Saia, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Saia provides primarily less-than-truckload (LTL) transportation services across 44 states, plus truckload, expedited and logistics services. Financial statements are unaudited.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Operating revenue | $418.1 million | $464.2 million | $864.5 million | $874.8 million |
| Operating income | $35.7 million | $51.2 million | $74.5 million | $79.8 million |
| Net income | $28.5 million | $37.1 million | $56.6 million | $59.3 million |
| Diluted EPS | $1.07 | $1.40 | $2.13 | $2.25 |
| Operating ratio | 91.5% | 89.0% | Not stated | Not stated |
- Q2 revenue declined 9.9%; operating income fell 30.3%. The higher operating ratio indicates weaker operating efficiency and margin.
- Q2 LTL tonnage per workday fell 8.9% and shipments per workday fell 9.7%. LTL revenue per hundredweight decreased 0.6% to $17.95.
- For the first six months, revenue declined 1.2%, operating income 6.7%, and net income 4.7% year over year.
- Operating cash flow for the first half was $148.2 million, versus $113.6 million a year earlier. Net cash used in investing was $142.7 million, versus $166.1 million. Property and equipment acquisitions were $148.9 million.
- At June 30, cash was $29.3 million and working capital was $21.5 million. Total debt, including finance leases, was $160.8 million, up from $136.4 million at year-end 2019. This included $80.0 million drawn on the revolving credit facility and $80.8 million of finance leases.
- The $300 million revolver had $192.0 million available, subject to covenants; it also includes a conditional $100 million accordion feature. Saia reported compliance with debt covenants. Letters of credit were reported as $28.0 million under the credit agreement and $29.8 million in the broader liquidity disclosure.
Material changes and management commentary
- Management attributed lower Q2 demand primarily to COVID-19’s economic impact. The company saw the greatest shipment and tonnage declines in April, with improvement in average daily shipments and monthly revenue in May and June. It reported no significant disruption to LTL network operations through the filing date.
- Lower fuel, operating and purchased-transportation costs, and lower salaries and wages, partly offset reduced volume. Claims and insurance expense increased $5.1 million in Q2, primarily due to claim severity and frequency and higher insurance costs.
- Fuel surcharge revenue fell 27.6% in Q2; it represented 10.6% of revenue, compared with 13.2% a year earlier. Lower fuel prices and business mix contributed to lower yield.
- Management continued initiatives to increase yield, align costs with volumes, improve productivity and safety, and expand service geography into the Northeast. A 5.9% general rate increase took effect February 3, 2020 for customers representing approximately 20–25% of revenue; most revenue is subject to individual customer negotiations.
Outlook, risks and unusual items
- Management said COVID-19’s duration and economic effects were uncertain and it could not predict the extent of future effects on operations, financial results, liquidity or cash flows. The company planned to match resources and capacity to changing volumes.
- 2020 net capital expenditures were expected to be below the previously planned $250 million as management evaluated pandemic impacts. Net capital expenditures were $142.7 million in the first half; $40.9 million of the remaining capital budget was committed at June 30.
- The company anticipated no salary or wage increases in 2020. It temporarily suspended the 401(k) match and furloughed some employees beginning in April. Additional paid time off offered to employees was expected to cost about $10 million for the year.
- A $250 bonus paid to virtually all employees in July cost approximately $2.6 million and was included in Q2 results. A policy commutation generated a $0.4 million Q2 reduction in insurance premium expense.
- Insurance exposures include self-insurance for up to $10 million per occurrence for a commuted policy period. Saia could owe additional premiums of up to $11.0 million if insurer-paid losses exceed specified levels; no such amount was accrued at June 30.
- Management said it had made provisions for probable and estimable legal losses; ordinary-course proceedings could still materially affect results in a given period. Other risks include prolonged economic weakness, customer credit, pricing competition, driver and insurance costs, debt covenants, and claim severity.
Most important facts for investors to verify
- Whether shipment volumes and tonnage continued recovering after June, and whether that recovery translated into revenue and improved operating ratio.
- How much of rate increases Saia retained amid customer negotiations, competitive pricing and lower fuel surcharges.
- Whether claims and insurance costs, including potential additional premiums and self-insured losses, changed materially after quarter-end.
- Whether reduced capital spending and operating cash flow were sufficient to preserve liquidity while meeting investment and debt obligations.
- Whether COVID-19 effects, covenant requirements or other risks changed after the filing date; management cautioned that estimates could materially change before year-end.