Saia, Inc. — Q2 2018 Form 10-Q
Business context and period: Unaudited results for the quarter and six months ended June 30, 2018, compared with the corresponding 2017 periods. Saia provides LTL transportation across 40 states; approximately 97% of revenue comes from LTL services.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Operating revenue | $428.7m | $364.4m | $821.5m | $687.5m |
| Operating income | $41.6m | $29.7m | $69.1m | $47.2m |
| Net income | $30.3m | $17.6m | $51.4m | $29.0m |
| Diluted EPS | $1.15 | $0.68 | $1.95 | $1.12 |
| Operating ratio | 90.3% | 91.9% | Not stated | Not stated |
| Operating cash flow | Not stated | Not stated | $112.1m | $79.3m |
| Cash used in investing | Not stated | Not stated | $118.2m | $126.4m |
Q2 LTL tonnage per workday rose 7.7%, shipments per workday 4.3%, and revenue per hundredweight 9.6% to $16.44. Fuel surcharge revenue was 13.8% of Q2 revenue versus 10.9% a year earlier. Q2 operating expenses increased 15.7%, slower than revenue growth of 17.7%.
Financial position and liquidity
- At June 30, cash was $1.2m; current assets $232.7m and current liabilities $205.6m, implying working capital of $27.1m.
- Total debt was $155.0m: $50.0m drawn on the revolving facility and $105.0m in capital leases. Debt was $132.9m at year-end 2017. The company reported $172.3m of facility availability and compliance with debt covenants.
- Six-month capital expenditures, net of disposals, were $118.2m in cash-flow reporting; management also reported $140.6m of net capital expenditures including equipment acquired through leases.
- Financing cash flow was $2.5m for the first six months, compared with $46.0m in 2017. Cash declined $3.5m from year-end.
Changes, outlook, and risks
- Revenue growth reflected higher shipments and tonnage, fuel surcharges, pricing actions, timing of Good Friday, geographic expansion in the Northeast, and a Canadian marketing arrangement. Costs rose with wages, fuel, purchased transportation, depreciation, and expansion activity; claims and insurance expense was lower in Q2 but higher year to date.
- The 2018 effective tax rate was 24.8% for Q2 and 22.9% for the first half, compared with 37.4% and 35.0%, respectively, in 2017. Management expects a 24%–25% effective rate for 2018, subject to tax-law interpretation and discrete items.
- Management projected approximately $265m of 2018 net capital expenditures, including leased equipment, about $48m above 2017. Approximately $95.7m of remaining capital spending was committed at June 30.
- A market-competitive wage increase took effect July 1, 2018; management estimates its annual cost at approximately $19m, partly offset by expected productivity and efficiency gains. No earnings guidance was provided.
- Risks include economic sensitivity, pricing competition, driver and purchased-transportation availability and cost, fuel, self-insurance volatility, and execution of Northeast expansion. The new auto-liability policy retains a $2.0m per-occurrence retention; potential additional premiums can reach $11.0m depending on losses.
- ASC 606 was adopted retrospectively in 2018. It changed non-asset truckload revenue from net to gross presentation and recognition over shipment transit; the reported comparative periods are adjusted. Management said the impact on comparative operating income and net income was small.
- Management is evaluating the lease accounting standard effective January 1, 2019 and expects its most significant effect to be recognition of lease assets and liabilities. Ordinary-course legal matters were provided for; management said they were not expected to materially affect financial condition, though a given period’s results could be affected.
Investor verification points
- Confirm underlying volume and pricing trends, including retention of rate increases and the contribution from fuel surcharges and expansion.
- Track wage, fuel, purchased transportation, insurance, and expansion costs against productivity and operating-ratio improvement.
- Review capital spending, cash generation, revolving-facility usage and availability, and covenant headroom as investment continues.
- Monitor the $19m annual wage-cost estimate, 2018 tax-rate outlook, and possible tax-law adjustments or credits.
- Assess development of self-insured claims and the financial terms and loss experience of the auto-liability policy.