Patriot Transportation : Annual Report 2022 (September 30, 2022)

2022 ANNUAL REPORT

Annual Report 2022			Patriot Transportation Holding, Inc.
CONSOLIDATED FINANCIAL HIGHLIGHTS
Years ended September 30
(Amounts in thousands except per share amounts)
				%
		2022	2021	Change
Revenues ...........................................................................................	$	87,882	81,268	8.1
Operating profit ..................................................................................	$	9,299	880	956.7
Income before income taxes ..............................................................	$	9,343	858	988.9
Net income .........................................................................................	$	7,190	625	1050.4
Per common share:
Basic .............................................................................................	$	2.08	.18	1055.6
Diluted ..........................................................................................	$	1.98	.18	1000.0
Total Assets ........................................................................................	$	47,566	52,560	(9.5)
Total Debt ...........................................................................................	$	-	-	-
Shareholders' Equity ..........................................................................	$	31,187	36,116	(13.6)
Common Shares Outstanding ............................................................		3,484	3,416	2.0
Book Value Per Common Share .........................................................	$	8.95	10.58	(15.4)

BUSINESS. The business of the Company, conducted through our wholly owned subsidiary, Florida Rock & Tank Lines, Inc. (Tank Lines), which is a Southeastern U.S. based tank truck company, is to transport petroleum and other liquids and dry bulk commodities.

OBJECTIVES. The Company's objectives are to continue building a substantial transportation company providing acceptable returns on capital employed and cash generation.

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To Our Shareholders	Patriot Transportation Holding, Inc.

Fiscal year 2022 was a year of much improvement. We increased our revenue per mile, reduced our turnover rate and turned a profit after excluding the gain from the Tampa land sale. Following the closing of the Tampa sale, the Board declared a special dividend of $3.75 per share bringing the total dividends paid to shareholders since January 2020 to $9.90 per share for a total return of $33.5 million.

On the operating side of the business, we found stability due mainly to our ability to continue to raise driver pay following a series of customer rate increases. Recall, in the spring of 2021 we saw a marked change in the vast majority of our customer base as it related to rates and desires to put service and driver capacity at the top of the priority list. In the past several fiscal years we had seen a steady trend whereby our average driver count was declining by approximately 50-75 drivers per year. However, in fiscal year 2022 our driver count remained relatively flat at ~350 drivers throughout the year mainly as a result of reduced turnover. Late in the fiscal year we announced additional pay increases in several key markets. We anticipate announcing pay increases in the remaining markets early in 2023 and at that point our driver pay across the company will be up 25-35% depending on the market.

Our operating profit in FY 2022, excluding the Tampa land gain and transaction bonus, was $2,048,000. This year included four major insurance events which, when combined, totaled over $1,200,000 in expense for the fiscal year. While we are always susceptible to auto accidents, worker's compensation claims and high dollar medical cases, it is very unusual to have just four incidents create that large of an impact in a fiscal year. Despite being down approximately 2.5 million miles YOY, operating revenues were up $6.6 million due to higher fuel surcharges and rate increases. Revenue excluding fuel surcharge was up $.24 per mile over fiscal 2021.

With oil prices rising early in 2022 the cost of diesel was high for the second half of the year but that cost was offset by fuel surcharges. Repairs and Tires were up considerably this year for several reasons. On the tire side, we

have seen inflation drive prices up 16% on a year over year basis. Similarly, we have seen inflation hit both on repair parts as well as maintenance wages. With the downsizing of the fleet over the past few years, we weren't buying new tractors in FY 2021. We ordered 30 replacement tractors in FY 2022 but, due to supply side issues, they were mostly delayed on delivery until the second half of the year. As a result, we were operating lots of older equipment which drives maintenance expense higher. The good news, we have ordered 69 additional replacement tractors to be delivered in FY 2023 which will result in 99 new tractors in the fleet by October, 2023. This should start to drive down per mile maintenance expense as we get into the second half of FY 2023. Insurance expense was up nearly $1 million mostly due to the four incidents mentioned above.

Our business mix has hovered the past two years around 85% petroleum and 15% other products. Our goal is to grow the other business products as a percentage by adding additional revenue in those categories and maintaining our petroleum business. We grew our water revenue by over 50% year over year and hope to see that trend continue as the customer expands its capacity. In fiscal 2022, we started to focus on adding dry bulk business into locations that had historically been 100% petroleum locations. We will continue to do that in 2023 as we would like to grow the dry bulk business across our footprint.

The auto liability insurance market has settled down somewhat and we were able to secure a mid-single digit increase on our primary layer but saw mid-teen increases on our excess layers. While expensive, we are able to absorb that through rate increases.

Our recent technology investments continue to pay dividends. The SmartDrive on-board camera system installed near the end of 2020 has already paid for itself and then some. We had several incidents to date where the video exonerated us in accidents where the at fault party likely would have, or actually did, claim our driver was at fault, saving us cost of defense and potential settlement money. The camera system is also helping us improve driving habits

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To Our Shareholders continued	Patriot Transportation Holding, Inc.

across the network with the driving score and live video coaching platform. We plan to implement a new automated dispatch module in FY 2023 with a target completion date of October 1. This technology should bring significant efficiencies to our operations and customers. We believe technology is critical to our future success as it provides significant benefits to our drivers, employees and customers.

We are very proud to say that the company beat our preventable accident frequency target for the 4th straight year in a row. The standard we set is high and the fact that we have beaten our target four years in a row is a testament to our "safety first" approach company wide. We look forward to giving away a brand-new Chevy Silverado pickup truck again this year to one of our safe drivers.

In summary, we certainly had some challenges in fiscal 2022 but with the positives around customer partnerships, rates and driver retention we look forward to a successful fiscal 2023. Our balance sheet remains strong with over $8.3 million in cash and no debt. Our plan is to spend approximately $12M on capex during the fiscal year using zero financing with plenty of cash remaining on the balance sheet at year end. As always, we do not take your investment

in our Company lightly and we want to thank you for your continued interest and support.

Respectfully,

Robert E. Sandlin

President & Chief Executive Officer

Thompson S. Baker II

Chairman

Matthew C. McNulty

Vice President, Chief Financial Officer and

Chief Operating Officer

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