Global fund manager Apollo has sold approximately 3.2 million of its shares in chemical bulk tank truck network Quality Distribution, reducing its ownership to approximately 17.4%. The florida-based business recently announced first quarter results with a net income of $6.7 million.
Quality Distribution, Inc. QLTY +12.97% (“Quality” or the “Company”), which operates within North America, the largest chemical bulk tank truck network, a frac shale energy logistics business, and is the largest provider of intermodal tank container and depot services, today reported net income of $6.7 million, or $0.26 per diluted share, for the first quarter ended March 31, 2012, compared to net income of $2.7 million, or $0.12 per diluted share, in the first quarter ended March 31, 2011.
After applying a normalized tax rate of 39%, adjusted net income for the first quarter of 2012 was $4.3 million, or $0.17 per diluted share, compared to adjusted net income of $2.8 million, or $0.12 per diluted share, for the same quarter in 2011. Adjusted net income for the first quarter of 2011 was derived by excluding $1.8 million of charges associated with the Company’s repayment of its high-cost 2013 PIK Notes from the February 2011 common stock offering proceeds, and then applying a normalized tax rate of 39%. The Company presents adjusted net income to neutralize the effect of the Company’s net operating loss and other tax credit carryforwards on after-tax earnings, and to exclude certain items it does not consider to be part of regular operating activities. A reconciliation of net income to adjusted net income is included in the attached financial exhibits.
The improvement in adjusted net income for the first quarter of 2012 versus the prior-year period was driven by higher operating income resulting from increased energy logistics revenue and profitability, enhanced earnings from Boasso America Corporation’s intermodal business, and lower overall insurance costs. Additionally, interest expense declined 8.6% versus the prior-year period, due primarily to the retirement of high-cost 2013 PIK Notes.
“I am pleased with the Company’s growth in earnings this quarter, especially with the progress we have made entering the energy markets,” said Gary Enzor, Chief Executive Officer. “We are making tangible progress in improving our chemical logistics driver counts and continue to see solid performance from our intermodal and energy logistics businesses.”
Total revenue for the first quarter ended March 31, 2012 was $191.9 million, an increase of 7.9% versus the same quarter last year. Excluding fuel surcharges, revenue for the first quarter of 2012 increased 6.5% compared to the prior-year period. This quarter-over-quarter increase in revenue of $9.8 million (excluding fuel surcharges) was driven primarily by $10.9 million of revenues from the Company’s new energy logistics business and a $4.4 million increase in intermodal revenues, partially offset by $5.5 million of lower revenues in the chemical logistics business. These lower revenues were driven by the lingering adverse impact of the installation of the electronic on-board recorders on driver headcount. Although turnover is improving on a year-over-year basis and driver counts are rising slightly, the Company expects industry-wide tightness in driver capacity to impact the chemical logistics business in the second quarter of 2012.
Operating income for the first quarter of 2012 was $13.8 million, an increase of 13.5% versus the first quarter of 2011, primarily due to the benefit from profitable energy logistics business and reduced insurance costs. These benefits were partially offset by higher maintenance costs, as well as increased selling and administrative expenses primarily due to the incurrence of approximately $0.4 million of acquisition-related costs. Adjusted EBITDA for the first quarter of 2012 was $18.5 million, up 12.7% versus the comparable prior-year period, driven primarily from the new energy logistics business, improved intermodal results, and lower overall insurance costs. A reconciliation of net income to adjusted EBITDA is included in the attached financial exhibits.
Gary Enzor commented further, “Our multifaceted growth strategy is delivering solid results. I am especially pleased with our acquisition activity since the beginning of the second quarter. Our Trojan Vacuum transaction adds to our Eagle Ford presence, and today we announced a significant agreement to acquire Wylie Bice Trucking and RM Resources, which expands our energy logistics reach into the fast growing, oil-rich Bakken shale.”
Significant Recent Transactions
Today, Quality announced that it entered into an agreement to acquire the operating assets of Wylie Bice Trucking, LLC and RM Resources, LLC (collectively “Bice”) for aggregate consideration of $79.3 million, plus potential additional consideration of $19.0 million to be paid in cash subject to Bice achieving future operating and financial performance criteria. The transaction is expected to close by the end of the second quarter, subject to customary closing conditions, and is expected to be accretive to earnings beginning in the third quarter of 2012. Please see the separate press release on the Bice acquisition announcement issued concurrently with this earnings release.
On April 2, 2012, Quality acquired Trojan Vacuum Services (“Trojan”), which provides transportation services to the unconventional oil and gas industry within the Eagle Ford shale region. The purchase price was $8.7 million, paid in cash, plus potential additional consideration of $1.0 million to be paid in cash, subject to Trojan meeting certain future operating and financial performance criteria.
On March 13, 2012, Quality sold 2.5 million shares of its common stock in a public offering at a gross price of $13.00 per share and received net cash proceeds, after fees and expenses, of approximately $30.7 million. Quality utilized the net proceeds from the common stock offering to reduce amounts outstanding under its asset-based lending facility (“ABL Facility”). In conjunction with Quality’s common stock offering, certain affiliates of Apollo Management, L.P. (“Apollo”) sold approximately 3.2 million of its shares, reducing Apollo’s ownership to approximately 17.4%.
Balance Sheet and Other
Availability under the Company’s ABL Facility was $116.2 million at March 31, 2012, an increase of $33.9 million versus December 31, 2011. The increase in borrowing availability was primarily due to the application of the net cash proceeds from the sale of common stock in March 2012. The Company expects to utilize a significant portion of this availability during the second quarter to meet normal debt service requirements, for the completed Trojan acquisition and the expected Bice acquisitions. The Company expects to have sufficient availability under its ABL Facility to support its on-going operations after meeting the foregoing cash requirements.
Operating cash flows for the quarter ended March 31, 2012 were $1.7 million, a decrease of $3.9 million, versus the same period last year, primarily due to increased receivables. Operating cash flows are typically lower in the early part of the year and higher in the second half of the year. Net capital expenditures for the quarter ended March 31, 2012 were $10.8 million, of which $6.8 million represented growth-related energy logistics equipment.
“We continue to execute on our strategy to acquire complementary businesses, especially in the energy-related market,” said Joe Troy, Chief Financial Officer. “We are deploying our capital and free cash flow in a disciplined and accretive way, and we are confident these investments will deliver solid returns for our shareholders.”
Quality will host a conference call for investors to discuss these results on Tuesday, May 8, 2012 at 10:00 a.m. Eastern Time. The toll free dial-in number is 800-768-6569; the toll number is 785-830-7992; the passcode is 4511220. A replay of the call will be available through June 8, 2012, by dialing 888-203-1112; passcode: 4511220. A webcast of the conference call may be accessed in the Investor Relations section of Quality’s website at www.qualitydistribution.com . Copies of this earnings release and other financial information about Quality may also be accessed in the Investor Relations section of Quality’s website. The Company regularly posts or otherwise makes available information within the Investor Relations section that may be important to investors.
Headquartered in Tampa, Florida, Quality operates the largest chemical bulk tank truck network in North America through its wholly-owned subsidiary, Quality Carriers, Inc., and is the largest North American provider of intermodal tank container and depot services through its wholly-owned subsidiary, Boasso America Corporation. Quality also provides logistics and transportation services to the unconventional oil and gas industry including crude oil, proppant sand, fresh water, and production fluids, through its wholly-owned subsidiaries QC Energy Resources, Inc. and QC Energy Resources, LLC. Quality’s network of independent affiliates and independent owner-operators provides nationwide bulk transportation and related services. Quality is an American Chemistry Council Responsible Care(R) Partner and is a core carrier for many of the Fortune 500 companies that are engaged in chemical production and processing.