Patriot Transportation Holding Inc (PATI) 2017 Q4 法說會逐字稿

Ladies and gentlemen, thank you for holding. We'll have our speakers and conference. (Operator Instructions)

I would now like to turn this conference over to Rob Sandlin, Chief Executive Officer of Patriot Transportation Holding, Inc. Sir, you may begin.

Thank you. Good morning, 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 Executive Vice President and General Counsel; Matt McNulty, our Chief Financial Officer; and John Klopfenstein, our CAO.

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 the could cause actual results and events to differ materially from those indicated by such forward-looking statements. Any 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 I'll begin with our fourth quarter results. Total revenues for the quarter declined by 11% and our miles declined by 12% versus the fourth quarter last year. The declines were due in large part to the loss of business related to a large customer bid in the second quarter and management's decision not to lower rates to the level required to maintain the business. Additionally, another customer continued expanding their private fleet and reducing our business levels.

Revenues were also negatively impacted this quarter due to Hurricanes Harvey and Irma. Hurricane Harvey decreased product availability along the petroleum pipelines, and we experienced significant downtime and productivity loss. Hurricane Irma more directly impacted our operations as the state of Florida shut down for 2 or 3 days depending on the markets and our dry bulk operation in Florida was down for an entire week. While hurricane evacuation petroleum volumes are always high, this type of business is generally less productive with long lines, unpredictable traffic patterns and other negative occurrences leading to inefficient utilization of our equipment. Based on communications from our customers and our internal assessments, management was pleased with the safe and reliable service our employees provided to our customers during Hurricane Irma and the extra effort they exhibited during the difficult operating environment. We believe we will benefit from this service performance with our customers in the future.

Our revenue per mile increased versus the prior year as we continue to focus on better rated business. Fuel surcharge revenues increased due to higher diesel prices and the positive benefits from renegotiating fuel surcharge tables with several key customers last year. Compensation and benefits declined due to lower miles driven, but were negatively impacted on a per mile basis due to management's decision to increase driver pay at the end of third quarter, adding 2 days of vacation time for our drivers and moving the forward start date of our first seniority plan to 6 months of service.

I'm going to talk about our year-end results. Today, total revenues declined by 6.7% and revenue miles declined by 11.4% versus last year, mostly attributable to business loss and a competitive bid due to rates, privatized -- privatization of a customer fleet, lower demand for gasoline in earlier part of the fiscal year and Hurricanes Harvey and Irma late in the year. Revenue per mile increased by 3% over last year, which partially offset the reduced miles. Fuel surcharge revenues were up $2,251,000 due to higher diesel prices and the positive benefits of renegotiating fuel surcharge tables with several key customers.

Our team worked hard throughout the year to replace the lost business and had success in some markets adding business during the year and adding some sizable business in a few markets during the fourth quarter. We will continue to focus our efforts on adding quality business in those markets where we are able to hire drivers.

Compensation and benefits decreased due to fewer miles, but was negatively impacted by the driver pay and benefits cost that I mentioned earlier. Insurance and losses increased 3.6% versus last year due to increased risk and health claims. Our depreciation expense increased, but was offset by reduced equipment leasing as we continued to replace leased equipment with company-owned equipment. We maintained our fleet for higher revenues throughout most of the year, but began reducing the number of tractors during the fourth quarter, and we'll continue to rightsize the fleet going forward based on business demand.

Summary and outlook. Management is not pleased with the year's financial results, and we'll continue to make adjustments to the strategy and operating plan to improve our profits. One of the adjustments is to rightsize our fleet and the fixed cost to fit the current business level. As we do so, we are focused on improving tractor utilization with a higher driver to truck ratio and increased revenue per truck.

As was mentioned in our last few calls, Patriot and the industry faced some very challenging headwinds in the immediate future, the most formidable being the shortage of qualified drivers. We have and we'll continue to search for ways to make Patriot the preferred employer for qualified drivers as well as the preferred carrier for our customers. We increased driver pay, added 2 days of vacation effective June 30, and we continue to make changes, including an enhanced driver training process that will positively impact safety and the mentoring of our new drivers. Driver pay will continue to rise, and the added costs will have to be paid for with higher freight rates.

Management continues to focus on ways to improve our driver pool, improving -- including improving our driver marketing efforts, lowering the initial age requirement for drivers from 25 to 23 years of age and increasing the recruitment of owner operators. Management also understands that regardless of what changes we make to attract and retain drivers, we must maintain the safe culture and performance that has made us successful in the past. We recently engaged our insurance broker to perform a perception survey at a number of our terminals in the corporate office and are focused on safety, culture, compensation and other critical business items. In the past, we completed a perception survey and successfully used the results to pinpoint specific areas of needed improvement.

As mentioned earlier, we experienced some business loss due to competitive freight bids and 1 customer moving more of their hauling needs to 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 the market condition and evaluate each opportunity and its potential impact to our bottom line results prior to making the pricing decision.

Another focus will be private fleet acquisition. We believe that the continued tough driver market, increased cost of capital, the ELD mandate and rising risk insurance rates will provide opportunity in this area. Our team will be talking with all of the private fleet owners in our markets during the first 6 months of fiscal 2018, and similarly, we will continue to look for transportation-related acquisition opportunities in our existing markets and those markets bordering our geographic footprint.

We are near completion on the install of 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 software in our tractors so that we simplify the driver's data entry during loading and unloading and to also improve the delivery information and invoicing for our customers. The enhanced safety awareness provided by these new systems will provide realtime exception data for our managers and allow us to improve driver feedback and performance reviews.

Management is disappointed with the loss of business during this year and the financial results of our year. We have experienced business loss in 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 rely on our lack of debt, our strong balance sheet, our industry recognized safety and service record and the experienced management team to work through this difficult market and return to acceptable profit levels.

Thank you again for your interest in our company, and we will be happy to entertain any questions you may have.

(Operator Instructions) Our first question will come from Tim Chatard, Quantum Capital.

There was a mention of a facility sale that didn't go through. What's the update on that? Is there any potential for another buyer there? Or what's happening with that process?

Yes, I would say -- this is Matt McNulty. I believe, yes, there's definitely an opportunity for another buyer there. It was just a -- this particular developer was led to a specific tenant, and the tenant ended up backing out on the deal. So we will remarket it just the way we have marketed it before. And yes, I think it's a very desirable property that will get a lot of attention again.

Okay. Can I shift gears and ask another question?

Of course.

Yes.

Great. So M&A, you mentioned you've been looking to talk with other private fleet operators in your geography. Just hypothetically, how many transactions like that have you done in the past? And then looking forward, would you consider transactions outside of your current areas of business, i.e., fuel, which seems to be kind of a core area for you. Would you be looking at other types of freight? How -- what -- their fleets have been their fleets, and so I'm just curious how far afield you would consider shipping the business or adding to your current business mix?

So Tim, it's something we're talking about. On the M&A piece that I mentioned -- this is Rob Sandlin. The M&A piece that I mentioned earlier on the private fleet acquisition, over the years, we've done double-digit numbers of those private fleet acquisitions and merge them in, and still some of those folks are still -- have been long-term customers for us. Most recently, we did one, April 1.5 years ago, that was a 16-driver, 7-truck fleet transition, and we're still hauling that freight today and we're able to maintain most of that driver force. Then we did another one of those later that year, which was smaller at another one of our terminals. And so they come up from time to time. I think there's about -- like I said in the notes earlier, I think the market is probably right for some opportunity there. So we're reaching out and already have to the private fleet owners, and they're mostly either convenience store operators, regional convenience store operators or using an older term petroleum jobbers that may have 2 trucks to 10 or 15, and it's kind of a typical range of size there. So we would look at those. Certainly, trucking fleets that are common carrier are always an interest to us. The larger they are, the more likely we would be interested to go outside of our geographic footprint. We certainly would welcome opportunities inside of our footprint where we could add on to our business level and consolidate some cost on one of our terminals. And I think there's some other areas that we may look at, and we just -- we haven't gotten very far down that line whether you start looking at logistics opportunities or not, but it's something we've talked about.

(Operator Instructions) Speakers, at this time, we have one other question from Tim Chatard, Quantum capital.

Yes, I'm back, I guess, more about you. What about pricing for 2018 and how does that work with your customer base? When do pricing negotiations usually takes place for you? And what is -- what have you accomplished so far for next year? If you can just give me a feel for that.

Sure. I'll tell you as much about that as I can. We're in the midst to doing some of that now. The answer to the first part is, it really happens throughout the year based on your contract date. And then for those accounts that we don't necessarily have an agreement date with, it's pretty fluid. And we tried -- we have tried, historically, to do our pricing adjustments annually so that we don't have to -- so we don't wait 2 or 3 years, and then all of a sudden, need a lot larger number. And so that's -- we're staying with that pattern. We're in the process now this fall doing a large number of those. Some of your larger customers are contractual, and so they happen throughout the year. But we're seeing a typical market out there. It's a tough market, but we're hopeful, as we've said, that some of these challenges with insurance and the ELD market and the shortage of drivers that the market comes to its senses and starts allowance for some upper price pressure.

Yes, yes. Here's another for you, just to demonstrate my ignorance. Was this ever made public who the customer wants to privatize their fleet to cause the drop in business earlier this year?

No, it was not.

Okay. So I'm not the only guy that doesn't know that?

No.

And it's not anything you can disclose?

No.

No, I don't think we should.

We don't typically disclose really anything about specific customers

(Operator Instructions) Well, Speakers, at this time, we have no further questions in the queue.

Great. Thank you, thank you all for your interest in our company and for being on the call today.

Thank you very much. Ladies and gentlemen, at this time, this conference has now concluded. You may disconnect your phone lines and have a great rest of the week. Thank you.