Patriot Transportation Holding Inc (PATI) 2022 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Patriot Transportation Holdings, Inc. Earnings Call for the First Quarter of Fiscal Year 2022. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, CEO and President, Rob Sandlin. Sir, the floor is yours.

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 and Operating Officer; and John Klopfenstein, our Chief Accounting Officer.

Before we get into our results, let me caution you that any statement (sic) [statements] 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.

Now for our first quarter results. Today, the company reported first quarter net income of $6,439,000 or $1.74 per share for the quarter ended December 31, 2021, compared to a loss of $222,000 or $0.14 -- or negative $0.14 (sic) [negative $.07] per share in the same quarter last year.

Operating revenues for the quarter were $20,571,000, up $343,000 from the same quarter last year. This year's quarter was negatively impacted (inaudible) the planned downsizing of one customer due to freight prices, the continued reduction in driver count versus last year's first quarter due to turnover and the driver shortage, largely offset by improved transportation freight rates negotiated with our customers to offset higher pay -- driver pay, higher fuel cost and other cost increases and increased profit margin.

Our operating revenue per mile was up $0.63 or 20.1% due to an improved business mix and rate increases. Compensation and benefits increased $33,000, mainly due to the increased driver compensation package, mostly offset by lower driver count and a reduction in support staff.

Insurance and losses decreased $312,000, primarily from lower healthcare claims this quarter and the prior year first quarter, including 2 significant product mixes. Depreciation expense was down $268,000 in the quarter, as we continue to reduce our fleet size.

SG&A and corporate expense were higher due to a onetime transaction bonus for certain members of management -- of the management team, related to the Tampa property sale.

Gain on sale of land was $8,333,000 (sic) [$8,330,000] due to the sale of our terminal in Tampa, Florida, which we were pleased to get across the finish line after many years of effort.

Gain on the sale of equipment was $360,000 versus a loss of $86,000 last year. Operating profit this quarter, was $8,541,000, compared to an operating loss of $301,000 in the same quarter last year.

Excluding the sale of the Tampa terminal and the onetime transaction bonus, adjusted operating profit was $605,000, with an adjusted operating ratio of 97.1 this quarter, versus 101.5 the same quarter last year.

Now for our summary and outlook. During the first quarter, our driver count remained fairly flat and similar to the previous 2 quarters, following the large driver pay increase in April of 2021.

During this quarter, we announced additional driver pay increases in all of our markets, some of which went into effect this quarter, with the majority taking place in early February 2022.

These increases, added to last April's driver pay increase, account for a range of 21% to 31% in pay increases depending on the market, and all-new driver pay is up a minimum of 26%.

In addition, we have been successful adding rate increases to more than cover the cost of all the driver pay, most of which occurred last summer, with additional increases added throughout this first quarter and the remainder becoming effective in the second quarter.

Matt McNulty, our CFO, has also taken on the responsibility of COO, as our VP of Operations retired at the end of our first quarter. We have made other personnel moves that will not be replaced, and we will continue to utilize our best people and eliminate costs where we are able to do so.

We continue to focus on growing our Dry Bulk and Water Hauling, as there are opportunities in both of these segments. We hired our first 2 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 multiple trips to Washington, D.C. and continue to work with senior staff at DoL, DoT and DoD, along with the National Tank Truck Carriers Association on the driver shortage and long-term solution for us and the industry.

We will have to be creative in our recruiting efforts while keeping our focus on hiring and training the safest drivers available. The sale of the Tampa property in October generated $6.3 million of after-tax cash, and the dividend paid in November reduced our cash balance by $12.8 million.

Following these 2 events and a positive operating quarter, our balance sheet remained solid with $8.7 million of cash as of December 31, 2021. We began replacing tractors in the first quarter of this fiscal year. And while we are seeing some delays due to supply chain issues, we anticipate buying 30 replacement tractors and a handful of trailers, with capital expenditures of approximately $6 million, and depreciation, excluding lease right-of-use amortization, of approximately $6.5 million during the fiscal year.

Thank you again for your interest in our company, and we will be happy to entertain any questions.

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

Right. Rob and Matt and John. First, Rob, you sound like you're fighting a cold there or something.

I think, it's just a long day and a lot of travel recently.

All right. Make sure you take care of yourself. I mean, we like good returns, but don't like anybody getting sick trying to get there. So you know...

I appreciate that. Thank you.

Yes. Well, to do well, you've got to be well. So that's a priority, big time. I missed at the end of your prepared remarks, your comments on depreciation, going forward. Can you just restate that? And then I've got a number of questions after that.

Yes. We're projecting to be about $6.5 million, once you eliminate the right-of-use on amortization in our leases. On the depreciation.

Okay. Okay. Got it. And -- this is probably -- I'm sure any one of the 3 of you could answer, what were we last year -- and I can pull it up myself but you'll make it easier for me -- on depreciation?

John will take a look at that.

Okay. Second thing, the elimination of the COO position, so that's now 100% in Matt's purview. Basically, he's going to be doing those 2 jobs. Is that right?

Yes, sir.

Okay. That's terrific. And you couldn't wish for a better guy to do it. So well done on that. The driver count, you said, remained flat. It's 1 -- well, it's all of our favorite topics. Last we spoke, we were at 375. Is that where we are today?

Yes. Yes. Yes, pretty close to that. Yes. It changes every day. So we're [not sure but]...

Have you found that -- have you been losing folks due to just -- that they're out because of illness? Are we going to take a hit on that for this, for the quarter we're in? Or...

We have seen some short-term illnesses due to COVID, and it's market-by-market. We got hit pretty hard in 2 or 3 of our Central Georgia, Central Alabama markets for about a 10- to 14-day period.

And then what we -- we just had it in North Central Florida for about a week or 10 days here, with 5 drivers that went out. So we're just seeing it intermittently and not in huge numbers. But 1, 2, 3, 4 or 5 drivers a week.

Okay. All right. So that's, to a degree, manageable, and everybody is coming back well, it sounds like. So that's pretty good. You're taking the -- the pay increase, the majority of it, you mentioned, took effect here at the beginning of February.

And it was up roughly 20% or so. And then you also mentioned, of course we had the price increase last summer, but then another price increase now, roughly taking effect now.

And I'm curious, if you could give us -- or give us, give me, I don't know who else is on the call, but give me an idea of what sort of percentage-wise price increase we're seeing.

So generally, what I would tell you is that we were in the neighborhood, last year, of 6% to 9% and some a little north of that. It just depends on the piece of business and how long it had been. So let's just call it 9% on average there.

And then I would tell you that we've gone up at least another 6% recently. So on average it's somewhere in that 15% range.

Okay. That's good. So with the exception of -- you're going to do the math faster, I can try to work my way through it, but on that 6%, what hits the bottom line, minus the driver cost increase? A couple of points?

Goal was -- the goal there was to get -- and in most cases we did -- got numbers around 9% in that first swath. So if you needed 5.5% to 6% to cover the driver pay, then you pick up 3%, 3.5%, just depending on the number.

And then on the -- second round was a little less. So the second round, the majority of the pay increases that went in, were up about 5% on driver pay. We had a couple of terminals where we did some extra. So you have 5% and getting 6-plus percent rate increases, probably the driver pay would eat up about 1.75% of that 6%. The rest should be for other cost increases.

Which we are seeing, obviously, with inflation. So we are seeing other cost increases as well.

Got you. But some of that, hopefully, will find its way to the bottom.

Yes. Yes, that's the plan.

Yes, that should be the plan. I mean, the reason why I point it out is, there's almost no industry in the country today that -- I think every client is basically anticipating and accepting price increases.

So there's that interesting time where you can hit it. Of course in our industry here, it's well merited because the entire world knows about a driver shortage, but also, there may be some more room there. So that's quite good. All right, so you got that.

The other operating -- I mean your -- Matt's involuntarily volunteering to be COO and CFO, that's a cost savings. What other operating margin improvements are we targeting going forward?

Well, we've just eliminated a couple of other permanent field staffing jobs that were higher level, and took current personnel to fill those roles, so we saw a decline.

So just recently, you've got the combination of those 2 management jobs and the VP of Operations job, in addition to ones that we had already done, going into the fall.

And equipment still...

Yes, and we still have some equipment, not a lot. But a little more equipment than...

The first quarter we got -- we've downsized additional equipment, but we're pretty tight at this point and ready to kind of start replacing.

So on the staffing jobs and the like, are we looking at like, 200,000 a quarter would be a good number, you figure?

You mean on all the ones you just read? The 3 of those things?

Yes, exactly. Right. All those personnel things combined.

It's probably about 75,000 to 90,000 a quarter.

Just on those 3.

We've got some other smaller things going on in the background, we were able to, kind of, combine some positions and things, but those are the larger ones.

And I would tell you that a lot of that work was done during the end -- second half to end, and during COVID last year. And so when you start to compare year-over-year, quarter-over-quarter, you can see those differences in our personnel cost compared to the prior year.

Okay. Great. Okay. So John was going to come back to me with last year's depreciation.

$7 million, last year, on the depreciation.

$7.1 million.

$7.1 million. And the driver count today is excluding the guys -- including the guys that are out sick, are excluded from this number. So it's 366.

And I'm going to guess without having it right in front of me that there's -- I know that there's 5 or 6 that are out sick. So that gets you back up over 370 that are permanent employees at this point.

Got you. And -- where do we think -- you think you can add a few, this coming quarter? I mean you're doing all the right stuff, yes?

I am not a good prognosticator of driver numbers anymore. It's -- the world has changed, and it's really hard to tell.

We're doing everything that we can do, including the things that I mentioned, about doing the registered apprenticeship, working with DoL, DoT, DoD on ways that we can attract drivers to our company and to the industry.

And so it's just -- it's going to continue to be a battle for a while. I just don't see anything changing in the next 3, 6, 8, 10 months.

Okay. Got you. So still -- [that's 1 million there] I'm going to just try to do some back of the envelope -- so 2% [8, new count]. Basically, we're at -- like assuming even a static driver count, that you can hold the line, not add drivers, we probably are at an improved bottom line of almost $1 million for the year? And probably a little more.

And I'm getting that by taking out the depreciation, our depreciation savings, plus consolidating the bit of the -- putting in some of the margin improvement and the consolidated staffing. And that was very quickly done, so it's not artful.

Yes. We're going to kind of just -- we'll give you all the details you asked for. We never do projections. So I'm going to let you do the math on your side. And we've always steered away from looking forward on these kind of calls.

Okay. That's fine. And once again -- you guys are able to buy -- I saw, Rob, you bought some shares at the, I guess, during one of the windows. You've got what, about -- is it 2 weeks now where you personally can buy shares again?

I don't know, how long do I have? 2 weeks?

Yes, you've got more than that.

I think, I've got more than that. 6 weeks this time.

You've got a 6-week open window.

Okay. Okay. I'm not a prognosticator either, but good time for you guys to be buying some more shares. I don't know if you have any plans on that, but you're doing all the right stuff, and there's not that many windows, and you're in a down market. I would like management to be partners. So...

Absolutely. We are locked in as partners, I can assure you.

That part I know. But I actually like you to make more money, so -- you have the chance, there's no company you know better or have more of an impact on, and you're doing the right stuff.

All right, I'll pull back for now in case somebody else is on the phone with us, and let somebody else [pop in on the call]...

(Operator Instructions) Your next question is coming from [Adam Ritzer].

I promise, I won't have as many questions as the last caller. But I just had 2 things I wanted to ask you. In a better environment for you guys in the past, what has been a normalized operating ratio?

I would say, [Adam], we were shooting for and performing in the low to mid-90s. Let's call it 93, 94. And then, if we had a really good safety year, you would have numbers, we had numbers that crept into the high 80s at times. Those were exceptional years for us. So I would think, in this business, if you could get yourself back to -- the world's changed, right?

It's a little different now.

Right.

You're not going to see [89]...

If you could see a 95 operating, right -- I think we would feel like we're moving in the right direction.

Okay. That makes sense. And I also -- I noticed that there's a decent amount of additional diluted shares in the share count. Roughly, I don't know, 300,000. Is that stock grants? Is it potential options outstanding? Can you just give me a little color on what that is?

So what happened was that our -- the outstanding stock option grants were not included in the diluted count during the times when we were not profitable. And so with the return of profits, they're being fully counted again.

Okay. So if there's a quarter where you're not profitable, you won't see that. But this quarter, it shows up?

Yes, it is. It's on a rolling average fiscal year basis. So we had some quarters last year where we weren't making money, and that contributed to a lesser share count for the entire year.

Got it. And what would you say is roughly the average exercise price on those?

I've got that right here. So that's in our annual report, stock footnote. It would be $12.10.

Okay. So I hope you guys make a lot of money on that, let me tell you. Okay. That's all I had. I appreciate your taking my call. Best of luck.

(Operator Instructions) There are no further questions in the queue. I will now hand the conference back to our host for closing remarks. Please go ahead.

Thank you. And we appreciate your interest in Patriot Transportation and look forward to talking with you next quarter. Have a good day.

Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.