Saia, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Saia provides regional and interregional less-than-truckload (LTL) transportation, alongside truckload, expedited and logistics services.
Financial and operating results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Operating revenue | $464.2 million | $428.7 million | $874.8 million | $821.5 million |
| Operating income | $51.2 million | $41.6 million | $79.8 million | $69.1 million |
| Net income | $37.1 million | $30.3 million | $59.3 million | $51.4 million |
| Diluted EPS | $1.40 | $1.15 | $2.25 | $1.95 |
| Operating ratio | 89.0% | 90.3% | Not stated | Not stated |
Q2 revenue rose 8.3%, operating income 23.1%, and net income approximately 22%. For the first half, revenue rose 6.5% and operating income and net income each rose approximately 15%. Q2 LTL shipments per workday increased 3.6%, while tonnage per workday fell 1.9%; revenue per hundredweight increased 9.8% to $18.05.
First-half operating cash flow was $113.6 million versus $112.1 million. Investing cash outflow was $166.1 million versus $118.2 million, mainly reflecting higher spending on revenue equipment, technology and real estate. Financing cash inflow was $50.8 million versus $2.5 million, primarily from net revolving-credit borrowings. Cash was $0.5 million at quarter-end.
At June 30, total debt, including finance leases, was $179.9 million, compared with $122.9 million at December 31, 2018. This comprised $81.0 million of revolving-credit borrowings and $98.9 million of finance leases. Operating lease liabilities were $72.9 million following adoption of the new lease standard. The company reported $192.9 million of revolver availability, subject to covenants, and said it was covenant-compliant. Working capital was $24.2 million, down from $27.1 million at June 30, 2018.
Material changes and management commentary
- Management attributed revenue growth mainly to pricing actions, increased shipments and fuel surcharges. Pricing and higher shipment counts helped operating income, partly offset by wage and benefit increases, higher depreciation, geographic-expansion costs, and greater claims severity.
- Fuel surcharge revenue declined as a share of revenue: 13.2% in Q2 versus 13.8% a year earlier, and 13.0% for the first half versus 13.4%, reflecting lower fuel costs. The surcharge program reduces, but may not fully offset, fuel-price volatility.
- Saia amended its credit facility in February 2019, increasing the revolver from $250 million to $300 million and extending maturity to February 2024. The agreement includes a $100 million accordion feature subject to bank approval.
- Adoption of lease accounting effective January 1, 2019 added approximately $77 million of operating lease assets and liabilities. Comparative periods were not restated.
Outlook, risks and contingencies
- Management forecast 2019 net capital expenditures of approximately $275–$300 million, including equipment acquired through finance leases. About $77.8 million of the remaining capital budget was committed at June 30.
- Management expected a 2019 effective tax rate of approximately 23.5%. A market-competitive salary and wage increase took effect in July 2019; the company estimated its annual cost at approximately $21 million, partly offset by expected productivity and efficiency gains.
- Management cited economic uncertainty, competitive pricing, customer retention, driver and equipment availability, cost control, claims and insurance volatility, and execution of its Northeastern U.S. expansion as key uncertainties. It said it would adjust resources and capacity if volumes weaken. No specific earnings guidance was provided.
- Claims and insurance liabilities totaled $86.4 million. The company reported higher Q2 claims expense due primarily to increased claim severity. It had not decided whether to commute the first 12 months of its auto-liability policy; the decision was due before August 2019 unless extended. Commutation could increase self-insured exposure, and additional premiums of up to $11.0 million may be payable under specified policy conditions; none was accrued at June 30.
- Management said ordinary-course legal matters were adequately provided for and were not expected to materially affect financial condition, though they could materially affect results in a given period. The filing reported no material change in risk factors and stated disclosure controls were effective.
Important facts for investors to verify
- Reconcile reported letters of credit: the debt note gives $26.1 million, while MD&A and the commitments table report $27.9 million.
- Track whether pricing and shipment growth can offset declining tonnage, wage increases, expansion costs and claim severity.
- Monitor the pace and returns on planned capital spending, resulting borrowing needs, and revolver covenant headroom.
- Confirm the outcome of the auto-liability policy commutation decision and any resulting insurance recovery, premium or self-insurance exposure.
- Assess the effects of the July wage increase, economic conditions and Northeastern expansion on margins and operating leverage.