SEC Form 10-Q filed by P.A.M. Transportation Services Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from __________to__________
P.A.M. TRANSPORTATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
| | | |
| (State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification no.) |
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (
| 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 |
| | | |
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.
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.)
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 ☐ | | ||
| 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
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 16, 2024 | |
| Common Stock, $.01 Par Value | |
P.A.M. TRANSPORTATION SERVICES, INC.
Form 10-Q
For the Quarter Ended September 30, 2024
Table of Contents
| 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, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable-net: | ||||||||
| Trade, less current estimated credit loss of $ and $, respectively | ||||||||
| Other | ||||||||
| Inventories | ||||||||
| Prepaid expenses and deposits | ||||||||
| Marketable equity securities | ||||||||
| Income taxes refundable | ||||||||
| Total current assets | ||||||||
| Property and equipment: | ||||||||
| Land | ||||||||
| Structures and improvements | ||||||||
| Revenue equipment | ||||||||
| Office furniture and equipment | ||||||||
| Total property and equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other liabilities | ||||||||
| Current maturities of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Long-term debt - less current portion | ||||||||
| Deferred income taxes | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (Note L) | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock, $ par value, shares authorized; issued | ||||||||
| Common stock, $ par value, shares authorized; and shares issued; and shares outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost; and shares at September 30, 2024 and December 31, 2023, respectively | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
| See notes to condensed consolidated financial statements. |
| P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (unaudited) (in thousands, except per share data) |
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| OPERATING REVENUES: |
||||||||||||||||
| Revenue, before fuel surcharge |
$ | $ | $ | $ | ||||||||||||
| Fuel surcharge |
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| Total operating revenues |
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| OPERATING EXPENSES AND COSTS: |
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| Salaries, wages and benefits |
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| Operating supplies and expenses |
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| Rent and purchased transportation |
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| Depreciation |
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| Insurance and claims |
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| Other |
||||||||||||||||
| Gain on disposition of equipment |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Total operating expenses and costs |
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| OPERATING INCOME |
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| NON-OPERATING INCOME |
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| INTEREST EXPENSE |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| INCOME/(LOSS) BEFORE INCOME TAXES |
( |
) | ||||||||||||||
| FEDERAL AND STATE INCOME TAX EXPENSE/(BENEFIT): |
||||||||||||||||
| Current |
( |
) | ||||||||||||||
| Deferred |
( |
) | ||||||||||||||
| Total federal and state income tax expense/(benefit) |
( |
) | ||||||||||||||
| NET INCOME/(LOSS) |
$ | $ | $ | ( |
) | $ | ||||||||||
| INCOME/(LOSS) PER COMMON SHARE: |
||||||||||||||||
| Basic |
$ | $ | $ | ( |
) | $ | ||||||||||
| Diluted |
$ | $ | $ | ( |
) | $ | ||||||||||
| AVERAGE COMMON SHARES OUTSTANDING: |
||||||||||||||||
| Basic |
||||||||||||||||
| Diluted |
||||||||||||||||
| See notes to condensed consolidated financial statements. |
| P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) |
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2024 |
2023 |
|||||||
| OPERATING ACTIVITIES: |
||||||||
| Net (loss)/income |
$ | ( |
) | $ | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
||||||||
| Bad debt expense |
||||||||
| Stock compensation-net of excess tax benefits |
||||||||
| Provision for deferred income taxes |
( |
) | ||||||
| (Gain)/loss on marketable equity securities |
( |
) | ||||||
| Gain on sale or disposition of equipment |
( |
) | ( |
) | ||||
| Loss/(gain) on sale of marketable equity securities |
( |
) | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ||||||
| Prepaid expenses, deposits, inventories, and other assets |
||||||||
| Income taxes payable |
( |
) | ( |
) | ||||
| Trade accounts payable |
( |
) | ( |
) | ||||
| Accrued expenses and other liabilities |
( |
) | ( |
) | ||||
| Net cash provided by operating activities |
||||||||
| INVESTING ACTIVITIES: |
||||||||
| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Proceeds from disposition of equipment |
||||||||
| Sales of marketable equity securities |
||||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| FINANCING ACTIVITIES: |
||||||||
| Borrowings under line of credit |
||||||||
| Repayments under line of credit |
( |
) | ( |
) | ||||
| Borrowings of long-term debt |
||||||||
| Repayments of long-term debt |
( |
) | ( |
) | ||||
| Borrowings under margin account |
||||||||
| Repayments under margin account |
( |
) | ||||||
| Repurchases of common stock |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| NET (DECREASE)/INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
( |
) | ||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH -Beginning of period |
||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH -End of period |
$ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
| Cash paid during the period for: |
||||||||
| Interest |
$ | $ | ||||||
| Income taxes |
$ | $ | ||||||
| NONCASH INVESTING AND FINANCING ACTIVITIES: |
||||||||
| Purchases of property and equipment included in accounts payable |
$ | $ | ||||||
| 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 |
||||||||||||||||||||
| Balance at January 1, 2024 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net Income |
- | |||||||||||||||||||||||
| Restricted stock issued |
( |
) | ( |
) | ||||||||||||||||||||
| Stock based compensation |
- | |||||||||||||||||||||||
| Balance at March 31, 2024 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net Loss |
- | ( |
) | ( |
) | |||||||||||||||||||
| Treasury stock repurchases |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Restricted stock issued |
- | - | - | - | - | |||||||||||||||||||
| Stock based compensation |
- | |||||||||||||||||||||||
| Balance at June 30, 2024 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net Income |
- | |||||||||||||||||||||||
| Treasury stock repurchases |
||||||||||||||||||||||||
| Restricted stock issued |
- | - | - | - | ||||||||||||||||||||
| Restricted stock net settlement |
- | ( |
) | ( |
) | |||||||||||||||||||
| Stock based compensation |
- | |||||||||||||||||||||||
| Balance at September 30, 2024 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Common Stock Shares / Amount |
Additional Paid-In Capital |
Treasury Stock |
Retained Earnings |
Total |
||||||||||||||||||||
| Balance at January 1, 2023 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net Income |
- | |||||||||||||||||||||||
| Treasury stock repurchases |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Restricted stock issued |
- | - | - | - | - | |||||||||||||||||||
| Stock based compensation |
- | |||||||||||||||||||||||
| Balance at March 31, 2023 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net Income |
- | |||||||||||||||||||||||
| Treasury stock repurchases |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Restricted stock issued |
- | - | - | - | - | |||||||||||||||||||
| Stock based compensation |
- | |||||||||||||||||||||||
| Balance at June 30, 2023 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net Income |
- | |||||||||||||||||||||||
| Treasury stock repurchases |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Restricted stock issued |
- | - | - | - | - | |||||||||||||||||||
| Restricted stock net settlement |
- | ( |
) | ( |
) | |||||||||||||||||||
| Stock based compensation |
- | |||||||||||||||||||||||
| Balance at September 30, 2023 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
See notes to condensed consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
September 30, 2024
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 accompanying unaudited condensed consolidated financial statements have been prepared in accordance with 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, 2023 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 nine-month period ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 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, 2023.
NOTE B: RECENT ACCOUNTING PRONOUNCEMENTS
In November 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update (“ASU”) 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). ASU 2023-07 expands disclosures related to a public entity's reportable segment and requires more enhanced information about significant segment expenses, including in interim periods. This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, using a retrospective approach. Early adoption is permitted. We are currently evaluating the impact of the new standard, which is limited to financial statement disclosures.
In December 2023, the FASB issued Accounting Standards Update, (“ASU”) No. 2023-09, (“ASU 2023-09”), Improvements to Income Tax Disclosures. ASU 2023-09 was issued to enhance the transparency and decision usefulness of income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The guidance is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. The Company has evaluated the new guidance and does not expect it to have a material impact on its financial condition, results of operations, or cash flows.
The Company considered the applicability and impact of ASU’s 2023-07, 2023-09 and all other accounting standard updates issued by the Financial Accounting Standards Board to the Accounting Standards Codification ("ASC") and determined there are not any ASUs that have not already been adopted which require significant consideration for disclosure as of September 30, 2024. Additionally, the Company did not adopt any new ASUs during the quarter ended September 30, 2024.
NOTE C: REVENUE RECOGNITION
The Company has a single performance obligation, which is 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 customers receive 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, 2024 and December 31, 2023.
| September 30, 2024 |
December 31, 2023 |
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| (in thousands) |
||||||||
| Fair market value |
$ | $ | ||||||
| Cost |
||||||||
| Unrealized gain |
$ | $ | ||||||
The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities as of September 30, 2024 and December 31, 2023.
| September 30, 2024 |
December 31, 2023 |
|||||||
| (in thousands) |
||||||||
| Gross unrealized gains |
$ | $ | ||||||
| Gross unrealized losses |
||||||||
| Net unrealized gain |
$ | $ | ||||||
The following table shows the Company’s net realized gains during the three and nine months ending on September 30, 2024 and 2023, respectively, on certain marketable equity securities.
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
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| (in thousands) |
||||||||||||||||
| Sales proceeds |
$ | $ | $ | $ | ||||||||||||
| Cost of securities sold |
||||||||||||||||
| Realized gain/(loss) |
$ | $ | $ | ( |
) | $ | ||||||||||
For the quarter ended September 30, 2024, the Company recognized dividend income of approximately $
The Company’s equity securities are periodically used as collateral against any outstanding margin account borrowings. As of September 30, 2024, the Company had
Our marketable equity securities portfolio had a net unrealized pre-tax gain in market value of approximately $
NOTE E: STOCK-BASED COMPENSATION
The Company has maintained a stock incentive plan (the “Plan”) under which incentive and nonqualified stock options and other stock awards may be granted. Under the Plan,
During May 2024, the Company issued
The total grant date fair value of stock vested during the first nine months of 2024 was approximately $
The total grant date fair value of stock vested during the first nine months of 2023 was approximately $
A summary of the status of the Company’s non-vested restricted stock as of September 30, 2024, and changes during the nine months ended September 30, 2024, is as follows:
| Restricted Stock |
||||||||
| Number of Shares |
Weighted- Average Grant Date Fair Value |
|||||||
| Non-vested at January 1, 2024 |
$ | |||||||
| Granted |
||||||||
| Canceled/forfeited/expired |
( |
) | ||||||
| Vested |
( |
) | ||||||
| Non-vested at September 30, 2024 |
$ | |||||||
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 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 operating segments have similar economic characteristics and can be aggregated into a single reportable 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, |
|||||||||||||||||||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||||||||||||||||||
| Amount |
% |
Amount |
% |
Amount |
% |
Amount |
% |
|||||||||||||||||||||||||
| (in thousands)
|
||||||||||||||||||||||||||||||||
| Truckload Services revenue |
$ | $ | $ | $ | ||||||||||||||||||||||||||||
| Brokerage and Logistics Services revenue |
||||||||||||||||||||||||||||||||
| Total revenues |
$ | $ | $ | $ | ||||||||||||||||||||||||||||
NOTE G: TREASURY STOCK
The Company’s stock repurchase program has been extended and expanded several times, most recently in July 2023, when the Board of Directors reauthorized
On April 24, 2024, the Company commenced a tender offer to repurchase up to
The Company accounts for treasury stock using the cost method. As of September 30, 2024,
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 |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
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| (in thousands, except per share data)
|
||||||||||||||||
| Net income |
$ | $ | $ | ( |
) | $ | ||||||||||
| Basic weighted average common shares outstanding |
||||||||||||||||
| Dilutive effect of common stock equivalents |
||||||||||||||||
| Diluted weighted average common shares outstanding |
||||||||||||||||
| Basic earnings per share |
$ | $ | $ | ( |
) | $ | ||||||||||
| Diluted earnings per share |
$ | $ | $ | ( |
) | $ | ||||||||||
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 years, and as a result, the Company’s tax years
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, 2024, 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, 2024, 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, 2024 and 2023, the Company has recognized or accrued any interest or penalties related to uncertain income tax positions.
The Company’s effective income tax rates were
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. |
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|
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| 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. |
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| 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, 2024, the following items are measured at fair value on a recurring basis:
| Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
| (in thousands)
|
||||||||||||||||
| Marketable equity securities |
$ | $ | - | - | ||||||||||||
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, 2024 was as follows:
| Carrying Value |
Estimated Fair Value |
|||||||
| (in thousands)
|
||||||||
| Long-term debt |
$ | $ | ||||||
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 2024, the Company’s subsidiaries entered into installment obligations totaling approximately $
NOTE L: LITIGATION
We 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. We are currently self-insured for certain layers of auto liability claims in excess of $
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.
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 to 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 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.
Right-of-Use Leases
The Company is party to operating leases that included initial terms ranging from to years. The initial terms of these leases have expired, and the leases are now subject to terms not exceeding one year. In accordance with the provisions of ASC Topic 842, because all of our leased properties are currently subject to leases not exceeding one year, we do not recognize any right-of-use assets or corresponding operating lease liability as of September 30, 2024.
Cash Flows
No new right-of-use asset was recognized as a non-cash asset addition that resulted from new operating lease liabilities during the nine months ended September 30, 2024. Cash paid for amounts included in the present value of operating lease liabilities was $
Operating Lease Costs
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (in thousands)
| ||||||||||||||||
| Long-term | $ | $ | $ | $ | ||||||||||||
| Short-term | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Lease Revenue
The Company's operating lease revenue is disclosed in the table below.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (in thousands)
| ||||||||||||||||
| Leased truck revenue (recorded in revenue, before fuel surcharge) | $ | $ | $ | $ | ||||||||||||
| Leased building space revenue (recorded in non-operating income) | ||||||||||||||||
| Total lease revenue | $ | $ | $ | $ | ||||||||||||
The Company leases trucks to owner-operators under operating leases, which generally have a term of up to 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, 2024, the gross carrying value of trucks underlying these leases was $
The Company leases dock space to a related party at our Laredo, Texas terminal. The dock space is depreciated in conjunction with the structures and improvements for the entire Laredo terminal 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, 2024:
| (in thousands)
| ||||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 and thereafter | ||||
| Total future minimum lease payments receivable | $ | |||
NOTE N: NONCASH INVESTING AND FINANCING ACTIVITIES
The Company financed approximately $
Item 2. Management’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; increases or rapid fluctuations in fuel prices, inflation, interest rates, fuel taxes, tolls, and license and registration fees; potential economic, business or operational disruptions or uncertainties due to public health crises; the resale value of the Company’s used equipment; the price and availability of new equipment consistent with anticipated acquisition and replacement plans; 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; 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, laws and regulations governing the classification of independent contractors as employees, 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 ESTIMATES
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, 2023.
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. The Company’s consolidated operating subsidiaries also provide transportation services in Mexico through its gateways in Laredo and El Paso, Texas under agreements with Mexican carriers. 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 68.8% and 64.4% of total revenues, excluding fuel surcharges, for the quarters ended September 30, 2024, and 2023, 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 often-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, 2024 and 2023, approximately $21.8 million and $27.2 million, respectively, of the Company’s total revenue was generated from fuel surcharges. During the nine months ended September 30, 2024 and 2023, approximately $66.1 million and $80.8 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.
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, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (percentages)
|
||||||||||||||||
| Operating revenues, before fuel surcharge |
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Salaries, wages and benefits |
38.2 | 38.2 | 39.0 | 37.2 | ||||||||||||
| Operating supplies and expenses |
11.7 | 13.3 | 11.9 | 11.7 | ||||||||||||
| Rent and purchased transportation |
26.7 | 22.6 | 25.3 | 23.0 | ||||||||||||
| Depreciation |
15.8 | 13.6 | 17.1 | 13.1 | ||||||||||||
| Insurance and claims |
4.3 | 4.6 | 4.7 | 7.0 | ||||||||||||
| Other |
4.0 | 3.8 | 4.8 | 4.3 | ||||||||||||
| Gain on sale or disposal of property |
(0.2 | ) | (0.3 | ) | - | (0.3 | ) | |||||||||
| Total operating expenses |
100.5 | 95.8 | 102.8 | 96.0 | ||||||||||||
| Operating (loss)/income |
(0.5 | ) | 4.2 | (2.8 | ) | 4.0 | ||||||||||
| Non-operating income |
3.3 | 1.0 | 2.3 | 0.8 | ||||||||||||
| Interest expense |
(2.5 | ) | (1.4 | ) | (2.6 | ) | (1.5 | ) | ||||||||
| Income/(loss) before income taxes |
0.3 | 3.8 | (3.1 | ) | 3.3 | |||||||||||
THREE MONTHS ENDED SEPTEMBER 30, 2024 VS. THREE MONTHS ENDED SEPTEMBER 30, 2023
During the third quarter of 2024, truckload services revenue, before fuel surcharges, decreased 1.5% to $110.6 million as compared to $112.3 million during the third quarter of 2023. The decrease relates primarily to a 1.5% decrease in total miles travelled from 47.2 million for the third quarter of 2023 to 46.5 million for the third quarter of 2024 and to a 2.0% decrease in our rate per mile, from $2.14 for the third quarter of 2023 to $2.10 for the third quarter of 2024. The reduction in total miles was primarily driven by a 1.6% reduction in average miles driven by each truck combined with a 1.4% reduction in the average number of trucks operated during the third quarter of 2024 compared to the third quarter of 2023.
Operating supplies and expenses decreased from 13.3% of revenues, before fuel surcharges, during the third quarter of 2023 to 11.7% of revenues, before fuel surcharges, during the third quarter of 2024. The decrease relates primarily to a reduction in repair and tire expenses, which is a result of introducing new, more reliable revenue equipment to our fleet, while retiring older, less-reliable revenue equipment. The decrease can also be partially attributed to a decrease in truck count from the third quarter of 2023 to the third quarter of 2024.
Rent and purchased transportation increased from 22.6% of revenues, before fuel surcharges, during the third quarter of 2023 to 26.7% of revenues, before fuel surcharges, during the third quarter of 2024. The increase was primarily attributable to an increase in the proportion of miles driven by third-party carriers quarter over quarter, as the average number of third-party trucks increased from 326 during the third quarter of 2023 to 481 during the third quarter of 2024, while the average number of company trucks decreased from 2,007 to 1,820 during that same period.
Depreciation increased from 13.6% of revenues, before fuel surcharges, during the third quarter of 2023 to 15.8% of revenues, before fuel surcharges, during the third quarter of 2024. The increase relates primarily to an increase in cost for replacement revenue equipment compared to the cost of retired equipment and to the interaction of a decrease in operating revenues with the fixed-cost nature of depreciation expense.
Non-operating income improved from 1.0% of revenues, before fuel surcharges, during the third quarter of 2023 to 3.3% of revenues, before fuel surcharges, during the third quarter of 2024. This increase primarily resulted from an increase in the market value of our marketable equity securities portfolio as of September 30, 2024 compared to September 30, 2023.
Interest expense increased from 1.4% of revenues, before fuel surcharges, during the third quarter of 2023 to 2.5% of revenues, before fuel surcharges, during the third quarter of 2024. This increase is attributed to an increase in equipment note debt and to an increase in average borrowing rates from 3.66% during the third quarter of 2023 to 4.73% during the third quarter of 2024.
NINE MONTHS ENDED SEPTEMBER 30, 2024 VS. NINE MONTHS ENDED SEPTEMBER 30, 2023
For the nine months ended September 30, 2024, truckload services revenue, before fuel surcharges, decreased 10.7% to $319.4 million as compared to $357.7 million for the nine months ended September 30, 2023. The decrease relates primarily to an 8.0% decrease in total miles travelled from 148.3 million during the first nine months of 2023 to 136.4 million for the first nine months of 2024 and to a 3.4% decrease in our rate per mile, from $2.17 for the first nine months of 2023 to $2.10 for the first nine months of 2024. The reduction in total miles was primarily driven by a 4.2% reduction in the average number of trucks operated combined with a 4.5% reduction in average miles driven by each truck during the first nine month of 2024 compared to the first nine months of 2023. The reduction in truck count and miles resulted from a less favorable freight market year over year, characterized by an oversupply of available trucks in the market compared to available freight.
Salaries, wages and benefits increased from 37.2% of revenues, before fuel surcharges, in the first nine months of 2023 to 39.0% of revenues, before fuel surcharges, during the first nine months of 2024. This year to year percentage-based increase is explained by the interaction of salaries and wages with fixed-cost characteristics combined with the year to year reduction in revenue recognized during the first nine months of the year.
Rent and purchased transportation increased from 23.0% of revenues, before fuel surcharges, during the first nine months of 2023 to 25.3% of revenues, before fuel surcharges, during the first nine months of 2024. The increase was primarily attributable to an increase in the proportion of miles driven by third-party carriers year over year. The average number of third-party trucks utilized increased from 360 during the first nine months of 2023 to 455 during the first nine months of 2024, while the average number of company trucks decreased from 2,038 to 1,842 during that same period.
Depreciation increased from 13.1% of revenues, before fuel surcharges, during the first nine months of 2023 to 17.1% of revenues, before fuel surcharges, during the first nine months of 2024. The increase relates primarily to an increase in cost for replacement revenue equipment compared to the cost of retired equipment and to the interaction of a decrease in operating revenues with the fixed-cost nature of depreciation expense.
Insurance and claims expense decreased from 7.0% of revenues, before fuel surcharges, during the first nine months of 2023 to 4.7% of revenues before fuel surcharges, during the first nine months of 2024. This decrease relates primarily to specific auto liability claims being settled in the latter half of 2023. This decrease was partially offset by a 12.8% increase in auto liability premiums year over year.
Non-operating income increased from 0.8% of revenues, before fuel surcharges, during the first nine months of 2023 to 2.3% of revenues, before fuel surcharges, during the first nine months of 2024. This increase resulted primarily from an increase in the market value of our marketable equity securities portfolio as of September 30, 2024 as compared to September 30, 2023.
Interest expense increased from 1.5% of revenues, before fuel surcharges, during the first nine months of 2023 to 2.6% of revenues, before fuel surcharges, during the first nine months of 2024. This increase is attributed to an increase in equipment note debt and to an increase in average borrowing rates from 3.66% as of September 30, 2023 to 4.73% as of September 30, 2024.
The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased from 96.0% for the first nine months of 2023 to 102.8% for the first nine months of 2024.
RESULTS OF OPERATIONS – LOGISTICS AND BROKERAGE SERVICES
The following table sets forth, for logistics and brokerage services, the percentage relationship of expense items to operating revenues, before fuel surcharges, for the periods indicated. Brokerage service operations occur specifically in certain divisions; however, brokerage operations occur throughout the Company in similar operations having substantially similar economic characteristics.
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (percentages)
|
||||||||||||||||
| Operating revenues, before fuel surcharge |
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Salaries, wages and benefits |
5.0 | 4.9 | 4.8 | 4.8 | ||||||||||||
| Rent and purchased transportation |
86.8 | 85.7 | 86.4 | 84.1 | ||||||||||||
| Other |
2.5 | 2.7 | 2.8 | 2.3 | ||||||||||||
| Total operating expenses |
94.3 | 93.3 | 94.0 | 91.2 | ||||||||||||
| Operating income |
5.7 | 6.7 | 6.0 | 8.8 | ||||||||||||
| Non-operating income / (expense) |
0.3 | 0.7 | 0.3 | 0.5 | ||||||||||||
| Interest expense |
(0.3 | ) | (0.7 | ) | (0.5 | ) | (0.8 | ) | ||||||||
| Income before income taxes |
5.7 | 6.7 | 5.8 | 8.5 | ||||||||||||
THREE MONTHS ENDED SEPTEMBER 30, 2024 VS. THREE MONTHS ENDED SEPTEMBER 30, 2023
During the third quarter of 2024, logistics and brokerage services revenue, before fuel surcharges, decreased 19.2% to $50.2 million as compared to $62.1 million during the third quarter of 2023. The decrease relates to a reduction in the average rates charged to customers year to year, as the truckload market continues to be negatively impacted by downward rate pressure driven by the challenging truckload rate environment.
Rents and purchased transportation increased from 85.7% of revenues, before fuel surcharges, during the third quarter of 2023 to 86.8% of revenues, before fuel surcharges, during the third quarter of 2024. The increase resulted from paying third-party carriers a larger percentage of customer revenue.
The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased from 93.3% for the third quarter of 2023 to 94.3% for the third quarter of 2024.
NINE MONTHS ENDED SEPTEMBER 30, 2024 VS. NINE MONTHS ENDED SEPTEMBER 30, 2023
During the first nine months of 2024, logistics and brokerage services revenue, before fuel surcharges, decreased 15.4% to $162.6 million as compared to $192.2 million during the first nine months of 2023. The decrease relates to a reduction in the average rates charged to customers year to year, as the truckload market continues to be negatively impacted by downward rate pressure driven by the challenging truckload rate environment.
Rents and purchased transportation increased from 84.1% of revenues, before fuel surcharges, during the first nine months of 2023 to 86.4% of revenues, before fuel surcharges, during the first nine months of 2024. The increase resulted from paying third-party carriers a larger percentage of customer revenue.
The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased from 91.2% for the first nine months of 2023 to 94.0% for the first nine months of 2024.
RESULTS OF OPERATIONS – COMBINED SERVICES
THREE MONTHS ENDED SEPTEMBER 30, 2024 VS. THREE MONTHS ENDED SEPTEMBER 30, 2023
Net income for all divisions was approximately $2.4 million, or 1.5% of revenues, before fuel surcharges for the third quarter of 2024 as compared to net income of $6.1 million, or 3.5% of revenues, before fuel surcharges for the third quarter of 2023. The decrease in net income resulted in diluted earnings per share of $0.11 for the third quarter of 2024 as compared to diluted earnings per share of $0.28 for the third quarter of 2023.
NINE MONTHS ENDED SEPTEMBER 30, 2024 VS. NINE MONTHS ENDED SEPTEMBER 30, 2023
For the first nine months of 2024, all divisions recognized a combined net loss of approximately $0.2 million, or 0.1% in excess of revenues, before fuel surcharges as compared to net income of $20.6 million, or 3.8% of revenues, before fuel surcharges for the first nine months of 2024. The decrease in net income resulted in a diluted loss per share of $(0.01) for the first nine months of 2024 as compared to diluted earnings per share of $0.93 for the first nine months of 2023.
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 2024, we generated $43.8 million in cash from operating activities. Investing activities used $54.9 million in cash in the first nine months of 2024. Financing activities used $41.4 million in cash in the first nine months of 2024.
Our primary use of funds is for the purchase of revenue equipment. We typically use installment notes with fixed interest rates and terms ranging from 36 to 84 months, 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 2024, we utilized cash on hand, installment notes, and our line of credit to finance purchases of revenue equipment and other assets of approximately $124.4 million.
During the remainder of 2024, we expect to purchase approximately 232 trucks and 400 trailers while continuing to sell or trade older equipment, which we expect to result in net capital expenditures of approximately $18.9 million.
On April 24, 2024, we commenced a tender offer to repurchase up to 550,000 shares of the Company’s outstanding common stock at a price of not greater than $18.00 nor less than $15.50 per share. Following the expiration of the tender offer on May 22, 2024, we accepted 284,206 shares of our common stock for purchase at $18.00 per share, at an aggregate purchase price of approximately $5.1 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 2024, we maintained a revolving line of credit. Amounts outstanding under the line bear interest at Term SOFR plus 1.85% (7.18% at September 30, 2024), are secured by our trade accounts receivable and mature on July 1, 2027. An “unused fee” of 0.25% is charged if average borrowings are less than $18.0 million. At September 30, 2024 we had no outstanding borrowings against the line of credit and approximately $0.1 million of outstanding letters of credit, with availability to borrow $59.9 million.
Trade accounts receivable increased from $80.6 million at December 31, 2023 to $93.7 million at September 30, 2024. The increase was a result of an increase in revenues, which flow through accounts receivable, during the final month of the quarter ending September 30, 2024 compared to the final month of the year ending December 31, 2023. Additionally, the company’s cash suspense decreased during the first nine months of 2024 as compared to the fourth quarter of 2023.
Prepaid expenses and deposits decreased from $13.2 million at December 31, 2023 to $9.5 million at September 30, 2024. The decrease relates to the normal amortization of items prepaid as of December 31, 2023.
Revenue equipment increased from $689.2 million at December 31, 2023 to $726.2 million at September 30, 2024. The increase is primarily due to the purchase of new trucks and trailers during the first nine months of 2024, partially offset by the disposition of aging trucks and trailers during the first nine months of 2024.
Land increased from $23.1 million at December 31, 2023 to $30.4 million at September 30, 2024. The increase is primarily due to the purchase of land in El Paso, Texas that will serve as an additional terminal for our truckload operations.
Accounts payable decreased from $62.7 million at December 31, 2023 to $37.9 million at September 30, 2024. This decrease was primarily attributable to payments made in the first nine months of 2024 on contracts for revenue equipment placed in service, but not yet paid for at December 31, 2023. As of September 30, 2024, our accounts payable includes outstanding invoices for revenue equipment totaling $0.9 million.
Long-term debt and current maturities of long term-debt are reviewed on an aggregate basis, as the classification of amounts in each category are typically affected merely by the passage of time. Long-term debt and current maturities of long-term debt, on an aggregate basis, increased from $261.7 million at December 31, 2023 to $288.7 million at September 30, 2024. The increase was primarily related to the financing of additional revenue equipment during the first nine months of 2024.
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 impacts 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 in the overall economy may have, 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 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 increased to $44.2 million at September 30, 2024 from $43.2 million at December 31, 2023. 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 $4.4 million. For additional information with respect to 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 SOFR plus a fixed percentage. Accordingly, changes in 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 $18.0 million of variable rate debt was outstanding under our line of credit for a full fiscal year, a hypothetical 100 basis point increase in SOFR would result in approximately $180,000 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 2023 fuel consumption, a 10% increase in the average annual price per gallon of diesel fuel would increase our annual fuel expenses by $8.2 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 2023 expenditures denominated in pesos, a 10% increase in the exchange rate would increase our annual operating expenses by $0.9 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, 2024, 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, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
We 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. We are currently self-insured for certain layers of auto liability claims in excess of $2.0 million. Therefore, we specifically reserve for claims that are expected to exceed $2.0 million when fully developed, based on the facts and circumstances of those claims. Based on our knowledge of the facts, and in certain cases, opinions 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, results of operations or cash flows.
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, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Repurchases of Equity Securities
The Company’s stock repurchase program has been extended and expanded several times, most recently in July 2023, 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 25,984 shares of its common stock under this repurchase program.
No shares were repurchased under the Company’s stock repurchase program during the third quarter of 2024.
Rule 10b5-1 Trading Arrangements
During the three months ended September 30, 2024, of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
| Number |
Exhibit Description |
|
| 3.1 |
||
| 3.2 |
||
| 3.3 |
||
| 3.4 |
||
| 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: November 6, 2024 | By: /s/ Joseph A. Vitiritto |
| Joseph A. Vitiritto |
|
| President and Chief Executive Officer |
|
| (principal executive officer) |
|
| Dated: November 6, 2024 |
By: /s/ Lance K. Stewart |
| Lance K. Stewart |
|
| Vice President-Finance, Chief Financial |
|
| Officer, and Treasurer |
|
| (principal accounting and financial officer) |