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, (the “Exchange Act”) 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, revenue,
costs,
or other financial items;
|
|
●
|
any statement of projected future operations or processes;
|
|
●
|
any statement of plans, strategies, goals, and objectives of management for future operations;
|
|
●
|
any statement concerning proposed new services or developments;
|
|
●
|
any statement regarding future economic conditions or performance; and
|
|
●
|
any statement of belief and any statement of assumptions underlying any of the foregoing.
|
In this Quarterly Report on Form 10-Q, statements relating to:
|
●
|
future ability to grow market share,
|
|
●
|
future driver and customer-facing employee compensation,
|
|
●
|
future ability
and cost
to recruit and retain
drivers,
|
|
●
|
future asset utilization,
the amount, timing and price of future acquisitions and dispositions of revenue equipment
, size and age of the Company’
s fleet
, mix of fleet between C
ompany-owned and independent contractors
and anticipated gains or losses resulting from dispositions,
|
|
●
|
future
safety
performance
,
|
|
●
|
future industry capacity,
|
|
●
|
future effects
of restructuring actions,
|
|
●
|
future pricing rates
and freight network
,
|
|
●
|
future fuel prices and surcharges
, fuel efficiency and hedging arrangements
,
|
|
●
|
future insurance and claims
and litigation
expense,
|
|
●
|
future
salaries, wages and
employee benefits costs,
|
|
●
|
future purchased transportation use and expense,
|
|
●
|
future operations and maintenance costs,
|
|
●
|
future
USAT Logistics growth
and profitability
,
|
|
●
|
future impact on expenses from growth in independent contractors and USAT Logistics
,
|
|
●
|
future use of derivative financial instruments
and the impact of increasing interest rates and diesel fuel costs
,
|
|
●
|
our intention about the payment of dividends,
|
|
●
|
future liquidity and borrowing availability and capacity,
|
|
●
|
the impact of pending and future litigation and claims
,
|
|
●
|
future availability
and compliance with covenants
under our revolving credit facility
,
|
|
●
|
expected amount and timing of capital expenditures,
|
|
●
|
expected liquidity and sources of capital resources,
including the mix of capital and operating leases,
|
|
●
|
future size of
our independent contractor fleet
,
and
|
|
●
|
future income tax rates
|
among others, are forward-looking statements. Such statements may be identified by their use of terms or phrases such as “expects,” “estimates,” “projects,” “believes,” “anticipates,” “intends,” “plans,” “goals,” “may,” “will,” ”would,” “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 the Company’s Annual Report on Form 10-K for the year ended
December 31, 2017
and other filings with the Securities and Exchange Commission (the “SEC”).
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. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in management’s expectations with regard thereto or any change in the events, conditions or circumstances on which any such information is based, except as required by law
.
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” or similar terms refer to USA Truck, Inc. and its subsidiary.
Overview
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader more fully understand the operations and present business environment of USA Truck, Inc. MD&A is provided as a supplement to, and should be read in conjunction with, the condensed 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 the consolidated results of operations for the periods presented in the condensed consolidated financial statements included in this filing and a discussion of seasonality, the potential impact of inflation and fuel availability and cost.
Liquidity and Capital Resources
– an analysis of cash flows, sources and uses of cash, debt, equity and contractual obligations.
Our Business
USA Truck offers a broad range of truckload motor carrier and freight brokerage and logistics services to a diversified customer base that spans a variety of industries. The Company has two reportable segments: (i) Trucking, consisting of one-way truckload motor carrier services, in which volumes typically are not contractually committed, and dedicated contract motor carrier services, in which a combination of equipment and drivers is contractually committed to a particular customer, typically for a duration of at least one year, subject to certain cancellation rights, and (ii) USAT Logistics, consisting of freight brokerage, logistics, and rail intermodal service offerings.
The Trucking segment provides one-way truckload transportation, including dedicated services, of various products, goods and materials. The Trucking segment primarily uses its own purchased or leased tractors and trailers to provide services to customers and is commonly referred to as “asset-based” trucking. The Company’s USAT Logistics services match customer shipments with available equipment of authorized third-party motor carriers and other service providers and provide services that complement the Company’s Trucking operations. USAT Logistics provides these services primarily to existing Trucking customers, many of whom prefer to rely on a single service provider, or a small group of service providers, to provide all their transportation solutions.
Revenue for the Company’s Trucking segment is substantially generated by transporting freight for customers, and is predominantly affected by the rates per mile received from customers, the number of tractors in operation, and the number of revenue-generating miles per tractor. The Company supplements its Trucking operating revenue by charging for fuel surcharge and ancillary services such as stop-off pay, loading and unloading activities, tractor and trailer detention and other similar services.
Operating expenses that have a major impact on the profitability of the Trucking segment fall into two categories: variable and fixed. Variable costs, or mostly variable costs, constitute the majority of the costs associated with transporting freight for customers, and include driver wages and benefits, fuel and fuel taxes, payments to independent contractors for purchased transportation, operating and maintenance expense and insurance and claims expense. These costs vary primarily according to miles operated, but also have controllable components based on percentage of compensated miles, shop and dispatch efficiency, and safety and claims experience.
The most significant fixed costs, or mostly fixed costs, include the capital costs of our assets (depreciation, rent and interest), compensation of non-driving employees and portions of insurance and maintenance expenses. These expenses are partially controllable through management of fleet size and facilities infrastructure, headcount efficiency, and operating safely.
Fuel and fuel tax expense can fluctuate significantly with changes in diesel fuel prices and is one of our most volatile variable expenses. To mitigate the Company’s exposure to fuel price increases, it recovers from its customers fuel surcharges that historically have recouped a majority of the increased fuel costs; however, the Company cannot assure the recovery levels experienced in the past will continue in future periods. Although the Company’s fuel surcharge program mitigates some exposure to rising fuel costs, the Company continues to have exposure to increasing fuel costs related to empty miles, out-of-route miles, fuel inefficiency due to engine idle time and other factors, including the extent to which the surcharge paid by the customer is insufficient to compensate for higher fuel costs, particularly in times of rapidly increasing fuel prices. The main factors that affect fuel surcharge revenue are the price of diesel fuel and the number of loaded miles. The fuel surcharge is billed on a lagging basis, meaning the Company typically bills customers in the current week based on the previous week’s applicable United States Department of Energy, or DOE, index. Therefore, in times of increasing fuel prices, the Company does not recover as much in fuel surcharge revenue as it pays for fuel. In periods of declining prices, the opposite is true.
The key statistics used to evaluate Trucking segment performance, net of fuel surcharge revenue, include (i) base Trucking revenue per available tractor per week, (ii) base revenue per loaded mile, (iii) loaded miles per available tractor per week, (iv) deadhead percentage, (v) average loaded miles per trip, (vi) average number of available tractors and (vii) adjusted operating ratio. In general, the Company’s loaded miles per available tractor per week, rate per mile and deadhead percentage are affected by industry-wide freight volumes, industry-wide trucking capacity and the competitive environment, which factors are mostly beyond the Company’s control, as well as by its sales and marketing efforts, service levels and efficiency of its operations, over which the Company has significant control.
Unlike the Trucking segment, the USAT Logistics segment is non-asset based and is instead dependent upon qualified employees, information systems and qualified third-party capacity providers. The largest expense related to the USAT Logistics segment is purchased transportation expense. Other operating expenses consist primarily of salaries, wages and employee benefits. The Company evaluates the financial performance of the USAT Logistics segment by reviewing gross margin (USAT Logistics operating revenue less purchased transportation expense) and the gross margin percentage (USAT Logistics operating revenue less purchased transportation expense expressed as a percentage of USAT Logistics operating revenue). The gross margin can be impacted by the rates charged to customers and the costs of securing third-party capacity. USAT Logistics often achieves better gross margins during periods of imbalance between supply and demand than times of balanced supply and demand, although periods of transition to tight capacity also can compress margins.
We plan to continue our focus on improving results through disciplined network management and pricing, enhanced partnerships with customers, and improved execution in our day-to-day operations, as well as our ongoing safety initiatives. By focusing on these key objectives, management believes it will make progress on its goals of improving the Company’s operating performance and increasing stockholder value.
Results of Operations
The following table sets forth the condensed consolidated statements of operations and comprehensive income (loss) in dollars (in thousands) and percentage of consolidated operating revenue and the percentage increase or decrease in the dollar amounts (in thousands) of those items compared to the prior year.
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
$
|
|
|
%
Operating
Revenue
|
|
|
%
Adjusted
Operating
Ratio (1)
|
|
|
|
$
|
|
|
%
Operating
Revenue
|
|
|
%
Adjusted
Operating
Ratio (1)
|
|
|
% Change
in Dollar
Amounts
|
|
Base revenue
|
|
$
|
119,107
|
|
|
|
88.0
|
%
|
|
|
|
|
|
$
|
96,038
|
|
|
|
89.5
|
%
|
|
|
|
|
|
|
24.0
|
%
|
Fuel surcharge revenue
|
|
|
16,274
|
|
|
|
12.0
|
|
|
|
|
|
|
|
11,320
|
|
|
|
10.5
|
|
|
|
|
|
|
|
43.8
|
|
Operating revenue
|
|
$
|
135,381
|
|
|
|
100.0
|
%
|
|
|
|
|
|
$
|
107,358
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
26.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
131,070
|
|
|
|
96.8
|
|
|
|
96.4
|
%
|
|
|
110,324
|
|
|
|
102.8
|
|
|
|
103.0
|
%
|
|
|
18.8
|
|
Operating income (loss)
|
|
|
4,311
|
|
|
|
3.2
|
|
|
|
3.6
|
|
|
|
(2,966
|
)
|
|
|
(2.8
|
)
|
|
|
(3.0
|
)
|
|
|
245.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
833
|
|
|
|
0.6
|
|
|
|
|
|
|
|
950
|
|
|
|
0.9
|
|
|
|
|
|
|
|
(12.3
|
)
|
Other, net
|
|
|
113
|
|
|
|
0.1
|
|
|
|
|
|
|
|
128
|
|
|
|
0.1
|
|
|
|
|
|
|
|
(11.7
|
)
|
Total other expenses, net
|
|
|
946
|
|
|
|
0.7
|
|
|
|
|
|
|
|
1,078
|
|
|
|
1.0
|
|
|
|
|
|
|
|
(12.2
|
)
|
Income (loss) before income taxes
|
|
|
3,365
|
|
|
|
2.5
|
|
|
|
|
|
|
|
(4,044
|
)
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
183.2
|
|
Income tax expense (benefit)
|
|
|
821
|
|
|
|
0.6
|
|
|
|
|
|
|
|
(1,198
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
(168.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
|
$
|
2,544
|
|
|
|
1.9
|
%
|
|
|
|
|
|
$
|
(2,846
|
)
|
|
|
(2.7
|
)%
|
|
|
|
|
|
|
189.4
|
%
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
$
|
|
|
%
Operating
Revenue
|
|
|
%
Adjusted
Operating
Ratio (1)
|
|
|
|
$
|
|
|
%
Operating
Revenue
|
|
|
%
Adjusted
Operating
Ratio (1)
|
|
|
% Change
in Dollar
Amounts
|
|
Base revenue
|
|
$
|
229,386
|
|
|
|
88.1
|
%
|
|
|
|
|
|
$
|
185,866
|
|
|
|
88.9
|
%
|
|
|
|
|
|
|
23.4
|
%
|
Fuel surcharge revenue
|
|
|
31,008
|
|
|
|
11.9
|
|
|
|
|
|
|
|
23,162
|
|
|
|
11.1
|
|
|
|
|
|
|
|
33.9
|
|
Operating revenue
|
|
$
|
260,394
|
|
|
|
100.0
|
%
|
|
|
|
|
|
$
|
209,028
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
24.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
253,691
|
|
|
|
97.4
|
|
|
|
97.0
|
%
|
|
|
218,393
|
|
|
|
104.5
|
|
|
|
104.6
|
%
|
|
|
16.2
|
|
Operating income
|
|
|
6,703
|
|
|
|
2.6
|
|
|
|
3.0
|
|
|
|
(9,365
|
)
|
|
|
(4.5
|
)
|
|
|
(4.6
|
)
|
|
|
171.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,651
|
|
|
|
0.6
|
|
|
|
|
|
|
|
1,953
|
|
|
|
0.9
|
|
|
|
|
|
|
|
(15.5
|
)
|
Other, net
|
|
|
233
|
|
|
|
0.1
|
|
|
|
|
|
|
|
226
|
|
|
|
0.1
|
|
|
|
|
|
|
|
3.1
|
|
Total other expenses, net
|
|
|
1,884
|
|
|
|
0.7
|
|
|
|
|
|
|
|
2,179
|
|
|
|
1.0
|
|
|
|
|
|
|
|
(13.5
|
)
|
Income before income taxes
|
|
|
4,819
|
|
|
|
1.9
|
|
|
|
|
|
|
|
(11,544
|
)
|
|
|
(5.5
|
)
|
|
|
|
|
|
|
141.7
|
|
Income tax expense (benefit)
|
|
|
1,240
|
|
|
|
0.5
|
|
|
|
|
|
|
|
(3,808
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
(132.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
$
|
3,579
|
|
|
|
1.4
|
%
|
|
|
|
|
|
$
|
(7,736
|
)
|
|
|
(3.7
|
)%
|
|
|
|
|
|
|
146.3
|
%
|
|
(1)
|
Adjusted operating ratio is calculated as operating expenses, less restructuring, impairment and other costs and severance costs included in salaries, wages and employee benefits, net of fuel surcharge revenue, as a percentage of operating revenue excluding fuel surcharge revenue. Adjusted operating ratio is a non-GAAP financial measure. See “Use of Non-GAAP Financial Information”, “Consolidated Reconciliations” and “Segment Reconciliations” below for the uses and limitations associated with adjusted operating ratio and other non-GAAP financial measures.
|
Use of Non-GAAP Financial Information
The Company uses the terms “adjusted operating ratio” and “adjusted earnings (loss) per diluted share” throughout this Form 10-Q. Adjusted operating ratio and adjusted earnings (loss) per diluted share, as defined here, are non-GAAP financial measures as defined by the SEC. Management uses adjusted operating ratio and adjusted earnings (loss) per diluted share as supplements to the Company’s GAAP results in evaluating certain aspects of its business, as discussed below.
Adjusted operating ratio is calculated as operating expenses less restructuring, impairment and other costs and severance costs included in salaries, wages and employee benefits, net of fuel surcharge revenue, as a percentage of operating revenue excluding fuel surcharge revenue. Adjusted earnings (loss) per diluted share is defined as net income (loss) per share plus the per share impact of restructuring, impairment and other, and severance costs included in salaries, wages and employee benefits, less the per share tax impact of those adjustments using a statutory income tax rate. The per share impact of each item is determined by dividing it by the weighted average diluted shares outstanding.
The Company’s chief operating decision-makers focus on adjusted operating ratio and adjusted earnings (loss) per diluted share as indicators of the Company’s performance from period to period.
Management believes removing the impact of the above described items from the Company’s operating results affords a more consistent basis for comparing results of operations. Management believes its presentation of adjusted operating ratio and adjusted earnings (loss) per diluted share is useful to investors and other users because it provides them the same information that we use internally for purposes of assessing our core operating performance.
Adjusted operating ratio and adjusted earnings (loss) per diluted share are not substitutes for operating margin or any other measure derived solely from GAAP measures. There are limitations to using non-GAAP measures such as adjusted operating ratio and adjusted earnings (loss) per diluted share. Although management believes that adjusted operating ratio and adjusted earnings (loss) per diluted share can make an evaluation of the Company’s operating performance more consistent because these measures remove items that, in management’s opinion, do not reflect its core operating performance, other companies in the transportation industry may define adjusted operating ratio and adjusted earnings (loss) per diluted share differently. As a result, it may be difficult to use adjusted operating ratio, adjusted earnings (loss) per diluted share or similarly named non-GAAP measures that other companies may use, to compare the performance of those companies to USA Truck’s performance.
Pursuant to the requirements of Regulation S-K, reconciliations of non-GAAP financial measures to GAAP financial measures have been provided in the tables below (dollar amounts in thousands).
Consolidated Reconciliations
Adjusted
o
perating
r
atio:
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
201
8
|
|
|
2017
|
|
|
201
8
|
|
|
2017
|
|
Operating revenue
|
|
$
|
135,381
|
|
|
$
|
107,358
|
|
|
$
|
260,394
|
|
|
$
|
209,028
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel surcharge revenue
|
|
|
16,274
|
|
|
|
11,320
|
|
|
|
31,008
|
|
|
|
23,162
|
|
Base revenue
|
|
|
119,107
|
|
|
|
96,038
|
|
|
|
229,386
|
|
|
|
185,866
|
|
Operating expense
|
|
|
131,070
|
|
|
|
110,324
|
|
|
|
253,691
|
|
|
|
218,393
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs in salaries, wages and employee benefits
|
|
|
--
|
|
|
|
(82
|
)
|
|
|
(711
|
)
|
|
|
(899
|
)
|
Restructuring, impairment and other costs (reversal)
|
|
|
--
|
|
|
|
--
|
|
|
|
639
|
|
|
|
--
|
|
Fuel surcharge revenue
|
|
|
(16,274
|
)
|
|
|
(11,320
|
)
|
|
|
(31,008
|
)
|
|
|
(23,162
|
)
|
Adjusted operating expense
|
|
$
|
114,796
|
|
|
$
|
98,922
|
|
|
$
|
222,611
|
|
|
$
|
194,322
|
|
Operating ratio
|
|
|
96.8
|
%
|
|
|
102.8
|
%
|
|
|
97.4
|
%
|
|
|
104.5
|
%
|
Adjusted operating ratio
|
|
|
96.4
|
%
|
|
|
103.0
|
%
|
|
|
97.0
|
%
|
|
|
104.6
|
%
|
Adjusted
e
arnings (
l
oss) per
diluted s
hare:
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
201
8
|
|
|
2017
|
|
|
201
8
|
|
|
2017
|
|
Earnings (loss) per diluted share
|
|
$
|
0.31
|
|
|
$
|
(0.35
|
)
|
|
$
|
0.44
|
|
|
$
|
(0.96
|
)
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs in salaries, wages and employee benefits
|
|
|
--
|
|
|
|
0.01
|
|
|
|
0.09
|
|
|
|
0.11
|
|
Restructuring, impairment and other costs (reversal)
|
|
|
--
|
|
|
|
--
|
|
|
|
(0.08
|
)
|
|
|
--
|
|
Income tax expense (benefit) effect of adjustments
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(0.04
|
)
|
Adjusted earnings (loss) per diluted share
|
|
$
|
0.31
|
|
|
$
|
(0.34
|
)
|
|
$
|
0.45
|
|
|
$
|
(0.89
|
)
|
Segment
R
econciliations
Trucking
Segment
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
201
8
|
|
|
2017
|
|
|
201
8
|
|
|
2017
|
|
Revenue
|
|
$
|
85,685
|
|
|
$
|
71,731
|
|
|
$
|
164,531
|
|
|
$
|
142,202
|
|
Less: intersegment eliminations
|
|
|
116
|
|
|
|
186
|
|
|
|
229
|
|
|
|
377
|
|
Operating revenue
|
|
|
85,569
|
|
|
|
71,545
|
|
|
|
164,302
|
|
|
|
141,825
|
|
Less: fuel surcharge revenue
|
|
|
12,123
|
|
|
|
8,828
|
|
|
|
23,298
|
|
|
|
18,015
|
|
Base revenue
|
|
|
73,446
|
|
|
|
62,717
|
|
|
|
141,004
|
|
|
|
123,810
|
|
Operating expense
|
|
|
83,416
|
|
|
|
76,388
|
|
|
|
162,613
|
|
|
|
153,796
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs in salaries, wages and employee benefits
|
|
|
--
|
|
|
|
(56
|
)
|
|
|
(484
|
)
|
|
|
(642
|
)
|
Restructuring, impairment and other costs (reversal)
|
|
|
--
|
|
|
|
--
|
|
|
|
587
|
|
|
|
--
|
|
Fuel surcharge revenue
|
|
|
(12,123
|
)
|
|
|
(8,828
|
)
|
|
|
(23,298
|
)
|
|
|
(18,015
|
)
|
Adjusted operating expense
|
|
$
|
71,293
|
|
|
$
|
67,504
|
|
|
$
|
139,418
|
|
|
$
|
135,139
|
|
Operating ratio
|
|
|
97.5
|
%
|
|
|
106.8
|
%
|
|
|
99.0
|
%
|
|
|
108.4
|
%
|
Adjusted operating ratio
|
|
|
97.1
|
%
|
|
|
107.6
|
%
|
|
|
98.9
|
%
|
|
|
109.2
|
%
|
USAT Logistics Segment
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
201
8
|
|
|
2017
|
|
|
201
8
|
|
|
2017
|
|
Revenue
|
|
$
|
50,616
|
|
|
$
|
36,878
|
|
|
$
|
97,391
|
|
|
$
|
69,528
|
|
Less: intersegment eliminations
|
|
|
804
|
|
|
|
1,065
|
|
|
|
1,299
|
|
|
|
2,325
|
|
Operating revenue
|
|
|
49,812
|
|
|
|
35,813
|
|
|
|
96,092
|
|
|
|
67,203
|
|
Less: fuel surcharge revenue
|
|
|
4,151
|
|
|
|
2,492
|
|
|
|
7,710
|
|
|
|
5,147
|
|
Base revenue
|
|
|
45,661
|
|
|
|
33,321
|
|
|
|
88,382
|
|
|
|
62,056
|
|
Operating expense
|
|
|
47,654
|
|
|
|
33,936
|
|
|
|
91,078
|
|
|
|
64,597
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs in salaries, wages and employee benefits
|
|
|
--
|
|
|
|
(26
|
)
|
|
|
(227
|
)
|
|
|
(257
|
)
|
Restructuring, impairment and other costs (reversal)
|
|
|
--
|
|
|
|
--
|
|
|
|
52
|
|
|
|
--
|
|
Fuel surcharge revenue
|
|
|
(4,151
|
)
|
|
|
(2,492
|
)
|
|
|
(7,710
|
)
|
|
|
(5,147
|
)
|
Adjusted operating expense
|
|
$
|
43,503
|
|
|
$
|
31,418
|
|
|
$
|
83,193
|
|
|
$
|
59,193
|
|
Operating ratio
|
|
|
95.7
|
%
|
|
|
94.8
|
%
|
|
|
94.8
|
%
|
|
|
96.1
|
%
|
Adjusted operating ratio
|
|
|
95.3
|
%
|
|
|
94.3
|
%
|
|
|
94.1
|
%
|
|
|
95.4
|
%
|
Key
O
perating
S
tatistics by
S
egment
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Trucking
:
|
|
201
8
|
|
|
2017
|
|
|
201
8
|
|
|
2017
|
|
Operating revenue
(in thousands)
|
|
$
|
85,569
|
|
|
$
|
71,545
|
|
|
$
|
164,302
|
|
|
$
|
141,825
|
|
Operating income (loss)
(in
thousands)
(1)
|
|
$
|
2,153
|
|
|
$
|
(4,843
|
)
|
|
$
|
1,689
|
|
|
$
|
(11,971
|
)
|
Operating ratio (2)
|
|
|
97.5
|
%
|
|
|
106.8
|
%
|
|
|
99.0
|
%
|
|
|
108.4
|
%
|
Adjusted operating ratio (3)
|
|
|
97.1
|
%
|
|
|
107.6
|
%
|
|
|
98.9
|
%
|
|
|
109.2
|
%
|
Total miles
(in thousands)
(4)
|
|
|
39,560
|
|
|
|
40,833
|
|
|
|
78,103
|
|
|
|
81,283
|
|
Deadhead percentage (5)
|
|
|
13.5
|
%
|
|
|
12.8
|
%
|
|
|
13.1
|
%
|
|
|
13.0
|
%
|
Base revenue per loaded mile
|
|
$
|
2.145
|
|
|
$
|
1.762
|
|
|
$
|
2.078
|
|
|
$
|
1.751
|
|
Average number of seated tractors (6)
|
|
|
1,558
|
|
|
|
1,584
|
|
|
|
1,546
|
|
|
|
1,573
|
|
Average number of available tractors (7)
|
|
|
1,638
|
|
|
|
1,672
|
|
|
|
1,628
|
|
|
|
1,663
|
|
Average number of in-service tractors (8)
|
|
|
1,668
|
|
|
|
1,722
|
|
|
|
1,661
|
|
|
|
1,713
|
|
Loaded miles per available tractor per week
|
|
|
1,608
|
|
|
|
1,637
|
|
|
|
1,612
|
|
|
|
1,644
|
|
Base revenue per available tractor per week
|
|
$
|
3,449
|
|
|
$
|
2,885
|
|
|
$
|
3,350
|
|
|
$
|
2,879
|
|
Average loaded miles per trip
|
|
|
522
|
|
|
|
560
|
|
|
|
532
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USAT Logistics
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
(in thousands)
|
|
$
|
49,812
|
|
|
$
|
35,813
|
|
|
$
|
96,092
|
|
|
$
|
67,203
|
|
Operating income
(in thousands)
(1)
|
|
$
|
2,158
|
|
|
$
|
1,877
|
|
|
$
|
5,014
|
|
|
$
|
2,606
|
|
Gross margin
(in thousands)
(9)
|
|
$
|
7,513
|
|
|
|
6,620
|
|
|
|
15,397
|
|
|
|
11,979
|
|
Gross margin percentage (10)
|
|
|
15.1
|
%
|
|
|
18.5
|
%
|
|
|
16.0
|
%
|
|
|
17.8
|
%
|
(1)
|
Operating income (loss) is calculated by deducting operating expenses from operating revenue.
|
(2)
|
Operating ratio is calculated as operating expenses as a percentage of operating revenue.
|
(3)
|
Adjusted operating ratio is calculated as operating expenses less restructuring, impairment and other costs, and severance costs included in salaries, wages and employee benefits, net of fuel surcharge revenue, as a percentage of operating revenue excluding fuel surcharge revenue.
|
(4)
|
Total miles include both loaded and empty miles.
|
(5)
|
Deadhead percentage is calculated by dividing empty miles into total miles.
|
(6)
|
Seated tractors are those occupied by a driver, both Company-paid and independent contractor.
|
(7)
|
Available tractors are all those Company-tractors that are available to be dispatched, including available unseated tractors, and our independent contractor fleet.
|
(8)
|
In-service tractors include all of the tractors in the Company fleet, including Company-operated tractors and independent contractors.
|
(9)
|
Gross margin is calculated by deducting purchased transportation expense from USAT Logistics operating revenue.
|
(10)
|
Gross margin percentage is calculated as gross margin divided by USAT Logistics operating revenue.
|
Results of Operations—Segment Review
Trucking operating revenue
During the three months ended June 30, 2018, Trucking operating revenue increased 19.6% to $85.6 million, compared to $71.5 million for the same period in 2017. Trucking base revenue increased 17.1% to $73.4 million, compared to $62.7 million for the second quarter of 2017. The increase in operating revenue was the result of a 21.7% increase in base rate per loaded mile, partially offset by a 3.8% decrease in loaded miles driven by a 1.6% decrease in average seated tractor count and a 70 basis point increase in deadhead percentage.
During the six months ended June 30, 2018, Trucking operating revenue increased 15.8% to $164.3 million, compared to $141.8 million for the same period of 2017. Trucking base revenue increased 13.9% to $141.0 million, from $123.8 million for the same period in 2017. The positive changes in operating revenue and base revenue were primarily attributable to an 18.7% increase in base rate per loaded mile paired with a 2.8% increase in number of Trucking shipments, offset by a 1.7% decrease in the average number of seated tractors and a 10 basis point increase in deadhead percentage. Looking ahead, the Company expects year-over-year improvements in rate per mile when compared to those experienced during the prior year due to the favorable relationship between industry capacity and demand and the implementation of Company initiatives.
Trucking operating
income
For the second quarter of 2018, Trucking reported operating income of $2.2 million compared to an operating loss of $4.8 million for the same period in 2017, primarily resulting from a 19.6% increase in operating revenue caused by a 19.5% increase in base revenue per available tractor per week, offset by 9.2% higher operating expenses.
For the six months ended June 30, 2018, operating income increased 114.1% to $1.7 million from a loss of $12.0 million for the corresponding period in 2017, primarily resulting from the 15.8% increase in operating revenue driven by the increased base revenue per available tracter per week mentioned above and offset by a 5.7% increase operating expenses.
USAT Logistics operating revenue
For the three months ended June 30, 2018, USAT Logistics operating revenue increased 39.1% to $49.8 million compared to $35.8 million for the same period in 2017. The year-over-year change in operating revenue was the result of a 31.7% increase in revenue per load combined with a 5.6% increase in load volume.
For the six months ended June 30, 2018, operating revenue increased 43.0% to $96.1 million from $67.2 million, for the corresponding period in 2017, primarily resulting from a 38.0% increase in revenue per load, paired with a 3.6% increase in load volumes.
USAT Logistics operating income
USAT Logistics generated operating income of $2.2 million in the second quarter of 2018, an increase of $0.3 million, or 15.0%, compared to $1.9 million in the second quarter of 2017. As mentioned above, the 39.1% increase in operating revenue and 5.6% increase in load volume contributed primarily to the growth in operating income, but were offset by a 40.4% increase in operating expenses.
For the six months ended June 30, 2018, operating income increased 92.4% to $5.0 million from $2.6 million for the corresponding period in 2017. This change was the result of the 43.0% increase in operating revenue mentioned above, driven by the increased revenue per load and load volumes, offset by a 41.0% increase in operating expenses.
Consolidated Operating Expenses
The following table summarizes the consolidated operating expenses (dollar amounts in thousands) and percentage of consolidated operating revenue, consolidated base revenue and the percentage increase or decrease in the dollar amounts of those items compared to the prior year.
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
% Change
|
|
Operating Expenses:
|
|
$
|
|
|
%
Operating
Revenue
|
|
|
Adjusted
Operating
Ratio (1)
|
|
|
$
|
|
|
%
Operating
Revenue
|
|
|
Adjusted
Operating
Ratio (1)
|
|
|
2018 to
2017
|
|
Salaries, wages and employee benefits
|
|
$
|
31,645
|
|
|
|
23.4
|
%
|
|
|
26.5
|
% (1)
|
|
$
|
29,221
|
|
|
|
27.2
|
%
|
|
|
30.3
|
% (1)
|
|
|
8.3
|
%
|
Fuel and fuel taxes
|
|
|
13,984
|
|
|
|
10.3
|
|
|
|
(1.9
|
) (2)
|
|
|
10,479
|
|
|
|
9.8
|
|
|
|
(0.9
|
) (2)
|
|
|
33.4
|
|
Depreciation and amortization
|
|
|
7,477
|
|
|
|
5.5
|
|
|
|
6.3
|
|
|
|
6,879
|
|
|
|
6.4
|
|
|
|
7.2
|
|
|
|
8.7
|
|
Insurance and claims
|
|
|
5,341
|
|
|
|
4.0
|
|
|
|
4.5
|
|
|
|
5,561
|
|
|
|
5.2
|
|
|
|
5.8
|
|
|
|
(4.0
|
)
|
Equipment rent
|
|
|
2,151
|
|
|
|
1.6
|
|
|
|
1.8
|
|
|
|
2,633
|
|
|
|
2.5
|
|
|
|
2.7
|
|
|
|
(18.3
|
)
|
Operations and maintenance
|
|
|
8,913
|
|
|
|
6.6
|
|
|
|
7.5
|
|
|
|
7,950
|
|
|
|
7.3
|
|
|
|
8.3
|
|
|
|
12.1
|
|
Purchased transportation
|
|
|
55,817
|
|
|
|
41.2
|
|
|
|
46.9
|
|
|
|
41,005
|
|
|
|
38.2
|
|
|
|
42.7
|
|
|
|
36.1
|
|
Operating taxes and licenses
|
|
|
1,262
|
|
|
|
0.9
|
|
|
|
1.0
|
|
|
|
1,024
|
|
|
|
1.0
|
|
|
|
1.1
|
|
|
|
23.2
|
|
Communications and utilities
|
|
|
677
|
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
598
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
13.2
|
|
Gain on disposal of assets, net
|
|
|
(395
|
)
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
(77
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
413.0
|
|
Other
|
|
|
4,198
|
|
|
|
3.1
|
|
|
|
3.5
|
|
|
|
5,051
|
|
|
|
4.6
|
|
|
|
5.3
|
|
|
|
(16.9
|
)
|
Total operating expenses
|
|
$
|
131,070
|
|
|
|
96.8
|
%
|
|
|
96.4
|
%
|
|
$
|
110,324
|
|
|
|
102.8
|
%
|
|
|
103.0
|
%
|
|
|
18.8
|
%
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2018
|
|
|
2017
|
|
% Change
|
|
Operating Expenses:
|
|
$
|
|
|
%
Operating
Revenue
|
|
|
Adjusted
Operating
Ratio (1)
|
|
|
$
|
|
|
%
Operating
Revenue
|
|
|
Adjusted
Operating
Ratio (1)
|
|
|
2018 to
2017
|
|
Salaries, wages and employee benefits
|
|
$
|
63,882
|
|
|
|
24.5
|
%
|
|
|
27.5
|
% (1)
|
|
$
|
59,860
|
|
|
|
28.6
|
%
|
|
|
31.7
|
% (1)
|
|
|
6.7
|
%
|
Fuel and fuel taxes
|
|
|
27,463
|
|
|
|
10.5
|
|
|
|
(1.6
|
) (2)
|
|
|
21,253
|
|
|
|
10.2
|
|
|
|
(1.0
|
) (2)
|
|
|
29.2
|
|
Depreciation and amortization
|
|
|
14,657
|
|
|
|
5.6
|
|
|
|
6.4
|
|
|
|
14,523
|
|
|
|
6.9
|
|
|
|
7.8
|
|
|
|
0.9
|
|
Insurance and claims
|
|
|
10,943
|
|
|
|
4.2
|
|
|
|
4.8
|
|
|
|
13,893
|
|
|
|
6.7
|
|
|
|
7.5
|
|
|
|
(21.2
|
)
|
Equipment rent
|
|
|
4,869
|
|
|
|
1.9
|
|
|
|
2.1
|
|
|
|
4,747
|
|
|
|
2.3
|
|
|
|
2.6
|
|
|
|
2.6
|
|
Operations and maintenance
|
|
|
16,874
|
|
|
|
6.5
|
|
|
|
7.4
|
|
|
|
14,521
|
|
|
|
7.0
|
|
|
|
7.8
|
|
|
|
16.2
|
|
Purchased transportation
|
|
|
104,855
|
|
|
|
40.3
|
|
|
|
45.7
|
|
|
|
78,408
|
|
|
|
37.5
|
|
|
|
42.2
|
|
|
|
33.7
|
|
Operating taxes and licenses
|
|
|
1,764
|
|
|
|
0.7
|
|
|
|
0.8
|
|
|
|
1,974
|
|
|
|
0.9
|
|
|
|
1.1
|
|
|
|
(10.6
|
)
|
Communications and utilities
|
|
|
1,390
|
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
1,264
|
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
10.0
|
|
Gain on disposal of assets, net
|
|
|
(564
|
)
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
|
|
(337
|
)
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
67.4
|
|
Restructuring, impairment and other costs (reversal)
|
|
|
(639
|
)
|
|
|
(0.2
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Other
|
|
|
8,197
|
|
|
|
3.1
|
|
|
|
3.6
|
|
|
|
8,287
|
|
|
|
4.0
|
|
|
|
4.4
|
|
|
|
(1.1
|
)
|
Total operating expenses
|
|
$
|
253,691
|
|
|
|
97.4
|
%
|
|
|
97.0
|
%
|
|
$
|
218,393
|
|
|
|
104.5
|
%
|
|
|
104.6
|
%
|
|
|
16.2
|
%
|
(1)
|
Adjusted operating ratio is calculated as the applicable operating expense less restructuring, impairment and other costs and severance costs included in salaries, wages and employee benefits, net of fuel surcharge revenue, as a percentage of operating revenue excluding fuel surcharge revenue.
|
(2)
|
Calculated as fuel and fuel taxes, net of fuel surcharge revenue.
|
Salaries, w
ages and employee benefits
The change in salaries, wages and employee benefits expense during the second quarter of 2018 was primarily due to the accrual of severance benefits related to the retirement of the Company’s Chief Commercial Officer, Mr. James A. Craig, increased employee benefit costs, and the establishment of an employee performance bonus program.
For the six months ended June 30, 2018, salaries, wages and employee benefits expense decreased more than 400 basis points as a percentage of operating revenue while increasing in terms of dollars spent. The decrease as a percentage of operating revenue was due to the 18.9% increase sequentially in the independent contractor fleet. The rate of compensation paid to Company drivers per mile has increased in recent periods and we expect this cost will increase in future periods due to driver pay increases, the most recent of which became effective during the second quarter of 2017. Management believes that the market for drivers will remain tight, and as such, expects driver wages and hiring expenses, which include recruiting and advertising costs, to continue to increase in order to attract and retain sufficient numbers of qualified drivers to operate the Company’s fleet. This expense item will also be affected by the percentage of Trucking miles operated by independent contractors instead of Company employed drivers and the percentage of revenue generated by USAT Logistics, for which costs are reflected in purchased transportation.
Fuel and fuel taxes
Fuel and fuel taxes consist primarily of diesel fuel expense for Company-owned tractors and fuel taxes. The primary factors affecting the Company’s fuel expense are the cost of diesel fuel, the fuel economy of Company equipment and the number of miles driven by Company drivers. The increases in fuel and fuel taxes for the three and six month periods ended June 30, 2018 resulted from a 25.3% increase in average diesel fuel prices per gallon year over year, as reported by the DOE, offset by a 3-4% decrease in total revenue miles for both quarter and year to date when compared to the same periods in 2017. The Company has undertaken fuel efficiency initiatives, such as installing trailer skirts, idle control, more fuel-efficient engines and implementing driver training programs, which have contributed to improvements in our fuel expense on a cost per Company tractor mile basis.
The Company expects to continue managing its idle time and truck speeds and partnering with customers to adjust fuel surcharge programs to recover a fair portion of rising fuel costs. Going forward, the Company’s net fuel expense is expected to fluctuate as a percentage of revenue based on factors such as diesel fuel prices, percentage recovered from fuel surcharge programs, deadhead percentage, the percentage of revenue generated from independent contractors and the success of fuel efficiency initiatives.
Depreciation and amortization and
equipment
rent
Depreciation and amortization of property and equipment consists primarily of depreciation for Company-owned tractors and trailers and amortization of those financed with capital leases. The primary factors affecting this expense include the number and age of Company tractors and trailers, the acquisition cost of new equipment and the salvage values and useful lives assigned to the equipment. Equipment rent expenses are those related to revenue equipment under operating leases. These largely fixed costs fluctuate as a percentage of base revenue primarily with increases and decreases in average base revenue per tractor and the percentage of base revenue contributed by Trucking versus USAT Logistics. In addition, the mix of capital and operating leases will cause fluctuations on a line item basis between equipment rent expense and depreciation and amortization expense. For the three month period ended June 30, 2018, equipment rent expense decreased due to an operational rebate on our leased tractors.
The decrease in depreciation and amortization expense as a percentage of both operating and base revenue for the three and six month periods ended June 30, 2018, as compared to the same period in 2017, is primarily attributable to a smaller Company fleet. For the six month period ended June 30, 2018, equipment rent expense increased due to the increased use of operating leases on trailers. The Company intends to continue to focus on improving asset utilization, matching customer demand and strengthening load profitability initiatives. Further, the acquisition costs of new revenue equipment could increase due to the continued implementation of emissions requirements and the inclusion of improved safety and fuel efficiency features. As a result, management expects to see an increase in depreciation and amortization expense from new tractors, and expects equipment rent to increase as the use of operating leases increases.
Insurance and claims
Insurance and claims expense consists of insurance premiums and the accruals the Company makes for estimated payments and expenses for claims for third-party bodily injury, property damage, cargo damage and other casualty events. The primary factors affecting the Company’s insurance and claims expense are the number of miles driven by its Company drivers and independent contractors, the frequency and severity of accidents, trends in the development factors used in the Company’s actuarial accruals, developments in prior-year claims and insurance premiums and self-insured amounts. For the three months ended June 30, 2018, the decrease in insurance and claims expense year over year was largely attributable to the more normalized expense for the current quarter compared to a large actuarial adjustment made during second quarter 2017.
As mentioned above, the decrease in insurance and claims expense during the six months ended June 30, 2018 is the result of having a more normal insurance expense during the current period when compared to the same period in 2017, in which a $3.0 million actuarial adjustment as recorded stemming from adverse development in our prior year claim layers. The Company expects insurance and claims expense to continue to be volatile over the long-term. In addition, insurance carriers have generally raised premiums for many businesses, including those in the trucking industry, and the Company’s insurance and claims expense could increase if it has a similar experience at renewal or replacement, or the Company could find it necessary to raise its self-insured retention levels or decrease its aggregate coverage limits.
Operations and maintenance
Operations and maintenance expense consists primarily of vehicle repairs and maintenance, general and administrative expenses and other costs. Operating and maintenance expenses are primarily affected by the age of the Company-owned fleet of tractors and trailers, the number of miles driven in a period and, to a lesser extent, by efficiency measures in the Company’s maintenance facilities. Operations and maintenance expense increased for the three months ended June 30, 2018, due to heightened maintenance costs on the Company fleet, which is comprised of older, revenue equipment that tends to have higher maintenance costs. Delays in OEM tractor deliveries during the quarter have slowed down the receipt of new tractors that management believes may reduce maintenance costs in the future.
For the six month period ended June 30, 2018, the increase in operations and maintenance expense was primarily the result of increased repair costs on the Company fleet, which is currently comprised of older, revenue equipment that tends to have higher maintenance costs. Delays in OEM tractor deliveries have contributed to the increase in this line item.
Purchased transportation
Purchased transportation consists of the payments the Company makes to independent contractors, railroads and third-party carriers that haul loads brokered to them by the Company, including fuel surcharge reimbursement paid to such parties. For the second quarter of 2018, purchased transportation expense increased primarily due to an increase in USAT Logistics freight volumes when compared to the same period in 2017.
For the six months ended June 30, 2018, the increase in purchased transportation expense was primarily due to increased freight volumes in USAT Logistics. Moving forward, the Company is continuing to pursue its objective of growing its independent contractor fleet as a percentage of its total fleet and growing USAT Logistics, which, if successful, could further increase purchased transportation expense, particularly if the Company needs to pay independent contractors more to stay with the Company in light of expected regulatory changes. Increasing independent contractor capacity has shifted (and assuming all other factors remain equal, is expected to continue to shift), and growth of USAT Logistics will shift, expenses to the “Purchased transportation” line item with offsetting reductions in employee driver wages and related expenses, net fuel expense (as independent contractors generate fuel surcharge revenue, while the related cost of their fuel is included with their compensation in purchased transportation), maintenance and capital expenditures.
Gain on disposal of assets, net
During the three and six months ended June 30, 2018, gain on disposal of assets, net, increased when compared to the same periods in 2017. Management believes the used equipment market may continue to show volatility in 2018 and beyond.
Other expenses
The decreases in other expenses during the three and six months ended June 30, 2018 were primarily resulting from a decrease in professional services costs and corporate hiring and relocation expenses.
Restructuring, impairment and other costs
(reversal)
See Note 13 to the condensed consolidated financial statements for discussion of restructuring, impairment and other costs, which discussion is incorporated herein by reference.
Interest expense
For both the three and six months ended June 30, 2018, interest expense decreased primarily due to reduced outstanding borrowings. As of June 30, 2018, the Company decreased its debt outstanding on the Credit Facility by approximately $6.3 million, as compared to December 31, 2017. See Note 8 to the condensed consolidated financial statements for further discussion of the Company’s Credit Facility.
Income tax expense
During the three months ended June 30, 2018 and 2017, the Company’s effective tax rate was 24.4% and 29.6%, respectively. During the six months ended June 30, 2018 and 2017, the Company’s effective tax rate was 25.7% and 33.0%, respectively. The Company’s effective tax rate for the 2018 periods, when compared to the federal statutory rate of 21%, is primarily affected by state income taxes, net of federal income tax effect, and permanent differences, the most significant of which is the effect of the partially non-deductible per diem pay structure for our drivers. Drivers may elect to receive non-taxable per diem pay in lieu of a portion of their taxable wages. This per diem program increases the Company’s drivers’ net pay per mile, after taxes, while decreasing gross pay, before taxes. Per diem pay is partially non-deductible by the Company under current IRS regulations. As a result, salaries, wages and employee benefits costs are slightly lower and effective income tax rates are higher than the statutory rate. Due to the partially non-deductible effect of per diem pay, the Company’s tax rate will change based on fluctuations in earnings (losses) and in the number of drivers who elect to receive this pay structure. Generally, as pretax income or loss increases, the impact of the driver per diem program on the Company’s effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pretax income or loss, while in periods where earnings are at or near breakeven the impact of the per diem program on the Company’s effective tax rate can be significant. Due to the effect of the non-deductible per diem payments, the Company’s tax rate will fluctuate in future periods based on fluctuations in earnings (losses) and in the number of drivers who elect to participate in the per diem program.
When the result of the expected annual effective tax rate is not deemed reliable and distorts the income tax provision for an interim period, the Company calculates the income tax provision or benefit using the cut-off method, which results in an income tax provision or benefit based solely on the year-to-date pretax income or loss as adjusted for permanent differences on a pro rata basis.
Seasonality
In the trucking industry, revenue typically follows a seasonal pattern for various commodities and customer businesses. Peak freight demand has historically occurred in the months of September, October and November. After the December holiday season and during the remaining winter months, freight volumes are typically lower as many customers reduce shipment levels. Operating expenses have historically been higher in the winter months due primarily to decreased fuel efficiency, increased cold weather-related maintenance costs of revenue equipment and increased insurance and claims costs attributed to adverse winter driving conditions. Revenue can also be impacted by weather, holidays and the number of business days that occur during a given period, as revenue is directly related to the available working days of shippers.
Inflation
Most of the Company’s operating expenses are inflation sensitive, and as such, are not always able to be offset through increases in revenue per mile and cost control efforts. The effect of inflation-driven cost increases on overall operating costs is not expected to be greater for the Company than for its competitors.
Fuel Availability and Cost
The trucking industry is dependent upon the availability of fuel. In the past, fuel shortages or increases in fuel taxes or fuel costs have adversely affected our profitability and may continue to do so. The Company has not experienced difficulty in maintaining necessary fuel supplies, and in the past has generally been able to partially offset increases in fuel costs and fuel taxes through increased freight rates and through a fuel surcharge that increases incrementally as the average price of fuel increases above an agreed upon baseline price per gallon. Typically, the Company is not able to fully recover increases in fuel prices through freight rate increases and fuel surcharges, primarily because those items are not available with respect to empty and out-of-route miles and idling time, for which the Company generally does not receive compensation from customers. Additionally, most fuel surcharges are based on the average fuel price as published by the DOE for the week prior to the shipment, meaning the Company typically bills customers in the current week based on the previous week’s applicable index. Accordingly, in times of increasing fuel prices, the Company does not recover as much as it is currently paying for fuel. In periods of declining prices, for a short period of time the inverse is true. Overall, average diesel fuel prices per gallon, as reported by the DOE, increased 25.3% and 21.4%, respectively, for the three and six month periods ended June 30, 2018, compared to the same periods in 2017.
As of June 30, 2018, the Company did not have any long-term fuel purchase contracts, and has not entered into any fuel hedging arrangements.
Equity
As of June 30, 2018, the Company had total stockholders’ equity of $70.1 million and total debt and capital leases including current maturities and insurance premium financing, of $90.3 million, resulting in a total debt, less cash, to total capitalization ratio of 56.3% compared to 61.7% as of December 31, 2017.
Purchases and Commitments
The Company routinely monitors equipment acquisition needs and adjusts purchase schedules from time to time based on analysis of factors such as new equipment prices, the condition of the used equipment market, demand for freight services, prevailing interest rates, technological improvements, fuel efficiency, equipment durability, equipment specifications, operating performance and the availability of qualified drivers.
As of June 30, 2018, the Company had $54.2 million in commitments for the acquisition of both revenue and non-revenue equipment, none of which are cancellable. We anticipate funding these commitments with operating and financing cash flows.
Liquidity and Capital Resources
USA Truck’s business has required, and will continue to require, significant capital investments. In the Company’s Trucking segment, where capital investments are the most substantial, the primary investments are in new revenue equipment and to a lesser extent, in technology and working capital. In the Company’s USAT Logistics segment, where capital investments are generally more modest, the primary investments are in technology and working capital. USA Truck’s primary sources of liquidity have been funds provided by operations, borrowings under the Company’s Credit Facility, sales of used revenue equipment, and capital and operating leases. Based on expected financial conditions, net capital expenditures, results of operations and related net cash flows and other sources of financing, management believes the Company’s sources of liquidity to be adequate to meet current and projected needs.
The Credit Facility contains a single financial covenant, which requires a consolidated fixed charge coverage ratio of at least 1.0 to 1.0 that is triggered in the event excess availability under the Credit Facility falls below 10% of the lenders’ total commitments. Also, certain restrictions regarding the Company’s ability to pay dividends, make certain investments, prepay certain indebtedness, execute share repurchase programs and enter into certain acquisitions and hedging arrangements are triggered in the event excess availability under the Credit Facility falls below 20% of the lenders’ total commitments. Management believes the Company’s excess availability will not fall below 20%, or $34.0 million, and expects the Company to remain in compliance with all debt covenants during the next twelve months.
Long-term debt, financing notes and capital leases decreased to $90.3 million, a decrease of $17.2 million from $107.5 million at December 31, 2017. As of June 30, 2018, the Company had outstanding $5.4 million in letters of credit and had approximately $68.2 million available to borrow under the Credit Facility. Net of cash, debt represented 56.3% of total capitalization. Fluctuations in the outstanding balance and related availability under the Credit Facility are driven primarily by cash flows from operations and the timing and nature of property and equipment additions that are not funded through other sources of financing, as well as the nature and timing of receipt of proceeds from disposals of property and equipment.
Cash Flows
|
|
Six Months Ended
June 30,
|
|
(in thousands)
|
|
201
8
|
|
|
2017
|
|
Net cash provided by operating activities
|
|
$
|
18,428
|
|
|
$
|
9,462
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,522
|
)
|
|
|
17,368
|
|
Net cash used in financing activities
|
|
|
(16,948
|
)
|
|
|
(26,786
|
)
|
Operating Activities
– Net cash provided by operating activities increased by approximately $9.0 million in the first six months of 2018, compared to the same period in 2017. This increase was primarily the result of an approximate $11.3 million increase in net income and an approximate $3.3 million decrease in deferred income tax liability, offset by $7.4 million change in receivables and an approximately $9.5 million increase in accounts payable and accrued liabilities.
Investing Activities
– For the six months ended June 30, 2018, net cash used in investing activities was $1.5 million, compared to $17.4 million provided by investing activities during the same period in 2017. The $18.9 million decrease in cash provided by investing activities primarily reflects $11.0 million of proceeds from a sale leaseback undertaken in first quarter 2017, combined with an approximately $7.1 million decrease in the proceeds from the sale of property and equipment in the 2018 period compared to the 2017 period, offset by an approximately $0.8 million decrease in capital expenditures for the 2018 period.
Financing Activities
– Cash used in financing activities was $16.9 million for the six months ended June 30, 2018, compared to $26.8 million used by financing activities during the same period in 2017. The $9.8 million decrease in cash used in financing activities was primarily attributable to increased borrowings of long-term debt of $5.6 million, a $2.5 million change in bank drafts payable, and approximately $1.8 million decrease in net payments on long-term debt and capital lease obligations. At June 30, 2018, the Company had borrowings of long-term debt, financing notes and capital leases of $90.3 million, down from $107.5 million at December 31, 2017.
Debt and Capitalized Lease Obligations
See Notes 7, 8 and 9 to the condensed consolidated financial statements for further discussion of the Company’s Credit Facility, capital lease obligations and other financing arrangements.
Off-Balance Sheet Arrangements
Operating leases have been an important source of financing for equipment used in operations, office equipment and certain facilities. As of June 30, 2018, the Company leased certain revenue equipment, facilities and information technology software under operating leases. Assets held under operating leases are not carried on the condensed consolidated balance sheets, and lease payments with regard to such assets are reflected in the condensed consolidated statements of operations and comprehensive income (loss) in the “Equipment rent” and, for office equipment, in the “Operations and maintenance” line items. Equipment rent expense related to the Company’s revenue equipment operating leases was $2.2 million and $2.6 million for the three months ended June 30, 2018, and 2017, respectively. Rent expense related to the Company’s revenue equipment operating leases was $4.9 million and $4.7 million for the six months ended June 30, 2018, and 2017, respectively.
Rent expense related to the other equipment and facilities leases was $0.4 million for both the three month periods ended June 30, 2018, and 2017, respectively. Rent expense related to the other equipment and facilities leases was $0.8 million for both the six month periods ended June 30, 2018, and 2017, respectively. Other than such operating leases, the Company has no other off-balance sheet arrangements that have or are reasonably likely to have a material effect on the condensed consolidated financial statements.
The following table represents outstanding contractual obligations for rent expense under operating leases as of June 30, 2018 (in thousands):
|
|
Payments Due By Period
|
|
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than
5 years
|
|
Non-Revenue equipment
|
|
$
|
2,076
|
|
|
$
|
667
|
|
|
$
|
872
|
|
|
$
|
332
|
|
|
$
|
205
|
|
Revenue equipment
|
|
|
18,080
|
|
|
|
5,227
|
|
|
|
12,055
|
|
|
|
632
|
|
|
|
166
|
|
Total rental obligations
|
|
$
|
20,156
|
|
|
$
|
5,894
|
|
|
$
|
12,927
|
|
|
$
|
964
|
|
|
$
|
371
|
|
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time its condensed consolidated financial statements are prepared. Actual results could differ from those estimates, and such differences could be material. During the six months ended June 30, 2018, there were no material changes to the Company’s critical accounting policies and estimates, compared to those disclosed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.