Patriot Transportation Holding Inc (PATI) 2018 Q2 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 by any -- that any statements 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.

Our second quarter results. Total revenues for the quarter were up $586,000, while the transportation revenue, which excludes the fuel surcharge, was down $317,000 on 20,000 more miles compared to the same quarter last year. During last year's second and third quarters, we lost 2 large pieces of business. Since that time, we have secured new business, including a large contract that began in February of this quarter and was transitioned in through the end of March as we were able to hire drivers in those locations.

Compensation and benefits cost increased as a result of last year's driver pay increase and higher training cost as we added drivers in those terminals where we added business. We continue to see high driver turnover; poor applicant flow; lower quality of applicants; and we anticipate this challenge to continue to -- for the foreseeable future.

We experienced increased insurance cost during the quarter related to 2 costly environmental spills during the first half of our year, resulting in an actuarial loss of $335,000 to risk insurance. Our health insurance cost was also negatively impacted this quarter by $323,000 related to a higher-than-usual number of large claims.

And as I stated last quarter, we are working hard to rightsize our fleet and overhead to match our business levels. During the quarter, we reduced the tractor fleet and booked gains on sales of $335,000, which includes a $50,000 deposit forfeiture for a canceled property sale. This increased our gains by $131,000 over last year's quarter.

We experienced some severance costs during the quarter as we closed off small terminal in Birmingham, Alabama and reduced our management staff. As a result, the operating loss for the quarter was $292,000 compared with operating profit of $325,000 for the same quarter last year.

And on to the year-to-date results. Total revenue for the first 6 months were down $271,000 compared to last year, while transportation revenue, which excludes fuel surcharges, were down $2,006,000 as miles declined by $579,000 (sic) [579,000] versus the same period last year.

Compensation and benefits increased as a result of last year's driver pay increase and higher training cost associated with the hiring of new drivers for new business and as we continue to experience higher driver turnover. Our SG&A expense increased mainly due to severance cost; reorganizing our IT department; and higher advertising costs for driver hiring. Fuel expense decreased for the first 6 months by $997,000 as we drove fewer miles, and fuel surcharges increased due to higher fuel cost.

As we continue to rightsize our fleet, we have decreased depreciation expense compared to last year. The result is a trending increase in productivity of our assets with increased revenue per truck, as we added business, we improved driver productivity and revenue per driver. As a result, operating profit was $452,000 compared to $1,573,000 in the same period last year and a net income of $3,404,000, which includes $3,041,000 of benefit from the Tax Cuts and Jobs Act of 2017.

The 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 began in February and was added incrementally over a couple of months.

Management will continue to monitor market conditions and evaluate each opportunity and its potential impact on our bottom line results prior to making a pricing decision. Management continues to make adjustments to the strategy and the 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. We recognize risk insurance -- we recognized risk insurance losses during the quarter, which further highlights the need to focus on accident prevention.

Patriot and the trucking industry faced some very serious headwinds with the shortage of qualified drivers and associated high driver turnover. We have and will continue to search for ways to make Patriot the preferred employer for qualified drivers. We increased driver pay and added 2 days of vacation during the third quarter last year, enhanced our driver training process to 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. We are working with industry associations like the Florida Trucking Association and National Tank Truck Carriers to determine ways to attract workers to our industry and improve the driver pool.

During the second quarter of fiscal 2018, our insurance broker performed perception surveys at a number of our terminals and at corporate office, with a focus on safety, culture and compensation and other critical business items. We recently met to review the results and are in the process of determining next steps to improve those areas recognized as needing improvement. We were pleased to note that the safety processes and safety culture received high marks from our employees, and we will continue to build on that positive safety culture.

We continue to work through a number of IT projects and are making progress. We are focused on implementation of our new automated billing software and conversion of our servers and systems to a third-party cloud service provider. We believe all these projects are critical to our future success as they provide significant benefits to our drivers, our employees and as well as our customers.

Management is not pleased with the financial results from our business, and we will continue to make necessary adjustments to our plan to improve our bottom line results. With the addition of business in the last year's fourth quarter and the addition of business in the second quarter of this year, along with the rightsizing of our fleet and fixed costs, we believe we are making progress. We will continue to rely on our lack of debt; strong balance sheet; our industry-recognized safety and service record; and 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'll be happy to entertain any questions.

(Operator Instructions) Our first question comes from Jason Ursaner with Bumbershoot Holdings.

It sounds like it was a tough quarter. The replacement business, what can you say, I guess, about the size or scope of that win? And you kind of mentioned integrating it over the course of a couple of months, it sounds like? This is with an existing customer already?

I think you'll see, with next quarter's numbers, it's a sizable piece of business that's with a large, established customer of ours that's spread across -- the new portion of that business is spread across 4 to 5 of our terminals, where we've been able to add drivers. So I think you'll certainly see some benefit to that. I don't know that I need to comment on the exact size of it.

Okay. But just general, how did -- you said 4 or 5 terminals, how does it look overall, geographically, where you're adding business versus where you lost business? Kind of -- are there any terminals that are doing particularly well or particularly poorly?

Jason, there's -- we've got 20-some-odd terminals, and on any given year, that changes. The -- I think the answer to your question -- a broad answer to your question is that it -- where we lost the business versus this year is somewhat significant but maybe not so much because we've already made adjustments to those changes in size with fleet and personnel. Really, in today's environment, it's more about where we can add the truck driver so that we can add business. The truck driver is the dominating piece in today's market. And there's some of those markets where we lost business last year, where drivers were very, very difficult to hire, so growing back there is tough.

Got you. And I guess, kind of focusing on that for a second. The opportunities for new business, I mean, I can -- there's tons of articles about the very, very tight conditions in the truck driver market that you've been talking about for some time. I guess, how is it not leading to better margins being absorbed through the freight side? And if it's not, when do you kind of -- I mean, how aware are customers of this issue for you guys and kind of the ability to pay more?

I think a little. You got segments of the trucking industry, right? So I believe our segment of the trucking industry maybe has been a little more competitive a little longer than maybe the truckload sector. I think, if you're reading transport topics, you're probably reading some stories about some positive momentum in that truckload sector. But we've still got or have had a decent amount of capacity and competition. I think anybody that is reading the same thing that you are reading would believe that that capacity is continuing to tighten up. And as you're unable to cover business because you don't have drivers, you would think that there would be an improved market for better pricing. It just hasn't happened in our segment quite as quickly as it has in the truckload sector.

Okay. And what is the current tractor size or -- and trailer size? I guess, when you said you've -- kind of rightsizing it, what's the desired size to get down to at this point?

We're roughly at 410 tractors. That's a little bit of a moving number, but we're right at 410. We've dropped the size. I don't know if John...

550 trailers.

550 trailers, but we're at 400 and -- just under -- right at 410 tractors.

Company.

Company-owned tractors. We have some owner-operators.

Okay. And in terms of the tractors and trailers that you're keeping, I mean, age, obviously -- I mean, everything kind of running well, looking pretty good. Is there any secured debt on any of those assets?

No, no debt. Yes, our -- in fact, our fleets -- because we downsized the fleet, the average age has actually gotten better. We're not going to -- we don't plan any purchases of tractors for the remainder of this fiscal year. We shouldn't have to buy new tractors until the first quarter of next fiscal year.

And what is -- I'm sorry?

Go ahead -- so just by virtue of doing that, the fleet age has gotten younger.

Okay. And any estimate for CapEx budget for the year at this point?

Did we...

We did update that.

I think we did update that.

It's $5.5 million.

$5.5 million in total?

In total.

So $5.5 million in total, Jason, which is quite a bit less than we had planned. Yes, I think it was -- I think the projection originally was $10.5 million, just to throw you a number.

Okay. And most of that reduction would be related to the fact that you're not -- you don't need to buy any trucks?

Correct.

Okay. And just when [do you] file the ...

We did take on some leases -- leased tractors as opposed to buying tractors in a few markets where it made sense for us to operate that way for maintenance reasons and fuel. We didn't own property in those terminals, and it made more sense to do that.

Okay. And just when do you plan to file the Q?

It would be in early May.

In early May.

Our next question comes from Tim Chatard with Quantum Capital.

Maybe just a couple [things]. Do you have a CapEx number for the quarter? $5 million for the year. What was the quarter's, if you have a rough number?

John is taking [a bit of time] here.

The 6 months was $1,812,000.

Okay. I was just curious if there was an update on the Tampa real estate.

I can give you an update there. We -- I'm pretty sure, on the last call, we talked about our plans. So we are -- our plan is to get that piece of property essentially fully entitled for development and then take it back out to remarket to the retailers, and we are making good progress there. Probably be another few months until we have the entitlement package approved, assuming that we can get it approved, but we feel pretty confident we can. And then, again, we take it back out to the market, probably this summer -- maybe later, maybe the fall.

Got it, okay. I was kind of working out -- the prior quarter, you talked about another 9 months or so from the time that we were updated, I think, in January, February time frame. So it only sounds like the entitlements -- your expectation would be at some point in calendar 2018, at least.

I would say yes.

Mr. Sandlin, there are no more questions at this time.

Great. Thank you. Thank you for your questions, and thank you for your interest in Patriot Transportation. Have a good day.