Patriot Transportation Holding Inc (PATI) 2018 Q1 法說會逐字稿

Excuse me, everyone, we now have Rob Sandlin, President and CEO of Patriot Transportation Holding, in conference. (Operator Instructions) I would now like to turn the conference over to Mr. Sandlin. Mr. Sandlin, you may 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 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 statement made during this call that relates 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. Additionally, information regarding these and other risk factors and uncertainties may be found in the company's filings with the Securities and Exchange Commission.

Onto our first quarter results. Total revenues for the quarter declined $857,000 and our miles declined by 6% versus the first quarter last year. The declines were due in large parts to the loss of business in the second quarter last year, related to a large customer market bid. Additionally, another customer continued expanding their private fleet and reducing our business levels. Through the end of the quarter, we were successfully -- we were successful in replacing a good bid of this business and continued to pursue business in markets where we could hire and retain drivers. During the quarter, business levels in October and November were fairly normal, but we experienced some weather-related slowness in December, which impacted our dry bulk operation and several petroleum terminals missed shifts due to snow and ice. Fuel surcharge revenues increased due to higher diesel prices and net fuel expense declined by $614,000 due to fewer miles driven and higher fuel surcharges resulting from higher than average diesel prices. Compensation and benefits declined due to the lower miles driven but were higher on a per mile basis due to management's decision to increase driver pay at the end of last year's third quarter. We, along with the industry, continue to struggle with the shortage of qualified drivers and the related driver turnover.

Management continues to rightsize our business. We reduced SG&A costs, sold excess equipment, which reduced depreciation during the quarter. Selling excess equipment will be a continued focus for management as we stress lower depreciation cost, improved equipment utilization and increased revenue per truck. The impact of these 2 expense reduction initiatives should be fully realized by the third quarter. Operating profit for the first quarter was $744,000 compared to $1,248,000 in the same quarter last year, and our operating ratio was 97.3.

Now onto our summary and outlook. Management continues to focus on adding business in those markets where we can attract and retain drivers. We recently entered into a new 3-year agreement with one of our largest accounts that will significantly increase our business levels with this customer. The business begins in February and will be added incrementally over a couple of months. Management will continue to monitor the market conditions and evaluate each opportunity and its potential impact to our bottom line results prior to making a pricing decision. Management continues to make adjustments to the strategy and operating plan to reduce our expenses and improve our profits. Currently, that focus is on improving safety to reduce insurance-related expenses, reducing driver turnover and improving our revenue per truck. Patriot and the industry face some very tough or 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 for qualified drivers as well as preferred carrier for our customers. We increased driver pay and added 2 days of vacation during the third quarter last year, 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, at least annually, and the added cost will have to be paid for with higher freight rates. Management continues to focus on ways to improve our driver pool, including improving our driver marketing efforts, lowering the initial age requirement 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 safety culture and performance that has made us successful in the past. During the second quarter of fiscal 2018, our insurance broker will perform perception surveys at a number of our terminals and the corporate office, which 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. Another focus would be private fleet acquisition. We believe that the continuing tough driver market, increasing cost of capital, the ELD mandate, which took effect in December of 2017 and rising risk insurance rates will provide opportunity in this area. We are 90% complete on the install of our new onboard computer system, which utilizes an Android tablet, and we look forward to the enhanced safety awareness, the simplified workflow for our driver and the improved information flow for -- to our customer. This quarter, we will also be focused on implementation of our new automated billing software and conversion of our servers and systems to a third-party cloud service provider. Management was disappointed with the loss of business during last year and the financial results of fiscal 2017. We have and will continue to make the necessary adjustments to our plan to improve our bottom line results, with the addition of business in this last year's fourth quarter and the addition of business in the second quarter of this year, along with rightsizing of our fleet and fixed cost, management believes we are making steady progress. We will continue to rely on our lack of debt and strong balance sheet, our industry recognized safety and service record and experienced management team to work through this difficult market and return to acceptable profits. Thank you again for your interest in our company. We will be happy to entertain any questions.

(Operator Instructions) Our first question comes from Tim Chatard with Quantum Capital.

A couple of questions. On the -- did you disclose a CapEx figure for the quarter and if you're still in the process of selling equipment I'd be curious to know kind of how that nets out versus what you spent during the quarter and maybe how much you have left on a -- kind of rationalizing the equipment base?

Okay. We're going to check that number real quick for you. Well, about $1 million. About $1 million in purchases in the quarter. And you're looking for the sales number?

Yes, if -- just a broader question of kind of the idea of rightsizing the fleet, if -- I guess, if you have any goals for total CapEx, purchased equipment minus a goal of selling a different number and kind of what the net might be for the year. Any color on that?

Yes, Tim, this is Rob. I think where we are on that right now, we are right in the middle of one, taking on a new piece of business and rightsizing our fleet. And I think we will have a better feel for what that does to our replacement cycle on the tractors. Once we get that finalized and have a really good understanding of how many tractors we'll need to take on the added business. But I would certainly expect us to -- as we're rightsizing and downsizing some of the fleet, maybe not buy as many tractors as we had initially expected, but we don't have that answer just yet.

Okay, okay. I guess I'll keep asking questions if it's okay or should I get back in queue. I don't want to...

No, no. That's -- go right ahead.

How about maybe on the real estate transaction? It was the Tampa situation, is there an update with regard to that at all?

Well, our plan right now is to go forward with the city of Tampa ourselves and get approvals for the developments, and then we'll take it back out to the market. Basically, it's fully entitled. That's our current plan.

But it is not under contract. It is not under contract at this time.

Any sense for what kind of timeframe that would -- what does it take to get those types of permits? I guess it was a terminal with raw land attached, right? And not being a real estate developer, I don't know all the ins and outs of Florida real estate, but I'm just curious what that -- if there's any timeframe and what that might look like?

Yes. As I think -- I mean, think from where we are right now, we've got some work to do to get everything pulled together. But I think you're probably looking at somewhere in the 9-month range to be fair and conservative. Could be faster, but I think that's a fair amount of time.

Okay. How about just in looking at the revenue miles? It looks like maybe a couple of related questions here. But the revenue per transferred mile -- transport mile seemed roughly flat on a year-on-year basis. The miles are down as you've telegraphed. Would you think the 2Q, the fiscal second quarter, third quarter will be positive in a revenue mile comparison to the prior year? I'm just trying to figure out when the revenue miles might turn on a year-on-year basis.

Good question. I think it probably has to do with how quickly we're able to take on this new business and get the drivers geared up. And what that transition looks like. So -- I don't know that I could really answer that question at this time.

The -- with the driver market being as tight as it is, other operators out there have talked about pricing for -- I don't know your business is different from some of the other publicly traded transportation carriers out there. But I'm just curious kind of how your pricing looks for the current year, given the challenges with drivers?

Well, pricing moves up, and you're right, our business is different than the general freight business. Their business, typically, is more cyclical, and more -- I guess, it moves faster than what our market does. Both up and down, because there's a lot of spot business in those markets and our agreements and service agreements with our customers are typically a little longer in nature and don't move as often. We are seeing pressure in the marketplace driven by low margins, obviously, and driver pay, just probably not at what you're seeing in the dry freight market because they were so depressed.

Okay, so less volatility generally, the pricing is the contrary. Yes, but directionally, it would seem like you'd have to be recovering your investments in drivers, with any new...

The marketplace is -- I've said that the marketplace was going to have to pay for the driver pay increases and the driver pay is going to have to continue to go up.

Right. And you alluded briefly to M&A before, and I'm just kind of curious if there's any other color you can add to M&A if -- you anticipate doing a transaction in this fiscal year, or is it hard to say or -- a lot of candidates, or hard to say?

It's hard to say at this point.

Okay. I think that's -- actually I can keep going here. You mentioned...

You want to see if anybody else has a question (inaudible) come back in.

(Operator Instructions) Okay. And there is no further question, so if you would like to keep going.

Yes, maybe I'll just ask one more on the safety. The insurance broker audit, I'm just curious what type of things they might be looking to improve or what types of recommendations might come out of them?

Yes, Tim, what I can do is I can tell you what we did last time. What we found last time was the terminals or dispatch offices or driver groups that maybe -- where there was a disconnect between what we felt like our safety culture and our processes and procedures needed to be and the disconnect between either corporate and the driver, the manager, the local manager and the driver or the dispatch and the driver or all 4. And then what was causing those disconnects and then going out and repairing that and trying to build the right culture, so that everybody really does understand that it's a safety-first environment. And that's the one place that we can differentiate ourselves from our competitors. We all buy the -- John Milton has said forever, " We all buy the same trucks, and we buy the same insurance." But on our self-insurance retention level and our frequency in our loss run, if we can control the safety aspect of our business and the culture then we can drive frequency, which is what we measure out of the business and ultimately that saves us money. This particular time, we threw some questions in there about driver compensation, driver retention and some other areas that maybe are a little bit broader than what we had done before. But we're hoping to get very similar results as we did last time and then build into the system how we drive improvement there. We're going to get those -- we'll have those results back at the end of March.

(Operator Instructions) Alright. And Mr. Sandler, there are no more questions at this time.

Thank you. Thank you all again for your interest in Patriot and for being on the call. Have a good day.