P.A.M. Transportation Services, Inc. — Q1 2013 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2013, compared with the three months ended March 31, 2012. The company operates primarily in truckload transportation, with additional brokerage and logistics services across the United States, Mexico, and Canada. Truckload services represented 91.1% of revenue before fuel surcharges.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Total operating revenue | $100.0 million | $96.2 million | 4.0% increase |
| Revenue before fuel surcharge | $77.8 million | $75.2 million | 3.5% increase |
| Operating income (loss) | $(0.3) million | $1.1 million | Declined |
| Net income (loss) | $(0.5) million | $0.7 million | Declined |
| Basic and diluted EPS | $(0.05) | $0.08 | Declined |
| Net cash from operating activities | $10.0 million | $3.5 million | Increase |
| Net cash used in investing activities | $(18.3) million | $(15.4) million | Higher use |
| Net cash from financing activities | $8.7 million | $11.9 million | Declined |
Reported operating margin was approximately negative 0.3% of total operating revenue, compared with approximately 1.1% in the prior-year quarter. Net margin was approximately negative 0.5%, compared with approximately 0.7%. On revenue before fuel surcharges, the company reported a net loss equal to approximately 0.6% of revenue versus net income equal to approximately 0.9% in Q1 2012.
Cash and cash equivalents were $0.9 million at March 31, 2013, compared with $0.5 million at December 31, 2012. Total current assets were $94.8 million and total current liabilities were $75.5 million. Marketable equity securities totaled $19.0 million, including approximately $8.5 million of gross unrealized gains.
Total debt, including current maturities and long-term debt, was approximately $116.7 million at March 31, 2013, compared with $107.5 million at December 31, 2012. The company maintained a $35.0 million revolving credit facility; outstanding advances, including $1.1 million of letters of credit, were approximately $11.7 million, leaving approximately $23.3 million available. The facility bears interest at LIBOR plus 1.95%, or 2.15% at March 31, 2013, and matures June 1, 2014.
Material changes versus the prior comparable period
- Truckload revenue before fuel surcharge increased 3.5% to $70.9 million. Miles traveled increased to 51.7 million from 50.7 million, and average trucks in service increased to 1,804 from 1,747.
- Brokerage and logistics revenue before fuel surcharge increased 4.3% to $6.9 million.
- Truckload operating ratio worsened to 100.7% from 98.7%, while the brokerage and logistics operating ratio improved to 96.4% from 97.3%.
- Salaries, wages, and benefits increased to 57.8% of truckload revenue before fuel surcharge from 46.6%. Management attributed the increase primarily to higher owner-operator lease expense and an accrual for an expected adverse settlement of a large workers’ compensation claim.
- Fuel expense, net of fuel surcharge, decreased to 6.8% of truckload revenue before surcharge from 14.4%, reflecting lower surcharge-adjusted fuel costs and a larger owner-operator fleet.
- Depreciation increased to 14.2% of truckload revenue before surcharge from 13.5%, partly because the company accelerated its truck replacement cycle from five years to three years.
- Interest expense increased to $0.8 million from $0.6 million, while non-operating income decreased to $0.3 million from $0.6 million.
- The company purchased $23.7 million of property and equipment and received $7.3 million from equipment dispositions. It also entered into approximately $16.8 million of installment obligations for revenue equipment at weighted-average rates of approximately 2.74%.
- Shareholders’ equity increased modestly to $122.7 million from $122.2 million, despite the quarterly net loss, primarily because of $1.1 million of after-tax gains in accumulated other comprehensive income related to marketable securities.
Guidance, outlook, risks, contingencies, and unusual items
Management expected to purchase approximately 450 new trucks and 540 new trailers during the remainder of 2013, resulting in estimated net capital expenditures of approximately $50.6 million. Management stated that cash, operating cash flow, and expected financing availability should fund near-term working capital and planned capital expenditures, and that it did not expect significant liquidity constraints in the foreseeable future. The filing does not provide earnings or revenue guidance.
The company does not anticipate paying additional cash dividends in the foreseeable future beyond dividends declared and paid in 2012. During the quarter, it repurchased 35,930 shares for approximately $0.3 million under its repurchase authorization.
Key risks include excess trucking capacity, economic and customer-cycle downturns, fuel-price volatility, driver recruitment and compensation pressures, insurance and workers’ compensation claims, equipment resale values, financing availability, adverse weather, competitive pricing, customer concentration, and acquisition execution. A 10% increase in diesel prices based on 2012 consumption was estimated to increase annual fuel expense by approximately $11.1 million. A 100-basis-point increase in LIBOR, assuming $11.0 million of variable-rate debt, was estimated to increase annual interest expense by approximately $0.1 million.
The quarter included an approximately $24,000 impairment charge on marketable equity securities and an accrual for an expected adverse settlement of a large workers’ compensation claim. Routine transportation-related litigation was described as adequately insured and not expected to have a material adverse effect. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Assess whether the sharp increase in salaries, wages, and benefits, including owner-operator and workers’ compensation costs, is recurring or temporary.
- Monitor whether the truck replacement program improves utilization and maintenance costs sufficiently to offset higher depreciation and capital needs.
- Reconcile the planned approximately $50.6 million of 2013 net capital expenditures with operating cash flow, equipment-sale proceeds, debt maturities, and available credit.
- Review the terms, covenants, collateral, and maturity of the revolving credit facility and other debt, particularly the June 2014 revolver maturity.
- Evaluate exposure to fuel prices, driver shortages, insurance claims, customer concentration, and competitive freight rates.
- Consider the volatility and concentration of the $19.0 million marketable equity portfolio, including its unrealized gains and use as collateral for approximately $10.6 million of margin borrowings.
- Confirm the status and amount of the expected workers’ compensation settlement and any related insurance recoveries.