Saia(SAIA) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for Saia, Inc Item 1. Financial Statements This section presents Saia, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, equity, cash flows, and detailed notes on accounting policies and debt Condensed Consolidated Balance Sheets The balance sheet shows a significant increase in total assets and stockholders' equity from December 31, 2020, to September 30, 2021, driven primarily by higher cash and accounts receivable, and retained earnings Condensed Consolidated Balance Sheet Highlights | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | Change | | :-------------------------- | :-------------------------- | :-------------------------- | :----- | | Cash and cash equivalents | $121,702 | $25,308 | +$96,394 | | Accounts receivable, net | $295,862 | $216,899 | +$78,963 | | Total current assets | $450,609 | $271,696 | +$178,913 | | Net property and equipment | $1,202,224 | $1,136,027 | +$66,197 | | Total assets | $1,789,259 | $1,548,774 | +$240,485 | | Total current liabilities | $338,621 | $275,754 | +$62,867 | | Total other liabilities | $305,912 | $311,732 | -$5,820 | | Total stockholders' equity | $1,144,726 | $961,288 | +$183,438 | Condensed Consolidated Statements of Operations The company reported substantial growth in operating revenue and net income for both the third quarter and the nine months ended September 30, 2021, compared to the same periods in 2020, driven by increased revenue and improved operating efficiency Condensed Consolidated Statements of Operations Highlights | Metric | Q3 2021 (in thousands) | Q3 2020 (in thousands) | YoY Change (%) | 9M 2021 (in thousands) | 9M 2020 (in thousands) | YoY Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :------------- | :--------------------- | :--------------------- | :------------- | | Operating Revenue | $616,216 | $481,374 | 28.0% | $1,671,623 | $1,345,884 | 24.2% | | Total operating expenses | $510,099 | $426,158 | 19.7% | $1,433,867 | $1,216,211 | 17.9% | | Operating Income | $106,117 | $55,216 | 92.2% | $237,756 | $129,673 | 83.4% | | Net Income | $79,709 | $41,539 | 91.9% | $179,474 | $98,104 | 82.9% | | Basic Earnings Per Share | $3.03 | $1.59 | 90.6% | $6.82 | $3.76 | 81.4% | | Diluted Earnings Per Share | $2.98 | $1.56 | 91.0% | $6.72 | $3.69 | 82.1% | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased from $961.3 million at December 31, 2020, to $1,144.7 million at September 30, 2021, primarily due to net income contributions Stockholders' Equity Highlights | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | Change | | :----------------------- | :-------------------------- | :-------------------------- | :----- | | Total stockholders' equity | $1,144,726 | $961,288 | +$183,438 | | Retained earnings | $876,014 | $696,540 | +$179,474 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities increased for the nine months ended September 30, 2021, while net cash used in investing activities decreased due to lower capital expenditures Condensed Consolidated Statements of Cash Flows Highlights | Activity | 9M 2021 (in thousands) | 9M 2020 (in thousands) | Change | | :-------------------------------- | :--------------------- | :--------------------- | :----- | | Net cash provided by operating activities | $267,686 | $238,961 | +$28,725 | | Net cash used in investing activities | ($148,924) | ($197,510) | +$48,586 | | Net cash used in financing activities | ($18,698) | ($16,230) | -$2,468 | | Net Increase in Cash, Cash Equivalents and Restricted Cash | $100,064 | $25,221 | +$74,843 | Notes to Condensed Consolidated Financial Statements The notes provide essential context to the financial statements, detailing accounting policies, EPS calculations, commitments, fair value measurements, debt structures, and the company's assessment of the COVID-19 pandemic's impact (1) Summary of Significant Accounting Policies The company primarily provides national less-than-truckload (LTL) services, recognizing revenue over transit time and self-insuring for certain claims - Saia, Inc. primarily provides national less-than-truckload (LTL) services, accounting for over 97% of its revenue across 44 states, also offering non-asset truckload, expedited, and logistics services[24][60] - Revenue for transportation services is recognized ratably over the transit time of the shipment, typically 1 to 5 days, as performance obligations are satisfied[26][27] - The company is self-insured for automobile liability, responsible for the first $2.0 million per occurrence, and for a 12-month period, self-insured for the first $10 million per occurrence[29][86] - The company adopted ASU No. 2019-12, 'Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,' effective January 1, 2021, which did not have a material impact on its financial statements[30] (2) Computation of Earnings Per Share Diluted EPS significantly increased for both Q3 and the nine months ended September 30, 2021, reflecting higher net income Earnings Per Share Computation | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | Net income (in thousands) | $79,709 | $41,539 | $179,474 | $98,104 | | Weighted average common shares outstanding – basic (in thousands) | 26,334 | 26,150 | 26,317 | 26,118 | | Basic Earnings Per Share | $3.03 | $1.59 | $6.82 | $3.76 | | Weighted average common shares outstanding – diluted (in thousands) | 26,713 | 26,615 | 26,699 | 26,569 | | Diluted Earnings Per Share | $2.98 | $1.56 | $6.72 | $3.69 | - Options and restricted stock for 19,250 shares (9M 2021) and 53,025 shares (9M 2020) were excluded from diluted EPS calculation due to their anti-dilutive effect[32] (3) Commitments and Contingencies The company is subject to legal proceedings and maintains letters of credit for workers' compensation claims, with adequate provisions for probable losses - The company's pro rata share of outstanding letters of credit for workers' compensation claims was $1.8 million at September 30, 2021[33] - Management believes that provisions for legal proceedings are adequate and that the ultimate outcome will not materially adversely affect financial condition, though it could impact results in a given period[34] (4) Fair Value of Financial Instruments Most financial instruments' carrying amounts approximated fair value, with total debt's fair value slightly above its carrying value Fair Value of Debt | Metric | Sep 30, 2021 (in millions) | Dec 31, 2020 (in millions) | | :----------------------- | :------------------------- | :------------------------- | | Estimated fair value of total debt | $55.4 | $71.2 | | Carrying value of total debt | $55.2 | $71.0 | (5) Debt and Financing Arrangements The company's debt primarily consists of finance leases, with no outstanding borrowings under its $300 million revolving credit agreement Debt Composition | Debt Type | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Finance Leases | $55,171 | $70,976 | | Total debt | $55,171 | $70,976 | | Long-term debt, less current portion | $34,926 | $50,388 | - The revolving credit agreement provides $300 million in availability, with an accordion feature for an additional $100 million, and matures in February 2024, with $29.3 million in outstanding letters of credit as of September 30, 2021[38][39] - Finance leases, primarily for revenue equipment, totaled $55.2 million at September 30, 2021, with a weighted average interest rate of 3.5%[40] Principal Maturities of Long-Term Debt | Year | Amount (in thousands) | | :--- | :-------------------- | | 2021 | $5,240 | | 2022 | $20,956 | | 2023 | $15,409 | | 2024 | $10,606 | | 2025 | $5,453 | | Thereafter | $924 | | Total | $58,588 | (6) COVID-19 As an essential business, Saia continued operations without significant COVID-19 disruptions, assessing no material adverse financial impacts for Q3 2021 - Saia is considered an essential and critical business, continuing to operate under state of emergency orders with safety measures in place[43][52] - No significant disruptions in LTL network operations have been experienced due to the COVID-19 pandemic through the filing date[43][53] - Management determined no material adverse impacts on the company's Q3 2021 financial position from COVID-19, though future changes are possible[44] - The company does not believe it will be able to take advantage of the provisions of the CARES Act or the American Rescue Plan Act of 2021[45] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Saia's financial performance, condition, and outlook, analyzing operating results, liquidity, capital resources, and critical accounting policies, highlighting growth and COVID-19 management Forward-Looking Statements The company includes forward-looking statements to inform investors about future prospects, cautioning that actual results may differ materially due to various factors - Forward-looking statements are included to help investors understand future prospects, but actual results may differ due to economic conditions, competition, labor costs, claims expenses, and other industry-specific and external factors[47][48] - The company explicitly states it is under no obligation to update or alter any forward-looking statements, except as required by applicable law[50] Executive Overview Saia's business performance is tied to non-service economic sectors, with a strategy focused on improving profitability through yield, volumes, expansion, and investment - The company's business is highly correlated to non-service sectors of the general economy[51] - Strategy involves improving profitability by increasing yield and volumes, building density in existing geography, and pursuing geographic expansion[51] - Key focus areas include improving safety, cost effectiveness, asset utilization (tractors and trailers), and investing in technology to enhance customer experience and operational efficiencies[51] COVID-19 As an essential business, Saia maintained operations without significant LTL network disruptions, possessing ample liquidity to manage future pandemic impacts - The company has not experienced significant disruptions in its LTL network operations due to COVID-19 through the filing date[53] - Lower demand and increased costs were experienced in Q1 and Q2 2020 due to COVID-19[54] - The company has significant liquidity, including a $300 million revolving credit facility (with a $100 million accordion feature), to address potential future disruptions[54] - The impact of President Biden's directive for mandatory vaccination or weekly testing for employers with 100+ employees could adversely affect the ability to hire and retain staff, potentially leading to service disruptions and higher costs[52][53] Third Quarter Overview Saia achieved strong Q3 2021 results with significant increases in operating revenue and income, driven by higher revenue per shipment, tonnage, and operational efficiencies Third Quarter 2021 Performance Highlights | Metric | Q3 2021 | Q3 2020 | Change | | :-------------------------- | :------ | :------ | :----- | | Operating Revenue | +28.0% | | | | Operating Income | $106.1M | $55.2M | +92.2% | | LTL Shipments per workday | +2.3% | | | | LTL Tonnage per workday | +11.0% | | | | Diluted EPS | $2.98 | $1.56 | +91.0% | | Operating Ratio | 82.8% | 88.5% | -5.7 ppt | - The improved operating ratio was due to continued focus on pricing initiatives, cost control, and operating efficiencies, with a real estate gain contributing 70 basis points to the 5.7 percentage point improvement[57] - Net cash provided by operating activities for the first nine months of 2021 increased to $267.7 million, up from $239.0 million in the prior year, primarily due to increased profitability[58] - Net cash used in investing activities decreased by $48.6 million to $148.9 million for the first nine months of 2021, mainly due to COVID-19 related manufacturing delays for revenue equipment[58] General Saia, a national LTL service provider, sees its operating results influenced by shipment volumes, pricing, and effective cost management - Saia is headquartered in Johns Creek, Georgia, and primarily offers national less-than-truckload (LTL) services, with over 97% of revenue from LTL shipments across 44 states[60] - Operating results are significantly affected by average daily shipments and tonnage, revenue per hundredweight (yield), revenue per shipment, and the ability to manage operating expenses such as salaries, purchased transportation, claims, and fuel[61][62] Results of Operations The company experienced robust revenue and operating income growth in Q3 and 9M 2021, driven by strong LTL volume and yield improvements, leading to margin expansion Revenue and volume Operating revenue significantly increased in Q3 and 9M 2021 due to higher revenue per shipment and tonnage, with substantial LTL yield growth Revenue and Volume Performance | Metric | Q3 2021 | Q3 2020 | Change (%) | 9M 2021 | 9M 2020 | Change (%) | | :-------------------------- | :------ | :------ | :--------- | :------ | :------ | :--------- | | Operating Revenue | $616.2M | $481.4M | 28.0% | $1.7B | $1.3B | 24.2% | | LTL Tonnage per workday | 1.4M tons | 1.26M tons | 11.0% | | | | | LTL Shipments per workday | 2.0M | 1.96M | 2.3% | | | | | LTL Revenue per hundredweight | $21.36 | $18.59 | 14.9% | | | | | LTL Revenue per shipment | $299.02 | $239.60 | 24.8% | | | | | Fuel surcharge revenue as % of operating revenue | 13.9% | 10.4% | +3.5 ppt | 13.8% | 11.3% | +2.5 ppt | - Approximately 75-80% of operating revenue is subject to specific customer price negotiations, while the remaining 20-25% is subject to general rate increases (5.9% implemented in January 2021)[65] Operating expenses and margin Consolidated operating income and ratio significantly improved, driven by pricing actions, operational efficiencies, and a real estate gain, despite rising expenses Operating Expenses and Margin Performance | Expense Category | Q3 2021 (in thousands) | Q3 2020 (in thousands) | Change (in thousands) | 9M 2021 (in thousands) | 9M 2020 (in thousands) | Change (in thousands) | | :-------------------------------- | :--------------------- | :--------------------- | :-------------------- | :--------------------- | :--------------------- | :-------------------- | | Operating Income | $106,117 | $55,216 | +$50,901 | $237,756 | $129,673 | +$108,083 | | Operating Ratio | 82.8% | 88.5% | -5.7 ppt | | | | | Salaries, wages and employees' benefits | | | +$25,000 | | | +$75,300 | | Purchased transportation | | | +$32,100 | | | +$83,200 | | Fuel, operating expenses and supplies | | | +$24,700 | | | +$51,500 | | Claims and insurance | | | +$3,600 | | | +$3,700 | | Gain from property disposals, net | | | +$3,500 | | | +$2,600 | - The 5.7 percentage point improvement in the operating ratio for Q3 2021 was partly driven by a 70 basis point contribution from a real estate gain[69] - Increased purchased transportation costs were due to rising demand, internal network capacity constraints, and higher rates for purchased miles[70][72] Other Interest expense decreased in Q3 2021 due to lower borrowings, while the effective tax rate slightly increased, leading to a significant rise in net income - Interest expense decreased in Q3 2021 compared to Q3 2020 due to reduced borrowings resulting from delayed capital expenditures[73] Other Financial Performance | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Effective tax rate | 24.3% | 23.7% | 23.9% | 22.2% | | Net income (in millions) | $79.7 | $41.5 | $179.5 | $98.1 | | Diluted EPS | $2.98 | $1.56 | $6.72 | $3.69 | - Cash tax payments for the nine months ended September 30, 2021, were $58.7 million, significantly higher than $6.6 million in the same period of 2020[74] Working capital/capital expenditures Working capital significantly increased, while net cash used in investing activities decreased due to manufacturing delays, with projected capital expenditures at $275 million Working Capital Changes | Metric | Sep 30, 2021 (in millions) | Sep 30, 2020 (in millions) | Change | | :-------------------------------- | :------------------------- | :------------------------- | :----- | | Working capital | $112.0 | $4.4 | +$107.6 | | Current assets increase | $170.5 | | | | Accounts receivable increase | $69.2 | | | | Cash and cash equivalents increase | $96.2 | | | | Current liabilities increase | $62.9 | | | - Net cash used in investing activities decreased by $48.6 million to $148.9 million for the nine months ended September 30, 2021, primarily due to COVID-19 related manufacturing delays for revenue equipment[77] - Projected net capital expenditures for 2021 are approximately $275 million, an increase from $219 million in 2020[77][87] Outlook The company's outlook remains tied to economic sectors and competitive pricing, with ongoing initiatives to improve yield, reduce costs, and enhance productivity amid COVID-19 uncertainty - The business remains highly correlated to non-service sectors of the general economy and competitive pricing pressures[78] - Ongoing initiatives include increasing yield, improving business mix, reducing costs, improving productivity, and focusing on top-quality service and safety[78] - The severity, magnitude, and duration of the COVID-19 pandemic and its economic consequences remain uncertain and difficult to predict[78] - A market competitive salary and wage increase of approximately five percent was implemented in mid-August 2021, expected to be partially offset by productivity gains[78] - Renewal of liability insurance policies effective March 1, 2021, is expected to result in approximately $4.3 million in cost increases for 2021 compared to 2020[78] Financial Condition Liquidity is primarily met by operating cash flows and a revolving credit agreement, with $270.7 million available and compliance with all debt covenants - Liquidity needs are primarily funded by capital investments in new equipment, land, structures, information technology, letters of credit for insurance, and working capital requirements[80] - As of September 30, 2021, the company had $270.7 million in availability under its revolving credit facility and was in compliance with all debt covenants[85] - Projected net capital expenditures for 2021 are approximately $275 million, including a normal replacement cycle of revenue equipment and technology investment[87] - The company is self-insured for automobile liability, with a $10 million per occurrence retention for the four years ended March 1, 2022, following a policy commutation[86] Contractual Obligations The company's contractual obligations, including finance leases, operating leases, and purchase obligations, total $268.5 million, with commercial commitments at $371.1 million Contractual Cash Obligations as of September 30, 2021 | Obligation Type | 2021 (in millions) | 2022 (in millions) | 2023 (in millions) | 2024 (in millions) | 2025 (in millions) | Thereafter (in millions) | Total (in millions) | | :-------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------------- | :------------------ | | Finance Leases | $5.2 | $21.0 | $15.4 | $10.6 | $5.5 | $0.9 | $58.6 | | Operating leases | $7.3 | $27.6 | $23.7 | $20.3 | $15.8 | $38.4 | $133.1 | | Purchase obligations | $76.8 | $0.0 | $0.0 | $0.0 | $0.0 | $0.0 | $76.8 | | Total contractual obligations | $89.3 | $48.6 | $39.1 | $30.9 | $21.3 | $39.3 | $268.5 | Other Commercial Commitments as of September 30, 2021 | Commitment Type | 2021 (in millions) | 2022 (in millions) | 2023 (in millions) | 2024 (in millions) | 2025 (in millions) | Thereafter (in millions) | Total (in millions) | | :-------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------------- | :------------------ | | Available line of credit | $0.0 | $0.0 | $0.0 | $270.7 | $0.0 | $0.0 | $270.7 | | Letters of credit | $0.0 | $31.1 | $0.0 | $0.0 | $0.0 | $0.0 | $31.1 | | Surety bonds | $0.4 | $60.0 | $8.9 | $0.0 | $0.0 | $0.0 | $69.3 | | Total commercial commitments | $0.4 | $91.1 | $8.9 | $270.7 | $0.0 | $0.0 | $371.1 | - The company has accrued $1.4 million for uncertain tax positions and $0.2 million for related interest and penalties, which are not included in the contractual obligations table due to inability to reasonably estimate timing of cash settlements beyond one year[92] - Claims and insurance liabilities of $99.8 million are also excluded from the table as the timing of cash settlements cannot be reasonably estimated beyond one year[93] Critical Accounting Policies and Estimates Financial statements rely on significant judgments and estimates for claims, revenue recognition, and asset depreciation, which are continuously evaluated but subject to change - Key accounting policies requiring significant estimates include Claims and Insurance Accruals (based on historical experience, actuarial analysis, and management evaluation), Revenue Recognition and Related Allowances (for in-transit shipments, billing adjustments, and collectability), and Depreciation and Capitalization of Assets (estimated useful lives and salvage values)[94][95] - Estimates for claims liabilities can be affected by severity of claims, medical cost inflation, and specific case facts, leading to short-term volatility[95] - Revenue recognition estimates for in-transit shipments are based on actual pickups, delivery days, and current rates, with typically less than 5% of monthly revenue in transit[95] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates and fuel prices, mitigated by a fuel surcharge program, with fixed-rate debt fair value estimated based on market rates - The company is exposed to market risks related to interest rates and fuel prices[97] - A fuel surcharge program, based on average national diesel fuel prices and reset weekly, is used to reduce exposure to fuel price fluctuations, although it may not fully offset rapid changes[97] Fixed Rate Debt and Average Interest Rates as of September 30, 2021 | Metric | 2021 (in millions) | 2022 (in millions) | 2023 (in millions) | 2024 (in millions) | 2025 (in millions) | Thereafter (in millions) | Total (in millions) | Fair Value (in millions) | | :---------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------------- | :------------------ | :----------------------- | | Fixed rate debt | $4.8 | $19.5 | $14.5 | $10.2 | $5.3 | $0.9 | $55.2 | $55.4 | | Average interest rate | 3.5% | 3.5% | 3.5% | 3.5% | 3.5% | 3.5% | | | Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[101] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting during the quarter[102] - Disclosure controls are designed to ensure information required for SEC reports is recorded, processed, summarized, and reported timely, and communicated to management[104] - Management acknowledges that no control system can prevent all errors and fraud, providing only reasonable, not absolute, assurance due to inherent limitations like human judgment, simple error, or circumvention[105] PART II. OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, and other required disclosures Item 1. Legal Proceedings Information regarding material pending legal proceedings is referenced in Note 3, 'Commitments and Contingencies,' of the accompanying unaudited condensed consolidated financial statements - For a description of all material pending legal proceedings, refer to Note 3 'Commitments and Contingencies' in the financial statements[108] Item 1A. Risk Factors Risk factors are detailed in the company's Annual Report on Form 10-K for 2020, with no material changes reported in this quarterly filing - Risk Factors are described in Item 1A. 'Risk Factors' of the Company's Annual Report on Form 10-K for the year ended December 31, 2020, and there have been no material changes[108] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, the Executive Capital Accumulation Plan purchased 510 shares in July and sold 500 shares in August Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that may Yet be Purchased under the Plans or Programs | | :-------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------- | | July 1, 2021 through July 31, 2021 | 510 | $193.08 | — | $— | | August 1, 2021 through August 31, 2021 | — | $— | — | $— | | September 1, 2021 through September 30, 2021 | — | $— | — | $— | | Total | 510 | | — | | - The Saia, Inc. Executive Capital Accumulation Plan sold 500 shares of Saia stock at an average price of $224.85 during August 2021[110] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - There were no defaults upon senior securities[111] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures - There were no mine safety disclosures[111] Item 5. Other Information The company reported no other information for the period - There was no other information to report[111] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications from the CEO and CFO, and financial information formatted in iXBRL - Exhibits include Restated Certificate of Incorporation, Amended and Restated By-laws, CEO and CFO certifications (31.1, 31.2, 32.1, 32.2), and financial information in iXBRL format (Exhibit 101)[112] Signature The report was duly signed on October 28, 2021, by Douglas L. Col, Executive Vice President and Chief Financial Officer of Saia, Inc - The report was signed on October 28, 2021, by Douglas L. Col, Executive Vice President and Chief Financial Officer[116]