                                                             June 30,
                                                       2013           2012
Trucking:
Operating loss (in thousands) (1)                   $ (7,086)     $ (14,275)
Operating ratio (2)                                     104.4 %        109.7 %
Total miles (in thousands) (3)                        111,333        102,953
Empty mile factor                                        11.4 %         11.4 %
Base revenue per loaded mile                        $   1.635     $    1.620
Average number of in-service tractors (4)               2,223          2,201
Percentage of in-service tractors unseated                4.9 %          8.7 %
Average number of seated tractors (5)                   2,115          2,009
Average miles per seated tractor per week               2,036          1,971
Base Trucking revenue per seated tractor per week       2,948          2,829
Average loaded miles per trip                             593            527

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

(2) Operating ratio is based upon total operating expenses, net of fuel surcharge revenue, as a percentage of base revenue.

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

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

(5) Seated tractors are those occupied by drivers.

Our base Trucking revenue increased 9.1% from $147.8 million to $161.2 million and our Trucking operating loss decreased from $14.3 million to $7.1 million. The increase in our base Trucking revenue resulted from a 3.3% increase in miles per seated tractor per week, a 5.3% increase in average seated tractors, and a 0.9% increase in base Trucking revenue per total mile.

Our operating ratio improved by 530 percentage points of base revenue to 104.4% from 109.7% as a result of the following factors:

Salaries, wages and employee benefits expense decreased by 3.4 percentage points of base revenue primarily due to an 9.1% increase in base Trucking revenue, lower employee benefit and workers compensation costs resulting from more favorable claims experience, and lower non-driver wages.

Operations and maintenance expense increased 1.6 percentage points of base Trucking revenue primarily due to a $4.2 million increase in direct repair costs on tractors and trailers, which arose from our more disciplined preventive maintenance program that we believe is pulling cost forward from future periods. While we expect this expense to remain elevated in the near-term, we believe our equipment maintenance strategy will result in lower long-term direct repair costs.

Fuel and fuel taxes expense decreased 1.3 percentage points of base Trucking revenue. The decrease was primarily due to the recovery of a greater percentage of our fuel costs through fuel surcharge revenue programs with our customers. We experienced higher fuel price discounts relative to market . . .

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