Saia, Inc. — Q1 2017 Form 10-Q
Business context and reporting period
Unaudited results cover the quarter ended March 31, 2017, compared with Q1 2016. Saia provides regional and interregional less-than-truckload (LTL) transportation, principally across 34 states, alongside truckload, expedited and logistics services.
Financial and operating results
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Operating revenue | $317.0 million | $289.9 million |
| Operating income | $17.5 million | $17.6 million |
| Operating ratio | 94.5% | 93.9% |
| Net income | $11.4 million | $10.6 million |
| Diluted EPS | $0.44 | $0.42 |
| Cash from operations | $24.1 million | $17.0 million |
| Cash used in investing | $87.8 million | $53.6 million |
| Cash from financing | $62.8 million | $36.8 million |
- Revenue rose 9.4%; LTL shipments increased 3.5%, tonnage 2.0%, and revenue per hundredweight 7.7% to $16.68. Fuel surcharges were 11.1% of revenue, versus 8.7% a year earlier.
- Operating margin was approximately 5.5%, down from approximately 6.1%. Operating expenses grew 10.0%, outpacing revenue growth; salaries and benefits, fuel and other operating costs, purchased transportation, depreciation, and claims costs increased.
- At March 31, cash was $0.7 million; working capital was $10.3 million. Current assets were $184.6 million and current liabilities $174.4 million.
- Total debt was $156.9 million, including $65.2 million drawn on the revolving facility, $7.1 million in senior notes and $84.6 million in capital leases. Revolver availability was reported at $148.7 million, subject to covenants. The company reported compliance with debt covenants.
- Net property and equipment was $712.4 million. Net cash capital expenditures were $87.8 million; reported net capital expenditures including equipment acquired through capital leases were $108.2 million.
Changes, outlook, risks and unusual items
- Revenue growth did not translate into higher operating income: operating income was nearly flat and the operating ratio deteriorated by 0.6 percentage points. Higher volume, pricing and fuel surcharges were offset by higher operating costs, including $0.8 million of Northeastern expansion costs.
- Q1 operating cash flow included a $1.1 million excess tax benefit from adopting share-based-payment accounting guidance. The adoption also changed cash-flow classification; reported cash-flow comparisons reflect the filing’s stated adjustment.
- Management’s strategy emphasizes yield, volume, productivity, service and safety, and expansion into the Northeastern United States. It cited uncertainty in economic conditions and competitive pricing. No earnings or revenue guidance was provided.
- Management projected approximately $220 million of 2017 net capital expenditures, inclusive of capital-leased equipment, about $68 million above 2016. Approximately $20.4 million of the remaining capital budget was committed at quarter-end. A July 2016 wage increase was expected to cost approximately $16 million annually; further market-competitive wage increases were anticipated in 2017.
- Risks include economic and volume weakness, pricing pressure, driver and fuel availability and costs, self-insurance and accident-cost volatility, regulation, debt covenant compliance, and execution of geographic expansion. The company reported $70.3 million of claims, insurance and other liabilities and $1.2 million accrued for uncertain tax positions plus $0.5 million of related interest and penalties. Ordinary-course litigation was not expected to materially affect financial condition, but could affect results in a period.
- The company was evaluating the effect of revenue-recognition guidance effective January 1, 2018, particularly gross-versus-net presentation and recognition timing for non-asset truckload and logistics. It expected lease guidance effective in 2019 to principally affect recognition of lease assets and liabilities.
Key facts for investors to verify
- Reconcile the reported letters-of-credit amounts: $36.1 million under the revolver in the debt note versus $37.9 million in the MD&A commercial-commitments table.
- Assess whether pricing and volume growth can offset labor, fuel, insurance, purchased-transportation and expansion costs, given the higher operating ratio.
- Monitor execution and funding of the $220 million capital program, including the effect of capital leases and continued revolver borrowing on leverage and liquidity.
- Track the uncertain tax benefit’s effect on comparability of earnings and operating cash flow, and the pending accounting-standard implementation assessments.