Saia, Inc. — Q3 2012 Form 10-Q
Business context and reporting period. The unaudited filing covers the quarter and nine months ended September 30, 2012. Saia provides less-than-truckload (LTL), non-asset truckload, expedited and logistics services. Financial amounts below are in millions of dollars unless noted.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Operating revenue | $278.0 | $268.3 | $834.3 | $777.2 |
| Operating income | $16.4 | $9.6 | $48.7 | $22.0 |
| Net income | $9.3 | $4.8 | $26.6 | $8.9 |
| Diluted EPS | $0.56 | $0.30 | $1.61 | $0.55 |
| Operating ratio | 94.1% | 96.4% | Not stated | Not stated |
| Cash provided by operations | Not stated | Not stated | $77.4 | $34.7 |
Q3 operating revenue rose 3.6%; nine-month revenue rose 7.3%. Q3 LTL revenue per hundredweight increased 6.6% to $14.00, while LTL tonnage per workday fell 1.6% and shipments per workday fell 4.3%. The filing attributes revenue growth mainly to pricing and yield improvements.
Q3 operating income increased 70.6%. Management cited improved yield, cost optimization and reduced purchased transportation; depreciation rose with equipment and technology investment. Q3 salaries, wages and benefits increased 3.8%, including wage increases and incentive accruals. Q3 net income margin was approximately 3.3%, versus 1.8% in Q3 2011, calculated from reported revenue and net income.
Cash, debt and liquidity
- Operating cash flow for the first nine months was $77.4 million. Investing used $86.9 million, including $81.9 million of property and equipment purchases and $7.6 million net cash for the Robart acquisition. Financing provided $9.0 million; cash declined $0.5 million to $0.8 million.
- At September 30, 2012, total debt carrying value was $81.2 million, versus $72.9 million at December 31, 2011. Debt included $19.4 million drawn on the revolving facility and approximately $61.8 million of notes. The company made $11.1 million in scheduled principal payments during the nine months.
- The revolving credit facility provides up to $150 million, subject to borrowing-base and covenant conditions, and expires in November 2016. Reported availability was $72.0 million; outstanding letters of credit were reported as $58.6 million in the MD&A. The contractual commitments table lists $60.3 million, a difference to reconcile.
- Current assets were $156.7 million and current liabilities $149.6 million at September 30, for working capital of $7.1 million. Management reported compliance with debt covenants and said it believed available liquidity was adequate, subject to facility conditions.
Material changes and significant items
- Saia acquired Robart Transportation and RL Services on July 2, 2012, adding non-asset truckload and logistics services. Preliminary consideration was $9.1 million, including $7.9 million cash and $1.2 million fair value of contingent consideration; the earnout may reach $1.3 million based on 2013 performance. The preliminary allocation included $5.2 million goodwill and $3.2 million customer-list intangibles.
- Net property and equipment increased to $368.8 million from $324.5 million at year-end. Goodwill and identifiable intangibles increased to $9.6 million from $1.5 million, primarily reflecting the acquisition.
- Pricing actions included a 6.9% general rate increase effective July 9, 2012, applying to customers representing approximately 30% of revenue. A further customer segment’s rates are individually negotiated.
- Effective July 1, 2012, the company implemented an approximately 3% wage and salary increase, which management estimated would cost about $13 million annually, partially offset by anticipated productivity and efficiency gains.
Outlook, risks and contingencies
Saia gave no specific earnings or revenue guidance. It expected 2012 net capital expenditures of approximately $83 million and continued to target higher yield, cost reduction, productivity, safety and service improvements. Management cautioned that economic recovery remained uncertain and that results depend on economic conditions, competition, pricing, volume and execution of company initiatives.
Risks include competitive pricing and excess industry capacity; fuel, driver and purchased-transportation costs and availability; self-insurance and claims volatility; debt covenant and borrowing-base constraints; integration of the acquired businesses; and regulatory, labor, weather and other operating factors. Fuel surcharges reduce, but may not fully offset, fuel-price volatility. The company reported ordinary-course legal proceedings that could materially affect results in a particular period, though management did not expect a material adverse effect on consolidated financial position. Saia also retained indemnification and claims obligations related to the 2006 Jevic sale. The filing reported no material change to the risk factors in the 2011 Form 10-K.
Management said disclosure controls were effective as of quarter-end and reported no material change in internal control over financial reporting during the period.
Important facts for investors to verify
- Whether pricing and yield gains can continue despite declining LTL shipment and tonnage measures and competitive pressure.
- Actual 2012 capital spending and its funding needs relative to operating cash flow and the approximately $83 million net-capex outlook.
- Revolver availability and letters-of-credit totals: the MD&A reports $58.6 million outstanding, while the contractual commitments table shows $60.3 million.
- Robart integration, performance, final purchase-price allocation and any earnout liability or payment.
- Potential volatility in self-insurance claims and the exposure from Jevic-related obligations and other legal proceedings.
- Whether the annualized cost of the 2012 wage increase is offset by productivity gains, and whether Saia remains within debt covenants and borrowing-base limits.