Patriot Transportation Holding, Inc.

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.

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.

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.