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; the impact of
pending or future litigation; 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 75.5% and 83.9% 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.
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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
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.
During the nine months ended
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 Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(percentages)
Operating revenues, before fuel
surcharge 100.0 100.0 100.0 100.0
Operating expenses:
Salaries, wages and benefits 35.4 34.5 35.9 33.2
Operating supplies and expenses 10.5 7.1 10.7 5.6
Rent and purchased transportation 21.3 27.3 24.1 28.8
Depreciation 16.1 15.2 17.1 14.8
Insurance and claims 3.8 4.0 2.3 4.3
Other 2.8 3.8 3.9 3.4
(Gain) loss on sale or disposal of
property (0.2 ) 0.7 0.0 0.1
Total operating expenses 89.7 92.6 94.0 90.2
Operating income 10.3 7.4 6.0 9.8
Non-operating (expense) income (0.1 ) 0.5 (2.2 ) 1.2
Interest expense (2.3 ) (2.2 ) (2.4 ) (2.0 )
Income before income taxes 7.9 5.7 1.4 9.0
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THREE MONTHS ENDED
During the third quarter of 2020, truckload services revenue, before fuel
surcharges, decreased 10.3% to
Salaries, wages and benefits increased from 34.5% of revenues, before fuel
surcharges, in the third quarter of 2019 to 35.4% of revenues, before fuel
surcharges, during the third quarter of 2020. This percentage-based increase is
primarily a result of the interaction of expenses with fixed-cost
characteristics, such as general and administrative wages, maintenance wages,
and operations wages with a decrease in revenues for the periods compared. On a
dollar basis, salaries, wages and benefits decreased from
Operating supplies and expenses increased from 7.1% of revenues, before fuel surcharges, during the third quarter of 2019 to 10.5% of revenues, before fuel surcharges, during the third 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 during the third quarter of 2020 compared to the third quarter 2019. This increase in miles driven by company drivers has the effect of increasing our net operating supplies and expenses while decreasing the rent and purchased transportation category, as fuel surcharge revenue generated from transportation services performed by owner-operators is reflected as a reduction in net operating supplies and expenses, while fuel surcharges paid to owner-operators for their services is reported along with their base rate of pay in the rent and purchased transportation category.
Rent and purchased transportation decreased from 27.3% of revenues, before fuel surcharges, during the third quarter of 2019 to 21.3% of revenues, before fuel surcharges, during the third quarter of 2020. The decrease was primarily due to a decrease in the number of loads transported by third-party carriers during the third quarter of 2020 compared to the third quarter of 2019.
Depreciation increased from 15.2% of revenues, before fuel surcharges, during
the third quarter of 2019 to 16.1% of revenues, before fuel surcharges, during
the third quarter of 2020. This percentage-based increase is primarily a result
of the interaction of a decrease in operating revenues with the fixed-cost
nature of depreciation expense. On a dollar basis, depreciation expense
decreased from
Insurance and claims expense decreased from 4.0% of revenues, before fuel
surcharges, during the third quarter of 2019 to 3.8% of revenues, before fuel
surcharges, during the third quarter of 2020. This decrease primarily resulted
from a reduction in auto liability insurance premiums, as the Company became
self-insured for certain layers of auto liability claims in excess of
Other expense decreased from 3.8% of revenues, before fuel surcharges, during the third quarter 2019 to 2.8% of revenues, before fuel surcharges, during the third quarter 2020. This decrease is primarily attributable to a decrease in legal fees incurred in our defense against certain litigation described in Note L to our condensed consolidated financial statements.
Non-operating income / (expense) decreased from income of 0.5% of revenues,
before fuel surcharges, during the third quarter of 2019 to expense of 0.1% of
revenues, before fuel surcharges, during the third quarter of 2020. This
decrease primarily resulted from the change in the market values of our
portfolio of marketable equity securities. The Company recorded a
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 92.6% for the third quarter of 2019 to 89.7% for the third quarter of 2020.
NINE MONTHS ENDED
For the nine months ended
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Salaries, wages and benefits increased from 33.2% of revenues, before fuel
surcharges, in the first nine months of 2019 to 35.9% of revenues, before fuel
surcharges, during the first nine months of 2020. The percentage-based increase
is primarily a result of the interaction of expenses with fixed-cost
characteristics, such as general and administrative wages, maintenance wages,
and operations wages with a decrease in revenues for the periods compared. On a
dollar basis, salaries, wages and benefits decreased from
Operating supplies and expenses increased from 5.6% of revenues, before fuel surcharges, during the first nine months of 2019 to 10.7% of revenues, before fuel surcharges, during the first nine months 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 during the first nine months of 2020 compared to the first nine months of 2019. This increase in miles driven by company drivers has the effect of increasing our net operating supplies and expenses while decreasing the rent and purchased transportation category, as fuel surcharge revenue generated from transportation services performed by owner-operators is reflected as a reduction in net operating supplies and expenses, while fuel surcharges paid to owner-operators for their services is reported along with their base rate of pay in the rent and purchased transportation category.
Rent and purchased transportation decreased from 28.8% of revenues, before fuel surcharges, during the first nine months of 2019 to 24.1% of revenues, before fuel surcharges, during the first nine months of 2020. The decrease was primarily due to a decrease in the number of loads transported by third-party carriers during the first nine months of 2020 compared to the first nine months of 2019. This decrease occurred as the average number of company-owned trucks increased for the first nine months 2020 compared to the first nine months 2019, providing additional company-owned capacity which diminished the need to utilize as many third-party carriers.
Depreciation increased from 14.8% of revenues, before fuel surcharges, during the first nine months of 2019 to 17.1% of revenues, before fuel surcharges, during the first nine months of 2020. This increase is primarily the result of an increase in the average number of company-owned trucks and trailers within our fleet for the first nine months of 2020 compared to the first nine months of 2019. Due to the fixed nature of depreciation, a decrease in operating revenues, before fuel surcharge, without a corresponding proportional decrease in depreciation, increases depreciation expense as a percentage of operating revenues.
Insurance and claims expense decreased from 4.3% of revenues, before fuel
surcharges, during the first nine months of 2019 to 2.3% of revenues before fuel
surcharges, during the first nine months of 2020. This decrease primarily
resulted from a reduction in auto liability insurance premiums, as the Company
became self-insured for certain layers of auto liability claims in excess of
Non-operating income / (expense) decreased from income of 1.2% of revenues,
before fuel surcharges, during the first nine months of 2019 to expense of 2.2%
of revenues, before fuel surcharges, during the first nine months of 2020. This
decrease primarily resulted from the change in the market values of our
portfolio of marketable equity securities. The Company recorded a
The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased from 90.2% for the first nine months of 2019 to 94.0% for the first nine months of 2020.
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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 Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(percentages)
Operating revenues, before fuel
surcharge 100.0 100.0 100.0 100.0
Operating expenses:
Salaries, wages and benefits 4.7 5.9 5.3 5.6
Rent and purchased
transportation 88.8 88.5 89.0 87.0
Other 0.8 1.6 1.3 1.4
Total operating expenses 94.3 96.0 95.6 94.0
Operating income 5.7 4.0 4.4 6.0
Non-operating income (expense) (0.1 ) 0.3 (1.2 ) 0.7
Interest expense (1.2 ) (1.1 ) (1.3 ) (1.1 )
Income before income taxes 4.4 3.2 1.9 5.6
THREE MONTHS ENDED
During the third quarter of 2020, logistics and brokerage services revenue,
before fuel surcharges, increased 52.0% to
Salaries, wages and benefits decreased from 5.9% of revenues, before fuel surcharges, in the third quarter of 2019 to 4.7% of revenues, before fuel surcharges, during the third quarter of 2020. The decrease relates primarily to the effect of higher revenues without a corresponding increase in those wages with fixed-cost characteristics, such as general and administrative wages.
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, improved from 96.0% for the third quarter of 2019 to 94.3% for the third quarter of 2020.
Non-operating income / (expense) decreased from income of 0.3% of revenues,
before fuel surcharges, during the third quarter of 2019 to expense of 0.1% of
revenues, before fuel surcharges, during the third quarter of 2020. This
increase primarily resulted from the change in the market values of our
portfolio of marketable equity securities. The Company recorded a
NINE MONTHS ENDED
During the first nine months of 2020, logistics and brokerage services revenue,
before fuel surcharges, increased 9.9% to
Salaries, wages and benefits decreased from 5.6% of revenues, before fuel surcharges, in the first nine months of 2019 to 5.3% of revenues, before fuel surcharges, during the first nine months of 2020. The decrease relates primarily to the effect of higher revenues without a corresponding increase in those wages with fixed-cost characteristics, such as general and administrative wages.
Rents and purchased transportation increased from 87.0% of revenues, before fuel surcharges, during the first nine months of 2019 to 89.0% of revenues, before fuel surcharges, during the first nine months of 2020. The increase resulted 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 94.0% for the first nine months of 2019 to 95.6% for the first nine months of 2020.
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Non-operating income / (expense) decreased from income of 0.7% of revenues,
before fuel surcharges, during the first nine months of 2019 to expense of 1.2%
of revenues, before fuel surcharges, during the first nine months of 2020. This
decrease primarily resulted from the change in the market values of our
portfolio of marketable equity securities. The Company recorded a
RESULTS OF OPERATIONS - COMBINED SERVICES
THREE MONTHS ENDED
Net income for all divisions was approximately
NINE MONTHS ENDED
Net 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, and borrowings under our credit facilities, installment notes, and investment margin account.
During the first nine 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 nine months of
2020, we utilized cash on hand, installment notes, and our line 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 nine months of 2020, the Company's subsidiary,
During the remainder of 2020, we expect to purchase approximately 300 new trucks
and 500 new trailers 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 nine 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% (1.41% at
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During the third quarter of 2020, we borrowed
Trade accounts receivable increased from
Prepaid expenses and deposits decreased from
Marketable equity securities decreased from
The Company's purchase during the first quarter of 2020 of a 51.6-acre terminal
in
Accounts payable increased from
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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