Patriot Transportation Holding Inc (PATI) 2022 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Patriot Transportation Holdings Earnings Call for Third Quarter. (Operator Instructions) 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 $0.22 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 $0.86 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. Depreciation 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 $6,720,000 or $1.85 per share compared to $585,000 or $0.17 per share in the same period last year. The net income this first 9 months included $6,281,000 or $1.73 per share from gains on real estate net of income tax. The prior year's 9 months results included net income of $1,170,000 or $0.34 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 $0.72 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 onetime transaction bonus 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 onetime transaction bonus for management, adjusted operating profit for the 9 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 on the prior year workers' comp claim resulted in a negative charge of $752,500 to the first 9 months.

Now for the summary and outlook. During the first 9 months, our total driver count remained steady and similar to the previous 2 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 0 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 SkillBridge 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 SkillBridge 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 remains 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 the 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.

(Operator Instructions) Your first question for today is coming from Christian Olesen. (Operator Instructions)

This is Christian Olesen from Olesen Value Fund. I was just wondering what is the typical frequency of rate negotiations with your customers? Is it annual? And for how long are you legally logged into the rates that you agreed to?

Christian, thanks for the question. It really depends. We have some contracts that run annually as far as the rate negotiation part, some are tied to CPI, some are not and are simply negotiations. But then we have a large book of business that does not have a contractual obligation to wait for a period or a year. And in fact, what we have found is that even when we do have that, if we've seen a need to raise driver pay dramatically, the folks that we are partnering with have been able to help us by offsetting that additional cost.

Okay. And I think I remember you mentioned something about a 3-year contract with a large customer on one of the more recent calls in the last few quarters. So do you have a lot of customers that are on contracts that are that long? And are those rates tied to CPI? Or do you have the ability to renegotiate those more frequently than every 3 years?

If you read the language of really any contract, most of those things tell you that you've only got the ability to adjust rates annually. I will tell you that the supply chain crisis in this country and the shortage of drivers have really opened up the ability for us to go to a customer and tell them that between those periods that we have, we need to raise rates to cover driver pay, and then you let the annual negotiation take care of the rest of it. Matt, may want to...

We've only got 3 contracts that I can think of that are that 3-year term. Everything else is 2 to 1 or no term.

Okay. And then my other question, if you don't mind, is how does the shortage of drivers out -- for truck drivers outside of the tank truck business affect the shortage of drivers of tank truck drivers?

Well, it's totally dependent on the market. If you're in a -- I'll give you an example. If you're in a large port terminal for us, say, in the Southeast like Savannah, Georgia, there's a backlog of containers moving in and out of that port. And so there's a really high demand on truck drivers up and down the interstate system that not only impacts Savannah, but it might impact places like Augusta, Columbia, South Carolina, Macon, Georgia, in addition to just that Savannah market because they're hiring drivers all the way up and down that line.

You get into a more rural area where you don't have that situation, it could be different, and you don't have a bunch of interstate highways coming together like a place like Nashville, where there's just Nashville and Birmingham, where there's just a huge shortage of truck drivers. So it really depends on the market, but we are impacted by the truck driver shortage in total, not just for tank truck drivers.

Okay. And then I have one more question, if you don't mind. Approximately, how long is the useful life of a tractor and a trailer? And how long do you typically operate them?

The useful life for us is, let's just call it, approximately 6 years and about 650,000 miles. And that's about the time that we generally like to trade those tractors.

He asked about trailers.

And trailers? I'm sorry. The petroleum trailers can last 20 years plus, depending on the trailer. Your dry bulk trailers can last even longer than that, and some -- as can some of the chemical trailers. When you get into specialty chemicals like sulfuric acid, they typically have a shorter life, and they're on the books for a shorter period of time.

Okay. So 6 years for the tractors. And then how much more life is there typically on a tractor after you dispose of them?

I have not -- I really don't know. You could put a new engine in the truck and run it longer, but then you start having problem. For our application, it doesn't make a lot of sense. We see a dramatic increase in maintenance cost beyond that level. And so we sell them and we don't typically operate on beyond that point.

Your next question for today is coming from Adam Ritzer.

Just a quick question on your CapEx. I think you mentioned it's going to be about $6.6 million for the year, $6 million on the new tractors. For the maintenance around $1 million a year, is that a good number to use in a normal year?

Yes, I'd say yes, Rob.

Matt says yes.

Matt says yes. Okay. What about [2022]...

I don't think -- I don't think that -- you're talking about in total?

Yes. I mean I'm just trying to figure out...

Additional maintenance, like additional CapEx on top of equipment purchases for things like IT staff and those things.

Okay. I misunderstood. I thought you were asking about maintenance expense, sorry.

Okay. Let's -- I guess, it sounds like we got a couple of conversations going. I'm just wondering of the tractor -- the tractor spending is about $6 million.

Yes.

And I think over -- the full year is like $6.6 million. So if you didn't buy any...

Adam, I'm sorry, let me stop you there. The total CapEx is about $6 million. That's everything. That's tractors, trailers, automobiles, everything that we're spending.

Okay. So if you didn't buy all these tractors, what would your normal CapEx be? I guess that's what I'm trying to get at.

Yes. CapEx, excluding tractors, is what you're looking for. Without trailers, because trailers, we don't buy trailers every year either, but I think your original posit of $1 million for other things is a fair number on an annual basis.

Okay. Got it. And next year, is there another tractor or trailer replacement cycle coming? Or does that take care of things for a while?

There's -- no, there's a replacement cycle every year. I mean, if you take your total number of tractors and you divide that by 6 years, that's going to give you a rough number of how many tractors you would buy. If you're just replacing your fleet, we would -- in round numbers, you would have to buy somewhere in the neighborhood of 40 to 50 tractors a year depending on the mileage cycles of those tractors.

Okay. Because it seemed like in the past couple of years, your CapEx wasn't this high, but what you're saying is this is what it's going to be like for the next few years. I'm just -- that's what I'm trying to figure out.

Right. Yes. Historically, if you go back prior to -- you got to think about what we've had going on here. We've downsized the company quite a bit. So that's reduced the number of tractors that we needed to purchase. And then certainly, during COVID, as we were losing truck drivers, we had less of a need to replace those tractors. And so we're starting to get back to a normal trade cycle. So the answer to that question is yes.

Okay. Okay. Got it. So this is a normal year for CapEx Okay. Makes sense.

Yes.

It look like from my calculations, EBITDA in Q3 backing out the gain is roughly $2 million. Is that a good number? Is that -- have things stabilized now with the driver issue and you finally got price increases coming in? Is that a good number you think you could do going forward and hopefully improve on that?

Yes, Adam, we typically provide you all with the numbers and let you do the math going forward. We have been working really hard to return the margins to this business. And so we are pleased with the progress that we made during the quarter, but we're going to shy away from making projections about what we're going to do going forward.

Your next question is coming from [Steve Rudd]. (Operator Instructions)

Sure. It's [Blackwell Millennium]. First, good quarter. It looks like you're on track. I do have a question on the driver pay tied to productivity. So are all our drivers now in this program? I mean, I guess...

Let's call it -- Matt, correct me if I'm wrong, but I'd say 60% to 65% of our drivers are probably in this program now. I'd have to go do the actual math. We -- this was a trial that we did starting last fall in one of our larger terminals. And when we put in this latest rate increase, driver pay increase, we decided that we would do the same thing because it has been fruitful for us. And so we still have a group of terminals that we have not raised their driver pay again. And so when we do that, we will tie them to the same productivity measure.

Okay. And so we've got about 200 or so drivers in the program now as of the beginning of August. Is that about right? We think, right, 355 drivers, 65%?

I would say, roughly yes.

Roughly yes.

What is the additional productivity we get out of those drivers after they're in the program? Is it 10%? 20%? What do we see?

Steve, I think, let's -- I think I would look at it a little bit differently. It's to avoid losing productivity. What you find as driver pay goes up sometimes is the drivers want to work less because they're happy with what they're making. And we're fine. Our drivers are typically pretty darn productive to begin with. But in this new world that we operate in, it's not unusual for people to call off work, a term that I never knew prior to the last 5 years.

And so one of the stipulations in this new pay scale is that if you have an unexcused absence, you just decided it's sunny outside and you want to take the weekend off, it's going to cost you not only to pay that you lost for that weekend, but it's going to cost you that 10% for the entire next month. And so there is a pretty good financial penalty for somebody to call off work. And so that's one of the productivity measures that we've put into this thing.

I see. So -- so I can't look at this, if I'm hearing you right, I can't necessarily look at this as though we have back doored an increase in driver count, which is really what it was heading towards.

I would not do that.

Okay. Fair enough. And so I don't have that comparison. Let me just go back to maybe depreciation. So take -- after we're done with this year, what's our quarterly depreciation going to run at -- or annual for that matter?

I don't really have that number in front of me. We're in the middle of working on our budgets going forward for next year. I don't know that it's going to be dramatically different would be my initial answer to that because most of the trucks, except for a small number of them that we're selling, are still on the books. And so you've got the added cost of the new tractors compared to the cost of the tractors that are going off the books. So it's not -- I would say you wouldn't see a dramatic increase in that.

Okay. Because I know this quarter, if I have the number down, right, it was down $239,000 compared to last year at this time, and that should basically hold except for some incremental depreciation from the acquisition of the new trailers versus the disposition of the old trailers, right?

Tractors.

Except for the tractors.

I'm sorry, I said trailers. I mean tractors.

That's fine. Except for the difference in the cost of the equipment. That's the only thing.

If we buy instead of leasing.

Okay. And our price increases are still covering and then some our pay increases?

Yes.

That's our goal every time we go out to market, yes.

Perfect. I know it is. Okay. Well, look, you're on the right road, and I appreciate, as always, the hard work that goes into it. It's not easy stuff, but...

Yes, we appreciate your questions.

Yes. Thank you.

(Operator Instructions) There are no questions in queue.

Thank you. We appreciate your interest in Patriot Transportation and look forward to talking with you next quarter.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.