Patriot Transportation Holding Inc (PATI) 2017 Q1 法說會逐字稿

Excuse me, everyone. We now have our speakers in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of today's presentation, we will open the floor for questions. (Operator Instructions) It is now my pleasure to turn the conference over to the Chairman and CEO of Patriot Transportation Holdings, Tom Baker.

Good afternoon and thank you all for being on the call today and for your interest in Patriot Transportation. As mentioned, I'm Tom Baker, Chairman and CEO of Patriot Transportation; and with me today are John Milton, our CFO; Rob Sandlin, our Vice President; and John Klopfenstein, our CAO.

Before we get into our results, let me caution you that any statement made during this call that relate to the future are by their nature subject to risk and uncertainties that could cause actual results and events to differ materially from those indicated by such forward-looking statements. Additional information regarding these and other risk factors and uncertainties may be found in the Company's filings with the Securities and Exchange Commission.

Total revenues for the first quarter of fiscal 2017 were $28,758,000, which is down $613,000 or 2.1% from last year's first quarter. Transportation revenues, excluding fuel surcharges, were down $750,000 or 2.7% from last year's first quarter.

Due to improved pricing and better equipment utilization, transportation revenue per mile increased by 3.7% from last year's first quarter. Net income for the quarter was $912,000 or $0.28 a share compared to net income of $1,375,000 or $0.42 per share last year. Prior-year net income includes $1,029,000 or $0.31 per share from the settlement of a claim in connection with the 2010 Deepwater Horizon event.

Now let me turn the call over to Rob Sandlin give you more details about our first-quarter results.

Thank you, Tom, and thank you all for being on the call. I will now take you through the operating results for our Company for our first quarter ended December 31, 2017. During first quarter our revenue miles decreased by 5.6% versus the same quarter last year, and transportation revenues, excluding fuel surcharges, were down 2.7% as a result of lower revenue miles. Fuel surcharge revenues were up $137,000, while our gross cost of fuel was up $79,000 versus the same quarter last year.

Over the past few quarters we have discussed revisions that were made to fuel surcharge tables with many of our key customers during the second and third quarter of last year. As a result we have seen a much more neutral margin impact from net fuel expense, and we expect that trend to continue into the future.

Compensation and benefits decreased $488,000 due mainly to $291,000 lower driver training pay and less miles driven. Insurance and losses were lower by $313,000 versus the same quarter last year due to the favorable final settlement with our insurance company of all fiscal 2013 liability and workers' compensation claims, combined with lower self-insurance health claims, accident repairs, and product losses. Depreciation increased $314,000 but was mostly offset by lower repairs and equipment-leasing costs as we continue to buy new tractors to replace leased tractors.

Corporate expenses were $341,000 lower than the same quarter last year, due mainly to $254,000 reduction in professional fees versus the prior-year's quarter, in which we had some nonrecurring transactions take place. As a result, operating profit this quarter was up $649,000 to $1,248,000 compared to $599,000 in the same quarter last year. Operating ratio was 95.7 this quarter versus 98.0 in the same quarter last year.

The overall driver turnover rate improved as compared to our experience over the past two years. However, we also saw a decrease in the flow of qualified applicants, causing a reduction in our average driver force down to 670 drivers from 700 in the same period. As a result, our management team is working on several initiatives to improve our applicant flow to continue to improve rate of driver retention.

[Now for summary] and outlook: the shortage of qualified drivers is the biggest headwind we face today; it is a concern as we head into the seasonally busier months. We will remain focused on hiring qualified drivers and are hopeful the applicant flow will improve as we move past the holidays and into the new year -- and we have already begun to see signs of improvement. This year we are implementing several new technologies which we believe will enhance the driver experience, improve customer satisfaction, and ultimately improve our bottom-line results.

Two large insurance underwriters left the transportation market in 2016, which impacted insurance premiums in primary and secondary layers of insurance throughout the industry. We believe the continued pressure on insurance rates, the pending electronic log mandate set for December 2017, and the continuing driver shortage will create a tighter supply of viable carriers and thus provide rate pressure over time. With these focuses in mind, we are optimistic we will achieve our targeted results this year.

Thank you again for your interest in our Company. I will now turn it over to Tom Baker.

Thank you, Rob.

As Rob just mentioned -- and I mentioned on our last call -- Patriot and the industry face some very challenging headwinds in the immediate future, the most formidable being the shortage of qualified drivers. We have and will continue to search for ways to make Patriot preferred employer for qualified drivers as well as preferred carrier for our customers. These challenges are also opportunities, and I feel confident in our team's ability to perform in a successful manner.

We'll be happy to entertain your questions at this time.

(Operator Instructions) Jason Ursaner, Bumbershoot Holdings.

Just a couple of questions. I guess first on the revenue miles, maybe I missed it -- what kind of caused the year-over-year decline in miles driven?

The transportation miles were down primarily to a lower total number of drivers than what we had this time last year. And we had (multiple speakers)

So it's not a customer issue; it's a capacity issue more than anything?

It's a capacity issue. And Jason, as I recall, there were one or two pieces of business that -- customers that lost their business, and so the business we were hauling for them went away, in one market in particular.

Okay. And on pricing, you mentioned the fuel shortage -- sorry. You mentioned the fuel surcharge kind of being fixed a little bit. But in terms of the driver shortage, I guess, where do you think we stand in pricing on the base rate? And to the extent you are seeing a meaningful driver shortage, at some point shouldn't that translate into kind of more meaningful increases in base rates?

Jason, I would say yes; it's just a matter of when that really occurs. I think it's a combination of driver shortage, of current capacity in the marketplace, and then I think the electronic log mandate for 2017 could be that additional, added pressure that you would need, and it's just a matter of when. But yes, we believe that.

All right. Jason, this is Tom. All signs, as Rob just said, point to the fact that we should be able to get some help on rate. I would tell you today it's still very difficult. We are fighting mightily to get to any meaningful rate increases (inaudible).

Okay. And the operating ratio obviously was pretty good for a first quarter. In terms of the adjustment for the insurance settlement versus, I guess, more general improvement in insurance, how should we kind of think about that? And typically, you would show profit growth throughout the year as you kind of -- well, ideally, in a good safety scenario you are reducing your loss pick as you get closer to year-end. I guess just overall, how are you thinking about margins for the balance of the year?

Jason, John Milton. The insurance -- normally in the first quarter, we do not do an actuarial analysis, and so we really have no adjustment to our -- to speak of -- to our losses. But we took that into income because we closed out the 2013 year. That was about $150,000 pretax. So it's not the biggest portion of the operating profit for the year.

Okay, and just last question for me: any update on the Tampa property and the MacDill Air Force Base? Obviously, last quarter the state of Florida (multiple speakers) a little bit, but clearly there could be a meaningful portion of value relative to the size of the Company.

Yes, Jason; thank you for asking. We just entered into a contract with substantial contingencies, but for the sale of that whole property, for $14 million. It is a long-term contract, because the developers have to deal with their respective tenants. And it's really a pool of three different developers coming together to utilize the whole site. So we don't expect that transaction to close, even if everything goes perfectly, for at least another 15 months.

Okay, great; I appreciate that a lot. Thanks.

Jay Kilroy, Willis Investment Counsel.

Two questions. One, Rob's last comment was -- it basically said something to the matter of: we are optimistic we will achieve targeted results this year. Does that reconcile with the last comment in the press release about your targeted operating ratio in the low 90s and double-digit returns on invested capital? When you talk about targeted results, is that what you are referring to?

This is John Milton. We do not publish our budget, and we do not publish targets. We don't predict earnings.

And so really, we have internal targets to which Rob was referring. Your operating ratio is obviously one of our key metrics, and we would expect that to go down, even from the numbers we experienced in the first quarter.

Okay, but what you're saying is: don't reconcile that with the -- sort of the low 90s, in other words?

I think that's a little optimistic.

Okay, okay. The next question is just in regards to -- how do you think about the driver shortage as it relates to a potential labor squeeze? Obviously you read a lot about that with the new Administration. Do you think that there's the potential that the driver shortage becomes even worse, given all these infrastructure projects? Or do you see sort of the driver community as somewhat contained? How do you think about that?

This is Tom Baker. I think it's going to get worse. Everything is working towards that. The average age of the driver in the United States at this time is going up; there are not a lot of young people coming into the industry. So I don't see any relief on the way.

And to your point, we have lost some drivers here recently -- that have been with us for significant periods of time -- to go into construction business. So as that ramps back up, that is not going to help things.

I think it's a big headwind and a real dilemma for the industry. And I think those guys that are good at attracting and retaining drivers will be the people that will be successful, and that's obviously what our goal is -- to be one of those.

My final question related to sort of the M&A environment. I mean, one of those reasons I saw you spun this Company out was for strategic growth, to use $25 million bank lines, and your stock as currency, and to grow the acquisition. Is that one of the reasons we haven't seen any progress over the last 18 months in terms of M&A, is because you are scared of acquiring companies and then losing the drivers? I mean, how do you think about that?

This is John Milton. I think a couple of things. First of all, the two transactions in our industry that were most publicized 12 and 14 months ago had significantly high multiples of EBITDA in those transactions. And I think it somewhat led some of the people that might otherwise be reasonably available for acquisition to have unreasonable targets.

We do not want to make an acquisition on which we cannot make a reasonable return. So I think a number of offerings have been limited. Rob Sandlin earlier referred you to dynamics that are happening in the industry with insurance pressures and the 2017 deadline on electronic logs. That may push some of the smaller players into being for sale. We've experienced that with one small acquisition we did this past year. And if that happens, we will be right there to take advantage of it. But once again, the issue is not to get larger; the issue is to grow where you can make a return.

Okay, that's all I have. Good luck, guys.

(Operator Instructions) Jason Ursaner, ?Bumbershoot Holdings.

Thanks for taking the follow-up. Just on the last question -- those two transactions, John, that you mentioned -- you are talking about Keenan and Quality?

The -- yes, the public numbers, yes.

Okay. And I guess just following up on it more broadly, you know, overall on capital allocation, you have a pretty large asset base. You don't have any debt.

And with the Tampa property, obviously there's contingencies and it's going to take a while, but it is unencumbered real estate. It's at, call it, 10%-plus of the overall market cap. I mean, when you're thinking about acquisitions, are they more transformative in size? Or -- because there are other things that, I guess, you could be doing with capital allocation relative to your overall value in terms of either buying back stock or reinvesting in new terminals.

Well, two things: first of all, you have a driver shortage that is the most critical item on our mind. So growing organically means we have to first of all be able to grow our driver force. We are focused on that. But again, that is our biggest limiting factor on organic growth. We have the capital; it's attracting the drivers that is our challenge.

As to the question of growing externally by large or small acquisition, we have no target size limits one way or the other within our means of affording. It's just that we haven't been able to find the opportunities on which we thought we could make a return.

Okay, understood. I appreciate the questions.

(Operator Instructions) I'm showing we have no questions in the queue.

Well, thank you all for being here and listening to us, and we look forward to talking to you again next quarter. We appreciate it; thanks.