Patriot Transportation Holding, Inc. (NASDAQ:PATI) Q2 2022 Earnings Conference Call May 10, 2022 3:00 PM ET
Rob Sandlin - Chief Executive Officer & President
Matt McNulty - Chief Financial Officer
Conference Call Participants
Steve Rudd - Blackwell
Good afternoon, ladies and gentlemen, and welcome to the Patriot Transportation Earnings Call for the Second Quarter of Fiscal Year 2022. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host, Rob Sandlin, CEO and President of Patriot Transportation. Sir, the floor is yours. Rob, the floor is yours.
Sorry about that. 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 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.
For our second quarter results. Today the company reported second quarter net loss of $490,000 or a loss of $0.14 per share for the quarter ended March 31, 2022, compared to net income of $484,000 or $0.14 per share in the same quarter last year. Last year's quarter included $1,037,000 or $0.31 per share from gains on real estate, net of income tax.
Operating revenues for the quarter were $20,928,000, up $1,200,000 from the same quarter last year due to rate increases and higher fuel surcharges. This quarter's revenue miles were negatively impacted by the approximately 50 driver reduction versus last year's second quarter, mostly due to the driver shortage.
Operating revenue per mile was up $0.65 or 19.8% due to an improved business mix and rate increases. Compensation and benefits increased $275,000 mainly due to the increased driver compensation package, mostly offset by the lower driver count and a reduction in support staff.
Insurance and losses increased $645,000, primarily from higher health care costs caused by one COVID claim, which hit our maximum retention of $372,500 and the prior year workers' comp claim, which negatively impacted us by $380,000 in the quarter. The depreciation expense was down $265,000 in the quarter and gains-on-sale of assets was $119,000 compared to a loss of $113,000 in last year's quarter. The operating loss this quarter was $639,000. The COVID claim in the prior year work comp claim resulted in a total charge of $752,000 to this quarter.
On to the year-to-date results. The company's net income was $5,949,000, or $1.63 per share, compared to $262,000, or $0.08 per share, in the same period last year. The net income, this first six months included $6,281,000 or $1.72 per share from gains on real estate net of income taxes. The prior year's six-month results included net income of $1,037,000 or $0.31 per share, from gains on real estate net of income taxes.
Operating revenues were up $1,543,000 due to improved rates and higher fuel surcharges, while miles were negatively impacted by the lower driver count. Operating revenue per mile improved $0.64 or 19.9% 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 expenses to increase by $1,316,000 over last year's second quarter, while insurance and losses increased $333,000 due mainly to the two claims mentioned earlier. We decreased depreciation expense by $533,000 with the downsizing of equipment that was mostly completed in the second half of fiscal 2021, while SG&A expense was higher by $340,000, mostly due to a onetime transaction bonus following the sale of the Tampa terminal property.
The gain on the sale of the land was $8,330,000 due to the sale of Tampa compared to $1,431,000 in the same period last year. The gain on sale of assets was $479,000 versus a loss of $199,000 last year. This year's gain was positively impacted by the dramatic increase in used truck prices.
The operating profit for this period was $7,902,000 compared to $370,000 last year. Including the Tampa land sale and the onetime transaction bonus for management, adjusted operating loss for the six months was $34,000. As stated earlier, the COVID and prior year workers' comp claim resulted in a negative charge of $752,000 for the first six months.
Now for the summary and outlook. During the first six months, our driver count remained steady and similar to the previous two quarters following the large driver pay increase in April of 2021. During the first quarter, we announced additional driver pay increases in all of our markets, most of which took effect in early February 2022. It bears repeating from last quarter's conference call that these increases added 21% to 31% 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 in having rate increases since last April to more than cover the increased cost of the driver pay raises.
Matt McNulty, our CFO, has settled into his new responsibilities as COO after our Vice President of Operations retired at the end of our first quarter. As mentioned on our call in February, we have made other personnel moves that will not be replaced. We continue to focus on growing our dry bulk segment into new markets as we are able to hire drivers. We continue to hire registered partnership 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 several trips to multiple trips to Washington, D.C. and continue to work with senior staff at DOL and DOT along with national tank truck carriers of the driver shortage and long-term solutions for us and the industry.
We are in the final stages of an application and acceptance into the Department of Defense SkillBridge program, which will provide us better access to transitioning military personnel with truck driving experience. I was honored to be invited to the White House for a South Lawn celebration of President Biden's 90-day trucking challenge on April 4 and was asked to take one of our registered apprenticeship drivers, Joseph Brit Jr., along with me.
Joseph is a 7-year army veteran who is exactly the type of person we were looking for with the SkillBridge program. Joseph is now actively hauling petroleum loads for us after this initial training period. We had a great day together in Washington, D.C. The dividend paid in November reduced our cash balance by $12,800,000, but our balance sheet remains strong with $6,800,000 of cash at the end of March 2022.
We began replacing tractors in the first quarter of this fiscal year and while we are experiencing delays due to supply chain issues, we anticipate receiving a total of 30 replacement tractors and a handful of trailers with capital expenditures of approximately $6 million during this fiscal year. We have also seen the prices of new tractors increased due to supply chain issues and inflation.
Finally, we are all saddened at the passing of our Chairman Emeritus, Ted Baker on April 28. I've had the pleasure of working with Ted for a long time. His business record is well known, and I am honored to have known him and fortunate to have had the opportunity to learn from him over the last 38 years. He will be missed by us all.
Thank you again for your interest in our company, and we will be happy to entertain any questions.
[Operator Instructions] The first question is coming from Steve Rudd from Blackwell. Steve, your line is live.
Sure. First, condolences to the Baker family. Obviously, I didn't meet Ted, but I know what it is to have an elderly parent and when they're gone, it's a massive loss. So really heartfelt – heartfelt condolences to the entire family. It's weird to transition to business questions, but I'll do my best and I know you will, too.
On driver count, your press release and your comments noted that we've stabilized at around 355 drivers. The program you're participating in Washington appears to be bearing fruit as do the pay increases what's your feeling now, I mean that the -- we were down about 10 drivers this past quarter, quarter-to-quarter versus last conference call do we see that reverse now? And then I do have a follow-up question on that.
We had a very small -- have gotten very small terminal in Nashville with about eight drivers - seven or eight drivers that we closed in February of this year. So – and I'd have to rely on you that we had about 10-driver drop from the last call, but most of that was from that closure. We just could not -- there was no reason for us to stay in Nashville with the labor market data is and the turnover and the business there, it's just better for us to move on.
Yes. And the only thing -- this is Rob. The only thing I would add to that is on any given week, there's a little ebb and flow in those numbers. But what -- I think what I would say is that since the driver pay increases, the driver turnover has stabilized, while you still see churn in the new drivers, it's way down from what it was pre-pay increases as is the turnover for our senior drivers, drivers -- I should say, drivers that have been here for more than a year.
So my question on the drivers is this is all good news on the driver count on the stabilization, and I appreciate the clarification on the Nashville closure. But going into the next quarter, and I'll ask a compound question or two-part and then to the extent there's a line, I'll go back to it.
But the compound question is, do we think now that we will see an add to drivers by the end of this quarter. That's one part. And then the second part is, we've always anticipated that each additional driver less about $50,000 to the company, to our -- our price increases adjust that figure then by about how much?
So the first part of that, I'll let Matt think about the second part for a second. The first part of the question really about drivers is we've seen some uptick in the number of applicants, and we've seen some uptick in the number of trainees that we're getting on board, but not significant. It is still a very, very difficult driver market.
There are terminals where we don't have any viable applicants, probably looking through our recruiting report most recently, there are close to half of the terminals, just don't have a lot of great applicants. And so it gets very difficult to hire and get a driver through training. And we have other markets where we're being more successful. So I don't have any reason to believe that we're going to start making great gains on driver adds. And I just haven't seen that or heard that anywhere else in the marketplace.
So I think it's still going to be a very difficult driver market going forward. I think the one thing that while Matt think maybe thinking about your other question a little bit, I think we are certainly trying to outstrip the driver cost as much as possible to add margin in rate increases. I think the thing that nobody is factored in until now recently is we've got this thing called inflation that's hitting us in anywhere from tires to lube oils, to parts, to labor. And so a lot of those interactive costs, we're getting surcharges on tractors. And so we're having to monitor that as we go through and adjust accordingly. I think we'd probably be a little nervous about applying a number to what -- how much we're going to gain above and beyond the driver pay on rate increases, but I do believe we're going to have a gain. Matt, do you want to add to that at all?
No, I think that's a good answer. I don't -- to Rob's point, I think it's too new right now to see our costs with the inflation and other things happening to understand how much of that additional revenue that driver is going to bring in is going to go to the bottom-line. So I still feel like a good number since it is the 50,000. There's certainly some more that probably will be added to Rob's point, but I don't know that it's a giant amount of money that will be to the bottom-line for a driver.
Okay. And I'll go back -- I don't know if there is a queue. Is there a queue right now or it only one--
Let's go back -- go back to the--
Yes, he can pop you back in.
Pop you back in.
Okay. All right. Thanks.
Thank you, Steve. We do have another question coming in from Adam Ritzer, Adam is a private investor. Adam, your line is live.
Thank you. I appreciate you taking my call.
Thank you. I just had an overall -- a larger picture question. I think you guys have done a great job on returning capital, selling assets, paying out your free cash flow in terms of dividends the last couple of years. So, I congratulate you for doing that.
But it seems as if this new driver probably never really goes away. Costs keep going up, so your overall profitability even from a few years ago is going to be down even as you just kind of alluded to.
So, what would it take for you guys to just say, look, why don't we just sell the business? Maybe there's another buyer out there who could cut costs, pick up our assets and you just say, this is just 2 talks of a business for us to ever really make any money. Would you ever get to that point, why or why not?
And I think there's -- I mean, I think every company that's managed by folks has to be aware that that's always an option. Whether we're buying or we're selling, I mean, that's just part of your options as a strategy. But I don't think the business today itself will be pushing us to make that decision. I think we feel like we've managed through a lot of the tough times and are starting to see the curve start to move in the right direction, especially with the driver stabilization and the rate increases.
So, I think we'll just keep running the business as it is. And like I said, I mean, there's no -- never going to be a time where if somebody comes to us and wants to talk about an opportunity that we're not going to listen. But that's not -- it's not on the forefront of our minds right now.
Okay. So the plan is just kind of keep going at it, trying to raise our prices to offset our costs that are going up, try and look for new drivers and just keep plugging along. But if somebody came to us you wanted to get out of the situation, you guys would not be adverse to that.
No, I think we have to look at all possibilities and then certainly get the Board involved at that point if that was something that happened. But right now, we have just been keenly focused on doing the things that you mentioned in the first part of your question. And then we see -- we've seen some improvement. And we're going to -- we're trying to go back and do what we've done for years and put a reasonable return on the bottom-line. And then the rest of that stuff stature itself. So yes.
Okay. They are good. I didn't want -- I'm not trying to be rude, but I just want to put that out there and see what you guys have thought of it because it has been tough now, like you said, for the last couple of years, but -- I see what's going on.
No, we're -- we don't say -- that's a fair question. We don't take that as being rooted at all. And certainly, in any business like those are things that you talk about.
Okay, I appreciate it. Thanks very much.
Great. Thank you.
Thank you. And Steve Rudd from Blackwell if you had a follow-up question. Please go ahead.
I do have got two. And Rob, thanks for your straightforward and the team's straightforward approach and these things. So one question I have, I invest in small cap companies like yours, well managed. And one thing I'm hearing from them, everybody -- I'm old enough to be familiar with the term inflation, like everybody on this call. But, I'm hearing from most of them that they can adjust prices. The price increases are being accepted pretty well. And I'm wondering how quickly you could adjust prices yet again? And then, I have a further follow-up to Adams point.
Yeah. It's a fair question. And it's not that we've completed. We are in a second and third round of rate increases and there were prices that went up in February. There were prices that went up last month. There's prices that are scheduled to go up through the summer. So I don't -- I think as long as people are having difficulty getting their products delivered out there, it's -- this business is a pure supply and demand business. And we've got the ability to haul products and partner with those customers that are interested in a long-range partnership and understand the value of what we're doing for them.
So we think there's opportunities not only to increase price out in the future. But we also think there's opportunities to change partners, if some of the folks that we're dealing with aren't interested in that type of partnership with a company like ours. And we've done that in a couple of cases already. And we've really only had a couple of companies thus far to your question, that have really pushed back to the point of losing business, as it relates to rate increases. So I think there's probably some -- still some more opportunity out there and timing that properly is the thing that we have to be very aware of.
Okay. All right. That's good. And that's consistent with what you guys did last year. So I think the opportunity is -- runs quite deep. At least that's what again, what I'm seeing in your business is certainly a niche business. Adam, I don't remember the last name, here's an interesting question, particularly in light of Ted's passing. Is shares, do we know what happens to shares? Are they pass to the family? I mean, is there a plan for those shares if you know of that?
We won't have any insight on any of that. That's all handled internally for the family.
Yeah. That's always personal stuff. So we -- it hadn't come up to us. So I really don't know how they're handling that at this point.
Okay. And I understand it's a delicate question. The only thing triggered it was the prior questioner. Again, thank you guys for the hard work. I think we're in good hands. And I know that you do your price increases thoughtfully, and I think you've got room not knowing your markets as well as you do, but at least from heard on the Street is you've got probably some room to be aggressive, but you'll do the right thing. So thanks again.
Well, we appreciate your participation and your interest.
Yeah. Thank you.
Thank you. And there were no other questions in queue at this time. I'd like to hand the call back to Rob Sandlin for closing remarks.
Thank you all for your interest in Patriot Transportation. We look forward to talking with you again next quarter. Have a good day.
Thank you. Ladies and gentlemen, this does conclude today's conference. You may disconnect at this time, and have a wonderful day. Thank you for your participation.