Q4 2022 Patriot Transportation Holding Inc Earnings Call

December 6, 2022

[music].

Good afternoon, ladies and gentlemen, and welcome to the Patriot Transportation Holding's, Inc earnings call for fourth quarter 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 Rob Sandlin, Chief Executive Officer of Patriot Transportation Holding's, Sir the floor is yours.

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

Thank you 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 Chief operating Officer, and John Klopfenstein, Our Chief Accounting Officer.

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 Rob Sandlin, Chief Executive Officer of Patriot Transportation Holding's, Sir the floor is yours.

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.

Thank you 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 Chief Operating Officer, John Klopfenstein, Our Chief Accounting Officer.

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 fourth quarter results today, the company reported a net income of $470000 or <unk> 13 per share for the quarter ended September 32022, compared to net income of $40000 or <unk> <unk> per share in the same quarter last year.

Additional information regarding these and other risk factors and uncertainties may be found in the company's filings with the Securities and Exchange Commission.

Operating revenues for the quarter were $22 million $882000 up $2 million and $425000 from the same quarter last year due to rate increases higher fuel surcharges and an improved business mix.

Now for our fourth quarter results.

Today, the company reported a net income of $470000 or <unk> 13 per share for the quarter ended September 32022, compared to net income of $40000 or <unk> <unk> per share in the same quarter last year.

This quarter's revenue per revenue miles were negatively impacted by the approximately 10 driver reduction versus last year's fourth quarter due to the driver shortage and the closing of our Nashville terminal.

Operating revenues for the quarter were $22 million $882000 up $2 million and $425000 from the same quarter last year due to rate increases higher fuel surcharges and an improved business mix. This quarter's.

Operating revenue per mile was up 70.

Or 18, 9%.

<unk> revenue per revenue miles were negatively impacted by the approximately 10 driver reduction versus last year's fourth quarter due to the driver shortage and the closing of our Nashville terminal.

Compensation and benefits increased $826000, mainly due to the increased driver compensation package, mostly offset by the lower driver count and a reduction in support staff. Unfortunately.

Operating revenue per mile was up 70.

Unfortunately insurance and losses increased $444000 due to a single rollout vehicle rollover fatality accident, which was 270000, along with higher health and other clients.

Or 18, 9%.

Compensation and benefits increased $826000, mainly due to the increased driver compensation package, mostly offset by the lower driver count and a reduction in support staff.

Depreciation expense was down $285000 in the quarter and gains on sale of assets was $97000 compared to the loss of $26000 in last year's quarter.

Unfortunately insurance and losses increased $444000 due to a single rollout vehicle rollover fatality accident, which was 270000, along with higher health and other claims.

Equipment gains on sales were negatively impacted by $199000 due to a separate vehicle rollover caused by an under insured third party, resulting in $178000 loss.

Depreciation expense was down $285000 in the quarter and gains on sale of assets was $97000 compared to the loss of $26000 in last year's quarter.

And the fatality rollover mentioned above.

The operating profit this quarter was $484000 compared to $58000 in last year's fourth quarter.

Equipment gains on sales were negatively impacted by $199000 due to a separate vehicle rollover caused by an under insured third party, resulting in $178000 loss.

Now for the year to date results.

The Companys net income was $7 million $190 or $1 98 per share compared to 625000.

And the fatality rollover mentioned above.

The operating profit this quarter was $484000 compared to $58000 in last year's fourth quarter.

Or <unk> 18 per share last year.

Net income included $6 million and $281000 or $1 73 per share from gains on real estate net of income taxes.

Now for the year to date results.

The Companys net income was $7 million $190000 or $1 98 per share compared to $625000.

The prior year's results included net income of $1 million $170000, a 34 per share from gains on real estate net of income taxes.

Or <unk> 18 per share last year.

The net income included $6 million and $281000 or $1 73 per share from gains on real estate net of income taxes. The.

The operating revenues were up $6 million $614000 at $87 million $882000 due to improved rates higher fuel surcharges and an improved business mix, despite being down $2 5 million miles because of the lower driver count and the closing of our Nashville operation.

The prior year's results included net income of $1 million $170000 34 per share from gains on real estate net of income taxes.

Operating revenue per mile improved 72.

Or 21, 1%.

Compensation and benefits increased mainly due to driver pay increases offset by lower driver count and non driver personnel reductions are fuel expenses increased by $3 million $658000 over last year, while insurance and losses increased by $906000 due mainly to the Maxim.

Operating revenue per mile improved 72.

Or 21, 1%.

Some limit Covid claims of 372500, and a negative workers' compensation adjustment on a prior year claims of $380000 in the fourth quarter accidents detailed earlier, resulting in a loss of 270000.

Yeah.

Maximum limit Covid claims of 372500, and a negative workers' compensation adjustment on a prior year claims of $380000 in the fourth quarter accidents detailed earlier, resulting in a loss of $270000.

We decreased depreciation expense by $1 million $117000 with the downsizing of equipment that was mostly completed in the second half of fiscal 2021.

SG&A expense was higher by $542000, mostly due to a onetime transaction bonus following the sale of the Tampa terminal property of $394000.

We decreased depreciation expense by $1 million $117000 with the downsizing of equipment that was mostly completed in the second half of fiscal 2021.

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

SG&A expense was higher by $542000, mostly due to a onetime transaction bonus following the sale of the Tampa terminal property of $394000.

The gain on sale of assets was $739000 versus a loss of $179000 last year.

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

The operating profit for the year was $9 million and $299000 compared to $880000 last year, excluding the Tampa land sale and the one time transaction bonus for management adjusted operating profit for the year was $1 $363000 compared to an adjusted operating loss.

The gain on sale of assets was $739000 versus a loss of $179000 last year.

The operating profit for the year was $9 million $299000 compared to $880000 last year.

Loss of $734000 last year.

The Covid health claim the prior year Workers' comp claim and the two Q4 rollover claims resulted in a negative charge of $1.268 million for the year, which is highly unusual and something not Cvs previously seen at these levels.

Excluding the Tampa land sale and the one time transaction bonus for management adjusted operating profit for the year was $1 $363000 compared to an adjusted operating loss of $734000 last year.

Now for the summary and outlook.

The Covid health claim the prior year Workers' comp claim and the two Q4 rollover claims resulted in a negative charge of $1 million $268000 for the year, which is highly unusual and something not Cvs previously seen at these levels.

During the year, our total driver count remained steady due to the large driver pay increase in April 2021, and subsequent driver pay increases during fiscal 2022.

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

Now for the summary and outlook.

During the year, our total driver count remained steady due to the large driver pay increase in April 2021, and subsequent driver pay increases during fiscal 2022.

We are in the process of announcing driver pay increases in the remaining markets, which means that these increases will have added 25% to 35% to driver pay depending on the market.

We continue to be involved in the task Force movement, 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 Dod skill bridge involvement will allow us to increase our driver force with transitioning military veterans soon.

We are in the process of announcing driver pay increases in the remaining markets, which means that these increases will have added 25% to 35% to driver pay depending on the market.

And we have seen some applicants for military members transitioning from the military.

We have the same challenges everyone battling inflation pressures and supply chain delays in many areas, including our repair parts tires and labor.

We are hopeful that our Dod skilled bridge involvement will allow us to increase our driver force with transitioning military veterans soon and we have seen some applicants for military members transitioning from the military.

Insurance rates continue to climb at single digit increases at the lower levels and up to 15% to 20% on the excess layers.

We have the same challenges everyone battling inflation pressures and supply chain delays in many areas, including our repair parts tires and labor.

The insurance markets are still very tight, particularly in the excess layers of coverage.

To cover this cost along with driver pay increases we have been successful raising freight rates and we are partnering with customers and understand the challenges we face along with our need to cover the added cost and two to make an acceptable return on our investment.

Insurance rates continue to climb at single digit increases at the lower levels and up to 15% to 20% on the excess layers. The insurance markets are still very tight, particularly in the excess layers of coverage.

I won't belabor the point, but this was particularly difficult difficult year for insurance claims and equipment write offs with four incidents costing us over $1 2 million.

Cover this cost along with driver pay increases we have been successful raising freight rates and we are partnering with customers and understand the challenges we face along with our need to cover the added cost and two to make an acceptable return on our investment.

We have high deductibles on our health auto and work comp insurance claims and we weigh these each year during renewal periods compared to our claims history and premium cost.

Won't belabor the point, but this was particularly difficult difficult year for insurance claims and equipment write offs with four incidents costing us over $1 2 million.

Our balance sheet remained stable with $8 3 million of cash as of September 32022, with no outstanding debt. We replaced 26 tractors five trailers. During this year. We also added five dry bulk trailers as we continue to expand this business offering for.

We have high deductibles on our health auto and work comp insurance claims and we weigh these each year during renewal periods compared to our claims history and premium cost.

For fiscal year 2023, we are planning to purchase 73 replacement tractors, including 29 that were plate will replace full service lease units.

Our balance sheet remained stable with $8 3 million of cash as of September 32022, with no outstanding debt. We replaced 26 tractors and five trailers. During this year. We also added five dry bulk trailers as we continue to expand this business offering.

We also plan to purchase approximately nine trailers with a total capital expenditure of $12 million during fiscal 2023.

For fiscal year 2023, we are planning to purchase 73 replacement tractors, including 29 that we will replace full service lease units.

We were recently named carrier of the year for spring water by our water customer and we look forward to growing this business in the future.

I also want to express my gratitude to all of our team members for their dedication to safety as we met all three of our safety frequency targets for the year.

We also plan to purchase approximately nine trailers with a total capital expenditure of $12 million during fiscal 2023.

We have done the heavy lifting over the last couple of years to rightsize, our business streamline cost retool management and price our business for improved results.

We were recently named carrier of the year for spring water by our water customer and we look forward to growing this business in the future.

Also want to express my gratitude to all of our team members for their dedication to safety as we met all three of our safety frequency targets for the year.

Im encouraged by the improved operating profit for 2022.

We will continue to work with our team to drive improved results moving forward.

We have done the heavy lifting over the last couple of years to rightsize, our business streamline cost retool management and price our business for improved results.

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

Certainly ladies and gentlemen floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.

Im encouraged by the improved operating profit for 2022.

We will continue to work with our team to drive improved results moving forward.

We do ask them, while posting a question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.

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

Once again, if you have any questions or comments. Please press star one on your phone.

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.

Your first question is coming from Christian Olson from Ocean value Fund your line is live.

We do ask that while posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.

Okay.

Thank you.

So.

Once again, if you have any questions or comments. Please press star one on your phone.

It's my understanding that many of your customer contracts.

Come up for renewal about once a year and so if you look out over the next four quarters.

Our first question is coming from Christian Olson from Olson value Fund your line is live.

And so it up approximately the same amount every quarter are there certain quarters, where there are more contracts.

Thank you.

So.

It's my understanding that many of your customer contracts.

Up for renegotiation.

Come up for renewal about once a year and so if you look out over the next four quarters.

Really I think in the way our business works and how this goes I mean, we have contracts that basically can just are on rolling one year basis theres not a whole lot of negotiation when it comes to renewing the contract.

It's approximately the same amount every quarter or that certain corridors, where there are more contracts.

Renegotiation.

It's really more about the pricing and getting rate increases.

And a lot of those they really do you have kind of happen throughout the year depending on.

The customer to be honest with you. So there is no real no. There is no pack of contracts that are coming due for renewal if thats, what youre asking Christian that was Matt. This is Rob the only thing I would add about that is we do have a handful of contracts that are.

It's really more about the pricing and getting rate increases.

And a lot of those they really kind of happen throughout the year depending on.

Multi year and one year deals that are tied to CPI less food and energy.

The customer to be honest with you. So there is no real no. There is no pack of of contracts that are coming due for renewal if thats, what youre asking Christian that was Matt. This is Rob the only thing I would add about that is we do have a handful of contracts that are.

So.

Especially on those two year deals and so obviously you know what that means in terms of price increases.

In recent times because of the inflation.

Multi year and one year deals that are tied to CPI less food and energy.

Yes.

I guess, what I was getting at was well so is it.

So.

Can you go to pretty much any of your customers at any time and ask for a price increase or does it not typically happen say once a year.

Especially on those two year deals and so we obviously you know what that means in terms of price increases.

In recent times because of the inflation.

It's a mixed bag.

Yes.

I guess, what I was getting at was well.

It's historically been once a year, but as we've gone through these driver pay increases we've gone to our customers and ask for additional rate increase to cover that plus inflationary cost intermittently and so I would say over the last 18 months, it's been more frequent than once a year, we do have some <unk>.

Yes.

Can you go to pretty much any of your customers at any time and ask for a price increase or does it not typically happen say once a year.

It's a mixed bag.

Contracts that.

Our annual.

Rate negotiations or escalators based on CPI.

But in a lot of those cases, our customers have been forthcoming during the driver pay increase times and gave us the.

Contracts that.

Additional pricing to cover that cost.

Our annual.

Rate negotiations or escalators based on CPI.

Okay, and how do you see.

Rate increases.

But in a lot of those cases, our customers have been forthcoming during the driver pay increase times and gave us the additional pricing to cover that cost.

Going forward over the next year or so.

You've clearly been able to push through some.

But.

Compensation expense, especially is going up quite a lot.

Sure.

Okay, and how do you see.

Have you so far gotten rate increases from pretty much all your customers.

Rate increases.

Going forward over the next year or so.

Yes.

And do you anticipate being especially aggressive over there over the next few months.

You've clearly been able to push through some.

But.

Compensation expense, especially is going up quite a lot.

Think Christian what we've said since really April of 2021, when we put it in the first big rate increases that.

Have you so far gotten rate increases from pretty much all your customers.

The vast majority of our customers have gone along with those price adjustments because they understood what was going on in supply chain. They understood the driver shortage and they understood the need for us to pass along those costs. So.

Yes.

And do you anticipate in especially aggressive over there over the next few months.

Think Christian what we've said since really April of 2021, when we put it in the first big rate increases that.

I would say theres been very little resistance. The other thing that we have told you. All in these calls is that where there was resistance and we needed to go partner with somebody else than we've been willing to do that and we have made some of those changes.

Gotcha and then if I can also just ask about driver pay.

You mentioned some upcoming races.

And that with a plan.

And if there's still upward pressure on drybulk pain in the industry.

Got you and then if I can also just ask about drive okay.

There are there definitely planned and.

Budgeted for and the price increases to go along with those are rate increases or are planned as well and I don't think there is as much upward pressure as there was obviously.

You mentioned some upcoming races.

And that what they planned.

And if there's still upward pressure on drybulk pain in the industry.

There are there definitely planned and.

We're up 25% to 35% once those raises were in.

Budgeted for and the price increases to go along with those are rate increases or are planned as well and I don't think there is as much upward pressure as there was obviously.

From where we were in April before April of 2021, and so I think the double digit type of increases are probably behind us at least for now.

Gotcha.

Alright, Thank you Sir.

We're up 25% to 35% once those raises were in.

Sarah Thank you.

From where we were in April before April of 2021, and so I think the double digit type of increases are probably behind us at least for now.

Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press Star then one on your phone at this time.

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

Gotcha.

Hi, guys led to hear everyone sounds well.

Alright, thank you.

Yes, Sir thank you.

Question on the.

Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press Star then one on your phone at this time.

$12 million.

Capex expected for next year, that's quite a large amount relative to what we've been spending.

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

And it sounds like we're buying a bunch of new equipment, just give me an idea of what were.

Hi, guys glad to hear everyone sounds well.

A question on the.

What we are.

What we're setting out to do in terms of both market demand replacement basically if we take our initial let me phrase this better we think our initial.

$12 million.

Capex expected for next year, that's quite a large amount relative to what we've been spending.

And it sounds like we are buying a bunch of new equipment, just give me an idea of what we are.

Capital stock of <unk>.

Trailers.

Rig.

What we are.

From a baseline how much are we adding to it based on this projected $12 million and what's the underlying rationale for the need for that and if its significant.

What we're setting out to do in terms of both market demand replacement basically if we take our initial let me phrase this better we think our initial.

Capital stock.

Trailers.

So Steve probably.

<unk>.

The easiest way for me to answer that question is we've got a pretty normal trade cycle on.

From a baseline how much are we adding to it based on the projected $12 million.

40 units that we will purchase throughout the fiscal year, that's 10 trucks a quarter and then the oddity that we have this particular year is that we have 29 tractors that we're leasing on a full service lease.

And what's the underlying rationale for the need for that and if its significant.

Steve probably.

The easiest way for me to answer that question is we've got a pretty normal trade cycle on.

And when you run the financial model it makes more sense for us to purchase those trucks outright.

40 units that we will purchase throughout the fiscal year, that's 10 trucks a quarter.

So we're kind of looking at those 29 trucks, a little differently than what we would or normal.

And then the oddity that we have this particular year is that we have 29 tractors that we're leasing on a full service lease and when you run the financial model. It makes more sense for us to purchase those trucks out right. So we're kind of looking at those 29 trucks a little.

And that's that's in excess of $4 million of spend right there.

Have the exact number in front of me, but but it's so it's over $4 million of that spend so if you back that out.

It's a lot closer to normal.

I see and the 29 trucks that are coming off lease when we compare and I know that Matt business does very well, but just.

<unk> than what we would or normal.

That's in excess of $4 million of the spin and dry there.

Don't have the exact number in front of me, but but it's so it's over $4 million of that spend so if you back that out.

So when we compare the depreciation expense of the purchase of those trucks relative to the lease expense.

It's a lot closer to normal.

Leasing them.

Which is do we save on.

And the 29 trucks that are coming off lease when we compare and I know that Matt does very well, but just.

<unk> expense through the depreciation lower are going to be higher than what we were expensing on the lease on those and I understand we've got really significantly increased interest rates, which probably justify the purchase but I'm curious how it shakes out on lease expense versus depreciation for those particular trucks.

So when we compare the depreciation expense of the purchase of those trucks relative to the lease expense.

Leasing them.

Which is do we save on.

<unk> expense.

I mean, the costs have gone up so the inherent depreciation component.

Depreciation lower are going to be higher than what we were expensing on the lease on those and I understand that we've got really significantly increased interest rates, which probably justify the purchase but I'm curious how it shakes out on lease expense versus depreciation for those particular trusts.

Be higher for the newer trucks.

However, these as these are full service leases, we were paying for may.

Maintenance that.

Might not have the first year on a new trial.

Yes, so the depreciation line and the ranch line the charge.

I mean.

Costs have gone up so the inherent depreciation component will be higher for the newer trucks. However.

Owned trucking to lease truck is relatively flat.

So we will just be shifting will just be shifting that expense from from rents and equipment leases up to depreciation but from a bottom line perspective, you won't see much change.

However, these as these are full service leases, we were paying for may.

Maintenance that.

Why not have the first year on a new trial.

Yes, so the depreciation line and the wrench line the charge.

Okay ballpark alright, alright.

<unk> truck and a lease truck is relatively flat.

So just.

Our hopes in the upcoming year, and we're getting a normal replacement cycle basically its a normal replacement cycle.

So we will just be shifting we will just be shifting that expense from from rents and equipment leases up to depreciation but from a bottom line perspective, you won't see much change.

<unk> trucks that are.

Taking them off lease purchasing them increase.

Okay, all four cohort.

Rates relative to our cost structure and demand any new.

Right.

So.

Our hopes.

The coming year, and we're getting a normal replacement cycle basically its a normal replacement cycle.

Both increases in demand or business.

While dropping and we're looking at the dry bulk business and getting better.

Kicking off the trucks that are taking.

Taking them off lease purchasing them increased.

Additional customers there, but what do we see there.

Rates relative to our cost structure and demand any new.

Our pricing turns on.

Demand has been great and I'm curious, what we're still seeing.

Both increases in demand or business.

I think demand is still good I mean, our business is is not as it doesn't have the peaks and valleys that some of the dry van businesses have or the or the flatbed businesses, where they are where the rates move up and down in their demand moves up and down.

Dropping and we're looking at the dry bulk business and getting better.

Additional customers there, but what do we see there.

Our pricing turns on.

Demand has been great and I am curious, what we're still seeing.

Quite a bit we see seasonal.

Demand as an example, we're going to see South, Florida, and Central Florida start to pick up late this month and run pretty heavy through March we don't expect that to be any different in fact, it may be a better year, because we're further away I hope and I guess from Covid.

Quite a bit we see seasonal <unk>.

And so we've started I think our growth and our ability to add miles and revenue are still tied to the same thing I've mentioned before and Thats, our ability to add drivers in those markets.

And then a few of the markets, where we've been able to add capacity recently, we've been able to go out and get new business at what I would consider good freight rates.

So we've started I think our growth and our ability to add miles and revenue are still tied to the same thing I've mentioned before and Thats, our ability to add drivers in those markets.

The answer is that part of it.

I think it does.

Alright, well.

I guess, we'll see how the year shakes out and enjoy the holidays coming up alright, great. Thank you. Thanks for your call.

In a few of the markets, where we've been able to add capacity recently, we've been able to go out and get new business at what I would consider good freight rates.

Thank you as a final reminder, ladies and gentlemen, if you have any questions or comments. Please press Star then one on your phone at this time please.

The answer to that part of it.

It does.

Alright, well.

Please hold while we poll for questions.

I guess, we'll see how.

The year shapes out and enjoy the holidays, Kevin that alright, great. Thank you. Thanks for your call.

Okay.

Thank you there are no further questions in the queue.

Thank you as a final reminder, ladies and gentlemen, if you have any questions or comments. Please press Star then one on your phone at this time.

Thank you all for your interest in Patriot Transportation, and we hope you have a safe and happy holiday.

Yes.

Please hold while we poll for questions.

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.

Thank you there are no further questions in the queue.

Thank you all for your interest in Patriot Transportation, and we hope you have a safe and happy holiday.

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.

Q4 2022 Patriot Transportation Holding Inc Earnings Call

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