P.A.M. TRANSPORTATION SERVICES, INC. FORWARD-LOOKING INFORMATION
Certain information included in this Quarterly Report on Form 10-Q constitutes
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements may relate to
expected future financial and operating results, prospects, plans or events, and
are thus prospective. Such forward-looking statements are subject to risks,
uncertainties and other factors which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Potential risks and uncertainties include, but are not limited to,
ongoing and potential future economic, business and operational disruptions and
uncertainties due to the COVID-19 pandemic or other public health crises; excess
capacity in the trucking industry; surplus inventories; recessionary economic
cycles and downturns in customers' business cycles; increases or rapid
fluctuations in fuel prices, interest rates, fuel taxes, tolls, and license and
registration fees; the resale value of the Company's used equipment and the
price of new equipment; increases in compensation for and difficulty in
attracting and retaining qualified drivers and owner-operators; increases in
insurance premiums and deductible amounts relating to accident, cargo, workers'
compensation, health, and other claims; unanticipated increases in the number or
amount of claims for which the Company is self-insured; inability of the Company
to continue to secure acceptable financing arrangements; seasonal factors such
as harsh weather conditions that increase operating costs; competition from
trucking, rail, and intermodal competitors including reductions in rates
resulting from competitive bidding; the ability to identify acceptable
acquisition candidates, consummate acquisitions, and integrate acquired
operations; our ability to develop and implement suitable information technology
systems and prevent failures in or breaches of such systems; litigation,
including litigation related to alleged violations under the Fair Labor
Standards Act and the Arkansas Minimum Wage Law; general risks associated with
doing business in
CRITICAL ACCOUNTING POLICIES
There have been no material changes to our critical accounting policies and
estimates from the information provided in Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, included in our Form
10-K for the fiscal year ended
BUSINESS OVERVIEW
The Company's administrative headquarters are in
For both operations, substantially all of our revenue is generated by
transporting freight for customers and is predominantly affected by the rates
per mile received from our customers, equipment utilization, and our percentage
of non-compensated miles. These aspects of our business are carefully managed,
and efforts are continuously underway to achieve favorable results. Truckload
services revenues, excluding fuel surcharges, represented 81.7% of total
revenues, excluding fuel surcharges, for the three months ended
The main factors that impact our profitability on the expense side are costs incurred in transporting freight for our customers. Currently, our most challenging costs include fuel, driver recruitment, training, wage and benefits costs, independent broker costs (which we record as purchased transportation), insurance, maintenance and capital equipment costs.
In discussing our results of operations, we use revenue, before fuel surcharge
(and fuel expense, net of fuel surcharge), because management believes that
eliminating the impact of this sometimes volatile source of revenue allows a
more consistent basis for comparing our results of operations from period to
period. During the three months ended
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Table of Contents IMPACT OF COVID-19
The Company's primary concern during the COVID-19 pandemic is to do its part to protect its employees, customers, vendors and the general public from the spread of COVID-19 while continuing to serve the vital role of supplying essential goods to the nation. Where possible, our employees are working remotely from their homes. For essential functions, including our driving professionals, we have distributed cleaning and protective supplies to various terminals so that they are available to those that need them, increased cleaning frequency and coverage, and provided employees direction on precautionary measures, such as sanitizing truck interiors, personal hygiene, and social distancing. We will continue to adapt our operations as required to ensure safety while continuing to provide a high level of service to our customers.
As the escalation of the COVID-19 pandemic has extended into the second quarter, the Company has experienced the increasing effects of weakening economic conditions, most notably the late March COVID-19 related shutdown of automotive customers, representing approximately 45% of the Company's revenue. While we have vigorously sought to replace lost automotive revenue with freight from customers supporting the effort to supply essential goods to the nation, competition for this freight has increased as industry capacity has collectively focused on freight that has continued to move during this time. Based on reports from the auto industry, we are optimistic that production will resume soon, returning a large portion of our lost revenue. However, the ultimate magnitude of COVID-19, including the extent of its impact on the Company's financial and operating results, which could be material, will be determined by the length of time the pandemic continues, its continued severity, government regulations imposed in response to the pandemic, and to its general effect on the economy and transportation demand.
While operating cash flows may be negatively impacted by the pandemic, the Company believes we will be able to finance our near term needs for working capital over the next twelve months, as well as any planned capital expenditures during such period, with cash balances, cash flows from operations, and borrowings believed to be available from financing sources.
RESULTS OF OPERATIONS - TRUCKLOAD SERVICES
The following table sets forth, for truckload services, the percentage relationship of expense items to operating revenues, before fuel surcharges, for the periods indicated. Fuel costs are reported net of fuel surcharges.
Three Months Ended
March 31,
2020 2019
(percentages)
Operating revenues, before fuel surcharge 100.0 100.0
Operating expenses: Salaries, wages and benefits 34.7 33.3 Operating supplies and expenses 6.9 5.7 Rent and purchased transportation 26.9 30.3 Depreciation 15.6 14.5 Insurance and claims - 4.5 Other 6.0 3.1
Loss/(gain) on sale or disposal of property 0.1 (0.4 ) Total operating expenses
90.2 91.0
Operating income 9.8 9.0
Non-operating income/(expense) (8.7 ) 3.5
Interest expense (2.2 ) (2.0 )
(Loss)/income before income taxes (1.1 ) 10.5
THREE MONTHS ENDED
During the first quarter of 2020, truckload services revenue, before fuel
surcharges, increased 1.4% to
Salaries, wages and benefits increased from 33.3% of revenues, before fuel surcharges, in the first quarter of 2019 to 34.7% of revenues, before fuel surcharges, during the first quarter of 2020. The increase relates primarily to an increase in company driver wages paid during 2020 compared to 2019. The increase in driver wages relates primarily to route specific pay increases that were phased in throughout 2019. In addition, the proportion of total miles driven by company drivers increased as the number of company drivers increased year-over-year.
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Operating supplies and expenses increased from 5.7% of revenues, before fuel
surcharges, during the first quarter of 2019 to 6.9% of revenues, before fuel
surcharges, during the first quarter of 2020. The increase relates primarily to
an increase in the average surcharge-adjusted fuel price paid per gallon of
diesel fuel, which was a result of decreased fuel surcharge collections from
customers. Fuel surcharge collections can fluctuate significantly from period to
period as they are generally based on changes in fuel prices from period to
period so that, during periods of rising fuel prices, fuel surcharge collections
increase, while fuel surcharge collections decrease during periods of falling
fuel prices. Also contributing to the increase was an increase in the proportion
of total miles driven by company drivers for the quarter ended
Rent and purchased transportation decreased from 30.3% of revenues, before fuel surcharges, during the first quarter of 2019 to 26.9% of revenues, before fuel surcharges, during the first quarter of 2020. The decrease was primarily due to a decrease in the number of loads transported by third party carriers during the first quarter 2020 compared to the first quarter 2019. This decrease occurred as the average number of company-owned trucks increased for the first quarter 2020 compared to the first quarter 2019, providing additional company-owned capacity and diminishing the need to utilize third party carriers.
Depreciation increased from 14.5% of revenues, before fuel surcharges, during the first quarter of 2019 to 15.6% of revenues, before fuel surcharges, during the first quarter of 2020. This increase is primarily the result of an increase in the average number of trucks and trailers in our fleet for the first quarter of 2020 compared to the first quarter of 2019.
Insurance and claims expense decreased from 4.5% of revenues, before fuel
surcharges, during the first quarter of 2019 to 0.0% of revenues before fuel
surcharges, during the first quarter of 2020. This decrease primarily resulted
from the settlement during the quarter ended
Other expenses increased from 3.1% of revenues, before fuel surcharges, during the first quarter of 2019 to 6.0% of revenues, before fuel surcharges, during the first quarter of 2020. This increase related primarily to an increase in amounts expensed for legal fees incurred during the quarter related to the exploration of a potential acquisition and certain litigation described in Note L to our Condensed Consolidated Financial Statements.
The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 91.0% for the first quarter of 2019 to 90.2% for the first quarter of 2020.
Non-operating (expense)/income decreased from 3.5% of revenues, before fuel
surcharges, during the first quarter of 2019 to (8.7%) of revenues, before fuel
surcharges, during the first quarter of 2020. This decrease primarily resulted
from a decrease in the market value of the Company's portfolio of marketable
equity securities during the quarter ended
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RESULTS OF OPERATIONS - LOGISTICS AND BROKERAGE SERVICES
The following table sets forth, for logistics and brokerage services, the percentage relationship of expense items to operating revenues, before fuel surcharges, for the periods indicated. Brokerage service operations occur specifically in certain divisions; however, brokerage operations occur throughout the Company in similar operations having substantially similar economic characteristics.
Three Months Ended
March 31,
2020 2019
(percentages)
Operating revenues, before fuel surcharge 100.0 100.0
Operating expenses: Salaries, wages and benefits 5.4 5.4 Rent and purchased transportation 89.4 84.9 Other 2.7 2.1 Total operating expenses 97.5 92.4 Operating income 2.5 7.6 Non-operating income/(expense) (5.2 ) 1.7 Interest expense (1.2 ) (1.0 ) (Loss)/income before income taxes (3.9 ) 8.3
THREE MONTHS ENDED
During the first quarter of 2020, logistics and brokerage services revenue,
before fuel surcharges, increased 0.9% to
Rents and purchased transportation increased from 84.9% of revenues, before fuel surcharges, during the first quarter of 2019 to 89.4% of revenues, before fuel surcharges, during the first quarter of 2020. The increase results from paying third party carriers a larger percentage of customer revenue.
The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased from 92.4% for the first quarter of 2019 to 97.5% for the first quarter of 2020.
Non-operating income/(expense) decreased from 1.7% of revenues, before fuel
surcharges, during the first quarter of 2019 to (5.2%) of revenues, before fuel
surcharges, during the first quarter of 2020. This decrease primarily resulted
from a decrease in the market value of the Company's portfolio of marketable
equity securities during the quarter ended
RESULTS OF OPERATIONS - COMBINED SERVICES
THREE MONTHS ENDED
Operating income for all divisions was approximately
LIQUIDITY AND CAPITAL RESOURCES
Our business has required, and will continue to require, a significant investment in new revenue equipment. Our primary sources of liquidity have been funds provided by operations, proceeds from the sales of revenue equipment, issuances of equity securities, and borrowings under our lines of credit, installment notes, and our investment margin account.
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During the first three months of 2020, we generated
Our primary use of funds is for the purchase of revenue equipment. We typically
use installment notes, our existing line of credit on an interim basis, proceeds
from the sale or trade of equipment, and cash flows from operations to finance
capital expenditures and repay long-term debt. During the first three months of
2020, we utilized cash on hand, installment notes, and our lines of credit to
finance purchases of revenue equipment and other assets of approximately
We commonly finance the acquisition of revenue equipment through installment
notes with fixed interest rates and terms ranging from 36 to 84 months. During
the first three months of 2020, the Company's subsidiary,
During the remainder of 2020, we expect to purchase approximately 450 new trucks
while continuing to sell or trade older equipment, which we expect to result in
net capital expenditures of approximately
We currently intend to retain our future earnings to finance our growth and do not anticipate paying cash dividends in the foreseeable future.
During the first three months of 2020, we maintained a revolving line of credit.
Amounts outstanding under the line bear interest at LIBOR (determined as of the
first day of each month) plus 1.25% (2.83% at
Trade accounts receivable increased from
Marketable equity securities decreased from
The Company purchased a 51.6 acre terminal in
Long-term debt and current maturities of long term-debt are reviewed on an
aggregate basis, as the classification of amounts in each category are typically
affected merely by the passage of time. Long-term debt and current maturities of
long-term debt, on an aggregate basis, increased from
NEW ACCOUNTING PRONOUNCEMENTS
See Note B to the Condensed Consolidated Financial Statements for a description of the most recent accounting pronouncements and their impact, if any, on the Company.
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