Quality Distribution, Inc. Announces Third Quarter 2013 Results

-- Company Reports Net Income of $0.10 per Diluted Share --

-- Quality Generates Adjusted Net Income of $0.20 per Diluted Share -

-- Organic Growth Drives Third Quarter Consolidated Revenue Up 6.1% vs Prior Year --

-- Quality Reduces $17.6 million of Debt in Q3 Using Significant Free Cash Flow --

TAMPA, Fla., Nov. 5, 2013 (GLOBE NEWSWIRE) -- Quality Distribution, Inc. (Nasdaq:QLTY) ("Quality" or the "Company"), a North American logistics and transportation provider with market leading businesses, today reported net income of $2.8 million, or $0.10 per diluted share, for the third quarter ended September 30, 2013, compared to net income of $8.9 million, or $0.32 per diluted share, in the third quarter ended September 30, 2012.

Adjusted net income for the third quarter of 2013 was $5.4 million, or $0.20 per diluted share, compared to adjusted net income of $4.8 million, or $0.17 per diluted share, for the same quarter in 2012. Adjusted results are calculated by excluding the following pre-tax items not considered part of regular operating activities: For the third quarter of 2013, $1.2 million of costs associated with the partial redemption of the 9.875% Second-Priority Senior Notes , equity offering costs of $0.5 million, and reorganization costs of $3.8 million related to the Energy Logistics business; for the third quarter of 2012, expense adjustments totaling $3.5 million primarily due to an independent affiliate conversion in the Chemical Logistics business. A reconciliation of net income to adjusted net income for both periods is included in the attached financial exhibits.

The Company paid down $17.6 million of debt during the third quarter, utilizing near-record levels of free cash flow, plus asset sale proceeds. On a year-to-date basis, Quality paid down $29.8 million of indebtedness, which is consistent with its objectives of reducing leverage and lowering the Company's cost of debt capital.

"Our overall results were in line with our expectations, especially with respect to our free cash flow generation, which tends to be seasonally strong in the third quarter," stated Gary Enzor, Chairman and Chief Executive Officer. "On the operating front, we continue to see solid demand in our Chemical Logistics business and strong results from our Intermodal operation. The reorganization of our Energy Logistics business is progressing as we shed under-utilized assets and implement plans to further affiliate company-operated locations, which supports our goal of moving this segment toward our proven asset-light business model."

Third Quarter 2013 Consolidated Results

Total revenue for the third quarter of 2013 was $235.7 million, an increase of 6.1% versus the same quarter last year. Excluding fuel surcharges, revenue for the third quarter of 2013 increased $12.4 million, or 6.5%, compared to the prior-year period. This revenue improvement was driven by organic growth in each segment.

Operating income for the third quarter of 2013 and 2012 was $11.6 million in both periods. Increases in the Chemical and Intermodal segments for the 2013 period were offset by a decline within the Energy segment. Adjusting for the energy reorganization costs mentioned above, third quarter 2013 operating income would have been $15.4 million, an increase of $0.2 million versus the prior-year third quarter on an adjusted basis. Adjusting for the same items, operating margins increased in the Chemical and Intermodal segments, offset by margin contraction in the Energy segment, which primarily resulted from lower revenues and profitability in the Bakken shale region.

Adjusted EBITDA for the third quarter of 2013 was $22.4 million, up 1.1% compared to the third quarter of 2012, driven primarily by growth in the Chemical and Intermodal businesses, offset in part by a decline in the Energy business. A reconciliation of net income to adjusted EBITDA for both periods is included in the attached financial exhibits. 

Third Quarter 2013 Segment Results

Chemical Logistics

Revenues in the Chemical Logistics segment were $157.3 million in the third quarter of 2013, which were up 3.9% versus the third quarter of 2012. Excluding fuel surcharges, revenues increased 4.0%, primarily due to increased pricing and higher volumes. Chemical Logistics shipment demand continues to be strong. Driver counts at quarter end were up approximately 1.8% versus last year due to a continued aggressive focus on recruiting and retention.  

Operating income in the Chemical Logistics segment was $8.7 million, up $1.8 million versus the comparable prior-year period.  After adjusting for $1.7 million of independent affiliate conversion, acquisition and severance charges in 2012, operating income was up $0.2 million. Better pricing and higher volumes, as well as gains on certain asset sales, were partially offset by lower profit margins on terminals the Company acquired during the independent affiliate conversion during the third quarter of last year, higher equipment lease expense, and incremental depreciation expense from the independent affiliate asset acquisition in the fourth quarter of 2012.

Energy Logistics

Revenues in the Energy Logistics segment during the third quarter were $43.1 million, up $4.6 million versus the prior-year period, primarily due to organic growth in the Eagle Ford shale. Sequentially, revenues were down $2.0 million, versus the second quarter of 2013, due to reduced asset utilization in the Woodford shale region and softer than expected new drilling activity within the Bakken shale.   These declines were offset in part by increases in the Eagle Ford and Marcellus shale areas.     

The Energy Logistics segment reported an operating loss of $1.8 million in the third quarter of 2013, compared with operating income of $1.4 million in the prior-year period. The decrease was primarily due to the reorganization costs of $3.8 million. After adjusting for these costs, operating income was $2.0 million, which was roughly flat on a sequential basis from the second quarter of 2013. Segment results in the third quarter were adversely impacted by lower than expected profitability in the Bakken shale region, as high margin fresh water trucking revenues declined. Additionally, aggressive asset repositioning costs and rationalization programs, especially in the Woodford shale region, have continued to adversely impact this business.  Energy Logistics adjusted EBITDA for the third quarter of 2013 was $4.0 million, down $1.6 million versus the prior-year period and down $1.0 million compared to the second quarter of 2013.

Intermodal

Third quarter revenues in the Intermodal segment were $35.3 million, up $3.1 million or 9.8% versus the prior-year period.  Excluding fuel surcharges, revenues increased $2.5 million, or 8.8%, due to increases in trucking revenue, as well as stronger storage, rental and service revenue. Demand for ISO container shipments continues to be favorable, which has resulted in increases in trucking volumes and related service activity.

Operating income in the Intermodal segment was $4.8 million, up 41.1% versus the prior-year period. This improvement resulted from increases in storage and service revenues, which carry higher margins, profitability increases in the Northeast region, and the non-recurrence of steep equipment repair costs which impacted the prior-year period. Sequential profitability declined as anticipated due to reduced service related revenues.

Summary

Enzor said, "Our Chemical Logistics business showed many signs of stability from a profitability standpoint as we rapidly move past the independent affiliate conversion issues we encountered last year. The near-term and long-term outlook for the Chemical Logistics business remains positive, and our team is focused on capturing numerous opportunities for organic growth. Intermodal continued their positive momentum this year with strong top and bottom line year-over-year comparisons, and the outlook for this business is also positive."

Enzor continued, "Our Energy Logistics business is a work-in-progress as our management team addresses underperforming areas to improve results. The Marcellus affiliation we implemented earlier this year has proven to be positive for both Quality and our independent affiliate, and we are confident the same will occur with the reorganization and planned affiliation of our Oklahoma operation. Our Texas business continues to generate solid results, and further improvements are expected as we expand our footprint into the Permian basin. In North Dakota, as well as other liquid rich shales, our new sales force is making definitive inroads to expand our oil hauling revenue stream, and this initiative should help stabilize our operating results in 2014."

Recent Events

As previously announced, Energy Logistics' brokerage command center was closed and services were transitioned to a new independent affiliate in the Marcellus shale region in July 2013. The Company's overall Marcellus operation has improved operating performance since the affiliation earlier this year, and generated positive profit contribution for the Company in the third quarter. The Company also recently transitioned its Utica shale operations in Ohio to this same independent affiliate. In conjunction with the Company's reorganization efforts within the Energy Logistics business, plans are currently in place to transition the Woodford shale operations in Oklahoma to an independent affiliate, which is expected to occur early in 2014.

Balance Sheet and Cash Flow

As previously announced, on July 15, 2013 Quality redeemed $22.5 million of 9.875% Second-Priority Senior Notes, primarily with proceeds from its $17.5 million term loan facility and borrowings under the Company's ABL Facility. The redemption required the payment of a premium of $0.7 million and resulted in a non-cash charge of $0.5 million to write-off debt issuance costs. Excluding the premium, the transaction resulted in lower cash interest costs during the third quarter.

Also as previously announced, on August 14, 2013 Quality completed a secondary public offering of approximately 4.7 million shares of common stock owned by certain funds affiliated with Apollo Global Management, LLC. Quality did not receive any proceeds from the sale of these shares, but incurred $0.5 million of costs it was obligated to pay related to the transaction.

Borrowing availability under the Company's ABL Facility was $82.4 million at September 30, 2013, representing an increase of $10.2 million and $27.2 million versus June 30, 2013 and December 31, 2012, respectively. Strong operating cash flows and the continued aggressive disposal of idle or sub-optimal assets, as well as asset sales to certain Chemical Logistics independent affiliates, resulted in reduced borrowings under the Company's ABL Facility.

Operating cash flow for the quarter ended September 30, 2013 was $20.9 million, which was close to a record and nearly four times the prior-year period level. The increase was primarily due to higher cash flow from operations and seasonal contraction of working capital requirements. Capital expenditures for the quarter ended September 30, 2013 were $3.4 million, which were more than offset by $5.4 million of equipment sale proceeds.  For the nine months ended September 30, 2013, capital expenditures, net of proceeds from asset sales, were $1.2 million compared with $20.0 million for the comparable prior-year nine month period, representing a significant year-over-year decrease in net capital expenditures.

"We made significant progress this quarter in our efforts to reduce capital spending and dispose of idle or under-utilized equipment; based on this controlled spending and our asset rationalization actions, we expect our net capital expenditures for 2013 to be between $4.0 and $6.0 million, which is below our original estimate of $10.0 to $15.0 million," said Joe Troy, Chief Financial Officer. "Our intensive efforts around asset utilization, especially within our Energy Logistics segment, have produced several opportunities to reposition or divest non-core or sub-optimal assets. While many of these asset sales resulted in non-cash operating losses, our business is better positioned to optimize our assets and generate sustainable levels of profitability and operating margins going forward."  

Mr. Troy continued, "Quality generated strong operating cash flow during the third quarter, which we used to reduce debt and substantially improve our liquidity position. Total outstanding debt has declined by nearly $30.0 million thus far in 2013, which is consistent with our stated goal of reducing the Company's overall leverage position. As discussed above, we also improved our interest expense levels by redeeming high cost bonds early in the quarter with proceeds from lower cost indebtedness. We remain focused on our debt reduction program and aggressively managing our businesses to enhance value for our shareholders."

Quality will host a conference call for equity analysts and investors to discuss these results on Wednesday, November 6, 2013 at 10:00 a.m. Eastern Time. The toll free dial