Patriot Transportation Holding Inc (PATI) 2017 Q3 法說會逐字稿

Excuse me, everyone, we now have our speakers in conference. (Operator Instructions)

It is now my pleasure to turn the conference over to Rob Sandlin, CEO of Patriot Transportation Holding. Mr. Sandlin, please begin.

Thank you. Good afternoon, and thank you all for being on the call today and for your interest in Patriot Transportation. I am Rob Sandlin, CEO of Patriot Transportation, and with me today are John Milton, our CFO; John Klopfenstein, our CAO; and Matt McNulty, our Vice President of Administration.

Before we get into our results, let me caution you that any statements made during this call that relate to the future are by their nature subject to risks 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.

Now to our third quarter results. Total revenues for the quarter were $28,104,000, down $3,258,000 from the same quarter last year. Our revenue miles declined by 1,685,000 miles or 15% to 9,524,000 versus the same quarter last year due in large part to the loss of business related to customer bids and management's decision not to lower rates to the level required to maintain the business and one customer that is moving hauling to their expanded private fleet.

Our transportation revenue per mile increased by 2.4% over the same period last year as we continue to increase prices in some segments of our business. Fuel surcharge revenues were up $654,000 to $1,829,000 due to higher diesel prices and the positive benefit of renegotiating fuel surcharge tables with several key customers last year.

Due to the difficult driver hiring market, management decided to increase driver pay at the end of this quarter, added 2 days of vacation time for our drivers and moved forward the start date of our first seniority pay plan to 6 months of service instead of 1 year of service.

The 2 added days of vacation resulted in a $263,000 charge to the quarter for vacation accrual. Our goal is to reduce driver turnover and increase driver capacity in those markets where we are able to add quality business.

On a per mile basis, our variable costs were in line with our expectations. Compensation and benefits decreased $760,000 due to fewer miles driven.

Net fuel expense decreased by $1,063,000 due to fewer miles driven and higher fuel surcharges. Insurance and losses were down by $169,000 versus the same quarter last year due mainly to favorable adjustments to risk, partly offset by higher health claims.

Operating profit this quarter was down $1,756,000 to $534,000 compared to $2,290,000 in the same quarter last year. The operating ratio was 98.1 this quarter versus 92.7 in the same quarter last year. And net income was $456,000 or $0.14 per share, inclusive of $139,000 due to a reduced tax expense in accordance with newly adopted accounting guidance on stock option exercises compared to net income of $1,379,000 or $0.42 per share in the same quarter last year.

Now for our year-to-date numbers. Total revenues were $84,255,000, down $5,526,000 from last year. Our revenue miles declined by 3,640,000 or 11.3% to $28,709,000 -- 28,709,000 miles versus the same period last year due to an overall net loss of business due to competitive bids and lower pricing, one of our customer's continued expansion of private -- of a private fleet and the lower demand for gasoline in the first part of the fiscal year. Management has dealt with business loss in the past, and while we have had some success adding new business recently, the difficult driver hiring and retention market certainly made it more difficult and it will take longer for us to recover.

On a per mile basis, our variable costs were in line with our expectations. Compensation and benefits decreased $2,545,000 due to fewer miles driven. Net fuel expense, the gross fuel expense less fuel surcharges, decreased by $1,973,000 due to fewer miles driven and higher fuel surcharges. Insurance and losses were up $196,000 versus the same period last year due mainly to increased health claims.

Depreciation increased $690,000 but was mostly offset by lower repair and equipment leasing costs as we continue to replace leased equipment from a prior acquisition with new equipment.

Corporate expense was $82,000 lower than last year, mainly due to a $169,000 reduction in legal fees. As a result, operating profit was down $2,229,000 to $2,107,000 compared to $4,336,000 last year. The operating ratio was 97.5 versus 95.2 last year.

And net income was $1,628,000 or $0.49 a share, inclusive of $389,000 or $0.12 per share due to a reduced tax expense in accordance with newly adopted accounting guidance on stock option exercises compared to net income of $3,617,000 or $1.10 per share in the same period last year. The prior year included $1,029,000 or $0.31 per share of net income from the settlement of the claim with BP in connection with the 2010 Deepwater Horizon event.

Now for the summary and outlook. As we've mentioned in our last few calls, 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 the preferred employer of qualified drivers as well as the preferred carrier for our customers.

We increased driver pay and added 2 days of vacation effective June 30, and we continue to make changes, including enhanced driver training -- an enhanced driver training process, that will positively impact safety and mentoring of our new drivers. Management continues to focus on ways to improve our driver pool, including improving our driver marketing efforts. We lowered the initial age requirement for drivers from 25 to 23 years of age and increased the recruitment of owner-operators.

Management also understands that regardless of what changes we make to attract and retain drivers, we must maintain the safety culture and performance that has made us successful in the past.

As mentioned earlier, we experienced some business loss due to competitive freight bids and one customer moving more of their hauling needs to their expanding private fleet. As in the past, we evaluate the pricing of any business when an opportunity is presented. And in some cases, management has chosen not to meet the low price required to retain the business.

Management will continue to monitor market conditions and evaluate each opportunity prior to making a pricing decision. We have been successful adding back business at better prices in some markets, but in some of our terminals, growth has been constrained by the ability to hire and retain drivers. We continue to believe that tight driver demand, increased cost replacement capital, the pending electronic log mandate of 2017, December 2017, and tightening capacity, which we are beginning to see in some markets, will eventually lead to higher prices and better returns.

We are continuing to install our new onboard computer system, which utilizes an Android tablet, and we look forward to the improved workflow for our drivers.

We are excited to have this new hardware and simplified software in our tractors so that we simplify the driver's data entry during loading and unloading and to also supply improved delivery information and invoicing to our customer. The enhanced safety awareness provided by these new systems will provide real-time exception data for our manager and allow us to improve driver feedback and performance reviews.

Management is disappointed with the recent loss of the business in this quarter's results. We've experienced business loss and tough markets before and our management team will do as we have done in the past and build the business back.

To do this, we will rely on a lack of debt and a strong balance sheet, our industry recognized safety and service record and experienced management team to work through this difficult market and to more acceptable profit levels.

Thank you again for your interest in our company, and we'll be happy to entertain any questions.

(Operator Instructions) Our first question comes from [Lewis Mozer with Moffis Investors].

I was wondering -- I'm a new investor. I have some stock. Is your business seasonal? And if so, this particular quarter, is this going to be the lower end of your year or where does it fit in?

Lewis, thank you. This is Rob Sandlin. Typically, our business is seasonal in that it's slow in the fall of the year, really busy in the spring of the year and then the Florida market drops off in the summer typically coming into the school season, which is contrary to what some people would think. And then the rest of our markets will pick up a little bit. And that's pretty much what we've seen this year with the exception of the wintertime that was a little slower than normal. But we're seeing near-normal demand now. And typically, when school season starts back over, you will see it drop off just a little bit. But they're not huge swings.

(Operator Instructions) Our next question comes from John Lewis with Willis Investment Counsel.

Rob, I was hoping you could give us a little bit more color just on the competitive environment. With the widespread kind of tightness with drivers across the industry, how should we kind of be thinking about competitors trying to go out and gain market share by possibly underpricing and those types of dynamics?

John, thanks. It's a difficult, difficult question to answer. We are looking at your question market by market and customer by customer. Some -- it's interesting in that you have certain markets where driver applicants are basically nonexistent and so you would think that those are the markets where pricing would elevate, but that hasn't necessarily been the case. And so logic kind of goes out the window there a little bit. And so we're having to really look at it market by market and determine what's driving the pricing metric, who are the competitors and who are the customers. So wish I had a little better answer for you there, but it's a tough, tough market, and you would think that tighter capacity, tougher market conditions would be leading to better pricing, and we're hoping that that's coming soon.

Of course, I guess, that's really the question we're all trying to find out. So within those markets, would you say you're having more or a greater lack of drivers in your bigger markets versus your smaller markets? Or where does that kind of shake out?

It's -- the small rural markets are not as difficult as the large metro areas. If you took a Nashville or Atlanta, those are going to be more difficult markets. But there are some pockets where you get a midsized to small terminal where applicant flow is surprisingly difficult and hiring and retaining the drivers is tough. It really -- some of it's driven by the jobs that are available outside of trucking in those markets and not just purely trucking jobs. So you really have to look at each one of them individually and understand where that difficulty point lies.

Got it, perfect. And I appreciate your answers to the questions and congratulations on your new position at Patriot, Rob.

Thank you. Thanks for your interest.

(Operator Instructions) I'm showing there's currently no questions in the queue.

Thank you, and thank you again for your interest.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.