USA Truck’s New Management Navigates a Learning Curve

By: USA Truck

VAN BUREN — Cliff Beckham woke up on New Year’s Day with one thought running through his head: “Thank God that year is over.”

Beckham is the chief financial officer at USA Truck Inc. of Van Buren a company that certainly had an interesting 2013. The trucking company brought in a new CEO and several new executives fought off — for the time being — a hostile takeover bid by a competitor and saw its fifth consecutive annual net loss.

Still Beckham doesn’t dread the coming year as he did this past one. While USA Truck did lose money last year there is a palpable and growing sense of optimism at the company’s headquarters.

Beckham and USA Truck CEO John Simone spoke of the past year and their expectations for the future on Tuesday which happened to be the one-year anniversary of Simone’s appointment as CEO. Simone replaced Beckham who helped in the decision-making process that selected not only his replacement but his new boss.

“It is a highly unusual situation” said Beckham who has been with USA Truck for 20 years. “We needed to bring in a CEO with more operational experience. I welcomed that change. I just want to win.”

Simone who has a crushing handshake and a poker player’s countenance has 30 years of experience in the transportation industry and is a veteran of several company turnarounds. When he took over at USA Simone didn’t hit the ground running; he hit the ground learning.

He gave himself 100 days to research and diagnose the situation at USA Truck which had lost money for four consecutive years. After those 100 days he didn’t set a timetable just an in-depth plan of action to right the declining fortunes of the 30-year-old company.

“All turnarounds are different in how long they take” Simone said. “There were a couple of ‘aha’ moments. We looked at every aspect of the business everything that we do.”

Simone’s plan was to fix all of USA Truck — or try to — at once. To do this he needed to learn the areas of weakness in the organization and then put together a team of industry veterans to attack those areas.

During the next few months after his 100 days of assessment Simone brought in several executives such as Jeff Lester who was named executive vice president in charge of risk management in August. Most of the hires — both at the executive and management levels — had history with Simone at his previous stops at places such as Ryder Greatwide Logistics or LinkAmerica.

Simone kept many of the old guard at USA Truck in place. Beckham moved back to CFO and Simone said he provided invaluable insight into the history of the company and into some of the organizational problems that had plagued it.

“I don’t have a scorched-earth approach” Simone said.

Beckham said that approach wouldn’t have worked because USA Truck and Van Buren have not responded well in the past to outsiders who upset the apple cart. Beckham said Simone has managed to revamp operations at USA Truck while gaining acceptance in the close-knit community.

“The position that John stepped into a year ago was a really really difficult one” Beckham said. “He walked into a company that had been losing and had a lot of long-term people who had been through a lot. John is not viewed as an outsider.”

Simone’s 27-Point Plan

Simone devised a 27-point plan to revitalize USA Truck. The points were linked with the others so that each course of action affected several areas and Simone made sure that the plan wouldn’t be changed other than some minor tweaks and adjustments because he didn’t want short-term results affecting the overall strategy.

One example was Simone and his team’s reopening of the company’s maintenance shops including a main terminal in Atlanta so that repair work would be better scheduled around drivers’ down time and done cheaper by company workers. Less down time means happier more productive drivers and better retention; driver turnover is a constant problem in the entire trucking industry.

USA Truck also flipped its emphasis on using student drivers and instead hired more experienced drivers going from a 65-35 split in favor of students to one that was 65-35 the other way. Experienced drivers may earn more pay but Simone said studies have shown they are more productive cause fewer maintenance problems and carry less insurance risk.

More importantly Simone said his research showed that many new drivers viewed USA Truck like an internship a place to gain some experience before moving on. USA Truck hired a marketing firm not to woo customers but to spread the word among the drivers about the new USA Truck.

The theory is that creating a more stable workforce helps productivity and customer relations and that leads to better efficiency and eventually — the company’s executives hope — profitability. Simone said 2013 showed an increase in miles per truck productivity a result of the across-the-board changes that were made.

When USA Truck announced it had narrowed its losses to $602000 in the third quarter in October Simone expressed optimism that the company would make it to the black in the fourth quarter. That didn’t happen. On Feb. 11 the company announced that it had had posted a $4.6 million loss for the quarter and a $9.1 million loss for the year.

Simone said the fourth-quarter numbers were misleading because the company had allotted $6 million to an insurance reserve and spent $1.5 million in legal fees related to a takeover attempt by Knight Transportation Inc. of Phoenix. Otherwise Simone said the company nearly broke even in the fourth quarter losing $41626 for the quarter and $4.5 million for the year.

The company had a 13.9 percent increase in revenue from $124.4 million in third-quarter 2012 to $141.8 million in third-quarter 2013 and a 4.9 percent increase from $134.8 million in fourth-quarter 2012 to $141.4 million in fourth- quarter 2013. The year-over-year results saw an increase of 8.3 percent from $512.4 million to $555 million.

“I feel good about that” Simone said.

Outside Interest

Simone isn’t the only one as shown by the company’s stock price. USA Truck shares closed at $4.75 on Feb. 15 2013 — Simone took over three days later on Presidents Day when the stock market was closed — and the stock closed at $13.68 on Feb. 18 2014. Much of the run-up came after Knight announced its offer of $9 a share (and the assumption of $147 million in debt) in September but Simone said that was just part of the stock story.

Knight’s interest in the company — and USA Truck’s rejection of Knight’s offer — gave publicity to the turnaround at USA Truck. When Knight made its offer public the stock was trading at $6.46 but it has lately traded comfortably above $13.

Two investment companies have made major investments in USA Truck in recent months. Stone House Capital owns more than 1.5 million shares (14.7 percent of the outstanding shares) and Baker Street Capital owns 1.4 million shares (13.3 percent).

“The stock price started to climb when we told our third-quarter story” Simone said. “When I talk to some of our newest shareholders I ask them ‘Why USA Truck?’ Knight going public [with its offer] did bring some visibility and piqued some interest and when they started doing their diligence they saw something special here.”

Simone and Beckham aren’t quite ready to send a thank you bouquet to Knight’s management though. USA Truck filed a breach of contract lawsuit against Knight and asked a court to force the Phoenix company to divest itself of the 1.3 million shares of USA Truck it owns.

In a settlement earlier this month Knight agreed to vote its shares at the 2014 shareholder meeting according to USA Truck’s board of directors’ recommendation and not acquire any more assets through September. The takeover bid isn’t dead but USA Truck doesn’t have to worry about it until the fall.

The company’s board of directors had voted in a Shareholders’ Rights Plan before the Knight takeover bid. The so-called “poison pill” kicks in when one individual or company owns more than 15 percent of USA Truck and lets other shareholders have the option of buying new shares of stock at half price which would effectively dilute the other holdings.

“It was a distraction” Simone said of Knight’s bid. “We have a large workforce that was concerned. It took a lot of our time to keep the workforce calm and focused. I spent a lot of my time in front of customers and that comes up a lot.

“It was a big relief from Cliff and my perspective because we had to spend a significant amount of time dealing with that situation. It does get our employees’ focus back on the job at hand.”

Beckham said the company has nine months to put USA Truck out of reach for Knight — or anyone else for that matter.

“We all know that we have to make hay while the sun shines” Beckham said. “If we maintain the trajectory we are on it’s definitely over. Our thoughts are focused on making sure that doesn’t become an issue again.”

One analyst said USA Truck’s best defense against the takeover bid was a return to profitability which is Simone’s goal as well. Simone and Beckham and the rest of the team are not focused just on the end result but on getting everything in order operationally so that profitability follows.

“I would give us a ‘B’ for last year” Simone said. “We’re not sacrificing the long term for short-term profits. I tell the team we are in control of our destiny. As we continue to improve the company the value of the company goes up.”

Beckham said his boss was being a bit too stingy with the grade because of the disappointment of not turning a profitable quarter for the first time in five years. Beckham has been on the front lines during those five years including 2012 when USA Truck lost $17.6 million for the year.

“Creating $21 million of operating income in 10½ months is a substantial accomplishment” Beckham said. “We all want to make money but it exceeded my expectations about what we could be able to accomplish.”

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