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PTSI > SEC Filings for PTSI > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for PAM TRANSPORTATION SERVICES INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for PAM TRANSPORTATION SERVICES INC


9-Aug-2013

Quarterly Report


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 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, interest rates, fuel taxes, tolls, 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; 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 ("SEC"). The Company undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

CRITICAL ACCOUNTING POLICIES

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our Form 10-K for the fiscal year ended December 31, 2012.

BUSINESS OVERVIEW

The Company's administrative headquarters are in Tontitown, Arkansas. From this location we manage operations conducted through wholly owned subsidiaries based in various locations around the United States, Mexico, and Canada. The operations of these subsidiaries can generally be classified into either truckload services or brokerage and logistics services. Truckload services include those transportation services in which we utilize company owned trucks or owner-operator owned trucks. Brokerage and logistics services consist of services such as transportation scheduling, routing, mode selection, transloading and other value added services related to the transportation of freight which may or may not involve the usage of company owned or owner-operator owned equipment. Both our truckload operations and our brokerage/logistics operations have similar economic characteristics and are impacted by virtually the same economic factors as discussed elsewhere in this report. All of the Company's operations are in the motor carrier segment.

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. These aspects of our business are carefully managed and efforts are continuously underway to achieve favorable results. For the three and six month periods ended June 30, 2013, truckload services revenues, excluding fuel surcharges, represented 92.6% and 91.9%, respectively, of total revenues, excluding fuel surcharges, with remaining revenues, excluding fuel surcharges, being generated from brokerage and logistics services. For the three and six month periods ended June 30, 2012, truckload services revenues, excluding fuel surcharges, represented 91.7% and 91.5%, respectively, of total revenues, excluding fuel surcharges, with remaining revenues, excluding fuel surcharges, being 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 benefit costs, independent broker costs (which we record as purchased transportation), insurance, and maintenance and capital equipment costs.

In discussing our results of operations we use revenue, before fuel surcharge, (and fuel expense, net of 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 and six months ending June 30, 2013, approximately $23.8 million and $45.9 million, respectively, of the Company's total revenue was generated from fuel surcharges. During the three and six months ending June 30, 2012 approximately $20.5 million and $41.4 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 high 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 shown net of fuel surcharges.



                                              Three Months Ended          Six Months Ended
                                                   June 30,                   June 30,
                                               2013          2012         2013         2012
                                                              (percentages)

Operating revenues, before fuel surcharge        100.0        100.0         100.0       100.0

Operating expenses:
Salaries, wages and benefits                      58.5         49.8          58.1        48.2
Fuel expense, net of fuel surcharge                0.6         10.2           3.6        12.3
Rent and purchased transportation                  0.2          0.8             -         0.9
Depreciation                                      13.1         13.8          13.6        13.6
Operating supplies and expenses                   11.8         15.0          12.1        14.3
Operating taxes and licenses                       1.6          1.8           1.7         1.9
Insurance and claims                               5.1          4.8           5.0         4.8
Communications and utilities                       0.7          0.8           0.8         0.8
Other                                              2.2          1.8           2.3         1.9
Gain on sale or disposal of property              (0.3 )       (0.4 )        (0.2 )      (0.2 )
Total operating expenses                          93.5         98.4          97.0        98.5
Operating income                                   6.5          1.6           3.0         1.5
Non-operating income                               0.4          1.3           0.4         1.1
Interest expense                                  (1.2 )       (0.9 )        (1.2 )      (0.9 )
Income before income taxes                         5.7          2.0           2.2         1.7

THREE MONTHS ENDED JUNE 30, 2013 VS. THREE MONTHS ENDED JUNE 30, 2012

During the second quarter of 2013, truckload services revenue, before fuel surcharges, increased 10.5% to $74.7 million as compared to $67.6 million during the second quarter of 2012. The increase was primarily due to an increase in the number of miles traveled, a reduction in uncompensated miles, and an increase in the average rate charged to customers. The number of miles traveled increased from 50.1 million miles during the second quarter of 2012 to 54.1 million miles during the second quarter of 2013 primarily as a result of an increase in the average number of trucks in service, which increased from 1,739 trucks during the second quarter of 2012 to 1,793 trucks during the second quarter of 2013. The average percentage of uncompensated miles declined from 8.9% of total miles for the second quarter of 2012 to 7.2% of total miles during the second quarter of 2013. The average rate charged per total mile during the second quarter of 2013 increased $0.03 as compared to the average rate charged during the second quarter of 2012. Also contributing to the increase was an increase in equipment utilization as the Company continues to replace older trucks, which generally have a higher probability for mechanical problems which could disrupt en route service thereby reducing route efficiency.

Salaries, wages and benefits increased from 49.8% of revenues, before fuel surcharges, in the second quarter of 2012 to 58.5% of revenues, before fuel surcharges, during the second quarter of 2013. The increase relates primarily to an increase in driver lease expense, which is a component of salaries, wages and benefits, as the average number of owner operators under contract increased from 122 during the second quarter of 2012 to 321 during the second quarter of 2013. The increase in costs in this category, as they relate to the increase in the number owner operator drivers, are partially offset by a decrease in other cost categories, such as repairs and fuel, which are generally borne by the owner operator. Also contributing to the increase was an increase in costs associated with workers compensation during the second quarter of 2013 as compared to the second quarter of 2012.

Fuel expense, net of fuel surcharge, decreased from 10.2% of revenues, before fuel surcharges, during the second quarter of 2012 to 0.6% of revenues, before fuel surcharges, during the second quarter of 2013. The decrease was primarily related to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel and to an increase in the average miles-per-gallon ("mpg") experienced. The average surcharge-adjusted fuel price paid per gallon of diesel fuel decreased from $0.88 during the second quarter of 2012 to $0.07 during the second quarter of 2013 as a result of a decrease in the national average price of a gallon of diesel fuel for the periods compared as well as more favorable fuel surcharge arrangements made with customers since the second quarter of 2012. 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 fuel expense, while fuel surcharges paid to owner operators for their services is reported along with their base rate in the Salaries, wages and benefits category. These categorizations have the effect of reducing our net fuel expense while increasing Salaries, wages and benefits category, as discussed above. The average mpg experienced increased during the second quarter of 2013 as compared to the mpg experienced during the second quarter of 2012 as a result of replacing older trucks with newer trucks, which are more fuel efficient. The Company has also implemented driver bonus programs which are tied directly to fuel efficiency.


Rent and purchased transportation decreased from 0.8% of revenues, before fuel surcharges, during the second quarter of 2012 to 0.2% of revenues, before fuel surcharges, during the second quarter of 2013. The decrease relates primarily to a decrease in amounts paid for third-party equipment rentals and to third-party transportation service providers.

Depreciation decreased on a percentage of revenue basis from 13.8%, before fuel surcharges, during the second quarter of 2012 to 13.1% of revenues, before fuel surcharges, during the second quarter of 2013 and increased on a dollar basis from $9.3 million for the second quarter of 2012 to $9.8 million for the second quarter of 2013. The dollar-based increase relates primarily to purchases of new trucks made since the second quarter of 2012 which replaced older trucks within the fleet. These new truck replacements have a significantly higher purchase price than those trucks that are being replaced and are also being depreciated over a shorter period of time as the Company accelerates its truck replacement cycle from every five years to a replacement cycle of every three years. This reduction in replacement cycle, combined with a higher purchase price, results in higher depreciation expense over a shorter period of time. The decrease in the truck replacement cycle time is intended to reduce fuel costs, improve driver and customer satisfaction, and to reduce long-term maintenance costs as well as increase fleet efficiency by reducing maintenance down-time.

Operating supplies and expenses decreased from 15.0% of revenues, before fuel surcharges, during the second quarter of 2012 to 11.8% of revenues, before fuel surcharges, during the second quarter of 2013. The decrease relates primarily to a decrease in amounts paid for equipment maintenance costs during the second quarter of 2013 as compared to the second quarter of 2012 which is the result of replacing older equipment with new equipment. The decrease in equipment maintenance costs is partially offset by an increase in driver training and recruiting costs which are a result of heightened competition for qualified drivers as industry demand has increased and increased regulations have forced some drivers to exit the profession.

Insurance and claims increased from 4.8% of revenues, before fuel surcharges, during the second quarter of 2012 to 5.1% of revenues, before fuel surcharges, during the second quarter of 2013. The increase relates primarily to increases in auto liability premiums due to an increase in miles traveled, which serves as the basis for the premium calculation, and in auto liability claims expenses incurred during the second quarter of 2013 as compared to the second quarter of 2012.

Other expenses increased from 1.8% of revenues, before fuel surcharges, during the second quarter of 2012 to 2.2% of revenues, before fuel surcharges, during the second quarter of 2013. The increase relates primarily to an increase in amounts expensed for uncollectible revenue and for other supplies and expenses.

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 98.4% for the second quarter 2012 to 93.5% for the second quarter of 2013.

SIX MONTHS ENDED JUNE 30, 2013 VS. SIX MONTHS ENDED JUNE 30, 2012

For the first six months ended June 30, 2013, truckload services revenue, before fuel surcharges, increased 7.0% to $145.6 million as compared to $136.1 million for the first six months ended June 30, 2012. The increase was primarily due to an increase in the number of miles traveled, a reduction in uncompensated miles, and an increase in the average rate charged to customers. The number of miles traveled increased from 100.8 million miles for the first six months of 2012 to 105.8 million miles for the first six months of 2013 primarily as a result of an increase in the average number of trucks in service, which increased from 1,743 trucks for the first six months of 2012 to 1,799 trucks for the first six months of 2013. The average percentage of uncompensated miles declined from 8.9% of total miles for the first six months of 2012 to 7.6% of total miles for the first six months of 2013. The average rate charged per total mile during the first six months of 2013 increased $0.03 as compared to the average rate charged during the first six months of 2012. Also contributing to the increase was an increase in equipment utilization as the Company continues to replace older trucks, which generally have a higher probability for mechanical problems which could disrupt en route service thereby reducing route efficiency.

Salaries, wages and benefits increased from 48.2% of revenues, before fuel surcharges, in the first six months of 2012 to 58.1% of revenues, before fuel surcharges, during the first six months of 2013. The increase relates primarily to an increase in driver lease expense, which is a component of salaries, wages and benefits, as the average number of owner-operators under contract increased from 109 during the first six months of 2012 to 289 during the first six months of 2013. The increase in costs in this category, as they relate to the increase in the number owner operator drivers, are partially offset by a decrease in other cost categories, such as repairs and fuel, which are generally borne by the owner operator. Also contributing to this increase was an increase in costs associated with workers' compensation claims expensed during the first six months of 2013 as compared to the first six months of 2012 and was related to the accrual of an expected adverse settlement of a large workers' compensation claim in excess of its estimated reserve.


Fuel expense, net of fuel surcharge, decreased from 12.3% of revenues, before fuel surcharges, during the first six months of 2012 to 3.6% of revenues, before fuel surcharges, during the first six months of 2013. The decrease was primarily related to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel and to an increase in the average miles-per-gallon ("mpg") experienced. The average surcharge-adjusted fuel price paid per gallon of diesel fuel decreased from $1.03 during the first six months of 2012 to $0.37 during the first six months of 2013 as a result of more favorable fuel surcharge arrangements made with 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 fuel expense, while fuel surcharges paid to owner operators for their services is reported along with their base rate in the Salaries, wages and benefits category. These categorizations have the effect of reducing our net fuel expense while increasing the Salaries, wages and benefits category, as discussed above. The average mpg experienced increased during the first six months of 2013 as compared to the mpg experienced during the first six months of 2012 as a result of replacing older trucks with newer trucks which are more fuel efficient. The Company has also implemented driver bonus programs which are tied directly to fuel efficiency.

Rent and purchased transportation decreased from 0.9% of revenues, before fuel surcharges, during the first six months of 2012 to 0.0% of revenues, before fuel surcharges, during the first six months of 2013. The decrease relates primarily to a decrease in amounts paid for third-party equipment rentals and to third-party transportation service providers.

Depreciation, as a percentage of revenue, remained unchanged at 13.6% of revenues, before fuel surcharges, during the first six months of 2012 and 2013. However, on a dollar basis, depreciation increased from $18.5 million for the first six months of 2012 to $19.8 million for the first six months of 2013. The increase relates primarily to purchases of new trucks which replaced older trucks within the fleet. These new truck replacements have a significantly higher purchase price than those trucks that are being replaced and are being depreciated over a shorter period of time as the Company accelerates its truck replacement cycle from every five years to a replacement cycle of every three years. This reduction in replacement cycle, combined with a higher purchase price, results in higher depreciation expense over a shorter period of time. The decrease in the truck replacement cycle time is intended to reduce fuel costs, improve driver and customer satisfaction, and to reduce long-term maintenance costs as well as increase fleet efficiency by reducing maintenance down-time.

Operating supplies and expenses decreased from 14.3% of revenues, before fuel surcharges, during the first six months of 2012 to 12.1% of revenues, before fuel surcharges, during the first six months of 2013. The decrease relates primarily to a decrease in amounts paid for equipment maintenance costs during the first six months of 2013 as compared to amounts paid during the first six months of 2012 as a result of replacing older equipment with new equipment. Partially offsetting this decrease was an increase in amounts paid for driver training schools during the first six months of 2013 as compared to amounts paid during the first six months of 2012. The increase in driver training and recruiting costs are a result of heightened competition as industry demand for qualified drivers has increased while increased regulations have forced some qualified drivers to exit the profession.

Insurance and claims increased from 4.8% of revenues, before fuel surcharges, during the first six months of 2012 to 5.0% of revenues, before fuel surcharges, during the first six months of 2013. The increase relates primarily to increases in auto liability premiums due to an increase in miles traveled, which serves as the basis for the premium calculation, and in auto liability claims expenses incurred during the first six months of 2013 as compared to the first six months of 2012.

Other expenses increased from 1.9% of revenues, before fuel surcharges, during the first six months of 2012 to 2.3% of revenues, before fuel surcharges, during the first six months of 2013. The increase relates primarily to an increase in amounts expensed for uncollectible revenue and for other supplies and expenses.

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 98.5% for the first six months 2012 to 97.0% for the first six months of 2013.


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. Rent and purchased transportation, which includes costs paid to third party carriers, are shown net of fuel surcharges.

                                              Three Months Ended          Six Months Ended
                                                   June 30,                   June 30,
                                               2013          2012         2013         2012
                                                              (percentages)

Operating revenues, before fuel surcharge        100.0        100.0         100.0       100.0

Operating expenses:
Salaries, wages and benefits                       2.5          1.8           2.3         1.6
Rent and purchased transportation                 94.3         94.7          93.9        95.2
Communications and utilities                       0.1          0.1           0.2         0.1
Other                                              0.3          0.2           0.3         0.2
Total operating expenses                          97.2         96.8          96.7        97.1
Operating income                                   2.8          3.2           3.3         2.9
Non-operating income                               0.1          0.3           0.1         0.3
Interest expense                                  (0.3 )       (0.2 )        (0.3 )      (0.2 )
Income before income taxes                         2.6          3.3           3.1         3.0

THREE MONTHS ENDED JUNE 30, 2013 VS. THREE MONTHS ENDED JUNE 30, 2012

During the second quarter of 2013, logistics and brokerage services revenue, before fuel surcharges, decreased 2.2% to $6.0 million as compared to $6.1 million during the second quarter of 2012. The decrease relates to a decrease in brokered load rates during the second quarter of 2013 as compared to the second quarter of 2012.

Salaries, wages and benefits increased from 1.8% of revenues, before fuel surcharges, in the second quarter of 2012 to 2.5% of revenues, before fuel surcharges, during the second quarter of 2013. The increase relates to an increase in the number of employees assigned to the logistics and brokerage services division.

Rent and purchased transportation decreased from 94.7% of revenues, before fuel surcharges, during the second quarter of 2012 to 94.3% of revenues, before fuel surcharges during the second quarter of 2013. The decrease relates to a decrease in amounts paid to third party logistics and brokerage service providers.

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 96.8% for the second quarter of 2012 to 97.2% for the second quarter of 2013.

SIX MONTHS ENDED JUNE 30, 2013 VS. SIX MONTHS ENDED JUNE 30, 2012

For the first six months ended June 30, 2013, logistics and brokerage services revenue, before fuel surcharges, increased 1.2% to $12.9 million as compared to $12.7 million for the first six months ended June 30, 2012. The increase relates to an increase in the number of loads brokered during the first six months of 2013 as compared to the first six months of 2012.

Salaries, wages and benefits increased from 1.6% of revenues, before fuel surcharges, during the first six months of 2012 to 2.3% of revenues, before fuel surcharges, during the first six months of 2013. The increase relates to an increase in the number of employees assigned to the logistics and brokerage services division.

Rent and purchased transportation decreased from 95.2% of revenues, before fuel surcharges, during the first six months of 2012 to 93.9% of revenues, before fuel surcharges during the first six months of 2013. The decrease relates to a decrease in amounts paid to third party logistics and brokerage service providers.

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 97.1% for the first six months of 2012 to 96.7% for the first six months of 2013.


RESULTS OF OPERATIONS - COMBINED SERVICES

THREE MONTHS ENDED JUNE 30, 2013 VS. THREE MONTHS ENDED JUNE 30, 2012

Net income for all divisions was approximately $2.7 million, or 3.3% of revenues, before fuel surcharge for the second quarter of 2013 as compared to net income of $0.9 million or 1.3% of revenues, before fuel surcharge for the second quarter of 2012. The increase in income resulted in diluted earnings per share of $0.31 for the second quarter of 2013 as compared to diluted earnings . . .

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