Q3 2020 Patriot Transportation Holding Inc Earnings Call
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Now my pleasure to introduce your host Rob Salmon, President and CEO for Patriot Transportation like you you may begin.
Good afternoon, and thank you all for being on the call today and for your interest in Patriot transportation.
Rob Sandlin CEO of bakery transportation and with me today are met Mcnulty, our Chief Financial Officer, John Klopfenstein, Our Chief Accounting Officer before we get into our results. Let me caution you that any statements made during this call that relates to the future or by their nature subject to risks and uncertainties that could cause actual.
Wholesome events to differ materially from those indicated by such forward looking statements.
Additionally, definitely information regarding these and other risk factors and uncertainties, maybe found in the company's filings with the Securities and Exchange Commission.
Now for third quarter results.
Today, the company reported net income of $573000 or 17 cents per share.
Transportation revenues were $18.032 million, a decrease of $6.875 million on 2.775 million fewer miles due to covert 19 pandemic, but downsizing of certain customer accounts due to inadequate freight rates and the closing of our women.
The North Carolina terminal in late April 2020.
Our revenue per mile increased 14 cents or 5% versus last year same quarter due to rate increases on eliminating lower rated business fuel surcharge revenue was down a $1.640 million.
Compensation and benefits decreased $3.410 million, mainly due to lower company miles and lower driver training expense. The cobot 19, impac reduce training pay as our <unk> as our turnover declined and we only hired in certain markets, where it was a central they had drivers.
Depreciation expense decreased by $161000 on lower miles as we continue to to rightsize the fleet.
Insurance and losses decreased $768000 for the quarter, primarily due to closure of prior year Workers' compensation claims lower health claims and favorable favorable results on auto claims along with lower rec repair cost.
As a result operating profit for the quarter was $794000 compared to an operating profit of $423000 and last year's third quarter.
Now for the year to date results.
Net income for the first nine months of the year was a loss of $292000 or negative nine cents per share.
Transportation revenues were $62.191 million down $12.233 million on 5.657 million fewer miles to the covert 19 related business declines in the third quarter, the downsizing of certain customer business earlier this year.
In closing of our Charlotte terminal in May of 29 team and our Wilmington terminal in late April 2020.
The corresponding revenue per mile was up 15 cents or 5.5% due to increased freight rates and the positive impact to the lower rated freight we eliminate.
Fuel surcharge revenue was down $3.008 million for the same period last year.
Compensation and benefits were $5.921 million lower due to lower miles and lower driver training pay.
Gross fuel expense decreased significantly along with repair and tires due to reduced miles and lower diesel prices.
Our shirts losses decreased $388000, but increased five cents per mile due to higher health claims in the first half of the year.
Gains on disposition of assets was $674000 versus $1.441 million last year as a result.
Operating loss for the nine months was $518000 compared to an operating profit of $1.823 million in the same period last year.
Summary, and outlook.
Well our business is not produce the returns we prefer in the last couple of years would believed the recent changes we made.
To our business by eliminating lower rated freight.
Existing underperforming markets.
Exiting underperforming markets and reducing overhead we're beginning to have a positive impact in early March.
Our intention was to continue to push ray talked to offset the rising cost of driver hiring and retention and auto liability insurance premiums.
In mid March the impacts of Cobot night team pandemic took hold and management immediately went into crisis management mode to control cost will significantly reduce miles in revenue.
April volumes were off approximately 35% to 40% from pre cobot 19 anticipated levels.
Volumes rose incrementally throughout the remainder of the quarter and have now settled at approximately 10% to 20% below our normal expectations.
During March and through the third quarter, we reduced the hours of morality staff, including mechanics reduce the day's work by our drivers and furloughed 48 of our senior drivers all of which returned to work with business volumes increased.
Also made a number of permanent layoffs of hourly and salaried staff and eliminated all of our driver pay minimal.
We have seen fewer driver he resigned says the pandemic fergana driver applicants or available.
But we will have to monitor the driver situation closely as our volume of business continues to fluctuate due to due to the impact of covert 19.
We did not permanently layoff drivers during this time, a feel that we're positioned to handle our normal volume when it returns.
We are in a central business and continued to operate throughout the crisis, but have too many employees to have qualified for the care Zagg. Fortunately, we have zero debt on our balance sheet on all of our tractors and trailers, except for the 30 least tractors and have over $13 million of cash we did not purchasing equipment the third quarter.
And do not plan to start purchasing replacement equipment until fiscal 2021.
I've been pleased with response from our management team and our employees. Our management is taking the necessary steps to meet the safety guidelines established by the C D to C for our employees.
Our drivers while central the U.S. a caught economy have taken an earnings hit during this crisis, yes. They have reacted positively I appreciate their dedication to providing the transportation needs for all of us and for their loyalty to Patriot.
During late April we closed our Wilmington, North Carolina, chemical and dry bulk terminal and transitioning the business to another operator that has a larger presents and more scale in North Carolina.
This operation has had been impacted by the closure of a large customer and lower pricing, causing a loss of volume in the last year and us was underperforming.
I'm pleased we were able to find a good home for our employees and someone to take your the loyal customers, we had and when the Wilmington market.
We were also able to lease 21 of our trailers to the transitioning company and sold many of the trackers.
Looking ahead, we are anxious to see what our business volumes do the state's open back up for business and we'll monitor the progress closely we believe the increase in unemployment and residual effect on many businesses will improve our driver retention and the driver pool in the coming months, but only time will tell.
Companies with a strong balance sheet and positive cash flows like Patriot should weathered the storm, but we believe there will be others that struggle due to lack of cash and pending dramatic increases in risk insurance cost.
We are fortunate to being a strong position to continue to operate our business and grow revenue with accounts willing to pay a price that allows for a reasonable return on investment and finally I want to be sure I reiterate how much I appreciate our appreciate our employees.
And our management team by meeting the recent challenges head on they really are great group of people on unfortunate and proud to be a part of the team.
Thank you again for your interest in our company and we will be happy to entertain any questions.
[noise]. Thank you.
Ladies and gentlemen at this time it will be conducting a question and answer session.
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Our first question comes from the line of John Lewis with well. This investment Council. Please proceed with your question.
Good afternoon, gentlemen, I appreciate you taking the question I have two here one just a little more generally on the volume side I was curious if you guys have a sense you know as most of this volume decline somewhat from the lack of commuters going to the office lack of people going to school and do you have any sort a sense of.
In a typical environment what percentage of gasoline consumption really kind of comes from that type of customer.
Well I think I can probably answer that this way, yes, we think that the bulk of the decline right. Now is the lack of commuters and people going to work normally this time of year, we wouldn't have people in school. So we don't think that's really having much of an impact I would.
I would say, particularly in these large metro areas. It's the lack of people going back in their office and so for US it appears to be somewhere around that 10% to 12% range.
When you get into places like Miami, It's obviously, a little worse or downtown Atlanta inside the parameter a little bit worse.
We see the suburbs actually in some of the smaller markets doing better than that.
And I guess those you know they smaller market seemed to be better markets for you guys. I guess, maybe even from a you know driver availability, but also being able to negotiate contracts with them. So with that dynamic is it almost kind of a positive mix shift into those smaller markets right now.
But what was that when you said a positive what shift.
Kind of mix shift. So you know you're maybe are you basically I guess here's a question I'm asking is are you seeing more volume coming from the smaller markets now.
Relative to normal environment, where you'd maybe see more of a balance between those large metro areas and the smaller market.
Maybe.
To answer it this way.
Our our volumes are off as much in those more smaller to more rural markets and so right now those terminals are going to be performing better than the ones, where they're seeing a larger decline because we we need to be ready to take on that work.
In those larger markets and so you've got to be careful not to downsize yourself. So far that you can't take on the work when it returns.
Perfect and enhance good lead into my last question of how are you all thinking about.
Building up drivers and the driver situation as you're going through this you know I guess on one hand, you want to contain costs, but I believe on the other side. You know this may help the driver situation with higher unemployment hope, we're having more applications, but also try to keep that retention on to be prepared for you know the potential.
A leg up when those volumes start to return.
So I think the key to the drivers is the quality of the applicant.
We get a lot about you'd be surprised how many what can we actually get even pre cobot.
But what we have seen is an improvement in the quality of that applicant and so what we're hoping is that that creates more stickiness.
And less turnover as we go forward and so hopefully obviously, we've been spending a lot of money hiring and training drivers so coming out of the backend of this thing and time will tell but so far we're saying a little better quality of drivers and you're right.
Other than some markets that are just inherently tight.
We're seeing a better flow, yeah, and quality just to kind of give you. Some parameters for us is that we haven't seen lately quality is a fairly longer driving history in general a safe record and most importantly stability with with less employers previously maybe.
Three previous jobs, instead of seven well [laughter] that big difference, if we get more applicants. They go back to sort of this pre crisis. That's what we would have seen before and those are the drivers we find to be the provide them as quality and stickiness for us.
Understood. So this is sort of situation, where you're able to pick up that quality driver and kind of put them on the bench for lack of a better word.
Your debt.
Volumes return I know, it's you know, there's obviously that cost trade off in forecasting but.
I think it job we're looking at each market every week.
We do recruiting calls and we have a each terminal has the number of open call. It open seats, we call. It requisite that we want to fill in those terminals and then we we as senior management are monitoring those numbers closely so that we're not putting drive.
Presented in places, where we don't think we're going to need them, but also trying to be sure that we're projecting out.
In those markets, where we believe there is a little bit of growth opportunity as volumes return. So we're monitoring that by location on a weekly basis, yeah, and the benefit we're seeing right now and it could be short lived is is your instead of having to take the first first qualified guy that's ready to accept.
Getting some better selection options. So that maybe we had three or four guys and we can pick them more solid candidate versus just just taken the one that's there.
Perfect. Thank you so much for giving me some color on that yeah. Thank you for the question.
Our next question comes from the line of James.
Hard with Narrows investments. Please proceed with your question.
Hi, Thanks for taking my question, it's Tim Tim that Don Merril shelf.
You touched on consolidation you've given some ideas in the past.
On on consolidation I don't know a what's what's changed in the market. If you if you've got any.
New ideas.
There.
You need specifically from us consolidating with others or just an hour then our business in general.
Yeah, I mean, you've you've talked about using Jeff potentially to consolidate et cetera.
You just doesn't depend obviously.
Okay.
Yes, I'd say I'd say, we're continuing to be open, we obviously and though and the environment. We've seen the last 689 months, there's been there's been more things I'll, just say out there in the market.
More things to look at but again, we're we're still seeing an environment that a lot of there's not a lot of people in our business that are making a very good.
Margin and so it's just really hard for us to find something that really looks.
To be accretive and something we want to get into but we are to look and then there's there are definitely opportunities and so.
So we'll continue to monitor and look but again, it's and it's been a difficult market defined.
Quality opportunities of quality seems to be the operative word today.
Hey, thanks.
Let's see.
I'm talking about.
Yeah, it's a there's not a whole lot to update which is why didn't put much in the air pressure lease up from the last time, we are still in we're about halfway into the 120 day free look period I call. It with the buyer. They are working hard I talk to them pretty much every week.
It's you know coking coal is definitely had a cooling effect on that a retail and other.
Parts of that deal that need to all come together, but so far no changes in the deal.
I still feel I still feel I'd say reasonably confident that at some point that deal is going to close.
Yes during this calendar year.
You know access it would if it stayed on track if I had to tell you where I think there might be some movement as it might be you know maybe.
Some timing to give them a little more time to pull everything together based on the fact that we've got this odd event, that's really impacting retailers and hotel.
Developers ability to plan you know like they could have a for pre kind of it. It's just put a little bit of a damper on everybodys ability to plan.
But on the income statement STS you in a line item took a fairly substantial drop down you know just yet.
Its success with cost controls.
If I were thinking about the X gene a line items, specifically or any.
Color on how that might react yes revenue levels recover towards pretended levels you know when it would you expect to to rise rise back at the same rate as revenues are slower rates revenues I.
I would just say slower if at all you know unless the revenue started to really pop I think we're at a good spot right now to manage manage the business you know even with some revenue growth.
That's a different kind of 124.
It would there be easier digging a hole that level steady or would there be seasonality to that number or any other.
Okay, that's that would be a heck of a.
Accomplishments you over to keep keep at 1.84 flat.
For the quarter.
John help me John John case on the line with US is that did did they did the Dan Fair game go in that line too.
It did yeah that was 150000, so you'd have to take that add that back.
Well I thought it closer to call it closer to two.
I don't think there's anything else John again, it's correct me if I'm wrong, if there's anything else that in there right now that's what I'd call one time.
We've tried to cut cost and get in line with with revenue levels. Sam I think the only thing in that I would this drives I'd say is that.
The quarter evolve so.
There there's people in the quarter and there's people out of the quarter and so I.
I would say that outside of an adjustment that we had there in the quarter that near term with we're just what I would call regular volume increases back to normal levels I wouldn't see any any reason for us to after raise those numbers up.
Great. Thanks, Thanks for calling you said there was a gain in there related to what was again related to the could you do have a line item related to teach you need game, but you'd like insurance from something else.
Yeah, Yeah, that's a dip so there was a one there was a gain on a a that if you recall last year in November we closed on an as small acquisition and South Georgia.
It had a potential earn out in the deal and it's based on revenue levels generated by that by what we acquired the customers that we that came with that deal and based on their current projections of revenue through the 12 month period that is judged on.
We booked.
Believe we booked 450000 of additional expense to pay out that earn out back in that quarter down. We will took 150 of that thousand backend as again, because we don't foresee having to pay that out based on his revenue levels.
Thanks for the color.
Uh huh.
Our next question comes on line of Dawn of John Deysher with Pinnacle. Please proceed with your question.
Good afternoon, everyone.
John John.
A couple of quick questions one.
How do you feel you're doing relative to your direct competitors.
Are you holding your own with.
Are they doing better in certain markets than you are maybe you're doing better in certain markets and they are but.
Generally speaking how would you feel your you're holding versus your direct competitors.
So John I'll be sure I understand you're talking financial performance.
Not necessarily I mean, I think everyone is hurting, but you know who's out there you know winning business.
Defending market share.
I mean, ultimately the ones who are laying the groundwork now will profit down the road. So just generally speaking either financial or nonfinancial, yeah, let's say from a from a safety and customer service standpoint.
We're going to we're going to hold ourselves up against anybody.
That's that's that's our focus and that's what we that's what we do everyday we feel like we can make the biggest impact our bottom line by being safe and and driving the frequency down and driving the claims out of our out of our business and we've proven that over a long period of time.
When you get into a market like this where people are starting to struggle, they're running out of PPP money.
And they've gotten past that three month deferral of debt payments and so you really kind of wonder what the health is of the industry in trucking in general 28 team was a record year in 2019 was a record year for bankruptcies and so one of the things that we keep.
Saying is that as people as these companies continue to operate at these low margins you may see a period of time, where they chase volume just to help pay the bills.
But insurance cost is continuing to rise.
That's just that that isn't going to last very long, so where we are resisting the temptation to chase volume with price and I think I think frankly, there's a there's a.
Theres a.
Group of people in the customer base that understand that and that there may be folks out there that are just chasing volume just to solve a short term cash crunch basis, and it's really not the best long term play.
So we're watching it closely and I think there are a lot of trucking companies both in our space and all spaces that are really struggling financially and so when that's happening you really have to pay attention.
To what's going on and keep your year to the ground I don't know if I answered your question or not.
No I think.
That's a good start.
Regarding those customers who are.
Competitors, who are struggling financially.
<unk>.
You don't have to.
Choir a hole.
Business I mean have you thought about.
Joint ventures, or alliances or things along that line, where maybe a competitor need some equity and you can give it to them and you know own 20% of minority interest Oh, there's lots of ways.
Thank you can enhance your market share.
Now going down the 100% direct acquisition route.
I mean, certainly those are those are.
Opportunities options for other that's that it is not not our strategy to be honest with you. We're happy to try to do a deal with somebody who.
Where it makes sense and we're going to we're going to buy the business and eventually merge it in and run it ourselves but.
I'm doing joint ventures, especially in our own competitive space would make would be almost impossible.
For us to to Fathom, just due to pricing and other and other factors and haven't partner, so well continue to try to monitor the overall market and see if we can't find opportunities.
But that that would be how best to answer that question.
So you want to own 100%.
Okay fair enough.
Is it too premature to start talking about when the dividend might be it runs reinstated okay what has to okay.
Thank you still are like we it'd be premature to me give what to use your word. It's I think we just need to continue to let this cobot thing play out in.
You know I'm, hoping by the by the beginning of 2021, we had some better answers and we'll just have to see when the board, but like today.
Okay and then finally, you mentioned, we're about halfway through the free look period on the real estate.
Got it transaction.
Then when does that free look period and exactly.
The free look and that the I called the first week or two of September.
So we're almost a little bit beyond half and then there is roughly.
Anywhere from 30 to 90 days hang on what the buyer or the left to do on additional deposits and things like that my guess is is I'd just gotten call at about 90 days from there to the final outside closing date.
That's early December.
Okay. So mid mid September at the outside is when they need to say, yes or no.
Yes, okay.
Oh, Thanks, very much good luck hey, thank you everybody. Thanks for question.
As a reminder, ladies and gentlemen, it is star one to ask a question.
There are no further questions in the queue I'd like to hand, it back to management for closing remarks.
Thank you all and thank you for your interest in Patriot and we look forward to talking with you next quarter.
[noise], ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.