PAMT Corp (PAMT) 2004 Q2 法說會逐字稿

Good day everyone and welcome to P.A.M. Transportation Services' second-quarter earnings conference call. As a reminder, today's call is being recorded.

Certain forward-looking statements included in this document contain 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 thus prospective. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results express 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 down-turns in customers' business cycles; increases or rapid fluctuations in fuel prices, interest rates, fuel taxes, tolls, license and registration fees; the resale value of the Company's used equipment and the price of new equipment; increases in 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 of 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; a significant reduction in or termination of the Company's trucking service by a key customer; 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.

And now, I will turn the call over to Mr. Bob Weaver.

Thank you David. Welcome everyone to the conference call. And I know you all have specific questions that you want to get covered, but I will go through some items that need mentioning.

As I stated in the press release, we can see improvements more apparent when trending results for the last four quarters, but some year-over-year improvements also need to be mentioned as well. Primarily revenue per mile is up nearly 2.5 cents year-over-year. Salaries, wages and benefits is down from a little over 46 percent of revenue to 42.6 percent of revenue, which is primarily the result of the better management of our workers' compensation program and some reduction in owner-operators. It is about half and half. Utilization of equipment on a per tractor per workday is up $43 a day. Most importantly, the operating ratio has been reduced from 95 to 91, a significant reduction in the operating ratio.

Fuel continues to be the biggest cost increase that is not totally recoverable under our fuel surcharge program. Year-over-year, the price per gallon is about 30 cents per gallon increase. And as a percentage of our revenue net of fuel surcharge, it's up about 2.75 points. We continue to work on the rate side, as well as the cost side, and continue to see improvements in those.

But other than those brief remarks, I will now throw it open to the floor for any questions that you all may have.

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

Give us some more background on the rate. You continue to make progress here; tell us where we are in the number of dedicated contracts the been renegotiated for the rates and what's left there.

I don't have the specific numbers. Like we have talked about in the past, they occur over -- there'll be quite a few over the next six months still to remain. A lot of the business we've seen a more frequent number of bids coming out as the bid process kind of evolves through free markets and so forth with General Motors. So there are a lot more opportunities coming in. We've been successful in a lot of those, and we don't see any big change with that at this point. So the opportunities in the non-automotive, those continue to look very favorable, and I think makes up a good portion of what we see in increase in revenue per mile. We're optimistic about the customer base in the automotive business, as well as non-automotive business.

On a total rate per mile basis sequentially should we continue to expect a penny mile increase in the third quarter and then again in the fourth quarter?

I think that would be safe.

I guess more specifically to your question, second quarter last year rate per mile was at a little over $1.08. Rate per mile this year is 111.4 (ph). And if you take into consideration the fact that when we went through the bid process in '03 rate levels actually dipped down to a hair below $1.07 a mile. So putting it in perspective, we've done a pretty quick job I think getting the rates up to the level they are. I think it's realistic to expect another penny or two per mile that will show up in the remainder of the year. I know we've swapped some business even in July for better paying freight as well.

Refresh us. That rate per mile does not include fuel surcharge.

It does not include fuel surcharge.

When you account the fuel surcharges, you just net it against the fuel expense, is that right?

That's right.

Fantastic. I just wanted to make sure -- my memory served me well.

Trucks -- what do you see for the addition of -- what is the size of the fleet going to do the second half of the year?

I think the size of the fleet is going to remain about the same. As far as any internal editions on equipment, if there's any additions it will be (multiple speakers) acquisition.

You produced another quarter of falling wages on a per mile basis, and the fleet is fully seated. Or is fully seated as is practical, right?

Yes.

What are you doing, Bob, that everyone else can't seem to figure out?

On actual pay to the driver it's remained fairly flat, Donald. The decreases you see are in the benefit side, and there's been a reduction in owner-operators as well because with the fuel crunch like it is we continue to lose a few. I think year-over-year we're down about 30 owner-operators (multiple speakers) year-over-year. But that's about half that decrease you see.

The other half -- and you've heard me talk relentlessly about the mismanagement that we had with our work comp program. The other half of it is mostly the work comp decrease in claims and better management.

Because I'm even just dividing it by the number of Company miles run, and I'm still getting a drop, which is admirable but uncharacteristic of what most of the rest of the industry is able to show.

If that's the case, it would be the fact that there are more drivers being trained as students coming first seat been than actually hired first seat drivers because the pay per mile is less, and that's still where we draw the majority of our drivers. In fact, rather than putting on big moves to go out and try and recruit more first seat drivers, we're actually adding training and recruiting resources for students to help with the situation of the driver shortage.

Okay, so part of it is better workers' comp experience and part of it is a mix of the experience of the drivers?

Right and the reduction in the owner-operators.

Tom Albrecht, BB&T.

Glad to see the progress that's underway. I missed the first couple of minutes, so hopefully you didn't give this. I wondered did you disclose roughly what the percentage of your business is right now tied to the automotive industry?

No, I did not. On the automotive side, total automotive revenue is at 53 percent. And you're fixing to ask what total dedicated is, and that's at 61 and change.

What are those numbers a year ago? I think auto would have been touching 70 or their about. But dedicated a year ago as well?

67 percent looks like the highest that total auto got to. And dedicated, it's down a couple of points on the total dedicated.

Okay. Workman’s' comp percentage of revenues, you alluded to the progress but roughly as a percentage of revenues what was it in this quarter and what was it versus? It was probably what, about 1.5 or something? A year ago, that is.

A year ago it was 1.86 and it is about 0.4 for the current quarter.

Is 0.4 really sustainable? I think we've talked about maybe 0.5 to 0.7.

It will probably increase a little from that. Part of that decrease was the fact that we've finally got Liberty Mutual to admit the fact that they were over-reserved on some claims. And we got them to close some claims at less than reserve. So there was some credit showed up in there, as well as the better claims experience.

Okay. And then, did you give ending statistics for company trucks and owner-operators? I know you gave average.

I think Larry's got that.

Ending number on company trucks was 1740 and owner-operators were 95.

Okay. Fuel surcharge, Larry?

For the current year it was 3,093,000; prior year it was 2,165,000.

And Bob did you update everybody, or could you if you didn't, on the whole mix issue and what you're trying to do with retail? I would just be curious as to some more comments there; whether your success is because of retail and West Coast activity that you've talked about or whether it's just finding core success in the Midwest.

Clif may be able to address it more specifically than I, but it's a combination of the fact that we have been able to go back and actually obtain some of the automotive business that we had in the past at higher rates. And anything that we bring on currently is also at a higher rate. And that holds true for any customer. But we have added customers to replace some of the lower paying freight in all areas.

Clif may have more specifics on that.

No, I think you said that well. What we had mentioned before you got on the call was we continue to see the bid process get redefined with the automotive business and we've been successful when those bids do happen we've been able to get some either that same business or new business at higher rates than what we had historically before. We think that process will continue. Those opportunities come along more frequently than they did back when it was more like on a yearly or two-year basis. The frequency and the scope has changed quite a bit.

On the non-automotive side we have aligned ourselves with some Fortune 100 companies that are really growing fast. They like our service and they have a lot higher revenue per mile than what we've experienced in the past. So we redefined lanes and allocations and equipment to those customers, it's having a good impact on the bottom line.

So you had talked about roughly $1.5 million of revenue per quarter recently -- and I don't know if you disclosed that today -- but kind of from the Midwest out of the West Coast and vice versa that was retail oriented. Had you grown from that $1.5 million level appreciably or is it still stuck there?

It's grown, and we're seeing an equal distribution between the brokerage and the truck-side going to and from California. It's still not our main focus, but we take advantage of it when the profitability is there. But on the lesser paying freight, we are able to move it on an intermodal basis. So we continue to keep an eye on that and take advantage of it when it make sense.

Okay. And I think that's it for now. Thanks, gentlemen.

Neil Gagnon, Gagnon Securities.

Good morning gentlemen. On the auto side how far along are you in the process of getting to a better book of business?

We feel like we've made a big inroads into getting that point. Over the next six months there are more contracts that will be bid. We feel like 75 to 85 percent of the old business we had has gone through that process. But as I mentioned before the frequency of other business and new business in automotive is coming out weekly, so there's more opportunities in that area. We have a completely different pricing model now, and there's no pressure on us that we have to gain any more business unless it meets the profit levels that we have set.

So the old book was you've turned over 75 to 80 percent?

Yes.

And the new stuff now, it's a weekly pricing not a six-month or a year pricing?

Well, there are new opportunities that come -- new plants, new models. Anything that happens within the sales mix of GM or other automotive manufacturers, those bids come out pretty constantly now. And we're involved in all of those so there's more opportunity. 20 percent of the old business will be done in the next six months.

So roughly by year-end that book will be totally turned?

Right.

And now when we say turned, either replaced or the rate redone on the same piece of business. You understand that part of it?

I do. I got that. Thank you.

The rates are not just for a week. The bids come out weekly, but once business is awarded, why it's awarded for the 12 month period of time. Unless there's some material change in the business.

And are these new rates including fuel surcharges?

They're still subject to the fuel surcharge formula that the customers have in place.

Okay. A question for Larry. Cash flow, and what are you doing with it?

We're still continuing to pay down our existing debt, and if we continue at the same pace we should have it paid off this year.

So still to be paid off by year-end?

It will.

Bob, there's a curious statements in this quarterly release, and you say evidence of more improvement each month during the quarter. Can you discuss what that might mean to us as a run rate going into the second half of the year?

I won't give you specifics because we don't talk about specifics on a monthly basis. But what I meant was that May was a little better operationally than April; June was yet a little better operationally than May and rate levels continue to inch up. And I feel pretty certain that we will continue to see that as we go through the remainder of the year.

Thank you.

Dan Moore, Stephens.

Looks like some nice improvement. Good to see that. Congratulations.

A couple different questions to address here. One Neil just touched on a little bit, and at the risk of being redundant I'm going to ask a question again here.

With respect to rates, I know you mentioned you don't normally comment on the monthly operational trends, but I'm wondering if you would be able to give us any color on how rates specifically progressed through the course of the quarter April, May and June.

I will leave it up to Larry if he wants to do that.

I wasn't sure if the silence meant you weren't going to answer or if you were looking up something.

I can just tell you that each month they have improved, and they're continuing to improve in July.

Okay. Fair enough. I guess we could take it then that the rates are slightly ahead of what the average was for the quarter. Would that be a fair assumption?

It would be.

Looking I guess at the driver market, it seems like everyone -- or discussing the driver market for a second -- everyone has talked about the fact that drivers are very hard to come by. There seems to be a difficult recruitment and retention environment. Can you talk to us about unseated tractor account and whether or not you plan to do anything with driver pay in the second half of the year that might in some way detract from the progress you've made thus far in the year?

I'll start out by commenting the fact that I'm not going to do anything with driver pay until I find out what FMSCA is going to do with the hours of service. Once our government decides what they're going to do, then we'll decide what we're going to do. We don't have anything at this point planned other than an increase in assessorial pay to the drivers, if we do anything.

We have gone out and increased advertising for first seat drivers. It has not produced any more drivers at a higher advertising level than it had at normal advertising levels. We don't think that there's an ample -- we know there's not an ample supply of first seat drivers out there right now. At the same time, we know that the people -- that there are companies that pay more per mile than we do. From what we can gather in talking with different people, their turnover rates are not any different than our turnover rates. And ours may be less and in some cases, especially on the dedicated side.

What is turnover, just to interject real quick?

It's running about 80, 85 percent. That is mixed; that's a combination of dedicated versus the regular over-the-road type stuff.

How might that compare to the same period a year ago?

It's about the same. But what we are doing is to throw more resources at the training and recruiting of students for training. We have just added another training facility in Mississippi. We've got one that is in Florida that is about halfway through the process of being added. We are looking at a program to entice more people to come into the training program. And in talking with the schools we feel like that we're going to have some pretty good success with that.

Is that a bonus program of some sort?

Of sorts, yes. We have compared what we do with what the other people involved in the training program for the school do, and this is something a little bit unique. And we feel like it will boost our numbers of students and trainees to the level that we can maintain the manning leveled that we've got to produce the numbers.

Where is unseated tractor counted today relative to a year ago, generally speaking? Has it increased year-over-year; is it about the same? Can you give us any stats on that?

Based on the time of the year, it's about the same as it was last year. July is our worst month in a lot of respects. One, it's our worst month in revenue because of the number of manufacturing plants that are down for the first two weeks of July. It's also our highest turnover month historically because as those driver take vacation or had to take that two weeks off and don't do anything else, we lose some of them.

But year-over-year we're about at the same level of manned trucks as we were this time last year. We do have an adequate supply of students and trainees in the pipeline to put us back where we need to be at this time last year, too.

Fair enough. Are you doing anything with respect to accelerating the trade cycle on your tractors? I know the used equipment market has been very strong for a lot of folks lately and some people are using that as -- or taking that opportunity to better position themselves for 2007. It's not a one size fits all approach, but I would love to hear your view on tractor age and what you may be doing with your equipment lifecycles.

We're still cycling at the same level as we were. 500,000 miles is our lifecycle on our equipment. And that's still where we're cycling equipment out whether it hit that in 30 months or 36 months or 48 months. That's where it gets cycled out.

Do you plan on doing anything ahead of the '07 emissions standards? I know it is still a good ways out, but I imagine the market is going to anticipate a lot.

I have some options in place to be able to do some things differently if it makes sense to do it. Whether I exercise those options or not, I've got to wait and see; get more economic data and see what the numbers regard to flush out.

Larry, net CapEx for the year? I'm not sure if you mentioned that number yet. I know a couple questions alluded to it, but I don't think it was stated.

We're going to have an additional 24 million in net CapEx for the remainder of the year.

What is that on a consolidated basis, annualized basis?

It will be right at 40 million.

Anything we need to be aware of in the plant shutdown standpoint? Any changes year-over-year? Are there more plants shut down this year than there was this time a year ago, or less, or anything like that would be helpful to know for modeling purposes?

No, there's no significant changes. There's probably a little better position this year than last. But I don't see anything significant on the horizon.

Last question here. Fuel costs -- I'd never heard -- and I may have missed it; you may have given it -- but I never heard a specific number for what fuel did year-over-year.

275 basis points. And that is net fuel surcharge.

Thanks guys.

Jerry Heffernan (ph), Lord Abbott.

Good morning everybody. On the workers' comp, could you tell me again what it was for the quarter? Would you say 400,000?

It was 0.4 percent of revenue.

You said that you had some reserve releases from Liberty where you finally got them to review some of the policies that they're holding reserves on to say that they were holding too much?

Yes.

That 320 level, that goes down lower than anything you have had to going back through the year 2002. With your efforts to bring this back in-house, staying away from looking towards future reserve releases from Liberty, where do you see yourself think that as far as a more normal range for your workers' comp costs?

I think it will probably level out somewhere between 0.5 and 0.6 percent of revenue. Claims are what they are, but we have been self-insured in the past and our experience has been that they will run about 0.5 to 0.6 percent of revenue, barring any shock loss that may occur somewhere along the way.

But we think we will continue to see -- as Liberty closes claims that they still have on their books, we feel confident in the fact that we will continue to see those claims closed at less than where they're reserved at, and anticipate continued credit coming in from those claims as long as Liberty Mutual has claims out there.

And on the self-insurance side, the claims management I think will continue to keep that cost in check.

Okay. In regards to the pricing for some of the contracts that you have rolling over in the next couple of months here, if I heard your answers correctly I am of the impression that, one, you're being very selective with what you take on because you have enough automobile business as it is already; two, rates are going up; but, three there's really no change to the fuel surcharge mechanism. If business is so tight, why are you not in a position -- you and your peer group -- to start applying some pressure to make changes in the fuel surcharge basis?

I'd like to be able to give you a definitive answer on that. I can tell you that we've tried, but I think it's such an enormous task for them to work on different fuel formulas with different people that they're not willing to undertake that.

But what we are having success doing is building some rate increases in the rate structure itself to more offset the fuel costs, which in our opinion we're really better off doing that than putting a lot of time and effort into the fuel surcharge because it's a number that's going to fluctuate as fuel goes up and down. If we can put a permanent rate increase in, we're ahead of the game going forward.

Okay. Fair enough. I don't know if you articulated this; I might have missed it. You said automotive is 50 percent of your business; 63 (ph) percent dedicated in total.

Total automotive is 53 at the end of the second quarter.

Total dedicated?

Was 61 and change.

I reversed those numbers. Can you give us an idea over the next two quarters what percentage of the automotive business is up for renewal?

There's about 80 percent of it that's still left to either be replaced or -- I'm sorry 20 percent. 80 percent done; 20 percent that's left to be -- either the rate level has changed or business replaced.

Okay, very good. Thank you very much.

(OPERATOR INSTRUCTIONS) Tom Albrecht, BB&T.

(OPERATOR INSTRUCTIONS) It appears his line is disconnected. (OPERATOR INSTRUCTIONS) John Mishicari (ph), Fidelity.

I was just wondering, can you tell what brokerage purchase transportation as a percentage of brokerage revenue was?

88.7 percent.

98.7?

88.7.

88.7. Also, I was wondering if you guys are doing any spot market activity.

We are not.

Can I ask why?

We just have not engaged in any hedging on fuel. We've not had good experience in the past.

No, spot market activity with brokerage.

I'm not sure I understand your question. You're going to have to help me with that.

Well, is CH Robinson asking you guys for trucks?

I'm sure they call and ask for trucks. We get daily calls from probably 15 different logistics companies or brokers, whichever they prefer to be called at the time, but we have good demand from our regular customers so we don't end up needing any extra freight for those situations.

Now if someone has a special expedite situation where there's a real high revenue per mile, yes we do take advantage of that at different times.

What is the differential between the spot market rates and your rates currently?

Typically they're about 20 percent less than what ours are.

And that's the case today?

Like I say, you may have a special situation where there's an urgent expedite and someone is willing to pay whatever to get a truck. Obviously we take advantage of that, but there's no need for us to take a spot market, as you call it, load for someone if it's going to pay 20 percent less than what we move our trucks on our own for.

I just had a bigger picture question. If I look at revenue per total mile over the past five or six years, it's actually down over the past five years from where we were in '99 or 2000, and the rest of the industry has enjoyed pretty good revenue per total mile increases. I'm just curious why that is.

That was a function -- we added more and more dedicated business over the last four or five years. And historically dedicated freight business does not command the same revenue per mile that typical over the road revenue does. And that's when you see that trend, but now you see it going the other way.

I assume that the dedicated has a lower dead head percentage as well?

Yes.

But revenue per total mile would incorporate the lower dead head, correct?

Yes.

So revenue per total mile is about $1.11 in this quarter. That's still about 20 cents lower than some of the others in the industry. I'm just curious what would be the explanation for that.

The automotive business picks up point A, point B; it's got a long length of haul. There's almost 0 dead head. The drivers you get to higher on either one of those two points, so they know they're getting home on a regular basis; some daily, some every week for a number of days. You have an advantage over holidays like Christmas. The plants right run right up until you go down for that, and then you know you've got a set period of time when they come back to work; they flipped the switch and every thing's going back. So a lot of the chaos and unpredictability is eliminated by that.

Due to the lanes having high utilization and that predictability, they typically move at a lower rate per mile than what a retail trucking company would have, which would be pick up point A, deliver to point B, and wait or have to dead head to somewhere else for a load that you're not exactly sure where that's going to be or where it's going to go. Those type of loads due to their lower utilization command a little bit higher price.

We made the decision to go the route we did, and it worked well. We had some changes in '03 that we've had to go back and reprice some of that business due to those changes and have been successful doing that. But that's the reason you'll see that difference in a more retail-oriented carrier as opposed to someone that is in the manufacturing segment as heavy as we are.

So the dedicated business should result in lower turnover then, I would guess.

Yes.

Length of haul has a lot to do with rate per mile too.

What's your guy's starting pay for drivers?

It depends. On first seaters from an experienced side, depending on how much experience they have they can come in anywhere from 27 to 33 cents a mile. On the student side, students that we train, once they finish training and go first seat I believe they start at 23 or 24 cents a mile.

Thank you very much.

Adam Falheimer (ph), BB&T Capital.

It is actually Tom Albrecht. I had a phone problem and jumped on one of my guys' phones here.

Bob, I wanted to explore the capacity a little bit. Just reviewing my notes, at the very beginning of the year you had hoped to add about 75 company trucks, depending upon market conditions. But you finished at 1740 June 30th. You're down actually about 70 units year-to-date. Should we continue to expect a modest fleet shrinkage during the second half of the year?

No, part of that is timing on new trucks coming in versus old. That's an average for the quarter. Freightliner was actually late delivering some trucks in April and May, and there were some trucks that we actually pulled off prior to the new one getting here. So it's more of a timing issue.

Actually, I'm using the end of year and end of quarter truck numbers as opposed to average, that's why I was asking. Because I know those averages can be skewed by delivery issues. So we would still see that you're down a little bit.

On the Company side I think more it is what Bob's talking about. We are down 31 owners, and I think that's part of your truck count that were down.

Actually I'm using -- in the Annual Report, there's 1810 company trucks as of year end and 1740 company is what you gave me earlier, Larry. Maybe I can pursue the off-line.

I guess a couple of other things. I know you don't give earnings guidance, but earlier in the year your comment was you would be surprised if you couldn't do at least $1 in earnings for 2004. That's starting to look more doable that has been in the last couple quarters. What are your thoughts on whether you'll be able to post positive year-over-year earnings in the third quarter?

I'm drawing a blank on what the earnings were for --

It is 26 cents in Q3 last year. (multiple speakers) Q3 auto seasonal slowdown.

We hope to be right around where we were last year third quarter. There could be some upside if the rates to continue at the pace they're at now. And I'm sure we will be at a better position for the fourth quarter than last year.

We still feel pretty comfortable with that $1.

There's no big free markets bid or anything like last year, right?

No.

We don't anticipate another September 11th freight (multiple speakers)

Okay. Bob, did you make any comments at the beginning about acquisitions? I know you're always looking.

I made the comment that any additional tractors would most likely come from an acquisition rather than any internal additions? And yes, I am always looking. That's really all I can say.

Okay, thanks.

Dan Moore, Stephens.

Just two quick ones. Tax rate looked a little different year-over-year. Are you guys doing anything with the per diem or is there something else going on there that (multiple speakers)

It's the per diem.

Just to follow up I guess on the acquisition discussion, if my memory serves me you have said in the past -- and I would imagine it holds true to today -- any deal you did would most likely again be kind of stand-alone in nature; consolidating back office operations, number two; allow you to diversify your freight mix, i.e., it wouldn't be an auto-type carrier, a carrier with a high concentration of the auto business. Would those two items fit into your mind set, Bob?

Absolutely.

I guess that will do it. Thanks guys.

At this time we have no further questions. Mr. Weaver, I will turn the call back over to you.

Guys, I appreciate you all calling in. I would just reiterate the fact the improvements continued. That is all we have talked about on the last couple of quarters, and they're beginning to really show up. So we're going to stay at it, and we will be talking.

Thank you everyone for your participation in today's conference. You may disconnect at this time.