UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 20212022
or
☐ Transition Report Pursuant to the Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________to__________
P.A.M. TRANSPORTATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 0-1507 | 71-0633135 |
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification no.) |
297 West Henri De Tonti, Tontitown, Arkansas 72770
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (479) 361-9111
N/A |
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $.01 par value | PTSI | NASDAQ Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
Yes ☑ No ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)
Yes ☑ No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☑ | |||
Non-accelerated filer ☐ | Smaller reporting company ☑ | |||
Emerging growth company ☐ | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class | Outstanding at October | |
Common Stock, $.01 Par Value |
|
P.A.M. TRANSPORTATION SERVICES, INC.
Form 10-Q
For the Quarter Ended September 30, 20212022
Table of Contents
Item 1. Financial Statements.
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (unaudited) (in thousands, except share and per share data) |
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 21,575 | $ | 337 | $ | 42,807 | $ | 18,509 | ||||||||
Accounts receivable-net: | ||||||||||||||||
Trade, less current estimated credit loss of $4,319 and $3,482, respectively | 103,517 | 77,731 | ||||||||||||||
Trade, less current estimated credit loss of $5,195 and $4,526, respectively | 155,181 | 121,854 | ||||||||||||||
Other | 6,088 | 5,127 | 6,580 | 7,092 | ||||||||||||
Inventories | 1,349 | 1,345 | 2,278 | 1,456 | ||||||||||||
Prepaid expenses and deposits | 8,428 | 10,172 | 12,002 | 10,962 | ||||||||||||
Marketable equity securities | 36,130 | 27,941 | 36,002 | 39,424 | ||||||||||||
Income taxes refundable | 413 | 868 | 733 | 277 | ||||||||||||
Total current assets | 177,500 | 123,521 | 255,583 | 199,574 | ||||||||||||
Property and equipment: | ||||||||||||||||
Land | 19,719 | 18,486 | 19,719 | 19,718 | ||||||||||||
Structures and improvements | 33,292 | 32,275 | 35,060 | 33,534 | ||||||||||||
Revenue equipment | 518,791 | 592,476 | 625,639 | 520,840 | ||||||||||||
Office furniture and equipment | 11,235 | 10,439 | 12,677 | 11,211 | ||||||||||||
Total property and equipment | 583,037 | 653,676 | 693,095 | 585,303 | ||||||||||||
Accumulated depreciation | (194,060 | ) | (202,851 | ) | (233,817 | ) | (201,124 | ) | ||||||||
Net property and equipment | 388,977 | 450,825 | 459,278 | 384,179 | ||||||||||||
Other assets | 3,772 | 4,246 | 4,626 | 3,628 | ||||||||||||
TOTAL ASSETS | $ | 570,249 | $ | 578,592 | $ | 719,487 | $ | 587,381 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 41,261 | $ | 46,102 | $ | 54,651 | $ | 43,381 | ||||||||
Accrued expenses and other liabilities | 25,937 | 26,601 | 24,760 | 14,114 | ||||||||||||
Income taxes payable | 474 | 4,364 | ||||||||||||||
Current maturities of long-term debt | 46,367 | 57,776 | 51,668 | 49,544 | ||||||||||||
Total current liabilities | 113,565 | 130,479 | 131,553 | 111,403 | ||||||||||||
Long-term debt - less current portion | 184,191 | 228,330 | 205,675 | 172,733 | ||||||||||||
Deferred income taxes | 83,868 | 68,883 | 98,938 | 86,715 | ||||||||||||
Other long-term liabilities | 499 | 919 | 185 | 420 | ||||||||||||
Total liabilities | 382,123 | 428,611 | 436,351 | 371,271 | ||||||||||||
COMMITMENTS AND CONTINGENCIES (Note L) | ||||||||||||||||
STOCKHOLDERS' EQUITY | ||||||||||||||||
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued | 0 | 0 | - | - | ||||||||||||
Common stock, $.01 par value, 40,000,000 shares authorized; 23,394,046 and 23,391,438 shares issued; 11,167,261 and 11,455,790 shares outstanding at September 30, 2021 and December 31, 2020, respectively | 234 | 117 | ||||||||||||||
Common stock, $.01 par value, 40,000,000 shares authorized; 22,280,187 and 34,574,807 shares issued; 22,187,063 and 22,348,022 shares outstanding at September 30, 2022 and December 31, 2021, respectively | 223 | 234 | ||||||||||||||
Additional paid-in capital | 84,379 | 84,148 | 40,285 | 84,472 | ||||||||||||
Treasury stock, at cost; 12,226,785 and 11,935,648 shares at September 30, 2021 and December 31, 2020, respectively | (169,946 | ) | (159,118 | ) | ||||||||||||
Treasury stock, at cost; 93,124 and 12,226,785 shares at September 30, 2022 and December 31, 2021, respectively | (2,877 | ) | (169,946 | ) | ||||||||||||
Retained earnings | 273,459 | 224,834 | 245,505 | 301,350 | ||||||||||||
Total stockholders’ equity | 188,126 | 149,981 | 283,136 | 216,110 | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 570,249 | $ | 578,592 | $ | 719,487 | $ | 587,381 | ||||||||
See notes to condensed consolidated financial statements.
All prior period share and per share data has been retroactively adjusted to reflect the stock splits effective August 16, 2021 and March 29, 2022, respectively.
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
OPERATING REVENUES: | ||||||||||||||||||||||||||||||||
Revenue, before fuel surcharge | $ | 166,331 | $ | 109,854 | $ | 446,647 | $ | 307,441 | $ | 216,475 | $ | 166,331 | $ | 615,303 | $ | 446,647 | ||||||||||||||||
Fuel surcharge | 16,754 | 12,088 | 46,559 | 36,634 | 36,155 | 16,754 | 93,943 | 46,559 | ||||||||||||||||||||||||
Total operating revenues | 183,085 | 121,942 | 493,206 | 344,075 | 252,630 | 183,085 | 709,246 | 493,206 | ||||||||||||||||||||||||
OPERATING EXPENSES AND COSTS: | ||||||||||||||||||||||||||||||||
Salaries, wages and benefits | 34,937 | 30,618 | 102,173 | 90,991 | 50,847 | 34,937 | 133,069 | 102,173 | ||||||||||||||||||||||||
Operating supplies and expenses | 25,712 | 20,875 | 74,375 | 62,866 | 48,071 | 25,712 | 123,156 | 74,375 | ||||||||||||||||||||||||
Rent and purchased transportation | 72,698 | 41,402 | 192,387 | 114,688 | 93,501 | 72,698 | 273,521 | 192,387 | ||||||||||||||||||||||||
Depreciation | 12,740 | 13,403 | 41,426 | 41,936 | 16,289 | 12,740 | 46,647 | 41,426 | ||||||||||||||||||||||||
Insurance and claims | 3,443 | 3,145 | 9,806 | 5,701 | 5,149 | 3,443 | 19,281 | 9,806 | ||||||||||||||||||||||||
Other | 3,008 | 2,599 | 8,505 | 10,411 | 4,579 | 3,008 | 12,712 | 8,505 | ||||||||||||||||||||||||
Gain on disposition of equipment | (276 | ) | (174 | ) | (962 | ) | (71 | ) | (1,301 | ) | (276 | ) | (2,662 | ) | (962 | ) | ||||||||||||||||
Total operating expenses and costs | 152,262 | 111,868 | 427,710 | 326,522 | 217,135 | 152,262 | 605,724 | 427,710 | ||||||||||||||||||||||||
OPERATING INCOME | 30,823 | 10,074 | 65,496 | 17,553 | 35,495 | 30,823 | 103,522 | 65,496 | ||||||||||||||||||||||||
NON-OPERATING INCOME (EXPENSE) | 37 | (94 | ) | 6,853 | (6,209 | ) | ||||||||||||||||||||||||||
NON-OPERATING (EXPENSE) INCOME | (1,886 | ) | 37 | (2,829 | ) | 6,853 | ||||||||||||||||||||||||||
INTEREST EXPENSE | (1,899 | ) | (2,211 | ) | (6,372 | ) | (6,601 | ) | (1,922 | ) | (1,899 | ) | (5,587 | ) | (6,372 | ) | ||||||||||||||||
INCOME BEFORE INCOME TAXES | 28,961 | 7,769 | 65,977 | 4,743 | 31,687 | 28,961 | 95,106 | 65,977 | ||||||||||||||||||||||||
FEDERAL AND STATE INCOME TAX EXPENSE: | ||||||||||||||||||||||||||||||||
Current | 2,141 | 106 | 2,368 | 106 | 4,462 | 2,141 | 10,193 | 2,368 | ||||||||||||||||||||||||
Deferred | 5,461 | 1,663 | 14,984 | 763 | 2,659 | 5,461 | 12,223 | 14,984 | ||||||||||||||||||||||||
Total federal and state income tax expense | 7,602 | 1,769 | 17,352 | 869 | 7,121 | 7,602 | 22,416 | 17,352 | ||||||||||||||||||||||||
NET INCOME | $ | 21,359 | $ | 6,000 | $ | 48,625 | $ | 3,874 | $ | 24,566 | $ | 21,359 | $ | 72,690 | $ | 48,625 | ||||||||||||||||
INCOME PER COMMON SHARE: | ||||||||||||||||||||||||||||||||
Basic | $ | 1.88 | $ | 0.52 | $ | 4.26 | $ | 0.34 | $ | 1.10 | $ | 0.94 | $ | 3.26 | $ | 2.13 | ||||||||||||||||
Diluted | $ | 1.87 | $ | 0.52 | $ | 4.24 | $ | 0.34 | $ | 1.09 | $ | 0.93 | $ | 3.24 | $ | 2.12 | ||||||||||||||||
AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||||||||||||||||||
Basic | 11,362 | 11,526 | 11,421 | 11,516 | 22,263 | 22,724 | 22,276 | 22,842 | ||||||||||||||||||||||||
Diluted | 11,430 | 11,536 | 11,481 | 11,550 | 22,440 | 22,860 | 22,468 | 22,962 | ||||||||||||||||||||||||
See notes to condensed consolidated financial statements.
All prior period share and per share data has been retroactively adjusted to reflect the stock splits effective August 16, 2021 and March 29, 2022, respectively.
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Nine Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Net income | $ | 48,625 | $ | 3,874 | $ | 72,690 | $ | 48,625 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation | 41,426 | 41,936 | 46,647 | 41,426 | ||||||||||||
Bad debt expense | 837 | 329 | 732 | 837 | ||||||||||||
Stock compensation-net of excess tax benefits | 347 | 430 | 528 | 347 | ||||||||||||
Provision for deferred income taxes | 14,984 | 763 | 12,223 | 14,984 | ||||||||||||
Recognized (gain) / loss on marketable equity securities | (5,382 | ) | 7,484 | |||||||||||||
(Gain) on sale or disposition of equipment | (962 | ) | (71 | ) | ||||||||||||
Recognized loss / (gain) on marketable equity securities | 4,340 | (5,382 | ) | |||||||||||||
Gain on sale or disposition of equipment | (2,662 | ) | (962 | ) | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (27,584 | ) | (8,409 | ) | (22,727 | ) | (27,584 | ) | ||||||||
Prepaid expenses, deposits, inventories, and other assets | 1,781 | 1,064 | (2,983 | ) | 1,781 | |||||||||||
Income taxes payable | 455 | (52 | ) | (4,346 | ) | 455 | ||||||||||
Trade accounts payable | 1,929 | 22,112 | 4,917 | 1,929 | ||||||||||||
Accrued expenses and other liabilities | (2,500 | ) | (16,354 | ) | 10,714 | (2,500 | ) | |||||||||
Net cash provided by operating activities | 73,956 | 53,106 | 120,073 | 73,956 | ||||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||
Purchases of property and equipment | (15,297 | ) | (39,763 | ) | (42,953 | ) | (15,297 | ) | ||||||||
Acquisition of business, net of cash acquired | (64,317 | ) | - | |||||||||||||
Proceeds from disposition of equipment | 28,047 | 13,502 | 12,568 | 28,047 | ||||||||||||
Sales of marketable equity securities | 1,496 | 860 | - | 1,496 | ||||||||||||
Purchases of marketable equity securities, net of return of capital | (4,302 | ) | (3,982 | ) | (918 | ) | (4,302 | ) | ||||||||
Net cash provided by (used in) investing activities | 9,944 | (29,383 | ) | |||||||||||||
Net cash (used in) provided by investing activities | (95,620 | ) | 9,944 | |||||||||||||
FINANCING ACTIVITIES: | ||||||||||||||||
Borrowings under line of credit | 450,222 | 365,263 | 720,879 | 450,222 | ||||||||||||
Repayments under line of credit | (468,469 | ) | (371,182 | ) | (720,879 | ) | (468,469 | ) | ||||||||
Borrowings of long-term debt | 6,594 | 17,640 | 59,849 | 6,594 | ||||||||||||
Repayments of long-term debt | (42,032 | ) | (38,872 | ) | (53,948 | ) | (42,032 | ) | ||||||||
Borrowings under margin account | 4,387 | 7,037 | 948 | 4,387 | ||||||||||||
Repayments under margin account | (2,536 | ) | (1,806 | ) | (1,127 | ) | (2,536 | ) | ||||||||
Repurchases of common stock | (10,828 | ) | (1,793 | ) | (5,877 | ) | (10,828 | ) | ||||||||
Net cash used in financing activities | (62,662 | ) | (23,713 | ) | (155 | ) | (62,662 | ) | ||||||||
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 21,238 | 10 | 24,298 | 21,238 | ||||||||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH -Beginning of period | 337 | 318 | 18,509 | 337 | ||||||||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH -End of period | $ | 21,575 | $ | 328 | $ | 42,807 | $ | 21,575 | ||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | 6,425 | $ | 6,544 | $ | 5,406 | $ | 6,425 | ||||||||
Income taxes | $ | 2,581 | $ | 159 | $ | 14,540 | $ | 2,581 | ||||||||
NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||||||
Purchases of property and equipment included in accounts payable | $ | 2,282 | $ | 3,944 | $ | 0 | $ | 2,282 | ||||||||
See notes to condensed consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(in thousands)
Common Stock Shares / Amount | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Total | Common Stock Shares / Amount | Additional | Treasury | Retained | Total | |||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2021 | 11,456 | $ | 117 | $ | 84,148 | $ | (159,118 | ) | $ | 224,834 | $ | 149,981 | ||||||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | 11,949 | 11,949 | ||||||||||||||||||||||||||||||||||||||||||
Treasury stock repurchases | (6 | ) | - | - | (144 | ) | - | (144 | ) | |||||||||||||||||||||||||||||||||||||||
Stock based compensation | - | - | 79 | - | - | 79 | ||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | 11,450 | $ | 117 | $ | 84,227 | $ | (159,262 | ) | $ | 236,783 | $ | 161,865 | ||||||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | 15,317 | 15,317 | ||||||||||||||||||||||||||||||||||||||||||
Stock awards-shares issued including tax benefits | 2 | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Stock based compensation | - | - | 174 | - | - | 174 | ||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | 11,452 | $ | 117 | $ | 84,401 | $ | (159,262 | ) | $ | 252,100 | $ | 177,356 | ||||||||||||||||||||||||||||||||||||
Balance at January 1, 2022 | 22,348 | $ | 234 | $ | 84,472 | $ | (169,946 | ) | $ | 301,350 | $ | 216,110 | ||||||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | 21,359 | 21,359 | - | - | - | - | 23,942 | 23,942 | ||||||||||||||||||||||||||||||||||||
Stock Split | - | 117 | (117 | ) | - | - | - | - | 111 | (111 | ) | - | - | - | ||||||||||||||||||||||||||||||||||
Treasury stock repurchases | (285 | ) | - | - | (10,684 | ) | - | (10,684 | ) | (83 | ) | - | - | (3,000 | ) | - | (3,000 | ) | ||||||||||||||||||||||||||||||
Retirement of Treasury Shares | - | (122 | ) | (44,289 | ) | 172,946 | (128,535 | ) | - | |||||||||||||||||||||||||||||||||||||||
Stock based compensation | - | - | 95 | - | - | 95 | - | - | 137 | - | - | 137 | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | 11,167 | $ | 234 | $ | 84,379 | $ | (169,946 | ) | $ | 273,459 | $ | 188,126 | ||||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 22,265 | $ | 223 | $ | 40,209 | $ | - | $ | 196,757 | $ | 237,189 | |||||||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | 24,182 | 24,182 | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock awards-shares issued including tax benefits | 4 | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Stock based compensation | - | - | 216 | - | - | 216 | ||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 22,269 | $ | 223 | $ | 40,425 | $ | - | $ | 220,939 | $ | 261,587 | |||||||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | 24,566 | 24,566 | ||||||||||||||||||||||||||||||||||||||||||
Restricted stock issued | 11 | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Restricted stock net settlement | - | - | (315 | ) | - | - | (315 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock based compensation | - | - | 175 | - | - | 175 | ||||||||||||||||||||||||||||||||||||||||||
Treasury stock repurchases | (93 | ) | - | - | (2,877 | ) | (2,877 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | 22,187 | $ | 223 | $ | 40,285 | $ | (2,877 | ) | $ | 245,505 | $ | 283,136 | ||||||||||||||||||||||||||||||||||||
Common Stock Shares / Amount | Additional | Treasury | Retained | Total | ||||||||||||||||||||
Balance at January 1, 2021 | 22,912 | $ | 117 | $ | 84,148 | $ | (159,118 | ) | $ | 224,834 | $ | 149,981 | ||||||||||||
Net Income | - | - | - | - | 11,949 | 11,949 | ||||||||||||||||||
Treasury stock repurchases | (12 | ) | - | - | (144 | ) | - | (144 | ) | |||||||||||||||
Stock based compensation | - | - | 79 | - | - | 79 | ||||||||||||||||||
Balance at March 31, 2021 | 22,900 | $ | 117 | $ | 84,227 | $ | (159,262 | ) | $ | 236,783 | $ | 161,865 | ||||||||||||
Net Income | - | - | - | - | 15,317 | 15,317 | ||||||||||||||||||
Exercise of stock awards-shares issued including tax benefits | 3 | - | - | - | - | - | ||||||||||||||||||
Stock based compensation | - | - | 174 | - | - | 174 | ||||||||||||||||||
Balance at June 30, 2021 | 22,903 | $ | 117 | $ | 84,401 | $ | (159,262 | ) | $ | 252,100 | $ | 177,356 | ||||||||||||
Net Income | - | - | - | - | 21,359 | 21,359 | ||||||||||||||||||
Stock Split | - | 117 | (117 | ) | - | - | - | |||||||||||||||||
Treasury stock repurchases | (570 | ) | - | - | (10,684 | ) | - | (10,684 | ) | |||||||||||||||
Stock based compensation | - | - | 95 | - | - | 95 | ||||||||||||||||||
Balance at September 30, 2021 | 22,335 | $ | 234 | (1) | $ | 84,379 | (1) | $ | (169,946 | ) | $ | 273,459 | $ | 188,126 | ||||||||||
See notes to condensed consolidated financial statements.
All prior period share and per share data has been retroactively adjusted to reflect the stock splits effective August 16, 2021 and March 29, 2022, respectively.
(1) | Common stock par value and additional paid-in capital dollar values are not retroactively adjusted for the stock split effective March 29, 2022. |
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(in thousands)
Common Stock Shares / Amount | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Total | ||||||||||||||||||||
Balance at January 1, 2020 | 11,498 | $ | 117 | $ | 83,688 | $ | (156,837 | ) | $ | 207,007 | $ | 133,975 | ||||||||||||
Net Loss | - | - | - | - | (1,304 | ) | (1,304 | ) | ||||||||||||||||
Stock awards-shares issued including tax benefits | 4 | - | - | - | - | - | ||||||||||||||||||
Treasury stock repurchases | (18 | ) | - | - | (321 | ) | - | (321 | ) | |||||||||||||||
Stock based compensation | - | - | 305 | - | - | 305 | ||||||||||||||||||
Balance at March 31, 2020 | 11,484 | $ | 117 | $ | 83,993 | $ | (157,158 | ) | $ | 205,703 | $ | 132,655 | ||||||||||||
Net Loss | - | - | - | - | (823 | ) | (823 | ) | ||||||||||||||||
Stock awards-shares issued including tax benefits | 68 | - | - | - | - | - | ||||||||||||||||||
Treasury stock repurchases | - | - | - | - | - | - | ||||||||||||||||||
Stock based compensation | - | - | 21 | - | - | 21 | ||||||||||||||||||
Balance at June 30, 2020 | 11,552 | $ | 117 | $ | 84,014 | $ | (157,158 | ) | $ | 204,880 | $ | 131,853 | ||||||||||||
Net Income | - | - | - | - | 6,000 | 6,000 | ||||||||||||||||||
Stock awards-shares issued including tax benefits | - | - | - | - | - | - | ||||||||||||||||||
Treasury stock repurchases | (82 | ) | - | - | (1,472 | ) | - | (1,472 | ) | |||||||||||||||
Stock based compensation | - | - | 104 | - | - | 104 | ||||||||||||||||||
Balance at September 30, 2020 | 11,470 | $ | 117 | $ | 84,118 | $ | (158,630 | ) | $ | 210,880 | $ | 136,485 | ||||||||||||
See notes to condensed consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
September 30, 20212022
NOTE A: BASIS OF PRESENTATION
In accordance with generally accepted accounting principles (“GAAP”) and applicable rules of the Securities and Exchange Commission, the information reported in this Quarterly Report on Form 10-Q for P.A.M. Transportation Services, Inc. and its legally distinct subsidiaries, unless otherwise indicated, is presented on a consolidated basis. Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “P.A.M.,” the “Company,” “we,” “our,” or “us” mean P.A.M. Transportation Services, Inc. and its consolidated subsidiaries.
The consolidated financial results for the three and nine months ended September 30, 2022, include the results of our newly formed subsidiaries, Met Express, Inc. and Costar Equipment, Inc., from June 14, 2022, the date of the acquisition of substantially all of the assets and certain liabilities of Metropolitan Trucking, Inc. and its related entities, through September 30, 2022. All material intercompany items and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”)GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included. The consolidated balance sheet at December 31, 20202021 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the three and nine-month periods ended September 30, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022. For further information, refer to the consolidated financial statements and the footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2020.2021.
On July 13, 2021 and March 8, 2022, our Board of Directors authorized adeclared 2-for-1 forward stock splitsplits of the shares of our common stock, each of which was effected in the form of a 100% stock dividend. The stock splitsplits entitled each shareholder of record at the close of business on July 30, 2021 and March 18, 2022, respectively, to receive one additional share of common stock for each share of common stock owned as of that date and wasdate. The stock splits were paid on August 16, 2021.2021 and March 29, 2022, respectively. Upon the completion of the August 2021 stock split, our outstanding shares increased from approximately 5.7 million shares to approximately 11.4 million shares. Upon the completion of the March 2022 stock split, our outstanding shares increased from approximately 11.1 million shares to approximately 22.2 million shares. All share and per share amounts in this quarterly report on Form 10-Q give effect to thethese stock splitsplits and have been adjusted retroactively,retrospectively, where applicable, for all periods presented.
NOTE B: RECENT ACCOUNTING PRONOUNCEMENTS
In March 2020,the FASB issued Accounting Standards Update No. 2020-04, (“ASU 2020-04”), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 was issued to provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. ASU 2020-04 is effective as of March 12, 2020, through December 31, 2022. 2022.The Company has evaluated the provisions of this standard and determined that it is applicable to our line of credit and investment margin account. The London Interbank Offered Rate (“LIBOR”) was the basis for interest charges on outstanding borrowings for our line of credit andcredit. During the year 2021, the index for interest charges on the Company’s investment margin account asaccounts was transitioned to the Secured Overnight Financing Rate (“SOFR”). The new index rate did not vary materially from LIBOR at the time of transition. During the September 30, 2021. third quarter of 2022, the index for interest charges on the Company’s line of credit was transitioned to the Secured Overnight Financing Rate (“SOFR”). The scheduled discontinuation of LIBOR isdid not expected to materially alter any provisions of either of these debt instruments, except for the identificationinstruments. The adoption of a replacement reference rate. The Company has evaluated the new guidance and doesdid not expect it to have a material impact on itsthe Company’s financial condition, results of operations, or cash flows.
NOTE C: REVENUE RECOGNITION
The Company has a single performance obligation, to transport our customer’s freight from a specified origin to a specified destination. The Company has the discretion to choose to self-transport or to arrange for alternate transportation to fulfill the performance obligation. Where the Company decides to self-transport the freight, the Company classifies the service as truckload services, and where the Company arranges for alternate transportation of the freight, the Company classifies the service as brokerage and logistics services. In either case, the Company is paid a rate to transport freight from its origin location to a specified destination. Because the primary factors influencing revenue recognition, including performance obligation, customer base, and timing of revenue recognition, are the same for both of its service categories, the Company utilizes the same revenue recognition method throughout its operations.
Company revenue is generated from freight transportation services performed utilizing heavy truck trailer combinations. While various ownership arrangements may exist for the equipment utilized to perform these services, including Company owned or leased, owner-operator owned, and third-party carriers, revenue is generated from the same base of customers. Contracts with these customers establish rates for services performed, which are predominantly rates that will be paid to pick up, transport and drop off freight at various locations. In addition to transportation, revenue is also awarded for various accessorial services performed in conjunction with the base transportation service. The Company also has other revenue categories that are not discussed in this note or broken out in our condensed consolidated statements of operations due to their immaterial amounts.
In fulfilling the Company’s obligation to transport freight from a specified origin to a specified destination, control of freight is transferred to us at the point it has been loaded into the driver’s trailer, the doors are sealed and the driver has signed a bill of lading, which is the basic transportation agreement that establishes the nature, quantity and condition of the freight loaded, the responsibility for invoice payment and the pickup and delivery locations. Our revenue is generated, and our customer receives benefit, as the freight progresses towards delivery locations. In the event our customer cancels the shipment at some point prior to the final delivery location and re-consigns the shipment to an alternate delivery location, we are entitled to receive payment for services performed for the partial shipment. Shipments are generally conducted over a relatively short time span, generally one to three days; however, freight is sometimes stored temporarily in our trailer at one of our drop yard locations or at a location designated by a customer. Our revenue is categorized as either Freight Revenue or Fuel Surcharge Revenue, and both are earned by performing the same freight transportation services, as discussed further below.
Freight Revenue – revenue generated by the performance of the freight transportation service, including any accessorial service, provided to customers.
Fuel Surcharge Revenue – revenue designed to adjust freight revenue rates to an agreed-upon base cost for diesel fuel. Diesel fuel prices can fluctuate widely during the term of a contract with a customer. At the point that freight revenue rates are negotiated with customers, a sliding scale is agreed upon that approximately adjusts diesel fuel costs to an agreed-upon base amount. In general, as fuel prices increase, revenue from fuel surcharge increases, so that diesel fuel cost is adjusted to the approximate base amount agreed upon.
Revenue is recognized over time as the freight progresses towards its destination and the transportation service obligation is fulfilled. For loads picked up during the reporting period, but delivered in a subsequent reporting period, revenue is allocated to each period based on the transit time in each period as a percentage of total transit time. There are no assets or liabilities recorded in conjunction with revenue recognized, other than accounts receivable and estimated credit losses.
NOTE D: MARKETABLE EQUITY SECURITIES
The Company’s investments in marketable securities consist of equity securities with readily determinable fair values. The cost of securities sold is based on the specific identification method, and interest and dividends on securities are included in non-operating income.
Marketable equity securities are carried at fair value, with gains and losses in fair market value included in the determination of net income. The fair value of marketable equity securities is determined based on quoted market prices in active markets, as described in Note J.
The following table sets forth market value, cost, and unrealized gains on equity securities as of September 30, 20212022 and December 31, 2020.2021.
September 30, 2021 | December 31, 2020 | September 30, 2022 | December 31, 2021 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Fair market value | $ | 36,130 | $ | 27,941 | $ | 36,002 | $ | 39,424 | ||||||||
Cost | 29,585 | 25,860 | 30,092 | 29,385 | ||||||||||||
Unrealized gain | $ | 6,545 | $ | 2,081 | $ | 5,910 | $ | 10,039 | ||||||||
The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities as of September 30, 20212022 and December 31, 2020.2021.
September 30, 2021 | December 31, 2020 | |||||||
(in thousands) | ||||||||
Gross unrealized gains | $ | 10,141 | $ | 7,048 | ||||
Gross unrealized losses | 3,596 | 4,967 | ||||||
Net unrealized gain | $ | 6,545 | $ | 2,081 | ||||
September 30, 2022 | December 31, 2021 | |||||||
(in thousands) | ||||||||
Gross unrealized gains | $ | 9,278 | $ | 12,458 | ||||
Gross unrealized losses | 3,368 | 2,419 | ||||||
Net unrealized gain | $ | 5,910 | $ | 10,039 | ||||
The following table shows the Company’s net realized gains during the three and nine months ending on September 30, 20212022 and 2020,2021, respectively, on certain marketable equity securities.
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Sales proceeds | $ | 72 | $ | 0 | $ | 1,496 | $ | 861 | $ | - | $ | 72 | $ | - | $ | 1,496 | ||||||||||||||||
Cost of securities sold | 19 | 0 | 560 | 1,466 | - | 19 | - | 560 | ||||||||||||||||||||||||
Realized gain / (loss) | $ | 53 | $ | 0 | $ | 936 | $ | (605 | ) | |||||||||||||||||||||||
Realized gain | $ | - | $ | 53 | $ | - | $ | 936 | ||||||||||||||||||||||||
For the quarter ended September 30, 2022, the Company recognized dividends received of approximately $428,000 in non-operating income in its condensed consolidated statements of operations. For the quarter ended September 30, 2021, the Company recognized dividends received of approximately $335,000 in non-operating income in its condensed consolidated statements of operations. For the quarter ended September 30, 2020, the Company recognized dividends received of approximately $314,000 in non-operating income in its condensed consolidated statements of operations.
For the nine months ended September 30, 2021,2022, the Company recognized dividends received of approximately $995,000$1,095,000 in non-operating income in its condensed consolidated statements of operations. For the nine months ended September 30, 2020,2021, the Company recognized dividends received of approximately $946,000$995,000 in non-operating income in its condensed consolidated statements of operations.
The Company’s equity securities are periodically used as collateral against any outstanding margin account borrowings. As of September 30, 2021,2022, and December 31, 2020,2021, the Company had outstanding borrowings of approximately $13,102,000$1,035,000 and $12,705,000,$1,214,000, respectively, under its margin account. Margin account borrowings are used for the purchase of marketable equity securities and as a source of short-term liquidity and are included in accrued expenses and other liabilities on our condensed consolidated balance sheets.
Our marketable equity securities portfolio had a net unrealized pre-tax loss in market value of approximately $456,000$2,387,000 during the third quarter of 2021,2022, and a net unrealized pre-tax loss in market value of approximately $498,000$456,000 during the third quarter of 2020,2021, which were reported as non-operating income in its condensed consolidated statements of operations for the respective periods.
NOTE E: STOCK-BASED COMPENSATION
The Company maintains a stock incentive plan (the “Plan”) under which incentive and nonqualified stock options and other stock awards may be granted. Under the Plan, 1,500,0003,000,000 shares are reserved for the issuance of stock awards to directors, officers, key employees, and others. The stock option exercise price and the restricted stock value under the Plan shall not be less than 85% of the fair market value of the Company’s common stock on the date the award is granted. The fair market value is determined by the closing price of the Company’s common stock, on its primary exchange, on the same date that the option or award is granted.
During the firstFebruary 2022, nine months of 2021,the Company granted 5,00029,120 shares of common stock to certain key employees. These stock awards havehad grant date fair values of $30.17$38.80 per share, based on the closing price of the Company’s stock on the date of grant, and vest in 25% increments over four years, beginning one year from the anniversary date of the grant.
During the firstMay 2022, nine months of 2021,the Company granted 2,6081,855 shares of common stock to non-employee directors. These stock awards havehad a grant date fair value of $30.85$29.60 per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately.
During June 2022, the Company granted 3,500 shares of common stock to a key employee. This stock award had a grant date fair value of $27.68 per share, based on the closing price of the Company’s stock on the date of grant, and vests in 25% increments over four years, beginning one year from the anniversary date of the grant.
The total grant date fair value of stock vested during the firstnine months of 2022 was approximately $269,000. The total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits during the firstnine months of 2022, was approximately $528,000 and includes approximately $55,000 recognized as a result of the grant of shares to certain non-employee directors. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $0.01 during the firstnine months of 2022. As of September 30, 2022, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $2,601,000, which is being amortized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize approximately $187,000 in additional compensation expense related to unvested stock awards during the remainder of 2022 and to recognize approximately $649,000, $641,000, $670,000, $343,000, and $111,000 in additional compensation expense related to unvested stock awards during the years 2023,2024,2025,2026, and 2027, respectively.
The total grant date fair value of stock vested during the first nine months of 2021 was approximately $80,000. The total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits during the first nine months of 2021, was approximately $347,000 and includes approximately $80,000 recognized as a result of the grant of 326 shares to each non-employee director. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $0.02 during the first nine months of 2021. As of September 30, 2021, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $1,941,000, which is being amortized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize approximately $94,000 in additional compensation expense related to unvested stock awards during the remainder of 2021 and to recognize approximately $408,000, $343,000, $334,000, $363,000, $288,000 and $111,000 in additional compensation expense related to unvested stock awards during the years 2022,2023,2024,2025,2026 and 2027, respectively.
The total grant date fair value of stock vested during the firstnine months of 2020 was approximately $636,000. Total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits during the firstnine months of 2020, was approximately $430,000 and includes approximately $90,000 recognized as a result of the grant of shares to each non-employee director. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $0.06 during the firstnine months of 2020. As of September 30, 2020, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $2,318,000, which was being amortized on a straight-line basis over the remaining vesting period.
A summary of the status of the Company’s non-vested restricted stock as of September 30, 20212022, and changes during the nine months ended September 30, 2021,2022, is as follows:
Restricted Stock | Restricted Stock | |||||||||||||||
Number of Shares | Weighted- Average Grant Date Fair Value | Number of | Weighted- | |||||||||||||
Non-vested at January 1, 2021 | 122,070 | $ | 18.06 | |||||||||||||
Non-vested at January 1, 2022 | 239,212 | $ | 9.25 | |||||||||||||
Granted | 7,608 | 30.40 | 34,475 | 37.18 | ||||||||||||
Canceled/forfeited/expired | (714 | ) | 28.23 | - | - | |||||||||||
Vested | (2,608 | ) | 30.85 | (24,355 | ) | 11.06 | ||||||||||
Non-vested at September 30, 2021 | 126,356 | $ | 18.48 | |||||||||||||
Non-vested at September 30, 2022 | 249,332 | $ | 12.93 |
| ||||||||||||
NOTE F: SEGMENT INFORMATION
The Company follows the guidance provided by ASC Topic 280, Segment Reporting, in its identification of operating segments. The Company has determined that it has a total of 2two operating segments whose primary operations can be characterized as either Truckload Services or Brokerage and Logistics Services; however, in accordance with the aggregation criteria provided by FASB ASC Topic 280, the Company has determined that the operations of the two operating segments can be aggregated into a single reporting segment, Motor Carrier Operations. Truckload Services revenues and Brokerage and Logistics Services revenues, each before fuel surcharges, were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Amount | % | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | Amount | % | (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Truckload Services revenue | $ | 110,436 | 66.4 | $ | 82,949 | 75.5 | $ | 298,835 | 66.9 | $ | 244,217 | 79.4 | $ | 144,982 | 67.0 | $ | 110,436 | 66.4 | $ | 404,658 | 65.8 | $ | 298,835 | 66.9 | ||||||||||||||||||||||||||||||||||||||||
Brokerage and Logistics Services revenue | 55,895 | 33.6 | 26,905 | 24.5 | 147,812 | 33.1 | 63,224 | 20.6 | 71,493 | 33.0 | 55,895 | 33.6 | 210,645 | 34.2 | 147,812 | 33.1 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total revenues | $ | 166,331 | 100.0 | $ | 109,854 | 100.0 | $ | 446,647 | 100.0 | $ | 307,441 | 100.0 | $ | 216,475 | 100.0 | $ | 166,331 | 100.0 | $ | 615,303 | 100.0 | $ | 446,647 | 100.0 | ||||||||||||||||||||||||||||||||||||||||
These segment results include of the results of the truckload services and brokerage operations acquired from Metropolitan Trucking, Inc., and related subsidiaries in the business combination discussed in Note P to the condensed consolidated financial statements.
NOTE G: TREASURY STOCK
The Company’s stock repurchase program has been extended and expanded several times, most recently in April 2017,November 2021, when the Board of Directors reauthorized 500,000 shares of common stock for repurchase under the initial September 2011 authorization. As of September 30, 2022, there remain 365,266 shares of common stock authorized for repurchase under this plan.
During the ninefirst months endedquarter of September 30, 2021, 2022, prior to the Company repurchased 18,732March 2022 stock split, we retired 12,268,395 shares of its common stock at an aggregate cost of approximately $647,000 under this program.
On July 27, 2021, the Company commenced a tender offer to repurchase up to 200,000 sharesour treasury stock. Upon retirement of the Company’s outstanding common stock at a price of not greater than $37.00 nor less than $32.00 per share. Followingtreasury shares, we allocated the expirationexcess of the tender offer on August 31, 2021, repurchase price over the Company accepted 272,405par value of shares including 72,405 oversubscribed shares tendered, of its common stock for purchase at $37.00acquired to both retained earnings and paid-in capital. The portion allocated to paid-in capital was determined by applying the average paid-in capital per share, at an aggregate purchase price of approximately $10.1 million, excluding fees and expenses relatedthe remaining portion was recorded to the offer. The Company funded the purchase of the accepted shares tendered with available cash and accounted for the repurchase of these shares as treasury stockretained earnings. There was no effect on the Company’s condensed consolidated balance sheet asoverall equity position due to the retirement of September 30, 2021.treasury shares.
The Company accounts for Treasurytreasury stock using the cost method. As of September 30, 2021,2022, 12,226,78593,124 shares were held in the treasury at an aggregate cost of approximately $169,946,000.$2,877,000.
NOTE H: EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by adjusting the weighted average number of shares of common stock outstanding by common stock equivalents attributable to dilutive restricted stock. The computation of diluted earnings per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share. The computations of basic and diluted earnings per share were as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | September 30, | September 30, | |||||||||||||||||||||||||||||
September 30, | September 30, | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | (in thousands, except per share data) | ||||||||||||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||||||||||
Net income | $ | 21,359 | $ | 6,000 | $ | 48,625 | $ | 3,874 | $ | 24,566 | $ | 21,359 | $ | 72,690 | $ | 48,625 | ||||||||||||||||
Basic weighted average common shares outstanding | 11,362 | 11,526 | 11,421 | 11,516 | 22,263 | 22,724 | 22,276 | 22,842 | ||||||||||||||||||||||||
Dilutive effect of common stock equivalents | 68 | 10 | 60 | 34 | 177 | 136 | 192 | 120 | ||||||||||||||||||||||||
Diluted weighted average common shares outstanding | 11,430 | 11,536 | 11,481 | 11,550 | 22,440 | 22,860 | 22,468 | 22,962 | ||||||||||||||||||||||||
Basic earnings per share | $ | 1.88 | $ | 0.52 | $ | 4.26 | $ | 0.34 | $ | 1.10 | $ | 0.94 | $ | 3.26 | $ | 2.13 | ||||||||||||||||
Diluted earnings per share | $ | 1.87 | $ | 0.52 | $ | 4.24 | $ | 0.34 | $ | 1.09 | $ | 0.93 | $ | 3.24 | $ | 2.12 | ||||||||||||||||
NOTE I: INCOME TAXES
The Company and its subsidiaries are subject to U.S. and Canadian federal income tax laws as well as the income tax laws of multiple state jurisdictions. The major tax jurisdictions in which the Company operates generally provide for a deficiency assessment statute of limitations period of three years, and as a result, the Company’s tax years 20172018 and forward remain open to examination in those jurisdictions.
In determining whether a tax asset valuation allowance is necessary, management, in accordance with the provisions of ASC 740-10-30, Accounting for Income Taxes, weighs all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is necessary. If negative conditions exist which indicate a valuation allowance might be necessary, consideration is then given to what effect the future reversals of existing taxable temporary differences and the availability of tax strategies might have on future taxable income to determine the amount, if any, of the required valuation allowance. As of September 30, 2021,2022, management determined that the future reversals of existing taxable temporary differences and available tax strategies would generate sufficient future taxable income to realize its tax assets and therefore a valuation allowance was not necessary.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the position will be sustained on examination by taxing authorities, based on the technical merits of the position. As of September 30, 2021,2022, an adjustment to the Company’s condensed consolidated financial statements for uncertain tax positions has not been required as management believes that the Company’s tax positions taken in income tax returns filed or to be filed are supported by clear and unambiguous income tax laws. The Company recognizes interest and penalties related to uncertain income tax positions, if any, in income tax expense. During the nine months ended September 30, 20212022 and 2020,2021, the Company has not recognized or accrued any interest or penalties related to uncertain income tax positions.
The Company’s effective income tax rates were 26.30%23.6% and 18.33%26.3% for the nine months ended September 30, 20212022 and 2020,2021, respectively. Our effective tax rate for the nine months ended September 30, 20212022 differs from amounts computed by applying the United States federal statutory rates to pre-tax income primarily due to state income taxes and the tax benefits related to stock compensation.
NOTE J: FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash and cash equivalents, marketable equity securities, accounts receivable, trade accounts payable, and borrowings.
The Company follows the guidance for financial assets and liabilities measured on a recurring basis. This guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: | Quoted market prices in active markets for identical assets or liabilities. | |
| ||
Level 2: | Inputs other than Level 1 inputs that are either directly or indirectly observable such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable; or other inputs not directly observable, but derived principally from, or corroborated by, observable market data. | |
| ||
Level 3: | Unobservable inputs that are supported by little or no market activity. |
The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
At September 30, 2021,2022, the following items are measured at fair value on a recurring basis:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
(in thousands) | ||||||||||||||||
Marketable equity securities | $ | 36,130 | $ | 36,130 | 0 | 0 | ||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
(in thousands) | ||||||||||||||||
Marketable equity securities | $ | 36,002 | $ | 36,002 | - | - | ||||||||||
The Company’s investments in marketable securities are recorded at fair value based on quoted market prices. The carrying value of other financial instruments, including cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short maturities.
The carrying amount for the line of credit approximates fair value because the line of credit interest rate is adjusted frequently.
For long-term debt other than the lines of credit, the fair values are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. The carrying value and estimated fair value of this other long-term debt at September 30, 20212022 was as follows:
Carrying Value | Estimated Fair Value | |||||||
(in thousands) | ||||||||
Long-term debt | $ | 230,556 | $ | 232,732 | ||||
Carrying Value | Estimated Fair Value | |||||||
(in thousands) | ||||||||
Long-term debt | $ | 257,343 | $ | 246,003 | ||||
The Company has not elected the fair value option for any of its financial instruments.
NOTE K: NOTES PAYABLE
During the first nine months of 2021,2022, the Company’s subsidiaries entered into installment obligations totaling approximately $26.6$76.8 million, including $35.5 million for the financing of real estate and $41.3 million for the purpose of purchasing revenue equipment.equipment and other assets. These obligations are payable in monthly installments and are recorded in long term debt and current maturities on the condensed consolidated balance sheets. The terms of these obligations vary from 60 months for trucks to 120 months for real estate. In addition, during June 2022 the Company’s subsidiaries assumed approximately $12.3 million of installment obligations as part of a business acquisition. The terms of these obligations varied from 1 month to 36 months for trucks acquired and from 24 months to 8434 months for trailers.
trailers acquired.
NOTE L: LITIGATION
The Company isWe are involved in certain claims and pending litigation arising from the ordinary conduct of business. We also provide accruals for claims within our self-insured retention amounts. On notSeptember 1, 2019, currently a partywe elected to any pending legal proceedingbecome self-insured for certain layers of auto liability claims in excess of $1.0 million for which management believes to be material to the financial statements of the Company. The Company maintainswe previously maintained auto liability insurance against risks arising outcoverage. On September 1, 2020, we elected to become self-insured for certain layers of auto liability claims in excess of $2.0 million. We currently specifically reserve for claims that are expected to exceed $2.0 million when fully developed, based on the normal coursefacts and circumstances of its business.those claims.
However, if we experience claims that are not covered by our insurance or that exceed our estimated claim reserve, it could increase the volatility of our earnings and have a materially adverse effect on our financial condition, results of operations or cash flows.
We are a defendant in a lawsuit which was filed on August 6, 2021, in the United States District Court for the Western District of Arkansas. The plaintiff is a former driver and is seeking class certification. The complaint alleges failure to pay minimum wage under the Fair Labor Standards Act and the Arkansas Minimum Wage Act, violations of the Electronic Funds Transfer Act (EFTA), violations of the Arkansas Wage Payment Law (discharge pay and unlawful, usurious advance fees), violations of the Arkansas Common Law, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). Should this lawsuit be certified as a class action, to include similarly situated drivers as the plaintiff, the class will seek actual and liquated damages to include court costs and legal fees associated with the lawsuit. The class, if certified, will include any company driver employed from January 1, 2020 through the present and ongoing. A settlement agreement has been reached and is pending court approval. Management has determined that any losses under this claim will not be covered by existing insurance policies. This settlement has been fully reserved as of September 30, 2022.
NOTE M: LEASES
The Company currently leases shop, office and parking spaces in various locations in the United States and Mexico. The initial term for the majority of these leases is one year or less, with an option for early cancellation and an option to renew for subsequent one- month periods. These leases can be terminated by either party by providing notice to the other party of the intent to cancel or to not extend. Relatively short lease durations for these properties are intended to provide flexibility to the Company as changing operational needs and shifting opportunities often result in cancellation or non-renewal of these leases by the Company or the lessor.
The initial lease term for certain shop and office locations is for periods ranging from one to five years with early cancellation options. The Company prefers that leases include early cancellation provisions to prevent becoming locked into long-term leases that become operationally unjustified and to allow the flexibility to pursue more cost-effective options for similar properties if they become available. These leases often include the option to extend for additional periods, which may or may not be exercised. Based on historical experience, the Company does not always extend these leases, sometimes exercises the option to cancel leases early and sometimes lessors choose to cancel leases or not extend. The company will continue to recognize lease expense for operating leases for which the initial term was twelve months or less, or for which it is reasonably likely that early cancellation provisions will be exercised, on a straight-line basis over the remaining term of the leases.
The Company leases trucks to owner-operators under our lease-to-own program. We also lease dock space to a related party at our Laredo, Texas terminal. We have reviewed these operating leases and determined that the adoption of ASU 2016-02 did not require a change to our financial statements, as our method of accounting for related assets and lease revenue is consistent with the provisions of the new standard.
Right-of-Use Leases
Following the Company’s adoption of ASU 2016-02 and related amendments on January 1, 2019, theThe Company entered intois party to operating leases which include initial terms ranging from three to five years and which do not include an option for early cancellation. In accordance with the provisions of ASC Topic 842, these leases resulted in the recognition of right-of-use assets and corresponding operating lease liabilities, respectively, valued at $1.1$0.5 million as of September 30, 2021.2022. These assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date, using the Company’s incremental borrowing rate as of the respective dates of lease inception, as the rate implicit in each lease is not readily determinable. The right-of-use assets are recorded in other assets, and the lease liability is recorded in accrued expenses and other liabilities and in other long-term liabilities on our condensed consolidated balance sheet. Lease expense is recorded on a straight-line basis over the lease term and is recorded in rent and purchased transportation in our condensed consolidated statements of operations. While these lease agreements may contain provisions to extend after the initial term for an additional five years, the Company is not reasonably certain these extension options will be exercised. Therefore, potential lease payments that might occur under this extension period are not included in amounts recorded in our condensed consolidated balance sheets as of September 30, 2021.2022.
Scheduled amounts and timing of cash flows arising from future right-of-use operating lease payments at September 30, 2021,2022, are:
Maturity of Lease Liabilities | (in thousands) | (in thousands) | ||||||
2021 (remaining) | $ | 158 | ||||||
2022 | 544 | |||||||
2022 (remaining) | $ | 84 | ||||||
2023 | 340 | 340 | ||||||
2024 | 114 | 114 | ||||||
2025 and thereafter | - | |||||||
Total undiscounted operating lease payments | $ | 1,156 | $ | 538 | ||||
Less: Imputed interest | (43 | ) | (14 | ) | ||||
Present value of operating lease liabilities | $ | 1,113 | $ | 524 | ||||
Balance Sheet Classification | ||||||||
Right-of-use assets (recorded in other non-current assets) | $ | 1,113 | $ | 524 | ||||
Current lease liabilities (recorded in other current liabilities) | $ | 614 | $ | 339 | ||||
Long-term lease liabilities (recorded in other long-term liabilities) | 499 | 185 | ||||||
Total operating lease liabilities | $ | 1,113 | $ | 524 | ||||
Other Information | ||||||||
Weighted-average remaining lease term for operating leases (in years) | 2.17 | |||||||
Weighted-average remaining lease term for operating leases (years) | 1.58 | |||||||
Weighted-average discount rate for operating leases | 3.64 | % | 3.74 | % | ||||
Cash Flows
NaNNo new right-of-use assets were recognized as a non-cash asset addition that resulted from new operating lease liabilities during the three and nine months ended September 30, 2021.2022. Cash paid for amounts included in the present value of operating lease liabilities was $0.1 million during the three months ended September 30, 20212022 and is included in operating cash flows, within the condensed consolidated statement of cash flows. Cash paid for amounts included in the present value of operating lease liabilities was $0.4 million during the nine months ended September 30, 20212022 and is included in operating cash flows, within the condensed consolidated statement of cash flows.
Operating Lease Costs
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Long-term | $ | 147 | $ | 140 | $ | 441 | $ | 412 | $ | 125 | $ | 147 | $ | 435 | $ | 441 | ||||||||||||||||
Short-term | 572 | 527 | 1,632 | 1,671 | 627 | 572 | 1,732 | 1,632 | ||||||||||||||||||||||||
Total | $ | 719 | $ | 667 | $ | 2,073 | $ | 2,083 | $ | 752 | $ | 719 | $ | 2,167 | $ | 2,073 | ||||||||||||||||
Lease Revenue
The Company's operating lease revenue is disclosed in the table below.
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Leased truck revenue (recorded in revenue, before fuel surcharge) | $ | 2,039 | $ | 1,322 | $ | 5,444 | $ | 5,302 | $ | 2,228 | $ | 2,039 | $ | 6,519 | $ | 5,444 | ||||||||||||||||
Leased building space revenue (recorded in non-operating income) | 169 | 169 | 506 | 404 | 99 | 169 | 426 | 506 | ||||||||||||||||||||||||
Total lease revenue | $ | 2,208 | $ | 1,491 | $ | 5,950 | $ | 5,706 | $ | 2,327 | $ | 2,208 | $ | 6,945 | $ | 5,950 | ||||||||||||||||
The Company leases trucks to owner-operators under operating leases, which generally have a term of up to five years and include options to purchase the truck at the end of the lease. In the event that an independent contractor defaults on their lease, the Company generally leases the truck to another independent contractor.
As of September 30, 2022, 30,2021,the gross carrying value of trucks underlying these leases was $55.8$55.2 million and accumulated depreciation was $28.6$35.0 million. Depreciation is calculated on a straight-line basis over the estimated useful life of the equipment, down to an estimated salvage value. In most cases, the Company has agreements in place with certain manufacturers whereby salvage values are guaranteed by the manufacturer. In other cases, where salvage values are not guaranteed, estimates of salvage value are based on the expected market values of equipment at the time of disposal. During the quarter ended September 30, 2021,2022, the Company incurred $1.7$1.6 million of depreciation expense for these assets.
The Company leases dock space to a related party at our Laredo, Texas terminal and warehouse and office space to an unrelated lessee at a second Laredo, Texas terminal. The dock space and the warehouse and office space leased areis depreciated in conjunction with the structures and improvements for the entire Laredo terminalsterminal on a straight-line basis over the estimated useful life of the assets. Lease income is recorded as a component of non-operating income in our condensed consolidated statements of operations.
Lease Receivables
Future minimum operating lease payments receivable at September 30, 2021:2022:
(in thousands) | (in thousands) | |||||||
2021 (remaining) | $ | 2,234 | ||||||
2022 | 7,637 | |||||||
2022 (remaining) | $ | 2,085 | ||||||
2023 | 4,520 | 6,472 | ||||||
2024 | 2,189 | 3,207 | ||||||
2025 | 35 | 94 | ||||||
2026 and thereafter | - | |||||||
Total future minimum lease payments receivable | $ | 16,615 | $ | 11,858 | ||||
NOTE N: EFFECT OF COVID-19 PANDEMIC
The rapid spread of COVID-19 resulted in governmental authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, increased border and port controls and closures, and shutdowns. These measures and the public health concerns resulting from the outbreak severely disrupted economic and commercial activity. The resulting impact on domestic and global supply chains caused slowdowns and reduced freight demand for transportation companies such as ours. Because we have a significant concentration of customers within the automotive industry, our freight volumes and revenues were significantly affected by the closure of North American automotive manufacturing facilities beginning in late March of 2020. Our automotive customers resumed operations during the second quarter of 2020.2020 and have not been materially disrupted during 2021 or the firstnine months of 2022. Any future delays or interruptions of automotive production and other consumer activity affecting our customers that could result from the ongoing outbreak of the Delta variant or any future wave of the virus or other similar outbreaks could further adversely affect our business. In addition, the implementation of measures to protect the health and safety of our employees, customers, vendors and the general public, such as the recently announcedor any state of federal directive to mandate full vaccination or weekly testing of employees for employers with 100 or more employees,mandates, may disrupt our ability to efficiently manage personnel and operations and to recruit and retain driver and non-driver personnel, which could have a material adverse effect on our operating results. Further, negative financial results, an economic downturn or uncertainty, or a tightening of credit markets caused by COVID-19 or other similar outbreaks could have a material adverse effect on our liquidity and our ability to effectively meet our short- and long-term financial obligations.
NOTE O: NONCASH INVESTING AND FINANCING ACTIVITIES
The Company financed approximately $20.0$16.9 million in equipment purchases during the first nine months of 20212022 utilizing noncash financing.
NOTE P: ACQUISITION OF METROPOLITAN TRUCKING
On June 14, 2022, subsidiaries of the Company, Met Express, Inc. and Costar Equipment, Inc. (collectively, the “Buyer”), entered into an Asset Purchase Agreement with Metropolitan Trucking, Inc., and related subsidiaries. Metropolitan Trucking, Inc. was a truckload carrier headquartered in Saddle Brook, New Jersey, providing asset-based dry van truckload transportation services, including local, regional, and dedicated services. The acquisition has been determined to be a business combination.
Pursuant to the Asset Purchase Agreement, the Buyer acquired substantially all the assets and assumed certain specified liabilities of Metropolitan Trucking, Inc., and its related entities (the “Transaction”). The Buyer paid $79.9 million of total consideration, including cash and certain assumed indebtedness of Metropolitan Trucking, Inc., and its related entities. The Transaction closed on June 14, 2022.
Total cash paid of $64.3 million was funded out of the Company’s available cash. The Transaction included the assumption of $12.6 million of indebtedness and $2.9 million of other current liabilities. The Asset Purchase Agreement contains customary representations, warranties, covenants, escrow, and indemnification provisions.
The results of the acquired business have been included in the consolidated financial statements since the date of acquisition and represented 14.1% of consolidated total assets as of September 30, 2022 and represented 9.4% and 4.1% of operating revenue for the three and nine months ended September 30, 2022, respectively. Acquisition related expenses of $0.4 million are included in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022.
The allocation of the purchase price is detailed in the tables below. The final purchase price allocation remains subject to other purchase accounting adjustments which may be identified, such as the final valuation of intangible assets and working capital adjustments, and therefore may differ materially from that reflected below.
The assets and liabilities associated with the acquisition were recorded at their fair values as of the acquisition date and the amounts are as follows:
(in thousands) | ||||
Trade and other accounts receivable | $ | 10,821 | ||
Other current assets | 316 | |||
Property and equipment | 68,722 | |||
Total assets | 79,859 | |||
Accounts payable | (2,915 | ) | ||
Long-term debt | (12,627 | ) | ||
Total cash paid | $ | 64,317 | ||
Item 2. Management’s’s Discussion and Analysis of Financial Condition and Results of Operations.
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, excess capacity in the trucking industry; surplus inventories; recessionary economic cycles and downturns in customers' business cycles; ongoing and potential future economic, business and operational disruptions and uncertainties due to the COVID-19 pandemic, including from the current spread of the Delta variant and any future spikes or outbreaks of the virus, or other public health crises, includingas well as from the implementation of vaccine mandates and other government actions taken in response to the pandemic; excess capacity in the trucking industry; surplus inventories; recessionary economic cycles and downturns in customers' business cycles; increases or rapid fluctuations in fuel prices, inflation, 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 Mexico, including, without limitation, exchange rate fluctuations, inflation, import duties, tariffs, quotas, political and economic instability and terrorism; the potential impact of new laws, regulations or policy, including, without limitation, tariffs, import/export, trade and immigration regulations or policies; a significant reduction in or termination of the Company's trucking service by a key customer; and other factors, including risk factors, included from time to time in filings made by the Company with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking events and circumstances discussed above and in company filings might not transpire.
CRITICAL ACCOUNTING POLICIES
ThereExcept as noted below, 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 December 31, 2020.2021.
Business Combinations. Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. Accounting for business acquisitions requires management to make judgments as to whether a purchase transaction is a multiple element contract, meaning that it includes other transaction components such as a settlement of a preexisting relationship. This judgment and determination affects the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction.
BUSINESS OVERVIEW
The Company is a holding company that owns subsidiaries engaged in providing truckload dry van carrier services transporting general commodities throughout the continental United States, as well as in the Canadian provinces of Ontario and Quebec. Unless the context otherwise requires, this report presents information regarding the Company and its subsidiaries on a consolidated basis. The Company’s administrative headquarters are in Tontitown, Arkansas. From this location we manage operations conducted through our wholly-owned subsidiaries based in various locations around the United States and in Mexico and Canada. The operations of these subsidiaries can generally be classified into either truckload services or brokerage and logistics services. This designation is based primarily on the ownership of the asset that performed the freight transportation service. Truckload services are performed by Company divisions that generally utilize Company-owned trucks, long-term contractors, or single-trip contractors to transport loads of freight for customers, while brokerage and logistics services coordinate or facilitate the transport of loads of freight for customers and generally involve the utilization of single-trip contractors. Both our truckload operations and our brokerage and logistics operations have similar economic characteristics and are impacted by virtually the same economic factors as discussed elsewhere in this report.
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 66.4%67.0% and 75.5%66.4% of total revenues, excluding fuel surcharges, for the three months ended September 30, 20212022 and 2020,2021, respectively. Truckload services revenues, excluding fuel surcharges, represented 66.9%65.8% and 79.4%66.9% of total revenues, excluding fuel surcharges, for the nine months ended September 30, 20212022 and 2020,2021, respectively. The remaining revenues, excluding fuel surcharges, were generated from brokerage and logistics services.
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 September 30, 2022 and 2021, and 2020, approximately $16.8$36.2 million and $12.1$16.8 million, respectively, of the Company’s total revenue was generated from fuel surcharges. During the nine months ended September 30, 2022 and 2021, and 2020, approximately $46.6$93.9 million and $36.6$46.6 million, respectively, of the Company’s total revenue was generated from fuel surcharges. We may also discuss certain changes in our expenses as a percentage of revenue, before fuel surcharge, rather than absolute dollar changes. We do this because we believe the variable cost nature of certain expenses makes a comparison of changes in expenses as a percentage of revenue more meaningful than absolute dollar changes.
On July 13, 2021 the Company’sand March 8, 2022, our Board of Directors declared a 2-for-1 forward stock splitsplits of itsthe shares of our common stock, each of which was effected in the form of a 100% stock dividend, payabledividend. The stock splits entitled each shareholder of record at the close of business on July 30, 2021 and March 18, 2022, respectively, to receive one additional share of common stock for each share of common stock owned as of that date. The stock splits were paid on August 16, 2021 and March 29, 2022, respectively. Upon the completion of the August 2021 stock split, our outstanding shares increased from approximately 5.7 million shares to stockholdersapproximately 11.4 million shares. Upon the completion of record on July 30, 2021.the March 2022 stock split, our outstanding shares increased from approximately 11.1 million shares to approximately 22.2 million shares. All share and per share amounts in this quarterly report on Form 10-Q give effect to thethese stock splitsplits and have been adjusted retroactively,retrospectively, where applicable, for all periods presented. See Note A to the condensed consolidated financial statements for additional information on the stock split.
On June 14, 2022, newly formed subsidiaries of the Company completed the acquisition of substantially all the assets and certain liabilities of Metropolitan Trucking, Inc. and related entities (“Metropolitan”). Metropolitan was a 320-truck dry van truckload carrier, with the East Coast serving as its primary operating territory. The purchase price paid at closing included approximately $15.5 million in assumed debt and $64.3 million paid using available cash balances. The Company is currently operating these assets through its newly formed subsidiary, Met Express, Inc. See Note P to the condensed consolidated financial statements for more information regarding this acquisition.
IMPACT OF COVID-19
The Company’s primary concern during the COVID-19 pandemic has been 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 feasible, our employees are working remotely from their homes. For essential functions, including our driving professionals, we distributehave distributed cleaning and protective supplies to various terminals so that they are available to those that need them. We providethem, 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.
While we and most of our customers have returned to normal operations and economic activity continued to increase during the first nine months of 2021,periods presented, we continue to monitor ongoing developments with the COVID-19 pandemic. Any future waves or outbreaks of alternative strains of the virus including the current spread of the Delta variant, could adversely impact our future operations and financial results.
On September 9, 2021, President Biden announced that he has directed the Occupational Safety and Health Administration (OSHA) to develop an Emergency Temporary Standard (ETS) mandating either the full vaccination or weekly testing of employees for employers with 100 or more employees. OSHA has not yet issued the ETS nor provided any additional information on its contents or requirements. We will continue to monitor these requirements and their implementation for any potential impacts to our operations.
The ultimate extent of the pandemic’s 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, and further government regulations imposed in response to the pandemic and itsthe pandemic’s continued effect on the economy and transportation demand.
The Company believes we will be able to continue 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, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(percentages) | ||||||||||||||||
Operating revenues, before fuel surcharge | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Operating expenses: | ||||||||||||||||
Salaries, wages and benefits | 29.2 | 35.4 | 31.9 | 35.9 | ||||||||||||
Operating supplies and expenses | 8.0 | 10.5 | 9.2 | 10.7 | ||||||||||||
Rent and purchased transportation | 24.3 | 21.3 | 23.4 | 24.1 | ||||||||||||
Depreciation | 11.2 | 16.1 | 13.7 | 17.1 | ||||||||||||
Insurance and claims | 3.1 | 3.8 | 3.3 | 2.3 | ||||||||||||
Other | 2.4 | 2.8 | 2.4 | 3.9 | ||||||||||||
(Gain) loss on sale or disposal of property | (0.3 | ) | (0.2 | ) | (0.3 | ) | 0.0 | |||||||||
Total operating expenses | 77.9 | 89.7 | 83.6 | 94.0 | ||||||||||||
Operating income | 22.1 | 10.3 | 16.4 | 6.0 | ||||||||||||
Non-operating income (expense) | 0.1 | (0.1 | ) | 1.9 | (2.2 | ) | ||||||||||
Interest expense | (1.3 | ) | (2.3 | ) | (1.7 | ) | (2.4 | ) | ||||||||
Income before income taxes | 20.9 | 7.9 | 16.6 | 1.4 | ||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(percentages) | ||||||||||||||||
Operating revenues, before fuel surcharge | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Operating expenses: | ||||||||||||||||
Salaries, wages and benefits | 32.8 | 29.2 | 30.5 | 31.9 | ||||||||||||
Operating supplies and expenses | 8.1 | 8.0 | 7.1 | 9.2 | ||||||||||||
Rent and purchased transportation | 25.2 | 24.3 | 25.7 | 23.4 | ||||||||||||
Depreciation | 11.0 | 11.2 | 11.2 | 13.7 | ||||||||||||
Insurance and claims | 3.5 | 3.1 | 4.8 | 3.3 | ||||||||||||
Other | 2.9 | 2.4 | 2.7 | 2.4 | ||||||||||||
Gain on sale or disposal of property | (0.9 | ) | (0.3 | ) | (0.7 | ) | (0.3 | ) | ||||||||
Total operating expenses | 82.6 | 77.9 | 81.3 | 83.6 | ||||||||||||
Operating income | 17.4 | 22.1 | 18.7 | 16.4 | ||||||||||||
Non-operating (expense) income | (0.9 | ) | 0.1 | (0.5 | ) | 1.9 | ||||||||||
Interest expense | (1.0 | ) | (1.3 | ) | (1.0 | ) | (1.7 | ) | ||||||||
Income before income taxes | 15.5 | 20.9 | 17.2 | 16.6 | ||||||||||||
THREE MONTHS ENDED SEPTEMBER 30, 20212022 VS. THREE MONTHS ENDED SEPTEMBER 30, 20202021
During the third quarter of 2021,2022, truckload services revenue, before fuel surcharges, increased 33.1%31.3% to $110.4$145.0 million as compared to $82.9$110.4 million during the third quarter of 2020.2021. The increase in revenue was primarily the result of increases in the average rate per mile chargedtotal number of miles driven during the third quarter of 2022 compared to our customers and in the third quarter of 2021. The average number of trucks in our fleet during the third quarter of 20212022 increased compared to the third quarter of 2020. These increases were partially offset by a decrease in the total number of miles driven per truck for the third quarter of 2021 compareddue to the third quarteracquisition of 2020.the assets of Metropolitan Trucking, Inc. and to organic fleet growth.
Salaries, wages and benefits decreasedincreased from 35.4%29.2% of revenues, before fuel surcharges, in the third quarter of 20202021 to 29.2%32.8% of revenues, before fuel surcharges, during the third quarter of 2021.2022. This percentage-based decreaseincrease 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 an increase in revenues foraverage driver pay, an increase in the periods compared.
Operating suppliespercentage of total miles driven by company drivers in lieu of owner-operators and expenses decreased from 10.5%the organic growth of revenues, before fuel surcharges,our driver fleet during the third quarter of 20202022, coupled with the addition of employees due to 8.0%the acquisition of revenues, before fuel surcharges,Metropolitan Trucking, Inc. during the thirdsecond quarter of 2021. The decrease relates primarily to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel, which was a result of increased 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. 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. These categorizations have the effect of reducing our net operating supplies and expenses while increasing the Rent and purchased transportation category, as discussed below.
Rent and purchased transportation increased from 21.3% of revenues, before fuel surcharges, during the third quarter of 2020 to 24.3% of revenues, before fuel surcharges, during the third quarter of 2021. The increase was primarily due to an increase in the rates charged by third-party carriers during the third quarter of 2021 compared to the third quarter of 2020. Also contributing to the increase was an increase in the average number of owner-operators under contract from 358 during the third quarter of 2020 to 382 during the third quarter of 2021, as well as an increase in the average rate per mile, including fuel surcharges, paid to owner-operators during the respective periods.
Depreciation decreased from 16.1% of revenues, before fuel surcharges, during the third quarter of 2020 to 11.2% of revenues, before fuel surcharges, during the third quarter of 2021. This percentage-based decrease is primarily a result of the interaction of an increase in operating revenues with the fixed-cost nature of depreciation expense. Due to the fixed-cost nature of depreciation, an increase in operating revenues, before fuel surcharge, without a corresponding proportional increase in depreciation, decreases depreciation expense as a percentage of operating revenues.
Insurance and claims decreased from 3.8% of revenues, before fuel surcharges, during the third quarter 2020 to 3.1% of revenues, before fuel surcharges, during the third quarter 2021. This decrease as a percentage of revenue, before fuel surcharges, is attributable to the interaction of the increase in revenue with the decrease in total miles driven for the periods compared. Miles driven generally serve as the premium basis for most of our insurance coverages.2022.
The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improvedincreased from 89.7% for the third quarter of 2020 to 77.9% for the third quarter of 2021 to 82.6% for the third quarter of 2022.
Non-operating income (expense) decreased from income of 0.1% of revenues, before fuel surcharges, during the third quarter of 2021 to expense of 0.9% of revenues, before fuel surcharges, during the third quarter of 2022. This decrease primarily resulted from the change in the market values of our portfolio of marketable equity securities. The Company recorded a $2.4 million decrease in the market value of our marketable equity securities in non-operating income (expense) during the third quarter of 2022, compared to a $0.5 million decrease in the market value of our marketable equity securities during the third quarter of 2021.
NINE MONTHS ENDED SEPTEMBER 30, 20212022 VS. NINE MONTHS ENDED SEPTEMBER 30, 20202021
For the nine months ended September 30, 2021,2022, truckload services revenue, before fuel surcharges, increased 22.4%35.4% to $298.8$404.7 million as compared to $244.2$298.8 million for the nine months ended September 30, 2020.2021. The increase in revenue was primarily the result of an increase in the average rate per mile charged to our customers during the first nine months of 20212022 compared to first nine months of 2020. The2021. Also contributing to the increase was an increase in rates was partially offset by a decrease in averagetotal miles driven per truck for the first nine months of 20212022 compared to the first nine months of 2020.2021.
Salaries, wages and benefits decreased from 35.9%31.9% of revenues, before fuel surcharges, in the first nine months of 20202021 to 31.9%30.5% of revenues, before fuel surcharges, during the first nine months of 2021.2022. The percentage-based decrease 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 an increase in revenues for the periods compared.
Operating supplies and expenses decreased from 10.7% of revenues, before fuel surcharges, during the first nine months of 2020 to 9.2% of revenues, before fuel surcharges, during the first nine months of 2021.2021 to 7.1% of revenues, before fuel surcharges, during the first nine months of 2022. The percentage-based decrease relates primarily to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel, which decreased as a result of increased 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. 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. These categorizations have the effect of reducing our net operating supplies and expenses while increasing the rent and purchased transportation category, as discussed below.
Rent and purchased transportation decreasedincreased from 24.1% of revenues, before fuel surcharges, during the first nine months of 2020 to 23.4% of revenues, before fuel surcharges, during the first nine months of 2021.2021 to 25.7% of revenues, before fuel surcharges, during the first nine months of 2022. The decreaseincrease was primarily due an increase in the rates charged by third-party carriers during the first nine months of 2022 compared to a decreasethe first nine months of 2021. Also contributing to the increase were an increase in the average number of owner-operators under contract from 455374 during the first nine months of 20202021 to 373391 during the first nine months of 2021. The decrease was partially offset by2022, as well as an increase in the average rate per mile, including fuel surcharges, paid to owner operatorsowner-operators during the respective periods.
Depreciation decreased from 17.1% of revenues, before fuel surcharges, during the first nine months of 2020 to 13.7% of revenues, before fuel surcharges, during the first nine months of 2021.2021 to 11.2% of revenues, before fuel surcharges, during the first nine months of 2022. This decrease is primarily a result of the interaction of an increase in operating revenues with the fixed-cost nature of depreciation expense. Due to the fixed-cost nature of depreciation, an increase in operating revenues, before fuel surcharge, without a corresponding proportional increase in depreciation, decreases depreciation expense as a percentage of operating revenues.
Insurance and claims expense increased from 2.3% of revenues, before fuel surcharges, during the first nine months of 2020 to 3.3% of revenues, before fuel surcharges, during the first nine months of 2021.2021 to 4.8% of revenues before fuel surcharges, during the first nine months of 2022. This increase resulted from an increase in auto liability insurance premiums paid forlitigation reserves due to a preliminary settlement agreement regarding the periods compared.minimum wage lawsuit discussed in Note L to our condensed consolidated financial statements and to increases in loss reserves.
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 94.0% for the first nine months of 2020 to 83.6% for the first nine months of 2021.
Non-operating income (expense) increased from expense of 2.2% of revenues, before fuel surcharges, during2021 to 81.3% for the first nine months of 2020 to income of 1.9% of revenues, before fuel surcharges, during the first nine months of 2021. This increase primarily resulted from the change in the market values of our portfolio of marketable equity securities. The Company recorded a $5.4 million increase in the market value of our marketable equity securities in non-operating income (expense) during the first nine months of 2021, compared to a $7.4 million decrease in the market value of our marketable equity securities during the first nine months of 2020.2022.
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 | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
(percentages) | (percentages) | |||||||||||||||||||||||||||||||
Operating revenues, before fuel surcharge | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Salaries, wages and benefits | 4.8 | 4.7 | 4.6 | 5.3 | 4.6 | 4.8 | 4.6 | 4.6 | ||||||||||||||||||||||||
Rent and purchased transportation | 83.0 | 88.8 | 83.5 | 89.0 | 80.4 | 83.0 | 81.5 | 83.5 | ||||||||||||||||||||||||
Other | 0.8 | 0.8 | 0.8 | 1.3 | 0.7 | 0.8 | 0.8 | 0.8 | ||||||||||||||||||||||||
Total operating expenses | 88.6 | 94.3 | 88.9 | 95.6 | 85.7 | 88.6 | 86.9 | 88.9 | ||||||||||||||||||||||||
Operating income | 11.4 | 5.7 | 11.1 | 4.4 | 14.3 | 11.4 | 13.1 | 11.1 | ||||||||||||||||||||||||
Non-operating (expense) income | (0.1 | ) | (0.1 | ) | 0.8 | (1.2 | ) | (0.8 | ) | (0.1 | ) | (0.4 | ) | 0.8 | ||||||||||||||||||
Interest expense | (0.7 | ) | (1.2 | ) | (0.8 | ) | (1.3 | ) | (0.6 | ) | (0.7 | ) | (0.6 | ) | (0.8 | ) | ||||||||||||||||
Income before income taxes | 10.6 | 4.4 | 11.1 | 1.9 | 12.9 | 10.6 | 12.1 | 11.1 | ||||||||||||||||||||||||
THREE MONTHS ENDED SEPTEMBER 30, 20212022 VS. THREE MONTHS ENDED SEPTEMBER 30, 20202021
During the third quarter of 2021,2022, logistics and brokerage services revenue, before fuel surcharges, increased 107.8%27.9% to $55.9$71.5 million as compared to $26.9$55.9 million during the third quarter of 2020.2021. The increase relates to an increase in the number of loads serviced and to an increase in the average rates charged to customers during the third quarter of 20212022 as compared to the third quarter of 2020.2021.
Rents and purchased transportation decreased from 88.8% of revenues, before fuel surcharges, during the third quarter of 2020 to 83.0% of revenues, before fuel surcharges, during the third quarter of 2021.2021 to 80.4% of revenues, before fuel surcharges, during the third quarter of 2022. The decrease resulted from paying third-party carriers a smaller 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, improved from 94.3% for the third quarter of 2020 to 88.6% for the third quarter of 2021.2021 to 85.7% for the third quarter of 2022.
NINE MONTHS ENDED SEPTEMBER 30, 20212022 VS. NINE MONTHS ENDED SEPTEMBER 30, 20202021
During the first nine months of 2021,2022, logistics and brokerage services revenue, before fuel surcharges, increased 133.8%42.5% to $147.8$210.6 million as compared to $63.2$147.8 million during the first nine months of 2020.2021. The increase relates to an increase in the number of loads serviced and in the average rates charged to customers during the first nine months of 20212022 as compared to the first nine months of 2020.
Salaries, wages and benefits decreased from 5.3% of revenues, before fuel surcharges, in the first nine months of 2020 to 4.6% of revenues, before fuel surcharges, during the first nine months of 2021. The decrease relates primarily to the effect of higher revenues without a corresponding proportional increase in those wages with fixed-cost characteristics, such as general and administrative wages. On a dollar basis, salaries, wages and benefits increased from $3.3 million in the first nine months of 2020 to $6.8 million, during the first nine months of 2021.
Rents and purchased transportation decreased from 89.0% of revenues, before fuel surcharges, during the first nine months of 2020 to 83.5% of revenues, before fuel surcharges, during the first nine months of 2021.2021 to 81.5% of revenues, before fuel surcharges, during the first nine months of 2022. The decrease resulted from paying third-party carriers a smaller 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, improved from 95.6% for the first nine months of 2020 to 88.9% for the first nine months of 2021.
Non-operating income (expense) increased from expense of 1.2% of revenues, before fuel surcharges, during2021 to 86.9% for the first nine months of 2020 to income of 0.8% of revenues, before fuel surcharges, during the first nine months of 2021. This increase primarily resulted from the change in the market values of our portfolio of marketable equity securities. The Company recorded a $5.4 million increase in the market value of our marketable equity securities in non-operating income (expense) during the first nine months of 2021, compared to a $7.4 million decrease in the market value of our marketable equity securities during the first nine months of 2020.2022.
RESULTS OF OPERATIONS – COMBINED SERVICES
THREE MONTHS ENDED SEPTEMBER 30, 20212022 VS. THREE MONTHS ENDED SEPTMEBERSEPTEMBER 30, 20202021
Net income for all divisions was approximately $24.6 million, or 11.3% of revenues, before fuel surcharges for the third quarter of 2022 as compared to net income of $21.4 million, or 12.8% of revenues, before fuel surcharges for the third quarter of 2021 as compared to net income of $6.0 million, or 5.5% of revenues, before fuel surcharges for the third quarter of 2020.2021. The increase in net income resulted in diluted earnings per share of $1.87$1.09 for the third quarter of 20212022 as compared to diluted earnings per share of $0.52$0.93 for the third quarter of 2020.2021.
NINE MONTHS ENDED SEPTEMBER 30, 20212022 VS. NINE MONTHS ENDED SEPTEMBER 30, 20202021
Net income for all divisions was approximately $72.7 million, or 11.8% of revenues, before fuel surcharges for the first nine months of 2022 as compared to net income of $48.6 million, or 10.9% of revenues, before fuel surcharges for the first nine months of 2021 as compared to net income of $3.9 million, or 1.3% of revenues, before fuel surcharges for the first nine months of 2020.2021. The increase in net income resulted in a diluted earnings per share of $4.24$3.24 for the first nine months of 20212022 as compared to diluted earnings per share of $0.34$2.12 for the first nine months of 2020.2021.
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 2021,2022, we generated $74.0$120.1 million in cash from operating activities. Investing activities generated $9.9used $95.6 million in cash in the first nine months of 2021.2022. Financing activities used $62.7generated $0.2 million in cash in the first nine months of 2021.2022.
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 2021,2022, we utilized cash on hand, installment notes, and our line of credit to finance purchases of revenue equipment and other assets of approximately $35.3 million.$107.3 million, including the purchase of assets associated with the Metropolitan business acquisition.
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 2021,2022, the Company’s subsidiary, P.A.M. Transport, Inc., entered into installment obligations totaling approximately $26.6$76.8 million, including $35.5 million for the financing of real estate and $41.3 million for the purpose of purchasing revenue equipment and other assets. These obligations are payable in monthly installments.
During the remainder of 2021,2022, we expect to purchase approximately 215130 new trucks and 200 new trailers while continuing to sell or trade older equipment, which we expect to result in net capital expenditures of approximately $20.1$20.5 million.
On July 27, 2021, we commenced a tender offer to repurchase up to 200,000 shares of the Company’s outstanding common stock at a price of not greater than $37.00 nor less than $32.00 per share. Following the expiration of the tender offer on August 31, 2021, we accepted 272,405 shares, including 72,405 oversubscribed shares tendered, of our common stock for purchase at $37.00 per share, at an aggregate purchase price of approximately $10.1 million, excluding fees and expenses related to the offer. The Company funded the purchase of the accepted shares tendered with available cash.
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 2021,2022, 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)Term SOFR plus 1.25% (1.34%1.35% (4.33% at September 30, 2021)2022), are secured by our trade accounts receivable and mature on July 1, 2022.2024. An “unused fee” of 0.25% is charged if average borrowings are less than $18.0 million. At September 30, 20212022 outstanding advances on the line of credit were approximately $0.4 million, including approximately $0.4 million inconsisting of letters of credit, with availability to borrow $59.6 million.
Trade accounts receivable increased from $77.7$121.9 million at December 31, 20202021 to $103.5$155.2 million at September 30, 2021.2022. The increase resulted from an increase in freight revenues, which flow through accounts receivable, during the third quarter of 20212022 as compared to the fourth quarter of 2020.2021.
Prepaid expenses and deposits decreasedincreased from $10.2$11.0 million at December 31, 20202021 to $8.4$12.0 million at September 30, 2021.2022. The decrease relates to the prepayment of policy renewals during the third quarter of 2022, offset by the normal amortization of items prepaid as of December 31, 2020.2021.
Revenue equipment increased from $520.8 million at December 31, 2021 to $625.6 million at September 30, 2022. The increase is primarily due to the acquisition of trucks and trailers as part of the acquisition of Metropolitan Trucking during the second quarter of 2022.
Marketable equity securities increaseddecreased from $27.9$39.4 million at December 31, 20202021 to $36.1$36.0 million at September 30, 2021.2022. The $8.2$3.4 million increasedecrease was due to an increasea decrease in the market value of held marketable equity securities of $5.4$4.3 million and the purchase of marketable equity securities with a combined purchase cost of approximately $4.3 million and the sale of marketable equity securities with combined proceeds of $1.5$0.9 million during the first nine months of 2021.2022.
Accounts payable decreasedincreased from $46.1$43.4 million at December 31, 20202021 to $41.3$54.7 million at September 30, 2021.2022. This decreaseincrease was primarily attributable to less being accrued for fixed asset purchasesan increase in the amount due to third-party carriers as of September 30, 2021.2022.
Accrued expenses and other liabilities increased from $14.1 million at December 31, 2021 to $24.8 million at September 30, 2022. The increase is primarily due to accruals of legal reserves during the first nine months of 2022.
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, decreasedincreased from $286.1$222.3 million at December 31, 20202021 to $230.6$257.3 million at September 30, 2021.2022. The decreaseincrease was primarily related to the relative decline in financing of additional revenue equipmentcertain real estate holdings to generate $35.5 million in available cash during the first ninethree months of 2021, compared2022 and to the first nine monthsassumption of 2020. Additional financing$12.6 million of installment debt associated with the acquisition of Metropolitan Trucking during the first nine monthssecond quarter of 2021 was outpaced by note payments made during the first nine months of 2021.2022.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our primary market risk exposures include equity price risk, interest rate risk, commodity price risk (the price paid to obtain diesel fuel for our trucks), and foreign currency exchange rate risk. The potential adverse impact of these risks are discussed below. While the Company has used derivative financial instruments in the past to manage its interest rate and commodity price risks, the Company does not currently enter into such instruments for risk management purposes or for speculation or trading.
The following sensitivity analyses do not consider the effects that an adverse change may have on the overall economy, nor do they consider additional actions we may take to mitigate our exposure to such changes. Actual results of changes in prices or rates may differ materially from the hypothetical results described below.
Equity Price Risk
We hold certain actively-tradedactively traded marketable equity securities, which subjects the Company to fluctuations in the fair market value of its investment portfolio based on the current market price of such securities. The recorded value of marketable equity securities increaseddecreased to $36.1$36.0 million at September 30, 20212022 from $27.9$39.4 million at December 31, 2020.2021. A 10% decrease in the market price of our marketable equity securities would cause a corresponding 10% decrease in the carrying amounts of these securities, or approximately $3.6 million. For additional information with respect to the marketable equity securities, see Note D to our condensed consolidated financial statements.
Interest Rate Risk
Our line of credit bears interest at a floating rate equal to LIBORSOFR plus a fixed percentage. Accordingly, changes in LIBOR,SOFR, which are affected by changes in interest rates, or a change to a new index rate, will affect the interest rate on, and therefore our costs under, the line of credit. Assuming $1.0 million of variable rate debt was outstanding under our line of credit for a full fiscal year, a hypothetical 100 basis point increase in LIBORSOFR would result in approximately $10,000 of additional interest expense.
Commodity Price Risk
Prices and availability of all petroleum products are subject to political, economic, and market factors that are generally outside of our control. Accordingly, the price and availability of diesel fuel, as well as other petroleum products, can be unpredictable. Because our operations are dependent upon diesel fuel, significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition. Based upon our 20202021 fuel consumption, a 10% increase in the average annual price per gallon of diesel fuel would increase our annual fuel expenses by $3.7$5.2 million.
Foreign Currency Exchange Rate Risk
We are exposed to foreign currency exchange rate risk related to the activities of our branch office located in Mexico. Currently, we do not hedge our exchange rate exposure through any currency forward contracts, currency options, or currency swaps as all of our revenues, and substantially all of our expenses and capital expenditures, are transacted in U.S. dollars. However, certain operating expenditures and capital purchases related to our Mexico branch office are incurred in or exposed to fluctuations in the exchange rate between the U.S. dollar and the Mexican peso. Based on 20202021 expenditures denominated in pesos, a 10% increase in the exchange rate would increase our annual operating expenses by $208,000.$0.2 million.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures. Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2021,2022, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal controls over financial reporting. We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 20212022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The natureWe are involved in certain claims and pending litigation arising from the ordinary conduct of business. We also provide accruals for claims within our business routinely resultsself-insured retention amounts. On September 1, 2019, we elected to become self-insured for certain layers of auto liability claims in litigation, primarily involvingexcess of $1.0 million for which we previously maintained auto liability insurance coverage. On September 1, 2020, we elected to become self-insured for certain layers of auto liability claims in excess of $2.0 million. We currently specifically reserve for personal injuriesclaims that are expected to exceed $2.0 million when fully developed, based on the facts and property damage incurred in the transportation of freight. We believe that all such routine litigation is adequately covered by insurance and that adverse results in one or morecircumstances of those claims. Based on our knowledge of the facts, and in certain cases, wouldopinions of outside counsel, we believe the resolution of such claims and pending litigation will not have a material effect on our financial position, results of operations or cash flows. However, if we experience claims that are not covered by our insurance or that exceed our estimated claim reserve, it could increase the volatility of our earnings and have a materially adverse effect on our financial condition.condition, results of operations or cash flows.
We are a defendant in a lawsuit which was filed on August 6, 2021, in the United States District Court for the Western District of Arkansas. The plaintiff is a former driver and is seeking class certification. The complaint alleges failure to pay minimum wage under the Fair Labor Standards Act and the Arkansas Minimum Wage Act, violations of the Electronic Funds Transfer Act (EFTA), violations of the Arkansas Wage Payment Law (discharge pay and unlawful, usurious advance fees), violations of the Arkansas Common Law, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). Should this lawsuit be certified as a class action, to include similarly situated drivers as the plaintiff, the class will seek actual and liquated damages to include court costs and legal fees associated with the lawsuit. The class, if certified, will include any company driver employed from January 1, 2020 through the present and ongoing. A settlement agreement has been reached and is pending court approval. Management has determined that any losses under this claim will not be covered by existing insurance policies.
Item 1A. Risk Factors.
Except as noted below, there have been no material changes to the Company’s risk factors as previously disclosed in Item 1A to Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
The ongoingA determination that independent contractors are employees could expose us to various liabilities and additional costs.
Federal and state legislation as well as tax and other regulatory authorities often seek to assert that independent contractors in the transportation service industry are employees rather than independent contractors. An example of such legislation enacted in California will now be enforceable with respect to trucking companies following the U.S. Supreme Court’s recent decision not to hear an appeal challenging the legislation. While the Company does not expect the California legislation to have a material impact on its business, there can be no assurance that other interpretations that support the independent contractor status will not change, that other federal or state legislation will not be enacted or that various authorities will not successfully assert a position that re-classifies independent contractors to be employees. If our independent contractors are determined to be our employees, that determination could materially increase our exposure under a variety of federal and state tax, workers’ compensation, unemployment benefits, labor, employment and tort laws, as well as our potential liability for employee benefits. In addition, such changes may be applied retroactively, and if so, we may be required to pay additional amounts to compensate for prior periods. Any of the COVID-19 pandemic, or other similar outbreaks in the future, could negatively impact our financial condition, liquidity, results of operations, and cash flows.
The outbreak of the novel coronavirus (COVID-19) pandemic in early 2020 materially and adversely affected our operating results and cash flows during 2020. The ongoing impacts of the pandemic and any other outbreaks of contagious diseases or other adverse public health developments could have a further materially adverse effect on our financial condition, liquidity, results of operations, and cash flows. The rapid spread of COVID-19 has resulted in governmental authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders,above increased border and port controls and closures, and shutdowns. These measures and the public health concerns resulting from the outbreak have severely disrupted economic and commercial activity. The resulting impact on domestic and global supply chains caused slowdowns and reduced freight demand for transportation companies such as ours. Because we have a significant concentration of customers within the automotive industry, our freight volumes and revenues were significantly affected by the closure of North American automotive manufacturing facilities beginning in late March. Our automotive customers have since resumed operations; however, the current spread of the Delta variant, any future wave of the virus or other similar outbreaks could furthercosts would adversely affect our business. In addition, the implementation of measures to protect the health and safety of our employees, customers, vendors and the general public, such as the recently announced federal directive to mandate full vaccination or weekly testing of employees for employers with 100 or more employees, may disrupt our ability to efficiently manage personnel and operations and to recruit and retain driver and non-driver personnel, which could have a material adverse effect on our operating results. Further, negative financial results, an economic downturn or uncertainty, or a tightening of credit markets caused by COVID-19 or other similar outbreaks could have a material adverse effect on our liquidity and our ability to effectively meet our short- and long-term financial obligations.
We are subject to certain risks arising from doing business in Mexico.
As we continue to grow our business in Mexico, we are subject to greater risks of doing business internationally, including fluctuations in foreign currencies, changes in the economic strength of Mexico, difficulties in enforcing contractual obligations and intellectual property rights, burdens of complying with a wide variety of international and U.S. export and import laws, and social, political, and economic instability. We also face additional risks associated with our Mexico business, including potential restrictive trade policies and imposition of any import or export taxes, duties, fees, etc. If we are unable to address business concerns related to our international operations in a timely and cost-efficient manner, our financial position, results of operations or cash flows could be adversely affected. Additionally, approximately 40% of the freight we haul crosses the border between the United States and Mexico. In past years, we have experienced delays in Mexico border-crossings due to weather events, immigration-related issues and the reallocation of border agents to other border areas. Any future shutdowns or disruptions of Mexico border-crossings, particularly at the Laredo, Texas border, could materially and adversely impact our operations, cash flows and profitability. The agreement permitting cross-border movements for both United States and Mexican-based carriers in the United States and Mexico presents additional risks in the form of potential increased competition and the potential for increased congestion in our lanes that cross the border between countries.
On April 23, 2021, a decree was published that reforms various laws in Mexico regarding labor outsourcing. Under this new decree, operating companies will no longer be able to source their labor resources used to carry out core business functions from service entities or third-party providers and could be subject to the loss of tax deductions and value-added tax credits on payments to outsourced personnel and certain penalties for failing to comply with the new requirements. The Company is currently evaluating the new decree and its potential implications. While the overall impact of the new decree and its provisions continue to be assessed, the new law could result in increased costs to our operations in Mexico and could have a material adverse impact on our business and financialoperating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The Company’s stock repurchase program has been extended and expanded several times, most recently in April 2017,November 2021, when the Board of Directors reauthorized 500,000 shares of common stock for repurchase under the initial September 2011 authorization. Since the reauthorization, the Company has repurchased 347,341176,344 stock-split adjusted shares (including 41,610 pre-split shares) of its common stock under this repurchase program.
On July 27, 2021, the Company commenced a tender offer to repurchase up to 200,000 shares of the Company’s outstanding common stock at a price of not greater than $37.00 nor less than $32.00 per share. Following the expiration of the tender offer on August 31, 2021, the Company accepted 272,405 shares, including 72,405 oversubscribed shares tendered, of its common stock for purchase at $37.00 per share, at an aggregate purchase price of approximately $10.1 million, excluding fees and expenses related to the offer. The Company funded the purchase of the accepted shares tendered with available cash and accounted for the repurchase of these shares as treasury stock on the Company’s condensed consolidated balance sheet as of September 30, 2021.
The following table summarizes the Company’s common stock repurchases during the third quarter of 2021.2022. No shares were purchased during the quarter other than through this program, or through the 2021 tender offer, and all purchases were made by or on behalf of the Company and not by any “affiliated purchaser.”
Issuer Purchases of Equity Securities | ||||||||||||||||||||||||||||||||
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs (1) | Total number | Average | Total number of | Maximum number | ||||||||||||||||||||||||
July 1-31, 2021 | - | - | - | 165,479 | ||||||||||||||||||||||||||||
August 1-31, 2021 | 272,405 | (2) | $ | 37.00 | 272,405 | (2) | 165,479 | |||||||||||||||||||||||||
September 1-30, 2021 | 12,820 | $ | 39.21 | 12,820 | 152,659 | |||||||||||||||||||||||||||
July 1-31, 2022 | -- | $ | -- | -- | 458,390 | |||||||||||||||||||||||||||
August 1-31, 2022 | -- | -- | -- | 458,390 | ||||||||||||||||||||||||||||
September 1-30, 2022 | 93,124 | 30.86 | 93,124 | 365,266 | ||||||||||||||||||||||||||||
Total | 285,225 | $ | 37.10 | 285,225 | 93,124 | $ | 30.86 | 93,124 | ||||||||||||||||||||||||
(1) | The Company’s stock repurchase program does not have an expiration date. |
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Exhibit Description | ||
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
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31.1 | ||
31.2 | ||
32.1 | ||
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
P.A.M. TRANSPORTATION SERVICES, INC. | |
Dated: | By: /s/ Joseph A. Vitiritto |
Joseph A. Vitiritto | |
President and Chief Executive Officer | |
(principal executive officer) | |
Dated: | By: /s/ Allen W. West |
Allen W. West | |
Vice President-Finance, Chief Financial | |
Officer, Secretary and Treasurer | |
(principal accounting and financial officer) | |