USA Truck sees green shoots amid uncertainty; shares surge

On its earnings conference call with analysts, truckload (TL) carrier USA Truck’s (NASDAQ: USAK) management team said that they are hearing positive feedback from customers regarding a resumption in activity. They said that more than 80% of the company’s revenue comes from customers that have been deemed “essential” and that those customers are still shipping freight at pre-COVID-19 levels. Further, some nationwide retailers are starting up large inventory pushes and the company is hearing some positive news from customers regarding inbound port traffic.

Freight from the company’s non-essential customers has been off by half during the pandemic. March was the best month the carrier has had since March 2019 and April remained positive from a consolidated operating standpoint. They did say that they have taken on more spot freight to keep their trucks full.

Outside spot freight currently accounts for 15% of revenue and it has risen to as high as 20% in recent weeks. Spot freight was 10% of revenue in the first quarter and 9% of revenue in the fourth quarter. Historically, spot freight accounts for less than 5% of USA Truck’s business.

Logistics gross margins fell dramatically in the first quarter, but have bounced back to low-teen percentages with “robust” activity in April and into May. The Van Buren, Arkansas-based carrier reported an adjusted first-quarter 2020 net loss of £2.2 million, or £0.26 per share, £0.10 better than analysts’ expectations. This was the third consecutive quarterly loss for the company.

In 2019, USA Truck reported an adjusted net loss of £4.5 million in the fourth quarter and a £1.1 million loss in the third quarter.

First quarter 2020

TL revenue was off slightly year-over-year at £94 million as average seated tractors increased 5.9% or 104 units, offset by a 7.1% decline in revenue per loaded mile at £2.09. Revenue per tractor per week declined 4.5% to £3,223. The division reported an adjusted operating loss of £1.3 million with a 101.5% adjusted operating ratio, 430 basis points worse year-over-year.

Key Performance Indicators – USA Truck

Management said that its dedicated revenue increased 21% year-over-year and that the business is “performing at industry-comparable results.”

Management laid out several initiatives on its fourth quarter 2019 earnings call to improve asset utilization and increase revenue per truck per week by £300. At the time, they also expected to capture another £150 in the weekly revenue metric through network optimization initiatives and improved driver team capabilities designed to reduce driver turnover. All of these initiatives were reiterated on the today’s call.

Headcount was reduced 8% in the fourth quarter; it is now down approximately 10% year-over-year. The company has also shuttered its maintenance facility in Van Buren, which should provide an expense tailwind. “During the first quarter, many of our operational initiatives took hold as loaded miles per available truck increased, empty miles decreased and unseated truck count metrics improved.

We also made significant progress in our move to regionalization as we fully staffed our teams in the operating regions,” said President and CEO James Reed. The logistics division reported a 13.6% year-over-year decline in revenue at £35.8 million. Load count declined 1.4% with revenue per load falling 12.3%.

Gross margin deteriorated 740 basis points to 11.1% as the cost of purchased transportation, or truck capacity, declined at a slower rate than rates per load. The division posted a £624,000 adjusted operating loss. Logistics volumes improved toward the end of the first quarter, a trend management expects to continue.

Loads were up 5.4% sequentially from the fourth quarter.

Liquidity and balance sheet

USA Truck ended the quarter with £85,000 in cash and £196.2 million in net debt and lease liabilities. The carrier’s availability under its credit facility fell below the 20% threshold required in its lending agreement, potentially limiting its financial flexibility for things like investments, hedging, prepayment of debt, dividends and share repurchases. USA Truck responded by lowering its credit facility limit by £55 million to £170 million, which increased available borrowing to an amount greater than the 20% threshold, satisfying the requirement.

Credit availability was £34 million on April 20, the date the facility was amended. Additionally, the carrier has £75 million of borrowing accessible on an accordion feature of its lending agreement and could access borrowing collateralized by its accounts receivable by accelerating payment terms through incentives. The reduced facility is expected to save the carrier approximately £100,000 in fees annually.

At the end of the quarter, USA Truck’s net debt-to-earnings before interest, taxes, depreciation, amortization and rent (EBITDAR) was 4.2x, compared to 3.7x at the end of the fourth quarter. The company lists one financial covenant in its annual 10-k filing with the U.S. Securities and Exchange Commission.

If the company’s excess credit availability falls below a 10% threshold, the carrier is required to maintain a consolidated fixed charge coverage ratio – a measure of a company’s ability to pay its debt, interest and leases – of at least 1:1. On the call, Zachary King was formally introduced as the company’s new CFO. On April 22, King replaced former finance head Jason Bates, who left to join flatbed carrier Daseke Inc. (NASDAQ: DSKE) in the same role.

King joined USA Truck in 2015, most recently serving as vice president and the company’s controller.

Shares of USAK are up 15% in early trading on the report.

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