Saia, Inc. — Q3 2020 Form 10-Q
Business context and period. Saia provides regional and interregional less-than-truckload (LTL) freight services, with additional truckload, expedited and logistics offerings. This unaudited filing covers the quarter and nine months ended September 30, 2020; comparisons are with the corresponding 2019 periods. Amounts below are in U.S. dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Operating revenue | $481.4 million | $468.9 million | $1,345.9 million | $1,343.7 million |
| Operating income | $55.2 million | $45.4 million | $129.7 million | $125.2 million |
| Operating ratio | 88.5% | 90.3% | Not stated | Not stated |
| Net income | $41.5 million | $33.0 million | $98.1 million | $92.3 million |
| Diluted EPS | $1.56 | $1.25 | $3.69 | $3.49 |
- Q3 revenue rose 2.7%; operating income rose 21.7%. Net margin was approximately 8.6%, compared with 7.0% a year earlier. The lower operating ratio indicates improved operating profitability.
- For the first nine months, revenue was nearly flat, while operating income increased 3.6%. The filing attributes the increase largely to an expanded terminal network and operating-model adjustments.
- Q3 LTL shipments increased 0.9% per workday and tonnage was flat per workday. LTL revenue per hundredweight rose 2.6% to $18.59.
- Operating cash flow for the first nine months was $239.0 million, versus $207.3 million. Net cash used in investing was $197.5 million, versus $244.5 million; property and equipment acquisitions were $205.3 million. Financing activities used $16.2 million, compared with $35.0 million provided in 2019.
- At September 30, cash was $25.5 million; current assets were $280.1 million and current liabilities $275.7 million, giving working capital of $4.4 million. Total assets were $1.566 billion and stockholders’ equity was $918.5 million.
- Total debt, including finance leases, was $120.9 million, down from $136.4 million at December 31, 2019. This comprised $45.0 million drawn on the revolver and $75.9 million of finance leases. The company reported $227.0 million of revolver availability, subject to covenants, and an additional $100 million accordion feature subject to conditions. It was compliant with debt covenants at quarter-end.
Changes, outlook and risks
- Q3 improvement reflected pricing actions, higher shipments, cost controls and operational efficiencies. Fuel and other operating expenses declined, while purchased transportation and depreciation increased. Claims and insurance expense increased $4.1 million year over year in Q3, primarily due to greater claim severity and volume and higher insurance costs.
- Fuel surcharge revenue fell as fuel prices declined: it represented 10.4% of Q3 revenue, versus 12.8% in 2019; LTL fuel surcharge revenue was down 16.7%. Lower fuel costs also reduced operating expense.
- COVID-19 contributed to lower demand and higher costs earlier in 2020, particularly in Q2. Saia reported no significant disruption to LTL network operations through the filing date, but warned that the pandemic’s duration and economic effects remain uncertain and could adversely affect operations, results, liquidity and cash flows.
- Management gave no specific earnings or revenue forecast. It expected 2020 capital expenditures of approximately $225 million, below 2019 net capital expenditures of $287 million. The company continued to emphasize yield, cost reduction, productivity, safety and geographic expansion into the Northeast, while adjusting capacity to demand.
- Saia offered additional paid time off in response to COVID-19 and estimated approximately $10 million of additional benefit costs for the final nine months of 2020. The 401(k) match was reinstated retroactively from July 1, 2020. Insurance policy renewals were expected to add $6.2 million of 2020 costs versus 2019.
- Claims and insurance liabilities were $92.0 million. Under the described policy arrangements, Saia could face up to $11.0 million in additional premium if specified loss thresholds are exceeded; no such premium was accrued at quarter-end. Management also noted ordinary-course legal proceedings and stated that adequate provisions were made for probable, estimable losses.
- Other key risks include economic downturns, competitive pricing, customer credit and retention, driver and equipment availability, insurance and claim volatility, debt covenant compliance, and technology or operational disruptions. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether shipment volumes, pricing and yield continue to offset economic uncertainty and competitive pressure.
- Actual capital spending versus the approximately $225 million 2020 expectation, and the resulting cash generation.
- Claims severity, insurance renewal costs and potential exposure under the self-insurance and policy arrangements.
- Revolver availability, covenant headroom and the filing’s differing letter-of-credit figures: $28.0 million under the credit agreement versus $29.8 million in the commercial commitments table.
- Whether COVID-19-related demand, cost and employee-benefit effects materially change after quarter-end; management cautions that interim results are not necessarily indicative of full-year results.