USA Truck's (USAK) CEO Randy Rogers on Q3 2016 Results - Earnings Call Transcript

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About: USA Truck, Inc. (USAK)
by: SA Transcripts

USA Truck, Inc. (NASDAQ:USAK) Q3 2016 Earnings Conference Call November 4, 2016 9:00 AM ET

Executives

Harriet Fried - LHA

Randy Rogers - President and CEO

Martin Tewari - President, Trucking

Jim Craig - President, USAT Logistics

Joe Kaiser - VP and Principal Financial Officer

James Reed - CFO

Analysts

Brad Delco - Stephens

Jason Seidl - Cowen

John Engstrom - Stifel

Operator

Good morning and welcome to the USA Truck Third Quarter 2016 Earnings Conference Call and webcast. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Ms. Harriet Fried of LHA. Please go ahead.

Harriet Fried

Good morning everyone and welcome to USA Truck’s third quarter earnings conference call. Joining us this morning from the Company are Randy Rogers, President and Chief Executive Officer; Martin Tewari, President, Trucking; Jim Craig, President, USAT Logistics; and Joe Kaiser Vice President and Principal Financial Officer.

Before beginning the call, I would like remind everyone that this 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 the use of terms or phrases such as expects, estimates, anticipates, projects, believes, plans, goals, intends, may, will, should, could, potential, continued, future, strategy and terms and phrases of similar substance.

Forward-looking statements are based on the management's current beliefs and expectations of 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 the 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 reports and Form 10-K and other filings with the SEC. 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.

Also on today's conference call management will be referring to certain non-GAAP financial measures in its analysis of the results to supplement the GAAP financial statement. A reconciliation of these non-GAAP measures to GAAP is provided in tables at the end of the slide presentation accompanying today's call.

With that introduction, I'd like to turn the call over to Randy. Go ahead please, Randy.

Randy Rogers

Thank you, Harriet. Good morning everybody. I'll begin this morning's call by giving you an overview of our consolidated third quarter results and then an update on the strategies we’re pursuing to strengthen our operations and financial results.

After that Martin and Jim will go through more specifics on our Trucking and Logistics businesses and Joe will summarize our balance sheet and liquidity. I'll then come back to update you on our company’s strategic action plan through 2017.

Before I begin, I’d like to welcome James Reed, our new CFO to the Company. As you know James just joined us this week, so he won’t have a speaking role on today’s call, but he is a great addition to the team among other impressive qualities, he has a proven track record and ability to partner with operations to drive operational excellence and deliver consistent results and you will be hearing plenty from him on future calls.

With that introduction, let’s turn to Slide 3 please. As all of you know, market conditions were tough in the third quarter, but we made some encouraging progress nonetheless. Migrating or mitigating some of the impact or mitigating some of the impact of volume loss in the second quarter, in particularly related to a large dedicated customer who brought several high volume links in house.

In trucking, revenue was stable despite our smaller fleet as we increased utilization and maintained our network discipline. Our operating income improve 0.6 million from the second quarter reaching breakeven as our initiatives to lower fixed cost and improve operational efficiencies began to take hold.

On a sequential basis, trucking's adjusted OR improves slightly as it improved progressively over the quarter after a very challenging first half, and we narrowed our adjusted net loss by a $0.01 per share. Obviously given the very challenging freight conditions, these improvements are in a substantial we would have liked. But we are committed to achieving further improvements in the coming months and I'll go over the strategies we've put in place to do that in a moment.

But first, I'll turn over to Martin to provide further details on trucking. Martin?

Martin Tewari

Thanks Randy. Moving to Slide 4, I'd like to give you an update on the steps we've been taken to increase base revenue per mile which is one of the key indicators most affected by the volume and loss from the preceding quarter. In the third quarter on a sequential basis, we increased the all important metric by $1.03 per mile which equates to approximately 2 million improvement on an annualized basis. And with the improved service we're giving USA Trucks customers, we've been getting good attraction on our recent bid responses.

We’ve also made significant progress in reducing our reliance on a spot market and increasing the amount of committed freight we handle. As of the end of the third quarter, spot business represented less than 2% of our total loan account. We've also been adding more regional freight into very high density markets which enables us both the better utilize our drivers, hours of service and to achieve a higher rate per mile.

On Slide 5, you'll see a summary of trucking's results over the past four quarters. There are a lot of numbers here, so I'll call out a few on this quarter's metrics. First, on the plus side, it was of the four consecutive quarter of increased average weekly miles proceeded truck. Second, as you know, reducing collision frequency and overall safety performance is an important goal for us.

This quarter's insurance and claims line was up sequentially, but that reflected our most recent actuarial adjustment for prior year currencies, which caused higher developments in this year's claims. Third, our operations and maintenance line for the quarter was down double digits on both a quarter-over-quarter and on a sequential basis, reflecting both our elimination of high cost tractors and overall expense controls.

Finally, with respect to the non-asset component of our fleet, purchase transportation per mile was higher, reflecting the increase on our independent contractor fleet. Year-to-date independent contractors now comprised 70% of our fleet as compared to 13% in last year's period.

Moving to Slide 6, I'd like to provide an update on our fleet rationalization and maintenance strategy where we are pursuing many opportunities for substantial cost reduction. In the third quarter, we've restructured our road assistance program, saving $200,000 and completed our negotiation of national agreements with third party providers to reduce the cost of parts and repairs.

As we fully implement our fleet plan and maintenance efficiency initiatives, we expect to realize annualized, annual savings next year in excess of 1.5 million or $0.17 per share. We've now retired all model 2012 tractors and eliminated 30% of our 2013 tractors as well. As you can see it from the box on the left side of your screen, which shows maintenance cost per mile by tractor year model, this is going to have a very positive impact on our maintenance cost. As of the end of the September, the average age of our fleet was 22 months.

With that, I will turn the call over to Jim.

Jim Craig

Thanks, Martin. On Slide 7, you will see summary information for USAT Logistics third quarter results. USAT net revenue was certainly less than we had aimed for, but decrease was requested a very soften ball of freight environments rather than any issues with customers. Our customer retention has been strong and our gross margin remains stable at 18.1%.

When comparison has been made between this year's fleet market and what we saw during the low point of the great recession in 2009, there is one significant difference that has made 2016 perhaps more challenging than even 2009 was, that’s the incredible unpredictability and the wild-swings in demand levels and purchased transportation rates unlike anything I’ve seen in my 34 years in this business.

After a very week July, our August numbers delivered some promise of return to normal and predictable fleet levels, and then that was followed up by a very anemic September results. Conversations with customers, carriers and other industry insiders, we indicate we’re not alone and surprised of our disappointment.

During the quarter, we completed our migration to our new sales and operating model and saw some of the fruit to that change. As you recall under the new model, we have plant managers who focus on business development, customer service and price and responsibilities while our carrier managers are responsible for carrier selection, negotiation, dispatch and load management.

Demonstrating the potential of that model, three of our larger regional offices achieved market share gains and delivered financial performance results that met expectations for the third quarter. Our land offices have seen daily load count increase by 30% since February, and we’ve have increased staffing by 20% while they lead a division and productivity metrics. While our goal in 2016 has been to get to six loads per person per day across the network, our laded team regularly exceeds 10 loads per person per day.

Our Dallas center exceeded plan for net revenue production for two to three months and for the third quarter as a whole, and our new regional manager of our Southern California location has energized that team and their load volumes are nearly doubled in last the two and half months since he's been in place.

Other good news is that USAT has retained and it is now expanding our participation with a major online retailer that has been openly reducing the number of service provider partners they worked with. We accomplished by demonstrating the flexibility of 2-to 3PL and expanding service capabilities in direct response to their stated needs. In addition to that important development, we've also secured approval and are now providing additional capacity to supplement the capacity in coverage of our asset fleets with two major retailers and several of our larger consumer products manufactured clients.

Moving onto Slide 8. We summarize some other important operational initiatives for USAT, we have been progressively ramping our previous announced sales agent initiative to cover the secondary markets and those flyover markets that we’re not actively invested in today. We now have 9 agents under contract and are on track to have a qualified 20 agents in place by the end of the year.

While we will see some modest contribution from the agents in Q4, the real impact will come in 2017 as they gain traction in the market, and they are fully integrated into the Company. Recognizing the efficiency and productivity that can only come with running greater volume through every office, we recently converted a couple of our smaller offices to service strictly at sales locations.

Seattle and Buffalo will have their operations execution and they have been a straight of responsibilities provided by Sacramento and Chicago respectively. By leaving client management relationship intact with consolidating operations and leaderships into those proven regional centers, we protect our revenue while substantially reducing direct overhead expenses for 2017.

We have been expanding and we'll continue investing in our flatbed service offering and added customers across the third quarter while averaging five plus loads per day. We are aggressively expanding what we call our Power Plus offering with a goal of adding 15 to 20 trucks every month. Plus Power is our service that pairs the USA Truck 53 foot trailer with the tractor and driver contract since USAT Logistics, but operating under their own validated authority in this.

Our customers appreciated the flexibility and service we’re able to provide and common fleet of trailing equipment in their pools. I have personally visited over 20 customers in the past several weeks and every one of them has expressed great interest and support for this unique service solution. Our relatively modest intermodal offering is getting some lifts and as we re-enter the TLC market with a limited number of our intermodal ready 53 foot trailers. We are already seeing revenue from this initiative and are exploring a potential for introducing USA Truck assets back to some of the West Coast markets utilizing rail for the line haul portion much like many of our major competitors.

In summary, I see plenty of reasons for renewed optimism for the coming 2017 campaign.

And now, I’ll turn the call over to Joe Kaiser for a quick financial discussion.

Joe Kaiser

Thank you, Jim. On Slide 9, you will find highlights of our balance sheet and capital expenses. As of September 30, 2016, our total debt and capital lease obligation, net of cash or net debt was 151 million and our stockholders equity was 62.1 million. Net debt to adjusted EBITDA increased year-over-year to 3.7 times, compared to 1.1 times as of September 30, 2015. We ended the quarter with about 51 million available under our credit facility.

In 3Q, we acquired almost 23 million of new revenue equipment which was right at the top of what we planned for that period. Our net cash capital expenditures were 25.5 million which brought net cash capitals almost to 40 million year-to-date or just under 20 million including the proceeds from capital lease arrangements.

I’ll now pass the baton back to Randy to wrap things up.

Randy Rogers

Thanks, Joe. Turning to Slide 10, I’d like to walk you through our strategic plan through 2017. In trucking, the initiatives were focused on following the four major buckets. First of course is rate uplift which we expect to achieve through a combination of contract renewals and freight mix with existing customers operating within a more balanced and efficient network and the addition of selective regional freight to our network.

Approximately 50% of our contracts are coming up for renewal in the first of 2017, and building on the service improvements we’ve accomplished and our ability to compete in a more favorable head hold markets, we’ve seen an encouraging sign that our approach will improve our rate structure and mix while also allowing us to grow profitable business.

In addition, cost control and expense reduction remain a critical focused area. As you’ve heard, we’ve seen a solid head-start on improving maintenance cost and additional runway for cost improvement as we further leverage our outside spend and reap the benefit of greater proportion of our revenue equipment under multi-year warranties. Our goal is to ultimately have 100% of our fleet covered that way.

There is still much headway to make in optimizing our network. As part of our ongoing efforts to improve operational efficiencies, we’ve reviewed our operational processes in a number of areas employing continuous improvement tools and methodologies, and we are currently piloting an initiative to simplify and streamline our planning and dispatch functions and better utilized our technology. These in processors will enable us to continue enhancing utilization in particular.

Further, as part of our migration to an asset-light model, we're working further to increase the number and percentage of independent contractors. Our target for the end of this year is approximately 20% ICs; by the end of next year, we want to bring that up to the 25%. As for USAT Logistics, we will continue along the lines Jim just outlined, growing our sales agent initiatives, consolidating our operations into regional supercenters and pushing up the number of loans per person.

Our stretch target by the fourth quarter and next year is 7.5 loads per person per day. We will also continue to expand the Plus P to Plus Power program and grow our [TOSC] offering in selected markets. On a company wide basis like for our two initiatives. First, we are continuing our intense focus on achieving fixed cost reductions to align with our fleet sized, which we expect to yield in the range of 3 million to 4.5 million in savings in 2017. Second, enhancing our sales effectiveness, to accomplish that, we recently realign the structure, reporting and incentives of our sales force, while and Martin and Jim will share responsibilities for their strategic positioning and direction of our business development efforts.

Going forward Jim will be taking a lead for the day-to-day management of the sales team. This will enable us to leverage Jim's successful track record in leading and developing large sales organizations, while frame Martin to focus more on other critical elements of our Trucking operations. Getting all 22 sales professionals aligned, collaborating and effectively selling the entire service portfolio to the USA Truck and USAT Logistics, will be a positive development for our customers, our associates and our shareholders. So, I look forward to reporting on that in the future.

So, at this point operator, we like to open the call for questions and then again I'll come back for final wrap up add to that.

Question-and-Answer Session

Operator

Absolutely, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brad Delco of Stephens. Please go ahead.

Brad Delco

I wanted to maybe make a comment or respond to a comment that was made. Martin, it seems as if most truckers commented that July saw a strength, August things sort of stayed stable and maybe that stability continued through September. But Jim, you mentioned something counter to that that July was weak, August was strong, and then September was weak. Can you help us reconcile maybe what specifically each of your segment saw on the quarter?

Martin Tewari

In July, we saw a softer July on the trucking side and that really that impacted us significantly in the quarter. However, we did see a nice uptick in freight volume and strong rate in through August and September. And then on the 3PL perspective, July is normally a weaker month relative to the surrounding, landscape June, August, this July was shocking weak for us. And casually speaking to some of my counter parts and former friends in the industry as a formal employer in the industry, that wasn’t unique to us, I heard a lot about that across the industry. All this was very encouraging as we saw freight demand pick up. And then September while it wasn't -- July like, it's simply, didn’t continue to trend of strengthen the fleet demand that we hoped always would carry over. So, it’s a very schizophrenic quarter for USAT Logistics and again based on my very casual research, we went alone in that situation.

Brad Delco

So what you’re saying, weak July was in a function of buy rates being higher as a function of demand being lower?

Randy Rogers

Absolutely.

Martin Tewari

And it was across the Board, it wasn’t any particular segment or industry across our customer base.

Brad Delco

Okay, well against July, I guess some confused because of the seasonal spot rate trends in July, seen to be a large stronger then seasonal norms which to me pressure the most brokers, I’m just trying to figure out why, what you saw it’s different?

Martin Tewari

It’s the combination again, we expected greater lift from volume in July, we didn’t see it, and yes, we had margin pressure. Because, and this, I guess I try to put points out of my comments, Brad, see on predictability. The market this year for us back away from week to week, it’s not a matter of one month being good and one month be bad. It will to two or three like here we go, now you know things have changing, and then two days later it’s like, we'll go where the freight go. So buy rates change within days significantly, I mean, we book loads on Monday in a lane, as a given rate, and three days later, we’re paying 26 miles more for the same truck. And it's just like I said in my long carrier in this, I’ve never seen a market this unpredictable.

Brad Delco

Interesting. Okay. And then a couple other specific questions, Martin, you made a comment about the road assistance programs in some of the cost savings. Will you say you realized 200,000 and of the 500,000 plant, you’re not necessarily running behind schedule there for the second half, you expect to see additional savings in the fourth quarter as well? And then we start run rating at the 1.5 million of incremental savings in ’17 or would the net savings always be a million for ’17?

Martin Tewari

So, there will be incremental savings for 2017 at that run rate, and the$200,000 basically in the quarter because we saw specifically in the quarter.

Brad Delco

I should be able to take out additional 300,000 in the fourth quarter and then an additional 1.5 million for next year.

Martin Tewari

Correct.

Brad Delco

And then I guess, Joe, related to the balance sheet, how comfortable you with current debt load and did you guys buy any shares back in the quarter?

Joe Kaiser

Brad, we did buy back shares in July and correspondent progress. And then, we stop to our 10b5-1 plan in the second week of August. So, we did have shares repurchased. We haven't purchased since the first week of August. The current debt levels, you know, we are definitely focused on with our leverage ratio up at 3.7 times. We’re going to focus on migrating that back down to the 2.5 or below 2.5 times, going forward. That’s going to be our focus. And then come from both, paying down some debt and stopping the EBTIDA contribution on the trailing 12 months.

Brad Delco

Got you. And then maybe Randy last question for you. The two call it additional initiatives, the fixed cost reductions to align I guess the Company with the size of the fleet because that’s been coming down. Where do that 3 to 4.5 million come from. Is that headcount? And the facilities what’s the make-up of that?

Randy Rogers

It’s going to be a little bit above or all of that, there will be some -- we’ve identified some opportunities. We’ve had some attrition in certain positions that we’re not going to backfill for good reasons, process redesign and some other things. But we’ve got a pretty solid plan to downsize some of the basically the fixed cost that we have throughout the organization. These aren’t going to be painful cuts, and it's going to be cost reductions to make sense that originate with process redesign and with better ways of doing what we’re doing, and some of the pilots that we’re initiating in operations as well as some of the back office functions, and give an example, payroll outsourcing for example non-driver payroll outsourcing provides some opportunities and some other things.

Martin Tewari

Some of those are just vendor negotiations as well with a little bit here, a little bit there to reduce our overall fixed cost.

Brad Delco

I guess that would include the road assistance program or that -- I am trying to figure out if I am going to put the layer in all these expense savings like I am double counting things or all these unique to each of the specific areas you talked about.

Martin Tewari

That’s separate from the role.

Randy Rogers

Yes, Brad, these are different initiatives. They are a bit longer than hat.

Operator

[Operator Instructions] Our next question comes from Jason Seidl of Cowen. Please go ahead.

Jason Seidl

Couple of quick ones from me, I think you mentioned you’re getting good traction in the bid market. I was wondering, if you can give us a little more meat behind that. So, what sort of rates are you getting on the bid side?

Randy Rogers

Jason, it’s early and in sort of the bid side for what we’ve been very pleased to see the responses we’ve been getting on improved service, with our customers. So, I would say on average as we look at the bids, we’re probably seeing about 3ish right in that neighborhood percent.

Jason Seidl

That’s very encouraging. In term of what percent of your business have you been able to re-price at that and what percent will you be re-pricing between now and the end of the year?

Randy Rogers

Now and the end of the year, it won't be significant, it will be a smaller amount through the end of the year, really a lot of what we hit is within the fourth quarter. So, we're pricing it now for implementation in the first quarter and second quarter of 2017. So, we will see probably somewhere around, I would state by the end of the second quarter of 2017 probably 50% to 60% of our business renegotiated.

Jason Seidl

So that's great color. You also mentioned that you lost a fairly sizeable dedicated in terms of it and then just pulling it more in-house. Do you know it was pulled in-house because it's essentially as that seems to be counter to what I'm hearing from a lot of other dedicated providers it seems like there is more people putting getting dedicated out of it.

Randy Rogers

That was the second quarter issue for us and, obviously, if you look that our rate per mile that's and there were couple of other customers and there as well. And this is not directed to us, it was directed at number of other carriers. So, the decrease we saw on our rate per mile had a pretty substantial impact, and that's we've been working to bring that up, and there are number of initiatives to increase that. I think one other things that we are seeing a fair amount of success with this putting is, winning some what we call regional freights to fill some of the gaps that we have with our length of haul and the hours of service that we have with our drivers in very high density lanes, that we've been building up over the last six months or a year, gives us some unique opportunity to take advantage with those hours of service, at the same times generate some higher rate per mile business, and we've seen an uptick in that rate. So, this quarter, we did not have any significant customer loss or anything like that.

Jason Seidl

If I can switch over to the sales side you mentioned, you have changed the compensation structure a bit, could you talk about that? And how it's sort of, I think you said, it more aligned your stocks toward some of your peers? Give us some details behind that and exactly what are the savings you think will come out of that?

Jim Craig

This is Jim Craig. It's not a savings initiatives, it's a revenue growth, top line revenue initiative first of all. What we've done, we have 22 full-time sales professional in the organization. Most of those prior were aligned with the trucking side of the business. They were encouraged to sell both business units, but in reality they were measured on their ability to enhance truck revenue reduce stack haul mile, all of those good things. So, what we've done because clearly capacity in revenue potential for trucking is infinite based on our fleet size. We're getting entries team, selling the entire portfolio.

And so on the compensation model, they will have a variable comp opportunity for selling USAT Logistics, and operating where they can go out and pursue big blocks of revenue with major customers, and really drive that top line revenue. And then to make sure they are doing the right things, on behalf of Mark and his team, they will have I guess qualifiers, independent quarterly goals to enhance the trucking revenues, fleet efficiency, lay-over and things that nature. So, it's really kind of that two-prolonged detect on their variable comp where they can fund, there variable comp pool by selling logistics and capture that money by meeting markets requirements. Does that make sense?

Jason Seidl

Yes, now that does. I guess last but not least, can you talk a little bit about how you guys depreciate tractors? Are there any adjustments that might be made between now and the end of the year? Are you guys comfortable to all that?

Joe Kaiser

Yes, Jason, this is Joe. That is something, we’re looking at currently. We’re looking at the used truck market right now for October and November. That will be addressing that probably in Q1. And there is anything else you want out of that.

Jason Seidl

And currently what are you doing for residual values, what percent?

Joe Kaiser

Right now, we’re currently at on attractive rate of five year like and 30% the average value.

Jason Seidl

Five year 30, okay perfect. Gentlemen, that’s all I have and I appreciate the time as always.

Operator

Our next question comes from John Engstrom of Stifel. Please go ahead.

John Engstrom

I was hoping to talk a little bit about some of the growth prospects you guys are looking and trying to push, I know you guys have mentioned that you hired agents for the logistics operations, I just wondering if you could help explain on that a little bit, both in terms of primary metrics you use those both transaction per head on average, but then also if you could may be talk a little bit about the ramp up period for new hires something things of that sort?

Randy Rogers

Sure new hires that in agent additions or new hires as an employees.

John Engstrom

The agent addition specifically, they can more than enough, the count was eight?

Randy Rogers

Yes, it's actually 9. I misspoke it for a second. But it’s really a broad spectrum, we're being discerning, we’re not going out and signing in everybody up, who may possibly want to be agent because. The brand in the marketplace has to be well represented and we want to people that are actually going to have an impact. So, we’re being fairly discerning. So far most of our new agents are individuals with some industry experience, so they can hit the ground running fairly quickly. Because we’re focused on our secondary markets, we’re looking specifically in those places where we don’t already have strong representation for both USA truck companies.

But the ramp up very greatly by the individuals that we contract with, some have hit ground and already generating revenue daily, and those are again individuals. Some of these agents are small teams of people, our sweet spot and where we're getting some traction now is really very small brokers they're refining the current market, that a bit intend the balls for themselves, and basically looking for a financial partner to get them more stable foundation, so they continue serving our customers. So, as we find on those kind of agents, we will see some real significant revenue contribution and like I said in my comments, we’re seeing some revenue right now, we will see some revenue in direct fourth quarter, but we really expect the impact to be in 2017 and agents revenue and contribution is a significant part of our ‘17 growth plan.

John Engstrom

That’s very helpful thank you to that. And sort of put things in context, we’re talking about 9 agents hires, what’s the existing headcount on the team?

Randy Rogers

The USAT Logistics has 111 employees currently, 20 of those are more administrative position support roles, the rest are either client facing or carrier facing out in the field. So nine agents are 10% of our total headcount, for an agent to be viable and for somebody to make a living, being an agent, they are going to have to be -- they are going to have to generate more than $1 million a year in top line revenue to make it an ongoing income for them as an individual. So, that’s a good raw number that we look at when we’re hoping that the 20 agents contracted by January 1st and what they potential impact might be for next year.

John Engstrom

I am sorry, could you repeat that figure?

Randy Rogers

Well, it's just based on the math, if somebody is going to work as an agent, they are going to have to generate at least $1 million in top line revenue annually to make it a viable income for those selves, and frankly that’s not a lucrative income, but is they’re going to be just full time, it's in generating $1 million in top line revenues. Their commissions that flow to them ultimately will not be sustainable. And frankly, if they can’t have that kind of impact for me in the marketplace overtime, I don’t want to be carrying my business card representative. I am bringing a few loads to month at some sort of stringer, I don’t want to dilute my brand out in the marketplace and we’re not going to allow that. If we’re not having an impact, it will be a short-lived association.

John Engstrom

Right, and it’s probably also not worth increasing your span of control and consuming your time utilization.

Randy Rogers

Absolutely, so we’re in very good position.

John Engstrom

So, the other thing I wanted to bring up which I see on the slide which is TLFC, trailing on flat card, I am not really sure we touched on it too much, we talked about on selective lean growth in limited leans and I am also thinking to your NFC really moving way from triple crown in the road-railer type business, I am wondering if there is some market opportunity there for trailer on flat cards so a substitute in those leans how it previously have been on triple crown road-railer and if you guys are addressing those markets.

Randy Rogers

We are really, on a TLFC product, we’re really following the market and our customers lead on where they have an interest in this product. TLFC is a very narrow niche because of the economies by trailer on flat card versus the double-stack container, but there are certain lanes where we can compete on price and have a little bit better transit and load capacity of course is a little bit higher. So, we have found customers that fine TLC very attractive and as triple-crown and others exit and we find customers that are still in need of those services and we can still adapt and we’re surely looking forward to having those conversation.

John Engstrom

Yes, certainly. Very well, we think that there is clearly going to be a challenging middle ground that will be found when road rollers go away and then everything seems to be pushed towards double stack for the short haul leans that maybe a good perhaps for the rails but also requires some internal services. So thank you very much for your commentary, that’s all the questions I have. I appreciate it.

Operator

Our next question is a follow-up from Brad Dalco from Stephens.

Brad Dalco

Yes thanks guys for taking the follow up. When we’re going back to the comments that Jim and Martin shared about the cadence of trends, July, August, September, can you provide us any high level commentary on July we lost a lot of money and broke even in August and laid money in September or something to the Cadence of profitability in the quarter?

Martin Tewari

Yes, I mean I'm not going really get into the specifics of each month but I mean the trend was -- if you talked about bottom in out. I mean July is certainly was not a good as probably where I would point to where we had, where we bottomed out. August did improve if you look at for example our operating ratio on the trucking side in September we were below 100, and there is always some noise in certain things, But it was very promising it's an example it can be done were seeing progress we need clearly again to work on the rate side of our equation and what we are doing with the network and filling the gas. And our approach to increasing the regional freight which tends to be higher rate in freight and opportunity for us to leverage driver hours at the same time, and not sacrificing utility or utilization which is our primary concern when you do that, I think we've got a pretty well structured plan. Obviously, the remainder of the year you have some holidays in there and everything else, but I think the trends are encouraging and September was a better month for us.

Brad Dalco

Okay, well is there any way I mean because I guess one thing I notice and I think the street notice there was a very wide disparity in expectations for you guys for the third quarter. Just in terms of consensus expectation. Is there any way that you can provide some idea for fourth quarter, do you expect to be profitable or not anything you can give us directionally that would help sort of narrow these expectations?

Martin Tewari

Brad, It's extremely difficult for us to do that because it think it gets to the point what Jim was saying earlier we had. In his side of the business, we had one day, we had the best day of I think the entire year. And one day as far as load count in that revenue and the following day was half, so it's been very-very unpredictable, and it's kind of hard to put at number out there and really truly at this point identify the trends. And so that gets back to us we're focusing largely on the cost of the equation those things we can control, maintenance we've been very encouraged with what we've done on the maintenance side. We still have some opportunity in maintenance and our cost per mile is headed in the absolute right direction. And we talked a lot on this call about business development and our sales approach. And I think that's key to selling business where we need it and puling it all together. So we smack that in the middle of that and I think were encourage by what we're seeing. But again that's something that's going to spill up bring next year and we're just going to have to keep plug in and helpfully that oppose through some of the more difficult times that appear to be heading the first quarter.

Brad Dalco

Okay, so I shouldn’t read that but it's effectively a coin toss and whether or not you can make money in the fourth quarter just because of the uncertainty?

Martin Tewari

It's uncertain for sure. Yes, uncertain.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Randy Rogers for any closing remarks.

Randy Rogers

Thanks everybody for participating on the call on this month, this quarter. I just like to sum up by saying that, we’re not satisfied obviously with where we are from a profitability standpoint, but we do have an intense focus on managing cost as I just mentioned. Service is really, actually, service is a bright spot for us. Our service, I’m proud with the actions that we taken there. I was out on customer calls throughout the month on many customer calls that was really a highlight. I think we’re seeing our customers starting to reward us with additional business. They recognized that we’re committed to maintaining and living up to our commitments and those commitments are in lanes that, we wanted to be, we got a much more balance in efficient network and we’re committed to driving further improvements there as well.

So, we think we’re on the right track, with the initiatives in place and we’ve seen that progress especially in maintenance with fixed cost side. And we’re going to be continued to work through that for the reminder of the year and the next year. So just finally, we will be next week at Stifel Conference and you will see that advisory come out today. I know I see a few of you, listed as participants for one on one, and I looking forward to talking more to, to those of you that will see next week. So thanks again for being on the call.

Operator

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