Patriot Transportation Holding, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Patriot Transportation Holdings, Inc. earnings call for fourth quarter 2022. At this time, all participants have been 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, Chief Executive Officer of Patriot Transportation Holding. 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 fourth quarter results. Today, the company reported a net income of $470,000 or 13 cents per share for the quarter ended September 30th, 2022, compared to net income of $40,000 or one cent per share in the same quarter last year. Operating revenues for the quarter were $22,882,000, up $2,425,000 from the same quarter last year due to rate increases, higher fuel surcharges, and an improved business mix. This quarter's revenue miles were negatively impacted by the approximately 10 driver reduction versus last year's fourth quarter due to the driver shortage and the closing of our Nashville terminal. operating revenue per mile was up 70 cents, or 18.9%. Compensation and benefits increased $826,000, mainly due to the increased driver compensation package, mostly offset by the lower driver count and a reduction in support staff. Unfortunately, insurance and losses increased $444,000 due to a single-roller vehicle rollover fatality accident, which was 270,000, along with higher health and other claims. Depreciation expense was down $285,000 in the quarter, and gains on sale of assets was $97,000 compared to the loss of $26,000 in last year's quarter. Equipment gains on sales were negatively impacted by $199,000 due to a separate vehicle rollover caused by an underinsured third party resulting in $178,000 loss and the fatality rollover mentioned above. The operating profit this quarter was $484,000 compared to $58,000 in last year's fourth quarter. Now for the year-to-date results. The company's net income was $7,190,000, or $1.98 per share compared to $625,000 or 18 cents per share last year. The net income included $6,281,000 or $1.73 per share from gains on real estate net of income taxes. The prior year's results included net income of $1,170,000 or 34 cents per share from gains on real estate net of income taxes. The operating revenues were up $6,614,000 at $87,882,000 due to improved rates, higher fuel surcharges, and an improved business mix despite being down 2.5 million miles because of the lower driver count and the closing of our Nashville operation. Operating revenue per mile improved 72 cents or 21.1%. Compensation and benefits increased mainly due to driver pay increases offset by lower driver count and non-driver personnel reductions. Our fuel expenses increased by $3,658,000 over last year, while insurance and losses increased by $906,000 due mainly to the maximum limit COVID claim of $372,500 and a negative workers' compensation adjustment on a prior year claim of $380,000 and the fourth quarter accidents detailed earlier resulting in a loss of $270,000. We decreased depreciation expense by $1,117,000 with the downsizing of equipment that was mostly completed in the second half of fiscal 2021. SG&A expense was higher by $542,000 mostly due to a one-time transaction bonus following the sale of the Tampa terminal property of $394,000. The gain on the Tampa land sale was $8,330,000 compared to a $1,614,000 gain on land sales last year. The gain on sale of assets was $739,000 versus a loss of $179,000 last year. The operating profit for the year was $9,299,000 compared to $880,000 last year. Excluding the Tampa land sale and the one-time transaction bonus for management, adjusted operating profit for the year was $1,363,000 compared to an adjusted operating loss of $734,000 last year. The COVID health claim The prior year workers' comp claim and the two Q4 rollover claims resulted in a negative charge of $1,268,000 for the year, which is highly unusual and something not previously seen at these levels. Now for the summary and outlook. During the year, our total driver count remained steady due to the large driver pay increase in April 2021, and subsequent driver pay increases during fiscal 2022. During the first quarter of fiscal 2022, we announced additional driver pay increases in all markets, most of which took effect in early February 2022. We announced additional pay increases in about half of our markets effective in early August 2022. We are in the process of announcing driver pay increases in the remaining markets, which means that these increases will have added 25 to 35 percent to driver pay, depending on the market. We continue to be involved in the task force movement, 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 DoD skill bridge involvement will allow us to increase our driver force with transitioning military ventures soon, and we have seen some applicants from military members transitioning from the military. We have the same challenge as everyone battling inflation pressures and supply chain delays in many areas, including repair parts, tires, and labor. Insurance rates continue to climb at single-digit increases at the lower levels and up to 15% to 20% on the excess layers. The insurance markets are still very tight, particularly in the excess layers of coverage. To cover this cost along with driver pay increases, we have been successful raising freight rates and we are partnering with customers and understand the challenges we face, along with our need to cover the added cost and to make an acceptable return on our investment. I won't belabor the point, but this was a particularly difficult year for insurance claims and equipment write-offs, with four incidents costing us over $1.2 million. We have high deductibles on our health, auto, and work comp insurance claims, and we weigh these each year during renewal periods compared to our claims history and premium cost. Our balance sheet remains stable with 8.3 million of cash as of September 30, 2022, with no outstanding debt. We replaced 26 tractors and five trailers during this year. We also added five dry bulk trailers as we continue to expand this business offering. For fiscal year 2023, we are planning to purchase 73 replacement tractors including the 29 that will replace full service lease units. We also plan to purchase approximately nine trailers with a total capital expenditure of $12 million during fiscal 2023. We were recently named Carrier of the Year for spring water by our water customer, and we look forward to growing this business in the future. I also want to express my gratitude to all of our team members for their dedication to safety as we met all three of our safety frequency targets for the year. We have done heavy lifting over the last couple of years to right-size our business, streamline cost, retool management, and price our business for improved results. I'm encouraged by the improved operating profit for 2022, and we will continue to work with our team to drive improved results moving forward. 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. Your first question is coming from Christian Olson from Olson Value Fund. Your line is live.