P.A.M. Transportation Services, Inc. — Q1 2020 Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited three months ended March 31, 2020. P.A.M. provides truckload transportation, brokerage and logistics services through operations in the United States, Mexico and Canada. Truckload services represented 81.7% of revenue before fuel surcharges; brokerage and logistics represented 18.3%.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total operating revenues | $129.2 million | $128.7 million |
| Revenue before fuel surcharge | $111.8 million | $110.3 million |
| Operating income | $9.5 million | $9.7 million |
| Operating margin before fuel surcharge | 8.5% | 8.8% |
| Net income/(loss) | $(1.3) million | $8.3 million |
| Diluted earnings/(loss) per share | $(0.23) | $1.39 |
| Cash provided by operating activities | $23.5 million | $19.7 million |
| Capital expenditures and other property purchases | $23.2 million | $7.9 million |
- Net loss was driven primarily by an approximately $8.8 million decline in the value of marketable equity securities, compared with a $3.2 million gain in Q1 2019. The company also recorded a $534,000 realized loss on securities sales.
- At March 31, 2020, cash and cash equivalents were $325,000, marketable equity securities were $23.2 million, and total current assets were $105.0 million.
- Total debt, including current maturities, was approximately $249.2 million, compared with $241.8 million at December 31, 2019. The revolving credit facility had $26.1 million outstanding, including $0.4 million of letters of credit, and $33.9 million of borrowing availability.
- Shareholders’ equity was $132.7 million, compared with $134.0 million at December 31, 2019. Accounts receivable increased to $66.1 million from $61.8 million at year-end 2019.
Material changes versus the prior comparable period
- Revenue before fuel surcharge increased 1.3%, while total operating revenue increased 0.4% because fuel surcharge revenue declined to $17.3 million from $18.3 million.
- Operating income declined modestly, but the operating ratio improved to 90.2% for truckload services from 91.0%. Brokerage and logistics operating performance weakened, with the operating ratio increasing to 97.5% from 92.4%.
- Truckload revenue increased 1.4% to $91.3 million, while brokerage and logistics revenue increased 0.9% to $20.5 million.
- Salaries, wages and benefits increased to 34.7% of truckload revenue before fuel surcharge from 33.3%, while rent and purchased transportation declined to 26.9% from 30.3%.
- Operating cash flow increased to $23.5 million from $19.7 million, while investing cash use increased substantially because of equipment and facility purchases. The company purchased a 51.6-acre Laredo, Texas terminal, recording $8.8 million of land and $10.9 million of structures and improvements.
- The company entered into approximately $12.5 million of installment obligations for revenue equipment and repurchased 9,175 shares for approximately $321,000.
Guidance, outlook, risks and unusual items
- Management expects to purchase approximately 450 new trucks during the remainder of 2020, with anticipated net capital expenditures of approximately $33.5 million. The company had not changed its equipment replenishment plans in response to COVID-19 as of the filing.
- COVID-19 materially affected freight demand, particularly after North American automotive manufacturing closures in late March. Automotive customers represented approximately 45% of company revenue. Management expected production to resume but stated that the timing and extent of recovery were uncertain.
- Management believed cash balances, operating cash flow and available financing would fund near-term working capital and planned capital expenditures over the next twelve months, while warning that prolonged disruption, recession or tighter credit markets could adversely affect liquidity.
- A proposed $16.5 million settlement in an employee-driver collective and class action received preliminary court approval and was reserved in accrued liabilities at March 31, 2020. The settlement remained subject to final court approval and was not covered by existing insurance.
- A separate independent-contractor lawsuit was settled for approximately $421,000 plus legal fees; excess prior legal reserves were reversed during the quarter.
- The company remains exposed to equity-price, interest-rate, diesel-fuel and foreign-currency risks. A 10% decline in its equity portfolio would reduce its carrying value by approximately $2.3 million; a 100-basis-point increase in LIBOR was estimated to increase annual interest expense by approximately $256,000.
- Management reported effective disclosure controls and procedures as of March 31, 2020 and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether automotive production and freight volumes recovered as anticipated after the March 2020 shutdowns, and the resulting effect on revenue, margins and cash flow.
- Final court approval, payment timing and total cost of the $16.5 million employee-driver settlement.
- Availability and covenant compliance under the revolving credit facility and other debt arrangements as operating conditions changed.
- Exposure to further declines in the marketable equity securities portfolio and the related effect on reported earnings and liquidity.
- Actual 2020 truck purchases, capital expenditures and financing requirements compared with management’s planned 450 trucks and $33.5 million of net capital expenditures.
- Changes in brokerage margins, driver compensation, fuel costs, insurance exposure and equipment resale values.