Patriot Transportation Holding, Inc. (PATI) on Q1 2022 Results - Earnings Call Transcript
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Operator: 0:06 Good afternoon, ladies and gentlemen, and welcome to the Patriot Transportation Holdings Inc. Earnings Call for the First 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. 0:21 It is now my pleasure to turn the floor over to your host, CEO and President, Rob Sandlin. Sir, the floor is yours.
Rob Sandlin: 0:29 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. 0:47 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. 1:14 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 a negative $0.14 cents per share in the same quarter last year. 1:37 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 the plan downsizing of one customer to freight prices. That 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. 2:25 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 health care claims this quarter, and the prior year first quarter including two significant product mixes. 2:48 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 one-time 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 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 sale of equipment was $360,000 versus a loss of $86,000 last year. 3:29 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 the Tampa terminal and a one-time 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. 3:59 Now for our summary and outlook. During the first quarter, our driver count remained fairly flat and similar to the previous two 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 a majority taking place in early February 2022. These increases added to last April's driver pay increased account for a range of 21% to 31% and pay increases depending on the market and all new driver pay is up a minimum of 26%. 4:38 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 remainder becoming effective in the second quarter. 4:52 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 cost 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 two, our first two 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. 5:30 I have made multiple trips to Washington DC 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. 5:54 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 $12,800,000. Following these two minutes and a positive operating quarter, our balance sheet remains 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 track 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. 6:42 Thank you again for your interest in our company. And we will be happy to entertain any questions.
Operator: 6:51 Certainly, ladies and gentlemen, the floor is now open for questions. Your first question is coming from Steve Red from Blackwell. Your line is live.
Steve Rudd: 7:19 Great. Hi, Rob, and Matt and John. Rob, you sound like you're fighting a cold there or something?
Rob Sandlin: 7:27 I think it's just a long day. Lot of travel recently.
Steve Rudd: 7:36 All right. Make sure you take care of yourself. I mean, we we'd like good returns, but don't like anybody getting sick trying to get there…
Rob Sandlin: 7:45 Appreciate? Appreciate that, thanks.
Steve Rudd: 7:47 Yeah. Well, to do well, you got to be well. So that's a priority. Big time. I missed at the end of your prepared remarks. Your comment on depreciation going forward? Can you just restate that and then I've got a number of questions after that?
Rob Sandlin: 8:05 Yeah, we're projecting to be about $6.5 million once you eliminate the right of use or amortization in our leases on the depreciation.
Steve Rudd: 8:18 Okay. Okay. Got it. And, this is probably, I'm sure any one of the three of you could answer, what will we last year, and I can pull it up myself, but it will make it easier for me on depreciation?
Rob Sandlin: 8:32 John, John will take a look into that.
Steve Rudd: 8:35 Okay. Second thing, the elimination of the COO position. So that's now 100% in math per view basically, he's going to be doing those two jobs, is that right?
Rob Sandlin: 8:47 Yes, sir.
Steve Rudd: 8:49 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 well all of our favorite topics. Last we spoke we were at $375 that where we are today?
Rob Sandlin: 9:10 Yeah, yeah. Yeah, pretty close to that with, yes. It changes every day. So we're sure.
Steve Rudd: 9:18 Okay. No, I looked that. Have you found that, have you been losing folks to just that they're out because of illness, and we're going to take a hit on that for this – for the quarter we're in or…?
Rob Sandlin: 9:33 We have seen some short-term illnesses due to COVID. And it's market by market. We got hit pretty hard in two or three 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 five drivers that went out. So we're just seeing an intermittently and not, not in huge numbers, but 1, 2, 3, 4, 5 drivers a week.
Steve Rudd: 10:11 Okay. All right. So that's, to degree manageable and everybody's coming back? Well, it sounds like so that's pretty good. Were you taking the, the pay increase, the majority of it, you mentioned, took effect here at the beginning of February and it was 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 was on the call, but give me an idea of what sort of percentage wise price increase we're seeing?
Rob Sandlin: 10:57 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 pace 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.
Steve Rudd: 11:25 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 the driver cost increase? Couple points?
Rob Sandlin: 11:48 The goal was, the goal there was to get and in the most cases we did, got numbers around 9% in that first swab. So if you needed 5.5% to 6% to cover the driver pay, then you pick up 3.0%, 3.5% depending on the number. And then on the second round was, was a little less. So the second round, the majority of the pay increases that went in, were about 5%, on driver pay, we had a couple terminals, where we did some, some extra. So you had 5%, and getting six plus percent rate increases, probably the driver pay would eat up about one in three quarters percent of that 6%, rest would have been for other cost increases.
John Klopfenstein: 12:34 Yes, which we are seeing, obviously with inflation. So we are seeing other costs increases as well.
Steve Rudd: 12:42 Gotcha. But some of that, hopefully will find its way to the bottom.
Rob Sandlin: 12:48 Yes, yeah. That’s a plan.
Steve Rudd: 12:49 Yeah. I mean, the reason why I pointed 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 an interesting time where you can, 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, some more room there. So that's quite good. To get that, now, the other operating, I mean your math involuntarily volunteering to be COO, and CFO, that's a cost savings. What other operating margin improvements are we targeting going forward?
Rob Sandlin: 13:46 Well, we just, we just eliminated a couple of other permanent field staffing jobs that were higher level and took current personnel to fill those – fill those roles. So we saw a decline. So it just recently, you've got the combination of those two management jobs and the VP of operations job, in addition to ones that we had already done going into the fall.
John Klopfenstein: 14:14 And equipment still…
Rob Sandlin: 14:15 Yeah, we're still have some equipment, not a lot, but a little more equipment to downsize.
John Klopfenstein: 14:21 First quarter, we got. Yeah, we got -- we've downsized additional equipment, but we're pretty tight at this point and ready to kind of start replacing.
Steve Rudd: 14:30 So on the – on the staffing jobs and like, we are looking at like $200,000 a quarter would be a good number, to figure?
Rob Sandlin: 14:42 You mean, on all the ones you just read, that the three of those things?
Steve Rudd: 14:45 Yeah, exactly. Right. All those personnel things combined.
Rob Sandlin: 14:50 Probably, it's probably about $75,000 to $90,000 a quarter.
Steve Rudd: 14:57 Okay.
John Klopfenstein: 14:58 We’re just on those .
Rob Sandlin: 15:01 We've got some other smaller things going on in the background, we're able to kind of combined some positions and things but those are the larger ones.
John Klopfenstein: 15:07 And I will tell you that a lot of that work was done during the end, second half to end in 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.
Steve Rudd: 15:26 Okay, great. Okay, so now John was gonna come back to me with last year depreciation?
John Klopfenstein: 15:33 Yes, I got that, $7 million last year on the depreciation.
Rob Sandlin: 15:36 7.1 million.
John Klopfenstein: 15:37 7.1 and the driver count today is excluding the guys, that are including the guys are out sick or excluded from this number. So it's 366 and I'm gonna guess without having it right in front of me that there's, I know that there's five or six that are out six. So that gets you back up over 370 that are permanent employees at this point.
Steve Rudd: 16:01 Gotcha. And where do we think you think, you can add a few this coming quarter? I mean, you're doing all the right stuff, yeah?
John Klopfenstein: 16:12 I am not a good prognosticator of driver numbers anymore. It's, the world has changed. 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.
Steve Rudd: 16:52 Okay. Gotcha. So, still familiar, I'm going to just try to do some back of the envelope . So 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 million dollars for the year, probably a little more. And I'm getting that by taking out the depreciation or depreciation savings, plus consolidating the bit of the – putting in some of the margin improvement and the consolidated staff. And that was very quickly done. So it's not artful.
John Klopfenstein: 17:46 Yeah, we're gonna kind of just, we'll give you the all the details you asked for we never do projection. So I'm gonna let you do the math on your side, and we've always steered away from looking forward on these kinds of calls.
Steve Rudd: 18:00 Okay, that's fine. Once again, you guys are able to buy I saw where you bought some shares at the, I guess during one of the windows, you go, what about it? Is it two weeks now where you personally can buy shares again?
John Klopfenstein: 18:17 I don't know. How long do I have two weeks?
Rob Sandlin: 18:19 You got more than that?
John Klopfenstein: 18:20 I think I've got…
Rob Sandlin: 18:21 Six weeks.
John Klopfenstein: 18:22 Six weeks, you know, open window.
Steve Rudd: 18:26 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 what you're doing all the right stuff and there's not that many windows and you're in a down market. I was like management to be partners.
Rob Sandlin: 18:47 Absolutely, we are. We are locked in as partners, I can assure you.
Steve Rudd: 18:51 That part. That part I know. But I actually liked you to make more money?
Rob Sandlin: 18:57 I agree.
Steve Rudd: 18:59 You have the chance, there is no company better or have more of an impact on and you're doing the right stuff. And I'll pull back for now in case somebody else is on the phone with us and I had somebody else talking on the phone.
Rob Sandlin: 19:09 Okay. Thank you. Appreciate you. Thanks.
Steve Rudd: 19:13 Thank you.
Operator: 19:14 Thank you. Once again, ladies and gentlemen Your next question is coming from Adam Ritzer (ph). Adam, your line is live.
Unidentified Analyst: 19:27 Hi, thanks for taking my call. I promise I won't have so many questions as the last caller. But I just had two things I want to ask you, in a better environment for you guys in the past, what has been a normalized operating ratio?
Rob Sandlin: 19:46 I would say Adam, we were we were shooting for and performing in the low, 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 change, right?
Unidentified Analyst: 20:16 It's all different now.
Matt McNulty: 20:17 Right?
Unidentified Analyst: 20:18 You're not different, you're not going to see 89%.
Rob Sandlin: 20:20 If you can see a 95 operating right. I think we would feel like we're moving in the right direction.
Unidentified Analyst: 20:28 Okay. That makes sense. And I also – I noticed that there's a decent amount of additional diluted shares in the share count roughly 100,000 or 300,000. Is that stock grants, is that potential options outstanding? You just give me a little color on what that is?
John Klopfenstein: 20:49 So what happened was that our the outstanding stock option grants were not included in diluted counts during the times when we were not profitable and so with the return of profits, they're being fully counted again.
Unidentified Analyst: 21:05 Okay. So if there's a quarter where you're not profitable, you won't see that but this quarter, it shows up.
John Klopfenstein: 21:12 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 lesser share count for the entire year.
Unidentified Analyst: 21:22 Got it and what would you say is roughly the average exercise price on those?
John Klopfenstein: 21:29 Got that right here.
Rob Sandlin: 21:33 So that's in our annual report. Stocks footnote. It would be $12.10.
Unidentified Analyst: 21:45 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 you are taking my call. Best of luck.
Rob Sandlin: 21:53 Thank you…
John Klopfenstein: 21:54 Thanks for that.
Rob Sandlin: 21:55 Thank you for your interest.
Operator: 21:58 Thank you. Thank you. There are no further questions in the queue. I will now hand the conference back to our host for closing remarks. Please go ahead.
Rob Sandlin: 22:20 Thank you. We appreciate your interest in Patriot Transportation and look forward to talking with you next quarter. Have a good day.
Operator: 22:30 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.
