PAMT Corp (PAMT) 2004 Q3 法說會逐字稿

Welcome to the PAM Transportation Services Third Quarter Earnings 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 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 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 tax, 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 insurance premiums and deductible amounts relating to accident, cargo, workers compensation, health, and other claims, unanticipated increases in the number of, or amount of, claims, for which the component is self-insured, inability of the company to secure to secure acceptable financing arrangements, seasonal factors such harsh weather conditions that increase operating costs, competitions 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'd like to turn the conference over to Mr. Bob Weaver. Please go ahead, sir.

Thank you. Welcome to the conference call, everyone, and I sincerely hope that everybody's weather is better than ours, because ours is not very good. Anyway, as usual, I want to make a few brief remarks, and then we'll throw the floor open for questions, but you've all seen our earnings release at this point, and you know what the numbers are. We think that the rate increase at 7.5% speaks well for our ability to be able to raise the rates back and above the level where they were where we encountered the big bid process with our big customer, General Motors.

The third quarter, well, the revenues in the third quarter were virtually flat over what they were in the third quarter of '03. Part of that reason is the fact that in September, we did encounter a higher than usual number of empty tractors, due to the fact that our competition had raised some rates, had raised some pay rates, for lesser experienced drivers, and we began to see a larger number of our drivers leave in September. We did implement our own pay raise at 3 cents a mile, beginning October 1st, and we have seen the effect of that stem the flow of the drivers leaving the company and the number of recruits increase significantly. We immediately began the procedure to pass that pay increase through to our customers, and to date, we've succeeded in about 55% of our total revenue, getting the driver pay increase passed through. We anticipate there will be some additional passthroughs to our customers, as we go further into the fourth quarter.

With that, I will stop and throw the floor open for questions.

[Operator Instructions] Dan Moore, Morgan Keegan.

Good quarter, despite some very, very difficult fuel price comparisons, it looked like you guys were able to make a lot of progress in a lot of other areas. One number I didn't hear mentioned that's probably worth noting, Larry, what was the impact from fuel prices, year over year? Looked like miles were down but fuel was up around $3.5m. That would suggest close to 20 cents?

In the after-tax impact was about 8 cents.

So where-- when we're looking at operating supplies, year over year, where did the rest of the increase come from, or maybe a different way to ask that same question -- what sort of inflationary pressures were in the operating and supplies line, outside of fuel?

Dan I think that's the biggest number in the equation, is the additional fuel cost, was $3.6m was the--

And what sort of tax rate are you applying to that, Larry?

We're right at 41%.

OK. And then-- OK.

The net on the fuel was right at $1.5m-- 8 cents, Dan-- it's 14 cents.

Yeah, I thought that number was a little low. That may be something to circle back with you on, just to get a better understanding on that, but very big number. And so if fuel prices were more or less the same as where we were last year, you guys would have earned 42 cents. I don't remember a fourth quarter in the company's history where we had a 4 in front of it. What should the expectation be here, moving forward, for continued improvement? I mean, are we halfway down with the throttle here, are we going full steam ahead at this point, in terms of progress?

Dan, I'm not exactly sure how to answer your question, other than the fact that we've been full steam ahead since we started this process.

Well, I guess maybe a little different way of asking it, too, Bob, is you know, are you satisfied with the progress you're making right now, do you feel like there's still a lot of room to go, or you know, in general, what should investors expectations be for continued improvement in rates and some of the other cost factors, moving forward?

I think from a rate standpoint, you know, we finished the third quarter out at $1.15 and a fraction rate per mile. I think by year end, we should be at around $1.17 a mile. I certainly feel like in '05, there's more room for some more rate increase then. I think rates are going to continue to move up, as long as fuel is doing what it is, and we see the demand for service out there like we see today. Obviously as we get more trucks manned up, and more RVUs out on the road, and we've got the equipment to do that, and we've got the driver pay up to a level now where we can do that as well, as rates go up and utilization rates go up, why, we're going to see the numbers, I think, increase on down the road.

What about on seated tractor count, Bob? You made mention of that; where was, it year over year, or can you give us a general idea of how much-- you know, how much greater the unseated tractor count was this year, relative to the last- twice what is was, three times what it was, or about the same as what it was?

There's probably, and I don't have the exact numbers in front of me, we're probably about 50 tractors behind this year where we were last year.

OK, so pretty sizable number, but--

Most of it happened in September, when- that's when most of the exodus of drivers came and, you know, we've seen-- recruiting efforts, we're seeing about 20 to 25 more students per class now in our recruiting, and the turnover has diminished considerably with the pay increase.

Turn the tide here maybe a little bit and talk to you about insurance. I noticed insurance costs were up. How much of that was a function of higher premium experience, or a combination of the two?

Most of the difference that you see there, Dan, there is a-- there is a little bit of increase in premium in our third quarter '04, because we did raise our umbrella limits a little bit, but the biggest difference is, in '03, there was a pretty good credit in our auto liability reserves, that they came in the third quarter of '03.

How about tractor additions for the rest of the year, guys?

It'd be pretty flat.

And moving into next year?

Dan, it will really depend on, internally, how the driver situation shapes out. Tractor additions, you know, are really dictated by the number of drivers we can hire. Probably tractor additions will still come in the form of an acquisition of a company.

OK. Acquisition of a company -- can you give us a sense for where you are in the process, I guess, of pursuing potential acquisition targets?

No.

Tom Albrecht, BB&T Capital.

I missed the first minute or two, so maybe you discussed this -- did you mention, roughly, the percentage of your business that was automotive during the quarter? I know that's been coming back down to a more balanced figure, but just want to get the latest.

It's 55% for the quarter.

OK. And given the success you had with rates, are you actually less than that today? I mean, if that was a full quarter average, I'm just wondering how much of that rate increase was because the automakers finally said, ``OK, enough, if you're willing to walk, we're willing to pay a little bit more,'' or how much of that was really due you bringing in other non-automotive customers?

We're down [7] percent, Tom, but the automakers are- we are seeing the rates come up quite a bit, with the present automotive freight that we have. So it's not been a huge shift in the mix of customers.

OK. So still-- and you think you'll stay around 55, or will you come back down to even 45 to 50, ultimately?

I don't see it changing over 5% one way or the other, at this point, Tom.

OK, and the year ago was, you said, 62% -- you said 7%? Because I think at its peak it was 68, 69, somewhere in there, but I think that was a year and a half or so ago. Is the 62% the year-ago number?

No, that's-- that would be-- that'd be 2003. It was actually 63.

OK. You're talking just in the quarter, Q3 '03?

Yeah, and fourth quarter of '03, it was 63.02, and then for the full year '03, it's 64.24.

Yep, OK. And then dedicated's still 60-plus percent, or is that changing a little bit as well, Clif or Bob or Larry?

It's 62 for the quarter, staying pretty stable at that.

OK. And has your length of haul changed much? What were those numbers? Trying to gauge how much of this rate improvement is rates and how much is some other factors.

First quarter is 740, second quarter is 745, and third quarter it's 755, so it's-- increased a little bit.

OK. All right. And what was that 755 versus a year ago?

766.

OK. And then Bob, you mentioned the umbrella limits have been lifted a bit. I know at least until recently, you've had a very low deductible on your first coverage for auto liability. Is that still-- I think it was $15,000, but correct me if I'm wrong, and if it's not that, what is it?

Actually, Tom, it's $2,500. And it's still $2,500.

And how much longer is that good for? For another year?

We just renewed that September 1.

OK. And I guess the last thing would be, ending tractor count -- Larry, do you have that, both company and I know owner-operators aren't much, but you know, whatever you got on the ending.

OK, and do you want the-- you want the September number, right?

Yeah, 9/30/04.

OK, the company number is 1,768, and the owner-operator is 92. Just about the same for the quarter.

And then Bob, did you say your number of unseateds has gone up? It came in right as you were commenting, something about 50?

Yeah, it's up about 50 over what it was this time last year, Tom, and most of that occurred in September.

But you were saying the schools are doing a good job in October, or what?

Well, we implemented a recruiting bonus for students about three or four weeks ago, and then also with the pay raises that started October 1, the number of students in each class has increased 20 to 25 students per class.

OK. OK. All right. You know, I know at the beginning of the year, I know you guys don't give earnings per share projections, but one of the questions I asked at the beginning of the year was, earnings estimates were around $1 or so for the year, and you said you comment, but you'd be disappointed if you didn't do at least $1. And it turns out, it looks like you're going to be right, but as you look ahead to '05, the estimates are calling for anywhere from I guess 20% to 30% growth. How do you feel about that and however you might want to comment on that.

I'd like to refrain from commenting until we see the fourth quarter come in.

Fair. OK. That's all I have for now guys, thanks.

Dan Moore, Morgan Keegan.

Hey guys, just a couple of follow-ups off of some of Tom's questions and one of mine. Just to kind of circle back on the acquisition front, if you could remind us, and obviously I'm not going to be ask anything specific here, per se, relative to anything you're currently doing, but historically, remind me, you haven't-- your modus operandi has always been that you wouldn't do a deal that wasn't accretive, correct me if I'm wrong? Immediately accretive. What's been your general rule of thumb there, Bob?

The exception to that was, you know, McNeil. We did McNeil because we needed the trucks and the drivers. But--

But generally speaking--

Generally speaking, yes, an acquisition would be-- one of our criteria would be for it to be immediately accretive to earnings.

And I remember on the last call, we talked about the type of deal you would like to do being something maybe outside the automotive realm, something that would most likely be dedicated. I wouldn't suspect that your view on that has changed too much?

No.

And I guess last question on this topic -- size of deal you would consider? What's the smallest deal you'd do and what's the largest deal you'd do, from a revenue standpoint?

You know, from the smallest side, Dan, you know--

Reasonably speaking.

You know, $20m to $30m. On the largest side, I don't think I'd want to step too far over 50.

OK, great. And then could we get some details on your pay increase? I'm sure it's available on the website, but just curious, what element of your driver pool the driver pay increase influenced-- you know, was it solo drivers, team drivers, or just across the board type of increase, and if so, by how much?

It's pretty much across the board, because if you raise pay on one sector and not another, why you get kind of a mutiny going, so it's virtually a 3 cent, across the board pay increase.

OK. You indicated that you expected rates to be up a couple of pennies from the fourth quarter, or excuse me, the third quarter to the second quarter. Are you expecting some offsetting benefits from some other lines, maybe, to make up for that penny, or am I thinking about that right?

Utilization will have to make up the rest of it, Dan.

So the thought being that you can seat those drivers- or those trucks, and that should more than make up the difference?

It will.

OK. Fair enough. Last question, and it may have been in the press release -- where was debt at the end of the quarter, and how much do you have left on your revolvers, or your bank lines?

Dan, we're at $10m in net debt right now, at the end of the third quarter. And as far as on the lines of credit, we don't have any out on them and we've got $25m on the revolver.

[Jerry Hefernin], Lord Abbett.

I guess as similar to Tom, I missed the first two minutes. I'm afraid I might have missed a lot. The insurance and claims line, you made the statement that there was a credit that came in last year, which explains part of the delta here -- how much was that credit?

$250,000.

OK. That said, there's still, what, a $450,000 difference between the two years. I believe last quarter, sequentially, 2Q, your workers comp claims were about-- were only about $400,000. What was workers comp this quarter?

469.

And Jerry, work comp is not in that line.

It's in salaries, wages, and benefits.

Oh, OK. So workers comp claim this quarter was 450?

That's the expense for the quarter.

OK, so we've demonstrated now two quarters in a row where we've kind of dramatically changed the levels where we were at through the '03 year?

Right.

OK. Then the insurance and claims that had a $250,000 credit, 3Q '03, what has been- what's going on in this line, other than additional $450,000?

It's a combination, Jerry, of increased umbrella limits and-- which is higher premium for higher limits, and then the liability claims that fall within our deductible are in there as well.

Jerry, when I said $250,000 credit, that's the total for the line. This quarter it's $246,000, so it's really about a half a million swing between the two quarters. Last year's was actually a credit.

OK.

So the amount of the credit, I couldn't-- I don't have that with me, but it was a net last year, third quarter, of $250,000.

OK, I see what you're saying. So the actual amount that you got back was greater than that?

That's right.

Because it reversed the expense and ended up more than reversing the expense?

And I can get that for you.

OK, very good. In the press release, you have indicated that the long-term debt to cap is 12.25%. Is that a net debt number?

It is.

OK. What is the cash balance?

$10m.

OK, very good. The 2007 pre-buys, the last time that we had discussed, that you were still in the formative stages of your decisions on how to handle that. Can you give us any indication that you've come up with any ideas?

We've-- you know, we're still negotiating with the OEMs. We've pretty well nailed down pricing and where it's going to be through '06. It will be, you know, more a matter of kind of what shakes out on what the real impact of what the '07 engine is going to be and what the cost of it is going to be, to determine whether we-- you know, economically it's more wise to make a pre-buy or to wait and look at the '07 trucks.

OK, but you've negotiated to a reasonable level what tractors will cost you through '06?

Well, we've negotiated to a level. I'd never say it's reasonable.

You're reasonably sure what it was going to be--

Right.

OK. Can you tell us what that level is, how that compares to the cost of tractors here in '04?

It's about a little less than a 2% difference right now.

OK. I presume it's on the upside?

Unfortunately.

OK. Very good. The loss on disposition of equipment, that was a big number this quarter. It was a good size number for the first six months, too. Could you just give us a little bit more information on that line, please?

There were some trucks that were retired earlier than we anticipated. They reached their 500,000 mile trade level before we anticipated them being there. Most of the 500,000 mile trucks get put on a three-year depreciation schedule, and these actually hit the mileage quite a bit sooner than 36 months.

OK, so you are depreciating the trucks on a calendar basis as opposed to a mileage basis?

That's right.

Now is this a contractual thing? Can you not get a-- you know, it'll come out at this contractual level or market value, because I understand the market for used tractors right now is very strong.

It is. However, the trucks that's coming out of service right now are still some of the trucks that's got some good, high residuals on them through the OEM trade agreement. As we get into trucks after this time period, there is a chance that we might be able to take some of those to the open market and dispose of them, rather than trade them for what their residual values are.

So even though the market value might be higher, you still have to give the truck back at 500,000 miles and take the loss?

No, no, no, no. If we can actually market them ourselves, then we're free to do so.

OK. Just the resid values were just simply that high?

Right.

OK.

But see, the difference is, we had them on a three-year depreciation, and some of them reached the 500,000 miles in just a shade over 24 months.

That's a lot of miles. OK. That's it for right now. Thank you.

[Operator Instructions] Jack Waldo, Stephens.

First of all, on the D&A, just to make sure I understand correctly, you had a few tractors come up a little bit earlier than the 36 months that you expected, which kind of pushed in [indiscernible]. Is that correct? Is that a good way to think of it?

No, it's the depreciation and the gain and loss on sale are separate line items. The loss that we were just talking about were the trucks that came out earlier than we had them set up on the books for. The D&A line went up, as we put on more of the higher-priced trucks with the lower residual values, the depreciation line has come up throughout the year.

OK, so just looking forward, D&A should continue to trend slightly higher. Is that a fair statement?

It is.

OK, as the new trucks come on. And then you have the potential for some more gains on sales -- is that correct?

On down the line, we've still got still good residuals on these trucks that are going out now. I think what we're talking about maybe into 2005, where we're looking at lower residuals actually having a chance to go to the open market and sell the trucks for more than we have them on the books for. That'd be where the gains come in.

OK. On another line item, on just salaries, wages, and related expenses, we saw a pretty good delta between the third quarter of this year and the third quarter last year. I'm guessing the majority of that is just a function of paying less drivers. Is that correct?

It's actually paying fewer miles, as the rate per mile has increased. We ran the same revenue on less miles, and there's about a point worth of decrease in workmen's comp in there, that kind of makes up the total decrease.

OK, so there's no reason to think if utilization goes up, you factor in the 3 cent pay increase, that we won't see a pick up in the salaries, wages, and related expenses line, is that correct?

That's right.

And just to make sure I understand, you put a 3 cent increase at the beginning of October, that's pretty much across the board, and so far you've been able to recoup roughly 55% of that pay increase through rate increases, and you expect that to trend closer to 100% as we closer to the quarter-- is that--

We're really just saying we're getting half of it back right now, and we're going to try to get more, but I can't tell you that we'll get it all back.

OK, and last question -- how, just your experience with drivers in the fourth quarter, is it-- is it easier to get drivers in the beginning of the fourth quarter than it is as we get closer to Christmas, or is there any seasonality there?

There-- it is easier to recruit drivers early in the fourth quarter, but you don't lose as many in the fourth quarter because normally drivers, you know, they want to stay situated where they're at to get through Christmas. All of them still need to have a paycheck coming in for Christmas, so they don't want to be changing jobs during the holiday season.

And then can you give any- I guess last question -- any color on brokerage, kind of what trends you're seeing there?

We see a lot of freight to broker and not enough trucks to handle it.

Tom Albrecht.

Yeah, hi, just quick question -- I just want to make sure I heard you correctly, Larry. The abnormally large loss on equipment should start to normalize kind of after the fourth quarter here?

Yeah, I don't think you'll see as big a number, even in the fourth quarter, Tom, but I think it'll get back to levels that we've seen in the past, going into 2005.

Any chance that in '05, you actually start to book some modest gains as you, I guess, trade out equipment with either more of a normalized residual, or something that doesn't hit, you know, its mileage so quickly in the contract?

I think we will. I think there's a lot better chance that we will, as these used trucks-- I think the [inaudible] engine is going to push up the price of the used equipment, so maybe we'll be able to see some gains there.

Yeah. It would sure-- would seem like it. OK, I just wanted to make sure of that. Thanks.

Neil Gagnon, Gagnon Securities.

If you took today's fleet and ran it at normal utilization, how much bigger might revenues be than you reported in Q3?

Oh, let's see,

And that's-- of course, the way to be fair about that is to keep it at the Q3 rate

I think 7.5%, 8%.

And that would be a normal utilization?

It would be. Now the question for Bob -- what do you gotta get done to get that done?

Well, the bottom line is drivers, Neil, and you know, what happened, a lot of our competitors raised pay levels for drivers with a year or less experience. And we have a lot of those. And in September, we saw a lot of them leave the company to go to carriers at higher pay, at that year or less level. That's why we went ahead and raised our driver pay, and also put the incentive for the recruiting bonus for students. It's-- you know, as we speak now, it's working. You know, the numbers of students that we see in the classes are increasing 20 to 25 per class.

OK, 20 to 25, on what base, Bob?

Per class.

Yeah, I understand that, but what did you have in the class?

Oh, a normal class, we'd have about 30.

So your 30 has gone to 50 or 50-plus?

Right. And plus, you know, we've gained an advantage of not seeing the drivers leave as much because of the new pay rate, plus we'll also gain some advantage, as I mentioned earlier -- drivers are not as prone to leave a company during this time of the year as they are at other times of the year.

OK, so could you discuss for us in general terms where is your utilization now versus where it was for the average of Q3?

In October, Neil, it's going to be up-- I think at- you're going to see 4% or 5%, but as we go into November and December, months where we have our plants down--

Normal seasonal stuff?

Yep.

OK, so-- no, what I'm just trying to drive at is, you recovered very quickly from this, you got your utilization back up a fair amount.

It has improved.

Wasn't one of your-- different question -- wasn't one of your goals, Larry, to get to zero debt by year-end?

Yes. And Neil, I don't know if you've heard, we're $10m--

I did hear, yes.

--and just depending on our takedown on equipment, and our performance in the fourth quarter, I think we still will be very close.

OK. Then the other question is, how much debt would you be comfortable carrying?

Neil, we've had it in the past as high as $60m in total debt. I don't think any of us want to see that again, and you know, I'd feel better if we stay under $25m, but you know, we've had a lot higher leveraged company than we see now.

Gentlemen, thank you.

Jerry Hefernin.

Yes, just following on the last questioner's commentary, you had the thoughts of being debt-free by the end of this fiscal year?

Yes.

But I thought you said the 12% long-term debt to cap was a net debt number?

It is.

So what's the total debt level? What's the total long-term debt?

Long-term and current maturities is $26m at the end of the third quarter.

So you think you have the opportunity to generate $16m of cash to--

We've got-- and I'm offsetting-- we have some-- $6m worth of marketable securities, which I'm including with the cash, to get to $16m. That's my $10m net.

I'm sorry, I lost you there. Please walk me through that again.

OK, we have $26m in total debt, we have $10m in cash, and we have $6m in marketable securities, for a total of 16 that I'm counting against that 26, to give us a $10m net.

OK. Very good. I can work all the numbers from there. Last quarter, Freightliner was late delivering some tractors, caused you a little bit of angst as far as, you know, how many tractors you had to run things. What is going on now with your deliveries?

They're on schedule.

Tractor deliveries are on schedule? OK. Do you see any issues in regards to our auto-dedicated business, outside of the normal seasonal swings?

You want to take that, Clif?

No large impacts anywhere. We feel good about the different markets we're in right now, and you know, we'll continue to expand more into Mexico with some production facilities down there, so we don't see any major pick-ups coming on the horizon.

I might add to that, Jerry, as anything we know of right now, there is no down time scheduled in the fourth quarter other than what we've always anticipated.

Great. That's what I was searching for. Very good. Thank you very much. I'll get back in line.

[Operator Instructions]

OK, guys, I appreciate you all listening in. You know, appreciate your interest. We will continue to make the improvements that we've told you of all along, and I'm sure we'll be talking to you a lot in the fourth quarter. Ya'll take care.

[Operator Instructions]