P.A.M. TRANSPORTATION SERVICES, INC. FORWARD-LOOKING INFORMATION
Certain information included in this Quarterly Report on Form 10-Q constitutes
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements may relate to
expected future financial and operating results, prospects, plans or events, and
are thus prospective. Such forward-looking statements are subject to risks,
uncertainties and other factors which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Potential risks and uncertainties include, but are not limited to,
excess capacity in the trucking industry; surplus inventories; recessionary
economic cycles and downturns in customers' business cycles; ongoing and
potential future economic, business and operational disruptions and
uncertainties due to the COVID-19 pandemic, including from any future spikes or
outbreaks of the virus, or other public health crises, as well as from the
implementation of government actions taken in response to the pandemic;
increases or rapid fluctuations in fuel prices, inflation, interest rates, fuel
taxes, tolls, and license and registration fees; the resale value of the
Company's used equipment and the price of new equipment; increases in
compensation for and difficulty in attracting and retaining qualified drivers
and owner-operators; increases in insurance premiums and deductible amounts
relating to accident, cargo, workers' compensation, health, and other claims;
unanticipated increases in the number or amount of claims for which the Company
is self-insured; inability of the Company to continue to secure acceptable
financing arrangements; seasonal factors such as harsh weather conditions that
increase operating costs; competition from trucking, rail, and intermodal
competitors including reductions in rates resulting from competitive bidding;
the ability to identify acceptable acquisition candidates, consummate
acquisitions, and integrate acquired operations; our ability to develop and
implement suitable information technology systems and prevent failures in or
breaches of such systems; the impact of pending or future litigation; general
risks associated with doing business in
CRITICAL ACCOUNTING POLICIES
Except as noted below, there have been no material changes to our critical
accounting policies and estimates from the information provided in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included in our Form 10-K for the fiscal year ended
Business Combinations. Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. Accounting for business acquisitions requires management to make judgments as to whether a purchase transaction is a multiple element contract, meaning that it includes other transaction components such as a settlement of a preexisting relationship. This judgment and determination affects the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction.
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Table of Contents BUSINESS OVERVIEW
The Company is a holding company that owns subsidiaries engaged in providing
truckload dry van carrier services transporting general commodities throughout
the continental
For both operations, substantially all of our revenue is generated by
transporting freight for customers and is predominantly affected by the rates
per mile received from our customers, equipment utilization, and our percentage
of non-compensated miles. These aspects of our business are carefully managed,
and efforts are continuously underway to achieve favorable results. Truckload
services revenues, excluding fuel surcharges, represented 67.0% and 66.4% of
total revenues, excluding fuel surcharges, for the three months ended
The main factors that impact our profitability on the expense side are costs incurred in transporting freight for our customers. Currently, our most challenging costs include fuel, driver recruitment, training, wage and benefits costs, independent broker costs (which we record as purchased transportation), insurance, maintenance and capital equipment costs.
In discussing our results of operations, we use revenue, before fuel surcharge
(and fuel expense, net of fuel surcharge), because management believes that
eliminating the impact of this sometimes volatile source of revenue allows a
more consistent basis for comparing our results of operations from period to
period. During the three months ended
On
On
IMPACT OF COVID-19
The Company's primary concern during the COVID-19 pandemic has been to do its part to protect its employees, customers, vendors and the general public from the spread of COVID-19 while continuing to serve the vital role of supplying essential goods to the nation. For essential functions, including our driving professionals, we have distributed cleaning and protective supplies to various terminals so that they are available to those that need them, increased cleaning frequency and coverage, and provided employees direction on precautionary measures, such as sanitizing truck interiors, personal hygiene, and social distancing. We will continue to adapt our operations as required to ensure safety while continuing to provide a high level of service to our customers.
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While we and most of our customers have returned to normal operations and economic activity continued to increase during the periods presented, we continue to monitor ongoing developments with the COVID-19 pandemic. Any future waves or outbreaks of alternative strains of the virus could adversely impact our future operations and financial results.
The ultimate extent of the pandemic's impact on the Company's financial and operating results, which could be material, will be determined by the length of time the pandemic continues, its continued severity, further government regulations imposed in response to the pandemic and the pandemic's continued effect on the economy and transportation demand.
The Company believes we will be able to continue to finance our near-term needs for working capital over the next twelve months, as well as any planned capital expenditures during such period, with cash balances, cash flows from operations, and borrowings believed to be available from financing sources.
RESULTS OF OPERATIONS - TRUCKLOAD SERVICES
The following table sets forth, for truckload services, the percentage relationship of expense items to operating revenues, before fuel surcharges, for the periods indicated. Fuel costs are reported net of fuel surcharges.
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(percentages)
Operating revenues, before fuel
surcharge 100.0 100.0 100.0 100.0
Operating expenses:
Salaries, wages and benefits 32.8 29.2 30.5 31.9
Operating supplies and expenses 8.1 8.0 7.1 9.2
Rent and purchased transportation 25.2 24.3 25.7 23.4
Depreciation 11.0 11.2 11.2 13.7
Insurance and claims 3.5 3.1 4.8 3.3
Other 2.9 2.4 2.7 2.4
Gain on sale or disposal of
property (0.9 ) (0.3 ) (0.7 ) (0.3 )
Total operating expenses 82.6 77.9 81.3 83.6
Operating income 17.4 22.1 18.7 16.4
Non-operating (expense) income (0.9 ) 0.1 (0.5 ) 1.9
Interest expense (1.0 ) (1.3 ) (1.0 ) (1.7 )
Income before income taxes 15.5 20.9 17.2 16.6
THREE MONTHS ENDED
During the third quarter of 2022, truckload services revenue, before fuel
surcharges, increased 31.3% to
Salaries, wages and benefits increased from 29.2% of revenues, before fuel
surcharges, in the third quarter of 2021 to 32.8% of revenues, before fuel
surcharges, during the third quarter of 2022. This percentage-based increase is
primarily a result of an increase in average driver pay, an increase in the
percentage of total miles driven by company drivers in lieu of owner-operators
and the organic growth of our driver fleet during the third quarter of 2022,
coupled with the addition of employees due to the acquisition of
The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased from 77.9% for the third quarter of 2021 to 82.6% for the third quarter of 2022.
Non-operating income (expense) decreased from income of 0.1% of revenues, before
fuel surcharges, during the third quarter of 2021 to expense of 0.9% of
revenues, before fuel surcharges, during the third quarter of 2022. This
decrease primarily resulted from the change in the market values of our
portfolio of marketable equity securities. The Company recorded a
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NINE MONTHS ENDED
For the nine months ended
Salaries, wages and benefits decreased from 31.9% of revenues, before fuel surcharges, in the first nine months of 2021 to 30.5% of revenues, before fuel surcharges, during the first nine months of 2022. The percentage-based decrease is primarily a result of the interaction of expenses with fixed-cost characteristics, such as general and administrative wages, maintenance wages, and operations wages with an increase in revenues for the periods compared.
Operating supplies and expenses decreased from 9.2% of revenues, before fuel surcharges, during the first nine months of 2021 to 7.1% of revenues, before fuel surcharges, during the first nine months of 2022. The percentage-based decrease relates primarily to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel, which decreased as a result of increased fuel surcharge collections from customers. Fuel surcharge collections can fluctuate significantly from period to period as they are generally based on changes in fuel prices from period to period so that, during periods of rising fuel prices, fuel surcharge collections increase, while fuel surcharge collections decrease during periods of falling fuel prices. Fuel surcharge revenue generated from transportation services performed by owner-operators is reflected as a reduction in net operating supplies and expenses, while fuel surcharges paid to owner-operators for their services is reported along with their base rate of pay in the rent and purchased transportation category. These categorizations have the effect of reducing our net operating supplies and expenses while increasing the rent and purchased transportation category, as discussed below.
Rent and purchased transportation increased from 23.4% of revenues, before fuel surcharges, during the first nine months of 2021 to 25.7% of revenues, before fuel surcharges, during the first nine months of 2022. The increase was primarily due an increase in the rates charged by third-party carriers during the first nine months of 2022 compared to the first nine months of 2021. Also contributing to the increase were an increase in the average number of owner-operators under contract from 374 during the first nine months of 2021 to 391 during the first nine months of 2022, as well as an increase in the average rate per mile, including fuel surcharges, paid to owner-operators during the respective periods.
Depreciation decreased from 13.7% of revenues, before fuel surcharges, during the first nine months of 2021 to 11.2% of revenues, before fuel surcharges, during the first nine months of 2022. This decrease is primarily a result of the interaction of an increase in operating revenues with the fixed-cost nature of depreciation expense. Due to the fixed-cost nature of depreciation, an increase in operating revenues, before fuel surcharge, without a corresponding proportional increase in depreciation, decreases depreciation expense as a percentage of operating revenues.
Insurance and claims expense increased from 3.3% of revenues, before fuel surcharges, during the first nine months of 2021 to 4.8% of revenues before fuel surcharges, during the first nine months of 2022. This increase resulted from an increase in litigation reserves due to a preliminary settlement agreement regarding the minimum wage lawsuit discussed in Note L to our condensed consolidated financial statements and to increases in loss reserves.
The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 83.6% for the first nine months of 2021 to 81.3% for the first nine months of 2022.
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RESULTS OF OPERATIONS - LOGISTICS AND BROKERAGE SERVICES
The following table sets forth, for logistics and brokerage services, the percentage relationship of expense items to operating revenues, before fuel surcharges, for the periods indicated. Brokerage service operations occur specifically in certain divisions; however, brokerage operations occur throughout the Company in similar operations having substantially similar economic characteristics.
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(percentages)
Operating revenues, before fuel
surcharge 100.0 100.0 100.0 100.0
Operating expenses:
Salaries, wages and benefits 4.6 4.8 4.6 4.6
Rent and purchased
transportation 80.4 83.0 81.5 83.5
Other 0.7 0.8 0.8 0.8
Total operating expenses 85.7 88.6 86.9 88.9
Operating income 14.3 11.4 13.1 11.1
Non-operating (expense) income (0.8 ) (0.1 ) (0.4 ) 0.8
Interest expense (0.6 ) (0.7 ) (0.6 ) (0.8 )
Income before income taxes 12.9 10.6 12.1 11.1
THREE MONTHS ENDED
During the third quarter of 2022, logistics and brokerage services revenue,
before fuel surcharges, increased 27.9% to
Rents and purchased transportation decreased from 83.0% of revenues, before fuel surcharges, during the third quarter of 2021 to 80.4% of revenues, before fuel surcharges, during the third quarter of 2022. The decrease resulted from paying third-party carriers a smaller percentage of customer revenue.
The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 88.6% for the third quarter of 2021 to 85.7% for the third quarter of 2022.
NINE MONTHS ENDED
During the first nine months of 2022, logistics and brokerage services revenue,
before fuel surcharges, increased 42.5% to
Rents and purchased transportation decreased from 83.5% of revenues, before fuel surcharges, during the first nine months of 2021 to 81.5% of revenues, before fuel surcharges, during the first nine months of 2022. The decrease resulted from paying third-party carriers a smaller percentage of customer revenue.
The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 88.9% for the first nine months of 2021 to 86.9% for the first nine months of 2022.
RESULTS OF OPERATIONS - COMBINED SERVICES
THREE MONTHS ENDED
Net income for all divisions was approximately
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NINE MONTHS ENDED
Net income for all divisions was approximately
LIQUIDITY AND CAPITAL RESOURCES
Our business has required, and will continue to require, a significant investment in new revenue equipment. Our primary sources of liquidity have been funds provided by operations, proceeds from the sales of revenue equipment, and borrowings under our credit facilities, installment notes, and investment margin account.
During the first nine months of 2022, we generated
Our primary use of funds is for the purchase of revenue equipment. We typically
use installment notes, our existing line of credit on an interim basis, proceeds
from the sale or trade of equipment, and cash flows from operations to finance
capital expenditures and repay long-term debt. During the first nine months of
2022, we utilized cash on hand, installment notes, and our line of credit to
finance purchases of revenue equipment and other assets of approximately
We commonly finance the acquisition of revenue equipment through installment
notes with fixed interest rates and terms ranging from 36 to 84 months. During
the first nine months of 2022, the Company's subsidiary,
During the remainder of 2022, we expect to purchase approximately 130 new trucks
and 200 new trailers while continuing to sell or trade older equipment, which we
expect to result in net capital expenditures of approximately
We currently intend to retain our future earnings to finance our growth and do not anticipate paying cash dividends in the foreseeable future.
During the first nine months of 2022, we maintained a revolving line of credit.
Amounts outstanding under the line bear interest at Term SOFR plus 1.35% (4.33%
at
Trade accounts receivable increased from
Prepaid expenses and deposits increased from
Revenue equipment increased from
Marketable equity securities decreased from
Accounts payable increased from
Accrued expenses and other liabilities increased from
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Long-term debt and current maturities of long term-debt are reviewed on an
aggregate basis, as the classification of amounts in each category are typically
affected merely by the passage of time. Long-term debt and current maturities of
long-term debt, on an aggregate basis, increased from
NEW ACCOUNTING PRONOUNCEMENTS
See Note B to the condensed consolidated financial statements for a description of the most recent accounting pronouncements and their impact, if any, on the Company.
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