Q1 2023 Patriot Transportation Holding Inc Earnings Call

Okay.

Good afternoon, and welcome to the Patriot Transportation Holding's incorporated earnings call for the first quarter of 2023.

At this time, all participants are placed on a listen only mode and the floor.

Or will be opened for questions and comments after the <unk>.

Patient.

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

Where 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 or advanced 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 Securities and Exchange Commission.

Now for our first quarter results.

Today, the company reported a net income of $485000 or <unk> 14 per share for the quarter ended December 31, 2022, compared to net income of $6 million and $439000 or $1 74 per share in the same quarter last year, which included $6 million 200.

Operating revenues for the quarter were $22 million and $850000 up $2 million $279000 from the same quarter last year due to rate increases higher fuel surcharges and improved business mix.

Miles this quarter were down $299000, partially due to the closing of our Nashville location and a lower driver count.

Operating revenue per mile was up 66.

Or 17.5%.

Compensation and benefits increased $1 million $121000, mainly due to the increased driver compensation package, mostly offset by lower driver count and a reduction in support staff.

Appreciate <unk> expense was down $203000 in the quarter and gains on sales of assets was $66000 compared to $360000 gain in last year's quarter.

The operating profit for this quarter was $620000 compared to $8 million $541000 in last year's first quarter.

So the summary and outlook.

Looking back at our 2022 year, we focused on adding business with new and existing customers that meet our stated goal of adding quality business that provides for an acceptable return on investment.

As we begin our 2023 year.

As we began our 2023 year, we added business with new and existing customers throughout the quarter and have new business opportunities booked going forward into the second quarter.

We had $7 million $800000 of cash at the end of the first quarter with no outstanding debt inter.

Interest rates continue to rise in calendar 2022, which will put more pressure on those in the industry with large outstanding debt, we will add 73 tractors during our year and received nine during the quarter.

44 of the tractors will replace our existing company fleet and 29 will replace lease tractors with.

With company owned tractors, we believe replacing the 'twenty nine leased tractors with company units will provide a better financial result.

And as a good use of our cash.

We will only add a small number of trailers during 2023 and hopes that inflation declines going forward and replacement prices price surcharges also decline, allowing us to replace more trailers down the road at a lower price.

We will continue to focus our on our driver hiring and retention during the quarter. We raised pay on our drivers in most of the markets where pay was not adjusted light in our 2022 year.

The results among our drivers with a year or more of seniority has been very positive resulting in low turnover. Among this group of dedicated professionals.

New driver acquisitions, while slightly improved continues to result in higher high turnover, but with slightly better results than this time last year.

As general spot freight spot rates have decline, we have experienced the ability to put on more owner operators in several markets and we will continue to monitor and balance this with company drivers.

In closing we are on target with our safety goals for the first quarter of the year and we'll continue to focus to keep preventable incidents and cost in check generally the petroleum the construction industry business increases during our second quarter and we believe we are positioned well to take additional advantage of seasonal volume.

Increases along with committed new business. Thank you again for your interest in our company and we will be happy to entertain any questions.

Thank you.

Ladies and gentlemen, the floor is now open for questions.

If you have any questions or comments at this time. Please press star one on your phone. We asked them are posing your question. Please pickup your handset if listing on speaker phone provide optimum sound quality.

Please hold while we poll for questions.

Thank you. Our first question is coming from Christian Olson with oldest and value from please go ahead.

Thank you.

Just wanted to see if you guys could talk a little bit more about your.

The goals plans and expectations for rate increases.

The first calendar quarter of 2023.

And maybe the following quarter as well.

Yes, Christian thanks for being on the call and for your question I think the best way to answer that is we have budgeted the majority of our price increases in the first and second quarter of this year.

And they are going along as planned.

And we feel like the market is still allowing for additional rate.

Certainly some of that.

Is continuing to help US cover this added driver cost, but also some of the inflation that we're seeing but I would say so far so good.

Okay, great and in terms of.

Drive okay.

Could you comment a bit more on that just the pressure within the industry overall.

Is it abating much.

Any.

Friends.

Pairing tank truck drivers to truck drivers or generally.

Yes, I think you can always draw first first thing I would say is you can always draw a comparison between the over the road driver that is out there for.

Let's say weeks at a time and our drivers in the tank truck industry, particularly ours.

There are more regional in nature and they are mostly home at night I think from a compensation standpoint.

Our drivers typically do better than a new driver over the road.

Plus their home with their families. So I think we got a little bit of an advantage. There that is the way that most people break into the industry, though.

Is getting in that long haul side of the business. So they've got to want to change jobs.

And in fact, I was talking to one of our drivers last year. There was out on the road for 16 years and he is really happy to be home.

He was gone six weeks at a time and he is working for us and he said he is making more money. So that's kind of a real life example, there.

Driver pay increases that we did so far this year and that.

And we had planned were four five or six of our terminals that had not had.

Driver pay increases in the latter half of the year and so while we've seen some.

I would say.

We've risked we've raised to pay a lot.

Over the last since April of 'twenty, one I think we say between 25% to 35% and so we think the biggest part of that work is done certainly with inflation, where it is theres going to be some expectation on a routine basis to do something but I think the real large chunks of that are behind us.

Okay. Thank you very much.

Thank you.

Yes.

Thank you. Our next question is coming from John Kohler with Oppenheimer and close. Please go ahead.

Good afternoon gentlemen.

Couple of questions if I could.

Usually on these calls you can give us some idea of the <unk>.

<unk> drivers and any that you've added I was wondering if you can provide that information.

And I'm also curious about how those efforts.

You had to recruit and get new drivers into training, how those are progressing or have they largely petered out.

Not delivered as I might have expected.

So yes. So we are currently at roughly 360 revenue producing drivers.

From from somewhere in the $3 <unk>.

To start the year.

So slight improvement there and as far as.

Really started seeing it mostly in the second half of January which is fairly typical for the trucking industry and everybody stays put.

Through the holidays, and then and then in January is when people start making changes and so we've actually seen our drivers in training in the last couple of weeks up in the mid Thirty's, whereas prior prior weeks before that we are in the mid to upper <unk>.

So thats.

It's a leading indicator and we'll see what happens because they have to get through training and stick, but it certainly would be a positive trend if it continues.

Okay, Yes, some of the things I've been reading them is saying that the.

The worker pool has been increasing and im wondering if youre seeing that too, but it sounds like seasonality might mask some of that.

It does a little bit we don't see much movement in December but the other thing that we've seen.

Is that with spot spot freight prices coming down we've seen some owner operators come back to the tanker segment and we've got more owner operators running today than we did when we began the.

The fiscal year, and so we're monitoring that and trying to make sure we keep that balance where we like it. So that's a positive thing because we've got freight for those folks to haul so.

We will continue to monitor that and see what happens.

Okay, Great and then just a quick question if I may on insurance.

A lot of that stuff I read, saying that commercial vehicle at least on the reinsurance reinsurance segment is getting somewhat difficult or has been difficult to place and I know you guys do self insurance, but I'm, just wondering where you come out.

On balance.

Balancing the risks and the rewards with that.

I'm wondering if you if there was a price at which you might think about.

Reducing your deductibles or anything like that.

I would say that right now we run those numbers.

Maybe not every year, but we've run them enough to know that there is a sizeable.

Seven figure gap between what we would spend if we were to lower our retentions.

Significantly versus what we're spending today in a premium plus our cost.

So we've looked at it and so I don't see us we kind of feel like we're in a sweet spot on the risk and.

The work conflict.

Something I guess the work comp, we decided to get a half a million dollar deductible few years back and although we did have one claim that really surprised us last year. That's still if you look at the math over history appears to be the right place to be for expenses on top of premium so.

It's been a it's been a pretty hard market and so.

Any movement in that with the lower deductible over the past three years or four years would've been really expensive.

And then to take on more risk.

Looking at it the other way that really wasn't the payback on the premium again because of the hard market. You were just werent getting rewarded as much. So we've kind of stayed where we've been for a while and those groups, but it is something we continue to look at.

And our renewal this year was not it was not terrible it wasn't like it had been in the last few years with.

With everything being.

Our renewal on the primary was under under 10% and kind of in that mid teen range on the upper layers.

Great that's good to know.

Last question, then I'll, let it go.

I know you said that in general freight rates, they've been coming down and <unk> been adding new business and I'm just curious.

Are you finding it more difficult.

Given that maybe you are finding the competition a little sharper.

And I'm, just wondering how you're balancing that out or.

How you were able to gain additional business I guess, yes, let me clarify just to be sure.

For you and others on the call when I say spot freight rates coming down Thats for the general freight industry and not for us and that's where a lot of those owner operators have been working so when you read the different trade magazines in the trade journals stuff about spot freight prices that's not really.

We're going to be indicative of whats going on in the tank truck industry.

As you are going up and if you look at our revenue per mile in our quarterly road announced.

Announcements that we've been making our freight rates are up dramatically over the last two years and we don't we don't see any reason for that.

Declined.

It's certainly not going to decline for us because we're going to partner with people that and customers that are looking for quality service and they want to guarantee that they've got that supply.

Compared to selling diesel fuel or gasoline at a margin.

The freight portion of this thing is while it adds up to a lot of dollars on a per gallon basis, it's pretty small compare comparatively so we're really not seeing any rate pressure downward.

Great. Thanks, so much.

<unk>.

Thank you. Our next question is coming from John <unk> with Pinnacle. Please go ahead.

Good afternoon, everyone. Thanks for taking.

Questions.

<unk>.

You indicate the revenue was up because of rate increases higher fuel charges and improved business mix could.

Could you elaborate on the improved business mix.

Are you talking about <unk>, specifically, yes ill give you a couple of examples so one of the things that we talked about as we were downsizing our business and trying to then rightsize everything and improve margin was to go out into the marketplace. So, let's say that we can't add a driver capacity in it.

Given market, we've got X number of drivers and we have to decide how are we going to make that business more profitable then we go to our our partners and say look we've had driver pay go up we got inflation. We got this and we need we need a rate increase of X and if they say well that's just more than we can stand.

Then what we would do is.

Worked with them to exit or downsize and if they can get somebody to hold up for them at a low low price and we can add business with somebody else at a higher price than thats, what we've done in a number of different markets. So it's a combination that's kind of what we're talking about with business mix more so.

Then changing products, yes, it's really the mix of the customers. It's swapping one customer for our higher rated higher rated piece of business does that make sense.

Makes total sense Oh, okay. Good.

But.

Do you see that continuing in terms of swapping out low margin customers are higher margin customers or you're kind of reaching.

At the end of the road there.

<unk>.

I hope we're.

Reaching the end of the road there may be a pocket or two with that.

We really are and have aligned ourselves.

With some good partners and good customers and folks that we've done business with for a long time.

And I think the whole world has.

Had to wake up a little bit to the supply chain and driver shortage and that it's real and it's frankly not going anywhere anytime soon and so I think our customer base in the tank truck industry realizes that it's really important to get their products to the end user and so.

There are always cycles and business, but I think we're in a cycle where.

They understand that and theyre going to be willing to pay a reasonable amount of money for us to make a reasonable return on our investment.

Okay that makes sense good.

<unk>.

In terms of you mentioned the driver count 360, or so what was the turnover for the administration quarter.

I'll turn it over at this first quarter was $7, 773% $3 73, and Joe What's interesting is we're turning over very few.

Our drivers that have more than a year service. Most all of that churn is in that first year driver.

Right, but thats already.

Commented.

Pretty close to what you were a year ago right around 72% in Q1, a year ago.

I don't know that I could go back to Q1, a year ago and for the year. We were up during the year, we were about 83% overall last year alright, okay. So it's coming down a little bit that's good.

Years ago as the 100.

Ergo. It was 100, okay, so any wind down years.

It's not where we want it but.

We're going through a lot of.

A lot of new gyrations in just trying something new all the time.

To see what we can do to impact that new driver. So that has more staying power because we spend a lot of money training. These folks and so we're really spending a lot of time and energy there.

Alright good.

On the Capex side.

Behind replacing versus.

Replacing lease with own trucks, you said better financial results could.

Could you talk us through why the results are better by owning a truck as opposed to leasing it.

I mean quite frankly, it's come down to the fact that they are building in a significantly higher cost of the tractor and then there is growing interest on top of that and what we can purchase ourselves.

So the returns are how much better are the returns from owning the truck versus leasing the truck.

You remember the difference when we ran those numbers.

John I can't remember the numbers, we ran all of that and the other thing Thats going to happen is initially when you lease that truck.

We're paying out over the life of that truck, you're paying X number of dollars.

Or cents per mile for maintenance. So we put these trucks on for the first two years, we're going to see a significant at least the first two years, we're going to see a significant reduction in that maintenance cost as well.

Because we're not we're just going to be doing routine PM type work. When you get later in life that thing might swing around a little bit the other direction, but who ran that whole model.

It was quite substantial and we got on the phone with the.

With the leasing companies.

Finance Finance Guy.

And he even agreed.

With what we were doing that it probably made more sense for us to own trucks, if you're borrowing money at it.

Interest rates higher than the leasing companies are looking to get or imputed interest rates into their number is pretty high and when we when we have money in the banking system. It makes less sense for us to do that.

Okay I did check our turnover rate was 80% in the same quarter last year.

It was 80%, Okay and now with 73, Okay. That's good.

We haven't seen the Q, yet, but what was the capex for Q1.

Two 2 million net.

$2 million that total is going to be 12, so that leaves about 10, how does the 10 unfold over the next three quarters roughly.

So the way the tractors are coming in as we've got 10, a quarter provided that they deliver them on time.

For.

From one of our vendors and then the lease tractors are spread over about three months across the third and maybe filter a little bit into the fourth quarter, but I think most of that is going to hit in the third quarters and then that's the 29 trucks late second mostly third late second mostly third pretty sure.

So then the remaining 10 million folds out how over that over the next three quarters.

You can do that for you so it's going to be heavy 2030.

40.

40 call. It 44, maybe now to these more heavily heavily in our <unk>. So it's probably more like two.

Six two.

That's right that's right that's right.

Sure.

If they come on top.

They are here all time, but 29 have to be here.

Although there are 29, we're pretty much locked in with them they'll arrive for that in that time frame late.

The late second and third quarter.

Okay. So two 6% to four quarters, two three and four is that correct. Okay.

That's all we have thanks, Brian Thank you.

Thank you there are no further questions in queue at this time, so I will hand, it back to Mr. Sandlin for any closing comments you may have.

Thank you and thank you all for your interest in Patriot Transportation, we look forward to talking with you next quarter.

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