Quality Distribution's CEO Discusses Q4 2012 Results - Earnings Call Transcript
February 21, 2013 3:30 PM ET
Quality Distribution, Inc. (QLTY)
Q4 2012 Earnings Call
February 21, 2013 10:00 am ET
Robin J. Cohan – Vice President, Corporate Controller and Treasurer
Gary R. Enzor – Chief Executive Officer
Joseph Troy – Executive Vice President and Chief Financial Officer
Alex Johnson – JPMorgan
Kevin Sterling – BB&T Capital Markets
David Tamberrino – Stifel Nicolaus
Jack Atkins – Stephens Inc.
Ryan Cieslak – KeyBanc Capital Markets
Please stand by. Good day, everyone, and welcome to today’s Quality Distribution Fourth Quarter Year-End 2012 Earnings Conference. As a reminder today’s call is being recorded. At this time for opening remarks, I would like to turn the call over to Robin Cohan, VP Controller. Please go ahead.
Thank you, operator, and good morning, everyone. We’re delighted to have you join us today for our fourth quarter and year-end 2012 earnings call. Our speakers today are Gary Enzor, our CEO; and Joe Troy, our CFO.
Before I turn the call over to Joe, I’d like to caution all participants that comments made by Quality’s employees during this conference call may contain forward-looking statements. Actual results could differ materially from those projected or expected in these forward-looking statements. Listeners are urged to carefully review and consider the various disclosures made by the Company in this conference call and the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2011, as well as other reports filed with the Securities and Exchange Commission.
Copies of the Company’s Annual Report on Form 10-K and other SEC reports are available on our website at www.qualitydistribution.com and on the SEC’s website. The Company disclaims any obligation to update any forward-looking statements after this conference call. At this time all participants have been placed in listen-only mode. The forum will be open for questions following the presentation.
With that, I would like to turn the call over to our CFO, Joe, Troy.
Joseph J. Troy
Thank you, Robin, and good morning, everyone. Before we begin, I want to remind you that we refer to certain non-GAAP measures such as adjusted EPS and adjusted EBITDA the management uses to evaluate the business and to help provide additional measurements of earnings and cash flow that may be important to the investment community. I’ll begin by briefly discussing our fourth quarter earnings and then Gary will provide a near-term view of Q1 and our outlook for 2013.
Our fourth quarter results issued yesterday were consistent with expectations we shared during our third quarter call and at the midpoint of the range of EPS and other operating estimates we pre-released last week. On a GAAP basis, we reported net income of $0.21 per diluted share for Q4, compared to $0.22 in Q4 of last year. On an adjusted basis, our net income was $0.11 per diluted share, compared with $0.15 per diluted share in Q4 of last year.
As described in our release, adjusted results this quarter excluded several non-operating items, including the independent affiliate termination and related conversion costs, acquisition expenses, hurricane impacts, and the non-cash earnout benefit mentioned in the release, none of which we expect to recur in 2013.
Excluding fuel surcharges, fourth quarter consolidated revenues were up 22.8%, compared to the fourth quarter of last year, driven primarily from our Energy Logistics acquisitions and organic growth in both our Chemical and Intermodal Logistics businesses.
After adjusting for certain of the items I mentioned, fourth quarter consolidated operating income was $12.9 million, a decrease of $0.4 million versus the prior year quarter. Our operating margin fell 140 basis points overall as improvements at Intermodal were offset by higher lease expense, lower asset utilization, and increased depreciation and amortization’s from the recent acquisitions. We also incurred higher insurance expense primarily due to elevated costs, although our expense levels remain within our target range of 2% to 3% of revenues.
Consolidated and adjusted EBITDA adjusted for the same non-operating items was $20.3 million in the fourth quarter, up 13.4% from last year, driven primarily by incremental income from our Energy Logistics acquisitions and increases in our Intermodal business.
Turning to our segments; Chemical Logistics revenues in Q4 rose 3.2% versus last year, primarily as higher driver accounts led to volume increases. While the recruiting environment remains challenging, our driver turnover ratios continue to improve in our approaching historical norms.
Revenues in Q4 also improved despite a sluggish economy and the organizational strain of a significant affiliate conversion. Operating income of chemicals after adjusting for $1.6 million of affiliate conversion and acquisition charges was down $1.2 million due to higher lease expense, higher insurance costs, and increased depreciation expense from the affiliate asset acquisition in the fourth quarter.
As a reminder, corporate overhead and certain shared service charges are reflected in the Chemical segment. And there were higher environmental and professional fees in the quarter that also impaired Chemical segment margins.
Intermodal segment revenues, excluding fuel surcharges were up $2.2 million, or 8.6% primarily due to continued strong import/export demand, increases in depot storage and repair business, as well as higher revenues from Boasso’s brokerage business. These improvements were modestly offset by lost revenue from Hurricane Sandy, which primarily affected our Newark, New Jersey facility.
Operating margins at Intermodal, excluding the $0.7 million of lost profitability from Hurricane Sandy expanded 260 basis points, primarily on strong expense control and higher revenue generation. As we expected, the management team at Boasso successfully addressed and resolved cost issues that hampered their performance in Q3, which was reflected in their 360 basis point margin enhancement on a sequential basis.
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