USA Truck, Inc.
Q3 2015 Earnings Call Transcript

Published: 6 Nov 2015

[Operator:]

Good morning. And welcome to the USA Truck Third Quarter 2015 Earnings Release Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference call over to Ms. Jody Burfening of LHA. Please go ahead.

[Jody Burfening:]

Thank you, Allison, and good morning everyone and welcome to USA Truck's third quarter earnings conference call. Joining us from the company are Tom Glaser, President and Chief Executive Officer; Michael Borrows, Executive Vice President and Chief Financial Officer. In addition; Martin Tewari, President, Trucking is with us today to answer questions. Before we begin the call, we'd like to note that this conference call will contain 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. Forward-looking statements may be identified by their use of terms or phrases such as expect, estimate, anticipate, project, believes, plans, goals, intends, may, well, should, could, potential, continue, future, strategy and terms and phrases of similar substance. Forward-looking statements are based upon the current beliefs and expectations of management and 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 and contemplated by our underlying forward-looking statements. Accordingly, the company's actual results may differ from those set forth in the forward-looking statements. Investors should review and consider factors that may affect future results and other disclosures by the company in its press release, annual report, and Form 10-K and other filings with the Securities and Exchange Commission. The company disclaims any obligation to update or revise any forward-looking statements to reflect actual results or changes in factors affecting the forward-looking information. I'd also like to point out that the company is using certain non-GAAP financial measures in today's conference call to supplement the consolidated financial statements. A reconciliation of these non-GAAP measures to GAAP is provided in the table at the end of the earnings press release and the slides accompanying today's conference call prepared remarks. With those housekeeping items out of the way, I would now like to turn the call over to Tom. Good morning, Tom.

[Tom Glaser:]

Good morning to everyone. I'm somewhat intimidated by the list of participants we've had on this on this call but I'm encouraged also. Two years ago we started out with about three or four people are now we've got a whole list. So I'm encouraged by that and I am grateful for all of you joining us to review USA Truck's third quarter performance results. We're going to start on Page 3 of the slide presentation that's posted on our website. It summarizes our consolidated results for the quarter and for the first nine months of the year. As you can see, we turned in another profitable quarter, although base revenue and operating income on a GAAP adjusted basis were down year-over-year. There is some noise in the third quarter numbers, including a $2.9 million restructuring charge. A charge in our -- a change in our accounting policy for tires, and a larger than normal gain on sale related to our accelerated fleet replenishment plan including -- excluding the $2.9 million restructuring charge we took in the third quarter. Operating income was up 11.2%. We have adjusted earnings per share of $0.43 as compared to $0.38 in last year's period. Turning to Slide 4, focus on our trucking segment. Much like the first and second quarters of the year, our operating revenue decline was pricing disciplined, was offset by lower revenue miles in fewer seated trucks and lower volume. Overall, we've been seeing steady, although not robust demand and pricing in our market. Year-over-year, operating income was up 30% but excluding the $2.9 million restructuring charge that rose to 6%. Our adjusted operating ratio was 92.8% as compared to 97.5% in the 2014 period. These numbers show how we've been controlling our costs much better. Net fuel expenses contributed to $3.9 million to the $14.9 million decrease in adjusted operating expenses. Salaries, wages and benefits declined $7 million on fewer miles, fewer drivers and offset, in part by the pay increase we implemented last June. Insurance and claims were also lower by $1 million reflecting fewer claims for the 2015 period. Operations and maintenance costs were up $0.01, and finally we continued to pursue our fleet replenishment program which benefited adjusted operating expenses by an additional $2.7 million this quarter compared to last year's period. On Slide 5 we have summarized the actions taking in the third quarter to accelerate truckies turnaround. First, we strengthened our executive team by adding three top people starting with Martin Tiwari, who came to us in late September, really I think it was the October 1 that Martin started as President of Trucking. Martin has 25 years' experience in our industry serving in various senior management roles, most recently as Vice President of Operations for Conway Truckload. He has been here 30 days and we're already experiencing really a different attitude within our operations department which is really exciting. We also welcomed our new Vice President of Maintenance, Chris Parsons; and new VP of Safety and Recruiting, Billy-Cartright. And our -- all of our new hires come with truckload experience and success. They continue to be part of our plan to accelerate the company's operational improvements in trucking. Second, during the past quarter we reorganized USA Truck's operation to promote cross-functional awareness, discipline, collaborations throughout the organization. For the first time we centralized responsibility for trucking operations, pricing and sales, as well as safety in recruiting in a single position filled by Martin Tiwari. Our Vice President of Maintenance is going to report to me, and I want everyone to understand that we take that very seriously. It's a very high priority in the area that we're going to give a lot of attention to. So Chris Parsons will be reporting directly to me. In addition, we've realigned roles and responsibilities throughout the company to eliminate overlapping and reduce the number of touch points for each load and generally increase operational efficiency. Thirdly, we've taken actions to rationalize our maintenance program and facilities. We closed two of our eighty maintenance shops and outsourced road assistance which will enable us to improve company utilization by getting our drivers on the road faster. It will also provide better customer service. As I mentioned earlier, we're continuing to dispose of high cost tractors while investing in newer, more fuel efficient equipment and new software that will help us manage our maintenance program much better and improve our overall cost structure. During the quarter we took possession of approximately 800 new tractors, disposed of 400, enabling us to complete the net reduction of 400 in fleet count we planned for the year and begin realizing the improvement and maintenance cost that the younger fleet will provide. We'll continue to look at this area with the intention of calling out more of the 2012 tractors from our fleet. Chris is also undertaking a comprehensive Six Sigma review of all trucking maintenance activities. Finally, you'll see at the bottom right quadrant, we've implemented a whole host of operational improvements ranging from improving low planning process to recruiting experienced drivers and improving student training program. This is an effort that Billy-Cartright is spearheading. It's focused on improving driver quality which we believe will gradually help reduce insurance claims and also provide better service to our customers, giving drivers a network that will gain miles -- distant miles and home timing, thereby improving driver retention and giving our customers reliable service. Moving to Page 6, you'll see the steps we're implementing to restore momentum in trucking. We ran through the acceleration initiatives listed in the left hand box in our second -- in our quarter two conference call. And as you can see from the check at the top of the list, we've completed the first one, rationalizing fixed cost and SG&A. The others are all underway in one stage or another. In the current quarter, we're focused on four areas of action in particular. First, we're in the midst of developing an incentive plan to align all trucking employees, drivers customer service reps, planners, everyone on the same basic goal which is that load our trucks today and improve daily mileage. By giving all of the players in our organization a coordinated set of incentives, everyone can work together and win. Second, we're expanding USA Truck's network to increase miles and productivity which provides better pay for our drivers. This will also contribute to their retention. Third, I already mentioned the comprehensive review of maintenance activities we had underway. Finally, the quarter -- this quarter where we've implemented an education program to train and coach our people in the new technology so that we can all execute USA Truck's business plans better. What we're doing is basic blocking and tackling to make sure all the moving parts that make up a trucking organization line up in the right direction, better planning, better dispatch, better loading, we're optimizing our protocols, gave attention to the process and procedures and executing. Going back to basics will give our drivers better productivity and better pay, and give us more asset utility. Our goal is to bring truckload -- trucking's operating ratio consistent fleet in line with its peers. We're focused on creating a growth platform that's sustainable for the future. Now let's move to SCS's performances summarized on Slide 7. There our gross margin, higher purchase transportation cost and continued investment remained in the solid 18.3%. We plan to expand this segment. We continue our expansion in brokerage by opening offices in Kansas City and El Paso into roll out, and the roll out reflects steady pricing and lower fuel costs. Our adjusted operating ratio rose 490 basis points to 91.5%, reflecting a combination of lower revenue. Technology that will make it easier for our customers to leverage our carrier partners while maintaining strong relationships with our customers. Now I'm going to turn it over to Mike who will talk about our -- update our balance sheet.

[Michael Borrows:]

Thank you, Tom. On Slide 8 you'll find the summary of our balance sheet including the information. We ended the quarter with $74 million in debt outstanding which year-to-date date represents $45.4 million -- $45.4 million reduction in debt and capital lease obligations net of cash. The decrease in debt primarily reflected a $20 million pay down revolver and approximately $22.5 million capital lease payments. Debt to adjusted EBITDA was 1.1X compared to 2.1X in last year's third quarter and 1.9X at year end. As discussed in previous quarters, and I will reiterate, it's not our goal to continue to pay down debt as we believe leverage between 1.5X and 2.5X makes sense in our capital structure and is beneficial to our shareholders. Our balance sheet is solid. We continue to review our capital occasions with focus on improving our ROIC, and we have the liquidity to support our continued improvement initiatives and exploiting profitable growth strategies. Year-to-date, we realized the $20.7 million increase in cash flow from operations reflected -- reflecting improved profitability and working capital management. During the quarter capital expenditures and cash proceeds from the sale of revenue equipment essentially netted out. Year-to-date net cash capital is approximately $6 million as we continue to execute on our fleet refreshment program. Cash capital for the year and is lower than we previously anticipated because of recent tractor finances we completed to take advantage of today's favorable markets for equipment leases and because of the proceeds from the acceleration of our fleet replenishment plan. We now expect that for the full year 2015, net cash capital will be in the $20 million to $25 million range. During the third quarter, we repurchased almost 246,000 shares of common at a weighted average price of $19.11 per share for an aggregate purchase price of $4.7 million. Since that time we've continued to buy back shares bringing the total number repurchased to just over 500,000 shares. Our intention remained to consciously but aggressively continue to acquire 4 million shares authorized onto the programs which terminates in July 2018. Lastly, a quick revenue equipment recap. We have in 2015, as of yesterday, disposed of over 800 high cost tractors and taken delivery of all 400 new tractors planned for 2015. Additionally, as of yesterday, we have already taken delivery of 1,150 trailers, exceeding our equipment replenishment acceleration planned targets for this year. We are committed to our plan to reduce the average age of our trailer fleet to five years, and the age of our tractor fleet to at/or just under two years. And with that overview, I'll let the operator to open the call for questions after which Tom will come back for some closing remarks. Thank you.

[Operator:]

Thank you. [Operator Instructions] And our first question will come from Brad Delco from Stephens. Please go ahead.

[Brad Delco:]

Good morning Tom, good morning Michael, and welcome Martin. Guys, thanks for the overview in the slides to accompany your remarks. I guess Tom, my first question, you put a check mark by the rationalizing fixed cost and SGA to better align our overhead with the current tractor fleet. Does that make up the majority of the restructuring severance and other related charges that we saw in third quarter? Is any of that expected to continue going forward?

[Michael Borrows:]

Yes, Brad, this is Michael. Most of the reductions in that restructuring charge were related to the closing of two shops that Tom referenced, one in Carlisle and one in Texas. The rationalization of SG&A is well underway. We continue to look at overhead and reduce cost. A lot of that's been through attrition and not filling planned positions as an example, but also just looking at how we're doing things process-wise smarter.

[Brad Delco:]

Got it. So there is no, you removed 5% of people in back offices or any metric you can give us, it's just really due attrition.

[Tom Glaser:]

Yes, it probably is when you think about the planned positions, I mean there was about 50 people that received severance as part of the restructuring charge but really when you look at the amount of group, position reduction over our plan into attrition, it's probably about 100 people that were reduced, 50 of them which were more -- I would say support related. And the others were -- I think 40 of that 50 was really more related to those job closings, and the restructuring charge.

[Brad Delco:]

Got you. And then, you care to give any more details on the outsourced maintenance arrangement year-end, considering you still have I guess six maintenance shops still out there?

[Tom Glaser:]

Brad, the focus is more on road assists. It's when the trucks are broken down on the side of the road, there are many services out there and we're availing ourselves to those services of the people that can get the truck repaired faster than having them call one of our people inside. And then them calling one of our shops or calling another road assist person to go up and take care of the driver on the side of the road. So we think that by using the -- by affording ourselves the opportunity to use the outside service is going to get our drivers back, up and running a lot quicker. And we can rely on their service.

[Brad Delco:]

Okay. And Tom in your comment you said that you have -- you guys have experienced $2.7 million benefit from the fleet refreshment, our trailer fleet refreshment cycle. Can you kind of quantify -- was that just in a quarter, what was that really made up off with better fuel economy, lower maintenance, and any more detail you can provide on that would be great.

[Tom Glaser:]

Yes, that's really in the quarter, Brad. And really is reflective of the gain on the sale of those assets that we achieved in the quarter, that we -- that was above the normal gain.

[Brad Delco:]

I thought you were referencing maybe operational benefits there. And then my last question, no as of comment 4Q initiatives to expand the network to increase miles in productivity. We saw length of all come down year-over-year, shall read into this that might the fall should be increasing going forward or I mean how do we get -- can we get more details on that comment.

[Martin Tewari:]

Hi Brad, Martin Tiwari. As we go forward and look at some markets that we believe there is an opportunity for us to improve utilization our tractors and also improve profitability in our network. We believe that should help with length of all over the next 12 months. We expect to see that grow a little bit in the upcoming year.

[Tom Glaser:]

Brad, in addition to that we've taken on -- the quarter saw a decline in length of hall because we took out a couple of customers that have dedicated capacity in a regional marketplace and so we've got a lot more consistent freight, little bit shorter like the hall. And it's affected that metric. But as Martin said, as we go forward expanding the network is not necessarily mean expanding the length of hall as much as it is expanding the geography that we service.

[Brad Delco:]

Got you. Okay. All right, I will get back in queue and turn it over but thanks for timing. Keep up the good work.

[Tom Glaser:]

Thank you, Brad.

[Operator:]

Our next question will come from Jason Seidl from Cowen. Please go ahead. Mr. Seidl, you have the floor.

[Jason Seidl:]

Good morning, gentlemen, sorry, I had the line on mute. Michael, I think you mentioned that there was an accounting change for how you -- tires. Can you talk to us about what it did for the quarter and savings going forward?

[Michael Borrows:]

Let me just reference what we did. Reviewing industry practice and aligning our accounting and management of new and replacement tires with the industry experience of our new operations leadership team. We changed -- we did change our policy on how we accounted for tires this quarter. Right in previous periods USA Truck record of these expenses of a prepaid tire asset Jason, and amortize than what we're going to for making the 30 months depending on the type of tire. We are now expensing the cost of maintenance and replacement tires as incurred. This approach obviously had a favorable on net income in certain periods and we've retested the financial statements for all prior periods. And we have provided a detail disclosure regarding this change and including our external auditors probability letters and exhibits to the Form 10-Q which will be filed later today. So I mean, to say that it's going to have -- how much impact is it going to have going forward. I mean we think it will have -- maybe $0.02 to $0.03 on per mile impact on our maintenance costs going forward because the reality is as we look at the practice, it was amortizing a greater amount of tire expense than we were actually incurring because of the some of the changes in things that we've already done in our tire program.

[Jason Seidl:]

Okay. So what was it for this actual quarter, was it about to $0.02 to $0.03 per mile you said?

[Martin Tewari:]

Right.

[Jason Seidl:]

Okay, that makes sense. You guys are already kind of where you need to be on your or you appear to be where you need to be on your truck program. So how should we think about CapEx going forward in 2016 on a net basis?

[Tom Glaser:]

So you have to act you know we're looking closely at what our net cash capital will be in 2016, we're finalizing those plain states. We're really not quite ready to give the range because we generally provide that information in fourth quarter call, in full year call. So we're really -- with all of the new operations leadership etcetera, we're fine tuning that but I think to give you some feel for where we're headed, we will purchase as much of new equipment next year likely as we did this year, and we're looking at how much equipment will actually purge out of the system but we keep the fleet near future while we grow it a little bit based on business conditions but we're going to keep ourselves middle in that regard.

[Jason Seidl:]

I think you've -- Tom, you categorized the market is sort of stable but not robust. Can you update us in terms of what you guys are starting to see in your contractual pricing and how is it holding up -- let's say to 2Q [ph].

[Tom Glaser:]

I think it's holding up well, to be honest with you. The volume hasn't been exciting like it was last year but it's consistent, it's okay volume. As far as pricing, and probably not going to be as aggressive as some of our competitors in saying they are looking at 3% to 5%. We're looking at probably 2% to 3%, and that's pretty aggressive given the fact that our last two years; 2013, 2014, we've seen price increases of 8% and 9% in our business. So I think we've moved the price up to a good level. And I think we're going to see a little bit of an increase next year because we're going to focus on -- as I said, new geography, and some new customers.

[Jason Seidl:]

Okay. Final one and I'll turn it over to somebody else. I think you guys mentioned you opened up duly brokerage operations in El Paso. One, what was sort of a cost associated to quote I'm assuming automatically towards profitability. And how quickly you think those locations can become profitable?

[Tom Glaser:]

We haven't generally disclosed what the cost is of opening the operation although, clearly as you've pointed out, there is some additional overhead and such that we incurred when we open up a new office. Those start-up cost in general but in terms of bringing those offices to profitability, typically we're seeing them -- be on the same plain as our other branches within a year, within 11 months to 12 months but we expect them to be marginally -- starting to turn that tide within six to eight months obviously.

[Jason Seidl:]

Okay, fantastic job and I appreciate the time.

[Tom Glaser:]

Thank you Jason.

[Operator:]

Our next question will come from Donald Broughton from Avondale Partners. Please go ahead.

[Donald Broughton:]

Good morning, gentlemen.

[Tom Glaser:]

Hi Donald, how are you?

[Donald Broughton:]

I'm well, I'm well. I want to make sure I understand that the re-characterization of the tire accounting. I'd look back at last year's number and the recast, and basically operations and maintenance line falls by $2.21 million and depreciation goes up by $121,000. So you were capitalizing all tires and depreciating them or you are capitalizing all types?

[Tom Glaser:]

Right, so just for clarity Donald, our practice was when we acquired new equipment whether it was a tractor or a trailer. We bifurcated the tires off of that and we classified them as a prepaid tire asset and we amortized them based on what kind of tire they are, somewhere between 18 and 30 months. And all maintenance replacement tires were also capitalized as a pre-paid asset and amortized off during -- in the same range of period. So that was the process, and if you go back a number of years, there was a number of trucking companies that held that practice in the industry, not really today. And so now what we're doing is, we will cap [ph] the tires with new equipment acquisitions, with the component of the equipment, and as we have replacement on or maintenance tires on that equipment, those will be expenses incurred.

[Donald Broughton:]

So that's consistent with industry practice, it's how we should be doing that but why would that make the operation and maintenance line go down by $2.2 million and the depreciation line go up?

[Tom Glaser:]

It would because what we -- the cycle that we were in, we were literally amortizing off more tire than we would have been incurring had we been expensing replacement maintenance tires as incurred.

[Donald Broughton:]

The amortization of the tires was running for the ops and maintenance line?

[Tom Glaser:]

Yes, it was.

[Donald Broughton:]

Okay.

[Tom Glaser:]

It was not running through depreciation/amortization if that's what you're asking. It was running throughout the maintenance line.

[Donald Broughton:]

Okay. Capitalized value of operating leases today versus what it was at the beginning of the year?

[Tom Glaser:]

The value of our operating leases at 9.30 were about $18.9 million at 12.31 we were at about $11.08.

[Donald Broughton:]

Perfect. Average age of the truck fleet today versus the beginning of the year?

[Tom Glaser:]

I'm sorry I didn't…

[Donald Broughton:]

The average age of the truck fleet, tractor fleet?

[Tom Glaser:]

2.25 months now and it's going down.

[Donald Broughton:]

What was it at the beginning of the year?

[Tom Glaser:]

It was more like -- I think it was more like 32 months, and we expect by the end of next year it will be around between 22 to 24 months.

[Donald Broughton:]

You've moved the average age's fleet down by seven months in the last -- in this year?

[Tom Glaser:]

Yes, that's right, we did. We have…

[Donald Broughton:]

[Multiple Speakers] Because that size of the fleets also dropped by 20%. So the question is, you're selling all those old trucks. What's the size of the trailer fleet today, again versus the beginning of the year?

[Tom Glaser:]

5,900 to 6,000.

[Donald Broughton:]

5,900 versus 6,000 is that what you said?

[Tom Glaser:]

5,900 to 6,000.

[Donald Broughton:]

This is our trailer fleet today?

[Tom Glaser:]

Yes, it really is almost 6,000 today and it was 6,100 year-to-date for the same period last year. We haven't purged this many trailers so our trailer and tractor ratio has gone down, it's probably sitting at about 3 right now.

[Donald Broughton:]

Okay. Because I knew that was some of the oldest equipment's you had was trailer. So I wonder what was happening with completion of that mix. All right, well very good. I'll let someone else -- if you've given any guidance, are you thought to giving any guidance on what you expect gains on sale to be in the fourth quarter?

[Michael Borrows:]

We have not and we are reviewing it but I think what we've said in the second quarter was that the back half of the year would be similar to the front half of why year but 60% to 70% of that gain would be in the third quarter, and the rest of it would be in the fourth quarter and it's probably not completely out of line with where we'll end up.

[Donald Broughton:]

Right. Thank you.

[Tom Glaser:]

Thanks, Donald.

[Operator:]

[Operator Instructions] Our next question will come from Adam Wyden of ADW Capital. Please go ahead.

[Adam Wyden:]

Hi, guys. Congratulations on the process and welcome Martin and everyone else that's joined in the last 60 to 90 days.

[Tom Glaser:]

Thank you, Adam.

[Adam Wyden:]

Good, good. Just a couple of housekeeping questions and then kind of a larger strategy. First question, if I look at kind of the operating income of SCS and I look at the decline in the operating revenue and the gross margin contribution, I see -- I get to $1 million. So give or take on operating income, where is the rest of the deltas? Is that startup costs? Is that the onetime investment in technology? How do we think about kind of the operating income of SCS going forward, kind of net of the startup cost and the R&D expense. Can you kind of give us some color on that.

[Michael Borrows:]

I think we're looking -- the mix of our business Adam, is not as high percentage of contracted business. In our contracted business we've seen -- it has steady this year, and the carriers that we use in that business, we haven't seen any real increases but they haven't given us any decreases either, steady business again. And we're doing some more spot business. Last year was heavier year in spot business than this year. Also specific to your question I mean, you're going to have the startup cost in there for the new location but primarily, the highest -- the biggest pieces of cost is salaries, right. So I'll renew salaries of the new people at those locations.

[Adam Wyden:]

Your gross margins were up, right, you mean gross margin were up 100 basis points and obviously, revenues were down. But -- I would have expected that all things being equal, it's a 100 basis points increase in gross margin, you're operating income wouldn't have declined year on year as much. And so I'm trying to kind of plug that gap, is that ongoing expenses or is that something that's onetime in nature. Just trying to get a better sense of -- last year, through '14 it was $16.5 million of SCS, I know that somewhat had to do with kind of the things that went on in the first quarter, different things but we're trying to get a better sense of how you think about the SCS in '16, '17, is it $15 million business, $20 million business on an operating income basis, not kind of revenue, I mean just trying understand how much of that cost and there is onetime nature of investment, how we should think about kind of what the normalized profitability of the segment is?

[Michael Borrows:]

I think what you're going to see as we go through 2016, our costs are going to be stay stable because we've had our startup costs with the new facilities. And I don't -- it's more of a onetime cost and we're not going to see is the increasing 2016. We will see some increased cost in technology that we're going to have in 2016 but most of that's going to be capitalize. So it's how effective are we going to be expanding the existing offices and the services that we give to grow the revenue line and maintain margin. You do have the relationship of the leases that are picked and those fixed costs that we have with all of our branches that are going to be a higher percentage of revenue because revenue is down year-over-year in SCS. So -- but those property times will remain what they are, so as we continue to grow SCS, we're not going to see an increase in or fixed cost.

[Adam Wyden:]

Right. So I guess what you're saying is, the cost that we have now in terms of G&A and R&D are probably going to stay the same, it's just the red -- the income is going to increase as a function of revenue? And that there is like…

[Michael Borrows:]

The only changes that you'll see is that -- and it should ramp up with revenues as we add new people next year, add more account managers to grow offices. You won't see the fixed cost related in those offices grow but salaries and wages will grow as we hire those people but at the same time they should be generating more revenue and more of those per headcount.

[Adam Wyden:]

So, I mean -- I guess my question is, do you think in the next 12 to 18 months you think SCS is more of like $10 million to $12 million EBIT business or you think you can kind of get back upto the $18 million to $22 million number on an EBIT basis, not revenue or gross margin, EBIT.

[Michael Borrows:]

Yes, the difference is that we don't get forward looking guidance. So we do believe that we're going to see growth in EBIT and EBITDA and we're going to continue to -- it's a focus of ours to grow our brokerage in asset like business right. So that image is up, that's the concentrated focus, we believe that real significant opportunity in growing that business over the next year. And so the answer is yes, but to give out specific numbers, we're just not in a position to do that.

[Adam Wyden:]

Okay, fair. Let me ask you another question. So obviously -- Tom, was playing in permanent CEO and clearly there has been a lot of changes at the senior level and you've got a lot of really great experienced people, and I think someone down the line also -- you guys have closed some maintenance facilities and some terminals and there has been -- I think, I can't remember now, maybe 10% decrease in headcount across the entire organization. And obviously some of that is going to the restructuring. What type of savings do you think that that's going to render on an ongoing basis on the G&A line and have we seen any benefit of that in the third quarter? That plus the tires, I mean, what do we think -- kind of the ongoing savings, we should be able to expect to realize from that kind of -- do we see in third quarter or we're going to see in fourth quarter, how do we think about that?

[Michael Borrows:]

I think what you see -- where we see the G&A expenses, we believe we're going to be able to grow and improve the utility of our trucking business and grow our asset like business without -- I would on the trucking side without adding any people. On the asset life business, without any support but we will be adding account managers in the like in the brokers. So that we see our fixed cost as a percentage of revenue improving or staying the same, we don't see them growing at all.

[Adam Wyden:]

So the headcount reductions and closings and that stuff, you're saying that that's going to get offset by hiring and brokerage or -- I'm just trying to understand.

[Michael Borrows:]

No, no. The changing is going to be improved efficiency within the organization. We pulled the fleet back, we've pulled some people out of the business, we've adjusted our fixed costs, and now the focus in the fourth quarter is developing those plans that put us in place for 2016 to really grow the revenue line and grow the profitability.

[Adam Wyden:]

Right. I guess my question was kind of like assuming all things being equal, let's say revenues don't grow or whatever, I mean is there kind of an ongoing expense savings resulting from kind of the headcount reduction and terminal closing and all that stuff. I mean obviously the economy is improving and you guys have things that you could do on a self-help basis. But I guess my question was all things being equal, is there a way to kind of quantify the savings that we got from that assuming that the world stays in the status quo?

[Michael Borrows:]

Yes, we're sure there is an absolute number, we're just not going to quantify it as an absolute number. What we've done is we've focused on moving our cost structure to be in line with where our truck count is, what we believe we're going achieve in terms of revenue growth in remainder of this year and 2016. So -- I know you're asking for a number but we're not going to give a number.

[Adam Wyden:]

Okay. Let me ask you another thing, in terms of the capital structure in the balance sheet, it looks like you guys have him brought down debt a lot, it looks like almost like $72 million of net debt. If we assume the business is run rating a number, call it around $70 million give or take onetime EBITDA, that's kind of one of the lowest based on the interest we're paying on it. I mean when you think the appropriate leverage level is and obviously you're excusing on this buy back but I mean, how much more -- it seems like there is a lot more you can do in terms of reallocating resources. So I guess my question is, what do you think that kind of normalize kind of debt-to-EBITDA ratio is? Once you've kind of exhaust this buyback program, I mean you're still going to be kind of way under lever relative to your peers. I mean, how do you think about your capital structure and your ability to execute more on your existing buyback program and perhaps something more aggressive like a tender offer ASR, something like that?

[Michael Borrows:]

Right, I'll read that. Adam, here what I said in my prepared comments which was, we believe that in terms of the leverage we think that somewhere between 1.5X and 2X that the EBITDA makes sense in our capital structure, probably closer to too many 0.5X and then beneficial to our shareholders, and how we exercise that leverage and we look at capital allocation. We'll -- in our plans around that we'll continue to develop, but that being said, we clearly have enough dry powder to execute on our plans and if that means we're allocating capital to additional share buyback as it relates to growth acquisitions opportunity etcetera. I mean those things are all on the table here at USA Trucks.

[Adam Wyden:]

Growth acquisitions, I guess my question -- what kind of acquisitions could you do that would be more creative than repurchasing shares. I mean if I run out of the industry standard operating ratio on your trucking business and a little bit of improvement in SCS, I mean we're going to be creating this asset given where the stock trades today it at levels close to 1X or 2X EBITDA. I mean very, very, very well multiples. It seems like the only thing that makes sense is share repurchase. So I don't know, maybe you can highlight other opportunities that are better than 1X or 2X EBITDA. I don't seem to be able to find them.

[Michael Borrows:]

We're not currently actively involved in any -- what I would say is, acquisition. But at the same time as is it relates to share repurchase, we have been aggressively buying back shares under our 12B One Plan. And you saw that as of yesterday we had already purchased on that $1 million share authorization over 0.5 million shares. What I was suggesting though is that we have enough dry powder from a liquidity perspective etcetera that should we want to move forward on growth acquisition. If that makes sense then we certainly have enough to do what we think we continue help the business but obviously with a focus on ROIC and increasing shareholder value.

[Adam Wyden:]

But your self-help plan in terms of industry standards on trucking is not changing on you guys doing any growth acquisitions. I mean you guys think that on the existing base of business with the existing personnel, with Martin, and all the great guys you brought in, there is nothing stopping you from getting to a 10% OR that you can -- hypothetically you guys feel confident that with the new team and the initials in place that on this existing asset base you can get to an industry standard operating ratio. So getting to -- when I say creating the asset at 1X or 2X EBITDA that means on a fully kind of industry normalized margin on this asset base you're trading there, you guys don't feel like you need to do an acquisition or anything like that to get there, I mean you guys feel like you can do it with the assets and the people you have in place.

[Michael Borrows:]

We are in violent agreement and we're going to continue to buy back shares to the extent that we're going to buy back shares. We haven't given any forward-looking guidance on that and are not going to right now.

[Adam Wyden:]

Good, good. Thank you for all your hard work, I'm very excited about all the new people that you've got driving the ship here. Thank you.

[Tom Glaser:]

Thanks, Adam.

[Operator:]

[Operator Instructions] This will conclude our questions -- we do have a question that came in. We have a question from Peter Von Shelling [ph] from Polar. Please go ahead.

[Unidentified Analyst:]

Good morning, gentlemen. I would just like to focus on the TL sector and maybe do a bridge from last year to this year in terms of adjusted operating income. So last year I think you just reported $22 million restated operating income, and in the truckload sector this year, $5.4 million. But in terms of year-to-year delta there, an increased gain on sale of $2.7 million. And there is $2 million lower D&A in the truckload sector, and about $3.9 million of fuel benefit year-over-year here. Without that all be accurate?

[Michael Borrows:]

That would all be accurate.

[Unidentified Analyst:]

So on a core basis, you guys are still losing money in the truckload sector?

[Michael Borrows:]

On a core basis, as it relates to the trucking operational metrics, we certainly are intending and have actions in place to improve all of those. To say that we're losing money…

[Unidentified Analyst:]

Well, I'm just taking the $5.4 million and backing out the $2.7 million gain on sale backing out $2 million of lower D&A and $3.9 million of year-to-year fuel benefit.

[Michael Borrows:]

Yes, the fuel benefit really -- net debt was the lower fuel surcharge, so it's really not that much. But at the same time we don't disagree with you that trucking has been lifted out by the acceleration of our asset sales. And all this is intended to bring down the cost structure and improve the cost structure of our trucking business. We have some work to do still on our trucking business. Our strategy really is still very much -- we have significant opportunity to grow our asset life business, and we're still moving through the refinements and the listing up [ph] of our trucking business.

[Unidentified Analyst:]

Okay, thank you.

[Michael Borrows:]

Thank you, Peter.

[Operator:]

[Operator Instructions] Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Tom Glaser for any closing remarks.

[Tom Glaser:]

I'd like to thank everyone for joining us, it was a large crowd this morning, I appreciate all of the interest. And as you heard, our third quarter was really devoted to moving us forward and moving us forward faster, to accelerate the progress in our trucking business alone by controlling costs and improving the process. We are going to continue to leverage our SCS business and take advantage of the opportunities that we have there. We've expanded our trucking leadership, management team, we've got a solid network, and we've got customers and workforce that's committed to helping us. So I think we're on the right path. I'm excited about it. I know that our management team is excited about it and we're looking forward to a really good 2016. Thank you, and I look forward to seeing some of you when we're in New York next week at the. Stevens Conference. And I hope you'll join us for an update during the fourth quarter. Thank you.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.