Q1 2022 Patriot Transportation Holding Inc Earnings Call

Okay.

[music]. Thank you for holding we sincerely appreciate your patients stay on the line and we'll be back in a moment.

Good afternoon, ladies and gentlemen, and welcome to the Patriot Transportation Holding's, Inc earnings call for the first quarter of fiscal year 2022.

At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host CEO and President Rob Sandlin. Sir, the floor is yours.

Good afternoon, and thank you all for being on the call today and for your interest in Patriot Transportation.

I'm Rob Sandlin CEO of Patriot Transportation and with me today are Matt McNulty, our chief financial and operating 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 relates 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 first-quarter results. Today, the company reported first-quarter net income of $6,439,000 or $1.74 per share for the quarter ended December 31st 2021.

Compared to a loss of $222,000 or negative 14 cents per share in the same quarter last year.

Operating revenues for the quarter were $20,571,000, up $343,000 from the same quarter last year.

This year's quarter was negatively impacted the planned downsizing of one customer do freight prices continued reduction in driver count versus last year's first quarter due to turnover in the driver shortage largely offset by improved transportation freight rates negotiated with our customers to offset higher pay.

Driver pay, higher fuel cost and other cost increases and increased profit margins. Our operating revenue per mile was up 63 cents.

Or 21% due to an improved business mix and rate increases.

Compensation and benefits increased $33,000, mainly due to the increased driver compensation package, mostly offset by lower driver count and a reduction in support staff.

Insurance and losses decreased $312,000, primarily from lower health care claims this quarter and the prior year first quarter, including two significant product mixes.

Depreciation expense was down $268,000 in the quarter as we continued to reduce our fleet size.

SG&A and corporate expenses were higher due to a onetime transaction bonus for certain members of management or the management team related to the Tampa property sale.

Gain on sale of land was $8,333,000.

<unk> $3000.

Due to the sale of our terminal in Tampa, Florida, which we were pleased to get across the finish line after many years of effort.

Gain on sale of equipment was $360,000 versus a loss of $86,000 last year.

Operating profit this quarter was $8,541,000 compared to an operating loss of 301,000.

In the same quarter last year.

Excluding the sale of the Tampa terminal and the one-time transaction bonus, adjusted operating profit was 605,000 with an adjusted operating ratio of 97.1 this quarter versus 101.5% the same quarter last year.

Now for our summary and outlook.

During the first quarter, our driver count remained fairly flat and similar to the previous two quarters. Following the large driver pay increase in April of 2021.

During this quarter, we announced additional driver pay increases in all of our markets some of which went into effect this quarter with the majority taking place in early February 2022.

These increases added to last April's driver pay increase account for a range of 21% to 31% and pay increases depending on the market and all new driver pay is up a minimum of 26%.

In addition, we have been successful adding rate increases to more than cover the cost of all the driver pay most of which occurred last summer with additional increases added throughout the first quarter and the remainder becoming effective in the second quarter.

Matt McNulty our CFO has also taken on the responsibility of COO.

As our VP of operations retired at the end of our first quarter.

We have made other personnel moves that will not be replaced.

And we will continue to utilize our best people and eliminate costs, where we are able to do so.

We continue to focus on growing our dry bulk and water hauling.

As there are opportunities in both of these segments.

We hired our first two registered apprenticeship drivers for the dry bulk business as we have partnered with the department of labor in an effort to expand our hiring base.

I have made multiple trips to Washington DC and continue to work with senior staff.

At DOL, DOT and DOD. Along with the National Tank truck carriers Association on the driver shortage and long term solution for us in the industry.

Along with the National Tank truck carriers Association on the driver shortage and long term solution for us in the industry.

We will have to be creative in our recruiting efforts, while keeping our focus on hiring and training the safest drivers available.

The sale of the Tampa property in October generated $6.3 million of after-tax cash and the dividend paid in November reduced our cash balance by $12,800,000.

Following these two events and a positive operating quarter, our balance sheet remains solid with $8.7 million of cash as of December 31, 2021.

We began replacing crackers in the first quarter of this fiscal year and while we are seeing some delays due to supply chain issues, we anticipate buying 30 track replacement tractors and a handful of trailers with capital expenditures of approximately $6 million and depreciation excluding lease right of use amortization.

of approximately $6.5 million during the fiscal year.

Thank you again for your interest in our company and we will be happy to entertain any questions.

Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question. Please pick up your handset if you're listening on speakerphone to provide optimum sound quality.

Once again, if you have any questions or comments. Please press star one on your phone. Please hold while we poll for questions.

Your first question is coming from Steve Rudd from Blackwell. Your line is live.

Great.

Hi, Rob.

Matt and John.

Rob, you sound like you are fighting a cold there or something.

I think it's just a long day.

[laughter].

A lot of travel recently.

Alright, Thank you take care of yourself.

We'd like good returns, but don't like anybody getting sick trying to get.

Good returns, but don't like anybody getting sick trying to get.

I appreciate that, thank you.

Well to do well, you got to be well, so that's a priority.

Hi.

I missed at the end of your prepared remarks.

Your comment on depreciation going forward.

Can you just restate that? And then I've got a number of questions after that.

We're projecting to be about $6.5 million once you eliminate.

The right of use or amortization in our leases. On the depreciation.

On the depreciation.

Okay, got it.

And this is probably, I'm sure anyone of the three of you could answer.

This is probably I'm sure anyone of the three if you could answer.

Last year and I can pull it up myself. That will make it easier for me.

On depreciation.

John, we'll take a look at.

Okay.

Second thing.

The elimination of the [CLO] positions. So that's now 100%.

In [inaudible] per view basically going to be doing those two jobs, is that right?

Yes, sir.

Okay, that's terrific.

And you couldn't wish for a better guy to do it so well done on that.

The driver count you said remains flat.

Matt.

Well, it's all of our favorite topics, last we spoke we were at 375.

That where we are today.

Yes, yes.

Yes, pretty close to that.

It changes every day so.

Sure.

No.

Have you.

Have you been losing folks to do just that they're out because of illness?

So are we going to take a hit on that.

You hit on that.

For the quarter we're in.

For the quarter we're in.

We have seen some short term illnesses due to COVID-19.

And it's market by market.

We got hit pretty hard in two or three of our central Georgia Central Alabama markets for about a 10 to 14 day period and then.

What we.

We just added in north Central Florida for about a week or 10 days here with five drivers that went out. So we're just seeing an intermittent intermittently.

And not in huge numbers.

Not in huge numbers.

1, 2, 3, 4, 5 drivers a week.

Okay. Alright.

To a degree manageable and everybody's coming back well it sounds like so that's.

That's pretty good.

Were you taking the pay increase the majority of it you mentioned took effect here at the beginning of February?

Taking the.

The pay increase the majority of it you mentioned took effect here at the beginning of February.

And it was roughly 20% or so and then you also mentioned of course, we had the price increase.

Last summer, but then another price increase now.

Another price increase.

Yeah.

Roughly taking effect now.

I'm curious if you could give us or give me, I don't know who else is on the call, but give me an idea of what sort of percentage-wise price increase [was here].

So generally what I would tell you is that we were in the neighborhood last year of 6% to 9%.

6% to 9%.

And some a little north of that just depends on the pace of business.

And how long it had been so let's just call it 9% on average there and then I would tell you that we have gone up at least another 6% recently so on average it's somewhere in that 15% range.

Okay.

That's good.

So with the exception of.

With the exception of.

<unk>.

You're going to do the math faster I can try to.

Work my way through it.

But on that 6% what hits the bottom line minus the.

What hits the bottom line minus the.

The driver cost increase.

Couple of points. The goal was the goal there was to get and in most cases, we did got numbers around 9% in that first swap. So if you needed 5.5 to 6.

To cover the driver pay then you pick up 3, 3.5 dependent on just depending on the number.

And then on the second second round was a little less so the second round. The majority of the pay increases that went in.

We're up about 5% on driver pay we had a couple of terminals, where we did some some extra.

So 5% in getting six-plus percent rate increases probably the driver pay would eat up about 1% and three-quarters percent of that 6% the rest should be for other cost increases.

5% in getting six plus percent rate increases probably probably the driver pay would eat up about 1% and three quarters percent of that 6% the rest should be for other cost increases.

Which we are seeing obviously with inflation, we are seeing other cost increases.

Got you, but some of that hopefully will find its way to the bottom.

Yes, yes.

That's the plan.

Yes.

Yes.

I mean the reason why I pointed out is there is almost no industry in the country today that, I think every.

Client is basically anticipating and accepting price increases.

There is an interesting time where you can.

When you can hit it of course in our industry here.

It's well [inaudible] because the entire world knows about a driver shortage.

Higher world knows about a driver shortage.

But also there may be some more room there.

There may be some more.

Our room there.

So that's quite good.

Alright.

The other operating I mean you're.

Matt involuntarily volunteering to be COO and CFO.

<unk> CFO.

That's a cost savings. One of the operating margin improvements.

Are we targeting going forward.

Well, we just we just eliminated a couple of other permanent.

Field staffing jobs that were higher level and took current personnel to fill those roles. So we saw a decline.

Just recently you've got

The combination of those two management jobs and the VP of operations job. In addition to ones that we had already done going into the fall and equipment still.

We still have some equipment, not a lot but.

But a little more equipment to the. In first quarter, we got, we downsized additional equipment, but we're pretty tight at this point ready to kind of start replacing.

So on the staffing job.

Yes.

And the like are we looking at like 200,000 a quarter would be a good number?

You figure.

You mean on all of the ones you just the three of those things. Yes exactly.

All those personnel things combined.

Sure.

It's probably about 75 to 90,000 a quarter.

90000, a quarter.

Just on those groups. Just history, we've got some other smaller things going on in the background, we're able to kind of combine some physicians and things.

But those are the larger ones. I would tell you that a lot of that work was done during the second half to end enduring COVID last year and so when you start to compare year over year.

Quarter over quarter, you can see those those differences in.

There are personnel cost compared to the prior year.

Okay, great.

Okay.

John, was going to come back to me with [last year depreciation].

John, was going to come back to me with [last year depreciation].

$7 million last year on the depreciation. $7.1 million and the driver count today is.

Excluding the guys, including the guys who are out sick are excluded from this number so at $366.

I'm going to guess without having it right in front of me that there is.

I know that there is five or six that are out sick so that gets you back up over 370 that are permanent employees at this point.

Got it. And where do we think, you think you can add a few this coming quarter? I mean, you're doing all the right stuff.

Sure.

Where do we think you think you can add a few this coming quarter I mean, you're doing all the right stuff.

Hi.

I am not a good prognosticator of driver numbers anymore.

Prognosticator of driver numbers anymore.

The world has changed.

The world has changed.

It's really hard to tell.

We're doing everything that we can do.

Including the things that I mentioned about doing the registered apprenticeship, working with DOL, DOT, DOD.

Including the things that I mentioned about doing the registered apprenticeship, working with DOL, DOT, DOD.

On ways that we can attract drivers to our company and to the industry.

And so it's just it's going to continue to be a battle for a while. I just don't see anything changing in the

Next 3, 6, 8, 10 months.

Okay. Got you. So still, I'm going to just try to do some back of the envelope.

Got you.

Bill.

I'm going to just try to do some back of the envelope too.

[inaudible].

[inaudible] Basically we're at like.

Basically we're at like.

Assuming even a static driver count if you can hold the line not add drivers.

We probably are at an improved bottom line of almost $1 billion for the year, probably a little more.

Improved bottom line of almost $1 billion for the year, probably a little more.

And I'm getting that by taking out the depreciation, our depreciation savings plus. 

<unk>.

Consolidating the. Putting in some of the margin improvement and the consolidated staffing.

Great.

Putting in some of the margin improvement and the consolidated staffing.

That was very quickly done and so it's not [our fault].

Yes.

We're going to kind of just will give you all the details you asked for. We never do projections and I'll let you do the math on your side.

We're going to kind of just will give you all the details you asked for. We never do projections and I'll let you do the math on your side.

We have always steered away from looking forward on these kind of calls.

Okay, that's fine.

Once again, you guys are able to buy, I saw were up you bought some shares.

I guess during one of the windows, you've got what about it, is it two weeks now where you personally can buy shares again?

I don't know how long do I have? Two weeks more than that I think I've got six weeks had a six-week open window. Okay.

Okay.

I'm not a prognosticator either but good time for you guys to be buying some more shares. I don't know if you have any plans on that.

When you're doing all the right stuff and there's not that many windows and you're in a down.

Markets like I always like management to be partners. So absolutely. We are locked in as partners. I can assure you.

That part I know, but actually like to make more money.

No, I agree.

You have the chance, [there's no company you know better] or have more of an impact on when you're doing the right stuff. And I'll pull back for now in case somebody else's on the phone with us.

No company, no better or have more of an impact on when you're doing the right stuff and I'll pull back. We're now in case somebody else's on the phone with us.

[inaudible].

Thank you. I appreciate your insight.

Thank you.

Thank you. Once again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone at this time. Your next question is coming from Adam Ritzer, Adam, your line is live.

Hi. Thanks for taking my call.

I promise I won't have as many questions as the last caller.

Well, I just had two things I wanted to ask you. In a better environment for you guys in the past what has been a normalized operating ratio?

I would say Adam, we were shooting for and performing in the.

Low low to mid 90s, let's call it 93, 94.

90 is let's call it $93 94.

And then if we had a really good safety year, you would have numbers, we had numbers that crept into the high 80s at times.

Those were exceptional years for us. So I would think in this business if you could get yourself back to, the world's changed. It's just a little different right.

You're not going to see [inaudible].

If you could see a 95.

95 operating right. I think we would feel like we're moving in the right direction.

Okay, that makes sense.

And I noticed that there's

a decent amount of additional diluted shares and the share count.

Roughly 300,000.

Is that [inaudible]? Is it potential options outstanding? Can you just give me a little color on what that is?

Got.

Is it potential options outstanding can you just give me a little color on what that is.

So what happened was that the outstanding stock option grants were not included in diluted count during the times when we were not profitable.

And so with the return of profits there being fully counted again.

Okay. So if there was a quarter where you're not profitable, you won't see that but this quarter it shows us.

Yes, it is on a ruling average fiscal year basis. So we had some quarters last year, where we weren't making money and that contributed to lesser share count for the entire year.

Average fiscal year basis. So we had some quarters last year, where we werent, making money and that contributed to lesser share count for the entire year.

And what would you say is roughly the average exercise price on those?

I've got that right here.

So that's in our annual report stock footnote.

It would be $12.10.

$12 10.

Okay. I hope you guys make a lot of money on that let me tell you.

Hope you guys make a lot of money on that let me tell you.

Okay. That's all I had. I appreciate you taking my call. Best of luck.

That's all I had I appreciate you taking my call best of luck.

Thanks for your interest.

Sure.

Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star one on your phone at this time.

Please hold while we poll for questions.

Thank you. There are no further questions in the queue. I will now hand the conference back to our host for closing remarks. Please go ahead.

Thank you and we appreciate your interest in Patriot Transportation and look forward to talking with you next quarter. Have a good day.

Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

Okay.