PATRIOT TRANSPORTATION HOLDING, INC. CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our annual report on Form 10-K. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including the risks and uncertainties described in "Forward-Looking Statements" below and "Risk Factors" on page 7 of our annual report on Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements. We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this quarterly report on Form 10-Q, unless required
by law. Overview
The business of the Company, conducted through our wholly owned subsidiary,Florida Rock & Tank Lines, Inc. , is to transport petroleum and other liquids and dry bulk commodities. We do not own any of the products we haul, rather, we act as a third party carrier to deliver our customers' products from point A to point B predominately using Company employees driving Company owned tractors and tank trailers. Approximately 85% of our business consists of hauling liquid petroleum products (mostly gas and diesel fuel) from large scale fuel storage facilities to our customers' retail outlets (e.g., convenience stores, truck stops and fuel depots) where we off-load the product into our customers' fuel storage tanks for ultimate sale to the retail consumer. The remaining 15% of our business consists of hauling dry bulk commodities such as cement, lime and various industrial powder products, water and liquid chemicals. InJune 2022 , we employed 316 revenue-producing drivers who operated our fleet of 270 Company tractors (excluding 3 being placed in service), 32 owner operators and 410 trailers from our 17 terminals and 6 satellite locations inFlorida ,Georgia ,Alabama , andTennessee . We experience increased seasonal demand inFlorida in the spring and in most of our other locations during the summer months. 13 Our industry is characterized by such barriers to entry as the time and cost required to develop the capabilities necessary to handle hazardous material, the resources required to recruit, train and retain drivers, substantial industry regulatory and insurance requirements and the significant capital investments required to build a fleet of equipment, establish a network of terminals and, in recent years, the cost to build and maintain sufficient information technology resources to allow us to interface with and assist our customers in the day-to-day management of their product inventories. Our industry is experiencing a severe shortage of qualified professional drivers with a tenured safe driving career. The trend we are seeing is that more and more of the applicants are drivers with little to no experience in the tank truck business, short driving careers in other lines of trucking, poor safety records and a pattern of job instability in their work history. As a result, in many markets we serve it is difficult to grow the driver count and, in some cases, to even maintain our historical or desired driver counts. The Company's operations are influenced by a number of external and internal factors. External factors include levels of economic and industrial activity inthe United States and the Southeast, driver availability and cost, government regulations regarding driver qualifications and limitations on the hours drivers can work, petroleum product demand in the Southeast which is driven in part by tourism and commercial aviation, and fuel costs. Internal factors include revenue mix, equipment utilization, Company imposed restrictions on hiring drivers under the age of 21 or drivers without at least one year of driving experience, auto and workers' compensation accident frequencies and severity, administrative costs, and group health claims experience. To measure our performance, management focuses primarily on revenue growth, revenue miles, operating revenue per mile, our preventable accident frequency rate ("PAFR"), our operating ratio (defined as our operating expenses as a percentage of our operating revenue), turnover rate (excluding drivers related to terminal closures) and average driver count (defined as average number of revenue producing drivers including owner operators under employment over the specified time period) as compared to the same period in the prior year. ITEM Nine months 2022 vs. 2021 Operating Revenues Up 6.9% Revenue Miles Down 12.1% Revenue Per Mile Up 21.7%
PAFR (incidents per 1M miles) goal of 2.0 1.61 vs. 1.68 Operating Ratio
86.4% vs. 98.6%
Driver Turnover Rate 77.0% vs. 100.4%
Avg. Driver Count incl. owner operators Down 10.0%
Third Quarter Highlights
· Operating revenue per mile was up
improved business mix. 14
Comparative Results of Operations for the Three Months endedJune 30, 2022 and 2021 Three months ended June 30 (dollars in thousands) 2022 % 2021 % Revenue miles (in thousands) 5,334 5,869 Operating revenues 23,501 100.0 % 20,855 100.0 % Cost of operations: Compensation and benefits 9,774 41.6 % 9,200 44.1 % Fuel expenses 3,965 16.9 % 2,568 12.3 % Repairs & tires 1,502 6.4 % 1,316 6.3 % Other operating 739 3.1 % 734 3.5 % Insurance and losses 1,918 8.1 % 1,789 8.6 % Depreciation expense 1,363 5.8 % 1,662 8.0 % Rents, tags & utilities 651 2.8 % 653 3.1 %
Sales, general & administrative 2,328 9.9 % 2,284 11.0 %
Corporate expenses 511 2.2 % 426
2.0 %
Gain on sale of terminal sites - 0.0 % (183 ) -0.9 % Gain on disposition of PP&E (163 ) -0.7 % (46 ) -0.2 % Total cost of operations 22,588 96.1 % 20,403 97.8 % Total operating profit$ 913 3.9 % 452 2.2 % The Company reported net income of$771,000 , or$.22 per share for the quarter endedJune 30, 2022 , compared to$323,000 , or$.09 per share, in the same quarter last year. Net income in the prior year third quarter included$133,000 , or$.04 per share, from gains on real estate sales net of income taxes. Revenue miles were down 535,000, or 9%, over the same quarter last year due to a lower average driver count resulting primarily from the closure of ourNashville location and turnover (down ~25 drivers from the 3rd quarter of last year). Operating revenues for the quarter were$23,501,000 , up$2,646,000 from the same quarter last year due to rate increases, higher fuel surcharges and an improved business mix. Operating revenue per mile was up$.86 , or 24.2%. Compensation and benefits increased$574,000 , mainly due to the recent increases in driver compensation mostly offset by a lower driver count and non-driver personnel reductions. Gross fuel expense increased$1,397,000 due to higher diesel prices. Insurance and losses increased$129,000 , primarily due to the negative development of a fiscal year 2020 auto liability claim. Depreciation expense was down$299,000 in the quarter. Gain on the sale of assets was$163,000 versus$46,000 in the same quarter last year. As a result, operating profit this quarter was$913,000 compared to$452,000 in the same quarter last year. Excluding the gain on sale of land, the adjusted operating profit was$269,000 in last year's third quarter. 15 Comparative Results of Operations for the Nine Months endedJune 30, 2022 and 2021 Nine months ended June 30 (dollars in thousands) 2022 % 2021 % Revenue miles (in thousands) 16,105 18,312 Operating revenues 65,000 100.0 % 60,811 100.0 % Cost of operations: Compensation and benefits 27,820 42.8 % 26,938 44.3 % Fuel expenses 9,843 15.1 % 7,130 11.7 % Repairs & tires 4,163 6.4 % 4,033 6.6 % Other operating 2,193 3.4 % 2,302 3.8 % Insurance and losses 6,302 9.7 % 5,840 9.6 % Depreciation expense 4,246 6.5 % 5,078 8.3 % Rents, tags & utilities 2,032 3.1 % 2,052 3.4 %
Sales, general & administrative 6,945 10.7 % 6,561
10.8 %
Corporate expenses 1,613 2.5 % 1,516
2.5 %
Gain on sale of terminal sites (8,330 ) -12.8 % (1,614 )
-2.7 %
Loss (gain) on disposition of PP&E (642 ) -1.0 % 153
0.3 % Total cost of operations 56,185 86.4 % 59,989 98.6 % Total operating profit$ 8,815 13.6 % 822 1.4 %
The Company reported net income of$6,720,000 , or$1.85 per share, compared to$585,000 , or$.17 per share, in the same period last year. The first nine months' net income included$6,281,000 , or$1.73 per share, from gains on real estate sales net of income taxes. Net income in the prior year nine months included$1,170,000 , or$.34 per share, from gains on real estate sales net
of income taxes. Revenue miles were down 2,207,000, or 12%, over the same period last year due to a lower average driver count (down ~49 drivers from the first nine months of last year). Operating revenues for the period were$65,000,000 , up$4,189,000 from the same period last year. Operating revenue per mile was up$.72 , or 21.7% due to rate increases, higher fuel surcharges and an improved business mix. Compensation and benefits increased$882,000 , mainly due to the increased driver compensation package offset by a lower driver count and non-driver personnel reductions. Gross fuel expense increased$2,713,000 as a result of higher diesel prices. Insurance and losses increased$462,000 , primarily as a result of a maximum limit COVID claim ($372,500 ) and the negative workers' compensation adjustment from a prior year claim ($380,000 ). Depreciation expense was down$832,000 in the period. SG&A expense was higher by$384,000 mainly due to a one-time transaction bonus following the sale of theTampa property for certain members of the management team ($312,000 in SG&A and$82,000 in Corporate for a total of$394,000 ) and higher legal fees. Gain on the sale of land was$8,330,000 due to the sale of our former terminal location inTampa, FL compared to$1,614,000 in the same period last year due to the sale of our former terminal location inPensacola, FL and the sale and partial leaseback of our terminal inChattanooga, TN. Gain on the sale of assets was$642,000 versus a loss of ($153,000 ) in the same period last year. As a result, operating profit this period was$8,815,000 compared to$822,000 in the same period last year. Operating ratio was 86.4 in the first nine months versus 98.6 the same period last year. Excluding 16 the gain on sale of terminal sites and the one-time transaction bonus, adjusted operating profit for the first nine months was$879,000 as compared to an adjusted operating loss of ($792,000 ) in the same period last year. The COVID medical claim and the prior year workers' compensation claim resulted in a total charge of$752,500 in the first nine months of fiscal 2022. Non-GAAP Financial Measures To supplement the financial results presented in accordance with GAAP, Patriot presents certain non-GAAP financial measures within the meaning of Regulation G promulgated by theSecurities and Exchange Commission . Patriot uses these non-GAAP financial measures to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. These measures are not, and should not be viewed as, substitutes for GAAP financial measures. Adjusted Operating Profit Adjusted operating profit excludes the impact of the gain on sale of terminal sites and the one-time transaction bonus related to the sale. Adjusted operating profit is presented to provide additional perspective on underlying trends in Patriot's core operating results. A reconciliation between operating profit and adjusted operating profit is as follows: Three months ended Nine months ended June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Operating profit $ 913 452 8,815 822 Adjustments:
Gain on sale of terminal sites - (183 )
(8,330 ) (1,614 )
One-time transaction bonus - - 394 - Adjusted operating profit (loss) $ 913 269
879 (792 )
Liquidity and Capital Resources. The Company maintains its operating accounts
with Wells Fargo Bank, N.A. and these accounts directly sweep overnight against
the Wells Fargo revolver. As of June 30, 2022 , we had no debt outstanding on
this revolver, $1,461,000 letters of credit and $13,539,000 available for
additional borrowings. The Company expects our fiscal year 2022 cash generation
to cover the cost of our operations and our budgeted capital expenditures
Cash Flows - The following table summarizes our cash flows from operating,
investing and financing activities for each of the periods presented (in
thousands of dollars):
Nine months
Ended June 30,
2022 2021
Total cash provided by (used for):
Operating activities $ 3,975 3,547
Investing activities 7,568 1,209
Financing activities (12,493 ) (10,132 )
Decrease in cash and cash equivalents $ (950 ) (5,376 )
Outstanding debt at the beginning of the period - -
Outstanding debt at the end of the period - -
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Operating Activities - Net cash provided by operating activities (as set forth
in the cash flow statement) was $3,975,000 for the nine months ended June 30,
2022 , compared to $3,547,000 in the same period last year. The total of net
income plus depreciation and amortization and less gains on sales of property
and equipment decreased $2,291,000 versus the same period last year. These
changes are described above under "Comparative Results of Operations."
Fluctuations in prepaid expenses, accounts payable, and income taxes payable
added $2,867,000 in cash provided by operating activities. These changes
comprise the majority of the increase in net cash provided by operating
activities.
Investing Activities - Investing activities include the purchase of property and
equipment, any business acquisitions and proceeds from sales of property and
equipment upon retirement. For the nine months ended June 30, 2022 , cash
provided by investing activities was $7,568,000 which included the proceeds from
retirements net of the purchase of plant, property and equipment. For the nine
months ended June 30, 2021 , cash provided by investing activities was $1,209,000
which included the proceeds from retirements net of the purchase of plant,
property and equipment.
Financing Activities - Financing activities primarily include net changes to our
outstanding revolving debt, proceeds from the sale of shares of common stock
through employee equity incentive plans, and dividends. For the nine months
ended June 30, 2022 , cash used in financing activities was $12,493,000 due to
dividends paid offset by proceeds from exercised stock options. For the nine
months ended June 30, 2021 , cash used in financing activities was $10,132,000
primarily due to dividends paid. We had no outstanding long-term debt on June
30, 2022 or 2021.
Credit Facilities - The Company has a five-year credit agreement withWells Fargo Bank N.A. which provides a$15 million revolving line of credit with a$10 million sublimit for stand-by letters of credit. The amounts outstanding under the credit agreement bear interest at a rate of 1.1% over the Secured Overnight Financing Rate ("SOFR"), which may change quarterly based on the Company's ratio of consolidated total debt to consolidated total capital. A commitment fee of 0.12% per annum is payable quarterly on the unused portion of the commitment. The credit agreement contains certain conditions and financial covenants, including a minimum tangible net worth. As ofJune 30, 2022 , the tangible net worth covenant would have limited our ability to pay dividends or repurchase stock with borrowed funds to a maximum of$1,433,000 combined. Cash Requirements - The Company currently expects its fiscal 2022 capital expenditures to be approximately$6.0 million for replacement equipment which we expect to be fully funded by our cash generated from our operations. The amount of capital expenditures throughJune 30, 2022 were$2,859,000 .
Impact of the COVID-19 Pandemic. The COVID-19 pandemic continues to have some impact on demand for oil and petroleum products in certain markets but that impact was far less in this quarter than had been experienced since the beginning of the pandemic. As an essential business, we have continued to operate throughout the pandemic in accordance with CDC guidance and orders issued by state and local authorities.
Summary and Outlook. Since announcing the first significant pay increase back in April of 2021,
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our driver count has stabilized and we have been holding steady at +/- 355 revenue producing drivers. During the first quarter of 2022 we announced additional driver pay increases in all of our markets, with the majority effectiveFebruary 4, 2022 . Driver turnover has fallen to 77% through the first nine months of this year versus 100% in last fiscal year. We continue to see steady activity on driver applications and the average number of drivers in training. In July, we announced additional driver pay increases effectiveAugust 5, 2022 in about half of our markets. These increases require drivers to meet certain criteria each month in order to qualify, including minimum average log hours worked and zero unexcused absences to help drive productivity.
We continue to successfully negotiate additional rate increases with our customers as we adjust driver pay. These additional rate increases will fully offset the additional driver pay. We continue to focus on diversifying our product mix with more water and dry bulk drivers.
Our balance sheet remained stable with$9.9 million of cash and cash equivalents as ofJune 30, 2022 , with no outstanding debt. We replaced 10 tractors in the first half of this fiscal year with plans to buy an additional 20 replacement tractors and a handful of trailers in Q4 putting our current planned capital expenditures at~$6,000,000 for fiscal year 2022.
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