Patriot Transportation Holding Inc (PATI) 2021 Q1 法說會逐字稿

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

I would now like to turn the conference over to your host, CEO and President, Rob Sandlin.

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.

For our first quarter results, today, the company reported a first quarter net loss of $222,000 or a negative $0.07 per share compared to a net loss of $464,000 or $0.14 -- or a loss of $0.14 per share in last year's quarter.

Total revenues were $20,228,000, a decrease of $4,581,000 from the same quarter last year primarily due to the downsizing of 2 large customers and the closing of our Wilmington, North Carolina terminal. The remaining revenue decline is attributable to the negative impacts of COVID-19 on petroleum demand and the lower driver count.

Our transportation revenue increased by $0.14 per mile or 4.9% versus last year's same quarter due to rate increases and eliminating lower-rated business. Fuel surcharge revenue was down $1,199,000.

Compensation and benefits decreased $1,947,000 mainly due to lower company miles, less minimum pay expense and reduction of nondriver staff. Depreciation expense decreased by $205,000 as we continue to rightsize the fleet.

Insurance and losses decreased $647,000 due to lower health claims -- health care claims, and repair and tire expense decreased due to lower miles. The loss of disposition of assets was $93,000 due to a nonpreventable accident of a newer model tractor. SG&A was $345,000 lower due to management's decision to lower certain costs. As a result, operating loss for the quarter was $301,000 -- negative $301,000 compared to an operating loss of $724,000 in last year's first quarter, with an operating ratio of 101.5 compared to 102.9 during last year's quarter.

For summary and outlook, during 2020, we downsized certain customers, resulting in lower revenue this first quarter with additional decreased revenue due to COVID-related business declines and a shortage of drivers in some markets. The driver shortage and related hiring and turnover challenge continues to be a problem for us in the trucking industry as a whole. Management made some adjustments to our new hire driving -- driver pay during the quarter and have seen some improvements in January, but it's too soon to tell if that will last.

We have also seen one major convenience store company begin to add a private fleet in some of our markets, which is impacting driver availability in those markets, thus putting a strain on our ability to grow our revenue and increasing the cost of hiring and training. We continue making changes to our business by eliminating lower-rated freight and reducing overhead. Our intention is to continue to push rates higher to offset the rising cost of driver hiring and retention and auto liability and insurance premiums and to partner with those customers that understand the difficulty the market presents at this time.

The COVID-19 pandemic continues to challenge us due to lower volume and an increase in the number of employees that have tested positive, thus decreasing our ability to meet demand at certain times. During last fiscal year, we made a number of permanent layoffs of hourly and salaried staff, and we eliminated all of our driver pay minimums. And we continue to review our operating costs for additional opportunities to lower expenses.

During January 2021, we sold a group of tractors and trailers that will further reduce depreciation expense and maintenance. Fortunately, we have 0 debt on our balance sheet on all of our tractors and trailers, except for 30 lease tractors and have over $7 million of cash. We do not have plans to purchase any replacement equipment until the last quarter of 2021, and we anticipate our capital expenditures for fiscal 2021 will be approximately $3 million.

Looking ahead, we are fortunate to be in a strong position to continue to operate our business, and we'll focus revenue growth on accounts willing to pay a price that allows for a reasonable return on investment and longer-term partnership.

The water business that we mentioned last quarter started producing revenue in December, approximately $80,000, and we are working through some start-up issues and expect to have a strong year of demand from this new business opportunity. We are focusing on growing our dry bulk business by leveraging our relationships in markets where we can add capacity to current petroleum terminals. But again, the challenge is adding driver capacity.

Finally, I will say the same thing that I said last quarter. I've been pleased with the response of our management team and our employees. Our management team has taken necessary steps to meet the safety guidelines established by the CDC for our employees. Our drivers, while essential to the U.S. economy, have taken an earnings hit during this crisis, yet they have reacted positively for the most part. I appreciate their dedication to providing the transportation needs for all of us and for their loyalty to Patriot. I am fortunate to be part of such a great group of people.

Thank you again for your interest in our company, and I'll be happy to entertain any questions.

(Operator Instructions) And our first question comes from [Steve Rudd] with Black Wolf.

Sure. First of all, well done in managing multiple crises. It's really quite impressive. I have a few questions. I'll try to run through all of them. The first is in a rising fuel cost environment, do you tend to have a better margin on your fuel surcharges as opposed to a declining in fuel cost environment?

So the way it works is on its way up, as it's moving upwards, our fuel surcharges lag, so it actually hurts us to some degree. And then the opposite on the way down. So as the price drops, we're getting a little more fuel surcharge until they get adjusted, until the price essentially settles out, and then it kind of just washes itself out on the other side.

Steven, I think -- this is Rob. I think the answer to the other part of that, there really isn't much, if any, margin benefit. It just really depends on whether it's a real short haul or a long haul, and I think all that washes out in the end. And over time, those things will become pretty neutral.

Yes. It's more of a timing thing than anything.

Yes. Okay. We all wash our in the long run, by the way. So my second question is your properties, when you look at folks in your type of business, they're part asset to a degree and also part liability because of the environmental issue -- issues.

And if you had to dispose of your properties, I'm not talking about the tractors and the like, I'm talking about the plant in effect, if you had to dispose them, do you at least get booked? I mean, that's -- I'm kind of trying to gauge what our asset value is here.

Yes. I mean, I think -- I mean, it's -- we -- I think the easiest way to answer that question would be to say, for sure, we would be able to get book value -- over book value on sale of all of our properties because we don't have a lot on the books for the properties.

All right. Now when working on disclosing excess fleet, which will take down our depreciation, let me start with my analysis in a broad brush of the current business you're in, and you're doing a good job of transitioning to carrying other products.

If we look at the carrying fuel to your customers, theoretically, that business has a sunset to it as clean energy comes on board, and maybe it's a 30-year sunset or maybe it's 50. So what I wonder is you've got depreciation running, even if you adjust it down to roughly $6 million, your CapEx is about $3 million.

By the way, I'll just pause. Is that about right for 2021? I know you gave the CapEx number. We don't know exactly what it is, but...

It's close enough.

All right. Okay. So is the thought process going forward to generate the cash and then at the end of the year see where you are and dividend out what you can dividend out, like we did this year?

I would say, on the first part of your question to -- hold on a second. I would say on the first part of your question, yes. I mean, our plan is to run the business this year and, again, try to make improvements to the operating profit and make money.

As far as the cash, at this point, we don't have any current plans with respect to any more cash. We're basically in the year where we end, and we'll probably revisit it at that time would be my thought.

Now I think as far as the sunset to fuel, I agree with you that I think that's pretty far out in time, and we continue to see those convenience store companies building and growing. And I think we've got a little longer tail. But certainly, that is something that we're thinking about and what do we do and what's our strategy on other products as we go forward.

Right. Yes. No, I think you're planning it well. And by the way, the sunset itself is a barrier to competition because we'd want to enter with the sunset. So your pricing may actually be as one of the -- if in 20 years from now, you're the last -- or one of the last few standing, your actual margins may not be that bad at that point.

It's just what we do with the cash and returning it to shareholders is always favored, at least, to many of the shareholders, a favored event. All right. That's all I got in. I may revisit with you guys a little bit after I read some more about the company, but I appreciate it.

Our next question is from John Deysher with Pinnacle.

I was just curious. You're managing the business responsibly in a tough market, but I'm a bit concerned with the comment on the convenience store operator, who is migrating to a private fleet.

Who is that convenience store operator? Are they a customer of yours? And why would they think about developing a captive fleet going forward?

Yes. I don't really -- I have no idea why they would be going to a private fleet. I can't -- I don't -- we don't...

It's hard to say what we think it...

It's our first question. In this market, we don't understand it. So I don't know if I should say who it is or not, so I probably shouldn't. But it kind of surprises us, but it's been done before.

And listen, oil companies over the -- when I started in this business 36 years ago, most of the oil companies hold their own freight, and then the carriers did dedicated work behind them and overflow. So I would say that's been a cycle over time.

And you sometimes just get a company that likes -- you may get new management in place, and then that's the business they want to be in. But that is a huge capital investment for a large convenience store company to go out and gear up for with all new equipment to get into that business.

Okay. I mean, it's a business of scale, so it sounds like it's one of the nationwide operators or certainly at least a strong regional player.

I would probably say global.

Global.

It's a very large -- yes, it's a very large company.

Okay. And do you know if they're trying this out nationwide? Or are they just...

I don't know what their strategy is because they haven't shared that with us, but it's on a pretty large scale.

Yes. It's fairly widespread.

Okay. And in their market, so it's pressuring you in terms of hiring or recruiting drivers. Okay. Got it.

Could you share with us the water business and the dry bulk business? I haven't seen a lot in print from you all, but what are each of those businesses? And why are you entering them? How does it work for you?

So the water is something new, and the way we think about this going forward is if we can enter a segment of, let's call it, a tank truck business of some sort, whether that's chemical, dry bulk, food grade, water, whatever the case may be, and we can do that within our footprint where we have people in place and facilities in place, and we can add that revenue and volume, we feel pretty comfortable about that, whether it's a food-grade water or whether it's cement or lime products that we've hauled for a long time.

We've always had a small segment of our business, which -- within the dry bulk world. And as you know, depending on the building economy, that business can be either really good or it can be marginal. And we think that for the foreseeable future, with infrastructure spending, maybe some pent-up demand coming out of COVID that, that business is going to be pretty good.

We see the backlog of loads that don't get covered with our current customer base, some of that being driven by the driver shortage and some of that being driven by their demand all of a sudden kicking up coming out of COVID a little bit more and maybe some jobs that have been delayed. But we think that it's an opportunity for us to add those types of businesses at the terminals that we already own and where we have dispatchers and personnel in place and really do it without adding any overhead.

Do you have dry bulk customers in place right now that you're serving?

Yes.

Yes.

Yes.

You do. Okay. Is it significant in terms of revenue?

I think we -- what do we say that our dry bulk business is -- I mean, our petroleum is roughly 80...

88.

88% of what we do. And of that other 12%, dry bulk is the largest percentage of that. I'd say it's 80% of that remaining 12%. So we've always had a nice book of business, and we can grow, which is what we're doing right now.

It's limited by the number of drivers we can hire. It's a challenge, but we've done some of that already. And we can just expand with the customer base that we already know, and then we start to call on the customers that we are not doing business with or potential customers and grow it that way.

Okay. So this is a new focus for you in terms of growing the dry bulk business.

Yes, sir.

Okay. Do you need separate tractors and trailers to service the dry book versus the gasoline?

You do not need separate tractors. You just need a different -- you need a -- it's an offloading system, call it a blower that you put on there, but you do need a pneumatic dry bulk trailer.

We do have some of those in our asset base right now that would allow us some growth, and they are pretty inexpensive to acquire because you can also haul fracking sand with those trailers, and that business is down considerably. And probably, if our new administration has anything to do with it, it will be down considerably for the next -- for however many years. And so they're pretty readily available out there at a good price.

Okay. And the water business, what is that business exactly?

That is just hauling business from a wellhead to a bottling plant, and that's just a growing business. And we were given an opportunity to quote on 2 -- well, several pieces of that business, but we were actually awarded 2 of those, which gave us an introduction to this nationwide company to start hauling product for them, and it just -- it fits.

It's the same model. We were able to do that at 2 of our existing locations, and we're not going to have to add any overhead or personnel to manage that business. We do it with the folks that are in place.

Yes. The only thing we had to do was buy the trailers because they're totally different trailers, food grade trailers. But we did that last year and got the business going in late November, and it was going pretty well in December. And we're just continuing to try to expand that hauling because it's a good expansion opportunity for us.

Okay. So same network, same driver requirements.

Our requirements are literally -- driver requirements are a little easier because it's just nonhazardous water. So we could haul driver similar to the dry bulk business. They're not going to require nearly as much training as what a petroleum driver would.

Okay. Good. What do you think that business could ramp up to in terms of revenues?

Yes. We're just really learning that market, so I'd be hesitant to say right now. But we -- for this book of business we bought -- we put on it -- we put -- we bought 7 trailers to put to work on this business.

So we're going to see if we can't -- if we like the business, which we're just getting started, so I can't pass judgment on it just yet. But we -- it'd be something we would try to expand if we do.

Okay. And does the same sales force handle all 3 lines?

Yes.

And our next and final question is from Jason Ursaner with Bumbershoot Holdings.

Just wanted to follow up on the first question in terms of the properties and the book value. Are there any that might be significant in terms of a different alternative use relative to what you guys are using in terms of book? And then kind of with that, is there any update on the Tampa property, which I'm assuming kind of would fit that bill?

Yes. We've got a couple of properties that -- I'd say the answer to most of them is no. Most of our terminal properties are small, and they're built for what we are using them for. So there's not a huge amount of value there, and they're older.

Jacksonville comes to mind. We have quite a bit of land in Jacksonville that would have some value because it's near the port, but that's really about it. Other than the ones you already know about, Tampa, the excess piece in Pensacola, most of them are not a reuse-type thing like Tampa. We don't have any other Tampas.

Tampa update is we are still in kind of constant negotiations on the property with a handful of potential buyers, but nothing solid right now. But we do plan to close on Pensacola property on the 15th of February is the scheduled closing date.

Okay. And just what is kind of the next -- I guess, what are the next steps on Tampa as you look out over the next...

I mean, our real goal is to get it under contract pretty quickly. And obviously, our goal would be to get a contract that has a shorter closing period. So that's really what we're focused on.

We're just going back and forth with a couple of different types of buyers. And so they each have their own requirements, and we just haven't been able to reach a deal just yet.

But is it just the buyer deciding it's the right time to do it and the right price? Or is there any other structural impediments at this point with entitlement or anything like that?

No. It's really just -- we're just negotiating on price and time line.

Yes. We think we've gotten all that behind us.

And we actually have [Steve Rudd] with another question with Black Wolf.

So just as a follow-up on actually the series of questions that came from the other 2 folks. The first is on that nationwide retail operators starting their own fleet. Are they a customer? And if so, what percent of your business on, I guess, of fuel do they represent?

They are a customer, and it is -- as of ongoing business, it's less than 5%, 4%, 4%, 5%. It's in...

Somewhere in that range.

Somewhere in that range without having all the stuff right in front of me, but they have been a larger customer in the past.

We're not necessarily worried about the book of business we have today with them with regard to private fleet because that's in some markets where it probably doesn't make a lot of sense.

Okay. Got you. And secondly, and I apologize that I am not up to speed on the properties, so tell me, on the Pensacola property, what's your sales price? And I'm looking at cash. So what do you net from...

$1.5 million on Pensacola.

Okay. And you're in the middle of negotiations on the Tampa property. How big is -- or give me some parameters like how big it is? And again, I apologize. I normally like to do the homework, but I just -- I'm new to the company, so I haven't done it. So if you'll...

That's okay. Yes. I'll give it you in a minute. It's a 25-acre parcel in South Tampa. The easiest way for me to tell you in some kind of a way to give you some valuation is the contract we were under most recently was at $10.5 million.

After COVID hit, that pricing wasn't going to work because of all the uncertainties with retail, et cetera. So we'll have to just continue to negotiate and see how high we can get on purchase price based on what's happening in the world.

Okay. And lower interest rates are always a help for that kind of valuation. But I'm sure you guys will do what you can do with it. Okay. All those answers are very helpful. I appreciate it.

Okay. Thank you. Thanks for your interest.

Just for further information on Pensacola, we moved out of town and built a location...

Years ago.

Years ago in order to take advantage of this sale.

And our last and final question is with John Deysher with Pinnacle.

Just a quick follow-up. The $1.5 million on the Pensacola sale, is that cash?

Yes.

Okay. Good. And the Tampa property, 25 acres, what is it zoned for? What's the potential use of that property?

It has been zoned. And actually, we took the steps to get an approved site plan for a big box anchored retail development. It's the easiest way I can describe it.

Okay. So it's retail. It's not mixed use.

It is mixed use. There's a hotel and commercial, but not residential.

Not residential.

You broke up. There's a hotel, and what else there?

The rest is retail. There's no residential.

No residential. Okay. Good.

And back to the national convenience store operator, when you say we're not worried about the markets because it doesn't make a lot of sense, that implies, what, the business is close to breakeven? Or why does it not make a lot of sense?

I think it's the markets and the size of the business. Really, to put in a private fleet, most of the time, you want some scale. And what's left is pretty small in each of the markets where we're operating. So I don't say that they wouldn't do it, but it's not the most appealing locations.

It's not an efficient way for them to run that business because their terminal would be very small for the sites they have in those locations.

Okay. So it's 4% to 5% of revenues. I mean, have they said to you that we're going to be rolling off of this business? Or what's been their discussion with you?

No, no, no.

No.

No. We've already rolled off a good percentage of their business.

Yes. The -- what's left, the 4% to 5% has just begun a new contract as of February 1.

And how long does that contract last for?

3 years.

Okay. All right. So the 4% to 5% -- okay, okay. Good. That's helpful. That's all I have.

Ladies and gentlemen, we've reached the end of the question-and-answer session. And I'd now like to turn the call back over to Rob Sandlin for any closing remarks.

Thank you all for being on the call today, and we appreciate your interest in Patriot Transportation. Have a good day.

This concludes today's web conference. You may disconnect your lines at this time. Thank you for your participation, and have a good evening.