Patriot Transportation Holding, Inc.

Greetings and welcome to Patriot Transportation Holdings, Inc. earnings call for the third 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. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Rob Sandlin, President and CEO of Patriot Transportation. Thank you, sir. 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 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 third quarter net income of $323,000 or 9 cents per share compared to $573,000 or 17 cents per share in last year's third quarter. Total revenues were $20,855,000, an increase of $1,844,000 from the same quarter last year, primarily due to a revenue decline in last year's quarter related to COVID, while this year was negatively impacted by the downsizing of one large customer beginning in February of 2020. Our transportation revenue per mile increased 27 cents, or 9.2%. versus last year same quarter due to rate increases associated with our driver pay increase and eliminating lower rated business. Compensation and benefits increased $625,000 mainly due to our driver pay increase offset by $233,000 reduction in support wages. SG&A expense was higher by $445,000 due to the increased travel into increased travel, a one-time gain related to Dan Fair from last year's quarter, and the timing of forfeitures used for the company's match in our 401k plan. Depreciation expense decreased by $153,000 as we continue to right-size the fleet. Insurance and losses increased to $346,000 due to higher healthcare claims as claims were lower in last year's quarter due to COVID. The gain on sale of terminal site in Chattanooga this quarter was $183,000 due to the sale parcel leaseback. As a result, operating profit for the quarter was $452,000 compared to $794,000 in last year's first quarter with an operating ratio of 97.8 compared to 95.8 during last year's quarter. The first nine months results. We reported net income of $585,000, or 17 cents per share, compared to a net loss of $292,000, or a negative 9 cents per share, in the same period last year. The net income for the first nine months included $1,170,000, or 34 cents per share, from gains on real estate sales net of income taxes. Total revenue for the period was $60,811,000, down $6,536,000 from the same period last year, resulting from approximately $4,300,000 from downsizing of a large account and a reduction of drivers related to the driver shortage. Revenue miles were down 3,230,000 miles, or 15%, over the same period and transportation revenue per mile was up 18 cents or 6.2% due to our improved business mix and rate increases. Compensation and benefits decreased $3,016,000 mainly because of lower company miles, the elimination of minimum driver pay expense and reductions in other non-driver staff. Repairs and tire expense decreased due to lower miles this quarter Insurance and losses decreased $927,000, primarily due to lower healthcare claims, partially offset by a single tractor rollover accident. Depreciation expense was down $526,000 as we continued to right-size the fleet, and SG&A was down $368,000, resulting from permanent cost reductions. Land-on-sale of land was $1,614,000 due to the sale of our former terminal location in Pensacola, Florida, and the sale and lease back of our terminal in Chattanooga, Tennessee. As a result, operating income was $822,000 compared to an operating loss of $518,000 in the same period last year. Excluding the gain on sale of terminal sites and the negative impact of the rollover accident, the operating loss was $325,000. Operating ratio for the nine months was 98.6 versus 100.8 during the same period last year. Now onto the summary and outlook. During 2020 and early 2021, we downsized certain customers resulting in lower revenue the first nine months of fiscal 2021 with additional decreased revenue early in this year due to COVID-related business declines and as volume increased, a shortage of drivers. The driver shortage and related hiring and turnover challenges worsened during the second quarter and early part of the third quarter of this year, negatively impacting our ability to meet customer demand as petroleum volumes increased to near pre-COVID levels in most of our markets. It is safe to say that the national driver shortage has impacted carriers of all types and that the consensus among fuel haulers is that there is a 15 to 20 percent shortage of bulk tanker drivers. The impact of this shortage has been felt across all markets we serve as demand increased and highlighted as was highlighted by the shortage of capacity during the colonial pipeline hack and the subsequent demand of fuel, the demand on fuel in the southeastern United States. Along with our friends in the industry, national tank truck carriers and the American Trucking Association, we continue to have discussions with the Department of Transportation, the Department of Labor, Federal Motor Carrier Safety, and others to discuss the driver shortage and to develop solutions. 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 in our driver pay across the board in late April. The results have been a reduction in the number of voluntary terminations and an improvement in driver turnover, but we are still experiencing turnover and have yet to see a dramatic increase in driver applicants leading to revenue-producing drivers. Another way to say this is the driver force has stabilized in numbers. We have seen a slight increase in applicants recently, and we are hopeful to see revenue producing driver count increase in the coming months. In response to the driver pay increase, management met with each customer and outlined the need for price increases to cover the cost and add margin to our business. With one small exception, we negotiated and implemented the price adjustments quickly to cover the added cost. and we continue to add additional price adjustments, which will filter in over the summer months. We are focused on forming long-term strategic partnerships that allow us to meet customer demand while improving our return on investment. Unfortunately, in some markets, we have been unable to meet demand and have had to reduce business and partner with those customers that fit our longer-range goals. Our balance sheet remains solid with $10.6 million of cash 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 and in a free-look inspection period with an outside closing date of September 19, 2021 at a sales price of $9.5 million. Thank you again for your interest in our company, and we will be happy to entertain any questions.

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation film will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from the line of John Collar with Oppenheimer. You may proceed with your question.