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 86% 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 14% of our business consists of hauling dry bulk commodities such as cement, lime and various industrial powder products, water and liquid chemicals. In December 2022, we employed 316 revenue-producing drivers who operated our fleet of 268 Company tractors (excluding 3 being prepared for sale), 43 owner operators and 419 trailers from our 17 terminals and 6 satellite locations in Florida, Georgia, Alabama, and Tennessee. We experience increased seasonal demand in Florida in the spring and in most of our other locations during the summer months.

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.





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The Company's operations are influenced by a number of external and internal factors. External factors include levels of economic and industrial activity in the 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                       Three months ended December 31,
                                                        2022 vs. 2021
Operating Revenues                            Up 11.1%
Revenue Miles                                 Down 5.5%
Revenue Per Mile                              Up 17.5%

PAFR (incidents per 1M miles) goal of 1.87 1.55 vs. 2.93 Operating Ratio

                               97.3% vs. 58.5%
Driver Turnover Rate                          73.7% vs. 80.0%

Avg. Driver Count incl. owner operators Down 2.0%








First Quarter Highlights

· Operating revenue per mile was up $.66, or 17.5%, due to rate increases and an


   improved business mix.




Comparative Results of Operations for the Three Months ended December 31, 2022
and 2021



                                     Three months ended December 31
(dollars in thousands)           2022         %           2021         %

Revenue miles (in thousands)    5,158                    5,457

Operating revenues             22,850       100.0 %     20,571       100.0 %

Cost of operations:
 Compensation and benefits     10,205        44.7 %      9,084        44.2 %
 Fuel expenses                  3,320        14.5 %      2,718        13.2 %
 Repairs & tires                1,354         5.9 %      1,216         5.9 %
 Other operating                  689         3.0 %        744         3.6 %
 Insurance and losses           1,984         8.7 %      1,810         8.8 %
 Depreciation expense           1,274         5.6 %      1,477         7.2 %
 Rents, tags & utilities          648         2.8 %        673         3.3 %


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Sales, general & administrative 2,327 10.2 % 2,465 12.0 %


 Corporate expenses                   495        2.2 %        533         2.6 %

Gain on sale of terminal sites - 0.0 % (8,330 ) -40.5 %


 Gain on disposition of PP&E          (66 )     -0.3 %       (360 )      -1.8 %
Total cost of operations           22,230       97.3 %     12,030        58.5 %

Total operating profit           $    620        2.7 %      8,541        41.5 %

The Company reported net income of $485,000, or $.14 per share for the quarter ended December 31, 2022, compared to $6,439,000, or $1.74 per share, in the same quarter last year which included $6,281,000, or $1.70 per share, from after tax gains on real estate sales.

Revenue miles were down 299,000, or 5.5%, over the same quarter last year due to a lower average driver count partially resulting from the closure of our Nashville location. Operating revenues for the quarter were $22,850,000, up $2,279,000 from the same quarter last year due to rate increases, higher fuel surcharges and an improved business mix. Operating revenue per mile was up $.66, or 17.5%.

Compensation and benefits increased $1,121,000, mainly due to the increases in driver compensation offset by a lower driver count and non-driver personnel reductions. Fuel expense increased $602,000 due to higher diesel prices. Insurance and losses increased $174,000. Depreciation expense was down $203,000 in the quarter. In this quarter the gain on sale of terminal sites was $0 versus $8,330,000 from the sale of Tampa in last year's 1st quarter. Gain on sale of assets was $66,000 versus $360,000 in the same quarter last year.

As a result, operating profit this quarter was $620,000 compared to $8,541,000 in last year's 1st quarter.

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 December 31, 2022, we had no debt outstanding on this revolver, $1,854,000 letters of credit and $13,146,000 available for additional borrowings. The Company expects our fiscal year 2023 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):



                                                        Three months
                                                     Ended December 31,
                                                     2022          2021
Total cash provided by (used for):
Operating activities                              $  1,414         1,605
Investing activities                                (2,025 )       8,892
Financing activities                                   117       (12,696 )
Decrease in cash and cash equivalents             $   (494 )      (2,199 )

Outstanding debt at the beginning of the period         -             -
Outstanding debt at the end of the period               -             -

Operating Activities - Net cash provided by operating activities (as set forth in the cash flow statement) was $1,414,000 for the three months ended December 31, 2022, compared to $1,605,000



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in the same period last year. The total of net income plus depreciation and amortization and less gains on sales of property and equipment increased $2,231,000 versus the same period last year. These changes are described above under "Comparative Results of Operations." 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 three months ended December 31, 2022, cash used in investing activities was $2,025,000 which included the purchase of plant, property and equipment net of the proceeds from retirements. For the three months ended December 31, 2021, cash provided by investing activities was $8,892,000 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 three months ended December 31, 2022, cash provided by financing activities was $117,000 due to proceeds from exercised stock options offset by expired stock options. For the three months ended December 31, 2021, cash used in financing activities was $12,696,000 primarily due to dividends paid. We had no outstanding long-term debt on December 31, 2022 or 2021.

Credit Facilities - The Company has a five-year credit agreement with Wells 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 of December 31, 2022, the tangible net worth covenant would have limited our ability to pay dividends or repurchase stock with borrowed funds to a maximum of $2,690,000 combined.

Cash Requirements - The Company currently expects its fiscal 2023 capital expenditures to be approximately $12.0 million for replacement equipment which we expect to be fully funded by our cash generated from our operations. The amount of capital expenditures through December 31, 2022 were $2,132,000.

Summary and Outlook. The goal in FY 2022 remained on increasing revenues to allow us to raise driver pay, improve our retention and increase our margins, all of which were accomplished. We were able to add some quality new business with both existing and new customers in a few markets throughout the first quarter and hope to see that trend continue in 2023. Inflation continues to challenge us and we continue to successfully negotiate additional rate increases with most of our customers on our existing book of business and will seek to replace business where the rate negotiations do not allow us to cover our higher expenses.

Our balance sheet remained stable with $7.8 million of cash and cash equivalents as of December 31, 2022, with no outstanding debt. We replaced 9 tractors during the quarter. For the remainder of fiscal 2023 we are planning to replace 64 tractors (29 are replacing lease units) and ~10 trailers and anticipate a total capital expenditure of ~$12 million in fiscal 2023.

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