Patriot Transportation Holding, Inc.

Good day, ladies and gentlemen, and welcome to the Patriot Transportation Holdings earnings call for third quarter. 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 of Patriot Transportation. Sir, the floor is yours.

Thank you. 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 Chief Operating 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 a net income of $771,000, or 22 cents per share, for the quarter ended June 30, 2022, compared to net income of $323,000, or $0.09 per share in the same quarter last year. Last year's quarter included $133,000 or $0.04 per share from gains on real estate net of income tax. Operating revenues for the quarter were $23,501,000 up $2,646,000 from the same quarter last year due to rate increases and higher fuel surcharges. This quarter's revenue miles were negatively impacted by the approximate 25 driver reduction versus last year's second quarter due to the driver shortage and closing of our Nashville terminal. Operating revenue per mile was up 86 cents, or 24.2%, due to an improved business mix, fuel surcharges, and rate increases. Compensation and benefits increased $574,000 mainly due to the increased driver compensation package mostly offset by lower driver count and a reduction in support staff. Insurance and losses increased $129,000 due to negative development of a prior year auto liability claim. Appreciation expense was down $299,000 in the quarter and gains on sale of assets was $163,000 compared to $46,000 in last year's quarter. The operating profit for this quarter was $913,000 compared to $269,000, excluding gains on real estate sales in last year's third quarter. Now on to the year-to-date results. The company's net income was $6,072,000 or $1.85 per share compared to $585,000 or 17 cents per share in the same period last year. The net income this first nine months included $6,281,000 or $1.73 per share from gains on real estate net of income tax. The prior year's nine months results included net income of $1,170,000 or 34 cents per share from gains on real estate net of income taxes. Operating revenues were up $4,189,000 due to improved rates and higher fuel surcharges, despite being down 2.2 million miles as a result of lower driver count. Operating revenue per mile improved 72 cents, or 21.7%, 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 expense to increase by $2,713,000 over last year, while insurance and losses increased by $462,000, due mainly to a maximum limit COVID claim of $372,500 and a negative workers' compensation adjustment on a prior year claim of $380,000. We decreased depreciation expense by $832,000 with the downsizing of equipment that was mostly completed in the second half of fiscal 2021. Second half of fiscal 2021. SG&A expense was higher by $384,000 due to a one-time transaction bonus followed following the sale of the Tampa terminal property. The gain on the Tampa land sale was $8,330,000 compared to a $1,614,000 gain on land sales in the same period last year. The gain on sales of assets was $642,000 versus a loss of $153,000 last year. This year's gain was positively impacted by the dramatic increase in used truck prices which has started to taper off slightly. The operating profit for this period was $8,815,000 compared to $822,000 last year. Excluding the Tampa land sale and the one-time transaction bonus for management, adjusted operating profit for the nine months was $879,000 compared to an adjusted operating loss of $792,000 in the same period last year. As stated earlier, the COVID case and the prior year workers' comp claim resulted in a negative charge of $752,500 to the first nine months. Now for the summary and outlook. During the first nine months, our total 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 of fiscal 2022, we announced additional driver pay increases in all markets, most of which took effect in early February. We recently announced additional driver pay increases in about half of our markets, effective in early August. Year to date, our turnover has dropped 28 percentage points versus fiscal 2021. The most recent driver pay increases mirror an earlier market trial where we tied the increase into productivity and zero unexcused absences to the pay increase. It bears repeating from last quarter's conference call that these pay increases added 21% to 35% 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 adding rate increases each time we have increased driver pay, including the most recent pay increases. We continue to focus on growing our dry bulk segment into new markets as we are able to hire drivers and we continue to hire registered apprenticeship drivers for the dry bulk business as well. During the third quarter, we received our MOU for the Department of Defense Skill Bridge Program, which will provide us better access to transitioning military personnel with truck driving experience and those interested in a CDL driving career. I have stayed involved with the White House initiative to increase the number of people interested in truck driving jobs. Specifically, I joined the Task Force Movement Steering Committee, which is designed to bring transitioning service members, veterans, military families, and industry stakeholders together to improve economic and national security outcomes. We are hopeful that our skill bridge involvement will allow us to increase our driver force with transitioning military veterans soon. The dividend paid in November reduced our cash balance by $12,800,000, but our balance sheet remained solid with $9,900,000 of cash at the end of June 2022. We began replacing tractors in the first quarter of this fiscal year, and while we have experienced delays due to supply chains, we are presently receiving new tractors and expect to add 20 by the end of this fiscal year. In addition, we will purchase a handful of trailers and spend approximately $6 million during this fiscal year. We have seen the price of new tractors and trailers increase due to supply chain issues and inflation. Thank you again for your interest in our company, and we will be happy to entertain any questions.

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 ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Christian Olson. Please announce your affiliation, then pose your question.