Patriot Transportation Holding Inc (PATI) 2018 Q3 法說會逐字稿

Excuse me, everyone, we now have Rob Sandlin, President and CEO of Patriot Transportation Holding, Inc. in conference. (Operator Instructions)

I'd now like to turn today's conference over to Mr. Sandlin. 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 Executive Vice President and General Counsel; Matt Mcnulty, our Chief Financial Officer; and John Klopfenstein, our Chief Accounting Officer.

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 for our third quarter results. Total revenue for the quarter increased $1,300,000 to $29,404,000, while our transportation revenue increased by $170,000 on 288,000 more miles. As a reminder, the second quarter of last year was impacted by the loss of 2 large pieces of business, both of which were predominantly short-haul, higher revenue per mile business.

We added a significant amount of business back during this year's second and third quarters, mostly with longer-haul, lower revenue per mile business. This resulted in our average haul length increasing by 5.9%, with an average revenue per mile lower than last year's third quarter.

Our focus has been to add business in those markets where we can grow our driver count and at prices that compensate us appropriately. In markets where we are struggling to hire and retain drivers, we are making decisions to downsize our business levels or change customers based on the available freight pricing in each market.

Compensation and benefits decreased $0.04 per mile, due mainly to an accrual of vacation expense due to the award of additional vacation time for our drivers last year.

Management continues to focus on rightsizing our fleet, and thus we reduced our tractor count, which decreased depreciation expense by $212,000 and increased our gain on sales by $80,000 during the quarter.

The shortage of qualified applicants and related turnover continued to be a huge challenge for us. During the quarter, we strategically implemented new productivity-based minimum pay in some terminals to help improve the retention of our drivers and attract new drivers. We will continue to evaluate the results over the next couple of months to determine the level of success we are seeing.

As demand for services continues to tighten, management believes it will be able to price our business to pay for any increased costs related to a driver compensation increase. For the quarter, the increased miles and revenue and a reduction in our total mile cost of operation resulted in an improvement of operating profit by $819,000 to $1,353,000. Our operating ratio improved to 95.4% versus 98.1% quarter-over-quarter.

Onto the year-to-date results. Total revenue through 3 quarters increased $1,126,000 to $85,284,000, while miles declined 291,000 compared to the same period last year.

Our transportation revenues, which exclude fuel surcharges were lowered -- were lower by $1,836,000 or 2.3%.

Compensation and benefits increased $235,000, mainly due to last year's driver pay increase. Net fuel expense improved due to higher fuel surcharges over the period and reduced -- and we reduced depreciation expense $518,000.

For the 3 quarters, insurance and losses were up $331,000, due mainly to 2 costly environmental spills during the first quarter and some high dollar health insurance claims, which resulted in loss adjustments at the end of our second quarter.

SG&A increased due to severance expense related to rightsizing our staff, management's continued effort to reorganize our IT department and the higher cost associated with hiring drivers. As a result, net income for the 3 quarters was $4,490,000, which included a $3,041,000 gain related to the Tax Cuts and Jobs Act of 2017 compared to $1,628,000 for the prior year's 3 quarters.

Operating profit declined by $302,000 to $1,805,000 as our operating ratio was 97.9% compared to 97.5% last year.

On to our summary and outlook. Management continues to focus on adding business in those markets where we can attract and retain drivers. During the quarter, we saw an increase in driver turnover, which is normally higher in our third quarter, and proved even more challenging during this year's quarter.

During the second quarter, we entered into a new 3-year agreement with one of our largest accounts and significantly increased our business levels with this customer. The business began in February of 2018 and was added incrementally over several months.

Management continues to monitor market conditions, including the capacity shortage caused by the lack of drivers and will evaluate each opportunity and its potential impact to our bottom line results prior to making pricing decisions. Management continues to make adjustments to the strategy and operating plan to reduce our expenses and improve our profits. Currently, that focus is improving safety to reduce claims-related expense, reducing driver turnover and improving our revenue per truck.

We've recognized risk insurance losses during the second quarter, which highlights the need to focus on accident prevention.

The rightsizing of our fleet has reduced the tractor count and the associated depreciation expense.

The shortage of professional truck drivers in the United States has been well-documented. The petroleum industry faces some unique challenges with the shortage of qualified hazmat drivers and associated high driver turnover.

Management spends a good deal of time dealing with the issues surrounding the driver shortage, including advertising, recruiting, compensation, dispatcher training and productivity among others.

During the third quarter, we implemented some productivity-based driver minimum pay to help with driver retention and to attract new drivers. We are monitoring the results on those terminals where we are piloting this new pay system, and we will be strategic in any future implementation. We have seen the willingness of our customers and -- in the markets to help pay for this added cost. However, freight prices must continue to increase to keep up with the cost and to improve the return on investment in this capital intensive industry.

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, conversion of our servers and systems to a third-party cloud services provider and the next generation of dispatch software. We believe all these projects are critical to our future success as they provide significant benefits to our drivers, our employees as well as our customers.

The financial results improved for the quarter. However, management is not satisfied with these financial results, and we will continue to make the necessary adjustments to our plan to improve the bottom line results. With the addition of new business, along with the rightsizing of our fleet and fixed cost, we believe we are making progress.

I want to thank our employees for their dedication to our process and their understanding of the importance of the changes we are making in our daily operations to implement our strategic plan for the future. Our people continue to focus every day on safely delivering our customers' products on time and accurately. I have been impressed with their tireless dedication.

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

(Operator Instructions) And Mr. Sandlin, there are no questions in the queue at this time.

Thank you. Thank you for being on the call and your interest in our company. Have a good day.

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