Saia, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Saia provides regional and interregional less-than-truckload (LTL) services across 38 states, alongside related transportation and logistics services. Figures below are unaudited; dollar amounts are in millions unless otherwise noted.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $350.1 | $316.4 | $1,025.3 | $918.3 |
| Operating income | $24.6 | $22.6 | $71.8 | $61.9 |
| Net income | $14.4 | $13.8 | $43.4 | $37.7 |
| Diluted EPS | $0.55 | $0.54 | $1.67 | $1.47 |
| Operating ratio | 93.0% | 92.8% | Not stated | Not stated |
- Q3 revenue rose 10.6%; nine-month revenue rose 11.7%. Q3 operating income increased 8.6%, and nine-month operating income increased 16.0%.
- Q3 LTL revenue per hundredweight increased 8.0% to $17.36. Management reported Q3 LTL tonnage per workday up 3.6% and shipments per workday up 3.1%.
- Operating cash flow for the first nine months was $127.7, compared with $118.3 in 2016. Investing cash outflow was $152.6, versus $107.8; financing provided $23.4, compared with $9.8 of financing cash outflow in 2016. Cash at quarter-end was $0.1.
- At September 30, current assets were $200.6 and current liabilities $183.5, giving working capital of $17.1. Management compared this with $13.0 at September 30, 2016.
- Total debt was $127.2, up from $73.8 at December 31, 2016: $34.5 revolver borrowings, $3.6 senior notes, and $89.2 capital lease obligations. Revolver availability was reported as $181.6, subject to covenants. The company said it was in compliance with debt covenants.
Material changes and drivers
- Revenue growth reflected higher shipments, tonnage, fuel surcharges and pricing, including a 4.9% general rate increase effective July 17, 2017. Northeastern expansion and a Canadian marketing partnership also contributed. The quarter was partly offset by holiday timing, hurricanes Harvey and Irma, and one fewer workday.
- Q3 operating ratio worsened by 0.2 percentage points to 93.0%. Higher wages and benefits, purchased transportation, fuel and expansion costs offset revenue and yield gains. Claims and insurance expense declined year over year.
- Capital investment increased: net cash used in investing activities rose $44.8 year over year, primarily due to higher spending on revenue equipment and real estate. Net capital expenditures, including capital-leased equipment, were $183.9 for the first nine months.
- Q3 effective tax rate was 38.5%, versus 35.9%; nine-month rate was 36.2%, versus 35.8%. The filing attributes the increase primarily to alternative-fuel tax-credit legislation affecting 2016. Adoption of share-based-payment guidance contributed $1.3 of excess tax benefits in 2017.
Outlook, risks and contingencies
- No specific revenue or earnings forecast is provided. Management said it would continue efforts to raise yield, control costs, improve productivity and service, and align resources with volume.
- Management expected the July 2017 wage increase to cost approximately $16 annually, partly offset by productivity and efficiency gains. Projected 2017 net capital expenditures were approximately $230, including equipment acquired through capital leases; approximately $18.3 of the remaining budget was committed at September 30.
- Key stated risks include economic weakness, pricing pressure, customer loss or credit issues, driver and purchased-transportation availability and cost, fuel and insurance volatility, debt covenant compliance, regulation, weather, cybersecurity, litigation, and execution of Northeastern expansion. Fuel surcharges mitigate, but may not fully offset, fuel-price movements.
- Ordinary-course legal proceedings remain outstanding. Management considers provisions adequate for probable and estimable losses, but says outcomes could materially affect results in a particular period. The company also reported $73.5 of claims, insurance and other liabilities, and $1.0 of accrued uncertain tax positions plus $0.1 of related interest and penalties; settlement timing was not reasonably estimable beyond one year.
- The company plans to adopt the new revenue standard on January 1, 2018; it expects gross revenue presentation for non-asset truckload services and had not quantified the overall impact. It was evaluating the lease standard effective January 1, 2019, with balance-sheet recognition of lease assets and liabilities expected to be a significant change.
Key facts for investors to verify
- Reconcile the filing’s differing letter-of-credit figures: $33.9 under the credit agreement in the debt note versus $35.7 in the MD&A and commercial-commitments table.
- Assess whether operating cash generation can sustain the elevated capital program, debt and lease obligations while cash on hand remains minimal.
- Track whether pricing and volume gains cover wage inflation, purchased transportation, fuel and Northeastern expansion costs, and whether the operating ratio improves.
- Monitor the quantified effects of the 2018 revenue-standard adoption, claims and insurance estimates, and covenant headroom as borrowing needs change.