Patriot Transportation Holding Inc (PATI) 2021 Q3 法說會逐字稿

Greetings, and welcome to Patriot Transportation Holdings, Inc. Earnings Call for the Third Quarter. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn this conference over to your host, Mr. Rob Sandlin, President and CEO of Patriot Transportation. Thank you, sir. You may begin.

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 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 third quarter net income of $323,000 or $0.09 per share compared to $573,000 or $0.17 per share in last year's third quarter. Total revenues were $20.855 million, an increase of $1.844 million from the same quarter last year, primarily due to a revenue decline in last year's quarter related to COVID, while this year was negatively impacted by the downsizing of one large customer beginning in February of 2020.

Our transportation revenue per mile increased to $0.27 or 9.2% versus last year's same quarter due to rate increases associated with our driver pay increase and eliminating lower-rated business. Compensation and benefits increased $625,000, mainly due to our driver pay increase, offset by $233,000 reduction in support wages.

SG&A expense was higher by $445,000 due to the increased travel, a onetime gain related to Danfair from last year's quarter and the timing of forfeitures used for the company's match in our 401(k) plan. Depreciation expense decreased by $153,000 as we continue to rightsize the fleet. Insurance and losses increased to $346,000 due to higher health care claims, as claims were lower in last year's quarter due to COVID.

The gain on sale of the terminal site in Chattanooga this quarter was $183,000 due to the sale and partial leaseback. As a result, operating profit for the quarter was $452,000 compared to $794,000 in last year's first quarter, with an operating ratio of 97.8% compared to 95.8% during last year's quarter.

For the first 9 months results, we reported net income of $585,000 or $0.17 per share compared to a net loss of $292,000 or a negative $0.09 per share in the same period last year. The net income for the first 9 months included $1.170 million or $0.34 per share from gains on real estate sales, net of income taxes.

Total revenue for the period was $60,811,000, down $6,536,000 from the same period last year, resulting from approximately $4,300,000 from downsizing of a large account and a reduction of drivers related to the driver shortage.

Revenue miles were down 3,230,000 miles or 15% over the same period, and transportation revenue per mile was up $0.18 or 6.2% due to our improved business mix and rate increases. Compensation and benefits decreased $3,016,000, mainly because of lower company miles, the elimination of minimum driver pay expense and reductions in other non-driver staff.

Repairs and tire expense decreased due to lower miles this quarter. Insurance and losses decreased $927,000, primarily due to lower healthcare claims, partially offset by a single tractor rollover accident. Depreciation expense was down $526,000 as we continue to rightsize the fleet. And SG&A was down $368,000, resulting from permanent cost reductions.

Gain on sale of land was $1,614,000 due to the sale of our former terminal location in Pensacola, Florida, and the sale and leaseback of our terminal in Chattanooga, Tennessee. As a result, operating income was $822,000 compared to an operating loss of $518,000 in the same period last year. Excluding the gain on sale of terminal sites and the negative impact of the rollover accident, the operating loss was $325,000. Operating ratio for the 9 months was 98.6% versus 100.8% during the same period last year.

Now onto the summary and outlook. During 2020 and early 2021, we downsized certain customers, resulting in lower revenue the first 9 months of fiscal 2021, with additional decreased revenue early in this year due to COVID-related business declines, and as volume increased, a shortage of drivers. The driver shortage and related hiring and turnover challenges worsened during the second quarter and early part of the third quarter of this year, negatively impacting our ability to meet customer demand as petroleum volumes increased to near pre-COVID levels in most of our markets.

It is safe to say that the national driver shortage has impacted carriers of all types and that the consensus among few haulers is that there is a 15% to 20% shortage of bulk tanker drivers. The impact of this shortage has been filled across all markets we serve as demand increased and highlighted -- as was highlighted by the shortage of capacity during the Colonial Pipeline hack and the subsequent demand of fuel -- the demand on fuel in the Southeastern United States.

Along with our friends in the industry, National Tank Truck Carriers and the American Trucking Association, we continue to have discussions with the Department of Transportation, the Department of Labor, Federal Motor Carrier Safety and others to discuss the driver shortage and to develop solutions. After careful consideration of all the challenges around the driver shortage, including an increase of private fleets competing for our drivers, management implemented a material increase in our driver pay across the board in late April.

The results have been a reduction in the number of voluntary terminations and an improvement in driver turnover, but we are still experiencing turnover and have yet to see a dramatic increase in driver applicants leading to revenue-producing drivers. Another way to say this is as the driver force has stabilized in numbers, we have seen a slight increase in applicants recently and we are hopeful to see revenue-producing driver count increase in the coming months.

In response to the driver pay increase, management met up with each customer and outlined the need for price increases to cover the cost and add margin to our business. With one small exception, we negotiated and implemented the price adjustments quickly to cover the added cost, and we continue to add additional price adjustments, which will filter in over the summer months.

We are focused on forming long-term strategic partnerships that allow us to meet customer demand while improving our return on investment. Unfortunately, in some markets, we have been unable to meet demand and have had to reduce business and partner with those customers that fit our longer-range goals.

Our balance sheet remains solid with $10.6 million of cash and no outstanding debt. We will not purchase replacement tractors or trailers for the remainder of this fiscal year, but do anticipate a return to a more normal capital replacement schedule during fiscal 2022. Finally, the Tampa property remains under contract and in a free look inspection period with an outside closing date of September 19, 2021, at a sales price of $9.5 million.

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

(Operator Instructions) Our first question comes from the line of John Koller with Oppenheimer.

I've got a couple of questions, if that's okay?

Absolutely.

First is the need for capital beyond fiscal year '22, is it fair to assume that it should resume that $6 million run rate? You don't see any big purchases beyond that or is it just too early to tell at this point?

I think that's a fair assumption.

That's -- yes.

Okay. Okay. Great. And then looking at sequentially, I noticed that revenue miles were down about 100,000 or so, and there was improvement, obviously, in revenue per mile. And with driver loss somewhat stabilizing at this point, if you are able to -- it seems like we're on the cusp, anyway, of turning the corner and it looks to me like the big if is, again, being able to increase drivers or even just to keep them flat. Is that really where we're at? And...

I would say keeping drivers flat right this minute coming off of the driver pay increase and just seeing the lack of applicant flow that we -- compared to October of 2019, I'll tell you, we've seen about a 2/3 reduction in viable driver applicants that actually get to our recruiters desks. And that's maybe to about half now. So we've been as low as 2/3 and we're maybe at about 1/2, and just -- and you don't hire anywhere near all of those people. And so we really need that number to keep going up in order to get more drivers in to turn them into revenue-producing drivers. So I would say we still have a ways to go on that.

Okay. I guess that sort of begs the question then how long do you let it sort of work its way through before you take the next step? Are you willing to be patient or you want to be more aggressive, I guess?

No. I think we're -- we just put that pay increase in late April, early May. And we'll go back again. I mean we'll do what we need to do. We're looking at it specifically market by market, wholesale across the board. It's something we spend time on each and every day. So we're looking at every option that we have out there. But it's a little bit of that race to the top, right, and where is the top. And so we've got to figure all that out. But we're continuing to monitor that, and we're not going to sit by and get -- and make a mistake waiting too long.

Okay. Well, I applaud the efforts. Everything is doing as well as it can, and I think you're doing a really fine job dealing with the circumstances that are really difficult.

Great. Thank you.

Thank you.

Thanks for the questions.

Our next question comes from the line of [Steve Rudd with Blackwell].

First, I echo job extremely well done and you guys are spot on with your approach and sensibility. How many drivers, the exact driver count, right now?

[Do you have it?]

We've got 300 -- before the day started, we had 364 with -- I want to say there's about 18 to 20 in training, and we've got a number of orientation scheduled, but a lot of those orientations don't turn into actual jobs. Yes, 364 counts in [our operators].

Okay. So we're down even from June. So we're -- I get it with the 18 to 20 in training, we're almost at flat, assuming someone doesn't, about to say, fall off the truck. But you know what I'm saying, right?

Yes, we kind -- yes, we have kind of seen it flatten out since the pay increase went in. You still had -- we had, I would say, the first 2 weeks of the driver pay increase, we had some guys leave that have pretty much already made up their mind for other reasons. But we've seen it drop off since then. We've just got to get enough applicant flow going to be able to get enough people in training to outpace the drivers that are either leaving voluntarily or we have to let go for safety reasons or one thing or another.

So you -- yes, yes, sorry.

And it was -- I was going to say the 9 months before the pay increase, our average monthly driver decline was about 10. And since the pay increase, the average decline has been about 4, different in each month, but that's kind of where we are.

Okay. And you answered the prior question by saying you're monitoring this basically on a daily basis. So if you thought there's a benefit to raising pay on Monday, you would raise pay on Monday in whichever market that you think is best. I mean, you're literally going to act that quickly is that the idea?

Yes, I would say so. I mean we're looking at one particular market right now and one in a -- one of our smaller lines of business. So, yes.

Okay. The next thing I wanted to point out, we've got $10 million on the balance sheet. We've got another approximately $10 million coming, and that gets us $20 million in cash, and more or less no debt depending on how you look at things. But let's call it debt free. And we need about $6 million for -- at most for CapEx next year. We have a -- currently, we -- in the last dividend that we did, we looked to Washington and we pulled the trigger because of a forethought that the administration would change.

There is now a budget reconciliation process going forward. And as you guys know, and probably your Board is aware of this, too, you only need 50 senators for a tax increase or anything to do with the budget. And those -- the effective date of those -- let's look at the tax increase side, and obviously, I'm focusing on dividend, the effective date of that can be any date they largely pull out. But typically, it's -- the date is either brought to committee or reported out of committee. They may backdate it to the beginning of the year, but that's somewhat unusual. Or they typically do it on the data that's brought to the committee because at that point, in theory, we've all had noticed that this serious and might happen or reported out.

So given that, that is looming and the triggers are there, doesn't it make sense for the Board to declare and pay out some of that additional capital, particularly given our very strong cash flows coming in and our clearly excess amount of capital over foreseeable need?

So I think to answer that in short. The first thing I want to say is after the Tampa sale and paying taxes and fees and all that, that's probably going to net us something closer to -- somewhere between $6 million and $6.5 million of cash left. So that's kind of where we'll be with what's in the bank. And I really -- the only way I can really answer the dividend question is that we don't really know at this point what that bill and what the future and the tax. And I haven't heard a whole lot of people throwing the dividend tax into the discussions, it's been more on the capital gains.

But since the last dividend, we haven't really had any specific discussions about dividend, most likely because we haven't closed on the sale of Tampa. So I think those discussions will have to occur once we know we have the cash in the bank and kind of do a planning for the future and see, just let the board decide what they want to do.

So almost like admitting alcoholism, I'll confess that decades ago, I worked in Washington, D.C. And I'm not admitting alcoholism, but you get the idea, right? It's a black mark, let's call it.

We're sure.

Yes. Thanks for sharing. And high speed, right? We get together another day. So anyway, from a marketing point of view, from a political marketing point of view, more or less, ordinary folks think of dividends is something that they get, and capital gains they think as something rich folks get. So if you're in the -- and you've seen the 2 of them tied. The tax rate has, I won't say traditionally, but more in recent history, tax rate on capital gains linked to tax rate on dividends. But if you're selling it as a Democrat, you would talk about capital gains. You wouldn't say, "'And we're going to raise the dividends, too," because that feels more like grandma cutting coupons or grandpa cutting coupons. So don't be misled by that, I think they both go -- will go hand in hand.

So if you could alert that, I don't know if the Board listens to these calls or not, and I know it's their call, but very plainly. And we are getting the money. And by the way, if they fall out of bed in Tampa, the real estate prices have recovered, it's a different world. So they really should focus on it, because we don't want to be caught behind the 8 ball on that.

Yes. If they're not all listening, we share the comments that are made. So we'll certainly pass that along.

Yes. And apart passing along is, honestly, it is something that they're not going to talk about in advance because that's not how you sell it. It's the other piece of medicine that goes with it and the date is usually committee or reported out. It could be full, it could be earlier, but usually not. I don't have anything to add, except gratitude. I know you're working hard and you do a lot of clever stuff, and I'm just enormously grateful for it.

Thank you.

Great. Thank you. I appreciate the information.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Rob Sandlin for closing remarks.

Great. Thank you. We appreciate all of you being on the call and appreciate your interest in Patriot Transportation. Look forward to talking with you again next quarter.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.