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spk00: Good afternoon and welcome to the Patriot Transportation Holdings Incorporated earnings call for the first quarter of 2023. At this time, all participants are 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, Mr. Rob Sandlin, President and CEO of Patriot Transportation. Sir, the floor is yours.
spk01: 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 that 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 first quarter results. Today the company reported a net income of $485,000, or 14 cents per share, for the quarter ended December 31, 2022, compared to net income of $6,439,000 or $1.74 per share in the same quarter last year, which included $6,281,000 or $1.70 per share from after-tax gain on real estate. Operating revenues for the quarter were $22,850,000, up $2,279,000 from the same quarter last year due to rate increases, higher fuel surcharges, and improved business mix. Miles this quarter were down $299,000, partially due to the closing of our Nashville location and a lower driver count. Operating revenue per mile was up 66 cents or 17.5%. Compensation and benefits increased $1,121,000, mainly due to the increased driver compensation package, mostly offset by lower driver count and a reduction in support staff. Depreciation expense was down $203,000 in the quarter, and gains on sales of assets was $66,000 compared to $360,000 gain in last year's quarter. The operating profit for this quarter was $620,000 compared to $8,541,000 in last year's first quarter. The summary and outlook. Looking back at our 2022 year, we focused on adding business with new and existing customers that meets our stated goal of adding quality business that provides for an acceptable return on investment. As we began our 2023 year, we added business with new and existing customers throughout the quarter and have new business opportunities booked going forward into the second quarter. We had $7,800,000 of cash at the end of the first quarter with no outstanding debt. Interest rates continue to rise in the calendar to 2022, which will put more pressure on those in the industry with large outstanding debt. We will add 73 tractors during our year and received nine during the quarter. 44 of the tractors will replace our existing company fleet, and 29 will replace leased tractors with company-owned tractors. We believe Replacing the 29 leased tractors with company units will provide a better financial result and is a good use of our cash. We will only add a small number of trailers during 2023 in hopes that inflation declines going forward and replacement price surcharges also decline, allowing us to replace more trailers down the road at a lower price. We will continue to focus on our driver hiring and retention. During the quarter, we raised pay on our drivers in most of the markets where pay was not adjusted late in our 2022 year. The results among our drivers with a year or more of seniority has been very positive, resulting in low turnover among this group of dedicated professionals. New driver acquisitions, while slightly improved, continues to result in higher high turnover, but with slightly better results than this time last year. As general freight spot rates have declined, we have experienced the ability to put on more owner-operators in several markets and will continue to monitor and balance this with company drivers. In closing, we are on target with our safety goals for the first quarter of the year and will continue to focus to keep preventable incidents and costs in check. Generally, the petroleum and construction industry business increases during our second quarter, and we believe we are positioned well to take additional advantage of seasonal volume increases along with committed new business. Thank you again for your interest in our company, and we will be happy to entertain any questions.
spk00: Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments at this time, please press star 1 on your phone. 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. Thank you. Our first question is coming from Christian Oleson with Oleson Value Fund. Please go ahead.
spk02: Thank you. Just wanted to see if you guys could talk a little bit more about your goals, plans, and expectations for rate increases in the first calendar quarter of 2023 and maybe the following quarter as well.
spk01: Yeah, Christian, thanks for being on the call and for your question. I think the best way to answer that is we have budgeted the majority of our price increases in the first and second quarter of this year, and they are going along as planned. And we feel like the market is still allowing for additional rate. Certainly some of that is continuing to help us cover this added driver cost, but also some of the inflation that we're seeing. But I would say so far, so good.
spk02: Okay, great. And in terms of uh driver pay um could you comment a bit more on on that uh just the pressures in the industry overall is it um is it abating much and and is there any difference uh comparing tank truck drivers to truck drivers more generally yeah i think you can always draw first first thing i would say is you can always draw a comparison between the over the road driver
spk01: that is out there for, let's say, weeks at a time, and our drivers in the tank truck industry, particularly ours, that are more regional in nature, and they're mostly home at night. I think from a compensation standpoint, our drivers typically do better than a new driver that's over the road, plus they're home with their families. So I think we got a little bit of an advantage there. That is the way that most people break into the industry, is getting in that long haul side of the business. So they've got to want to change jobs. And in fact, I was talking to one of our drivers last year that was out on the road for 16 years, and he's really happy to be home. He was gone six weeks at a time, and he's working for us, and he said he's making more money. So that's kind of a real-life example there. The driver pay increases that we did so far this year and we had planned were for five or six of our terminals that had not had driver pay increases in the latter half of the year. And so while we've seen some, I would say we've raised the pay a lot over the last, since April of 21, I think we say between 25 and 35%. And so we think the biggest part of that work is done. Certainly with inflation where it is, there's going to be some expectation on a routine basis to do something. But I think the real large chunks of that are behind us.
spk02: Okay. Thank you very much.
spk01: Yes, sir. Thank you.
spk00: Thank you. Our next question is coming from John Kohler with Oppenheimer and Close. Please go ahead.
spk06: Good afternoon, gentlemen. A couple questions, if I could. Usually on these calls, you give us some idea of the number of drivers and any that you've added. I was wondering if you can provide that information. And I'm also curious about how those efforts that you had to recruit and get new drivers into training, how those are progressing, or have they largely petered out, just not delivered as you might have expected?
spk04: So, yeah, so we are currently at roughly 360 revenue-producing drivers from somewhere in the 350s to start the year. So a slight improvement there. And as far as really started seeing it mostly in the second half of January, which is fairly typical for the trucking industry, and everybody stays put through the holidays. And then in January is when people start making changes. And so We've actually seen our drivers in training the last couple weeks up in the mid-30s, whereas prior weeks before that we were in the mid to upper 20s. So that's a leading indicator. We'll see what happens because they have to get through training and stick, but it certainly would be a positive trend if it continues.
spk06: Okay, yeah, some of the things I've been reading have been saying that the worker pool has been increasing, and I'm wondering if you were seeing that too, but it sounds like seasonality might mask some of that.
spk01: It does a little bit. We don't see much movement in December. But the other thing that we've seen is that with spot freight prices coming down, we've seen some owner-operators come back to the tank segment. And we've got more owner-operators running today than we did when we began the fiscal year. And so we're monitoring that and trying to make sure we keep that balance where we like it. So that's a positive thing because we've got freight for those folks to haul. So we'll continue to monitor that and see what happens.
spk06: Okay, great. And then just a quick question, if I may, on insurance. A lot of stuff I read saying that commercial vehicle, at least on the reinsurance segment, is getting somewhat difficult or has been difficult to place. And I know you guys do self-insurance, but I'm just wondering where you come out on – balancing the risks and the rewards with that. I wonder if there was a price at which you might think about reducing your deductibles or anything like that.
spk04: I would say that right now we run those numbers maybe not every year, but we run them enough to know that there's a sizable seven-figure gap between what we would spend if we were to lower our retentions. significantly versus what we're spending today in the premium plus our cost. So we've looked at it, and so I don't see us, we kind of feel like we're in the sweet spot on the risk, and the work comp was something I guess, you know, the work comp we decided to get a half a million dollar deductible a few years back, and although we did have one claim that really surprised us last year, that still, if you look at the math over history, appears to be the right place to be for expenses on top of premiums.
spk01: It's been a pretty hard market, and so any movement in that with a lower deductible over the past three or four years would have been really expensive. And then to take on more risk, looking at it the other way, there really wasn't the payback on the premium, again, because of the hard market, you just weren't getting rewarded as much. So we've kind of stayed where we've been for a while in those groups, but it is something we continue to look at.
spk04: Yeah, our renewal this year was not terrible. It wasn't like it had been the last few years with everything being, you know, our renewal on the primary was under 10% and kind of in that mid-teen range on the upper layers.
spk06: Oh, great. That's good to know. Last question, then I'll let it go. I know you said that in general, freight rates have been coming down and you've been adding new business. And I'm just curious, are you finding it more difficult, given that maybe you're finding the competition a little sharper? And I'm just wondering how you're balancing that out or how you're able to get additional business, I guess.
spk01: Yeah. Let me clarify, just to be sure for you and others on the call. When I say spot freight rates are coming down. That's for the general freight industry and not for us. And that's where a lot of those owner operators have been working. So when you read the different trade magazines and the trade journal stuff about spot freight prices, that's not really going to be indicative of what's going on in the tank truck industry. Hours are going up. And if you look at our revenue per mile and our quarterly announcements that we've been making. Our freight rates are up dramatically over the last two years and we don't see any reason for that to decline. It's certainly not going to decline for us because we're going to partner with people and customers that are looking for quality service and they want to guarantee that they've got that supply. Compared to selling diesel fuel or gasoline at a margin, the freight portion of this thing is, while it adds up to a lot of dollars on a per-gallon basis, it's pretty small comparatively. So we're really not seeing any rate pressure downward.
spk06: Great. Thanks so much.
spk01: Thank you.
spk00: Thank you. Our next question is coming from John Dasher with Pinnacle. Please go ahead.
spk03: Good afternoon, everyone. Thanks for taking our questions.
spk01: Thank you.
spk03: Glenn, you indicate the revenue was up because of rate increases, higher fuel charges, and improved business mix. Could you elaborate on the improved business mix? What are you talking about there specifically?
spk01: Yeah, I'll give you a couple of examples. So one of the things that we talked about is we were downsizing our business and trying to then right-size everything and improve margin was to go out into the marketplace. Let's say that we can't add a driver capacity, and in a given market we've got X number of drivers, and we have to decide how are we going to make that business more profitable. Then we go to our our partners and say, look, we've had driver pay go up, we got inflation, we got this, and we need a rate increase of X. And if they say, well, that's just more than we can stand, then what we would do is work with them to exit or downsize. And if they can get somebody to haul it for them at a low price, and we can add business with somebody else at a higher price, then that's what we've done in a number of different markets. So it's a combination. That's kind of what we're talking about with business mix, more so than changing products.
spk04: Yeah, it's really just a mix of the customers. It's swapping one customer for a higher-rated piece of business.
spk03: Does that make sense? Yeah, that makes total sense.
spk04: Okay, good.
spk03: Do you see that continuing in terms of swapping out low-margin customers for higher-margin customers, or are you kind of reaching – the end of the road there?
spk01: I hope we're reaching the end of the road. There may be a pocket or two with that. But we really are and have aligned ourselves with some good partners and good customers and folks that we've done business with for a long time. And I think the whole world has had to wake up a little bit to this supply chain and driver shortage and that it's real. And it's frankly not going anywhere anytime soon. And so I think our customer base in the tank truck industry realizes that it's really important to get their products to the end user. And so, you know, there are always cycles in business, but I think we're in a cycle where they understand that and they're going to be willing to pay a reasonable amount of money for us to make a reasonable turn on our investment. Okay.
spk03: Okay. That makes sense. Good. In terms of, you mentioned the driver count, 360 or so. What was the turnover for the most recent quarter?
spk04: Turnover in this first quarter was 73%, 3.5%.
spk01: And, John, what's interesting is we're turning over very few of our drivers that have more than a year's service. Most all of that churn is in that first-year driver.
spk03: Right.
spk01: But that's a pretty common thing.
spk03: Pretty close to what you were a year ago, right? Weren't you around 72% in Q1 a year ago?
spk04: I don't know that I could go back to Q1 a year ago and get that.
spk01: For the year, we were up.
spk04: For the year, we were about 83 overall last year.
spk03: All right. Okay. So it's coming down a little bit. That's good. A few years ago, it was 100.
spk04: Yeah.
spk03: A year ago, it was 100. Okay. Good. So it is coming down. That's good.
spk01: It's not where we want it, but... We're going through a lot of new gyrations and just trying something new all the time to see what we can do to impact that new driver so that it has more staying power because we spend a lot of money training these folks. And so we're really spending a lot of time and energy there. Okay.
spk03: All right. Good. On the CapEx side, could you explain the economics – behind replacing lease with owned trucks. You said better financial results. Could you talk us through why the results are better by owning a truck as opposed to leasing it?
spk05: I mean, quite frankly, it's come down to the fact that they're building in a significantly higher cost of the tractor, and then they're throwing interest on top of that than what we can purchase ourselves.
spk03: So how much better are the returns from owning the truck versus leasing the truck?
spk01: Do you remember the difference when we ran those numbers? John, I can't remember the numbers. We ran all that. And the other thing that's going to happen is initially when you lease that truck, you're paying out over the life of that truck, you're paying X number of dollars or cents per mile for maintenance. So when we put these trucks on, for the first two years, we're going to see a significant, at least the first two years, we're going to see a significant reduction in that maintenance cost as well. Because we're not, we're just going to be doing routine PM type work. When you get later in life, that thing might swing around a little bit the other direction. But when we ran that whole model, it was quite substantial, and we got on the phone with with the leasing company's finance guy, and he even agreed that in our, with what we were doing, that it probably made more sense for us to own trucks.
spk05: If you're borrowing money, with interest rates higher, the leasing companies are looking to get an imputed interest rate into their number that's pretty high, and when we have money in the bank, it just makes less sense for us to do that.
spk03: Yeah, okay.
spk05: I did check our turnover rate was 80% in the same quarter last year.
spk03: It was 80%, okay, and now it was 73. Okay, that's good. That's fine. We haven't seen the Q yet, but what was the capex for Q1?
spk05: Two million net.
spk03: Two million net, and the total is going to be 12, so that leaves about 10. How does the 10 unfold over the next three quarters, roughly?
spk01: So the way the tractors are coming in is we've got 10 a quarter, provided that they deliver them on time, for... from one of our vendors and then the lease tractors are spread over about three months across the third and maybe filter a little bit into the fourth quarter but I think most of that's going to hit in the third quarters and that's the 29 trucks yeah late second mostly third late second mostly third pretty sure so then the remaining 10 million folds out how over that over the next three quarters
spk03: We can do that for you.
spk01: It's going to be heavy, 29.30, and it can be 40, call it 40 trucks.
spk04: No, it'll be heavier in the third, so it's probably more like 2, 6, and 2.
spk05: That's too much.
spk01: That's right.
spk05: That's right.
spk01: That makes sense. If they come on time. If they're here on time. But the 29 have to be here on time.
spk04: The 29, we're pretty much locked in with them. They'll arrive for that time frame, that late second and third quarter.
spk03: Okay, so two, six, and two, four quarters, two, three, and four. Is that right? Correct. Okay. All right, good. That's all we have. Thanks very much. Thank you.
spk00: Thank you. There are no further questions in the queue at this time, so I will hand it back to Mr. Sandlin for any closing comments you may have.
spk01: Thank you, and thank you all for your interest in Patriot Transportation. We look forward to talking with you next quarter.
spk00: Thank you, everyone, and this does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day, and we thank you for your participation.
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