Patriot Transportation Holding, Inc.

Good day, ladies and gentlemen, and welcome to the Patriot Transportation earnings call for the second quarter of fiscal year 2022. At this time, all participants have been placed on a listen-only mode, and the floor will be open for 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. Sir, the floor is yours.

In our history, the outcome has been much, much different. And Rob, the floor is yours. Good afternoon.

Sorry about that. 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 statement made during this call that relates 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. For our second quarter results. Today the company reported a second quarter net loss of $490,000 or a loss of 14 cents per share for the quarter ended March 31, 2022 compared to net income of $484,000 or 14 cents per share in the same quarter last year. Last year's quarter included $1,037,000 or 31 cents per share from gains on real estate net of income tax. Operating revenues for the quarter were $20,928,000 up $1,200,000 from the same quarter last year due to rate increases and higher fuel surcharges. This quarter's revenue miles were negatively impacted by the approximately 50 driver reduction versus last year's second quarter, mostly due to the driver shortage. Operating revenue per mile was up 65 cents, or 19.8%, due to an improved business mix and rate increases. Compensation and benefits increased $275,000, mainly due to the increased driver compensation package, mostly offset by the lower driver count and a reduction in support staff. Insurance and losses increased $645,000, primarily from higher healthcare costs caused by one COVID claim which hit our maximum retention of $372,500, and a prior year workers' comp claim which negatively impacted us by $380,000 in the quarter. The depreciation expense was down $265,000 in the quarter, and gains on sale of assets was $119,000 compared to a loss of $113,000 in last year's quarter. The operating loss this quarter was $639,000. The COVID claim and the prior year work comp claim resulted in a total charge of $752,000 to this quarter. On to the year-to-date results. The company's net income was $5,949,000, or $1.63 per share, compared to $262,000, or 8 cents per share, in the same period last year. The net income this first six months included $6,281,000, or $1.72 per share, from gains on real estate net of income taxes. The prior year six-month results included net income of $1,037,000, or 31 cents per share, from gains on real estate net of income taxes. Operating revenues were up $1,543,000 due to improved rates and higher fuel surcharges while miles were negatively impacted by the lower driver count. Operating revenue per mile improved 64 cents, or 19.9%, due to rate increases, higher fuel surcharges, and an improved business mix. Compensation and benefits increased mainly due to driver pay increases offset by lower driver count and non-driver personnel reductions versus last year. Diesel prices have increased to record levels, causing our fuel expenses to increase by $1,316,000 over last year's second quarter, while insurance and losses increased $333,000 due mainly to the two claims mentioned earlier. We decreased depreciation expense by $533,000 with the downsizing of equipment that was mostly completed in the second half of fiscal 2021 while SG&A expense was higher by $340,000, mostly due to a one-time transaction bonus following the sale of the Tampa terminal property. The gain on the sale of the land was $8,330,000 due to the sale of Tampa, compared to $1,431,000 in the same period last year. The gain on sale of assets was $479,000 versus the loss of $199,000 last year. This year's gain was positively impacted by the dramatic increase in used truck prices. The operating profit for this period was $7,902,000 compared to $370,000 last year. Including the Tampa land sale and the one-time transaction bonus for management, adjusted operating loss for the six months was $34,000. As stated earlier, The COVID and prior year workers' comp claim resulted in a negative charge of $752,000 to the first six months. Now for the summary and outlook. During the first six months, our driver count remained steady and similar to the previous two quarters following the large driver pay increase in April of 2021. During the first quarter, we announced additional driver pay increases in all of our markets. most of which took effect in early February 2022. It bears repeating from last quarter's conference call that these increases added 21% to 31% to driver pay, depending on the market, and our new driver pay is up a minimum of 26% over the same period. In addition, we have been successful at rate increases since last April to more than cover the increased cost of the driver pay raises. Matt McNulty, our CFO, has settled into his new responsibilities as COO after our Vice President of Operations retired at the end of our first quarter. As mentioned on our call in February, we have made other personnel moves that will not be replaced. We continue to focus on growing our dry bulk segment into new markets as we are able to hire drivers. We continue to hire registered apprenticeship drivers for the dry bulk business as we have partnered with the Department of Labor in an effort to expand our hiring base. I have made several trips to multiple trips to Washington DC and continue to work with senior staff at DOL and DOT along with national tank truck carriers on the driver shortage and long-term solutions for us and the industry. We're in the final stages of an application and acceptance into the Department of Defense Skill Bridge Program which will provide us better access to transitioning military personnel with truck driving experience. I was honored to be invited to the White House for a South Lawn celebration of President Biden's 90-day trucking challenge on April 4th and was asked to take one of our registered apprenticeship drivers, Joseph Britt, Jr., along with me. Joseph is a seven-year Army veteran who is exactly the type of person we are looking for with the Skill Bridge program. Joseph is now actively hauling petroleum loads for us after his initial training period. We had a great day together in Washington, D.C. The dividend paid in November reduced our cash balance by $12,800,000, but our balance sheet remained strong with $6,800,000 of cash at the end of March 2022. We began replacing tractors in the first quarter of this fiscal year, and while we are experiencing delays due to supply chain issues, We anticipate receiving a total of 30 replacement tractors and a handful of trailers with capital expenditures of approximately $6 million during this fiscal year. We have also seen the prices of new tractors increase due to supply chain issues and inflation. Finally, we are all saddened at the passing of our Chairman Emeritus, Ted Baker, on April 28th. I've had the pleasure of working with Ted for a long time. His business record is well known. and I am honored to have known him and fortunate to have had the opportunity to learn from him over the last 38 years. He will be missed by us all. Thank you again for your interest in our company, and we will be happy to entertain any questions.