Saia, Inc. — Q3 2015 Form 10-Q
Business context and reporting period. Unaudited results cover the quarter and nine months ended September 30, 2015. Saia provides less-than-truckload (LTL), non-asset truckload, expedited and logistics services across the United States. Its business is highly correlated with non-service sectors of the economy.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Operating revenue | $317.2 million | $332.5 million | $933.7 million | $962.7 million |
| Operating income | $19.8 million | $27.1 million | $72.4 million | $65.1 million |
| Net income | $11.8 million | $16.3 million | $43.6 million | $38.4 million |
| Diluted EPS | $0.46 | $0.64 | $1.71 | $1.51 |
| Operating ratio | 93.7% | 91.8% | Not stated | Not stated |
| Operating cash flow | Not stated | Not stated | $114.0 million | $92.0 million |
Q3 LTL tonnage fell 6.7% and shipments fell 4.2%; LTL revenue per hundredweight rose 2.2% to $15.51. Fuel surcharge revenue was 11.4% of Q3 revenue versus 16.7% a year earlier, largely reflecting lower fuel prices. For the nine-month period, fuel surcharge revenue was 12.1% versus 16.9%.
At September 30, cash was $4.5 million and working capital was $31.2 million; the company reported working capital of $40.2 million at September 30, 2014. Total debt, including capital leases, was $81.2 million, down from $83.0 million at December 31, 2014. The $250 million revolving facility had $25.0 million borrowed and $44.8 million of letters of credit outstanding, leaving reported availability of $180.2 million, subject to covenants. Saia said it was compliant with its debt covenants.
Nine-month investing cash outflow was $90.4 million, including $68.8 million of property and equipment purchases and $22.2 million for the LinkEx acquisition. Financing cash outflow was $23.5 million. Projected 2015 net capital expenditures were approximately $125 million.
Material changes and management commentary
- Q3 revenue decreased 4.6%, operating income decreased 26.9%, and diluted EPS fell from $0.64 to $0.46. Management attributed pressure to lower shipments, tonnage and fuel surcharges, as well as wage increases and higher accident severity; yield gains and network optimization partly offset the impact.
- For the first nine months, revenue declined 3.0%, while operating income increased 11.1% and diluted EPS rose from $1.51 to $1.71. Lower fuel and purchased transportation costs and lower claims expense supported year-to-date results.
- Effective July 1, 2015, Saia implemented a company-wide market-competitive wage increase. Management estimated its annual cost at approximately $20 million and expected productivity and efficiency gains to partly offset it.
- Saia acquired LinkEx, an asset-light third-party logistics business, on February 2, 2015, for $23.1 million, with a possible earn-out of up to $3 million. Management did not expect the profit targets to be met and recorded no contingent-consideration liability; purchase accounting remained preliminary.
- The company amended its revolving credit agreement in March 2015, increasing the facility from $200 million to $250 million and extending it to March 2020. The amendment also removed the borrowing-base and minimum-tangible-net-worth covenants; other financial covenants remain.
Outlook, risks and contingencies
Management gave no specific earnings or revenue guidance. It plans to pursue yield growth, cost control, productivity, safety and customer-service initiatives, while adjusting costs if volumes weaken. Results remain exposed to economic conditions, competitive pricing, customer and shipment volumes, driver and purchased-transportation availability, fuel costs, and the effectiveness of initiatives and acquisition integration.
Fuel surcharges are reset weekly and are intended to reduce fuel-price exposure, but may not fully offset rapid price changes and are subject to customer pricing negotiations. Claims and insurance expense can be volatile given self-insurance retention limits of up to $2.0 million per claim; Q3 accident-claim frequency and severity increased. Ordinary-course legal proceedings were provided for by management; the ultimate outcome could materially affect results in a quarter or year, though management did not expect a material adverse effect on consolidated financial position. Risk factors were reported as unchanged from the 2014 Form 10-K. Disclosure controls were deemed effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether LTL shipment and tonnage declines persist, and whether improved yield can offset weaker volumes and lower fuel surcharges.
- Whether wage increases are offset by productivity gains, and whether claims and insurance costs return to more typical levels.
- Actual capital expenditures versus the approximately $125 million 2015 outlook, and the resulting effect on cash and debt.
- LinkEx’s operating performance, final purchase-price allocation and any future earn-out obligations.
- Remaining revolver availability, covenant headroom and future capital-lease and debt payments.