PAMT CORP annual report, FY2013

P.A.M. Transportation Services, Inc. — FY2013 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2013. The filing also presents unaudited quarterly results, including the quarter ended December 31, 2013. P.A.M. is a truckload dry-van carrier serving the United States, Canada and Mexico, with brokerage and logistics operations.

Business Context

Truckload services generated 92.6% of revenue before fuel surcharges; brokerage and logistics generated 7.4%.
Approximately 45% of revenue was associated with freight originating from or destined for Mexico or Canada.
Automotive-related transportation represented approximately 46% of 2013 revenue. The five largest customers represented approximately 43%; General Motors and Chrysler represented approximately 21% and 12%, respectively.
At year-end, the company operated 1,837 trucks, including 357 owner-operator trucks, and 5,170 trailers. It employed approximately 3,034 people.

Financial Performance and Key Metrics

Metric	2013	2012	Change
Revenue before fuel surcharge	$313.1 million	$297.7 million	Up 5.2%
Fuel surcharge revenue	$89.7 million	$82.9 million	Up 8.2%
Total operating revenue	$402.8 million	$380.6 million	Up 5.8%
Operating income	$11.5 million	$2.9 million	Up $8.6 million
Net income	$5.9 million	$2.2 million	Up $3.7 million
Diluted EPS	$0.68	$0.25	Up $0.43
Operating ratio	96.3%	99.0%	Improved 2.7 points
Cash flow from operations	$43.2 million	$33.6 million	Up $9.5 million

Revenue growth reflected more miles traveled, lower uncompensated miles, higher customer rates and improved equipment utilization. Total miles increased to 209.8 million from 200.8 million, while the empty-mile factor improved to 7.3% from 8.7%.

Profitability benefited from lower fuel expense, improved fuel efficiency, reduced maintenance costs and operating leverage. Fuel expense declined to $97.7 million from $111.4 million, although rent and purchased transportation rose to $85.2 million from $54.0 million as the company expanded its owner-operator base.

Net margin on total revenue was approximately 1.5%, compared with approximately 0.6% in 2012. Net income included the effects of a $3.1 million pre-tax increase in the fair value of marketable equity securities and a $550,000 reduction in depreciation expense from revised truck useful-life and salvage-value estimates.

Cash Flow, Debt and Liquidity

Operating cash flow was $43.2 million. Investing activities used $44.3 million, primarily for revenue equipment purchases. Financing activities provided $1.8 million.
Capital expenditures for revenue equipment were approximately $70.2 million on a financing and cash-use basis; purchases of property and equipment totaled $71.5 million, offset by $27.3 million of equipment-sale proceeds.
Cash and cash equivalents were $1.2 million at year-end, compared with $0.5 million in 2012.
Total long-term debt was $110.5 million, including $40.1 million of current maturities. Equipment financing carried a weighted-average interest rate of 2.91%.
The company maintained a $35.0 million revolving credit facility. At year-end, approximately $1.1 million was outstanding as letters of credit, leaving approximately $33.9 million available to borrow. The company was in compliance with its debt covenants.
Marketable equity securities had a fair value of $21.0 million, compared with $17.3 million in 2012, and were partly used as collateral for $10.0 million of margin-account borrowings.
Management stated that anticipated cash flows, cash balances and financing sources should support near-term working capital and equipment needs without significant liquidity constraints.

Material Changes Versus 2012

Operating income increased substantially as the operating ratio improved from 99.0% to 96.3%.
Owner-operator utilization expanded materially: average owner-operators under contract increased from 149 to 322, contributing to higher purchased transportation expense and lower company-driver wage expense.
The fleet modernization program continued. The company took delivery of approximately 550 Phase III emissions-compliant trucks during 2013, and substantially all company-owned trucks were Phase III compliant at year-end.
Logistics and brokerage revenue before fuel surcharges declined 5.1% to $23.0 million, while truckload revenue before fuel surcharges increased 6.1% to $290.1 million.
Accounts receivable increased to $58.5 million from $50.0 million, and total liabilities increased to $213.4 million from $195.5 million.
The company repurchased 50,325 shares during 2013 and accepted 675,000 shares in a Dutch-auction tender offer at $20.50 per share, for approximately $13.9 million including fees. The tender offer settled January 6, 2014 but was recorded as treasury stock at December 31, 2013.
No dividends were declared or paid in 2013. Management does not anticipate paying dividends in the foreseeable future.

Outlook, Risks and Unusual Items

For 2014, management expected to purchase 300 new trucks and 720 new trailers, with estimated net capital expenditures of approximately $16.9 million after equipment sales or trades.
Key risks include fuel-price volatility, inability to recover fuel and equipment costs through rates or surcharges, driver shortages, intense freight-rate competition and the company’s substantial fixed-cost structure.
Customer and industry concentration is significant, particularly exposure to General Motors, Chrysler and the broader automotive industry. Major customer relationships generally are not long-term contracts.
New truck prices and depreciation costs remain elevated because of emissions requirements. Declines in used-equipment values could reduce gains or produce losses on equipment disposals.
The company is subject to federal, state, Canadian and Mexican transportation, safety, environmental and hours-of-service regulation. It maintained a satisfactory DOT safety rating, but a lower rating could restrict operations or cause customer losses.
The company is self-insured for certain health and workers’ compensation claims and maintains reserves for incurred and unreported claims. A 10% increase in claims incurred and incurred-but-not-reported claims would increase annual health and workers’ compensation expense by approximately $1.0 million.
A collective-action lawsuit filed by current and former drivers alleges unpaid wages under federal and Arkansas law. The case was in discovery, the potential loss could not be estimated, and management stated that losses would not be covered by existing insurance.
Transactions with affiliates of a major stockholder included approximately $10.4 million of operating revenue, $1.3 million of operating expense and $1.6 million of tractor sales in 2013. The chairman and related trust controlled approximately 59.3% of outstanding common stock.
Grant Thornton issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.

Investor Verification Checklist

Reconcile reported revenue growth and operating-ratio improvement with the shift toward owner-operators and the presentation of owner-operator payments as purchased transportation.
Assess the sustainability of earnings excluding marketable-security gains, equipment-disposal gains and the depreciation-estimate benefit.
Review debt maturities, including $40.1 million due in 2014 and $47.2 million due in 2015, against operating cash flow and planned capital expenditures.
Monitor customer concentration, automotive-industry exposure and the financial condition of the two largest customers.
Evaluate fuel-price sensitivity: management estimated that a 10% increase in the average annual diesel price would increase annual fuel expense by approximately $9.8 million.
Follow the driver wage lawsuit, self-insurance claims, debt covenant compliance and any changes to the company’s DOT safety rating.
Verify the post-year-end settlement and accounting for the $13.9 million Dutch-auction share repurchase.