Saia, Inc. — Q1 2018 Form 10-Q
Reporting period: Quarter ended March 31, 2018. Saia provides regional and interregional less-than-truckload (LTL) transportation across 39 states; approximately 97% of revenue is from LTL services. Dollar amounts are U.S. dollars.
Financial performance
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Operating revenue | $392.8 million | $323.1 million | +21.6% |
| Operating income | $27.6 million | $17.5 million | +57.4% |
| Net income | $21.1 million | $11.4 million | +85.4% |
| Diluted earnings per share | $0.80 | $0.44 | +$0.36 |
| Operating ratio | 93.0% | 94.6% | Improved 1.6 percentage points |
| Cash provided by operations | $35.5 million | $24.1 million | +$11.4 million |
| Net cash used in investing | $46.8 million | $87.8 million | $41.0 million less cash used |
Revenue growth reflected increased shipments and tonnage, fuel surcharges, pricing actions, and expansion in the Northeast and a Canadian marketing arrangement. LTL shipments per workday rose 8.4%, tonnage per workday rose 12.2%, and LTL revenue per hundredweight increased 7.7% to $15.92. The 2017 comparative figures were retrospectively adjusted for adoption of the revenue standard; the change chiefly presented non-asset truckload revenue gross rather than net, with little effect on operating income or earnings.
Financial position, liquidity, and debt
- At March 31, 2018, cash was $0.5 million, working capital was $47.3 million, and total assets were $1.016 billion.
- Total debt was $142.6 million, comprising $50.8 million borrowed under the revolving facility and $91.7 million of capital leases. Debt was $132.9 million at December 31, 2017.
- The $250 million revolving credit facility expires in March 2020. Reported availability was $168.2 million, subject to covenant compliance. The company reported compliance with its debt covenants.
- Operating cash flow of $35.5 million was below net investing cash use of $46.8 million. Cash declined by $4.2 million during the quarter to $0.5 million.
Outlook, commentary, and risks
- Management expected a 2018 effective tax rate of 24%–26%. The Q1 rate was 20.2%, compared with 31.0% in Q1 2017; the reduction reflected the Tax Cuts and Jobs Act and discrete tax items, including alternative-fuel credits enacted for 2017. The company said the Act’s interpretation and state and local tax effects remained uncertain.
- Projected 2018 net capital expenditures were approximately $265 million, including equipment acquired through capital leases, versus $217 million in 2017. Approximately $87.9 million of the remaining capital budget was committed at quarter-end.
- Management estimated the July 2017 employee wage increase would cost approximately $16 million annually, partly offset by productivity and efficiency gains, and anticipated further market-competitive wage increases in July 2018.
- Management described continued efforts to increase yield, reduce costs, improve productivity and expand in the Northeast. It noted uncertainty in economic conditions and competitive pricing, and cited the need to manage resources if volumes weaken.
- Key risks include economic and volume fluctuations, pricing pressure, driver and purchased-transportation availability and cost, fuel and insurance expense volatility, self-insured claims, execution of geographic expansion, and debt covenant compliance. Ordinary-course legal proceedings were not expected to materially affect financial condition, though results in a particular period could be affected.
- The company adopted the revenue recognition standard retrospectively in 2018. It was evaluating the lease accounting standard, effective for it January 1, 2019, and expected the principal impact to be recognition of lease assets and liabilities on the balance sheet.
Important facts for investors to verify
- Whether shipment, tonnage, and yield growth can be sustained and translated into improved operating margins as wages, fuel, purchased transportation, and expansion costs rise.
- Whether the $265 million capital expenditure plan and expansion investments generate the expected operating leverage, while maintaining liquidity and covenant compliance.
- How the 2018 tax rate develops relative to management’s 24%–26% estimate, including the effects of tax-law interpretation and discrete items.
- The filing reports $31.0 million of letters of credit under the credit agreement note, while MD&A and the commitments table report $32.8 million of total letters of credit; verify the scope and reconciliation.