Good afternoon, welcome to the Patriot Transportation Holdings, Inc. earnings call for the 1st quarter of 2023. At this time, all participants are placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mr. Rob Sandlin, President and CEO of Patriot Transportation. Sir, the floor is yours. Thank you. 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 Chief Operating 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 relate 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 first quarter results. Today, the company reported a net income of $485,000, or $0.14 per share for the quarter ended December 31, 2022, compared to net income of $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 gain on real estate. 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 improved business mix. Miles this quarter were down $299,000, partially due to the closing of our Nashville location and a lower driver count. Operating revenue per mile was up $0.66 or 17.5%. Compensation and benefits increased $1,121,000, mainly due to the increased driver compensation package, mostly offset by lower driver count and a reduction in support staff. Depreciation expense was down $203,000 in the quarter, and gains on sales of assets was $66,000 compared to $360,000 gain in last year's quarter. The operating profit for this quarter was $620,000 compared to $8,541,000 in last year's first quarter. The summary and outlook. Looking back at our 2022 year, we focused on adding business with new and existing customers that meets our stated goal of adding quality business that provides for an acceptable return on investment. As we began our 2023 year, we added business with new and existing customers throughout the quarter and have new business opportunities booked going forward into the second quarter. We had $7.8 million of cash at the end of the first quarter with no outstanding debt. Interest rates continued to rise in calendar to 2022, which will put more pressure on those in the industry with large outstanding debt. We will add 73 tractors during our year and received nine during the quarter. 44 of the tractors will replace our existing company fleet, and 29 will replace leased tractors with company-owned tractors. We believe replacing the 29 leased tractors with company units will provide a better financial result and is a good use of our cash. We will only add a small number of trailers during 2023 in hopes that inflation declines going forward and replacement prices, price surcharges also decline, allowing us to replace more trailers down the road at a lower price. We will continue to focus on our driver hiring and retention. During the quarter, we raised pay on our drivers in most of the markets where pay was not adjusted late in our 2022 year. The results among our drivers with a year or more of seniority has been very positive, resulting in low turnover among this group of dedicated professionals. New driver acquisitions, while slightly improved, continues to result in high turnover, but with slightly better results than this time last year. As general spot freight rates have declined, we have experienced the ability to put on more owner-operators in several markets and will continue to monitor and balance this with company drivers. In closing, we are on target with our safety goals for the first quarter of the year and will continue to focus to keep preventable incidents and costs in check. Generally, the petroleum and construction industry business increases during our second quarter, and we believe we are positioned well to take additional advantage of seasonal volume increases along with committed new business. Thank you again for your interest in our company, and we will be happy to entertain any questions. Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments at this time, please press star one on your phone. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Thank you. Our first question is coming from Christian Olesen with Olesen Value Fund. Please go ahead. Thank you. just wanted to see if you guys could talk a little bit more about your sort of goals, plans, and expectations for rate increases in the first calendar quarter of 2023 and maybe the following quarter as well. Christian, thanks for being on the call and for your question. I think the best way to answer that is we have budgeted the majority of our price increases in the first and second quarter of this year, and they are going along as planned. We feel like the market is still allowing for additional rate. Certainly some of that is continuing to help us cover this added driver cost, but also some of the inflation that we're seeing. I would say so far so good. Okay, great. In terms of driver pay, could you comment a bit more on that? Just the pressures in the industry overall, is it abating much? Is there any difference comparing tank truck drivers to truck drivers more generally? Yeah, First thing I would say is you can always draw a comparison between the over-the-road driver that is out there for, let's say, weeks at a time, and our drivers in the tank truck industry, particularly ours, that are more regional in nature, and they're mostly home at night. I think from a compensation standpoint, our drivers typically do better than a new driver that's over the road, plus they're home with their family. So I think we got a little bit of an advantage there. That is the way that most people break into the industry, though, is getting in that long haul side of the business. They've got to wanna change jobs. In fact, I was talking to one of our drivers last year that was out on the road for 16 years, and he's really happy to be home. He was gone six weeks at a time, and he's working for us, and he said he's making more money. That, that's kind of a real-life example there. The driver pay increases that we did so far this year, and that and we had planned, were for five or six of our terminals that had not had driver pay increases in the latter half of the year. While we've seen some, I would say, we've raised the pay a lot over the last... since April of 2021. I think we saved between 25% and 35%. We think the biggest part of that work is done. Certainly with inflation where it is, there's gonna be some expectation on a routine basis to do something, but I think the real large chunks of that are behind us. Okay. Thank you very much. Yes, sir. Thank you. Thank you. Our next question is coming from John Koller with Oppenheimer & Close. Please go ahead. good afternoon, gentlemen. Hello, John. A couple questions, if I could. Usually on these calls, you give us some idea of the number of drivers and any that you've added. Just wondering if you can provide that information. I'm also curious about how those efforts that you had to recruit and get new drivers into training, how those are progressing or have they largely petered out, just not delivered as you might have expected? Matt? Yeah. We are currently at a, at roughly 360 revenue producing drivers, from somewhere in the 350s, to start the year. A slight improvement there. As far as, really kind of started seeing it mostly in the second half of January, which is fairly typical for the trucking industry, everybody stays put through the holidays. Then in January is when people start making changes. We've actually seen our drivers in training the last couple weeks, up in the mid-30s, whereas prior weeks before that, we were in the mid to upper 20s. That's a, it's a leading indicator. We'll see what happens because they have to get through training and stick, but it certainly would be a positive trend if it continues. Okay. Yeah. Some of the things I've been reading have been saying that the worker pool has been increasing. I'm wondering if you're seeing that too. It sounds like seasonality might mask some of that. It does a little bit. We don't see much movement in December. The other thing that we've seen is that with spot freight prices coming down, we've seen some owner-operators come back to the tank segment. We've got more owner-operators running today than we did when we began this, the fiscal year. We're monitoring that and trying to make sure we keep that balance where we like it. That's a positive thing because we've got freight for those folks to haul. We'll continue to monitor that and see what happens. Okay, great. Just a quick question, if I may, on. Mm-hmm. ... insurance. A lot of the stuff I've read saying that commercial vehicle, at least on the reinsurance segment, is getting somewhat difficult or has been difficult to place. I know you guys do self-insurance, but I'm just wondering where you come out on balancing those, you know, the risks and the rewards with that. Wondering if there was a price at which you might think about reducing your deductibles or anything like that? I would say that right now, you know, we run those numbers maybe not every year, but we run them enough to know that there's a sizable seven-figure gap between what we would spend if we were to lower our retentions significantly versus what we're spending today in the premium plus our cost. We've looked at it, I don't see us. We kind of feel like we're in the sweet spot on the risk, and the Workers' Compensation was something, I guess, you know, the Workers' Compensation, we decided to get a half a million dollar deductible a few years back. Although we did have one claim that really surprised us last year, that still, if you look at the math over history, appears to be the right place to be for expenses on top of premium. It's been a pretty hard market. Any movement in that with a lower deductible over the past three or four years would have been really expensive. Mm-hmm. To take on more risk, looking at it the other way, there really wasn't the payback on the premium, again, because of the hard market. You just weren't getting rewarded as much. We've kind of stayed where we've been for a while in those groups, but it is something we continue to look at. Yeah. Our renewal this year was not terrible. It wasn't like it had been the last few years, with everything being... You know, our renewal on the primary was under 10% and kind of in that mid-teen range on the upper layers. Oh, great. That's good to know. Last question, then I'll let it go. I know you said that in general, freight rates have been coming down, and you've been adding new business. I'm just curious, you know, are you finding it more difficult given that maybe you're finding the competition a little sharper? I'm just wondering how you're balancing that out or how you're able to get additional business, I guess. Yeah. No. Let me clarify, just to be sure, for you and others on the call. When I say spot freight rates are coming down, that's for the general freight industry and not for us, and that's where a lot of those owner-operators have been working. When you read the different trade magazines and the trade journal stuff about spot freight prices, that's not really gonna be indicative of what's going on in the tank truck industry. Ours are going up. If you look at our revenue per mile and our quarterly announcements that we've been making, our freight weight rates are up dramatically over the last two years, and we don't see any reason for that to decline. It's certainly not gonna decline for us because we're gonna partner with people that... Customers that are looking for quality service, and they want to guarantee that they've got that supply. Compared to selling diesel fuel or gasoline at a margin, the freight portion of this thing is, while it adds up to a lot of dollars on a per gallon basis, it's pretty small comparatively. We're really not seeing any rate pressure downward. Great. Thanks so much. Uh-huh. Thank you. Thank you. Our next question is coming from John Deysher with Pinnacle. Please go ahead. Good afternoon, everyone. Thanks for taking our questions. Yeah, John. Thank you. You indicate the revenue was up because of rate increases, higher fuel charges, and improved business mix. Could you elaborate on the improved business mix? What are you talking about there specifically? Sure. Yeah. Yeah, I'll give you a couple of examples. One of the things that we talked about as we were downsizing our business and trying to then right-size everything and improve margin was to go out into the marketplace. Let's say that we can't add a driver capacity, and in a given market, we've got X number of drivers, and we have to decide how are we gonna make that business more profitable. We go to our partners and say, "Look, we've had driver pay go up. We've got inflation, we got this, and we need, we need a rate increase of X." If they say, "Well, that's just more than we can stand," then what we would do is work with them to exit or downsize. If they can get somebody to haul it for them at a low, low price, and we can add business with somebody else at a higher price, then that's what we've done in a number of different markets. It's kind of what we're talking about with business mix, more so than changing products. Yeah. It's really just a mix of the customers. It's swapping one customer for a higher rated piece of business. Does that make sense? Yeah. That makes total sense. Okay, good. Do you see that continuing in terms of swapping out low-margin customers for higher margined customers, or are you kind of reaching the end of the road there? I hope we're reaching the end of the road. There may be a pocket or two with that. We really are and have aligned ourselves with some good partners and good customers and folks that we've done business with for a long time. I think the whole world has had to wake up a little bit to the supply chain and driver shortage, and that it's real, and it's frankly not going anywhere anytime soon. I think our customer base in the tank truck industry realizes that it's really important to get their products to the end user. You know, there are always cycles in business, but I think we're in a cycle where they understand that, and they're gonna be willing to pay a reasonable amount of money for us to make a reasonable return on our investment. Okay. Okay, that makes sense. Good. You mentioned the driver count 360 or so. What was the turnover for the most recent quarter roughly? Turnover of this first quarter was 73%. 3.5. 73. John, what's interesting is we're turning over very few of our drivers that have more than a year of service. Most all of that churn is in that first-year driver. Right. One more comment. It's pretty close to what you were a year ago, right? Weren't you around 72% in Q1 a year ago? I wouldn't know that I could go back to Q1 a year ago and get the actual-. For the year, we were up. For the year we were about 83 overall last year. All right. Okay. It's coming down a little bit. That's good. Two years ago, it was $100. Yeah. A year ago, it was $100. Okay, good. It is going down. That's good. Yeah, two years ago. It's not where we want it, but we're going through a lot of new gyrations and just trying something new all the time to see what we can do to impact that new driver so that it has more staying power 'cause we spend a lot of money training these folks. We're really spending a lot of time and energy there. Okay. All right, good. On the CapEx side, could you explain the economics behind replacing lease with own trucks, you said better financial results. Could you talk us through, you know, why the results are better by owning a truck as opposed to leasing it? I mean, quite frankly, it's come down to the fact that they're building in a significantly higher cost of the tractor, and then they're throwing interest on top of that than what we can purchase ourselves. How much better are the returns from owning the truck versus leasing the truck? Do you remember the difference when we ran those numbers? John, I can't remember the numbers. We ran all that. The other thing that's gonna happen is initially when you lease that truck, you're paying out... Over the life of that truck, you're paying X number of dollars in or cents per mile for maintenance. When we put these trucks on, for the first two years, we're gonna see a significant reduction in that maintenance cost as well, because we're just gonna be doing routine PM type work. When you're getting later in life, that thing might swing around a little bit the other direction. When we ran that whole model, it was quite substantial, and we got on the phone with the leasing company's. Finance guy. Finance guy, I mean, he even agreed that with what we were doing, that it probably made more sense for us to own trucks. If you're borrowing money. With interest rates higher, the leasing companies are looking to get an imputed interest rate into their number that's pretty high. When we have money in the bank, it just makes less sense for us to do that. Yeah. Okay. I did check. Our turnover rate was 80% in the same quarter last year. Eight. It was 80%, okay. Now it was 73%. Okay, that's good. That's fine. We haven't seen the Q yet, but what was the CapEx for Q1? $2 million net. $2 million net, and the total is gonna be $12 million, so that leaves about $10 million. How does the $10 million unfold over the next three quarters roughly? The way the tractors are coming in is we've got 10 a quarter, provided that they deliver them on time, for from one of our vendors, and then the lease tractors are spread over about three months across the third and maybe filter a little bit into the fourth quarter, but I think most of that's gonna hit in the third quarter. That's the 29 trucks. Yeah, late second, mostly third. Late second, mostly third. Pretty sure. The remaining $10 million folds out how over the next three quarters? I can do that for you. It's gonna be heavy. 29 30 and 10 gonna be 40. Call it 40 trucks. Two, four, and four maybe. No, it'll be heavier in the third. It's probably more like two, six, and two probably. Well, that's too much. No, that's right. That's right. Yeah. No, that's right. That makes sense. If they come on time. If they're here on time. Yeah, yeah. the 29 have to be here on time. The 29, we're pretty much locked in with them, that they'll arrive for that timeframe, that late second, early, and third quarter. Okay. Two, six, and two for quarters two, three, and four. Is that right? Correct. Okay. You got it. All right, good. That's all we have. Thanks very much. Okay, thank you. Thank you. There are no further questions in the queue at this time. I will hand it back to Mr. Sandlin for any closing comments he may have. Thank you. Thank you all for your interest in Patriot Transportation. We look forward to talking with you next quarter. Thank you, everyone. This does conclude today's conference call. You may disconnect your lines at this time. Have a wonderful day. We thank you for your participation.