Patriot Transportation Holding Inc (PATI) 2021 Q2 法說會逐字稿

Greetings. Welcome to the Patriot Transportation Holding, Inc. earnings call for second quarter. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to your host, Rob Sandlin, CEO of Patriot Transportation. Thank you. 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.

The second quarter results. Today, the company reported second quarter net income of $484,000 or $0.14 per share compared to a net loss of $401,000 or a negative $0.12 per share in last year's second quarter. Total revenues were $19.728 million, a decrease of $3.799 million from the same quarter last year, primarily due to the downsizing of 1 large customer and the closing of our Wilmington, North Carolina terminal in April of 2020. The remaining revenue decline is attributable to a lower driver count.

Our transportation revenue per mile increased by $0.13 or 4.5% versus last year's same quarter due to rate increases and eliminating lower-rated business. Fuel surcharge revenue was down $1.199 million.

Compensation and benefits decreased $1.694 million, mainly due to lower company miles, less minimum driver pay expense and reductions in our non-driver staff. SG&A expense was lower by $468,000 due to permanent cost reductions. Depreciation expense decreased by $168,000 on lower miles as we continue to rightsize the fleet.

Insurance and losses decreased $626,000 due to lower health care claims. The gain on sale of land this quarter was $1.431 million due to the sale of our former terminal site in Pensacola, Florida.

Repair and tire expense decreased due to the lower miles, and the loss on disposition of assets was $113,000 due to a rollover accident. The rollover accident negatively impacted the quarter by $466,500 through a combination of insurance loss expense and the loss on disposition of assets. Going forward, we do not anticipate any further material expense from this accident.

As a result, operating profit for the quarter was $671,000 compared to an operating loss of $588,000 in last year's first quarter with an operating ratio of 96.6 compared to 102.5 during last year's quarter.

Now to talk about the first 6 months results. We reported net income of $262,000 or $0.08 per share compared to the net loss of $865,000 or $0.26 per share in the same period last year. The net income for the first 6 months included $1.037 million or $0.31 per share from gains on real estate sales net of income taxes.

Total revenue for the period was $39.956 million, down $8.38 million from the same period last year, resulting from the downsizing of a large account and the closing of our Wilmington, North Carolina terminal. The remaining revenue decline can be attributed to a lower driver count and the impacts of COVID-19.

Revenue miles were down 2.927 million miles or 19% over the same period, and transportation revenue per mile was up $0.14 or 4.9% due to our improved business mix and rate increases. Compensation and benefits decreased $3.641 million, mainly due -- mainly because of lower company miles, the elimination of minimum driver pay expense and reductions in other staff. Repairs and tire expense decreased due to lower miles this quarter.

Insurance and losses decreased $1.273 million, primarily due to lower health care claims and workers' compensation expense, somewhat offset by the previously mentioned single tractor rollover accident.

Depreciation expense was down $373,000 as we continue to rightsize the fleet. And SG&A was down $813,000, resulting from permanent cost reductions, I mentioned earlier, the gain on sale from our sale from our former site in Pensacola and the negative impact of the rollover accident.

As a result, operating income was $370,000 compared to an operating loss of $1.312 million in the same period last year. Excluding the gain on sale of land and the negative impact of the rollover accident, operating loss was $594,000.

Now for the summary and outlook. During 2020 and early 2021, we downsized certain customers, resulting in lower revenue for the first 6 months of fiscal 2021, with additional decreased revenue due to COVID related to business declines and a shortage of drivers. The driver shortage and related hiring and turnover challenge worsened during the second quarter of this year, negatively impacting our ability to meet customer demand as petroleum volumes increased in mid-February and March to near pre-COVID levels in most of our markets.

In a recent meeting with the National Tank Truck Carriers Executive Committee and Federal Motor Carrier Safety Administration, representatives discussed the driver shortage there and was consensus -- and there was a consensus among most carriers that there's a 20% shortage of bulk tanker drivers in the U.S. 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 to our driver pay across the board in late April. The increased pay is designed to retain and attract drivers, so that we can adequately satisfy the business demand of our customers and, thus far, has been very well received by our current drivers.

The impact of the increased driver pay to hiring new drivers and attracting some of our previous drivers will not be known for a while, but we are certainly recruiting both groups. Management has contacted all of the company's customers to communicate the increased cost relative to the driver pay increase, and the appropriate increase in price to cover the cost will also be stressed, also stressing the need to improve our profitability with longer-term contracts.

As I mentioned earlier, and as many of you have seen in recent news reports about the driver shortage for fuel holders, there is a concern about the ability to meet fuel demand this summer. Without an increase in driver capacity, the entire industry will struggle to meet demand. Management is working hard to meet this challenge head-on by increasing our driver pay and partnering with those customers and understand the market demand, the associated cost and the need for carriers to make a reasonable profit. We are focused on forming longer-term strategic partnerships that allow us to meet customer demand while improving our return on investment.

Our balance sheet remains solid with $9.4 million of cash as of March 31, 2021, 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 in a free-look inspection period with an outside closing date of September 19, 2021, at a sales price of $9.5 million.

Finally, we are currently managing through the Colonial Pipeline cyberattack impact in many of our markets. We are experiencing widespread petroleum product shortages and some outages from the loading facilities. But has in many of these events, when product runs out in 1 market -- 1 of our markets, our drivers are diverted to another, and we continue to generate revenue. The pipeline announced yesterday afternoon that they were starting service, and I have confirmed with our operations -- on our operations calls that some loading terminals in Georgia received product overnight. This is welcome news.

We will be working to build inventories back for our customers over the next week or so, depending on how long it takes to resupply all of the petroleum distribution network.

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

(Operator Instructions) Our first question is from John Deysher of Pinnacle Capital Management.

I was just curious on the increase in compensation for the drivers. How much higher, say, on a percentage term, will that be going forward? And how receptive are the customers to that increase? In other words, how much of that increase do you think you're going to get back in terms of pricing?

So the driver pay increase was in excess of 15% across the board for our drivers in various methods. And I would say our customers at this point have been very receptive to pay for all of it.

To pay for all of it?

Yes, sir.

No pushback?

No pushback.

All right. Well, I hope that holds true.

We do, too.

Our next question is from Jason Ursaner of Bumbershoot Holdings.

Just wondering, with everything going on in the Colonial Pipeline, how much of your business comes from, I guess, terminals that are connected to that pipeline in some way? And just in the short term, what's it doing to demand?

Well, demand -- Jason, thanks for the question. Demand went crazy. As you know, it's almost like a hurricane situation, panic buying ensued, not only in Georgia, Tennessee, Alabama but all the way down to Miami, Fort Lauderdale on both sides of the Coast of Florida, which are not even supplied by the pipeline. We had stations we were monitoring that we're running 150%, 200-plus percent of their normal capacity.

And I think what everybody found out in real short order that the thing that we've all been talking about is true. There's a driver capacity problem on the bulk fuel hauling side of the business. And until we can start to attract more drivers when you see any spike in fuel activity, which is what we're concerned about for this summer, there are going to be challenges in managing the market.

As you get up into Georgia, Tennessee, Alabama, we were certainly impacted in all of those markets. You start to get impacted on a minor scale early on, and then it just kind of ramps up. And I would say, over the last 24 to 48 hours, outages for our customers were fairly rampant. It doesn't mean they were out all day, but they were certainly out for long periods of time. I mean you all -- you've seen the lines on television. It's just not possible to keep up.

We are encouraged that we know that the loading terminals are already receiving product overnight, some of them. And so there's going to be probably about a week to 10 days that it takes to build for us on the trucking side to build the inventories back up in these stations, so that we're not getting back to just-in-time deliveries. Hopefully, I answered your whole question. I'm not sure.

Yes. I will just add to that. As far as impacted from not running to running, we really didn't ever stop running our driver. So it was just that maybe they were going to different locations to pick up fuel or maybe they were slightly down. We had some work that we couldn't do because this one rolls out, but it was very, very minimal on a financial impact.

I guess I was asking short term if there was like a benefit, I guess, from a lot of excess demand where you're trying to get product. But then longer term, is there also any -- obviously, you talked a lot about the driver shortage. As you start to get into the summer or just longer term, does this change maybe how people think about like trying to make sure you have a pretty quality-assured supply on the trucking side rather than maybe just trying to go after the lowest price from your...

I think everybody understands that with the increase of volumes back to pre-COVID levels or even close to that and knowing that there's been a -- there's a 20% gap in the number of drivers that are available to all of those products, I think everybody understands that we've all got our work cut out for us and our customers need to partner with folks that are going to be able to supply their needs. And we've got that same concern because, obviously, we have customers that we've dealt with for a long time, and we want to be able to take care of their delivery needs. And so there are some markets where that's been very difficult, and we've had to make some tough decisions on customers that we aren't going to be able to serve.

Yes. So the -- I mean, the add-on to that is they already knew before the pipeline. It was already well established that, that was -- there was a major problem before the pipeline that just exacerbated...

Yes. I would just call that a short-term event. I think the bigger event is the overall trucking capacity and the ability. I think everybody is concerned about the ability to service the need over just what will be a busy summer.

Right.

Our next question is from John Koller of Oppenheimer.

It's Oppenheimer + Close. So just a quick question. If the driver shortage is so persistent, I mean, I understand everybody's got the same problem. But do you have the opportunity to rationalize the customer base to fit the -- your supply? Or have you pretty much done that already, and at this point, the relationships are just too broad and too big?

No. We've done some of that already, John. I think this is kind of new, really, coming out of late February, March. And we were in the process of doing those things and having conversations with our customers and really looking at each market, the customer base in each market and making those decisions on whether we felt like we were going to be able to handle the current customer base or not. And I think this -- we've had this little disruption called the Colonial Pipeline thing in the last week. And so we're in tune to that, and we're jumping back into that now, trying to see coming off of the driver pay increase and the rate increases, where do we stand, and what do we think the summer is going to hold.

Okay. Great. And then just a quick question on the fiscal year '22 CapEx spend. Is $2 million to $3 million a reasonable number to expect? Or is that...

No, it will be -- most likely, unless there's some dramatic continued decrease in our driver count. Let's just assume we stay pretty stable, it will probably be about twice that.

(Operator Instructions) There are no more questions at this time. We have reached the end of the question-and-answer session. I will now turn the call back over to Rob Sandlin for closing remarks.

Thank you, all, and thank you again for your interest in our company, and we'll be happy to talk with you next quarter.

Thank you.

Bye.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a great day.