Business context and reporting period
Saia, Inc. provides less-than-truckload (LTL), non-asset truckload, expedited and logistics services across the United States. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2015, with comparisons to the same 2014 periods.
Key financial metrics
Amounts are in millions of dollars except per-share data and operating statistics.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Operating revenue | $323.5 | $330.4 | $616.5 | $630.1 |
| Operating income | $31.3 | $22.7 | $52.5 | $38.0 |
| Net income | $19.2 | $13.6 | $31.9 | $22.1 |
| Diluted EPS | $0.75 | $0.53 | $1.25 | $0.87 |
| Operating ratio | 90.3% | 93.1% | Not stated | Not stated |
- Q2 LTL tonnage fell 6.0% and shipments fell 2.9%; LTL revenue per hundredweight rose 3.9% to $15.42.
- Six-month operating cash flow was $67.0 versus $46.9. Investing cash outflow was $78.2 versus $66.7; financing cash inflow was $10.4 versus $21.4. Cash declined by $0.7 during the first half to $3.7.
- At June 30, total debt was $108.6, comprising $58.0 of revolver borrowings, $17.9 of senior notes and $32.8 of capital leases. Debt at December 31, 2014 was $83.0. Current debt was $11.2.
- Current assets were $194.0 and current liabilities $149.0, giving working capital of approximately $45.0. The $250 million revolving facility had $58.0 drawn and $44.8 of letters of credit; reported availability was $147.2, subject to covenants.
Material changes versus prior periods
- Q2 revenue decreased 2.1%, while operating income increased 37.6% and net income increased from $13.6 to $19.2. For the first half, revenue declined 2.2%, while operating income rose 38.3% and net income increased to $31.9.
- Management attributed lower revenue mainly to reduced tonnage, shipments and fuel surcharge revenue, partly offset by yield management. Lower fuel costs and improved fuel efficiency, reduced purchased transportation, and lower accident and cargo claims supported profitability. Salaries and benefits increased, partly due to a 3% wage increase in July 2014 and higher headcount.
- Fuel surcharge revenue was 12.3% of Q2 revenue versus 17.0% a year earlier, reflecting lower fuel prices. The company revised its fuel surcharge program effective February 2, 2015 and implemented a 4.9% general rate increase on January 5, 2015 for customers representing about 25% of revenue.
- Saia acquired LinkEx, an asset-light third-party logistics business, on February 2, 2015. Cash paid in the first half for the acquisition was $22.2; purchase consideration could reach approximately $25 million subject partly to profit targets. Purchase accounting remained preliminary.
- On March 6, 2015, Saia amended its credit facility, increasing the revolver from $200 million to $250 million and extending maturity to March 2020; the amendment also reduced pricing and eliminated the borrowing-base and minimum tangible-net-worth covenants.
Outlook, commentary and risks
- Management focused on increasing yield and volume, improving productivity, safety and service, and aligning costs and capacity with demand. It noted uncertainty about the pace and strength of economic recovery and exposure to competitive pricing pressures.
- Projected 2015 net capital expenditures were approximately $125 million, about $13 million above 2014; $13.3 million was committed as of June 30. A July 1, 2015 salary and wage increase was expected to cost approximately $20 million annually, partly offset by productivity and efficiency gains.
- The company said it was in compliance with debt covenants and believed operating cash flows and revolver availability were adequate for short-term liquidity needs, subject to covenant compliance.
- Risks include economic and volume weakness, pricing competition, driver and purchased-transportation availability and cost, fuel-price movements, self-insurance claims volatility, customer credit and concentration, acquisition integration and synergies, regulation, labor relations, litigation, cyber risk and possible debt-covenant violations. Self-insured claim retentions can reach $2.0 million per occurrence; claims results improved materially in the period but may be volatile.
- Ordinary-course legal matters were provided for where losses were considered probable; management said outcomes were not expected to materially affect financial position, though quarterly or annual results could be materially affected. The filing reported no material change to the prior annual report’s risk factors. Disclosure controls were deemed effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether higher pricing and yield can offset continuing declines in LTL tonnage, shipments and revenue.
- Whether improved claims experience, fuel savings and network efficiencies persist, and how the July 2015 wage increase affects margins.
- LinkEx’s performance against profit targets, final purchase accounting and realization of expected growth or synergies.
- Funding of the $125 million capital-expenditure plan, cash generation, revolver availability and ongoing covenant compliance.
- Exposure to self-insured claims, including severity and reserve assumptions, and the status of outstanding legal and tax contingencies.