Patriot Transportation Holding Inc (PATI) 2019 Q1 法說會逐字稿

Ladies and gentlemen, thank you for your patience in holding. (Operator Instructions)

It is now my pleasure to turn this conference over to Rob Sandlin, President and CEO. You may begin, sir.

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 statements made during this call that relate to the future are, by their very 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 first quarter results. Total revenue for the quarter increased $153,000 to $48,054,000, while our transportation revenue decreased by $590,000 on 25,000 more miles. Due to the change in our mix of business over the past year, our average haul length has increased resulting in a $0.07 per mile decline in our transportation revenue versus last year's first quarter.

Fuel surcharge revenue for the quarter increased $743,000 due to higher diesel prices compared to last year's quarter. Compensation and benefits increased $0.02 per mile mainly due to increased driver training pay and increased number of owner operators. Depreciation expense decreased by $360,000, as we rightsized our fleet during fiscal 2018 and placed 23 full-service leased trucks in certain markets.

We will continue to rightsize the fleet and did carry some extra tractors in the first quarter that will be sold early in the second quarter, which will continue to lower our depreciation expense. Insurance and losses increased $226,000 quarter-over-quarter, mainly due to 1 large health claim exceeding $330,000, which was partially offset by lower wreck repair expense.

Gain on sale of assets increased due to a gain of $866,000 from the sale of a former terminal site in Ocoee, Florida. As a result, operating profit was $1,107,000, compared to $744,000 in last year's first quarter. Our operating ratio was 96.1% versus 97.3%.

Now for the summary and outlook. The shortage of qualified applicants and high turnover continue to be a huge challenge for our industry. During the first quarter, we were able to increase the number of drivers in training over last year's quarter in large part due to the implementation of our productivity-based minimum driver pay in all of our terminals during the fourth quarter of fiscal 2018.

There is normally a lull in applicant interest during the holiday season, but we are optimistic the increased activity will continue as we get into the second quarter. We have not yet seen a similar improvement in retention, which will need to occur if we are to grow our driver count. We will continue to monitor the results on these new hires and driver retention and we'll likely have to make some adjustments in the future.

We sold an excess parcel of land in Ocoee, Florida for $1,268,000, which benefited our operating profit this quarter, increased our cash and reduced our capital employed. The quarter was negatively impacted by health cost mainly due to 1 large claim. And management has implemented changes to our pharmacy plan and wellness plan, which will result in meaningful savings going forward.

Demand for our service is still high, and we continue to evaluate new and current business based on price and efficiency of the daily operations. We have seen some improvement in our ability to gain additional price to offset our increased cost of recruiting and hiring drivers and other cost increases plus the desire to improve our operating margins.

On October 10, the eye of Hurricane Michael passed over our Panama city terminal creating significant damage to our terminal buildings. We have nearly completed the repair to get our staff back into the office and we'll continue the repairs for the rest of our facility while working with our insurance company to determine the insured value applicable to the losses. We do not anticipate a material-negative financial impact from the damage. Many of our folks had serious damage to their homes and the community continues to struggle and will be rebounding for some -- rebuilding for some time.

I could not have been more impressed by all of our employees pulling together to provide assistance to those in need and to make sure that we were able to service our customers when fuel started flowing after the storm. I would like to thank our employees for the outstanding job and the commitment to our company. We certainly lost some profit during the first quarter due to the hurricane, but we are back to our normal operation in this market. We are not pleased with the bottom line results -- operating results this quarter, but we do see some positive momentum in several areas.

Our cash and investment balance improved to $20,202,000, the number of drivers in training improved, pricing of our business is improving and our depreciation expense and equipment utilization has improved.

The recent changes to our pharmacy and wellness plan are expected to have a positive impact, and we are evaluating other parts of our health plan for improvement. Management expects all of our IT systems-related upgrades to be fully implemented during the second quarter. We are optimistic that the strategic plan we have in place will lead to improved operating profit more in line with our expectations.

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

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

Again, just on your commentary about retaining drivers and that ongoing issue of -- that you have been experiencing, do you think revenue growth is possible this year?

Yes, Tim. It is purely subject to our ability to add the drivers. I think revenue growth can also be in the form of rate, and we're seeing some movement in freight rates that I think I referenced in the call. So I think the combination of those 2, we would certainly hope to see some, yes. It's market specific, I'll tell you that.

Another observation. It looked like your net fuel expense had a pretty nice improvement year-on-year and, I mean, maybe you could just give me some color on that if kind of what was the driver of that? Was it just higher surcharge recoveries or was there something else kind of going on there? How would you think about net fuel expense kind of going forward at the same rate that you had this fiscal quarter or reverting back to where it'd been in prior years?

Okay. So Tim, this Matt McNulty. So we had -- this was a little bit of an anomaly quarter in that we had a big spike in fuel prices right going into the quarter and in the first month of the quarter, they were elevated. And as we've talked about in the past there's a time lag involved in when you get the fuel surcharges billed. And in the later part of the quarter, it was just the opposite. We had a big decline of pricing in December, so our fuel surcharges would've been remained higher in the month, yet our cost to purchase would've gone down. That again will basically even itself out again in this month, and it's just a -- it's a swing. When there's large increases or decreases in a short period of time that usually attributes to a time lag and smooths itself out. So I think that would explain most of this quarter. We'll see what happens in the next quarter based on how fast the price of diesel moves up and down.

Yes, Tim, this is Rob. Prices decreased during the quarter around $0.50 a gallon roughly and so when it drops that dramatically, it just -- there's some lag, as Matt is mentioning and the opposite happens if it moves up in a rapid fashion.

Which happened late in the -- end of the fourth -- towards the end of the fourth quarter last year, we didn't see that but that was already baked in, so really this quarter was hit with the decline, a rapid decline.

Right, I see. The comment that you had on related to pharmacy, health care cost, it sounds like -- maybe just give me a little bit feedback, did you change providers for a part of your plan? Is that what happened there?

We did. We went off of our base provider that handled all of our pharmacy from generic to specialty to branded, and we pulled up a specialty piece off to a new provider that, that's really all they focus on. And it's a whole new program related to targeting and lowering the cost of specialty drugs, which is 80-plus percent a year drug spend or, well, it's a lot, it's a lot of it. John said no, but it's a big chunk of your drug spend is tied up in that specialty piece. So we're working really hard to hit that hard -- to hit that.

Okay. A couple of more questions, maybe I'll step aside here if there's somebody else in the queue.

Our next question will come from John Lewis, Willis Investment Counsel.

I had 1 quick question for you guys. I know several years ago, return on invested capital was kind of a key performance metric that you guys would look at. Now just kind of with the operating challenges that you've had over the past few years that has made that metric not as great. So -- but as the balance sheet has continued to improve and cash is now almost 40% of a shareholders' equity, are you guys thinking about doing anything with that? Or what would the argument be against returning capital to shareholders at this point?

I'd tell you that we're in the same mode that we have been. If opportunities arise that make a good strategic fit for us and that are accretive to our shareholders then we would certainly have an interest in looking at those. We just haven't seen anything like that at this point.

So, so is that kind of the reason for wanting to hold cash on the balance sheet at this point rather than return cash to shareholders? In case one of those opportunities pops up.

Yes, yes.

(Operator Instructions) Our next question will come from Charles [Belling], Capital Management.

I just would like to follow up on the last observation about deployment of cash on the balance sheet. And my question is, how long do we wait before we deploy that cash to shareholders?

Yes. Charles, this is Matt McNulty. That's clearly obviously a board-level decision. But we do discuss it quarterly, and at the present time with the way the market's going, we have not seen a great opportunity to do an acquisition, there's just -- the earnings are just down. And so the price that you've been asked to pay just doesn't commensurate with the earnings, so we're hoping as things start to turn, we start to see pricing power improve and folks can come back to us with better, improved earnings and have that be a higher percentage of their EBITDA, we hope to see some opportunity there.

How long do you anticipate?

That would be -- again, I couldn't answer for the board how long they want to do that, but they are looking at the cash daily and they know that it's there and they are continuing to discuss options for how to use that cash appropriately.

And we'll certainly make -- we'll certainly -- Charles, we'll certainly make them aware of the questions that we received today and discuss it for sure at our next meeting.

Our next question will come from Tim Chatard, Quantum Capital.

Just an update on the Tampa real estate situation, if you could help me out there?

Sure, Tim, it's Matt. Yes, so we are planning to file fully completed plans within the next couple of weeks, early February is our target. I think on the last call, I told you, we had a delay due to some environmental issue that's been resolved, nothing that's going to impact the project negatively, it was just a paper thing. But so hopefully, within the next 90 days, that I'm thinking kind of an outside date, we'll have either have an approval or be really close to an approval from the city and then we'll take the property back out to market with that label of being fully entitled and ready for construction.

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

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

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.