Q2 2021 Patriot Transportation Holding Inc Earnings Call

Ladies and gentlemen, thank you for standing by our conference will begin shortly.

Again, thank you for standing by our conference will begin shortly.

[music].

Greetings and welcome to the Patriot Transportation Holding's incorporated earnings call for second quarter. At this time all participants are in a listen only mode of question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Please note. This conference is being recorded I will now turn the conference over to your host Rob Sandlin CEO of Patriot transportation. Thank you you may begin.

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 with me today are 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 statements made during this call that relate to the <unk>.

Future or 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 on the company's filings with the Securities and Exchange Commission.

The second quarter results today, the company reported second quarter net income of $484000 or <unk> 14 per share compared to a net loss of $401000 for of negative <unk> 12 per share in last year's second quarter total.

Total revenues were $19 million $728000, a decrease of $3 million and $799000 from the same quarter last year, primarily due to the downsizing of one large customer and the closing of our Wilmington, North Carolina terminal on April of 2020.

The remaining revenue decline is attributable to a lower driver count for transportation revenue per mile increased by 13 cents or for.

13th the answer of four 5% versus last year same quarter due to rate increases and eliminating lower rated business.

Fuel surcharge revenue was down $1 million $199000.

Compensation and benefits decreased $1 million $694000, mainly due to lower company miles less minimum driver pay expense and reductions in our non driver staff.

SG&A expense was lower by $468000 due to permanent cost reductions.

Depreciation expense decreased by 168000 on lower miles as we continued to rightsize the fleet.

Insurance and losses decreased $626000 due to lower healthcare claims the gain on sale of land. This quarter was 1 million of $431000 due to the sale of our former.

Terminal site in Pensacola, Florida for free.

Of your entire expense decreased due to the lower miles and the loss on disposition of assets was $113000 due to a rollover accident.

The rollover accident negatively impacted the quarter by $466500 through a combination of insurance loss expense on the loss on disposition of assets.

Going forward, we do not anticipate any further material expense from this accident.

As a result operating profit for the quarter was $671000 compared to an operating loss of $588000 on last year's first quarter with an operating ratio of $96 six compared to $102 five during last year's quarter.

Now, let's talk about the first six months results.

We reported net income of $262000 for.

<unk> per share compared to the net loss of $865000 or 26 per share in the same period last year.

The net income for the first six months included $1 million $37000 for 31 per share from gains on real estate sales net of income taxes.

Total revenue for the period was $39.956 million down $8 million $380000 from the same period last year, resulting from the downsizing of our large account and the closing of our Wilmington, North Carolina terminal.

The remaining revenue decline can be attributed to a lower driver count and the impacts of COVID-19.

Revenue miles were down $2 million 927000 miles or 19% over the same period and transportation revenue per mile was up 14.

Or for 9% due to our improved business mix and rate increases.

Compensation and benefits decreased $3 million $641000, mainly due mainly because of lower company miles the elimination of minimum driver pay expense and reductions in other staff.

The repairs entire expense decreased due to lower miles this quarter insurance and losses decreased to $1 $273000, primarily due to lower health care claims and workers' compensation expense somewhat offset by the previously mentioned single track of rollover accident.

Depreciation expense was down $373000 as we continue to right size, the fleet and SG&A was down $813000.

Resulting from permanent cost reductions I mentioned earlier the gain on sales from our sale from our former site in Pensacola, and the negative impact of the rollover accident.

As a result operating income was $370000 compared to an operating loss $1.312 million in the same period last year, excluding the gain on sale of land and the negative impact of the rollover accident operating loss was for $594000.

Yeah.

Now for the summary and outlook.

During 2020 and early 2021, we downsized certain customers, resulting in lower revenue. The first six months of fiscal 2021 with the additional decreased revenue due to COVID-19 related business declines kind of shortage of drivers the driver shortage of related hiring of turnover challenge worsened during the second.

Quarter of this year negatively impacting our ability to meet customer demand as petroleum volumes increased in mid February and March to near pre COVID-19 levels in most of our markets.

On a recent meeting with the National tank truck carriers of Executive Committee and Federal Motor Carrier Safety Administration Representatives discuss the driver shortage. There was consensus and there was a consensus among most carriers, but there is a 20% shortage of bulk tanker drivers in the U S.

After careful consideration of all of the challenges around the driver shortage, including an increase of private fleets competing for our drivers management implemented a material increase to our driver pay across the board in late April the increased pay is designed to retain and attract drivers. So that we can adequately satisfied of the business demands.

Of our customers.

And thus for has been very well received by our current drivers and the impact of the increased driver pay to hiring new drivers and are attracting some of our previous drivers will not be known for a while but we are certainly recruiting both groups.

Management has contacted all of the company's customers to communicate the increased cost relative to the driver pay increase on the appropriate increase in price to cover the cost will also be stressed on.

Also stressing the need to improve our profitability with longer term contracts.

As I mentioned earlier and as many of you have seen in recent news reports about the driver shortage for fuel haulers. There is of concern about the ability to meet fuel demand the summer without an increase in driver capacity of the entire industry will struggle to meet demand management is working hard to meet this challenge head on by increasing our driver pay and partnering with those customers.

And understand the market demand the associated cost and the need for carriers to make a reasonable profit.

We are focused on forming longer term strategic partnerships that allow us to meet customer demand, while improving our return on investment.

Our balance sheet remains solid with $94 million of cash as of March 31, 2021, and no outstanding debt, we will not purchase replacement tractors or trailers for the remainder of this fiscal year, but do anticipate a return to a more normal capital replacement schedule during fiscal 2022.

Finally, the Tampa property remains under contract and a free look inspection period with an outside closing date of <unk>.

Timber 19, 2021 out of sales price of $9 $5 million.

Finally, we.

We are currently managing through the colonial pipeline cyber attack impact in many of our markets. We are experiencing widespread petroleum product shortages in some outages from the loading facilities, but has in many of these events when product runs out in one market one of our markets. Our drivers are diverted to another and we continue to.

Rate revenue.

The pipeline announced yesterday afternoon that they were starting service and I've confirmed with our operations on our operations calls that some loading terminals and Georgia received product overnight. This is welcome news, we will be working to build inventories back for our customers over the next week.

Next week or so depending on how long it takes the resupply all of the petroleum distribution network. Thank you again for your interest in our company and we will be happy to entertain any questions.

At this time, we'll be conducting a question and answer session I would like to ask the question. Please press star one on your telephone keypad confirmation tone will indicate your line is on the question queue. You May press the star queue. If he would like to remove your questions on the queue for participants using speaker equipment it may be necessary.

Pick up your handset before pressing the stacking one.

One moment, please while the poll for questions.

Okay.

Our first question is from John Boucher of clinical capsule of management. Please state your question.

Hello, Good afternoon Hello.

Jeff.

I was just curious on the.

The increase in compensation for the drivers.

How much higher say on a percentage term.

Will that be going forward and.

How receptive are the customers two of that increase in other words, how much of that increase.

Thank you for you going to get back in terms of pricing.

So the on the.

The driver pay increase was in excess of 15% across the board for our drivers.

And various various methods.

Sure.

And I would say our customers at this point have been very receptive.

The pay for all of it.

The pay for all of it yes, Sir no no pushback.

No pushback.

Okay.

Alright, well I hope that holds true. Thank you do too thanks John.

Our next question is on Jason on Earth Sundar Bumbershoot Holdings. Please state your question.

Good afternoon.

Just wondering with everything going on in the colonial pipeline how much of your business comes from I guess terminals that are connected to the pipeline in some way and just in the short term what's it doing too.

The demand.

One of the demand Jason Thanks for the question demand went crazy.

As you know, it's almost like a hurricane situation panic buying in food not only in Georgia, Tennessee, Alabama, but all the way down to <unk>.

Amy for Lauderdale on both sides of the coast of Florida, which are not even supplied by the pipeline. We had we had stations we were monitoring that we're running 150 200 plus percent of their normal capacity.

What.

I think what everybody found out in real short order that the thing that we've all been talking about is true. There's a there's a driver capacity problem on the bulk fuel hauling side of the business and until we can start to attract more drivers when you see any spike in fuel activity, which is what we're concerned about for the summer.

There are going to be challenges in managing the market as you get up into Georgia, Tennessee, Alabama, We were certainly impacted and all of those markets you start to get impacted on a.

The minor scale early on and then it just kind of ramps up and I would say over the net last.

<unk> 24 to 48 hours the outages for our customers we're fairly ramp it doesn't mean they were all day, but they were certainly out for long periods of time.

You've seen the lines on television.

It's just not possible to keep up we are encouraged that we know that the loading terminals, we're already receiving product.

Overnight some of them and so there is going to be probably about a week to 10 days that it takes to build for us on the trucking side to build the inventories back up in the stations. So that we're not getting back to just in time deliveries.

Hopefully I answered your question I'm not sure yes, I was just.

As far as impacted from a from a non.

Running to running we really didn't ever stopped running our driver. So it was just maybe they were going to different locations to pick up the or maybe they were slightly down we had some some work that we couldn't do because of the terminals out but it was very very minimal on the financial impact.

I guess that was that in the short term if there was like a benefit I guess from a lot of excess demand, where you're trying to get product, but then longer term is there also any.

Obviously, you've talked a lot about the driver shortage as you start to get into the summer or just longer term does this change maybe how people think about.

Yes.

Yes.

Like debt trying.

Trying to make sure you have a pretty quality assured supply on.

On the trucking side rather than maybe.

Just trying to go after the lowest price.

For Matt.

I think everybody understands that with the increase.

<unk> volumes back to pre COVID-19 levels, or even close to that and knowing that theres been edge.

As of 20% GAAP and the number of drivers that are available to all of those products.

I think everybody understands it.

We've all got our work cut out for us in the our customers need to partner with folks that are going to be able to supply their needs and we've got that same concern because obviously, we have customers that we've dealt with for a long time, and we want to be able to take care take care of their delivery needs and and.

And so there are some markets, where that's been very difficult and we've had to make some tough decisions on.

On customers that we arent going to be able to serve.

Yes, so the answer.

<unk> add on to that as they already knew before but for the pipeline.

On a well established it was there was a major probably before.

It just exacerbates exacerbated yes, I would just call that of short term event I think the bigger event is the overall trucking capacity and the ability the ability I think everybody is concerned about the ability to service the need over just what will be of busy summer right.

Okay cool.

I appreciate the answers thanks.

Thanks, guys. Thank you.

Yes.

Our next question is from John color of the Oppenheimer. Please state your question.

Good afternoon, it's Oppenheimer and close hope Youre well today.

Hey, how are you.

Okay. So just a quick question if the driver shortage is so persistent.

I understand everybody's got the same problem. The do you have the opportunity.

To rationalize the customer base too to fit.

The your supply or have you pretty much done that already and at this point.

The relationships are just too broad and into the.

No we've done some of that already John I think this is kind of a new really coming out of the les.

February March.

We were in the process of doing those things and having conversations.

With our customers.

And.

Really looking at each market the customer base in each market and making those decisions on whether we felt like we were going to be able to handle the current customer base or not and.

This.

We've had this little disruption called the colonial pipeline thing in the last week and so we are very in tuned to that and we're jumping back into that now trying to see coming off of the driver pay increase in the.

And the rate increases.

Do we stand on what do we think the summer is going on.

Okay, Great and then just a quick question on the fiscal year 'twenty. Two capex spend is two to 3 million of reasonable number to expect or is that a no. It will be most likely unless there's some dramatic.

The decrease in our driver of countless just the same way stay pretty stable would probably be about twice that.

Okay, great. Thank you so much.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate your line is on the question queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the stacking.

One moment, please while we poll for additional questions.

Yes.

There are no more questions at this time.

At the end of the question and answer session I will now turn the call back over to Rob Sandlin for closing remarks.

Thank you all and thank you again for your interest in our company and what we will be happy to talk with you next quarter.

Thank you.

Alright.

Yes.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.