P.A.M. Transportation Services, Inc. — Form 10-Q Summary
Business Context and Reporting Period
P.A.M. Transportation Services, Inc. operates truckload transportation and brokerage and logistics businesses in the United States, Mexico and Canada. The filing covers the three and nine months ended September 30, 2021, with comparisons to the corresponding 2020 periods. The statements are unaudited and prepared under U.S. GAAP.
The company completed a two-for-one stock split in August 2021; share and per-share data were adjusted retrospectively.
Key Financial Metrics
| Metric | Three months ended September 30, 2021 | Three months ended September 30, 2020 | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 |
|---|---|---|---|---|
| Total operating revenue | $183.1 million | $121.9 million | $493.2 million | $344.1 million |
| Revenue before fuel surcharge | $166.3 million | $109.9 million | $446.6 million | $307.4 million |
| Operating income | $30.8 million | $10.1 million | $65.5 million | $17.6 million |
| Operating margin | 16.8% | 8.3% | 13.3% | 5.1% |
| Net income | $21.4 million | $6.0 million | $48.6 million | $3.9 million |
| Diluted EPS | $1.87 | $0.52 | $4.24 | $0.34 |
| Cash from operating activities | Not separately provided | Not separately provided | $74.0 million | $53.1 million |
Revenue before fuel surcharge increased 51.7% in the third quarter and 45.3% year to date. Net income increased 256% in the third quarter and more than twelvefold year to date. The nine-month effective tax rate was 26.30%, compared with 18.33% in 2020.
At September 30, 2021, cash and cash equivalents were $21.6 million, marketable equity securities were $36.1 million, and total current assets were $177.5 million. Total debt, including current maturities, was $230.6 million, down from $286.1 million at December 31, 2020. Stockholders’ equity was $188.1 million versus $150.0 million at year-end 2020.
The revolving credit facility had approximately $0.4 million outstanding, including letters of credit, with $59.6 million of availability. The facility bears interest at LIBOR plus 1.25%, or 1.34% at September 30, 2021, and matures July 1, 2022. Margin-account borrowings were approximately $13.1 million and were included in accrued expenses and other liabilities.
Material Changes Versus the Prior Comparable Period
- Truckload revenue before fuel surcharge increased 33.1% in the third quarter and 22.4% for the first nine months, primarily due to higher customer rates and, in the third quarter, a larger average fleet.
- Brokerage and logistics revenue before fuel surcharge increased 107.8% in the third quarter and 133.8% year to date, reflecting more loads and higher average customer rates.
- Truckload operating ratio improved to 77.9% in the third quarter from 89.7%, and to 83.6% year to date from 94.0%.
- Brokerage and logistics operating ratio improved to 88.6% in the third quarter from 94.3%, and to 88.9% year to date from 95.6%.
- Non-operating results benefited from a $5.4 million increase in the value of marketable equity securities, compared with a $7.4 million decrease in 2020. The portfolio also produced approximately $1.0 million of dividend income year to date.
- Accounts receivable increased to $103.5 million from $77.7 million at December 31, 2020, consistent with higher freight revenue.
- The company repurchased 285,225 shares during the third quarter for approximately $10.6 million, including 272,405 shares accepted in a $37-per-share tender offer. It repurchased 18,732 additional shares under its existing program during the first nine months.
- Long-term debt declined despite approximately $26.6 million of new installment obligations for revenue equipment, because repayments exceeded additional financing.
Cash Flow, Capital Spending and Outlook
- Operating activities generated $74.0 million and investing activities generated $9.9 million during the first nine months of 2021. Financing activities used $62.7 million, primarily because debt repayments exceeded borrowings and the company repurchased stock.
- Capital expenditures and other asset purchases were approximately $35.3 million during the first nine months, supported by cash, installment notes and the revolving credit facility. Approximately $20.0 million of equipment purchases were financed through noncash financing.
- Management expected to purchase approximately 215 new trucks during the remainder of 2021, with anticipated net capital expenditures of approximately $20.1 million.
- Management stated that cash, operating cash flow and available financing should fund near-term working capital and planned capital expenditures for the next twelve months.
- The company does not anticipate paying cash dividends in the foreseeable future and expects to retain earnings to finance growth.
Risks, Contingencies and Unusual Items
- COVID-19, the Delta variant and potential vaccination or testing mandates could reduce freight demand, disrupt operations, and increase difficulty recruiting and retaining drivers and other personnel. Automotive customer concentration increases exposure to production interruptions.
- Management identified risks from driver shortages and compensation costs, fuel prices, insurance and claims, equipment values, interest rates, economic cycles, excess trucking capacity, competition, customer concentration, technology failures or breaches, and financing availability.
- Approximately 40% of freight hauled crosses the U.S.-Mexico border. Border delays, regulatory changes, political or economic instability, currency movements and Mexico’s 2021 labor-outsourcing reforms could increase costs or disrupt operations.
- Marketable equity securities expose the company to equity-price volatility. A 10% decline in their value would reduce carrying value by approximately $3.6 million.
- A hypothetical 100-basis-point increase in LIBOR would add approximately $10,000 of annual interest expense for each $1.0 million of variable-rate debt outstanding.
- Based on 2020 consumption, a 10% increase in diesel prices would increase annual fuel expense by approximately $3.7 million. The company does not currently use derivatives to hedge commodity or interest-rate exposure.
- The company is involved in routine transportation litigation, primarily personal injury and property damage claims, which management believes is adequately insured and not material. No material pending legal proceeding was identified.
- Management reported effective disclosure controls and procedures as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether the substantial 2021 revenue and margin improvements persist after fuel-price changes, freight-rate normalization and any reduction in brokerage margins.
- The amount, terms and covenants of the revolving facility, installment debt and margin-account borrowings, including refinancing needs around the July 2022 credit-facility maturity.
- The company’s exposure to marketable equity securities and the portion of reported earnings attributable to unrealized investment gains or losses.
- Execution of the planned truck purchases and approximately $20.1 million of expected remaining-2021 net capital expenditures.
- Developments involving COVID-19 requirements, driver availability, automotive production, Mexico labor rules and cross-border operations.
- Accounts-receivable growth, estimated credit losses and operating cash conversion as freight volumes and revenues expand.