P.A.M. Transportation Services, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 7, 2021. The company provides truckload, brokerage, and logistics transportation services in the United States, Mexico, and Canada. Financial statements are unaudited and presented in accordance with interim GAAP.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total operating revenue | $148.9 million | $129.2 million | 15.3% increase |
| Revenue before fuel surcharge | $135.1 million | $111.8 million | 20.8% increase |
| Operating income | $13.7 million | $9.5 million | 44.0% increase |
| Operating margin on total revenue | 9.2% | 7.3% | Improved |
| Income before taxes | $16.1 million | $(1.8) million | Improved |
| Net income | $11.9 million | $(1.3) million | Returned to profitability |
| Basic/diluted EPS | $2.09/$2.08 | $(0.23)/$(0.23) | Improved |
| Cash flow from operations | $23.9 million | $23.5 million | 2% increase |
Revenue mix: Truckload revenue before fuel surcharge was $90.4 million, down 1.0%, while brokerage and logistics revenue increased 118.3% to $44.8 million. Fuel surcharge revenue declined to $13.7 million from $17.3 million.
Margins and expenses: The consolidated operating margin improved despite higher operating supplies and insurance costs. The truckload operating ratio improved slightly to 90.1% from 90.2%. The brokerage and logistics operating ratio improved materially to 89.5% from 97.5%.
Non-operating items: Non-operating income was $4.7 million versus a $9.1 million expense in the prior-year quarter, primarily reflecting market value gains on marketable equity securities. The company recorded approximately $4.2 million of unrealized investment gains in Q1 2021 versus an approximately $8.8 million unrealized loss in Q1 2020.
Balance sheet, debt, and liquidity
| Metric | March 31, 2021 | December 31, 2020 |
|---|---|---|
| Cash and cash equivalents | $0.3 million | $0.3 million |
| Marketable equity securities | $31.9 million | $27.9 million |
| Total assets | $573.4 million | $578.6 million |
| Total debt, including current maturities | $269.7 million | $286.1 million |
| Total liabilities | $411.5 million | $428.6 million |
| Stockholders’ equity | $161.9 million | $150.0 million |
The revolving credit facility had approximately $4.2 million outstanding, including $0.3 million of letters of credit, with $55.8 million of borrowing availability. The facility bears interest at LIBOR plus 1.25% and matures July 1, 2022. Margin-account borrowings were approximately $10.7 million and were secured by marketable securities.
Investing activities provided $6.5 million, including $8.2 million of equipment-disposition proceeds and only $1.9 million of property and equipment purchases. Financing activities used $30.5 million, including $15.4 million of long-term debt repayments. The company financed approximately $13.4 million of equipment purchases through installment obligations.
Material changes versus the prior comparable period
- Revenue growth was driven by a more than doubling of brokerage and logistics activity, including higher load volumes and customer rates.
- Truckload revenue declined modestly because the fleet had approximately 5% fewer trucks, primarily due to fewer independent contractors.
- Brokerage profitability improved as purchased transportation represented a lower percentage of customer revenue.
- Insurance and claims expense increased to $3.2 million from $0.1 million; Q1 2020 benefited from a roughly $3.1 million reversal of a lawsuit reserve.
- Other expense declined to $2.7 million from $5.8 million, principally because of lower litigation-related legal fees.
- Accounts receivable increased to $85.0 million from $77.7 million, while accounts payable decreased to $39.8 million from $46.1 million.
- The company repurchased 2,956 shares for approximately $0.1 million at an average price of $48.68 per share.
Guidance, outlook, risks, and unusual items
Management expects to purchase approximately 165 new trucks during the remainder of 2021 and expects net proceeds of approximately $3.5 million from selling or trading older equipment. Management believes cash balances, operating cash flow, and available financing will support working capital and planned capital expenditures over the next twelve months and does not expect significant near-term liquidity constraints.
The company does not anticipate paying cash dividends in the foreseeable future and expects to retain earnings to finance growth.
- COVID-19 remains a risk to freight demand, automotive customers, staffing, operations, liquidity, and access to credit. Management stated that most operations and customers had returned to normal by Q1 2021 but warned that future outbreaks or variants could materially affect results.
- Approximately 34% of freight hauled crosses the United States-Mexico border. Border closures, delays, trade policy changes, political or economic instability, and currency movements could adversely affect operations.
- Mexico’s April 2021 labor-outsourcing reforms were under evaluation and could increase operating costs or adversely affect financial results.
- Key exposures include fuel prices, driver recruitment and compensation, insurance and claims, equipment values, interest rates, equity prices, competition, and financing availability.
- A 10% decline in the marketable equity portfolio would reduce its carrying value by approximately $3.2 million. A 10% increase in diesel prices would have increased annual fuel expense by approximately $3.7 million based on 2020 consumption.
- The company reported no material pending litigation, no material changes to internal controls, and no material changes to previously disclosed risk factors other than the Mexico-related risks described in the filing.
Investor verification items
- Determine how sustainable the exceptional brokerage and logistics revenue growth and improved operating ratio are.
- Separate recurring operating performance from the approximately $4.7 million of non-operating income, including investment-market gains.
- Monitor fuel surcharge recovery relative to diesel costs and the effect of changing fuel prices on margins.
- Review the company’s exposure to marketable equity securities, margin borrowings, and related market-volatility risk.
- Verify execution of the planned 165-truck purchases, equipment dispositions, and related debt financing.
- Assess the effect of Mexico’s labor-outsourcing reforms and cross-border operating risks.
- Track insurance and claims expense following the unusually low comparable-period expense caused by the prior reserve reversal.