Saia, Inc. — Q1 2020 Form 10-Q
Reporting period: Quarter ended March 31, 2020. Unaudited consolidated results. Saia provides primarily less-than-truckload (LTL) transportation services across 44 states.
Key financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Operating revenue | $446.4 million | $410.6 million | +8.7% |
| Operating income | $38.8 million | $28.6 million | +35.4% |
| Net income | $28.1 million | $22.3 million | +26.3% |
| Diluted EPS | $1.06 | $0.85 | +24.7% |
| Operating ratio | 91.3% | 93.0% | Improved 1.7 percentage points |
| Operating cash flow | $51.3 million | $30.4 million | +$20.9 million |
| Net cash used in investing | $102.7 million | $56.5 million | Higher capital spending |
Operating margin was approximately 8.7%, versus 7.0% in Q1 2019; net margin was approximately 6.3%, versus 5.4%. LTL tonnage increased 4.0% per workday, shipments increased 2.3% per workday, and revenue per hundredweight rose 3.1% to $18.16. Pricing and volume gains supported results, partly offset by wage, depreciation, insurance and other costs.
Liquidity, debt and capital spending
- Cash and equivalents were $46.9 million at March 31, 2020, compared with $0.2 million at December 31, 2019. Working capital was $56.9 million.
- Total debt was $235.8 million, including $150.1 million drawn on the revolving credit facility and $85.7 million in finance lease obligations; total debt was $136.4 million at year-end 2019. Revolver availability was $121.9 million, subject to covenants, with a further $100 million accordion feature subject to conditions and lender commitments.
- Saia reported compliance with its debt covenants at quarter-end. The credit agreement requires a minimum debt service coverage ratio of 1.25:1 and maximum leverage ratio of 3.25:1.
- Net capital expenditures were $102.7 million in Q1. Management expected 2020 net capital expenditures to be below the previously planned $250 million while it evaluated COVID-19 impacts; $61.1 million of remaining capital spending was committed at quarter-end.
Material changes, outlook and risks
- COVID-19 began affecting customer demand in late March. The company reported no material adverse effect on Q1 results, but said it was experiencing lower demand and continued declines into Q2, with the duration and financial effects uncertain. It remained operational as an essential business and had not experienced significant network disruptions through the filing date.
- Management said it was matching capacity and resources to changing volumes. Effective April 2020, it temporarily suspended the 401(k) match and annual incentive programs and furloughed certain employees. It also provided additional paid time off, expected to add approximately $10 million in benefit costs over the rest of 2020.
- Management anticipated no salary or wage increases in 2020. It cited approximately $32 million of annualized cost from the July 2019 wage increase and $6.2 million of anticipated 2020 insurance cost increases versus 2019.
- The company recognized a $0.4 million reduction in insurance premium expense in Q1 from a prior policy commutation. It reported $81.4 million in claims and insurance liabilities; settlement timing could not be reasonably estimated. Potential additional insurance premium payments of up to $11.0 million were disclosed, but none was accrued at quarter-end based on claims experience.
- Other principal risks include economic and freight-volume weakness, competitive pricing, customer credit and payment risk, driver and other input availability, claims severity, and potential liquidity or covenant pressure if operating cash flows weaken. The company said it was still evaluating potential CARES Act benefits.
Important facts for investors to verify
- Subsequent quarterly disclosures on COVID-19 demand, operating costs, cash generation and liquidity.
- Revolver borrowings, availability, covenant compliance and any changes to lender commitments.
- Actual 2020 capital expenditures relative to the revised expectation and committed projects.
- Claims severity, self-insurance exposure and any additional insurance premiums or policy changes.
- Whether cost actions and pricing gains offset lower volumes, wage and benefit costs, and other operating expenses.