Patriot Transportation Holding, Inc.

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Greetings. Welcome to the Patriot Transportation Holdings Incorporated earnings call for second quarter. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Rob Sandlin, CEO of Patriot Transportation. Thank you. You may begin.

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 risk 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. The second quarter results. Today, the company reported second quarter net income of $484,000, or 14 cents per share, compared to a net loss of $401,000, or a negative 12 cents per share, in last year's second quarter. Total revenues were $19,728,000, a decrease of $3,799,000 from the same quarter last year, primarily due to downsizing of one large customer and the closing of our Wilmington, North Carolina terminal in April of 2020. The remaining revenue decline is attributable to a lower driver count. Our transportation revenue per mile increased by 13 cents or 4.5% versus last year's same quarter due to rate increases and eliminating lower rated business. Fuel surcharge revenue was down $1,199,000. Compensation and benefits decreased $1,694,000, mainly due to lower company miles, less minimum driver pay expense, and reductions in our non-driver staff. SG&A expense was lower by $468,000 due to permanent cost reductions. Depreciation expense decreased by $168,000 on lower miles as we continued to right-size the fleet. Insurance and losses decreased $626,000 due to lower healthcare claims. The gain on sale of land this quarter was $1,431,000 due to the sale of our former terminal site in Pensacola, Florida. Repair and tire expense decreased due to the lower miles and the loss on disposition of assets was $113,000 due to a rollover accident. The rollover accident negatively impacted the quarter by $466,500 through a combination of insurance loss expense and the loss on disposition of asset. Going forward, we do not anticipate any further material expense from this accident. As a result, operating profit for the quarter was $671,000 compared to an operating loss of $588,000 in last year's first quarter, with an operating ratio of 96.6 compared to 102.5 during last year's quarter. Now to talk about the first six months' results. We reported net income of $262,000, or 8 cents per share, compared to the net loss of $865,000, or 26 cents per share, in the same period last year. The net income for the first six months included $1,037,000, or 31 cents per share, from gains on real estate sales, net of income taxes. Total revenue for the period was $39,956,000, down $8,380,000 from the same period last year, resulting from the downsizing of a large account and the closing of our Wilmington, North Carolina terminal. The remaining revenue decline can be attributed to a lower driver count and the impacts of COVID-19. Revenue miles were down 2,927,000 miles or 19% over the same period and transportation revenue per mile was up 14 cents or 4.9% due to our improved business mix and rate increases. Compensation and benefits decreased $3,641,000 mainly due mainly because of lower company miles, the elimination of minimum driver pay expense, and reductions in other staff. Repairs and tire expense decreased due to lower miles this quarter. Insurance and losses decreased $1,273,000, primarily due to lower healthcare claims and workers' compensation expense, somewhat offset by the previously mentioned single tractor rollover accident. Depreciation expense was down $373,000 as we continue to right-size the fleet, and SG&A was down $813,000, resulting from permanent cost reductions. I mentioned earlier the gain on sales from our former site in Pensacola and the negative impact of the rollover accident. As a result, operating income was $370,000 compared to an operating loss $1,312,000 in the same period last year. Excluding the gain on sale of land and the negative impact of the rollover accident, operating loss was $594,000. Now for the summary and outlook. During 2020 and early 2021, we downsized certain customers, resulting in lower revenue the first six months of fiscal 2021, with additional decreased revenue due to COVID-related business declines and a shortage of drivers. The driver shortage and related hiring and turnover challenge worsened during the second quarter of this year, negatively impacting our ability to meet customer demand as petroleum volumes increased in mid-February and March to near pre-COVID levels in most of our markets. In a recent meeting with the National Tank Truck Carriers Executive Committee and Federal Motor Carrier Safety Administration, representatives discussed the driver shortage there, and there was a consensus among most carriers that there is a 20 percent shortage of bulk tanker drivers in the U.S. After careful consideration of all the challenges around the driver shortage, including an increase of private fleets competing for our drivers, management implemented a material increase to our driver pay across the board in late April. The increased pay is designed to retain and attract drivers so that we can adequately satisfy the business demand of our customers and thus far has been very well received by our current drivers. The impact of the increased driver pay to hiring new drivers and attracting some of our previous drivers will not be known for a while, but we are certainly recruiting both groups. Management has contacted all of the company's customers to communicate the increased cost relative to the driver pay increase and the appropriate increase in price to cover the cost will also be stressed, also stressing the need to improve our profitability with longer-term contracts. As I mentioned earlier, and as many of you have seen in recent news reports about the driver shortage for fuel haulers, There is a concern about the ability to meet fuel demand this summer. Without an increase in driver capacity, the entire industry will struggle to meet demand. Management is working hard to meet this challenge hit on by increasing our driver pay and partnering with those customers that understand the market demand, the associated cost, and the need for carriers to make a reasonable profit. We are focused on forming longer term strategic partnerships that allow us to meet customer demand while improving our return on investment. Our balance sheet remains solid with $9.4 million of cash as of March 31, 2021, and no outstanding debt. We will not purchase replacement tractors or trailers for the remainder of this fiscal year, but do anticipate a return to a more normal capital replacement schedule during fiscal 2022. Finally, the Tampa property remains under contract in a free look inspection period with an outside closing date of September 19, 2021, at a sales price of $9.5 million. Finally, we are currently managing through the Colonial Pipeline cyberattack impact in many of our markets. We are experiencing widespread petroleum product shortages and some outages from the loading facilities, but as in many of these events, when product runs out in one market, one of our markets, our drivers are diverted to another and we continue to generate revenue. The pipeline announced yesterday afternoon that they were starting service, and I have confirmed on our operations calls that some loading terminals in Georgia received product overnight. This is welcome news. We will be working to build inventories back for our customers over the next week or so, depending on how long it takes to resupply all of the petroleum distribution network. Thank you again for your interest in our company, and we will be happy to entertain any questions.