USA Truck's Performance Was Helped By Something It Didn't Want To Happen: OEMs Aren't Delivering Trucks On Time

Highlights from the second quarter conference call of USA Truck, Inc. USAK, which continued a financial turnaround after earlier management shakeups that went from 2015 into 2017.

Against a backdrop of data that shows OEM orders for new trucks at enormous levels, USA Truck's Jason Bates, the executive vice president and CFO, had some news: the trucks aren't getting to their customers. Bates said USA Truck had expected deliveries of 135 new trucks in the quarter; it got 41. While this allowed the company's bottom line to improve—in particular, USA Truck is driving down a debt to EBITDA ratio that was unhealthy as recently as a year ago—the fact is USA Truck wanted those new vehicles coming into their fleet. Bates said USA Truck receives its trucks primarily from two key OEMs, "and we had little snafus with each of them," he said on the earnings call with analysts. Despite the improvement to the bottom line, "we would have preferred to have the trucks, and we have been pretty transparent about that with our OEM partners, and they are aggressively working with us to remedy the issues." The rate of deliveries has picked up in July, he said, "and we hope to make up ground of the next 4-5 months." James Reed, USA Truck's president and CEO, said one of the reasons for the delay: the OEMs don't have drivers to deliver the trucks, "which sounds crazy, so they're working in all sorts of creative ways to get the trucks off the lot." "It's been an industry-wide thing," Reed said. "Everybody we've talked to is saying the same thing."

USA Truck is putting through an increase in driver pay, hinted that it might not just be a standard hike in per mile compensation, but provided few details. Reed said the increase will be announced later in the quarter. At least twice during the call, Reed had touted that USA Truck doesn't grab on to spot opportunities if it means rejecting loads from contracted customers. "This discipline allows us to go to customers and enlist their support, and we ensure a continued high level of service," he said. As a result, USA Truck has gotten key customers to support the new compensation program. "This combination should make for a meaningful opportunity for our drivers to increase their take-home pay while aligning mutually economic motives for each other," Reed said.

The delay in the new trucks might be saving money in the short run, but it has having other cost impacts that aren't positive, Reed said. USA Truck's average fleet age peaked at 3.3 years in the quarter, and that's against a goal to get it down to 2.5 years. Reed said the 2.5 years goal might not be met until 2020, and the older age of the fleet "has a material effect on our maintenance costs." A younger fleet also helps driver retention. USA Truck's plans are to not grow its core fleet, but to improve driver retention and grow its capacity through an expansion of its owner/operator alliances.

Virtually all the metrics reported by USA Truck were positive. The company's consolidated operating revenue for the quarter was up 26.1 percent compared to 2017's second quarter, and the company was profitable for the fourth consecutive quarter; it was not profitable in 2Q 2017. On the call, base revenue per available tractor per week was described as USA Truck's most important metric, and it was up 19.5 percent from a year earlier, and 6.3 percent from the first quarter of 2018. USA Truck's net debt was 5.8X adjusted EBITDA at the end of the third quarter of last year, but was down to 2.1X at the end of the second quarter, though as noted, it was aided by the fact that the company did not lay out as much money for trucks as it had planned to do because of OEM delays.

End-of-year surge demand is already starting to show, Reed said. "We are planning for a fourth quarter surge, and we see that starting a bit earlier this year than last year, so it is a planned intentional use of our capacity," he said, again stressing the company's unwillingness to grab too much spot business that they see as unsustainable. Given business that is already "hay in the barn," USA Truck expects double digit rate increases year over year for both the third and fourth quarters, Reed said.

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