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spk01: Good afternoon, ladies and gentlemen, and welcome to the Patriot Transportation Holdings, Inc. earnings call for the fourth quarter of fiscal year 2021. At this time, all participants are 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, CEO and President of Patriot Transportation Holdings, Inc. Sir, the floor is yours.
spk00: 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 Klassenstein, 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 filing with the Security and Exchange Commission. Now for our fourth quarter results. Today, the company reported fourth quarter net income of $40,000 or one cent per share for the quarter ended September 30, 2021, compared to $549,000 or 16 cents per share in the same quarter last year. Total revenues for the quarter were $20,457,000, down $909,000 from the same quarter last year. This year's quarter was negatively impacted by the reduction of one customer account starting late first quarter of fiscal 2021 and the continued reduction in driver count due to turnover and driver shortage, largely offset by improved transportation freight rates and higher fuel surcharges. Transportation revenues, excluding fuel surcharges, were $18,244,000, down $2,068,000, or 10%. Transportation revenue per mile was up 36 cents or 12.2 percent due to an improved business mix and rate increases. Fuel surcharge revenue was $2,213,000 up $1,159,000 from the same quarter last year. Compensation and benefits decreased $212,000 mainly due to lower driver count and a reduction in support wages partially offset by our increased driver compensation package of approximately 15% effective April 29, 2021. Insurance and losses decreased $452,000 primarily from lower health care claims and lower risk insurance claims. Depreciation expense was down $203,000 in the quarter as we continued to reduce fleet size. Operating profit this quarter was $58,000 compared to $761,000 in the same quarter last year. Operating ratio was 99.7 this quarter versus 96.4 the same quarter last year. Now for our year-end results. The company reported full-year net income of $625,000, or 18 cents per share, compared to $257,000, or 8 cents per share, last year. Net income this year included $1,170,000, or 34 cents per share, from gains on real estate sales net of income tax. Total revenues for the period were $81,268,000, down $7,445,000 from last year, of which $5,444,000 resulted from the downsizing of one customer account beginning late first quarter and the remainder of the revenue variance was primarily attributable to the declining driver count. Transportation revenues excluding fuel surcharges were $74,431,000, down $8,072,000, or 10%. Transportation revenue per mile was up 22 cents, or 7.6%, due to an improved business mix and rate increases. Fuel surcharge revenue was $6,837,000, up $627,000 from last year. Compensation and benefits decreased to $3,228,000, mainly due to lower company miles and reductions in non-driver support positions. Gross fuel expense decreased to $667,000 due to lower company miles. Insurance and losses decreased $1,379,000, primarily from lower health care claims. Depreciation expense was down $729,000 as we continued to reduce our fleet size to meet our business levels. While our overall preventable accident frequency was improved, we experienced two significant single-tractor rollover incidents this year, which combined to cost us $879,500. Operating profit was $880,000 compared to $243,000 last year. The operating ratio was 98.9 versus 99.7 last year. Excluding the gain on sale of terminal sites and negative impacts of the two rollover accidents, operating profit for the fiscal year was $145,500. Now for the summary and outlook. Fiscal year 2021 was very similar to fiscal year 2020 in that we continued to see our driver count decrease in the face of the ongoing driver shortage in the U.S. The year began with a company making the decision to downsize an additional approximately $6 million of annualized revenue with one customer due to low pricing. From October through March, our driver count dropped by approximately 50 drivers, and we spent the early part of the year making cost reductions in headcount and equipment due to the continued decrease in driver count. In late February and early March, most of our markets experienced an unexpected surge in gasoline demand, presumably from pent-up travel following COVID and the release of the vaccines. Shortly thereafter, we experienced the Colonial Pipeline cyberattack, which had a short-lived but severe impact on the fuel supply in the eastern United States. These two events quickly highlighted the severity of the lack of driver capacity in our industry and changed the conversation amongst carriers, customers, and the federal government. In April, we were able to announce a 15% increase in driver pay, and all but one small customer agreed to absorb the cost of that increase into their freight rates, plus an additional 3% to 5% on average. The result of that pay increase was that we saw our voluntary turnover rate improve and our drivers-in-training modestly increase. In the six months following the announcement of the driver pay increase, our driver count did decline by approximately 20 drivers, but that compared to approximately 50% in the prior six months. That improvement trend is continuing, and we have recently seen more of a flat line in driver count week to week. The biggest concern is the decline in viable applicants, which was running a third of pre-COVID levels in the first six months of the fiscal year and is still less than half of pre-COVID levels today. We continue to focus on our driver compensation program to remain competitive and attractive in the marketplace. During our first quarter of 2022, we announced additional significant pay increases in two of our most challenging urban markets and are partnering with a small group of customers on longer-term agreements to run more of a dedicated fleet model. These customers have agreed to cover the cost of that additional driver pay as well. This is a strategy we will be exploring market by market during fiscal 2022 and beyond, as it allows us to be more nimble on driver pay and rate increases and provides a higher level of service to fewer customer partners in challenging markets. We will focus on customers that understand the supply chain challenges and our need for a reasonable return as we move forward. We continue to see growth in our product diversification efforts as well. We expanded successfully into the water hauling business in late 2020 and foresee additional growth opportunities as this customer is in the midst of expanding their operation in Florida in 2022. We also recently added a new piece of dry bulk business with an annualized revenue opportunity of approximately $1.5 million. We also added business with two new petroleum customers in Florida to help us backfill a portion of the revenue we turned back earlier in the year. We acquired an existing customer's private fleet of four trucks, five trailers, and hired their five dedicated drivers in October of 2021. In addition, we signed a three-year agreement to haul 100% of their freight for approximately $2 million. This acquisition fits nicely into our existing Georgia operations. Early in fiscal 2022, we sold the Tampa property for $9.6 million and declared a third special dividend to our shareholders of $3.75 per share. Cumulatively, we have declared and paid $9.90 in dividends to our shareholders in just under two years. Immediately after paying the most recent dividend, our balance sheet remains strong with over $6 million in cash and no debt. Finally, to finish up on the supply chain issues and our driver shortage, we recently applied for and are partnering with the Department of Labor and Fastport in a Department of Labor registered apprenticeship program. We are working with FMCSA, DOL, and Fastport to determine if we can attract driver applicants that are interested in learning a career in the bulk industry, whether they come from a prior military background, new driver entrance, into our non-hazardous segment, or other areas. We will see if this opportunity has a positive impact in the coming months and are hopeful that this partnership with DOL will provide additional driver capacity. Thank you again for your interest in our company, and we will be happy to entertain any questions.
spk01: Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions. Your first question is coming from Steve Rudd from Blackwall. Your line is live.
spk02: Thanks. Thanks for the update. A few follow-up questions. And thanks for the, by the way, not a small thing and well done. So the first, how many drivers do we have? What's our driver count right now?
spk00: 375. With owner-operators? With owner-operators, we've got about 375, and I hesitate because that number sometimes changes day to day, so I'll give you that approximate number.
spk02: Okay, and I think last time we spoke, we were about the same, let's see, 380 drivers at the beginning of June, 364 on July 28th conference call. Yeah, we're relatively flat in the last several months. All right. So that's a big plus to be relatively flat. And then, you know, you're doing all the right stuff. I guess in your calculation, each driver, what do they translate? What does each additional driver translate to in terms of revenue? And then we can work out the bottom line from there.
spk00: We use a round number of 200,000. It just depends on the market and the customer. But I would use 200,000. Annually.
spk02: 200 in terms of revenue, not profit?
spk00: Yes, revenue. Okay.
spk02: And then when we work that through with the driver, I don't know what the exact cost is for driver plus the full load. What does it work out to?
spk01: Which number?
spk02: We've got revenue and then cost of the driver. You're talking about from a profit standpoint? I'm trying to get that out to a profit line. Yeah, from a profit standpoint.
spk00: That's really hard to do because it's totally dependent upon is that incremental business add that you're doing with that driver? Are you replacing a driver? I mean, if you're just replacing a driver, there is no... Profit add.
spk02: All you're doing is... No, I'm sorry. I wasn't clear. I'm saying for the incremental driver. So if we have 375 drivers currently, and we in two months or five months have 400 drivers, so that gets me $5 million.
spk00: I would make, I would just use about 25% of incremental growth. It's probably a good round number for you.
spk02: I was about $50,000 with my back of the envelope guessing number.
spk00: I think that's a fair guesstimation if you're actually able to grow your business, yes.
spk02: Right. And then you're doing good to join that DOL program. How many drivers we've stabilized? And I say we. you guys have stabilized and i know it's not a small thing to do this uh so as i say at every conference call hats off to you um how many drivers do you hope for or uh you know in the next three months six months because i think you you've now stopped the bleeding so what do we hope we can wind up well i think you know here's here's the best way for me to answer that if you look at
spk00: the holiday season, we will be fortunate to stay relatively flat through the holidays because the applicant flow and also typically the departures of drivers voluntarily slows down during the holidays. So between now and call it the first 10 days of January. And then we'll see things typically pick back up on the applicant side. And that's held true today. We've got fewer drivers in training than we had, call it three weeks ago, but that's fairly normal. So I would hope to stay flat during this period of time. We really, Steve, we really just don't know. This driver market is unlike anything I've ever seen. We are just getting started with this apprenticeship program. In fact, I went to DC two weeks ago to meet with the Department of Labor and Federal Motor Carrier Safety, and I'm due to go back up there. And it's something that we're trying to figure out. But we've added two drivers so far as a part of this apprenticeship program, but those were drivers that we actually recruited, and they did not come through the Department of Labor. And so I'm providing them feedback on that on a weekly basis at this time. We'd love to have... 75 more drivers spread out across our system. We think, particularly on the dry bulk side of our business and in some of these large metropolitan areas, as these companies start to put people back to work, there's going to be additional demand. And so we believe there's an opportunity there to incrementally grow the business, but we've got to be able to put drivers in the trucks to do that.
spk02: So let's look at that number of 75 or even more drivers. You're partnering with your customers, which is brilliant because it makes them understand the price increase and be party to it, like they get it. It's a form of transparency. So that's well done in terms of a sales job. The second part, though, is I think the target has to be, you know, the 75 to 100 drivers. Can we ramp up to that over the next year? And you guys are, you know, some of the most experienced and maybe the most experienced in the industry. So you have to have a sense you're definitely in the right direction. And do you think by the end of the year you can ramp up to that? Or at the end of the year comes, when I'm saying the end of the year, December 2022, will I be on the call saying, we're still headed in a great direction, and it's good we have 385 drivers? And I think that would be silly, but my sense is, do you think you can ramp up over the next year to that kind of increase?
spk00: We haven't seen anything that indicates that we could add 75 drivers by this time next year. And then I think if you could, let's take two parts. If you could, you have an equipment constraint today in that the orders for tractors are so far out that we might would have trouble generating enough tractors. Now we maybe could lease some tractors or we could buy used tractors, but that could potentially cause a constraint for us. I would tell you that if you could add 10% to your driver force in a year, Based on what we see today, you'd be really happy. But this driver market, I don't care what the CEOs that were in DC said this week, and I read their comments, and I'd be glad to challenge each one of them. Maybe their supply shelves are in better shape, but there is not much, if any, capacity in this marketplace. There's just not a lot of drivers available. I mean, you heard me say in the conference call, we're somewhere around a half of the viable applicants that we had pre-COVID, and we had a driver shortage pre-COVID. So it's just not probably right this minute realistic to think that you could do that. We would love to do it because we think we could grow along with it.
spk02: So let's talk then through how we drive incremental revenue, right? So the incremental revenue, our existing revenue You know, and maybe I'm approaching this in too unsophisticated a way because we're saying, okay, each driver is $200,000, profit $50,000. I don't know how much incremental revenue you get out of your existing drivers based on the increased demand for the products that we carry and just generally in the economy. So if I take a look at two categories, profit drivers. One is the existing driver base and customer base. And there we're pushing through additional price increases pretty much. Yes. So we feel we can push through additional price increases.
spk00: Yes. That's something we've been pretty clear about. The market's going to have to do more than pay for driver pay increases because we've got insurance costs that are going up. And frankly, nobody wants to be in this business and just break even or lose money. We need to get this company and, frankly, this industry back to a reasonable return on investment. And so when we're looking at price increase, we're not only looking at price increase to cover cost. We're looking at price increase to add margins. And so that's one way that we're going to have to do it. If you can't add incremental business, then you've got to reduce cost, which we've done and we've outlined pretty heavily. And there's still a little bit more of that potentially to go. And then you've got to be able to raise your prices in excess of your costing. Right.
spk02: It's axiomatic, of course. And then in terms of the incremental, I know there's restraints or constraints on the amount of time a driver can be on the road, but in terms of allocation and utilization of your existing driver pool, how much room do we have there?
spk00: There's really none. We spend a lot of time and energy getting our drivers to work their days off now just to cover the customer base that we have. And I think that's pretty true throughout the industry. There's just no, there's really very little, I should say, ability to get the drivers to be more productive. They're like everybody else, right? You only wanna work six days a week so many times. They wanna be with their families. And so there becomes this quality of life issue as it relates to truck drivers. And if we're gonna attract people in this industry, They're going to have to have a quality of life, and that's just something we've got to continue to focus on in the whole business, the whole industry. I think they're about maxed out, candidly.
spk02: Yeah, I would imagine that to be the case. I did see a crazy documentary comparing production of things here versus China, and it was really amazing what we define as maxed out and how they define it, but So each incremental driver added, is my math right, we get basically a bottom line of two cents based on a number of shares if you're able to add drivers?
spk01: I don't know if I'm looking at the calculator that close, but I can run it for you.
spk02: Go ahead. I'll be happy to do it. It's interesting to me because You know, literally you're doing everything you can, and I think you will succeed, continue to succeed at it. You know, modeling this out is obviously always tough, but it's not, you know, not insurmountable because the variables aren't that great except the driver counts, which I think we've now stabilized. One and a half cents, I think. Is that right?
spk01: One and a half cents.
spk02: Right, one and a half. Okay. So, you know, it's pretty amazing how each additional driver can then the margin, you know, we won't get into, but obviously significant given our low share count. All right. Well, listen, if I come back, if I have more, I'll get back into the queue and, you know, stay well, guys. You're critically important. You're doing very good work. Really appreciate it.
spk00: All right. We appreciate your interest. Thank you. Thanks for the questions.
spk01: Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star 1 on your phone at this time. Please hold while I poll for questions. Thank you. There are no further questions in the queue. I will now hand the conference back to CEO Rob Sandlin for closing remarks. Please go ahead.
spk00: Thank you for being on the call today, and we appreciate your interest in Patriot Transportation. Have a good day.
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