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Student Transportation Inc (STB)
F4Q12 Earnings Conference Call
September 27, 2012 11:00 AM ET
Keith Engelbert - Director, IR
Denis Gallagher - Founder, Chairman & CEO
Pat Walker - EVP & CFO
Greg Colman - National Bank Financial
Tony Polak – Maxim Group
David Tamberrino – Stifel Nicolaus & Company,Inc.
Theoni Pilarinos – Raymond James & Associates
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Now, I’ll turn the conference over to Keith Engelbert, Director of Investor Relations. Please begin.
Thank you, Tyrone. Good morning, everyone. Thank you for joining us to discuss the fourth quarter and fiscal 2012 results which ended June 30, 2012. Joining me today on the call are Denis Gallagher, Chief Executive Officer and Pat Walker, Executive Vice President and Chief Financial Officer.
I expect that you’ve all seen the earnings news release, MD&A and financials that have been disseminated. The news release, MD&A and financials are accessible on SEDAR, EDGAR and our website at www.ridestbus.com. In addition -to our standard disclaimer about forward-looking statements, please also note that all figures are in U.S. dollars unless otherwise specified. I will also remind you that this conference call is being webcast live.
With that, I’ll turn the call over to Denis Gallagher.
Thank you, Keith, and good morning everyone and thanks for joining us again. Fiscal 2012 was another important and a very strong year for us in our company’s development. Our disciplined growth strategy continued with seven key acquisitions and nine new bid wins in targeted areas. Pat Walker, our CFO will review our complete financial results for fiscal ’12 in detail in a few minutes, but first let me review some of our financial and operational highlights.
Revenues and EBITDA for the fiscal year each increased by 20% over last year. Our 19% margin was consistent with our historic performance of the last few years despite a 1.5% higher fuel expense year-over-year. We completed the fiscal year with a 79.9% pay-out ratio, which is below our target of 82% to 85%. We remain focused this fiscal year on lowering that even further.
I would like to point out some things important to the folks who ask how can you pay dividends when you had net income of $0.03 per share. First of all net income is an accounting term which includes various non-cash items in the calculation. Our financial statements are extremely transparent and include many non-cash items such as variable paper swings and currencies and derivatives. Cash dividends are paid out of operating cash flows and not net income. Pat will expound on that a little further in his comments.
Our success in achieving the results we had despite continued economic uncertainty is largely due to the strength of our business model and our management. It’s a proven model which during our eight years as a public company has produced steady, predictable cash flows and allowed us to pay attractive dividends to our shareholders.
In regards to fuel cost, approximately 80% of our fuel cost are protected, some form or another by a combination of either customer paid fuel and contractual fuel price escalation clauses. These clauses were key components of many of this fiscal year’s new bidding contracts in Connecticut, New Hampshire and Ontario.
Our skilled and experienced operations team continued to implement new cost savings programs including expanding the installation of GPS units on board with new technology and idling programs that will help us better manage our fuel usage.
We also took advantage of the continued lower rates in fiscal ’12 and further expanded our leasing program to keep our fleet the youngest of the major national players in the industry. Maintaining a young fleet allows us to keep up with new vehicle technology, lower our operating cost and improves passenger safety. Leasing is a great financing option for us and will continue to be in the future. It is low cost debt fixed for six years.
As I mentioned earlier, we completed seven acquisitions this past year including the purchase of new assets and eight contracts in Texas and Washington, two new States for us. These contracts became available as a result of a required divestiture in connection with the merger of two of our competitors; it was a tremendous deal for us. Dairyland Bus in Wisconsin was another important acquisition for us in fiscal ’12. The deal added another new State to our STI service map and positioned us for further expansion in the upper Midwest. This area is consistent with our focus on raw and suburban markets and we are excited about its prospects for growth in the future. In all, our fiscal ’12 acquisitions added 17 locations over 1,500 vehicles and annualized revenues of nearly $68 million. More importantly, these acquisitions came with experienced operation teams that know their markets in their respective States and they each present tremendous platforms for growth.
The potential for what we call managed contracts in Texas are great. In managed contracts, the schools converts to a private contractor model but retains ownership of the vehicles and are responsible for the replacements but we as the contractor operate them. There are approximately 1,600 school districts in the State of Texas and yet only 65 Contractor Transportation and roughly half of those are managed. Texas is also a right-to-work State, that is pro-business and our local operators have built a stellar reputation there. Many school boards are looking for creative ways to cut non-instructional costs and we feel we have a big solution for Texas. Our business development team is active in the State and I expect some very good things to happen there.