Saia, Inc. — Q3 2019 Form 10-Q
Business context and reporting period: Unaudited results for the quarter and nine months ended September 30, 2019. Saia provides regional and interregional less-than-truckload (LTL) transportation, with additional truckload, expedited and logistics services. More than 97% of revenue historically came from LTL services.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Operating revenue | $468.9 million | $425.6 million | $1,343.7 million | $1,247.1 million |
| Operating income | $45.4 million | $38.7 million | $125.2 million | $107.8 million |
| Net income | $33.0 million | $28.2 million | $92.3 million | $79.6 million |
| Diluted EPS | $1.25 | $1.07 | $3.49 | $3.02 |
| Operating ratio | 90.3% | 90.9% | Not stated | Not stated |
- Q3 revenue increased 10.2%; operating income rose 17.2%, net income rose about 16.9%, and diluted EPS rose about 16.8% year over year. The Q3 operating ratio improved 0.6 percentage points.
- Q3 LTL shipments increased 7.3% per workday and tonnage increased 3.0% per workday. LTL revenue per hundredweight rose 5.3% to $18.12, reflecting pricing and mix.
- For the first nine months, revenue increased 7.7%, operating income 16.1%, and diluted EPS from $3.02 to $3.49.
- Q3 operating expenses grew 9.5%, including higher wages and benefits, purchased transportation, and depreciation. Claims and insurance expense was lower in Q3, partly due to a policy commutation benefit.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $207.3 million, compared with $187.1 million in 2018. Investing activities used $244.5 million, versus $154.4 million, mainly reflecting equipment, technology and real estate investment. Financing activities provided $35.0 million, compared with $36.9 million used in the prior-year period.
- Cash and equivalents were only $15,000 at September 30, 2019. Total debt was $165.3 million, including $70.0 million drawn on the revolving facility and $95.3 million of finance lease obligations. Debt at December 31, 2018 was $122.9 million.
- Working capital was $5.6 million, versus $14.9 million at September 30, 2018. The company reported $203.9 million of revolver availability, subject to covenant compliance, and said it was in compliance with its covenants.
- In February 2019, Saia increased its revolving facility from $250 million to $300 million and extended maturity to February 2024. The agreement includes a 1.25:1.00 minimum debt service coverage ratio and a 3.25:1.00 maximum leverage ratio.
Outlook, commentary and risks
- Management expected 2019 net capital expenditures of approximately $275 million to $300 million; $250.7 million had been incurred in the first nine months, including equipment acquired through finance leases.
- Management expected a 2019 effective tax rate of approximately 24%. A July 2019 wage increase was expected to cost about $21 million annually, with some offset anticipated from productivity and efficiency gains.
- Management described economic conditions as uncertain and focused on yield growth, cost control, productivity, safety, service and expansion into the Northeastern United States. It said costs and capacity would be adjusted if volumes weakened.
- Risks highlighted include economic downturns, pricing competition, customer losses or credit deterioration, driver and equipment availability, fuel and insurance costs, self-insured claims, regulatory changes, technology or cybersecurity disruption, and execution of geographic expansion. The company cautioned that forward-looking statements are not guarantees.
- In August 2019, Saia commuted coverage for the first 12 months of its bodily injury and property damage policy, received a $5.2 million premium return and became self-insured for up to $10 million per occurrence for that period. The commutation reduced Q3 insurance expense by $1.0 million; an additional premium of up to $11.0 million may be payable if policy-period losses exceed specified levels. No such premium was accrued at quarter-end.
- Adoption of the new lease standard on January 1, 2019 added approximately $77 million of operating lease assets and liabilities. Management reported effective disclosure controls and no material change in internal control over financial reporting. The filing reported no material changes to the risk factors in the 2018 Form 10-K.
Important facts for investors to verify
- Reconcile the reported outstanding letters of credit: the debt note states $26.1 million, while MD&A and the commitments table state $27.9 million. The reported $203.9 million availability aligns with the $26.1 million figure.
- Track whether shipment and tonnage growth, pricing and yield persist, and whether wage, healthcare, depreciation and expansion costs affect margins.
- Monitor capital spending against management’s $275 million to $300 million 2019 estimate, together with borrowing, lease obligations and revolver availability.
- Assess claims development and the financial exposure associated with the commuted policy and increased self-insurance retention.
- Consider that the nine-month cash balance was minimal and investing outflows exceeded operating cash flow; liquidity depends on continuing operating cash generation and credit-facility access.