P.A.M. TRANSPORTATION SERVICES, INC. Business Overview
The Company's administrative headquarters are in
For both operations, substantially all of our revenue is generated by
transporting freight for customers and is predominantly affected by the rates
per mile received from our customers, equipment utilization, and our percentage
of non-compensated miles. These aspects of our business are carefully managed
and efforts are continuously underway to achieve favorable results. Truckload
services revenues, excluding fuel surcharges, represented 66.1%, 67.0% and 76.9%
of total revenues, excluding fuel surcharges for the twelve months ended
The main factors that impact our profitability on the expense side are costs incurred in transporting freight for our customers. Currently, our most challenging costs include fuel, driver recruitment, training, wage and benefit costs, independent broker costs (which we record as purchased transportation), insurance and claims, and maintenance and capital equipment costs.
In discussing our results of operations we use revenue, before fuel surcharge
(and operating supplies and 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 2022, 2021 and 2020, approximately
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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. Operating supplies and expenses are shown net of fuel surcharges.
Years Ended December 31,
2022 2021 2020
Operating revenues, before fuel
surcharge 100.0 % 100.0 % 100.0 %
Operating expenses:
Salaries, wages and benefits 31.3 30.6 35.3
Operating supplies and expenses,
net of fuel surcharge 6.8 8.3 10.7
Rent and purchased transportation 26.0 24.3 23.2
Depreciation 11.3 12.5 16.5
Insurance and claims 6.0 4.4 2.6
Other 2.9 2.5 3.6
(Gain) Loss on sale or disposal of
property (0.6 ) (0.3 ) 0.1
Total operating expenses 83.7 82.3 92.0
Operating income 16.3 17.7 8.0
Non-operating income (expense) 0.5 1.9 (0.5 )
Interest expense (1.2 ) (1.4 ) (2.2 )
Income before income taxes 15.6 % 18.2 % 5.3 %
2022 Compared to 2021
For the year ended
Salaries, wages and benefits increased from 30.6% of revenues, before fuel surcharges, during 2021 to 31.3% of revenues, before fuel surcharges, during 2022. The percentage-based increase relates primarily to the increase in employees combined with a decrease in independent contractors.
Operating supplies and expenses decreased from 8.3% of revenues, before fuel
surcharges, during 2021 to 6.8% of revenues, before fuel surcharges, during
2022. The decrease relates primarily to a decrease in the average
surcharge-adjusted fuel price paid per gallon of diesel fuel, due to increased
fuel surcharge collections from customers for the year ended
Rent and purchased transportation increased from 24.3% of revenues, before fuel
surcharges, during 2021 to 26.0% of revenues, before fuel surcharges, during
2022. The increase was primarily due to an increase in the rates paid to
third-party owner-operators for the year ended
Depreciation decreased from 12.5% of revenues, before fuel surcharges, during 2021 to 11.3% of revenues, before fuel surcharges, during 2022. The decrease relates primarily to the interaction of an increase in operating revenues with the fixed-cost nature of depreciation expense.
Insurance and claims increased from 4.4% of revenues, before fuel surcharges, during 2021 to 6.0% of revenues, before fuel surcharges, during 2022. This increase relates primarily to an increase in accident and legal reserves, recognized in 2022 as compared to 2021 and to an increase in the premiums paid for auto liability and cargo insurance.
Non-operating income decreased from 1.9% of revenues, before fuel surcharges,
during 2021 to 0.5% of revenues, before fuel surcharges, during 2022. This
decrease resulted primarily from a smaller increase in the market value of our
marketable equity securities portfolio at
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The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased to 83.7% for 2022 from 82.3% for 2021.
2021 Compared to 2020
For the year ended
Salaries, wages and benefits decreased from 35.3% of revenues, before fuel surcharges, during 2020 to 30.6% of revenues, before fuel surcharges, during 2021. The percentage-based decrease relates primarily to the interaction of expenses with fixed-cost characteristics, such as general and administrative wages, maintenance wages, and operations wages with the increase in revenues for the periods compared.
Operating supplies and expenses decreased from 10.7% of revenues, before fuel
surcharges, during 2020 to 8.3% of revenues, before fuel surcharges, during
2021. The decrease relates primarily to a decrease in the average
surcharge-adjusted fuel price paid per gallon of diesel fuel, due to increased
fuel surcharge collections from customers, and to for the year ended
Rent and purchased transportation increased from 23.2% of revenues, before fuel
surcharges, during 2020 to 24.3% of revenues, before fuel surcharges, during
2021. The increase was primarily due to an increase in the rates paid to
third-party owner-operators for the year ended
Depreciation decreased from 16.5% of revenues, before fuel surcharges, during 2020 to 12.5% of revenues, before fuel surcharges, during 2021. The decrease relates primarily to the interaction of an increase in operating revenues with the fixed-cost nature of depreciation expense.
Insurance and claims increased from 2.6% of revenues, before fuel surcharges, during 2020 to 4.4% of revenues, before fuel surcharges, during 2021. This increase relates primarily to an increase in accident and legal reserves, recognized in 2021 as compared to 2020 and to an increase in the premiums paid for auto liability and cargo insurance.
Other expenses decreased from 3.6% of revenues, before fuel surcharges, during 2020 to 2.5% of revenues, before fuel surcharges, during 2021. This decrease relates primarily to a decrease in outside professional services expenses in 2021 as compared to 2020.
Non-operating income increased from a loss of 0.5% of revenues, before fuel
surcharges, during 2020 to a gain of 1.9% of revenues, before fuel surcharges,
during 2021. This increase resulted primarily from an increase in the market
value of our marketable equity securities portfolio at
The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved to 82.3% for 2021 from 92.0% for 2020.
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Results of Operations - Logistics and Brokerage Services
The following table sets forth, for logistics and brokerage services, the percentage relationship of expense items to operating revenues, before fuel surcharges, for the periods indicated. Brokerage operations occur specifically in certain divisions; however, brokerage operations occur throughout the Company in similar operations having substantially similar economic characteristics. Rent and purchased transportation, which includes costs paid to third-party carriers, are shown net of fuel surcharges.
Years Ended December 31,
2022 2021 2020
Operating revenues, before fuel surcharge 100.0 % 100.0 % 100.0 % Operating expenses: Salaries, wages and benefits
4.6 4.6 5.0
Rent and purchased transportation 80.8 82.5 86.5
Insurance and claims 0.0 0.0 0.1
Other 1.8 1.6 1.7
Total operating expenses 87.2 88.7 93.3
Operating income 12.8 11.3 6.7
Non-operating income 0.2 1.0 0.0
Interest expense (0.5 ) (0.8 ) (1.1 )
Income before income taxes 12.5 % 11.5 % 5.6 %
2022 Compared to 2021
For the year ended
Rent and purchased transportation decreased from 82.5% of revenues, before fuel surcharges, in 2021 to 80.8% of revenues, before fuel surcharges, in 2022. The decrease results 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 to 87.2% for 2022 from 88.7% for 2021.
2021 Compared to 2020
For the year ended
Salaries, wages and benefits decreased from 5.0% of revenues, before fuel surcharges, in 2020 to 4.6% of revenues, before fuel surcharges, in 2021. The decrease relates primarily to the effect of higher revenues without a corresponding increase in those wages with fixed cost characteristics, such as general and administrative wages.
Rent and purchased transportation decreased from 86.5% of revenues, before fuel surcharges, in 2020 to 82.5% of revenues, before fuel surcharges, in 2021. The decrease results 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 to 88.7% for 2021 from 93.3% for 2020.
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Results of Operations - Combined Services
2022 Compared to 2021
Income tax expense was approximately
In determining whether a tax asset valuation allowance is necessary, management,
in accordance with the provisions of Accounting Standards Codification ("ASC")
740-10-30, 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
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
The Company and its subsidiaries are subject to
The combined net income for all divisions was
2021 Compared to 2020
Income tax expense was approximately
In determining whether a tax asset valuation allowance is necessary, management,
in accordance with the provisions of Accounting Standards Codification ("ASC")
740-10-30, 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
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
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The combined net income for all divisions was
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, borrowings under our lines of credit, installment notes and investment margin account, and issuances of equity securities.
During 2022, we generated
Our primary use of funds is for the purchase of revenue equipment. We typically
use installment notes, our existing lines 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 2022 and 2021, we
utilized cash on hand, installment notes, and our lines of credit to finance
revenue equipment purchases of approximately
We often finance the acquisition of revenue equipment through installment notes
with fixed interest rates and terms ranging from 36 to 84 months. At
In order to maintain our truck and trailer fleet count, it is often necessary to
purchase replacement units and place them in service before trade units are
removed from service. The timing of this process often requires the Company to
pay for new units without any reduction in price for trade units. In this
situation, the Company later receives payment for the trade units as they are
delivered to the equipment vendor and have passed vendor inspection. During the
twelve months ended
During 2022, we maintained a revolving line of credit with a borrowing limit of
In
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Trade accounts receivable increased from
Marketable equity securities at
Revenue equipment at
Accounts payable increased from
Accrued expenses and other liabilities increased from
Current maturities of long term-debt and long-term debt fluctuations are
reviewed on an aggregate basis as the classification of amounts in each category
are typically affected merely by the passage of time. Current maturities of
long-term debt and long-term debt, on an aggregate basis, at
For 2023, we expect to purchase 680 new trucks and 1,000 trailers while
continuing to sell or trade equipment that has reached the end of its life
cycle, which we expect to result in net capital expenditures of approximately
Inflation
Inflation has an impact on most of our operating costs. Over the past three years, the effect of inflation has been significant. If the current rate of inflation persists, inflation, coupled with supply chain issues and international events could continue to result in increased costs for drivers, employee wages, equipment, fuel and other costs.
Adoption of Accounting Policies
See "Item 8. Financial Statements and Supplementary Data, Note 1 to the Consolidated Financial Statements - Accounting Policies, Recent Accounting Pronouncements."
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Table of Contents Critical Accounting Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in
Note 1 in Part II, Item 8 of this Annual Report describes the Company's accounting policies. The following discussion of accounting estimates should be read in conjunction with Note 1, as it provides additional insight into critical accounting estimates. Our critical accounting estimates include the following:
Depreciation and Amortization. Depreciation of trucks and trailers is calculated by the straight-line method over the assets' estimated useful lives, which generally range from three to ten years, down to an estimated salvage value at the end of the assets' estimated useful lives. Management must use its judgment in the selection of estimated useful lives and salvage values for purposes of this calculation. In some 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.
The depreciation of trucks and trailers over their estimated useful lives and the determination of any salvage value also require management to make judgments about future events. Therefore, the Company's management periodically evaluates whether changes to estimated useful lives or salvage values are necessary to ensure these estimates accurately reflect the economic reality of the assets. This periodic evaluation may result in changes in the estimated lives and/or salvage values used by the Company to depreciate its assets, which can affect the amount of periodic depreciation expense recognized and, ultimately, the gain or loss on the disposal of an asset. Future changes in our estimated useful life or salvage value estimates, or fluctuations in market value that are not reflected in current estimates, could have a material effect on the Company's consolidated financial statements.
Claims accruals. The Company is self-insured for health and workers'
compensation benefits up to certain stop-loss limits. Such costs are accrued
based on known claims and an estimate of incurred but not reported (IBNR)
claims. IBNR claims are estimated using historical lag information and other
data either provided by outside claims administrators or developed internally.
Actual claims payments may differ from management's estimates as a result of a
number of factors, including evaluation of severity, increases in legal or
medical costs, and other case-specific factors. The actual claims payments are
charged against the Company's recorded accrued claims liabilities and have been
historically reasonable with respect to the estimates of the liabilities made
under the Company's methodology. However, the estimation process is generally
subjective, and to the extent that future actual results materially differ from
original estimates made by management, adjustments to recorded accruals may be
necessary which could have a material effect on the Company's consolidated
financial statements. Based upon our 2022 health and workers' compensation
expenses, a 10% increase in both claims incurred and IBNR claims would increase
our annual health and workers' compensation expenses by approximately
On
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