Heartland Express, Inc. Reports Revenues and Earnings for the Fourth Quarter of 2013

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| Source: Heartland Express, Inc.

NORTH LIBERTY, Iowa, Feb. 4, 2014 (GLOBE NEWSWIRE) -- Heartland Express, Inc. (Nasdaq:HTLD) announced today financial results for the quarter ended December 31, 2013.

Financial Results

For the quarter, operating revenues increased 34.6% to $183.3 million from $136.2 million in the fourth quarter of 2012. Fuel surcharge revenues increased 30.3% to $36.5 million from $28.0 million in the fourth quarter of 2012. Operating income increased 8.1% to $26.7 million from $24.7 million for the fourth quarter of 2012. Net income increased 10.8% to $15.8 million compared to $14.3 million in the fourth quarter of 2012. Basic earnings per share increased 5.9% to $0.18 from $0.17 reported in the fourth quarter of 2012 on a 1.7% increase in weighted average shares outstanding mainly attributable to shares issued in the November 11, 2013 acquisition of Gordon Trucking, Inc. ("GTI"). For the quarter, the Company posted an operating ratio (operating expenses as a percentage of operating revenues) of 85.4% and an 8.6% net margin (net income as a percentage of operating revenues) compared to 81.9% and 10.5%, respectively, in the fourth quarter of 2012. Operating income for the three-month period was positively impacted by a $3.3 million increase in gains on disposal of property and equipment and a $2.3 million reduction in depreciation expense attributable to changing to the 125% declining balance method in the third quarter of 2013. As previously mentioned in the third quarter, the Company changed to 150% declining balance depreciation from historical 125% declining balance depreciation for tractors in 2009 due to lower used truck values, higher prices for new equipment, and uncertainty surrounding the reliability and resale value of tractors with 2010 emission-compliant engines. Effective, July 1, 2013, the Company changed depreciation for tractors back to the historical 125% declining balance method as a stable used equipment market supported a return to the Company's historical estimate of depreciation on tractor equipment over its expected useful life.

For the year, operating revenues increased 6.7% to $582.3 million from $545.7 million in 2012. Fuel surcharge revenues increased 5.4% to $118.4 million from $112.4 million in 2012. Operating income increased 18.3% to $112.3 million from $94.9 million for 2012. Net income increased 14.7% to $70.6 million compared to $61.5 million in 2012. Basic earnings per share increased 15.3% to $0.83 from $0.72 reported in 2012 on a 0.8% decrease in weighted average shares outstanding. For the year, the Company posted an operating ratio of 80.7% and a 12.1% net margin compared to 82.6% and 11.3%, respectively in 2012. Operating income for the year was positively impacted by a $18.2 million increase in gains on disposal of property and equipment and a $4.4 million reduction in depreciation expense attributable to changing to the 125% declining balance method in the third quarter of 2013.

In the fourth quarter of 2013, the Company's results included certain significant items related to our acquisition of GTI that are set forth in the following table ($ in thousands, except per share amounts).

 

Three Months Ended December 31, 2013 Income/(Loss) Before
Taxes Impact
After-Tax Net
(Loss)/Income Impact
Transaction expenses $(1,044) $(626)
Income tax accrual (872) (872)
Amortization of intangibles (296) (178)
Loss on sale of auction rate securities (200) (120)
Integration costs (359) (215)
  $(2,771) $(2,011)
Impact on basic earnings per share   $(0.02)

As a result of the GTI acquisition, the fourth quarter results of operations for 2013 include transaction expenses of $1.0 million. The Company recorded an increase to the Company's historical deferred taxes at an expected higher state tax rate in the future due to the inclusion of GTI in combined operating results. The additional accrual was $0.9 million during the quarter, reflecting an expected 1.5 basis point increase in the Company's effective tax rate in the future. In connection with funding the GTI purchase price and subsequent payoff of GTI debt assumed, the Company liquidated the remainder of its auction rate securities, which were previously held as long-term assets. The Company recognized a loss of $0.2 million on the disposition, which was the only loss incurred in liquidating approximately $198.5 million of these illiquid securities since the first auction failure occurred in February 2008. The Company also incurred approximately $0.3 million in amortization expense associated with the definite life intangible assets recorded in connection with the GTI acquisition. Based on the preliminary allocation of intangibles, quarterly amortization expense is expected to be approximately $0.6 million during 2014. In addition the Company incurred certain transitional integration costs of $0.4 million. In total, these items negatively impacted basic earnings per share by $0.02 per share.

Contribution of Gordon Trucking, Inc. and Additional Information Concerning Acquisition of GTI

For the quarter and year, GTI's net income was accretive to the Company's earnings after taking into consideration the transaction expenses and amortization of intangibles set forth in the table above. The Company continues to anticipate future tax deductions associated with an increase in tax basis and deductible intangible assets as a result of the GTI acquisition which included an election under Internal Revenue Code Section 338(h)(10). The present value of the future tax deductions is valued at approximately $60 million. In future periods, the Company does not expect to disclose separate information concerning GTI's financial results.

During the quarter, the Company completed its preliminary allocation of the purchase price consideration among the assets of GTI. The preliminary allocation is detailed in the tables below. The final purchase price allocation remains subject to a post-closing working capital adjustment, earn-out amounts achieved (if any), and other adjustments.

 

ALLOCATION OF PURCHASE PRICE (in thousands)
Cash paid (before netting $20 million cash acquired) $130,900
Value of common stock issued (2.86 million shares) 41,100
Total consideration paid (before netting $20 million cash acquired), excluding debt assumed $172,000
   
Total assets acquired net of liabilities assumed, at fair value (including $20 million cash acquired) 59,087
Identifiable intangibles to be amortized 19,042
Goodwill 93,871
Total purchase price allocation (before netting $20 million cash acquired) $172,000
   
   
TOTAL PURCHASE PRICE CONSIDERATION (in thousands)
Cash paid pursuant to Stock Purchase Agreement $115,900
Cash paid pursuant to an Asset Purchase Agreement 15,000
Cash acquired included in historical book value of GTI assets and liabilities (20,000)
Net cash paid $110,900
   
Common stock issued (par value of $0.01) $41,100
Debt assumption 148,000
  $300,000

Management Comments

Michael Gerdin, Chairman, President, and CEO of the Company, commented: "Since announcing the Gordon Trucking acquisition on November 11, 2013, Heartland and GTI have been meeting with respective customer bases regarding the acquisition. Announcement of the acquisition has been positively received by customers given the significant capacity that the acquisition brings nationwide to the Company's collective customer base, as well as certain different freight offerings to the legacy customer base of Heartland. The Company remains diligent on customer service and safety, both of which have been key elements to the underlying operating fundamentals of Heartland and GTI historically. Collectively, the drivers of both organizations have received the acquisition positively and there has not been any significant change to GTI's legacy driver base as a result of the acquisition. Going forward we will be updating GTI's trailer fleet and fully integrating the operations of both companies under a single platform. During the quarter we successfully integrated our Phoenix terminal operations, which was one of the few overlapping terminal facilities as a result of the acquisition. We remained focused on the cost synergies initially targeted and will continue to work towards this goal over the next three to four years." 

Balance Sheet, Liquidity, and Capital Expenditures

In connection with the GTI acquisition, the Company issued approximately $41.1 million in stock, and the balance of the consideration was comprised of approximately $111.0 million in cash and $147.9 million in assumed debt. As part of the acquisition, the Company assumed debt consisting of sixty various notes totaling $147.9 million. At December 31, 2013, the Company had $17.8 million in cash balances and $75.0 million in borrowings under the Company's $250 million unsecured line of credit. Borrowings under the line of credit bore interest at a weighted average interest rate of 0.793%. The Company had $169.5 million in available borrowing capacity on the line of credit at December 31, 2013, after consideration of outstanding letters of credit, and was in compliance with associated financial covenants. The Company ended the year with total assets of $724.8 million, net debt (total borrowing less cash on hand) of $57.2 million, and a net debt to total capitalization ratio of approximately 12.6%.    

The average age of the Company's tractor fleet, including assets acquired from GTI, was 2.4 years as of December 31, 2013. Heartland's legacy tractor fleet average age was 1.9 years as of December 31, 2013 compared to 2.4 years as of December 31, 2012. GTI's average age of its tractor fleet was 3.2 years at December 31, 2013. Combined, the Company took delivery of 298 new trucks during the fourth quarter and post acquisition for the GTI fleet, which included ProStar Plus International and Freightliner Cascadia models. An additional 645 new trucks are currently scheduled to be received during the first half of 2014. The average age of the Company's trailer fleet, including assets acquired from GTI, was 4.6 years at December 31, 2013. Heartland's legacy trailer fleet average age was 3.4 years compared to 3.1 years at December 31, 2012. GTI's average age of its trailer fleet was 5.9 years at December 31, 2013. The Company currently anticipates taking delivery of 1,000 new Wabash dry van trailers during 2014 to replace GTI's 2007 and older dry van trailers. In future periods, the Company does not expect to report separate information for Heartland Express and GTI equipment.   

Net cash flows from operations continued to be strong at 18.8% of operating revenues during 2013 or $109.7 million. The main uses of cash were the acquisition of GTI and subsequent retirement of GTI debt obligations of $258.8 million, net capital expenditures for the year of $42.9 million, and dividends of $6.9 million. These expenditures were offset in part by cash receipts from calls and sales of investments of $21.1 million and net line of credit borrowings of $75.0 million. The Company ended the year with a return on total assets of 12.4% and a 20.5% return on equity compared to 11.6% and 17.7%, respectively, during 2012.

During 2013 the Company continued its commitment to our stockholders through the payment of cash dividends. Dividends of $0.08 per share were declared and paid during the year. The Company has now paid cumulative cash dividends of $443.4 million, including three special dividends, over the past forty-two consecutive quarters. The Company did not repurchase any common stock during 2013.  

Other Information

Heartland Express and GTI have had a long history of offering safe, high-quality service to their respective customer bases. During the year Heartland received seventeen customer service and safety awards reflecting this commitment. In addition to the sixteen previously announced awards during 2013, we were recently recognized with the 2013 FedEx Smart Post Service Award. During 2013, GTI received ten customer service and safety awards. These awards include the Chep Dedicated Carrier of the Year 2012, Georgia Pacific Consumer Products Carrier of the Year 2012, PepsiCo/Gatorade Carrier of the Year 2012, as well as seven individual safety awards from the Truckload Carriers Association, the American Trucking Association, the California Trucking Association, the Washington State Patrol, and the Oregon Trucking Association. These awards are a direct reflection upon our combined safety and operational excellence which starts with our outstanding group of drivers.

We invite you to submit questions regarding the periods' performance and GTI acquisition to investorrelations@heartlandexpress.com. Questions will be accepted until 7:00 p.m. EST today, Tuesday, February 4, 2014. Although not customary practice, management will host a conference call on Wednesday morning, February 5, 2014, at 10:00 a.m. EST where Heartland's management team will answer questions previously submitted. Time permitting; the Company will address additional questions on the call. The dial-in number for the call is (866) 710-0179, access code 76931. 

This press release may contain statements that might be considered as forward-looking statements or predictions of future operations. Such statements are based on management's belief or interpretation of information currently available. These statements and assumptions involve certain risks and uncertainties. Actual events may differ from these expectations as specified from time to time in filings with the Securities and Exchange Commission.

 

HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
     
  Three Months Ended
December 31,
Twelve Months Ended
December 31,
  2013 2012 2013 2012
OPERATING REVENUE $183,348 $136,193 $582,257 $545,745
         
OPERATING EXPENSES:        
Salaries, wages, and benefits $57,644 $41,216 $178,736 $167,073
Rent and purchased transportation 9,073 1,521 12,808 6,273
Fuel 51,439 42,722 172,315 168,981
Operations and maintenance 8,089 6,911 22,345 25,282
Operating taxes and licenses 3,660 2,249 10,516 8,694
Insurance and claims 5,267 3,608 14,888 14,906
Communications and utilities 1,313 704 3,552 2,953
Depreciation and amortization 21,795 14,974 68,908 57,158
Other operating expenses 7,320 3,256 19,157 14,633
Gain on disposal of property and equipment (8,972) (5,676) (33,270) (15,109)
         
  156,628 111,485 469,955 450,844
         
Operating income 26,720 24,708 112,302 94,901
         
Interest income 84 174 462 674
         
Interest expense (208) (208)
         
Income before income taxes 26,596 24,882 112,556 95,575
         
Federal and state income taxes 10,754 10,590 41,974 34,034
         
Net income $15,842 $14,292 $70,582 $61,541
         
Earnings per share        
Basic $0.18 $0.17 $0.83 $0.72
Diluted $0.18 $0.17 $0.83 $0.71
         
Weighted average shares outstanding        
Basic 86,425 85,010 85,209 85,892
Diluted 86,629 85,287 85,441 86,201
         
Dividends declared per share $0.02 $1.02 $0.08 $1.08

 

HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES 
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
  December 31, December 31,
ASSETS 2013 2012
CURRENT ASSETS    
Cash and cash equivalents $17,763 $119,838
Trade receivables, net 84,400 46,555
Prepaid tires 6,999 6,603
Prepaid shop supplies 4,194
Other current assets 11,061 2,281
Income tax receivable 5,706 2,351
Deferred income taxes, net 14,177 13,797
Total current assets 144,300 191,425
     
PROPERTY AND EQUIPMENT 622,864 432,330
Less accumulated depreciation 173,605 189,959
  449,259 242,371
LONG-TERM INVESTMENTS 20,016
GOODWILL 98,686 4,815
OTHER INTANGIBLES, NET 18,746
OTHER ASSETS 13,850 9,110
  $724,841 $467,737
LIABILITIES AND STOCKHOLDERS' EQUITY    
CURRENT LIABILITIES    
Accounts payable and accrued liabilities $26,912 $7,583
Compensation and benefits 28,084 16,409
Insurance accruals 20,945 13,924
Other accruals 12,627 7,439
Total current liabilities 88,568 45,355
LONG-TERM LIABILITIES    
Income taxes payable 20,089 23,122
Long-term debt 75,000
Deferred income taxes, net 61,948 51,306
Insurance accruals less current portion 67,965 57,590
Other long-term liabilities 13,618
Total long-term liabilities 238,620 132,018
COMMITMENTS AND CONTINGENCIES    
STOCKHOLDERS' EQUITY    
Capital stock, common, $.01 par value; authorized 395,000 shares; issued 90,689 in 2013 and 2012; outstanding 87,705 and 84,770 in 2013 and 2012, respectively 907 907
Additional paid-in capital 5,897 2,968
Retained earnings 432,034 368,313
Treasury stock, at cost; 2,984 and 5,919 shares in 2013 and 2012, respectively (41,185) (80,540)
Accumulated other comprehensive loss (1,284)
  397,653 290,364
  $724,841 $467,737
Heartland Express, Inc.
Mike Gerdin, Chief Executive Officer
John Cosaert, Chief Financial Officer
319-626-3600