Q2 2022 Patriot Transportation Holding Inc Earnings Call

Good day, ladies and gentlemen, and welcome to the Patriot Transportation earnings call for the second quarter of fiscal year 2022. At this time all participants have been placed on listen only mode and the floor will be opened for questions and comments after the presentation.

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

In our history.

Outcome.

Yes.

Yeah.

And Rob the floor is yours.

Good afternoon, sorry about that 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 and 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 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.

For our second quarter results today, the company reported second quarter net loss of $490000 or a loss of <unk> 14 per share for the quarter ended March 31, 2022, compared to net income of $484000 or <unk> 14 per share in the same quarter last.

Year.

Last year's quarter included a $1 $37000 or <unk> 31 per share from gains on real estate net of income tax.

Operating revenues for the quarter were $20 million $928000 up $1 million $200000 from the same quarter last year due to rate increases and higher fuel surcharges.

This quarter's revenue miles were negatively impacted by the approximately 50 driver reduction versus last year's second quarter, most mostly due to the driver shortage.

Operating revenue per mile was up 65, or 19, 8% due to an improved business mix and rate increases.

Compensation and benefits increased $275000, mainly due to the increased driver compensation package, mostly offset by the lower driver count and a reduction in support staff.

Insurance and losses increased $645000, primarily from higher health care costs caused by one COVID-19 claim which hit our maximum retention of $372500 in the prior year workers' comp claim which negatively impacted us by $380000 in the quarter.

The depreciation expense was down $265000 in the quarter and gains on sale of assets was $119000 compared to a loss of $113000 in the last in last year's quarter.

The operating loss this quarter was $639000.

The COVID-19 claim in the prior year work comp claims resulted in a total charge of $752000 to this quarter.

On to the year with year to date results.

The Companys net income was $5 million $949000.

Or a $1 63 per share compared to $262000 or <unk> <unk> per share in the same period last year.

Net income this first six months included $6 million and $281000 or a $1 72 per share from gains on real estate net of income taxes. The.

The prior year six month results included net income of $1 million $37000 or <unk> 31 per share from gains on real estate net of income taxes.

Operating revenues were up $1 million $543000 due to improved rates and higher fuel surcharges, while miles were negatively impacted by the lower driver count.

Operating revenue per mile improved 64.

Or 19, 9% due to rate increases higher fuel surcharges and an improved business mix.

Compensation and benefits increased mainly due to driver pay increases offset by lower driver count and non driver personnel reductions versus last year.

Diesel prices have increased to record levels, causing our fuel expenses to increase by $1 $316000 over last year's second quarter, while insurance and losses increased $333000.

Due mainly to the two claims mentioned earlier.

We decreased depreciation expense by $533000 with the downsizing of equipment that was mostly completed in the second half of fiscal 2021, while SG&A expense was higher by $340000.

Mostly due to a onetime transaction bonus following the sale of the Tampa terminal property.

The gain on the sale of the land was $8.330 million due to the sale of Tampa compared to a $1 431000 in the same period last year.

The gain on sale of assets was $479000 versus a loss of $199000 last year.

This year's gain was positively impacted by the dramatic increase in used truck prices.

The operating profit for this period was $7.902 million compared to 370000 last year.

Including the Tampa land sale and the one time transaction bonus for management adjusted operating loss for the six months was $34000 as.

As stated earlier the Covid in prior year Workers' comp claim resulted in a negative charge of $752000 for the first six months.

Now for the summary and outlook.

During the first six months, our driver count remained steady and similar to the previous two quarters. Following following the large driver pay increase in April of 2021.

During the first quarter, we announced additional driver pay increases in all of our markets most of which took effect in early February 2022.

It bears repeating from last quarter's conference call that these increases added 21% to 31% to driver pay depending on the market and our new driver pay is up a minimum of 26% over the same period.

In addition, we have been successful at rate increases since last April to more than cover the increased cost of the driver pay raises.

Matt Mcnulty, our CFO has settled into his new responsibilities as CEO after our vice President of operations retired at the end of our first quarter.

As mentioned on our February call in February we have made other personnel moves that will not be replaced.

We continue to focus on growing our dry bulk segment into new markets as we were able to hire drivers.

We continued to hire registered apprenticeship drivers for the Drybulk business as we have partnered with the department of labor in an effort to expand our hiring base.

I have made several trips to multiple trips to Washington D. C and continue to work with senior staff Dol and.

Along with National tank truck carriers on the driver shortage.

And long term solutions for us in the industry.

We are in the final stages of an application and acceptance into the department of Defense skill Bridge program, which will provide us better access to transitioning military personnel with truck driving experience.

I was honored to be invited to the White house for a south lawn celebration of President Biden 90 day trucking challenge on April 4th and was asked to take one of our registered a partnership drivers Joseph Britt Junior along with me.

<unk> has a seven year army veteran who is exactly the type of person, we're looking for with the steel Bridge program.

Joseph <unk> Joseph is now actively hauling petroleum loads for us. After his initial training period, we had a great day together in Washington D C.

The dividend paid in November reduced our cash balance by $12 million $800000, but our balance sheet remains strong with $6.800 million of cash at the end of March 2022.

We began replacing tractors in the first quarter of this fiscal year and while we are experiencing delays due to supply chain issues.

We anticipate receiving a total of 30 replacement tractors and a handful of trailers with capital expenditures of approximately $6 million during this fiscal year.

We have also seen the prices of new tractors increased due to supply chain issues and inflation.

Finally, we are all saddened at the passing of our Chairman Emeritus Ted Baker on April 28.

I've had the pleasure of working for kit with it for a long time.

His business record is well known and I'm honored to have known him and fortunate to have had the opportunity to learn from him over the last 38 years, he will be missed by us all.

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

Yes.

Thank you 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 today, we are asking that participants limit themselves to two questions at a time.

We also ask our closing your question you. Please pickup your handset listen on speaker phone to provide optimum sand quality.

Again, Please press star one at this time, if you have a question on <unk>.

Please hold while we poll for questions.

Once again, ladies and gentlemen, if you do have any questions. Please press star one on your phone at this time.

And we did have a couple of questions come in.

First question is coming from Steve Rudd from Blackwell, Steve Your line is live.

Sure.

First condolences to the banker family, obviously I didn't meet head, but I know what it is to have an elderly parent and.

When they are gone it's Tim.

Massive loss.

We're really heartfelt yes.

Heartfelt condolences to the entire family.

Sure.

It's weird to transition to business question.

I'll do my best and I know you will too.

On driver count.

Press release and your comments.

Notice that we stabilized at around 355.

Drivers the program Youre participating in Washington appears to be bearing fruit as do the alright.

Alright.

Pay increases.

What's your feeling now I mean, we were down about 10 drivers this past quarter quarter to quarter versus last conference call.

We see that reverse now and then I do have a follow up question.

Matt.

We had a.

We had a very small had gotten very small terminal in Nashville.

With about eight drivers seven or eight drivers that we that we closed in February of this year. So.

I'd have to rely on you that we had about 10 driver dropped from the last call, but most of that was from that closure.

We just cannot.

There was no reason for us to stay in Nashville, with the labor market debate is in the turnover.

The business there is just better for us to move on yes, the only thing Thats, Rob the only thing I would add to that is on any given week. There is a little ebb and flow in those numbers, but what I.

What I would say is that since the driver pay increases the driver turnover has stabilized while you still see churn in the new drivers.

Its way down from what it was pre pay increases.

As is the turnover for our senior drivers drivers should say drivers that have been here for more than a year.

Okay.

Question on the drivers.

This is all good news on the driver count on the stabilization there I appreciate the clarification on the Nashville.

Closure.

But going into the next quarter and I'll ask a compound question or two part and then to the extent there is a line I'll go back to that.

But the compound question do we think now that we will see an AD to driver by the end of the quarter.

That's one part and then the second part is we've always anticipated that each additional driver.

Next about 15, K too to the company through our PE.

Rice increases.

That figure.

By about how much.

So the first part of that I'll, let Matt think about the second part for a second the first part of the question really about drivers.

Is.

We've seen some uptick in the number of applicants.

And we've seen some uptick in the number of.

Trainees that we're getting on board, but not significant it is still a very very difficult driver market.

There are there are.

Terminals, where we don't have any viable applicants probably looking through our recruiting report most recently there.

Close to half of the terminals just don't have a lot of great applicants.

So it gets very difficult to hire and get a driver through training and we have other markets, where we're being more successful. So I don't I don't have any reason to believe that we're going to start making great gains.

Driver adds and I, just haven't seen that or heard that anywhere else in the marketplace.

I think it's still going to be a very difficult.

Robert market going forward.

Okay.

Matt.

I think the one thing that Bob Matt. Thank maybe thinking about your other question a little bit.

We are we are certainly trying to outstrip.

The driver cost as much as possible to add margin and.

And rate increases.

I think the thing that nobody's factored in until now recently is we've got this thing called inflation, that's hitting us in anywhere from tires to lube oils departs.

Labor and so a lot of those in tractor costs, and we're getting surcharges on tractors and so we're having to monitor that as we go through and adjust accordingly.

We'd probably be a little nervous about.

And a number to what how much we're going to gain above and beyond the driver pay on rate increases, but I do believe we're going to have a gain.

Matt do you want to add to add a little.

No I think thats a good answer.

To Rob's point, I think two new right now to see our cost with the inflation and other things happening to understand how much of that additional revenue that that driver is going to bring in is going to go to the bottom line. So I still feel like a good number since this is the 50000.

There's certainly some more of that probably will be added to rob's point, but I don't I don't know if.

It's a giant amount of money that will be to the bottomline per driver.

Okay. All right I'll go back I don't know if there is a queue is there a few right now or am I the only one.

Go back we'll go back to the gate he can pop your back in and pop your backend Okay alright. Thanks.

Thank you Steve we did have another question coming from Adam Ritzer, Adam is a private investor.

Adam Your line is live.

Thank you I appreciate you taking my call.

Thank you I just had an overall a larger picture question I think you guys have done a great job on returning capital selling assets.

Youre paying out your free cash flow in terms of dividends. The last couple of years. So I congratulate you for doing that.

But it seems as if this new.

New driver probably will never really goes away.

Costs keep going up so your overall profitability even from a few years ago.

Can it be down and even if you just kind of alluded to.

So what would it take for you guys to just say look why don't we just sell the business.

Maybe there is another buyer out there who could cut costs kick up our assets and yesterday. This is just too tough business for us, but really make any money would you ever get to that point.

Why or why not.

And I think there is I mean I think every.

Every company is managed by folks who has to be.

Aware that Thats always thats always an option, whether we're buying or selling I mean, thats just part of your options as a strategy, but I don't think the business today.

<unk> will be pushing us to make that decision I think we feel like we've managed through a lot of that tough times and are starting to see the curve start to start to move in the right direction, especially with the driver stabilization in the rate increases. So I think we will just keep running the business as it is and like I said, I mean, theres no never going to be a time, where if somebody comes to us.

And wants to talk about an opportunity that we're not going to listen, but that's not it's not on the forefront of our minds right now.

Okay. So the plan is just kind of keep going at it trying to raise our prices.

To offset our costs that are going off trying and looks for new drivers and just keep plugging along but if somebody came to us.

Wanted to get us out of the situation you guys would not be adverse to that.

No I think we I think we have to look at all possibilities and then certainly get the board involved at that point, if that were something to happen, but right. Now we have just been keenly focused on doing the things that you mentioned in the first part of your question and then we see some.

We've seen some improvement in.

We're going to we're trying to go back and do what we've done for years and put a reasonable return.

On the bottom line.

And then.

The rest of that stuff should take care of itself. So yes.

Okay very good.

I'm not trying to be rude, but I just wanted to put that out there.

And I see what you guys have thought of it because it has been tough now.

You said for the last couple of years.

Yes.

What's going on no. We're not we don't we don't think that's a fair question, we don't take that as being route it all in and certainly in any business like those are things that you talk about.

Okay I appreciate it thanks very much.

Great. Thank you.

Thank you.

<unk>.

Steve Rudd from Blackwell, if you had a follow up question. Please go ahead.

I do have got too.

And Rob Thanks for your straightforward.

Straightforward approach in these things.

So one question I have.

First in small cap companies like yours, well managed.

And one thing that I'm hearing from everybody and I'm old enough to be familiar with determine inflation like everybody on this call.

But.

I'm hearing from most of them that they can adjust price I guess pricing the price increases are being accepted pretty well and then wondering how how quickly you could adjust prices.

Yet again.

And then I have.

Other follow up Adam.

Well, it's all right.

Yes, that's a fair question.

Not that we've completed.

We are in a second and third round of <unk>.

Rate increases and there were prices that went up in February there were prices went up last month.

They are scheduled to go up through the summer so I don't.

I think as long as people are having difficulty getting their products delivered out to here.

This business is as a pure supply and demand business and.

We've got the ability to whole products and partner with those customers.

That are interested in our long range.

Partnership.

And understand the value of what we're doing for them. So we think there's opportunities not only to increase price out in the future, but we also think theres opportunities to change partners. If some of the folks that we're dealing with aren't interested in that type of.

A partnership with a company like ours, and we've done that in a couple of cases.

Already and we've really only had a couple of companies. Thus far to your question that have really pushed back to the point of losing business as it relates to rate increases. So I think theres, probably still some more opportunity out there and the timing that properly is the thing that we have to be very aware of.

Okay, Alright, that's good and that's consistent with what you guys did last year.

So I think the opportunity is quite deep at.

At least thats, what again, what I'm seeing.

Your business is certainly a niche business.

Adam I don't remember his last name raised an interesting question, particularly in light.

Passe.

He shares do we know what.

What happens to the shares that they passed.

The family I mean is there a plan for those shares.

We won't have any we won't have any any insight on any of that that's all that's all handled internally for their family, Yes, Thats always personal stuff. So.

It hadn't come up to us so I really don't.

We don't know how they're handling that.

Okay, and I understand it's a delicate question.

The only thing triggered it was the prior questioner.

Again.

Thank you guys for the hard work I think we're in good hands.

I know that you do your price increases.

Thoughtfully.

And I think <unk> got room.

Knowing your markets as well as you do but at least from heard on the street is.

You've got probably some room to be aggressive.

But we will do the right thing so thanks again.

We appreciate your participation and your interest.

Yes. Thank you.

Thank you and there were no other questions in queue. At this time I would like to hand, the call back to Rob Sandlin for closing remarks.

Thank you all for your interest in Patriot Transportation, we look forward to talking with you again next quarter have a good day.

Thank you ladies and gentlemen, this does conclude today's conference you may disconnect at this time and have a wonderful day. Thank you for your participation.