Matt McNulty
Patriot Transportation Holding, Inc.
November 29, 2018
9:00 AM CT
Operator: This is a recording for the Matt McNulty teleconference, for
Patriot Transportation Holding, Inc. for Thursday, November 29, 2018 at
9:00 AM Central, 10:00 AM Eastern Time. Excuse me, everyone, we now have all
speakers in conference. Please be aware that each of your lines is in a listen
only mode. At the conclusion of today's presentation, we will open the floor
for questions. At that time, instructions will be given as to the procedure to
follow if you would like to ask a question. I would now like to turn the
conference over to Rob Sandlin. Mr. Sandlin, please begin.
Rob Sandlin: Thank you. Good morning, 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 statement made
during this call that relates to the future, are by their nature, subject to
risks and uncertainties that 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 and with the Securities and Exchange
Commission. First, for our fourth quarter results. Total revenue for the
quarter increased $871,000 to $28,781,000, while our transportation revenue
decreased by $367,000 on 215,000 more miles. As a reminder, the second quarter
of last year was impacted by the loss of two large customers. Compared to the
business we added during this year's second and third quarter, the lost
business in 2017 had a shorter average haul length and higher revenue per
mile. As a result, our average haul length has increased by 6.8 percent, at an
average revenue per mile, 10 cents lower than last year's quarter. Hurricane
Florence negatively impacted our revenues during this quarter by an estimated
$126,000, mainly in our Wilmington, North Carolina terminal. Compensation and
benefits decreased $334,000 or 6 cents per mile due to the longer haul length
which has a lower driver pay per mile, lower training pay and a reduction of
our personnel costs. Management continues to focus on rightsizing our fleet,
which decreased depreciation expense by $265,000 during the quarter and
increased our gain on sales by $192,000. Insurance and losses increased
dramatically quarter over quarter, up $670,000, mainly due to higher health
claims. As a result, operating profit was $241,000, compared to $265,000 in
last year's quarter. Our operating ratio was 99.2 versus 99.1. Onto the
year-to-date results. Company revenue for the year increased $1,900,000 to
$114,065,000, while our miles declined by 76,000 compared to last year.
Our transportation revenues, which exclude fuel surcharges, were down
$2,203,000 or 2.1 percent, mainly due to the previously mentioned business
losses in the second and third quarter of fiscal 2017. Compensation and
benefits decreased $99,000 as a result of strategic reduction of personnel
expense and lower driver pay, offset by an increase in owner-operator expense,
as we added owner-operators during this fiscal year. Net fuel expense improved
due to the higher fuel surcharge over this period, and we reduced depreciation
expense $783,000, as we continued to rightsize the fleet. For the year,
insurance and losses were up $1,001,000, driven heavily by two environmental
incidents early in the year and higher health claims of $575,000. SG&A
increased due to severance expense related to our rightsizing, management's
continued work to reorganize our IT Department and higher costs associated
with hiring drivers, that was more than offset by the reduction in corporate
expenses. As a result, operating profit was $2,046,000, compared to
$2,372,000 last year, and our operating ratio was 98.2 compared 97.9 last
year. Now for the summary and outlook. During the second quarter of this
year, we entered into a new three-year agreement with one of our largest
accounts that significantly increased our business levels for this customer.
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 a lack of drivers, and will evaluate each
opportunity and its potential impact to our bottom line results prior to
making any pricing decisions. Management continues to make adjustments to the
strategy and operating plan to reduce expenses and rightsize our fleet, as
illustrated by the reduced depreciation expense and improved revenue per
tractor. Health insurance costs were atypically high in Fiscal 2018.
Management has spent a lot of time reviewing and evaluating every aspect of
our health benefits package and will be implementing several changes in
Fiscal 2018 in an effort to control and reduce these health-related expenses.
Another focus is on improving our safety results, which carried some
significant costs in 2018. While we believe that increased driver turnover
has contributed to increased incident frequency, we anticipate improvement
based on feedback from our enhanced driver trainer program introduced during
2018. The shortage of professional truck drivers in the United States has been
well documented. Management spends a good deal of time dealing with these
issues surrounding driver shortage, including advertising, recruiting,
compensation, dispatcher training and productivity, among others. In the
latter part of Fiscal 2018, we implemented a significant change to our hiring
process. We added driver advocate positions and introduced a productivity-based
driver pay, all in an effort to attract and retain drivers. We are encouraged
by the increased number of drivers hired and in training since these
implementations and will continue to monitor our progress for any needed
adjustments to our plan. Recently, we have seen a willingness by our customers
to help pay for these added costs. However, rates must continue to increase
to keep up with these rising costs 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 have nearly completed implementation of
our new automated billing software and plan to complete the conversion of our
servers and systems to a third party cloud services provider, which includes
an upgrade to the next generation of dispatch software. We believe all of
these projects are critical to our future success, as they provide significant
benefits to our drivers, our employees and to our customers. I want to thank
our employees for their dedication to our process and their understanding of
the changes that we are making in support of our strategic plan for the future.
Our people continue to focus every day on safely delivering our customers'
products on time and accurately. I've been impressed with their tireless
dedication, which was highlighted during Hurricanes Florence and Michael.
These storms certainly had a negative impact on our financial results, but
more importantly, on our employees in several of our locations. I can tell
you that our people are accounted for. Many had significant damage to their
homes and their lives disrupted, but they came back to work quickly and are
doing everything they can to help the community and our customers recover
these catastrophic storms. I cannot thank them enough for their loyalty and
dedication. The financial results of 2018 did not meet our expectations.
Management continues to make the necessary adjustments to our plan to improve
the bottom line results. With the addition of business in Fiscal 2018, along
with rightsizing of our fleet and fixed costs, we believe we are making
progress. Our primary goal for our shareholders is to grow profitably while
maintaining a strong balance sheet. While we certainly maintained and improved
our already strong balance sheet, we did not achieve our goal of growing
profitably this year. In order to achieve our goal next year, we are focused
on strategically growing revenues while controlling and reducing several of
our key expenses. Our strategy going forward for revenue growth is to
concentrate our efforts in the markets where we have been successful finding
and retaining quality drivers. With regard to reducing fixed costs, we are
focused on increasing the utilization of our equipment and measuring our
success based on revenues and drivers per tractor. We are consistently
analyzing all costs associated with insurance and SG&A and making
appropriate changes when and where we can. With these focuses in mind, we're
optimistic we will achieve targeted levels of revenue and bottom line
results in Fiscal 2019. Thank you again for your interest in our company,
and we will be happy to entertain any questions at this time.
Operator: Thank you. At this time, we will open the floor for questions.
If you would like to ask a question, please press the star key, followed by
the one key, on your touchtone phones now. If at any time you would like to
remove yourself from the questioning queue, you can press star two. Again for
questions, that is star one on your telephone. We will pause for just a
moment. Our first question will come from Tim Chatard with Quantum Capital.
Tim Chatard: I'm just wondering if you had an update on the Campo real
estate efforts.
Matt McNulty: Hey Tim. This is Matt McNulty. Yes I do. We're basically
completing the design plans and hope to be submitting those in December. We
should hopefully then have a turnaround from the City of Tampa within 90 days.
It's kind of the normal timeframe. So we're still kind of 90-120 days to have
approved plans, and then we'll remarket the property.
Tim Chatard: Thanks.
Matt McNulty: You're welcome.
Operator: Thank you. As a reminder, that is star one on your phone for
questions. Speakers, it appears that there are no more questions at this time.
Rob Sandlin: Okay, thank you. And again, thank you for your interest in
Patriot Transportation and have a good day.
Operator: This now concludes today's teleconference. Please disconnect
your lines and have a great day.
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