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USAK > SEC Filings for USAK > Form 10-Q on 25-Oct-2013All Recent SEC Filings

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Form 10-Q for USA TRUCK INC


25-Oct-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: (i) Trucking, consisting of our Truckload and Dedicated Freight and (ii) Strategic Capacity Solutions ("SCS"), consisting of our freight brokerage service offering and our rail intermodal service offering. We previously reported each operating segment separately; however, during the second quarter of 2013, 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         Nine Months Ended,
                                  September 30,               September 30,
                                2013          2012         2013          2012
Base revenue (in thousands)   $ 81,761     $ 71,951     $ 242,988     $ 219,733
Percent of revenue                71.8 %       71.7 %        73.6 %        72.8 %

                                                     SCS
                                Three Months Ended         Nine Months Ended,
                                  September 30,               September 30,
                                2013          2012         2013         2012
Base revenue (in thousands)   $ 32,095     $ 28,373     $ 87,218     $ 81,934
Percent of revenue                28.2 %       28.3 %       26.4 %       27.2 %

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 reportable 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.

Results of Operations

Executive Overview

The improvement in our results illustrates the progress we are making in our turnaround. The third quarter of 2013 reflected numerous improvements across our business as part of that turnaround and, for the fourth consecutive quarter, we improved our operating income and bottom-line results sequentially. Our increased cash flow enabled us to pay down debt for the first time since the fourth quarter of 2011. These achievements occurred despite the challenging conditions the truckload industry has been facing and the fact that our third quarter traditionally has been seasonally weaker than our second.

Our improved third quarter results were driven by a 13.5% increase in base revenue while operating expenses rose only 6.8%. Our nearly nine-fold improvement in operating margin reflects the success of the wide range of operational, marketing, and cost initiatives. Our go-to-market efforts have helped us gain market share, including the addition of highly-desirable Fortune 100 shippers to our list of top 10 customers.

In light of the fact that several industry peers have described the current operating environment as very difficult compared to a year ago, our strategic plan enabled us to extend our length of haul while simultaneously increasing our pricing, and to add drivers while simultaneously increasing productivity per driver.

Our asset-light Strategic Capacity Solutions (SCS) business also performed well, growing by 13.1% and producing a 300-basis-point quarter-over-quarter improvement in operating margin. This segment now accounts for $32.1 million, or 28%, of our consolidated base revenue and is helping to strengthen and diversify our business model.


We expect to build even further on the strong business momentum we have established. This momentum is demonstrated by the increasing rate of improvement in our bottom-line results - up 49% in the first quarter of 2013, 59% in the second quarter, and 90% in the third quarter - compared to the corresponding prior year periods. With meaningful opportunities for improvement in several areas of our business, including insurance and claims, maintenance costs and tractor utilization, we hope to build even further on the strong business momentum we have established going into the fourth quarter of 2013 and beyond.

The Board of Directors launched a search for a new Chief Executive Officer and hired John Simone to serve in that capacity beginning in February 2013. Since then, Mr. Simone has brought in various members of senior management, including a new Executive Vice President, Truckload Operations, a new Executive Vice President, Risk Management and Safety, and a new Vice President, Maintenance. This team, which includes the members of the incumbent management team, has made substantial operational changes in all areas of the Company. The results of these efforts have been evident in the improvement reported for the third quarter of 2013.

Financial Results

Total base revenues increased 13.5% to $113.9 million for the quarter ended September 30, 2013 from $100.3 million for the same quarter of 2012. Asset-based Trucking revenue, not including fuel surcharge, increased 13.6% to $81.8 million, while non-asset based Strategic Capacity Solutions revenue rose 13.1% to $32.1 million. The Company incurred a net loss of $0.6 million for the 2013 quarter compared to a net loss of $6.1 million for the 2012 quarter. Diluted net loss per share improved 90.1% from ($0.59) in the third quarter of 2012 to ($0.06) in the third quarter of 2013.

Total base revenues increased 9.5% to $330.2 million for the nine months ended September 30, 2013 from $301.7 million for the same period of 2012. Asset-based Trucking revenue, not including fuel surcharge, increased 9.5% to $243.0 million, while non-asset based Strategic Capacity Solutions revenue rose 6.4% to $87.2 million. The Company incurred a net loss of $4.5 million ($0.43 per share) for the nine months ended September 30, 2013 compared to a net loss of $14.4 million ($1.40 per share) for the comparable 2012 period.

Balance Sheet and Liquidity

We ended the quarter with $140.9 million of outstanding debt, a reduction of $5.1 million sequentially from June 30. The pay down was made possible by improved cash flow from operations, which has more than doubled year-over-year for both the quarter and nine months ended September 30. The strengthening cash flow also enabled us to expand available borrowing capacity on our revolving credit facility to $29.5 million.

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

Results of Operations - Combined Services

Total base revenue increased 13.5% to $113.9 million for the quarter ended September 30, 2013 from $100.3 million for the same quarter of 2012. We reported a net loss of $0.6 million ($0.06 per share) for the quarter ended September 30, 2013, compared to a net loss of $6.1 million ($0.59 per share) for the comparable prior year period.

Our effective tax rate was 7.6% for the quarter ended September 30, 2013, compared to 36.3% 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
                                               September 30,
                                              2013         2012
Base Trucking revenue                        100.0  %     100.0 %
Operating expenses and costs:
Salaries, wages and employee benefits         39.8         46.7
Operations and maintenance                    14.9         14.0
Depreciation and amortization                 14.2         15.5
Fuel and fuel taxes                           12.3         15.4
Insurance and claims                           8.3          7.3
Purchased transportation                       7.3          6.6
Operating taxes and licenses                   1.7          1.7
Communications and utilities                   1.1          1.2
Gain on disposal of revenue equipment, net   (0.8)        (0.7)
Other                                          4.8          6.4
Total operating expenses and costs           103.6        114.1
Operating loss                               (3.6)  %    (14.1) %



Key Operating Statistics:

                                                     Three Months Ended
                                                       September 30,
                                                    2013          2012
Operating loss (in thousands) (1)                 $ (2,968)   $ (10,111)
Operating ratio (2)                                   103.6 %      114.1 %
Total miles (in thousands) (3)                       55,516       49,855
Empty mile factor                                      11.4 %       10.7 %
Base revenue per loaded mile                      $    1.66   $     1.62
Average number of in-service tractors (4)             2,250        2,157
Percentage of in-service tractors unseated              6.2 %        9.9 %
Average number of seated tractors (5)                 2,111        1,944
Average miles per seated tractor per week             2,001        1,951
Base Trucking revenue per seated tractor per week $   2,948   $    2,816
Average loaded miles per trip                           602          557

(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 13.6% from $72.0 million to $81.8 million and our operating loss decreased 70.7% from $10.1 million to $3.0 million for the same quarter of 2012. The increase in our base Trucking revenue resulted primarily from our average seated tractor count increasing by 8.6%, our miles per seated tractor per week increasing 2.6%, and our average revenue per total mile increasing 2.1%.

Overall, our operating ratio improved by 10.5 percentage points of base revenue to 103.6% from 114.1% as a result of the following factors:

Salaries, wages and employee benefits expense decreased by 6.9 percentage points of base Trucking revenue predominately due to more favorable workers compensation claims experience, lower employee benefit costs resulting from more favorable claims experience, and lower non-driver wages due to a smaller non-driver employee head count as part of internal efforts to increase efficiency.

Operations and maintenance expense increased 0.9 percentage points of base Trucking revenue primarily due to a $1.8 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 1.3 percentage points of base Trucking revenue primarily due to 13.6% growth in base Trucking revenue with only a 4.3% 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.

Fuel and fuel taxes expense decreased 3.1 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, more favorable fuel pricing discounts from our suppliers, and fewer miles traveled "out-of-route" for which we 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 1.0 percentage point 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 expect insurance and claims expense to decrease over the long term, but they will remain volatile from period-to-period.

Purchased transportation expenses increased 0.7 percentage points of base Trucking revenue. The increase was primarily the result of a 21.7% increase in the size of our owner-operator fleet from 106 to 129, and 17.9% growth in our cross-border Mexico revenue in which we compensate Mexican carriers for the transportation of our customers' freight within Mexico.

Other expenses decreased 1.5 percentage points of base Trucking revenue as a result of decreased driver recruiting and training expenses and 13.6% greater base Trucking revenue. Internal driver retention initiatives and increased miles per seated tractor per week resulted in a 16.2 percentage point decrease in our annualized driver turnover rate during the quarter, and a 28.0 percentage point decrease year-to-date. The cumulative impact of the reduced turnover rates, substantially 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

 The following table sets forth certain information relating to our SCS
reportable segment for the periods indicated:

                                     Three Months Ended
                                       September 30,
                                   2013           2012
Total SCS revenue                $  33,416     $  34,509
Intercompany revenue               (1,321)       (6,136)
Total net revenue                $  32,095     $  28,373

Operating income (in thousands)  $   2,764     $   1,586
Gross margin (1)                      14.0 %        13.9 %

(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 increased 13.1% to $32.1 million from $28.4 million, while operating income increased 74.3% to $2.8 million from $1.6 million.


Total net revenue in our SCS segment grew 13.1% primarily due to a 10.9% increase in revenue productivity per employee and a 29.1% increase in revenue per load. Those factors were partially offset by a 5.2% reduction in employee head count due to the closing of underperforming branches.

The increased operating income was primarily due to lower operating costs resulting from the closing of underperforming branches as part of our internal efforts to scale back growth plans in SCS brokerage operations due to a softer than expected marketplace operating environment. To a lesser extent, the improved operating income was also the result of improved performance in our Intermodal service.

Other Expenses

Other expenses, net, decreased primarily due to the reduction of an accrued liability to a financial services provider.

Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012

Results of Operations - Combined Services

Total base revenue increased 9.5% to $330.2 million for the nine months ended September 30, 2013 from $301.7 million for the same quarter of 2012. We reported a net loss of $4.5 million ($0.43 per share) for the nine months ended September 30, 2013 as compared to a net loss of $14.4 million ($1.40 per share) for the comparable prior year period.

Our effective tax rate was 25.6% for the nine months ended September 30, 2013 compared to 35.5% 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.

                                             Nine Months Ended
                                               September 30,
                                              2013        2012
Base Trucking revenue                        100.0  %    100.0 %
Operating expenses and costs:
Salaries, wages and employee benefits         40.3        44.8
Operations and maintenance                    15.0        13.6
Fuel and fuel taxes                           13.6        15.5
Depreciation and amortization                 13.7        15.1
Purchased transportation                       7.0         6.9
Insurance and claims                           7.8         7.0
Operating taxes and licenses                   1.7         1.9
Communications and utilities                   1.1         1.3
Gain on disposal of revenue equipment, net   (0.6)       (0.8)
Other                                          4.5         5.8
Total operating expenses and costs           104.1       111.1
Operating loss                               (4.1)  %   (11.1) %


Key Operating Statistics:

                                                         Nine Months Ended
                                                           September 30,
                                                        2013           2012
Trucking:
Operating loss (in thousands) (1)                   $ (10,054)     $ (24,391)
Operating ratio (2)                                      104.1 %        111.1 %
Total miles (in thousands) (3)                         166,844        152,808
Empty mile factor                                         11.4 %         11.1 %
Base revenue per loaded mile                        $     1.65     $     1.62
Average number of in-service tractors (4)                2,232          2,186
Percentage of in-service tractors unseated                 5.3 %          9.1 %
Average number of seated tractors (5)                    2,114          1,987
Average miles per seated tractor per week                2,024          1,965
Base Trucking revenue per seated tractor per week        2,947          2,825
Average loaded miles per trip                              596            537

(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 10.6% from $219.7 million to $243.0 million and our Trucking operating loss decreased from $24.4 million to $10.1 million. The increase in our base Trucking revenue resulted from a 6.4% increase in average seated tractors, a 3.0% increase in miles per seated tractor per week, and a 1.3% increase in base Trucking revenue per total mile.

Our operating ratio improved by 7.0 percentage points of base revenue to 104.1% from 111.1% as a result of the following factors:

Salaries, wages and employee benefits expense decreased by 4.5 percentage . . .

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