P.A.M. Transportation Services, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; filed August 5, 2022. Results are unaudited and presented in accordance with U.S. GAAP. P.A.M. provides dry-van truckload transportation, brokerage, and logistics services in the United States, Canada, and Mexico.
Financial performance and position
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Total operating revenue | $237.2 million | $161.3 million | $456.6 million | $310.1 million |
| Revenue before fuel surcharge | $202.7 million | $145.2 million | $398.8 million | $280.3 million |
| Operating income | $36.7 million | $21.0 million | $68.0 million | $34.7 million |
| Net income | $24.2 million | $15.3 million | $48.1 million | $27.3 million |
| Diluted EPS | $1.08 | $0.67 | $2.14 | $1.18 |
- Revenue before fuel surcharge increased 39.6% in the quarter and 42.3% year to date. Fuel surcharge revenue increased to $34.4 million in the quarter and $57.8 million year to date, versus $16.1 million and $29.8 million, respectively, in the prior-year periods.
- Operating margin on total operating revenue was approximately 15.5% for the quarter and 14.9% year to date. Net margin on total operating revenue was approximately 10.2% and 10.5%, respectively. Management also reported net income margins of 11.9% and 12.1% using revenue before fuel surcharge.
- Truckload revenue before fuel surcharge increased 37.4% in the quarter and 37.8% year to date. Brokerage and logistics revenue increased 44.3% and 51.4%, respectively.
- Truckload operating ratios improved to 79.7% in the quarter and 80.5% year to date, from 84.0% and 86.9%. Brokerage and logistics operating ratios improved to 86.2% and 87.4%, from 88.7% and 89.1%.
- Operating cash flow was $74.9 million for the first six months, compared with $51.3 million in the prior-year period. Investing activities used $81.4 million, principally for equipment purchases and the Metropolitan acquisition. Financing activities provided $4.6 million.
- Cash and cash equivalents were $16.6 million at June 30, 2022, compared with $18.5 million at December 31, 2021. Marketable equity securities were $37.6 million.
- Total debt, including current maturities, was $249.3 million at June 30, 2022, compared with $222.3 million at year-end 2021. The revolving credit facility had approximately $0.4 million outstanding, consisting of letters of credit, and $59.6 million of availability.
- Total assets increased to $683.1 million from $587.4 million, while stockholders’ equity increased to $261.6 million from $216.1 million.
Material changes versus the prior comparable period
- Growth was driven by higher customer rates, increased truck capacity, more brokerage loads, and higher average rates. Miles driven per truck declined year over year.
- Rent and purchased transportation increased as a percentage of revenue because of higher third-party carrier rates and owner-operator compensation, partially offset by lower salary, operating-supply, and depreciation ratios.
- Insurance and claims expense increased materially, primarily because of higher loss reserves and a preliminary settlement related to the company-driver minimum-wage lawsuit.
- Non-operating results deteriorated because marketable equity securities generated a second-quarter unrealized loss of approximately $3.3 million, versus an unrealized gain of approximately $1.6 million in the prior-year quarter. The six-month comparison was a $2.0 million loss in 2022 versus a $5.8 million gain in 2021.
- On June 14, 2022, the company acquired substantially all assets and certain liabilities of Metropolitan Trucking and related entities. Total consideration was $79.9 million, including $64.3 million of cash and assumed debt and other liabilities. The acquired business contributed 2.6% of second-quarter operating revenue and 1.3% of year-to-date operating revenue.
- The company completed a 2-for-1 stock split effective March 29, 2022. Share and per-share data were retroactively adjusted, where applicable.
Outlook, liquidity, risks, and unusual items
- Management expects to purchase approximately 250 new trucks and 200 new trailers during the remainder of 2022. Expected net capital expenditures are approximately $44.7 million.
- Management stated that near-term working capital and planned capital expenditures are expected to be funded through cash balances, operating cash flow, and available financing. The company does not anticipate paying cash dividends in the foreseeable future.
- Key risks include freight demand and customer-cycle weakness, excess trucking capacity, fuel and interest-rate volatility, driver recruitment and retention, insurance and self-insured claims, equipment resale values, financing availability, acquisition integration, technology disruption, litigation, and regulatory or legislative changes affecting independent contractors.
- The company is self-insured for certain auto-liability layers above specified thresholds. Claims exceeding reserves or insurance coverage could materially affect earnings, liquidity, and cash flow.
- A former-driver lawsuit alleges wage, electronic-transfer, wage-payment, common-law, and RICO violations and seeks class certification. A settlement agreement had been reached and was pending court approval; the company stated that losses were not covered by insurance and had been fully reserved as of June 30, 2022.
- The company reported exposure to equity-price risk, floating-rate debt, diesel prices, and Mexican peso fluctuations. A 10% decline in marketable equity securities would reduce their carrying value by approximately $3.7 million; a 10% increase in diesel prices would have increased annual fuel expense by approximately $5.2 million based on 2021 consumption.
- COVID-19 disruptions had not materially affected automotive customers during 2021 or the first six months of 2022, but future outbreaks, restrictions, or economic effects could adversely affect demand, staffing, liquidity, and operations.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2022, and reported no material changes in internal control over financial reporting during the quarter.
Investor verification priorities
- Verify the final purchase-price allocation and operating contribution of Metropolitan Trucking, including any subsequent working-capital, intangible-asset, or other purchase-accounting adjustments.
- Monitor integration costs, fleet utilization, customer rates, miles per truck, and whether the acquired capacity supports sustained revenue and margin growth.
- Assess the effect of fuel prices, carrier and driver compensation, insurance claims, and the pending driver lawsuit settlement on future operating margins and cash flow.
- Reconcile planned 2022 equipment purchases and approximately $44.7 million of expected net capital expenditures with operating cash generation and debt repayments.
- Review revolving-credit availability, debt maturities, floating-rate exposure, and the company’s ability to fund growth if freight conditions weaken or credit markets tighten.
- Track marketable-equity-security valuation changes, which materially affected non-operating income and year-over-year earnings comparisons.