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Edited Transcript of PATI earnings conference call or presentation 1-May-19 7:00pm GMT

Q2 2019 Patriot Transportation Holding Inc Earnings Call

JACKSONVILLE May 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Patriot Transportation Holding Inc earnings conference call or presentation Wednesday, May 1, 2019 at 7:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Matthew C. McNulty

Patriot Transportation Holding, Inc. - CFO & VP

* Robert E. Sandlin

Patriot Transportation Holding, Inc. - President & CEO

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Conference Call Participants

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* Dorsey Farr

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Patriot Transportation Second Quarter 2019 Earnings Conference Call. (Operator Instructions) At this time, it is my pleasure to turn the floor over to your host for today, Mr. Rob Sandlin, CEO of Patriot Transportation. Sir, the floor is yours.

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Robert E. Sandlin, Patriot Transportation Holding, Inc. - President & CEO [2]

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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 Matt McNulty, our Chief Financial Officer; 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 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 second quarter results. Total revenue for the quarter decreased $971,000 to $27,008,000, while our transportation revenue decreased by $839,000 on 379,000 less miles. The decrease in miles was primarily due to one of our customers moving their private fleet into one of our markets and the closure of our Spartanburg, South Carolina satellite location.

Through the changes in our mix of business over the past year, our average haul length has increased. However, our revenue per mile has increased $0.02 per mile versus last year's quarter due to rate increases.

Fuel surcharge revenue for the quarter decreased as fuel prices declined during the quarter.

Compensation and benefits decreased by $191,000, mainly due to lower company miles and an increased number of owner-operators.

Depreciation expense decreased by $247,000 as we rightsized our fleet and placed 23 full-service leased trucks in certain markets where we do not have maintenance facilities.

While we have effectively rightsized the fleet, we will continue to monitor the driver-to-truck ratio to continue to improve our utilization and revenue per truck.

Insurance and losses decreased $1,167,000 quarter-over-quarter, mainly due to the settlement of prior year risk claims and lower health claims. The gain on disposition of assets increased this quarter due primarily to a gain of $247,000 on insurance settlement for hurricane damage and losses sustained at our Panama City, Florida location earlier this fiscal year.

We continued to be challenged during the quarter with driver hiring, training and retention-related costs, which is reflected in driver pay operating expenses and SG&A.

Net income for the quarter was $289,000 compared to a net loss of $188,000 during last year's quarter, while operating profit was $293,000 compared to an operating loss of $292,000. Now for our year-to-date results.

Total revenue for the first 2 quarters of fiscal 2019 were down $818,000 from the same period last year, and transportation revenues were down $1,429,000 on 354,000 less miles. Net fuel expense decreased by $757,000 due to fewer miles and higher fuel surcharges in early part of the period. Our revenue and tire expense increased due to more high dollar repairs and the expensing of prepaid tires related to increased tractor and trailer purchases.

We continued to rightsize our fleet, thus depreciation expense decreased $607,000. SG&A increased due to our continued upgrade to our information technology systems and higher payroll related to driver pay and retention efforts. Gains on disposition of assets increased primarily due to the sale of our Ocoee, Florida property and the hurricane insurance gains mentioned earlier.

Operating profits for the 6 months was $1,400,000 compared to $452,000 last year. As a result, net income for the period was $1,773,000, including $634,000 of gain on real estate sales compared to $3,404,000. The first 6 months of 2018 net income included $3,041,000 due to a deferred tax benefit from the Tax Cuts and Jobs Act of 2017.

Summary and outlook. A shortage of qualified driver applicants and the related driver turnover continue to be a huge challenge for our industry. During the first half of the year, 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. We have not seen an improvement in our retention rate as the first year churn of new drivers continued. We will continue to monitor results on new hires and driver retention, and we'll continue to make some adjustments to our plan in the future.

We sold an excess parcel of land in Ocoee, Florida for $1,268,000, which benefited our operating profit in the first quarter, increased our cash and reduced capital employed. While the first quarter was negatively impacted by health cost, mainly due to one large claim, our management team implemented changes to our wellness plan and specialty drug plan, which produced lower cost in the second quarter. We anticipate these 2 initiatives to continue producing a savings for us into the future.

While safety results for the year are varied, we did see an improvement in our preventable action and frequency during the quarter and expense -- and experienced lower risk cost as we close prior year claims. We will continue to focus on improving our safety results as the industry continues to see increased cost of risk insurance.

Our management is reviewing the use of front- and rear-facing onboard cameras and will likely make a vendor select -- vendor decision and start testing during the second half of our year.

Demand for our services is still high, and we continue to evaluate new and current business based on price and efficiency of the daily operation. We continue to see the improvement in our ability to gain price increases more in line with our expectation.

In October, the eye of Hurricane Michael passed over our Panama City terminal, creating significant damage to our terminal buildings. We have nearly completed the repairs, our staff has moved back into the office and we will finish the repairs to the rest of the facility during the second half of the year. We certainly lost some profit during the first quarter due to the hurricane, but we are back to our normal operations, and we settled with the insurance company during the quarter with a gain.

After the close of the second quarter, management announced that we will close our Charlotte, North Carolina terminal. We have not been successful growing this business due to a very difficult driver market which elevated the cost to operate, and the pricing in this market did not allow for a return on our investment. We will focus our management energy on other terminals after exiting Charlotte in late May. We appreciate the effort of our local management and employees and are working with some of our drivers on other hauling opportunities as we transition out of the market.

Management is also evaluating the cost of maintenance on our oldest trucks in the fleet and will determine if it is prudent to invest a portion of our cash to expedite the replacement of tractors to take advantage of lower maintenance costs and improved fuel economy by lowering the average age of our fleet.

The bottom line operating results are not up to our expectation, but we do see some positive momentum in several areas. 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 specialty drug and wellness plan have had a positive impact, and we will make changes to other parts of our health plan during the second half of the year.

Management expects all of our IT-related system upgrades, including the move to a third-party cloud service provider, to be fully implemented during this quarter after being delayed in the second quarter. We are confident 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.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from Dorsey Farr at kdhb V Capital Management.

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Dorsey Farr, [2]

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You referenced the current strategic plan, and I was wondering if you could sort of fill me in on when that plan was put in place, when was the last time you updated it.

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Robert E. Sandlin, Patriot Transportation Holding, Inc. - President & CEO [3]

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Dorsey, I'm sorry, where did you see that reference? Just to be sure I'm (inaudible) about the same thing.

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Dorsey Farr, [4]

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I just -- I thought a sentence or 2 of your comments, you said we are confident in our strategic plan. I don't have the comments in front of me, but I thought you referenced...

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Robert E. Sandlin, Patriot Transportation Holding, Inc. - President & CEO [5]

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Yes. Well, we are confident in the strategic plan. There's a lot of things that I mentioned in the summary, and outlook is continuing to work on reducing cost, increasing our pricing, looking at things like I've mentioned in the call about our possibly pulling forward replacement cycle of tractors to lower maintenance cost and fuel and such. And like we've said in the past, if a viable purchase opportunity comes along, certainly continue to look at those.

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Dorsey Farr, [6]

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And that was kind of my question behind the question. A couple of years back, your investor presentation positioned you sort of as a kind of a roll-up opportunity with a publicly traded equity you could use as currency and some, at the time, new credit lines that were in place. And to the best of my knowledge, you haven't executed any acquisitions in the last couple of years. Can you comment on what the market looks like right now? Are you -- is that still part of the strategic plan and you're just not seeing them? Or have those sort of opportunities taken a backseat as you struggle with this churn in drivers and some of the other costs that you referenced?

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Robert E. Sandlin, Patriot Transportation Holding, Inc. - President & CEO [7]

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So I think it'd be 2 things. I think your comments are on. We're trying to make sure, number one, that we right the ship here and get our earnings back to where we would expect them to be. And as we do that, we continue to look at opportunities out there for acquisition, but we just haven't found anything that was the right fit at the right price, either for us or for the seller. So both of those things are things that we continue to do.

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Dorsey Farr, [8]

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With the closing of the Charlotte terminal, I mean, is that a step in the other direction? If you were to do acquisitions, would they be -- is there a particular geographic area that is more or less appealing? Not trying to get you to name a name on anything, but what would acquisitions do for you? I mean, they get you into -- you're buying business and they get you into other areas that you're not currently in. So when I see you pull away from a market, it makes me question that part of the strategy, if that's still viable.

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Matthew C. McNulty, Patriot Transportation Holding, Inc. - CFO & VP [9]

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Yes. I think that in this business, it's extremely market specific as to the conditions. So leaving Charlotte doesn't mean there aren't other markets that we could get into that are like most of our other markets we're in where we are making acceptable returns. So it's really very market specific. It's based on pricing, it's based on the ability to hire drivers right now. So Charlotte was not favorable on either of those fronts, and we made the decision to focus our efforts elsewhere.

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Robert E. Sandlin, Patriot Transportation Holding, Inc. - President & CEO [10]

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And Dorsey, that was Matt.

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Matthew C. McNulty, Patriot Transportation Holding, Inc. - CFO & VP [11]

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I'm sorry.

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Dorsey Farr, [12]

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Yes, yes. I knew. And so there's no -- you don't see change in the fragmentation of the industry in the last couple of years that is causing that. You're just not seeing the opportunities at the price that you would be willing to pay. Is that fair to say?

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Robert E. Sandlin, Patriot Transportation Holding, Inc. - President & CEO [13]

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I would say that's fair. And I think it's also fair to say that buying some of these companies at prices that they would sell at is a challenge. The margins and -- that some of these folks are making just doesn't warrant a decent acquisition price.

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Dorsey Farr, [14]

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With the closing of the Charlotte terminal, does that lead to an initial land sale in Charlotte as well?

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Robert E. Sandlin, Patriot Transportation Holding, Inc. - President & CEO [15]

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No. We were leasing in Charlotte.

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Dorsey Farr, [16]

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That was a lease.

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Robert E. Sandlin, Patriot Transportation Holding, Inc. - President & CEO [17]

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So it makes a pretty clean exit for us and allows us to redistribute those assets and then possibly even sell off some older equipment.

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Operator [18]

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(Operator Instructions) And gentlemen, we have no other questions signaled.

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Robert E. Sandlin, Patriot Transportation Holding, Inc. - President & CEO [19]

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Great. Thank you. Thank you for your interest in Patriot Transportation. Have a good day.

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Operator [20]

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Ladies and gentlemen, that will conclude today's teleconference. We thank you for your participation. You may disconnect your line at this time, and have a great day.