P.A.M. Transportation Services, Inc. — 2020 Q2 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020; filed August 4, 2020. The unaudited results cover motor carrier operations, including truckload services and brokerage and logistics services. COVID-19 materially affected freight demand, particularly because approximately 45% of revenue was associated with automotive customers.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue before fuel surcharge | $85.8 million | $112.4 million | $197.6 million | $222.7 million |
| Fuel surcharge revenue | $7.2 million | $20.6 million | $24.5 million | $39.0 million |
| Total operating revenue | $93.0 million | $133.0 million | $222.1 million | $261.7 million |
| Operating income (loss) | $(2.0) million | $13.2 million | $7.5 million | $22.9 million |
| Net income (loss) | $(0.8) million | $8.7 million | $(2.1) million | $17.0 million |
| Diluted EPS | $(0.14) | $1.45 | $(0.37) | $2.84 |
| Cash flow from operations | Not separately provided | Not separately provided | $44.0 million | $53.2 million |
- Q2 operating margin was approximately (2.2)% of total operating revenue, compared with approximately 9.9% in Q2 2019. Six-month operating margin was approximately 3.4%, compared with 8.7% in the prior-year period.
- Net margin was approximately (0.9)% in Q2 and (1.0)% for the six months, compared with 6.5% and 6.5%, respectively, in the comparable 2019 periods.
- Truckload revenue before fuel surcharge declined 24.7% in Q2 and 11.8% for the six months. Brokerage and logistics revenue declined 18.9% in Q2 and 8.8% for the six months.
- Truckload operating ratio increased to 103.9% in Q2 and 96.1% for the six months, from 87.1% and 89.0%, respectively. Brokerage and logistics operating ratio increased to 95.2% and 96.5%, from 93.9% and 93.1%.
- Cash flow from operations funded most investing needs. Investing activities used $19.0 million, primarily for property and equipment, while financing activities used $24.9 million. Ending cash and cash equivalents were $327,000.
- At June 30, 2020, total debt, including current maturities, was approximately $233.1 million, down from $241.8 million at December 31, 2019. Long-term debt excluding current maturities was $168.5 million, and current maturities were $64.6 million.
- The revolving credit facility had $12.9 million outstanding, including $0.4 million of letters of credit, and $47.1 million of available borrowing capacity. The facility bears interest at LIBOR plus 1.25%, or 1.43% at June 30, 2020, and matures July 1, 2022.
- Marketable equity securities totaled $25.7 million, down from $29.5 million at year-end 2019, and had a $0.9 million net unrealized loss at June 30, 2020. Margin-account borrowings were approximately $10.0 million.
- Total assets were $501.4 million and stockholders’ equity was $131.9 million at June 30, 2020. The company purchased a 51.6-acre Laredo, Texas terminal, adding approximately $19.7 million to land and structures.
Material changes versus the prior comparable period
- COVID-19-related automotive plant closures and broader economic disruption reduced freight volumes, revenue and utilization. More than 50% of customers imposed COVID-19-related shutdowns during the second quarter.
- Revenue fell sharply while fixed costs remained comparatively high. Salaries, wages and benefits, depreciation, and operating supplies increased as percentages of revenue, while rent and purchased transportation declined because the company used more company-owned capacity and fewer third-party carriers.
- Non-operating results were volatile: the company recorded approximately $2.5 million of market-value gains on equity securities in Q2 2020, but a roughly $6.3 million market-value decrease for the six-month period.
- Insurance and claims expense declined, partly because the company became self-insured for certain auto-liability layers above $1.0 million beginning September 1, 2019.
- The company settled an independent-contractor lawsuit for approximately $421,000 plus legal fees, reversing excess reserves. Separately, a preliminary $16.5 million settlement of an employee-driver class and collective action remained reserved and subject to final court approval.
- During the first six months, the company financed approximately $18.4 million of equipment purchases through installment obligations and repurchased 9,175 shares for approximately $321,000. No shares were repurchased during Q2.
Guidance, outlook, commentary and risks
- Management expected to purchase approximately 350 new trucks and 250 new trailers during the remainder of 2020, with estimated net capital expenditures of approximately $34.6 million.
- Management stated that cash balances, operating cash flow and expected financing availability should fund working capital and planned capital expenditures for the next twelve months, and that it did not expect significant near-term liquidity constraints. No earnings or revenue guidance was provided.
- Management cautioned that the duration and severity of COVID-19, renewed outbreaks, automotive production levels, customer demand and credit-market conditions could materially affect operations, liquidity and debt-service capacity.
- Key operating risks include excess trucking capacity, freight-rate pressure, fuel and interest-rate volatility, driver recruitment and compensation, insurance and self-insured claims, equipment resale values, financing availability, customer concentration, litigation, technology risks and Mexico-related operating exposures.
- Market sensitivities disclosed by the company include approximately $2.6 million of exposure to a 10% decline in the equity portfolio, approximately $125,000 of annual interest expense for a 100-basis-point increase in LIBOR on assumed line borrowings, and approximately $5.1 million of annual fuel-cost impact from a 10% diesel-price increase based on 2019 consumption.
- Disclosure controls and procedures were deemed effective as of June 30, 2020, with no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Final court approval and payment timing for the $16.5 million employee-driver settlement.
- Automotive customer production recovery, customer concentration and the potential for additional COVID-19 disruptions.
- Availability and covenant terms of the revolving credit facility, margin-account borrowings and equipment financing.
- Capital-expenditure execution, expected equipment purchases and the company’s ability to maintain positive operating cash flow.
- Volatility and collateral requirements associated with the marketable equity securities portfolio.
- Exposure from self-insured auto-liability claims, fuel prices, interest rates and the company’s planned transition away from LIBOR.