Q3 2022 Patriot Transportation Holding Inc Earnings Call

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Good day, ladies and gentlemen, and welcome to the Patriot Transportation Holding's earnings call for third quarter.

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

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

Thank you good afternoon, and thank you all for being on the call today and for your interest in Patriot transportation.

Rob Sandlin CEO of Patriot transportation and with me today are Matt Mcnulty, our Chief Financial Officer, and Chief 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 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.

Now for our third quarter results.

Today, the company reported a net income of $771000 or 22 per share for the quarter ended June 32022.

Compared to net income of 3.323 million or <unk> <unk> per share in the same quarter last year.

Last year's quarter included $133000 or <unk> <unk> per share from gains on real estate net of income tax.

Operating revenues for the quarter were $23 million $501000 up $2.646 million from the same quarter last year due to rate increases and higher fuel surcharges.

This quarter's revenue miles were negatively impacted by the approximate 25 driver reduction versus last years second quarter due to the driver shortage and closing of our Nashville terminal.

Operating revenue per mile was up 86 or.

Or 24, 2% due to an improved business mix fuel surcharges and rate increases.

Compensation and benefits increased $574000, mainly due to the increased driver compensation package, mostly offset by lower driver count and a reduction in support staff.

Insurance and losses increased to $129000 due to negative development of a prior year auto liability claim.

Depreciation expense was down $299000 in the quarter and gains on sale of assets was 163000.

Compared to $46000 in last year's quarter.

The operating profit for this quarter was 913.

Compared to $269000, excluding gains on real estate sales in last year's third quarter.

Now on to the year to date results.

The Companys net income was $6 million $720 or $1 85 per share compared to $585000 or <unk> 17 per share in the same period last year.

The net income this first nine months included $6 million $281000 or $1 73 per share from gains on real estate net of income tax. The prior year's nine months results included net income of $1 million $170000 or <unk> 34 per share from gains on.

Real estate net of income taxes.

Operating revenues were up $4 million $189000 due to improved rates and higher fuel surcharges, despite being down $2 2 million miles as a result of lower driver count.

Operating revenue per mile improved 72, or 21, 7% 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 expense to increase by $2 million $713000 over last year, while insurance and losses increased by $462000 due mainly to a maximum limit COVID-19 claims of $372500.

And a negative workers' compensation adjustment on a prior year claims of $380000.

We decreased depreciation expense by $832000 with the downsizing of equipment that was mostly completed in the second half of fiscal 'twenty 2021 second half of fiscal 2021.

G&A expense was higher by $384000 due to a onetime transaction bonus followed following the sale of the Tampa terminal property.

The gain on the Tampa land sale was $8.330 million compared to a $1 million $614000 gain on land sales in the same period last year.

The gain on sales of assets was $642000 versus a loss of $153000 last year.

This year's gain was positively impacted by the dramatic increase in used truck prices, which has started to taper off slightly.

The operating profit for this period was $8 million $815000 compared to $822000 last year.

Excluding the Tampa land sale and the one time transaction bonus per management adjusted operating profit for the nine months was $879000 compared to an adjusted operating loss of $792000 in the same period last year.

As stated earlier the Covid case in the prior year Workers' comp claim resulted in a negative charge of $752500 through the first nine months.

Now for the summary and outlook.

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

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

We recently announced additional driver pay increases and about half of our markets effective in early August .

Year to date, our turnover has dropped 28 percentage points versus fiscal 2021.

The most recent driver pay increases mirroring earlier market trial, where we tied the increase and to productivity and zero on excuse to have senses to the pay increase.

It bears repeating from last quarter's conference call that these pay increases added 21% to 35% 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 adding rate increases each time, we have increased driver pay including the most recent pay increases.

We continue to focus on growing our Drybulk segment into new markets. As we are able to hire drivers and we continue to hire registered furnish up drivers for the dry bulk business as well.

During the third quarter, we received our Mou for the Department of Defense skill Bridge program, which will provide us better access to transitioning military personnel with truck driving experience and those interested in our CDL driving career.

I have stayed involved with white house initiative to increase the number of people interested in truck driving jobs, specifically I joined the task Force movement Steering Committee, which is designed to bring transitioning service members veterans military families and industry stakeholders together to improve economic and national security outcomes.

We are hopeful that our skilled bridge involvement will allow us to increase our driver force with transitioning military veterans soon.

The dividend paid in November reduced our cash balance by $12 million $800000, but our balance sheet remains solid with $9.900 million of cash at the end of June 2022.

We began replacing tractors in the first quarter of this fiscal year and while we have experienced delays due to the supply chains. We are presently receiving new tractors and expect to add 20 by the end of this fiscal year. In addition, we will purchase a handful of trailers and spend approximately $6 million during this fiscal year.

We have seen the price of new tractors, and trailers increase due to supply chain issues and inflation.

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

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.

Asks that while posing your question. Please pickup your handset selling on speaker phone to provide optimum sound quality.

Hold while we poll for questions.

Your first question for today is coming from Christian Olson. Please announce your affiliation and pose your question.

Yes. Thanks. This is a question of Wilson from Olson value fund.

I was just wondering what is the typical frequency rate negotiations with your customers.

Annual.

And for how long are you legally logged into the rates that you agreed to.

Christian Thanks for the question it really depends we have some contracts that run annually.

As far as the rate negotiation part some are tied to CPI. Some are not and are simply negotiations, but then we have a large.

Book of business that does not have a contractual obligation to wait for a period of year and in fact, what we have found is that even when we do have that if we've seen a need to raise driver pay dramatically.

The folks that we are partnering with have been able to help us by offsetting that.

Additional cost.

Okay, and I think I.

Remember you mentioned something about a three year contract with a large customer in one of their recent calls.

The last few quarters.

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So do you have a lot of customers that are on contracts that helped that long end.

Those rates tied to CPI or do you have the ability to renegotiate those more frequently than every three years.

If you read the language of really any contract most of those things tell.

Tell you that you've only got the ability to adjust rates annually I will tell you that the supply chain crisis in this country and the shortage of drivers have really opened up the ability for us to go to a customer and tell them that between those periods that we have we need to raise rates to cover.

Driver pay and then you let the you let the annual negotiation take care of the rest of it.

Thanks, Matt.

Matt just Matt may want to weave.

We've only got three contracts that I can think of that are that three year term everything else as two one or near term.

Okay.

And.

And then my other question if you don't mind.

How does the.

The shortage of drivers.

Truck drivers outside of tank truck.

Business.

This shortage.

Drivers of tank truck Drybulk.

Well, it's totally dependent on the market if youre in a I'll give you. An example, if you're in a large port terminal for us say in the southeast like Savannah, Georgia.

As a backlog of.

Containers, moving in and out of that Port and so there is a really high demand on truck drivers up and down the interstate system that not only impacts savanna, but it might impact places like Augusta.

Columbia, South Carolina Macon, Georgia. In addition to just that Savannah market, because theyre hiring drivers all the way up and down that line.

You get into a more rural area, where you don't have that situation.

It could be different and you don't have a bunch of interstate highways coming together like up.

Like Nashville, where Theres, just Nashville, and Birmingham, where Theres, just a huge shortage of truck drivers.

So it really depends on the market but.

We are impacted by the truck driver shortage.

In total not just for tank truck drivers.

Okay and then.

One more question, if you don't mind Approx.

Approximately how long is the useful life of a tractor trailer and how long do you typically operate them.

The useful life for US is let's just call it approximately six years and about 650000 miles and that's about the time that we generally like to trade those tractors.

He asked about.

And trailers Im sorry, with petroleum trailers can last.

20 years, plus depending on the trailer.

Dry bulk trailers can last even longer than that and some.

<unk> some of the chemical traders when you get into specialty chemicals like sulphuric acid. They typically have a shorter life.

And they're on the books for a shorter period of time.

Okay. Thank you said six years for the tractor and then how much more life typically on attractive long after your disposal plan.

I have not I really don't know you could you could put a new engine in the truck and run it longer but then you start having for our application. It doesn't make a lot of sense, we see a dramatic increase in maintenance cost beyond that level and so we sell them in but we don't typically operate on beyond that point.

Alright, Thank you very much sir thank you thanks for your interest.

Your next question for today is coming from Adam Ritzer.

Adam Your line is live.

Hi, Thanks for taking my call.

A quick question on your Capex.

Thank you mentioned, it's going to be back.

$6 million for the year.

$6 million on the new tractors.

And then.

Around $1 million a year is that.

A good number to use in a normal year.

Yes, I'd say, yes.

Matt says yes.

Yes, okay.

What about 2020.

But.

I don't think that.

You are talking about in total.

Yes.

So maintenance additional capex on top of equipment purchases.

So things like it staff and business.

Alright, Okay, I misunderstood I thought you were asking about maintenance expense sorry.

Okay.

I guess it sounds like we got a couple of conversations I'm just wondering obviously the track the tractor spending is about $6 million, yet and I think over the full year is like six points, yes. So if.

If you didn't buy.

Adam I'm, sorry, let me let me stop you there. The total capex is about $6 million, that's everything thats tractors trailers.

Automobiles.

Everything that we're spending.

Hey.

So if you didn't buy all of these tractors.

What would your normal capex be I guess, that's what I'm trying to get at.

Yes.

Excluding tractors as well as looking for.

Without trailers could trailers, we don't buy trailers over the year, either but I think your original.

Positive $1 million for other things is a fair number on an annual basis.

Got it and next year is.

As Eric Dugger tractor trailer replacement cycle coming or does that take care of things for a while.

No there's a.

Our replacement cycle every year I mean, you take your your total number of tractors and you divide that by six years Thats going to give you a rough number of how many tractors you would buy if you're just replacing your fleet in round numbers.

Numbers, you would have to buy somewhere in the neighborhood of 40 to 50 tractors a year.

Depending on the myeloid cycles of those tractors.

Okay, because it seemed like in the past couple of years. Your Capex was in this high.

But what Youre, saying is this is what it's going to be like for the next.

In a few years I'm, just that's what I'm trying to figure out right. Yes. Historically, if you go back prior to you got to think about what we've had going on here, we've downsized the company quite a bit. So that's reduced the number of tractors that we needed to purchase and then certainly during COVID-19 as we were losing truck drivers, we had less of a need to replace.

Just those tractors and so.

We're starting to get back to a normal trade cycles. So the answer to that question is yes.

Okay got it.

This is a normal year for Capex, Okay makes sense, yes.

Look like from my calculations EBIT.

In Q3 backing out the gain is roughly $2 million.

Is that a is that a good number or has that stabilized now with the driver issue. When you finally got price increase coming in.

Is that a good number you think you could do going forward and hopefully improve on that.

Yes, Adam we typically provide you all with the numbers and let you do the math going forward.

We have been working.

Really hard to return to margins to this business and so we are we are pleased with the progress that we made during the quarter, but we're going to we're going to shy away from making projections about what we're going to do going forward.

Okay understood. Okay. Thanks for taking my questions I appreciate it. Thank you I appreciate your interest.

Your next question is coming from Steve Rudd, Please announce your affiliation and pose your question.

Sure Blackwell millennium.

Good quarter. It looks like you are on track.

<unk> on the driver pay tied to productivity.

Our all our all our drivers now.

In this program.

Thank you Niccolo.

Let's let's call it Matt correct me, if I'm wrong, but I would say 60% to 65%.

Of our drivers are probably in this program now I'd have to go do the actual math. We this was a trial that we did starting last fall in one of our larger terminals and when we put in this latest rate increase draw.

Driver pay increase we decided that we would do the same thing because it has it has been fruitful for us and so we still have a group of terminals that we have not.

Raised their price their driver pay again.

And so when when we do that we will tie them to the same productivity measure.

Alright.

And.

We've got about 200, or so drivers and the programme now as of the beginning of August is that about right.

No.

Alright, Thank Greg 355 drivers 60.

65%.

I think I would say roughly.

Roughly yes.

What is the additional productivity, we get out of those drivers after they're in the program.

10%, 20%.

Why do we see Steve I think I think I would look at it a little bit differently, it's to avoid losing productivity.

What you find is driver pay goes up sometimes is the drivers want to work less.

Because they are happy with what they're making and we're <unk>.

Fine.

Our drivers are typically pretty darn productive to begin with.

But in this in this new world that we operate in it's not unusual for people to call off work term that I never knew prior to the last five years and so one other one.

One of the stipulations in this new pay scale is that if you have an unexcusable absence, you just decided it's sunny outside and you want to take the weekend off it's going to cost you not only to pay that you loss for that weekend, but it's going to cost you that 10% for the entire next month and so there is a there is a pretty good financial penalty.

<unk> for somebody to call off work and so that's one of the productivity measures that we've that we've put into this thing.

Hi.

So.

Alright.

I can look at this if I'm hearing you right I can't necessarily look at this is that we have back back toward an increase in driver count.

Which is really what I was heading heading towards I would not do that.

Okay fair enough.

And.

So I don't have that comparison, let me just go back to.

Depreciation so take after we're done with this year.

Our quarterly depreciation going to run at.

Annual for that matter.

I don't really have that number in front of me we are in the middle of working on our budgets going forward for next year I don't know that it's going to be dramatically different would be my initial answer to that because most of the trucks, except for a small number of them that were selling are still on the books.

And so you've got the added cost of the new tractors compared to the cost of the tractors that are going off the books. So.

It's not I would say you would see a dramatic increase in that.

Okay, because I know this quarter.

If I have the number down right. It was down 239000 compared to last year at this time and that should basically hold.

Incremental depreciation from the acquisition of the new trailers versus as a disposition of deal will trail out.

<unk> possible, except for the factors I'm, sorry, I said trailers I mean tractor that's fine except for the difference in the cost of the equipment.

That's the only thing.

We buy it at least.

Okay.

And our price increases are still covering and then some our pay increases.

Yes.

Yes.

Our goal every time, we go out to market yes.

Okay.

You are on the right road and I appreciate as always the hard work that goes into it.

Steph, Yes, we appreciate I appreciate your questions.

Yes. Thank you.

Once again, if there will be any final questions or comments. Please press star one on your phone at this time.

There are no questions in queue.

Thank you. We appreciate your interest in Patriot transportation and look forward to talking with you next quarter.

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