USA TRUCK, INC. 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 statement about the expected impact, evolution, duration or severity of the
? novel coronavirus ("COVID-19") global pandemic, including our anticipated
actions and responses thereto and the potential impact on our business,
operations, customers, employees, financial results and financial condition.
? 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 acquisitions, or 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:
? the impact of public health crises, including COVID-19,
? future driver market,
? 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
Company-owned and independent contractors and anticipated gains or losses
resulting from dispositions,
? future depreciation and amortization expense, including useful lives and
salvage values of equipment and intangible assets,
? future safety performance,
? future profitability,
? future industry capacity,
? future deployment of technology,
? future pricing rates and freight network,
? future fuel prices and surcharges, fuel efficiency and hedging arrangements,
? future insurance and claims and litigation expense, including trends in cost,
coverage and retention levels,
? 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 trends in operating expenses expected to result from growing our USAT
Logistics business and increasing
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independent contractors,
? future asset sales of non-revenue assets,
? future impact of regulations,
? future use of derivative financial instruments,
? our strategy,
? our intention about the payment of dividends,
? inflation, ? future indebtedness,
? 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,
? future equipment market,
? expected liquidity and sources of capital resources, including the mix of
financing and operating leases,
? future size of the 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," "focus," "intends," "plans," "goals," "may," "if," "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 the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 , and other filings with theSecurities 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
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
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:
Business Overview - 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.
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Business Overview
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 or
capacity provided by independent contractors to provide services to customers
and is commonly referred to as "asset-based" trucking. The Company's
USAT Logistics segment provides services that 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 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 rates per
mile, the number of tractors in operation, and the number of revenue-generating
miles per tractor. The Company also generates revenue through fuel surcharge
and ancillary services such as stop-off pay, loading and unloading activities,
tractor and trailer detention, expediting charges, repositioning charges and
other similar services.
Operating expenses fall into two categories: variable and fixed. Variable
expenses, or mostly variable expenses, constitute the majority of the expenses
associated with transporting freight for customers, and include driver wages and
benefits, fuel and fuel taxes, payments to independent contractors (also
referred to as purchased transportation), operating and maintenance expense and
insurance and accident claims expense. These expenses 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.
Fixed expenses, or mostly fixed expenses, include the capital costs of our assets (depreciation, amortization, 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 safety.
Fuel and fuel tax expense can fluctuate significantly with diesel fuel prices.
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 deadhead miles, out of route miles, fuel inefficiency due to engine idle time and other factors, including the extent to which the surcharges paid by customers are 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 applicableUnited States Department of Energy (the "DOE") Diesel Fuel 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 experienced. The key statistics used to evaluate Trucking segment performance, in each case net of fuel surcharge revenue, include (i) base 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 average miles per available tractor per week, rate per mile and deadhead percentages are affected by industry-wide freight volumes and industry-wide trucking capacity, which are mostly beyond the Company's control. Factors over which the Company has significant control are its sales and marketing efforts, service levels and operational efficiency. 15 Table of Contents
Unlike the Trucking segment, the USAT Logistics segment is non-asset based and is dependent upon skilled employees, reliable 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 USAT Logistics purchased transportation expense) and the gross margin percentage (USAT Logistics operating revenue less USAT Logistics purchased transportation expense expressed as a percentage of USAT Logistics operating revenue). 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 network engineering initiatives, pricing discipline, 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.
COVID-19
We continue to monitor the COVID-19 situation and regularly review announcements and recommendations of various government authorities and implement precautions as needed. We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate should current conditions deteriorate. The overall impact of COVID-19 on our consolidated results of operations for the year endedDecember 31, 2020 and the three and six months endedJune 30, 2021 was not significant, however the impact that COVID-19 will have on our consolidated results of operations in future periods remains uncertain. We will continue to evaluate the nature and extent of these potential impacts to our business, consolidated results of operations, segment results, liquidity and capital resources.
Results of Operations
The following tables summarize the condensed consolidated statements of income
(loss) and comprehensive income (loss) in dollars and percentage of consolidated
operating revenue and the percentage increase or decrease in the dollar amounts
of those items compared to the prior year.
Three Months Ended June 30,
2021 2020
Adjusted Adjusted Change
Operating Operating Operating Operating in Dollar
Revenue Ratio (1) Revenue Ratio (1) Amounts
$ % % $ % % %
(dollars in thousands)
Base revenue $ 152,958 90.0 % $ 113,203 91.5 % 35.1 %
Fuel surcharge revenue 17,073 10.0 10,534 8.5 62.1
Operating revenue 170,031 100.0 123,737 100.0 37.4
Total operating expenses 163,102 95.9 95.3 122,737 99.2 98.6 32.9
Operating income (loss) 6,929 4.1 1,000 0.8 - (2)
Other expenses:
Interest expense 1,014 0.6 1,235 1.0 (17.9)
Other, net 49 0.0 64 0.1 (23.4)
Total other expenses, net 1,063 0.6 1,299 1.0 (18.2) %Income (loss) before income taxes 5,866 3.4 (299) (0.2) - (2) Income tax expense (benefit) 1,673 1.0 632 0.5 - (2) Consolidated net income (loss)$ 4,193 2.5 %$ (931) (0.8) % - (2) 16 Table of Contents Six Months Ended June 30, 2021 2020 Adjusted Adjusted Change Operating Operating Operating Operating in Dollar Revenue Ratio (1) Revenue Ratio (1) Amounts $ % % $ % % % (dollars in thousands) Base revenue$ 297,221 90.5 %$ 225,964 90.2 % 31.5 % Fuel surcharge revenue 31,315 9.5 24,546 9.8 27.6 Operating revenue 328,536 100.0 250,510 100.0 31.1 Total operating expenses 315,561 96.1 95.4 251,822 100.5 100.1 25.3 Operating income (loss) 12,975 3.9 (1,312) (0.5) - (2) Other expenses: Interest expense 2,039 0.6 2,919 1.2 (30.1) Other, net 110 0.0 110 0.0 - Total other expenses, net 2,149 0.7 3,029 1.2 (29.1) %
Income (loss) before income taxes 10,826 3.3 (4,341) (1.7) - (2) Income tax expense (benefit) 3,036 0.9 (859) (0.3) - (2) Consolidated net income (loss)$ 7,790 2.4 %$ (3,482) (1.4) % - (2)
Adjusted operating ratio is a non-GAAP financial measure. See "Use of
1) 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.
2) Percentage change not meaningful.
Use of Non-GAAP Financial Information
The Company uses the terms "adjusted operating ratio" and "adjusted operating income (loss)" throughout this MD&A. Adjusted operating ratio, adjusted earnings (loss) per diluted share, and adjusted operating income (loss), as defined here, are non-GAAP financial measures as defined by theSEC . Management uses adjusted operating ratio, adjusted earnings (loss) per diluted share, and adjusted operating income (loss) 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 excluding severance costs included in salaries, wages and employee benefits, certain asset impairments, and amortization of acquisition related intangibles, net of fuel surcharge revenue, as a percentage of operating revenue excluding fuel surcharge revenue. Adjusted earnings (loss) per diluted share is defined as earnings (loss) per diluted share plus the per share impact of severance costs included in salaries, wages and employee benefits, certain asset impairments, and amortization of acquisition related intangibles, plus or minus 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. Adjusted operating income (loss) is defined as operating income (loss) excluding severance costs included in salaries, wages and employee benefits, certain asset impairments, and amortization of acquisition related intangibles.
The Company's chief operating decision-maker focuses on adjusted operating ratio, adjusted earnings (loss) per diluted share and adjusted operating income (loss) 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, adjusted earnings (loss) per diluted share and adjusted operating income (loss) 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.
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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, adjusted earnings (loss) per diluted share and adjusted operating income (loss). Although management believes that adjusted operating ratio, adjusted earnings (loss) per diluted share and adjusted operating income (loss) 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, adjusted earnings (loss) per diluted share and adjusted operating income (loss) differently. As a result, it may be difficult to use adjusted operating ratio, adjusted earnings (loss) per diluted share and adjusted operating income (loss) or similarly named non-GAAP measures that other companies may use, to compare the performance of those companies toUSA 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. Consolidated Reconciliations Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 (in thousands) Operating revenue$ 170,031 $ 123,737 $ 328,536 $ 250,510 Less: Fuel surcharge revenue (17,073) (10,534) (31,315) (24,546) Base revenue$ 152,958 $ 113,203 $ 297,221 $ 225,964 Operating expense$ 163,102 $ 122,737 $ 315,561 $ 251,822 Adjusted for: Severance costs included in salaries, wages and employee benefits - (84) (34) (176) Asset impairment - land - (137) - (137) Amortization of acquisition related intangibles (323) (340) (645) (680) Fuel surcharge revenue (17,073) (10,534) (31,315) (24,546) Adjusted operating expense$ 145,706 $ 111,642 $ 283,567 $ 226,283 Operating income (loss)$ 6,929 $ 1,000 $ 12,975 $ (1,312) Adjusted operating income (loss)$ 7,252 $ 1,561 $ 13,654 $ (319) Operating ratio 95.9 % 99.2 % 96.1 % 100.5 % Adjusted operating ratio 95.3 % 98.6 % 95.4 % 100.1 %
Adjusted earnings (loss) per diluted share
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Earnings (loss) per diluted share $ 0.47 $ (0.11) $ 0.87 $ (0.40)
Adjusted for:
Severance costs included in salaries,
wages and employee benefits - 0.01 0.00 0.02
Asset impairment - land - 0.02 - 0.02
Amortization of acquisition related
intangibles 0.04 0.04 0.07 0.08
Income tax effect of adjustments (0.01) (0.02) (0.02) (0.03)
Adjusted earnings (loss) per diluted
share $ 0.50 $ (0.06) $ 0.92 $ (0.31)
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Segment Reconciliations
Three Months Ended Six Months Ended
Trucking Segment June 30, June 30,
2021 2020 2021 2020
(in thousands)
Operating revenue $ 105,102 $ 87,920 $ 207,878 $ 180,921
Intersegment activity 259 707 586 1,701
Operating revenue (before
intersegment eliminations) 105,361 88,627 208,464 182,622
Less: fuel surcharge revenue (before
intersegment eliminations) (12,038) (8,083) (22,358) (19,371)
Base revenue $ 93,323 $ 80,544 $ 186,106 $ 163,251
Operating expense (before
intersegment eliminations) $ 102,304 $ 87,451 $ 201,887 $ 183,133
Adjusted for:
Severance costs included in
salaries, wages and employee
benefits - (80) (32) (172)
Asset impairment - land - (137) - (137)
Amortization of acquisition related
intangibles (323) (340) (645) (680)
Fuel surcharge revenue (12,038) (8,083) (22,358) (19,371)
Adjusted operating expense $ 89,943 $ 78,811 $ 178,852 $ 162,773
Operating income (loss) $ 3,057 $ 1,176 $ 6,577 $ (511)
Adjusted operating income $ 3,380 $ 1,733 $ 7,254 $ 478
Operating ratio 97.1 % 98.7 % 96.8 % 100.3 %
Adjusted operating ratio 96.4 % 97.8 % 96.1 % 99.7 %
Three Months Ended Six Months Ended
USAT Logistics Segment June 30, June 30,
2021 2020 2021 2020
(in thousands)
Operating revenue $ 64,929 $ 35,817 $ 120,658 $ 69,589
Intersegment activity 13,820 2,921 26,472 4,973
Operating revenue (before
intersegment eliminations) 78,749 38,738 147,130 74,562
Less: fuel surcharge revenue (before
intersegment eliminations) (5,569) (2,618) (9,866) (5,695)
Base revenue $ 73,180 $ 36,120 $ 137,264 $ 68,867
Operating expense (before
intersegment eliminations) $ 74,877 $ 38,914 $ 140,732 $ 75,363
Adjusted for:
Severance costs included in
salaries, wages and employee
benefits - (4) (2) (4)
Fuel surcharge revenue (5,569) (2,618) (9,866) (5,695)
Adjusted operating expense $ 69,308 $ 36,292 $ 130,864 $ 69,664
Operating income (loss) $ 3,872 $ (176) $ 6,398 $ (801) Adjusted operating income (loss)$ 3,872 $ (172) $ 6,400
$ (797) Operating ratio 95.1 % 100.5 % 95.7 % 101.1 % Adjusted operating ratio 94.7 % 100.5 % 95.3 % 101.2 % 19 Table of Contents
Key Operating Statistics by Segment
Three Months Ended Six Months Ended
June 30, June 30,
Trucking: 2021 2020 2021 2020
Operating revenue (before 105,361 $ 88,627 $ 208,464 $ 182,622
intersegment eliminations) (in
thousands) $
Operating income (loss) (1) (in $ 3,057 $ 1,176 $ 6,577 $ (511)
thousands )
Adjusted operating income (2) (in $ 3,380 $ 1,733 $ 7,254 $ 478
thousands )
Operating ratio (3) 97.1 % 98.7 % 96.8 % 100.3 %
Adjusted operating ratio (4) 96.4 % 97.8 % 96.1 % 99.7 %
Total miles (5) (in thousands) 42,700 45,961 84,848 91,680
Deadhead percentage (6) 11.2 % 13.1 % 11.4 % 13.2 %
Base revenue per loaded mile $ 2.461 $ 2.017 $ 2.475 $ 2.051
Average number of seated tractors 1,787 1,943 1,784 1,907
Average number of available tractors 1,922 2,063 1,907 2,018
(7)
Average number of in-service tractors 1,949 2,075 1,936 2,039
(8)
Loaded miles per available tractor 1,518 1,489 1,525 1,517
per week
Base revenue per available tractor $ 3,735 $ 3,003 $ 3,774 $ 3,111
per week
Average loaded miles per trip 509 501 515 498 USAT Logistics: Operating revenue (before 78,749$ 38,738 $ 147,130 $ 74,562 intersegment eliminations) (in thousands) $ Operating income (loss) (1) (in$ 3,872 $ (176) $ 6,398 $ (801) thousands ) Adjusted operating income (loss) (2) 3,872$ (172) $ 6,400 $ (797) (in thousands) $ Gross margin (9) (in thousands)$ 9,733 $ 4,712 $ 17,958 $ 8,681 Gross margin percentage (10) 12.4 % 12.2 % 12.2 % 11.6 % Load count (in thousands) 37.1 33.4 70.2 60.6
Operating income (loss) is calculated by deducting operating expenses (before
1) intersegment eliminations) from operating revenue (before intersegment
eliminations).
Adjusted operating income (loss) is calculated by deducting operating expenses
(before intersegment eliminations) excluding severance costs included in
2) salaries, wages and employee benefits, certain asset impairments, and
amortization of acquisition related intangibles, net of fuel surcharge
revenue from operating revenue (before intersegment eliminations), net of fuel
surcharge revenue.
Operating ratio is calculated as operating expenses (before intersegment
3) eliminations) as a percentage of operating revenue (before intersegment
eliminations).
Adjusted operating ratio is calculated as operating expenses (beforeintersegment eliminations) excluding severance costs included in salaries,
4) wages and employee benefits, certain asset impairments, and amortization of
acquisition related intangibles, net of fuel surcharge revenue, as
a percentage of operating revenue (before intersegment eliminations) excluding
fuel surcharge revenue.
5) Total miles include both loaded and empty miles.
6) Deadhead percentage is calculated by dividing empty miles by total miles.
Available tractors are a) all Company tractors that are available to be
7) dispatched, including available unseated tractors, and b) all tractors in the
independent contractor fleet.
In-service tractors include all of the tractors in the Company fleet
8) (Company-operated tractors) and all the tractors in the independent contractor
fleet.
Gross margin is calculated by deducting USAT Logistics purchased
9) transportation expense from USAT Logistics operating revenue (before
intersegment eliminations).
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10)Gross margin percentage is calculated as USAT Logistics gross margin divided by USAT Logistics operating revenue (before intersegment eliminations).
Results of Operations-Segment Review
Trucking operating revenue
During the three months endedJune 30, 2021 , Trucking operating revenue (before intersegment eliminations) increased 18.9% to$105.4 million , compared to$88.6 million for the same period in 2020. Trucking base revenue (before intersegment eliminations) increased 15.9% to$93.3 million compared to$80.5 million for the second quarter of 2020. The increase in operating revenue (before intersegment eliminations) resulted primarily from a 22.0% increase in base revenue per loaded mile and a 1.9% increase in loaded miles per available tractor per week. During the six months endedJune 30, 2021 , Trucking operating revenue (before intersegment eliminations) increased 14.2% to$208.5 million , compared to$182.6 million for the same period in 2020. Trucking base revenue (before intersegment eliminations) increased 14.0% to$186.1 million compared to$163.3 million for the second quarter of 2020. The increase in operating revenue (before intersegment eliminations) resulted primarily from a 20.7% increase in base revenue per loaded mile and a 0.5% increase in loaded miles per available tractor per week.
Trucking operating income (loss)
For the three months endedJune 30, 2021 , Trucking reported operating income of$3.1 million compared to operating income of$1.2 million for the same period in 2020. This improvement was primarily driven by the 18.9% increase in operating revenue (before intersegment eliminations) discussed above. For the six months endedJune 30, 2021 , Trucking reported an operating income of$6.6 million compared to an operating loss of$0.5 million for the same period in 2020. This change was largely driven by the 14.2% increase in operating revenue (before intersegment eliminations) discussed above.
USAT Logistics operating revenue
For the three months endedJune 30, 2021 , USAT Logistics operating revenue (before intersegment eliminations) increased 103.3% to$78.7 million compared to$38.7 million for the same period in 2020. The year-over-year increase in operating revenue (before intersegment eliminations) was the result of an 82.9% increase in revenue per load and a 11.2% increase in load volume. For the six months endedJune 30, 2021 , USAT Logistics operating revenue (before intersegment eliminations) increased 97.3% to$147.1 million compared to$74.6 million for the same period in 2020. The year-over-year change in operating revenue (before intersegment eliminations) was the result of a 70.3% increase in revenue per load, and a 15.8% increase in load volume.
USAT Logistics operating income (loss)
USAT Logistics reported operating income of$3.9 million for the three months endedJune 30, 2021 , an increase of$4.0 million , compared to an operating loss of$0.2 million for the comparable quarter in 2020. This increase was driven largely by 103.3% increase in operating revenue (before intersegment eliminations) and a 20 basis point improvement in gross margin. For the six months endedJune 30, 2021 , USAT Logistics reported operating income of$6.4 million , an increase of$7.2 million , compared to an operating loss of$0.8 million for the comparable period in 2020. This increase was driven primarily by an 97.3% increase in operating revenue (before intersegment eliminations) and a 60 basis point improvement in gross margin. 21 Table of Contents
Consolidated Operating Expenses
The following table summarizes the consolidated operating expenses
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,
2021 2020 % change
Adjusted Adjusted
Operating Operating 2021 to
Operating Revenue Ratio (1) Operating Revenue Ratio (1) 2020
$ % % $ % % %
Operating Expenses: (dollars in thousands)
Salaries, wages and
employee benefits $ 36,488 21.4 % 23.9 % $ 33,636 27.2 % 29.6 % (1) 8.5 %
Fuel and fuel taxes 12,414 7.3 (3.0) (1)(2) 8,082 6.5 (2.2) (1)(2) 53.6
Depreciation and
amortization 9,163 5.4 5.8 (1) 10,034 8.1 8.6 (1) (8.7)
Insurance and claims 5,181 3.0 3.4 4,009 3.2 3.5 29.2
Equipment rent 2,048 1.2 1.3 1,880 1.5 1.7 8.9
Operations and
maintenance 8,783 5.2 5.7 9,062 7.4 8.0 (3.1)
Purchased transportation 82,938 48.8 54.2 49,276 39.8 43.5 68.3
Operating taxes and
licenses 1,323 0.8 0.9 1,349 1.1 1.2 (1.9)
Communications and
utilities 796 0.5 0.5 906 0.7 0.8 (12.1)
(Gain) loss on disposal
of assets, net (140) (0.1) (0.1) (16) 0.0 0.0 - (3)
Asset impairments - - - 588 0.5 0.4 (1) - (3)
Other 4,108 2.4 2.7 3,931 3.2 3.5 4.5
Total operating expenses $ 163,102 95.9 % 95.3 % $ 122,737 99.2 % 98.6 % 32.9 %
Six Months Ended June 30, %
2021 2020 change
Adjusted Adjusted
Operating Operating 2021 to
Operating Revenue Ratio (1) Operating Revenue Ratio (1) 2020
$ % % $ % % %
Operating Expenses: (dollars in thousands)
Salaries, wages and
employee benefits $ 73,043 22.2 % 24.6 % (1) $ 69,481 27.7 % 30.7 % (1) 5.1 %
Fuel and fuel taxes 23,858 7.3 (2.5) (1)(2) 19,945 8.0 (2.0) (1)(2) 19.6
Depreciation and
amortization 18,733 5.7 6.1 (1) 20,045 8.0 8.6 (1) (6.5)
Insurance and claims 10,990 3.4 3.7 9,866 3.9 4.4 11.4
Equipment rent 3,997 1.2 1.4 3,731 1.5 1.7 7.1
Operations and
maintenance 15,849 4.8 5.3 18,399 7.3 8.0 (13.9)Purchased transportation 157,041 47.8 52.8
97,090 38.8 43.0 61.7 Operating taxes and licenses 2,595 0.8 0.9 2,508 1.0 1.1 3.5 Communications and utilities 1,600 0.5 0.5 1,719 0.7 0.7 (6.9) Loss (gain) on disposal of assets, net (317) (0.1) (0.1) 22 0.0 - - (3) Asset impairments - - - 588 0.2 0.2 (1) - (3) Other 8,172 2.5 2.7 8,428 3.4 3.7 (3.0)
Total operating expenses
Adjusted operating ratio is calculated as the applicable operating expense
excluding severance costs included in salaries, wages, and employee benefits,
1) certain asset impairments, and amortization of acquisition related
intangibles, 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.
3) Percentage change not meaningful.
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Salaries, wages and employee benefits
Salaries, wages and employee benefits consist primarily of compensation for all employees and are primarily affected by the total number of miles driven by Company drivers, the rate per mile paid to Company drivers, employee benefits (including, but not limited to, healthcare and workers' compensation), and compensation and benefits paid to non-driver employees. Salaries, wages and employee benefits expense increased for the three and six months endedJune 30, 2021 , when compared to the same periods in 2020, primarily due to increases in performance-based compensation. During the second quarter of 2021 the Company announced driver pay increases; however, management believes the market for drivers will remain tight, and as such, expects driver wages 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 payments 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 increase in fuel and fuel taxes for the three and six months endedJune 30, 2021 is primarily due to increases in the price per gallon of diesel fuel compared to the same periods in 2020. For the three and six months endedJune 30, 2021 , the average diesel fuel prices per gallon as reported by theDOE , increased 32.1% and 14.6%, respectively, when compared to the same periods in 2020. This increase was offset by a 12.1% and 12.7% decrease in total miles driven by company drivers for the three and six months endedJune 30, 2021 , respectively. The Company continues to pursue fuel efficiency initiatives, acquiring newer, more fuel-efficient revenue equipment and implementing focused 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 align fuel surcharge programs to recover a fair portion of rising fuel costs. Looking ahead, 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, empty mile 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, amortization of revenue equipment financed with finance leases, and amortization of intangible assets. 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 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. For the three and six months endedJune 30, 2021 , equipment rent expense increased when compared to the 2020 periods due to an increase in the number of tractors in the Company's fleet acquired under operating leases. Depreciation and amortization expense decreased for the three and six months endedJune 30, 2021 , when compared to the same periods in 2020 due to a decrease in fleet size and more tractors being acquired through operating leases. The Company intends to continue its focus on improving asset utilization, matching customer demand, growing its independent contractor fleet and strengthening load profitability initiatives. Further, the acquisition costs of new revenue equipment could increase due to the inclusion of improved safety and fuel efficiency features. 23 Table of Contents 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 accrual, developments in prior-year claims and insurance premiums and self-insured amounts. For the three and six months endedJune 30, 2021 , insurance and claims expense increased due to less favorable claim experience compared to the prior year periods. The Company expects insurance and claims expense to continue to be volatile over the long-term. Recently, the trucking industry has experienced a decline in the number of carriers and underwriters that write insurance policies or that are willing to provide insurance for trucking companies. These factors caused the Company's insurance premiums to increase during theOctober 2020 renewal. The Company also opted to increase its self-insured retention level from$1 million to$2 million and decrease aggregate coverage limits to offset the increased premium costs during the current premium year. As a result, the Company looked at alternatives to traditional insurance programs, and formed a captive insurance company, SRRG, in an effort to mitigate a portion of the increased insurance costs. 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-operated 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 decreased for both the three and six months endedJune 30, 2021 , compared to the same periods in 2020. While the decrease in the three month period was marginal, the decrease for six months was primarily due to lower tolls and maintenance expenses. The decrease in maintenance expense was primarily due to decreases in the cost of maintaining our fleet due to such internal initiatives as decreasing the average age of Company-owned tractors, limiting outside repairs and adding an additional maintenance terminal inWaxahachie, Texas .
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 three and six months endedJune 30, 2021 , purchased transportation expense increased significantly when compared to the 2020 periods, primarily due to an increase in the volume of brokered loads through our USAT Logistics segment and the use of independent contractors by our Trucking segment. The Company is endeavoring to grow 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 regulatory changes. In periods of increasing independent contractor capacity, increases in driver wages are shifted from employee driver wages and related expenses to the "Purchased transportation" line item, net of their fuel expense, maintenance and capital expenditures.
Interest expense, net
For the three and six months ended
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Income tax expense (benefit)
During the the three months ended June 30, 2021 and 2020, the Company's
effective tax rate was 28.5% and 211.4%, respectively. During the six months
ended June 30, 2021 and 2020, the Company's effective tax rate was 28.0% and
19.8%, respectively. The Company's effective tax rate, when compared to the
federal statutory rate of 21%, is primarily affected by state income taxes, net
of federal income tax effect for the current year periods, 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 their 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.
During the interim periods for the year ended
Due to more certainty in their financial forecasts for the current fiscal year, the Company has returned to its historical method for calculating the provision for income taxes during interim reporting periods. As such, we have calculated taxes for the six months endedJune 30, 2021 by applying an estimate of the annual effective tax rate for the full fiscal year to "ordinary" income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) adjusted for discrete items for the reporting period.
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, however no assurance can be provided that our current or future year experience will reflect this. 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 profitability and may continue to do so.USA Truck 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 theDOE 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, for the three and six months endedJune 30, 2021 , the average diesel fuel prices per gallon as reported by theDOE , increased 32.1% and 14.6%, respectively, when compared to the same periods in 2020.
As of
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Equity
As of June 30, 2021 , the Company had total stockholders' equity of $93.2 million
and total debt and financing lease liabilities of $138.0 million , resulting in a
total debt, less cash (excluding restricted cash), to total capitalization ratio
of 59.3% compared to 64.5% as of December 31, 2020 .
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 ofJune 30, 2021 , the Company had$27.8 million in purchase commitments for the acquisition of revenue equipment, of which none were cancellable. It is anticipated that these purchase commitments will be funded primarily through the use of operating leases, with down payments being funded first through cash provided by operations and proceeds from the sale of used revenue equipment and secondarily from borrowings under the Company's Credit Facility.
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 revenue equipment and to a lesser extent, in technology and working capital. In the Company's USAT Logistics segment, 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 the use of finance and operating leases. Based on expected financial conditions, net capital expenditures, forecasted 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 for the foreseeable future. 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. As ofJune 30, 2021 , the Company had$7.9 million in letters of credit outstanding and had$86.6 million available to borrow under the Credit Facility, taking into account borrowing base availability. Fluctuations in the outstanding balance and related availability under the Credit Facility are driven primarily by cash flows from operations, bi-annual appraisals of revenue equipment, the timing and nature of property and equipment additions that are not funded through other sources of financing, and the nature, timing and receipt of proceeds from disposals of property and equipment. 26 Table of Contents
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