Fourth quarter and full-year 2014 results for Van Buren, Ark.-based USA Truck Inc. were strong, with the company reporting its ninth straight quarter of improved earnings results and its third straight quarter of positive operating income, along with its highest earnings per share in nine years.
Among the quarterly and year-end highlights for USA Truck were:
-a fourth quarter annual base revenue increase of 10.7 percent to $125.8 million and an 11.4 percent 2014 base revenue increase to $494.3 million;
-trucking operating income up 155.7 percent in the fourth quarter to $4.2 million and SCS (its asset-light Strategic Capacity Solutions group) income up 49.6 percent in the fourth quarter to $4.4 million;
-consolidated fourth quarter net income at $4.2 million or $0.44 per diluted share compared to a net loss of $4.6 million or $0.44 per diluted share recorded during the fourth quarter of 2013; and
-full-year 2014 consolidate net income of $6.0 million or $0.58 per diluted share compared to a net loss of $9.1 million or $0.88 per diluted share for full-year 2013
LM Group News Editor had an opportunity to speak with USA Truck President and CEO John Simone about the company’s earnings results and some industry trends. A transcript of the conversation follows below.
Logistics Management (LM): USAT had very good quarterly and 2014 year-end numbers and finished the year from a position of strength. What were the drivers for a strong end of the year performance?
John Simone: Our fourth quarter was our best one in company history, and we are pretty proud of that. And it is our best single quarter since 2005. The fundamentals of our business are continuing progress in that this is our ninth sequential quarter of improvement…and we feel really good about that.
LM: In the USAT earnings release, the company cited a robust demand environment and favorable fuel prices, as well as significant improvements in revenue per tractor, including operational improvements like improved fuel efficiency and lower maintenance costs. How would you describe the demand environment specifically?
Simone: One of the major impacts in the fourth quarter and most fourth quarters in general is that customer shipping habits have changed. And in years past, fourth quarters have not been as robust as it was in 2014, because there is not a lot of rush prior to the holiday season. It is pretty steady throughout most of the year, and in terms of characteristics of freight there are not these huge spikes in volumes.
LM: Why is that the case?
Simone: It is a couple of things. One is capacity and the other is shippers have more intelligence around their product and their need for product in their operations.
LM: What about an improved consumer outlook in terms of how it has boosted economic prospects, as well as increasing e-commerce activity evening out freight flows?
Simone: We are seeing e-commerce becoming a bigger part of our freight mix, with a lot of that moving on the small package side, with an LTL or TL move associated with e-commerce at some point to a facility, so we are seeing some of that. Consumer confidence along with the relief in fuel prices has boosted some consumer spending.
LM: What about the impact of lower fuel prices as it relates to running your business along with the impact of fuel surcharges?
Simone: There is not really a down side to lower fuel prices. But when fuel climbs rapidly, the fuel surcharge adjusts on a weekly basis with most customers so when it is declining steadily, the fuel surcharge will typically catch up the next week. When it is declining rapidly, we do get some short-term benefit of the fuel price going down at the pump but the fuel surcharge has not adjusted yet. But on the opposite side, when we get fuel spikes, which I am sure we will again, it does not adjust fast enough. So while things feel really good right now, if and when fuel prices begin to climb, then we will feel it…before we recover a fuel surcharge.
LM: Now that we are halfway through the first quarter, we continue to see some decent signs of economic improvement for things like fuel prices, jobs numbers, and GDP gains. How do these things match up with the freight economy? In the past, freight transportation has served as a leading indicator of economic activity. Does that still hold true today?
Simone: I think it still holds true and do still believe that despite all the positives that freight is still just chugging along, and I don’t think we have seen a huge uptick in freight volumes. It is still chugging along but not at the point where I would say it is robust. But I do think what drives the challenges in freight today are the driver situation, the weather (especially last year), and the port situation. These are things that impact capacity in the market. The economy is improving, but I don’t think it is taking off.
LM: The driver situation continues to receive a lot of attention, with many carriers pushing higher pay packages and stepping up recruiting and retention efforts. Is USAT having a hard time filling tractor seats? Many carriers described the situation in 2014 as dire or unprecedented in terms of the driver shortage.
Simone: The inflow of drivers is still strong with driver applicants coming in. The challenge is the outflow, because of the driver shortage. One of the reasons I believe we are in this situation is because we have an aging driver population and we have a shortage. This results in a lot of carriers “trading” drivers, which is not helpful for the industry community or the carrier community. Like a lot of our competitors, we are focused on a lot a drivers that want to come into the industry. USAT has a student program, which is popular, and we are also focused on finding experienced drivers, because there are significant costs associated with training but we are also bringing new drivers into the industry, because it is the right thing to do. We also have military veterans coming into our industry, with 35 percent of the USAT workforce comprised of veterans. Those are two areas where we attract drivers, and we train drivers. Fortunately, when we bring in experienced drivers, they tell us USAT is a good place to work and they are hearing good things about the company.
LM: Shifting gears to the regulatory front. What is your take on the suspension of the hours of service 34-hour restart provision until the end of September?
Simone: The impact to our business is really tough to quantify, and the reason why is that it is hard to measure when that occurs and how it is impacting us. Frankly, we are operating very efficiently, and the more efficiently you operate, whenever there are restrictions on HOS and drivers’ available hours, and if you operate very tight because you are efficient, then you feel it. Hopefully some day we will be able to say that when there is a change we will really feel it, but we are nowhere near the efficiency, although we have made some great strides and nowhere near the efficiency levels that we want.
LM: Is that because of regulatory drag?
Simone: No. It has more to do with operational execution for things like managing our assets and drivers’ hours-of-service, length of hauls, and velocity in the network. Our revenue per truck continues to climb and our miles per truck continues to climb.
LM: USAT’s SCS group’s performance was really strong in the fourth quarter and 2014. What led to that success?
Simone: Our SCS group had a record performance last year, driven by tightness in capacity, with a very difficult first quarter in 2014. And we saw revenue growth and margins like we have not in our history of our brokerage product. We are still planning to grow our brokerage and still expect to have strong performance on the margin for our operating margins in brokerage. It is hard to speak to annual comps, due to the dynamics of last year’s market, with the very difficult start to 2014. It really did not stop; the first quarter just kept on going with the harsh winter.
LM: What are some of your key areas of focus for 2015 from a company focus and also in terms of working with customers?
Simone: From a company perspective, we are going to continue to grow revenue, operating income, and EPS and revenue growth is profitable. We are not interested in growing revenue that is not profitable revenue. We are going to do that by further improving our yields, managing our network very tightly, and continuing to expand our owner-operator fleet as a source of capacity. It is my belief that some of the oil field opportunities, or lack thereof, create some owner-operator availability and we are seeing some good recruiting efforts on the owner-operator front. We have had a strategy of increasing our reach with current customers, with very good loyal customers that have been with us a long time and we want them to continue to grow with us as loyal customers and add value across our integrated products. Ninety percent of our top 100 customers utilize us across multiple products, which is a vote of confidence for USA Truck, and is up from about 62 percent around the beginning of last year. This business environment is also a good one for pure dedicated fleets, so when capacity gets tight, some customers tend to want to capture capacity in the form of long-term contractual arrangements, so we have an initiative to grow our dedicated contract carriage product. We have invested in sales and operations ahead of some of that new business and are making very good progress there.