Saia, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Saia provides less-than-truckload (LTL), non-asset truckload, expedited and logistics services across the United States; it reports one operating segment.
Financial results and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Operating revenue | $311.9 million | $323.5 million | $601.8 million | $616.5 million |
| Operating income | $21.7 million | $31.3 million | $39.3 million | $52.5 million |
| Net income | $13.3 million | $19.2 million | $23.9 million | $31.9 million |
| Diluted EPS | $0.52 | $0.75 | $0.93 | $1.25 |
| Operating ratio | 93.0% | 90.3% | Not stated | Not stated |
- Q2 LTL tonnage fell 4.3% and shipments fell 2.6%; revenue per hundredweight rose 2.0% to $15.73. Lower fuel surcharges also weighed on revenue.
- Six-month operating cash flow was $65.8 million, versus $67.0 million. Cash used in investing was $101.5 million, primarily reflecting equipment investment; financing provided $36.0 million. Period-end cash was $0.4 million.
- At June 30, total debt was $139.4 million, compared with $69.0 million at December 31, 2015: $57.3 million on the revolver, $10.7 million of senior notes and $71.4 million in capital leases. Shareholders’ equity was $454.2 million.
- The $250 million revolving facility had $152.8 million available, subject to covenants. The company reported compliance with its debt covenants. Working capital was $27.2 million.
- Projected 2016 net capital expenditures were approximately $140 million. The filing also reports $136.2 million in net capital expenditures during the first half, inclusive of equipment acquired using capital leases.
Changes and management commentary
Q2 revenue decreased 3.6% year over year and operating income declined 30.6%; the six-month revenue and operating income declines were 2.4% and 25.2%, respectively. Lower volumes and fuel surcharges, wage and benefit increases, and higher accident-related costs pressured results. Higher yield, lower fuel and purchased transportation costs, and network/productivity initiatives partly offset those pressures. Q2 claims and insurance expense increased $4.5 million year over year, with higher accident frequency and severity, adverse development on older claims, and higher premiums cited as factors.
Management described economic conditions as uncertain and said it was pursuing yield, cost and productivity initiatives. A 4.9% general rate increase took effect December 7, 2015 for customers representing about 20%–25% of revenue; the fuel surcharge program was revised January 18, 2016. A further market-competitive wage increase took effect July 1, 2016, with an estimated annual cost of approximately $16 million; management expects productivity and efficiency gains to partly offset it. No specific earnings or revenue guidance was provided.
Risks, contingencies and other items
- Risks cited include economic weakness, pricing competition, customer loss or credit deterioration, driver and equipment availability, fuel and insurance costs, self-insurance claim volatility, regulation, litigation, cybersecurity, and debt covenant compliance.
- Legal proceedings arise in the ordinary course. Management believes provisions are adequate and does not expect a material adverse effect on financial condition, but results in a particular quarter or year could be materially affected. Letters of credit supporting certain pre-2000 claims were $1.8 million.
- The company uses self-insurance retentions generally ranging from $250,000 to $2 million per claim; claims estimates may be volatile. The filing reports approximately $1.0 million accrued for uncertain tax positions and $0.6 million for related interest and penalties.
- Revenue, lease and share-based payment accounting standards had not yet been adopted; the company was evaluating their effects. The filing reports no material change to the risk factors from the 2015 Form 10-K and states disclosure controls were effective.
Investor facts to verify
- Whether LTL shipment and tonnage trends and yield gains improve, and how much of the rate increases are retained.
- Claims frequency, severity and adverse development, and whether these costs remain elevated.
- Delivery of the expected productivity offsets to the approximately $16 million annual wage-cost increase.
- Capital spending, capital-lease growth, revolver usage, covenant headroom and liquidity as investment continues.
- The filing cites $39.9 million of letters of credit under the credit agreement in one section and $41.7 million of outstanding letters of credit in another; confirm the amounts and scope.