PAMT Corp (PAMT) 2004 Q1 法說會逐字稿

Good morning and welcome ladies and gentlemen to the PTSI first quarter 2004 conference call. (OPERATOR INSTRUCTIONS)

Certain information included in this document contains or may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may relate to expected future financial and operating results or events and are thusprospective. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.

Potential risks and uncertainties include, but are not limited to -- excess capacity in the trucking industry; surplus inventories; recessionary economic cycles and downturns in customers' business cycles; increases or rapid fluctuations in fuel prices; interest rates; fuel taxes; polls, license and registration fees; the resale value of the company's used equipment and the price of new equipment; increases in the compensation for and difficulty in attracting and retaining qualified drivers and owner/operators; increases in insurance premiums and deductible amounts relating to accident, cargo, workers compensation, health and other claims; unanticipated increases in the number or compensation health and other claims; amount of claims for which the company is self-insured; inability of the company to continue to secure acceptable financing arrangements; seasonal factors such as harsh weather conditions that increase operating costs; competition from trucking, rail and intermodal competitors, including reductions in rates resulting from competitive bidding; the ability to identify acceptable acquisition candidates, consummate acquisitions and integrate acquired operations; significant reduction in or termination of the company's trucking service by key customers; and other factors including risk factors referred to from time to time in filings made by the company with the Securities and Exchange Commission.

The Company undertakes no obligation to update or clarify forward-looking statements whether as a result of new information, future events or otherwise.

I will now turn the conference over to Bob Weaver. Please go ahead, sir.

Good morning everyone. This is Bob Weaver, and I have with me Clif Lawson and Larry Goddard. As you all know by now, my remarks are normally fairly brief. I do have a few that I want to make and then I will turn it over for questions.

You are aware now that our net income for the first quarter of '04 was $2,030,000. Along with that, revenue was $77,673,000, a 10.7 percent increase over the first quarter of '03. More revenue came from the truck side in the increase in revenue for the first quarter than we had seen previously. And although the results for the quarter were down a little less than 800,000 year-over-year, there are three primary categories that can be identified that make up a much greater cost than that, those three categories being fuel, depreciation and maintenance. Those three combined for a total increase of $1,650,000 in comparison of the year-over-year. But from a more positive side, improvements are more apparent when viewed quarter-over-quarter. Revenue per total mile in the truck side ended at $1.10 per mile, which reflects a 2 cent increase from the fourth quarter of 2003 and a 3 cent increase from the close of the third quarter of '03 when we saw the rate levels at their lowest.

In the first quarter, maintenance costs increased to an all-time high because most of the older trucks that we had backlogged for trade were completed in the first quarter. And we should begin to see some decreases in our maintenance costs down to more normal levels.

Depreciation costs should also begin to level off as the trade cycle reaches more normal levels with a more normal amount of units being traded during the year than what we saw in the fourth quarter of '03 and the first quarter of '04.

What this all comes down to on the bottom line is the fact that we think that we've seen the worst of the cost increases, as well as weathered the lowest point of the rate decreases that we got hit with in 2003. And we're beginning to see the results of our efforts to rectify those situations.

At this point, I will turn the conference call over and let anyone who has questions ask their questions.

(OPERATOR INSTRUCTIONS) Jonathan Robyn (ph), Gagnon Securities.

I wanted to call and really kind of understand a little bit more about your projections regarding the fuel prices. Some have stated out in the industry that oil is expected to stay high, and I wanted to kind of get a little bit more understanding of the preemptive work that you guys have done over the last year in terms of the cost increases to help subside some of these impacts on your business as it relates to fuel.

If you're asking about any kind of hedging or anything like that, we have not done any kind of hedging because the risk is still too great to do that. The fluctuation in the fuel price is really what causes us to be able to not recover at all times the total increase in fuel. If fuel remains high, or just remains steady, we stand a better chance based on the formulas that we've got with many of our large customers to be able to recover more of the increased fuel costs. But I get the feeling maybe you're asking about some hedging opportunities, which we have not done.

You have not and you don't foresee any reason to do so in the future?

Well, not with the risk that is related to it at this time.

And it is in your best guess estimate that oil prices stay high based upon the information that you're getting today?

I didn't hear the first of that. I am sorry.

I wanted to kind of get your opinion as it relates to oil prices and where you see fuel costs going for the remainder of the year.

My crystal ball is not any clearer than yours in that regard. We try to stay up on all the information that's out there, but it would appear that fuel prices will continue to stay high.

Thank you very much.

Donald Broughton, A.G. Edwards.

It looks like you have made a lot of progress on rates, which you all should be congratulated for.

Talk to me about the continuing progress there with your dedicated customers. I guess a little over a year ago this really was an issue that was staring you in the face. If you were to gauge from a percentage basis, how many of those contracts have you worked your way through and how much is left?

We've worked through -- I'm going to guess maybe 25 percent of the long-term ones. We have still got quite a few that will expire over -- or come up in the next two quarters. We are seeing some increases in that area. Our pricing model has changed, obviously, and what dedicated business the new contracts don't come in we have the non-automotive business and some new customers in that that present some very good opportunities for us. So we're comfortable with the marketing approach and the pricing that we have going forward and think we will continue to see some improvements as these things filter through.

So while I'm reluctant to ever speculate, or ask you to speculate, on a conference call, that said, it sounds to me as if in the next two quarters, or at least by three quarters from now, we may see an even more significant change in your rate structure.

Yes, that's true.

Have you seen a change as you're handing these trucks back, trading these trucks back in? Can you talk to us about what you're seeing? I've heard stories about how dealers are just becoming increasingly -- ever increasingly more persnickety, if you will, about the condition of the trucks that are being traded in. Can you talk to us about that and how that's affecting your maintenance costs?

That's no doubt had a big effect on it. That, with the combination of the fact that we have so many trucks to cycle out in the fourth and the first quarter of this year, in order to meet some of the deadlines that we had to meet on some of the trucks we actually had to farm some of the work out to outside shops because we simply don't have the manpower to get that number of trucks up to trade terms. And yes, they have been much more detailed in their inspections of trucks for the last six months or so and it has cost us more money to get trucks ready. And that's the biggest increase that we've seen in maintenance costs, is the act of getting the old trucks up to trade terms for trade.

And the average age of the fleet now stands at what?

After the first quarter it will be a little less then 2.4, I think is the number.

Larry, correct me if I'm wrong, but you expect that to be closer to 2 by the end of the year. Is that right?

Yes.

Fantastic gentlemen. I will let someone else ask a question.

Dan Moore, Stephens Inc.

I will echo some of Donald's comments earlier; no question you guys made a lot of progress here in the rate front and hats off to you for doing it.

I was wondering if you could talk to us a little bit about the outlook on the demand front. My sense is demand has been pretty strong. How are you seeing things trend currently in your business?

Seen a lot of demand in both dedicated and traditional over the road business, a lot of bid taxis (ph) coming up. I don't think they're as happy with what they're getting back as what they used to be, and maybe it's not (multiple speakers)the best time for them to open up the line for rate increases. But we're seeing that happen and we're taking advantage of it. But demand seems to be really strong at this point.

You talked in your last conference call about a shift in business mix away from some of the automotive and automotive related business to some other dedicated opportunities and the regular route opportunities. My sense is that the level of contract opportunities in the pipeline right now are allowing you to adjust your mix rather quickly. Would that be a fair assertion?

The pricing model has changed for the dedicated business, and although we're seeing a slight reduction in that dedicated business the price that we're getting for it has increased. The reduction that we don't have in dedicated business there are some Fortune 100 companies that we've recently started doing business with that had a real need for a good service provider, and we seem to have found a real good niche with them. And the rates on that traffic is considerably higher than what we've seen before --

What are the rates on that? What's the new business coming on at rather than your -- we can look at your average rate here, but if you could give us a sense for the type of rate increase you're seeing on contracts coming through the door.

I would rather not say specifically, but it's considerably higher. But it is one-way traffic in comparison to dedicated round-trip traffic. But it's much higher than what we've experienced in the past.

Great.

I might add one thing that somebody will probably ask us before it's over anyway. As far as the GM traffic goes, it's down about 2.5 percent more over what it was at the end of the fourth quarter. But the dedicated -- our total dedicated revenue is virtually flat.

Can you give us those absolute percentage terms, Bob? GM was X percent of your business in the first of quarter last year; it's X percent of your business now?

At the end of the fourth quarter it was 45.75 and at the end of the first quarter its 43.42.

Of course there is other dedicated traffic that is not automotive.

What types of business are you guys pursuing currently to shift the business? What type of industries? You talked about Fortune 100. Is it retail --?

High-paying, Dan. High-paying.

More manufacturing and consumer related than actual retail.

I guess just to shift gears a little bit here, could you talk to us about who your preferred truck vendor is here moving forward and what the average age of the fleet is today versus what it's going to be by year-end?

I don't have a preferred truck vendor. I don't like any of them, to be honest about it. We still run more Freightliners than we do anything else. The percentage of competitors' trucks, primarily Volvos, has increased a fair amount over the last six months or so.

Do you see that trend continuing?

I'm going to make the best truck deal I can make. If it's a Freightliner, I'm going to buy a Freightliner; if it's a Volvo, I'm going to buy a Volvo; if it's International, I'm going to buy International. There's a lot of factors to weigh.

Now with the proprietary engines by truck manufacturers the only truck that I can get the Detroit Diesel in, which is the engine that I prefer, is in the Freightliner. So there's a lot of factors you have got to weigh other than just your price of the truck. But it's an economic decision that we make, and that's the truck that we buy.

I noticed yesterday Heartland came out with a fairly significant announcement that they were shifting vendors away from Freightliner, going to International and adopting the 9400 I Series (ph) tractor ahead of the 2007 emissions standards. Are you at all considering some of the same issues that Heartland is with respect to those emissions standards? And are you kind of working through some of those same issues that Heartland addressed in their press release?

Yes. The 2007 emissions standards are certainly high on our radar screen. And I am working with the OEMs at this point to make sure that -- to do the best we can to ensure that we're as well protected at that time as we can be. I think the order boards for trucks may fill up further out than we've ever seen them before.

It makes sense to go ahead and get something in now if you can, it seems.

Yes.

Advantageous anyway. Last question here. Just looking at cash flow projections in our model, it looks to me, Larry, like you guys are going to be debt free at the end of the year if you continue at your current pace. And there's certainly reason to believe that margins and profitability are going to improve through the course of the year. What about a share repurchase? And is debt free something that's intriguing to you, or do you have an aversion to being debt free? Are you out there kind of scouring the landscape for acquisition opportunities? Can you talk to us a little bit about capital structure?

Again, that is a goal of ours, is to be debt free. I think we're going to do a lot of thinking about what some of the carriers have done on the prior engine buy that we're going to be looking at for 2007. But we are scheduled to be debt free by the end of this year if things continue.

Thanks guys.

Mike Peasley, BB&T Capital Markets.

I had a couple of questions. Larry, let me start with a couple of housekeeping items. Trucks -- what was the truck count and owner/operator count at the end of the quarter?

At the end of the quarter 1,851 total and 97 owner/operators.

Unmanned trucks at the end of the quarter?

We don't normally give out the exact numbers. But we're in what we considered a fairly fully manned position. We've always got trucks that are wrecked and down for maintenance and stuff. But we're not lacking for drivers.

That's good. That's fair. Larry, the fuel surcharge revenue this quarter versus last?

This quarter it was 2,330,000 and for 2003 it was 2,303,000.

I guess a little bigger picture stuff. Bob, we talked a little bit last quarter about making inroads in California and the Southwest in general and some of that freight mix out there. I think at the end of last quarter you were maybe on a run rate of about $1.5 million worth of freight in and out of California. How is that initiative going and how do you see that trending through the year here?

We think the California market is remaining fairly well constant. Our goal is to handle the business that was at a high rate per mile going to and from California and we've not been willing to reduce our rates on that, so it's kind of flattened out over the initial growth rate that we had. We're constantly bidding, as I mentioned before, on new business going to and from the California market, as well as Mexico. And we see some favorable responses on that. But you just have to see all these things play out over time.

The business we do non-automotive in the Eastern 33 states, we're seeing better pricing for that in all areas. And as I mentioned before, we see some pretty good growth potential with some solid Fortune 100 companies in those markets.

Let me ask you this -- and maybe you're seeing this -- it sounds like you're holding firm on your rates out there, and that's good. If you look at the fuel environment, particularly in California and the West Coast, there is obviously a big spread between there and the national average.

The way we deal with that is we monitor where our trucks fuel and we have them fueled before they get into that market and then refuel once they have left California.

You haven't had any more problem with fuel out there than anywhere else?

No, we try to monitor it and we electronically select where they will get fuel and we instruct them to have that done before they get to that market. I'm not going to say you're going to be 100 percent all the time, but that's generally the way we handle it. And we can do that for spot markets anywhere in the US.

Bob, last quarter you didn't give guidance, but you did state that you were pretty confident you could beat your '03 EPS figure about $1. Given where we are today -- demand is picking up, fuel is still an issue -- are you still confident that that can be attained or you think that's a stretch at this point after Q1? What are your thoughts on that?

That's still our goal. The first quarter didn't come in as good as I hoped it would, but that's certainly still our goal.

Things are definitely looking better in Q1. Nice job on the rates and good luck going forward. Thanks for your time.

(OPERATOR INSTRUCTIONS) Donald Broughton, A.G. Edwards.

One more thing guys. I was noticing insurance and claims, 6.5 cents a mile. Anything in particular that drove that line?

The rates remained virtually the same. One thing that we did add another layer of umbrella at the first of the year, which increased the costs for that layer.

And you're now covered in what layer that you weren't before?

We added another 5 million to our umbrella.

On the topside of it?

Yes.

So I've tactically seen a small increase in cost, but strategically I have less risk essentially?

Yes.

And 6.5 cents a mile on all miles is probably a safe number to be modeling for on an ongoing basis?

I don't start renewal process until -- well, renewal is actually in September of this year. We still carry only a $2500 deductible on auto liability. And as always, we will look at the economics on taking more of the retention ourselves. But we're probably the only carriers, at least in the public market, that carries that low a deductible. So we've got several options to look at.

Earlier I told you that the average age of the fleet was 2.4. I didn't have the 300 older trucks out of the first quarter. It's right at two right now.

So you're already there?

Yes.

Fantastic. Good deal. Thanks.

Dan Moore, Stephens Inc.

I just can't get enough. I wanted to follow up on driver pay. You indicated that your tractors are for the most part seated (ph). Just looking, and I guess kind of scouring the landscape here relative to what the competitors seem to be doing, most everyone has announced fairly hefty driver pay increases. What's your thinking about what you're likely to do moving forward? Obviously you don't want to increase driver pay, but as you get into the mid-part of this year and presumably the driver market isn't going to change much in the near term, what if anything do we need to be looking for from you?

If we do wind up increasing driver compensation it will be in the area of more stop pay and delay pay. We're implementing some automation now to be able to make sure that we bill and collect all of that revenue. And as we see that revenue increase, we will pass some of it on to the driver. But we're hoping it's a net-net zero increase to us, but an increase to the driver.

We continue to use the driver schools that we contract with and we saw a small reduction in the number of students recruited right at the time that the new hours of service (ph) was going into effect. I guess when the fanfare died down from that, the last month or so, we've seen the class rate back at the same level as we saw prior to the hours of serviceimplementation. So we continue to see the numbers okay, and we're certainly optimistic going forward that the schools will continue to be able to recruit the kind of people that we need.

Larry, I also have a follow-up for you. With respect to maintenance cost and the trading in of equipment, you had around $260,000 of expense related to disposition maintenance costs. Obviously a little bit higher there. You talked in your prepared comments, or in responding to one or more questions, that you expected those costs to come down here moving forward. Can you give us a sense for what the incremental cost of higher maintenance in the first quarter was as a result of your tractor trade and what it will likely do in the second quarter based on what you're expecting at this point?

I can probably better answer that than Larry can. The maintenance cost increase was really at around $600,000.

That doesn't include the $260,000 of disposition related for trade costs?

No. What that disposition cost is, we bring the trucks in and we depreciate them down to the residuals that the vendors guarantee us. But there are -- at various times there are some trucks that cycle out at the 500,000 mile level before they actually reach the 36 and 48 month that we put them on. And that's the difference in where those trucks are depreciated to and them having to be cycled out early. And it was probably a little larger in the first quarter than it normally runs and it was kind of a timing issue. But of the 600,000 that we really saw increased in maintenance costs in the first quarter, 85 percent of that was directly related to having to get used trucks ready to trade.

How much of that 85 percent of that 600,000 do you suppose will go away in the second quarter?

I hesitate to give you an exact number. I know there will be some of it because the number of trucks that we will trade will begin to normalize during the year. There will be a few more trucks in May and June that we had hoped for because Freightliner had delayed the delivery from April to May for some of the new trucks I had ordered.

How many are you planning to trade in the second quarter versus what you traded in the first? Maybe that's a better way to size it up.

One hundred and twenty-five.

You're going to do 125 in the second quarter and how many did you do in the first?

We actually had 102 new trucks.

But that was only the new ones brought in. There were probably 250 trucks.

Two-eighty.

Two-eighty that we had to get ready in the first quarter.

So 383 trucks versus 125, is that about right?

Say that again?

How many trucks are you trading in the second quarter? You said 125?

There will be 125 trades in the second quarter, that's right. It is actually going to be less than that because they bumped us back 30 days.

And you had around 280 or so trades, plus additional -- 280 or so trades in the first quarter?

We did.

So we could maybe assume that maintenance cost gets cut in half if we wanted to just kind of play with the tractor trade numbers?

I don't want to put words in your mouth.

Fair enough. Guys, thanks again.

Mike Peasley, BB&T Capital Markets.

One more. In relation to HOS, stop fees, detention fees, etc., how did your accessorial charges change year-over-year? And maybe how does that incorporate into the rate? What percentage of that rate increase was kind of due to that? Can you give us some color there?

We don't have the detention broken out in the revenue per mile. As I think we've talked about in previous calls, due to the fact that most of our freight we haul is very efficient it's already been -- we are looking at delivering to 15 minute window, so you've got racks of parts coming off, and racks of parts going back on, it's a pretty quick process. So we're not going to benefit -- or depending on how you want to look at it -- benefit from a rate per mile standpoint from detention and those kind of charges as much as someone in the retail environment would that is having to go to multiple warehouses and wait for an unloading dock, and then bump the dock and wait two hours to get unloaded. We're just not going to see that kind of activity. With the non-automotive business primarily that's done with drop trailers, so we're in more of a drop and hook environment. Again, we're not exposed to the long wait times. So it's a benefit to us operationally. But on the other hand, we're not going to see an increase in revenue per mile that the other carriers might from those other kind of accessorial charges.

(indiscernible) was minimal.

On the dedicated stuff and on the automotive side, because there are not many stops involved in that we have not adjusted the stop pay on that. Any adjustment that we've made on stop pay has been in the non-dedicated, non-automotive side for the most part. And that's where -- if the driver is going to get compensated, that's where he's going to be compensated at.

That's helpful. Thank you.

(OPERATOR INSTRUCTIONS) If there are no further questions, I will now turn the conference back to Bob Weaver.

Guys, I'm sure we will be talking to you more, but anyway that's pretty much it for now. Appreciate you hanging in there with us and we will continue on.

This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.