UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017MARCH 31, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 0-49983
Saia, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 48-1229851 | |
(State of incorporation) | (I.R.S. Employer Identification No.) | |
11465 Johns Creek Parkway, Suite 400 | ||
Johns Creek, GA | 30097 | |
(Address of principal executive offices) | (Zip Code) |
(770) (770) 232-5067
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $.001 per share | SAIA | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer
| ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the numberThere were 26,532,778 shares of sharesCommon Stock outstanding of each of the issuer's classes of common stock, as of the latest practicable date.at April 26, 2023.
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1
SAIA, INC. AND SUBSIDIARIES
INDEX
PAGE | |||
ITEM 1: | 3 | ||
3 | |||
4 | |||
5 | |||
| |||
| |||
ITEM 2: | Management's Discussion and Analysis of Financial Condition and Results of Operations | 10 | |
ITEM 3: |
| ||
ITEM 4: |
| ||
ITEM 1: |
| ||
ITEM 1A: |
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ITEM 2: |
| ||
ITEM |
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| ||
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| ||
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| |||
PART I. FINANCIAL INFORMATION
Saia, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
Assets |
| (in thousands, except share and per share data) |
|
| (in thousands, except share and per share data) |
| ||||||||||
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 81 |
|
| $ | 1,539 |
|
| $ | 166,425 |
|
| $ | 187,390 |
|
Accounts receivable, net |
|
| 172,119 |
|
|
| 135,083 |
|
|
| 294,917 |
|
|
| 290,306 |
|
Prepaid expenses and other |
|
| 28,399 |
|
|
| 29,857 |
| ||||||||
Prepaid expenses |
|
| 38,635 |
|
|
| 22,525 |
| ||||||||
Income tax receivable |
|
| 6,391 |
|
|
| 23,438 |
| ||||||||
Other current assets |
|
| 7,146 |
|
|
| 7,227 |
| ||||||||
Total current assets |
|
| 200,599 |
|
|
| 166,479 |
|
|
| 513,514 |
|
|
| 530,886 |
|
Property and Equipment, at cost |
|
| 1,260,856 |
|
|
| 1,101,946 |
|
|
| 2,602,963 |
|
|
| 2,478,824 |
|
Less-accumulated depreciation |
|
| 538,065 |
|
|
| 497,827 |
| ||||||||
Less: accumulated depreciation |
|
| 1,034,649 |
|
|
| 996,204 |
| ||||||||
Net property and equipment |
|
| 722,791 |
|
|
| 604,119 |
|
|
| 1,568,314 |
|
|
| 1,482,620 |
|
Operating Lease Right-of-Use Assets |
|
| 115,484 |
|
|
| 120,455 |
| ||||||||
Goodwill and Identifiable Intangibles, net |
|
| 24,368 |
|
|
| 25,398 |
|
|
| 17,936 |
|
|
| 18,149 |
|
Other Noncurrent Assets |
|
| 4,961 |
|
|
| 4,374 |
|
|
| 27,551 |
|
|
| 22,600 |
|
Total assets |
| $ | 952,719 |
|
| $ | 800,370 |
|
| $ | 2,242,799 |
|
| $ | 2,174,710 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Accounts payable |
| $ | 63,742 |
|
| $ | 45,149 |
|
| $ | 108,362 |
|
| $ | 99,792 |
|
Wages, vacation and employees’ benefits |
|
| 44,140 |
|
|
| 31,700 |
|
|
| 54,706 |
|
|
| 66,684 |
|
Claims and insurance accruals |
|
| 37,704 |
|
|
| 33,047 |
|
|
| 43,276 |
|
|
| 45,481 |
|
Other current liabilities |
|
| 20,841 |
|
|
| 18,286 |
|
|
| 24,479 |
|
|
| 22,684 |
|
Current portion of long-term debt |
|
| 17,072 |
|
|
| 16,762 |
|
|
| 14,452 |
|
|
| 14,519 |
|
Current portion of operating lease liability |
|
| 25,256 |
|
|
| 24,925 |
| ||||||||
Total current liabilities |
|
| 183,499 |
|
|
| 144,944 |
|
|
| 270,531 |
|
|
| 274,085 |
|
Other Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Long-term debt, less current portion |
|
| 110,161 |
|
|
| 57,042 |
|
|
| 12,052 |
|
|
| 16,489 |
|
Operating lease liability, less current portion |
|
| 93,649 |
|
|
| 98,581 |
| ||||||||
Deferred income taxes |
|
| 90,064 |
|
|
| 80,199 |
|
|
| 151,509 |
|
|
| 145,771 |
|
Claims, insurance and other |
|
| 37,242 |
|
|
| 35,107 |
|
|
| 64,118 |
|
|
| 60,443 |
|
Total other liabilities |
|
| 237,467 |
|
|
| 172,348 |
|
|
| 321,328 |
|
|
| 321,284 |
|
Commitments and Contingencies |
|
|
|
|
|
|
|
| ||||||||
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Preferred stock, $0.001 par value, 50,000 shares authorized, none issued and outstanding |
|
| — |
|
|
| — |
| ||||||||
Common stock, $0.001 par value, 50,000,000 shares authorized, 25,490,381 and 25,322,701 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively |
|
| 25 |
|
|
| 25 |
| ||||||||
Preferred stock, $0.001 par value, 50,000 shares authorized, |
|
| - |
|
|
| - |
| ||||||||
Common stock, $0.001 par value, 100,000,000 shares authorized, |
|
| 27 |
|
|
| 26 |
| ||||||||
Additional paid-in-capital |
|
| 243,382 |
|
|
| 237,846 |
|
|
| 273,274 |
|
|
| 277,366 |
|
Deferred compensation trust, 170,900 and 166,807 shares of common stock at cost at September 30, 2017 and December 31, 2016, respectively |
|
| (3,448 | ) |
|
| (3,190 | ) | ||||||||
Deferred compensation trust, 70,812 and 69,982 shares of common |
|
| (5,655 | ) |
|
| (5,248 | ) | ||||||||
Retained earnings |
|
| 291,794 |
|
|
| 248,397 |
|
|
| 1,383,294 |
|
|
| 1,307,197 |
|
Total stockholders’ equity |
|
| 531,753 |
|
|
| 483,078 |
|
|
| 1,650,940 |
|
|
| 1,579,341 |
|
Total liabilities and stockholders’ equity |
| $ | 952,719 |
|
| $ | 800,370 |
|
| $ | 2,242,799 |
|
| $ | 2,174,710 |
|
See accompanying notes to condensed consolidated financial statements.
3
Condensed Consolidated Statements of Operations
For the quarters ended March 31, 2023 and nine months ended September 30, 2017 and 20162022
(unaudited)
|
| Third Quarter |
|
| Nine Months |
|
| First Quarter |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2022 |
| ||||||
|
| (in thousands, except per share data) |
|
| (in thousands, except per share data) |
| ||||||||||||||||||
Operating Revenue |
| $ | 350,062 |
|
| $ | 316,442 |
|
| $ | 1,025,259 |
|
| $ | 918,258 |
|
| $ | 660,535 |
|
| $ | 661,216 |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Salaries, wages and employees’ benefits |
|
| 194,920 |
|
|
| 178,687 |
|
|
| 572,211 |
|
|
| 524,877 |
| ||||||||
Salaries, wages and employees' benefits |
|
| 298,956 |
|
|
| 289,463 |
| ||||||||||||||||
Purchased transportation |
|
| 23,074 |
|
|
| 15,657 |
|
|
| 60,212 |
|
|
| 42,439 |
|
|
| 46,727 |
|
|
| 78,248 |
|
Fuel, operating expenses and supplies |
|
| 66,679 |
|
|
| 59,345 |
|
|
| 196,761 |
|
|
| 172,411 |
|
|
| 141,625 |
|
|
| 122,771 |
|
Operating taxes and licenses |
|
| 10,631 |
|
|
| 10,061 |
|
|
| 32,088 |
|
|
| 30,227 |
|
|
| 17,065 |
|
|
| 16,573 |
|
Claims and insurance |
|
| 8,535 |
|
|
| 9,988 |
|
|
| 28,010 |
|
|
| 28,949 |
|
|
| 14,059 |
|
|
| 10,736 |
|
Depreciation and amortization |
|
| 22,338 |
|
|
| 19,927 |
|
|
| 64,607 |
|
|
| 56,910 |
|
|
| 42,880 |
|
|
| 39,952 |
|
Loss (gain) from property disposals, net |
|
| (717 | ) |
|
| 133 |
|
|
| (469 | ) |
|
| 496 |
| ||||||||
Other operating, net |
|
| 80 |
|
|
| 24 |
| ||||||||||||||||
Total operating expenses |
|
| 325,460 |
|
|
| 293,798 |
|
|
| 953,420 |
|
|
| 856,309 |
|
|
| 561,392 |
|
|
| 557,767 |
|
Operating Income |
|
| 24,602 |
|
|
| 22,644 |
|
|
| 71,839 |
|
|
| 61,949 |
|
|
| 99,143 |
|
|
| 103,449 |
|
Nonoperating Expenses (Income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Interest expense |
|
| 1,313 |
|
|
| 1,183 |
|
|
| 3,762 |
|
|
| 3,410 |
|
|
| 688 |
|
|
| 692 |
|
Other, net |
|
| (131 | ) |
|
| (104 | ) |
|
| 57 |
|
|
| (147 | ) |
|
| (643 | ) |
|
| 235 |
|
Nonoperating expenses, net |
|
| 1,182 |
|
|
| 1,079 |
|
|
| 3,819 |
|
|
| 3,263 |
|
|
| 45 |
|
|
| 927 |
|
Income Before Income Taxes |
|
| 23,420 |
|
|
| 21,565 |
|
|
| 68,020 |
|
|
| 58,686 |
|
|
| 99,098 |
|
|
| 102,522 |
|
Income Tax Provision |
|
| 9,013 |
|
|
| 7,739 |
|
|
| 24,623 |
|
|
| 21,010 |
|
|
| 23,001 |
|
|
| 23,098 |
|
Net Income |
| $ | 14,407 |
|
| $ | 13,826 |
|
| $ | 43,397 |
|
| $ | 37,676 |
|
| $ | 76,097 |
|
| $ | 79,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Weighted average common shares outstanding – basic |
|
| 25,527 |
|
|
| 25,038 |
|
|
| 25,494 |
|
|
| 25,022 |
|
|
| 26,600 |
|
|
| 26,391 |
|
Weighted average common shares outstanding – diluted |
|
| 26,113 |
|
|
| 25,658 |
|
|
| 26,050 |
|
|
| 25,625 |
|
|
| 26,702 |
|
|
| 26,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Basic Earnings Per Share |
| $ | 0.56 |
|
| $ | 0.55 |
|
| $ | 1.70 |
|
| $ | 1.51 |
|
| $ | 2.86 |
|
| $ | 3.01 |
|
Diluted Earnings Per Share |
| $ | 0.55 |
|
| $ | 0.54 |
|
| $ | 1.67 |
|
| $ | 1.47 |
|
| $ | 2.85 |
|
| $ | 2.98 |
|
See accompanying notes to condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash FlowsStockholders’ Equity
For the nine monthsquarters ended September 30, 2017March 31, 2023 and 20162022
(unaudited)
|
| Nine Months |
| |||||
|
| 2017 |
|
| 2016 As Adjusted (Note 1) |
| ||
|
| (in thousands) |
| |||||
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 43,397 |
|
| $ | 37,676 |
|
Noncash items included in net income: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 64,607 |
|
|
| 56,910 |
|
Other, net |
|
| 18,812 |
|
|
| 8,908 |
|
Changes in operating assets and liabilities, net |
|
| 921 |
|
|
| 14,815 |
|
Net cash provided by operating activities |
|
| 127,737 |
|
|
| 118,309 |
|
Investing Activities: |
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
| (155,676 | ) |
|
| (108,871 | ) |
Proceeds from disposal of property and equipment |
|
| 3,090 |
|
|
| 1,046 |
|
Net cash used in investing activities |
|
| (152,586 | ) |
|
| (107,825 | ) |
Financing Activities: |
|
|
|
|
|
|
|
|
Repayment of revolving credit agreement |
|
| (159,102 | ) |
|
| (143,298 | ) |
Borrowing of revolving credit agreement |
|
| 193,601 |
|
|
| 143,263 |
|
Proceeds from stock option exercises |
|
| 2,531 |
|
|
| 248 |
|
Shares withheld for taxes |
|
| (1,249 | ) |
|
| (650 | ) |
Repayment of senior notes |
|
| (3,571 | ) |
|
| (3,571 | ) |
Repayment of capital leases |
|
| (8,819 | ) |
|
| (5,811 | ) |
Net cash provided by (used in) financing activities |
|
| 23,391 |
|
|
| (9,819 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| (1,458 | ) |
|
| 665 |
|
Cash and cash equivalents, beginning of period |
|
| 1,539 |
|
|
| 124 |
|
Cash and cash equivalents, end of period |
| $ | 81 |
|
| $ | 789 |
|
|
|
|
|
|
|
|
|
|
Non Cash Investing Activities |
|
|
|
|
|
|
|
|
Equipment financed with capital leases |
| $ | 31,320 |
|
| $ | 34,683 |
|
|
| Common Shares |
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Deferred Compensation Trust |
|
| Retained Earnings |
|
| Total |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Balance at December 31, 2022 |
|
| 26,464 |
|
| $ | 26 |
|
| $ | 277,366 |
|
| $ | (5,248 | ) |
| $ | 1,307,197 |
|
| $ | 1,579,341 |
|
Stock compensation, including options and long-term incentives |
|
| — |
|
|
| — |
|
|
| 2,225 |
|
|
| — |
|
|
| — |
|
|
| 2,225 |
|
Exercise of stock options, less shares withheld for taxes |
|
| 21 |
|
|
| — |
|
|
| 2,204 |
|
|
| — |
|
|
| — |
|
|
| 2,204 |
|
Shares issued for long-term incentive awards, net of shares withheld for taxes |
|
| 48 |
|
|
| 1 |
|
|
| (8,928 | ) |
|
| — |
|
|
| — |
|
|
| (8,927 | ) |
Purchase of shares by Deferred Compensation Trust |
|
| — |
|
|
| — |
|
|
| 474 |
|
|
| (474 | ) |
|
| — |
|
|
| — |
|
Sale of shares by Deferred Compensation Trust |
|
| — |
|
|
| — |
|
|
| (67 | ) |
|
| 67 |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 76,097 |
|
|
| 76,097 |
|
Balance at March 31, 2023 |
|
| 26,533 |
|
| $ | 27 |
|
| $ | 273,274 |
|
| $ | (5,655 | ) |
| $ | 1,383,294 |
|
| $ | 1,650,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Shares |
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Deferred Compensation Trust |
|
| Retained Earnings |
|
| Total |
| ||||||
|
| (in thousands) |
| |||||||||||||||||||||
Balance at December 31, 2021 |
|
| 26,337 |
|
| $ | 26 |
|
| $ | 274,633 |
|
| $ | (4,101 | ) |
| $ | 949,775 |
|
| $ | 1,220,333 |
|
Stock compensation, including options and long-term incentives |
|
| — |
|
|
| — |
|
|
| 2,056 |
|
|
| — |
|
|
| — |
|
|
| 2,056 |
|
Exercise of stock options, less shares withheld for taxes |
|
| 10 |
|
|
| — |
|
|
| 907 |
|
|
| — |
|
|
| — |
|
|
| 907 |
|
Shares issued for long-term incentive awards, net of shares withheld for taxes |
|
| 61 |
|
|
| — |
|
|
| (11,230 | ) |
|
| — |
|
|
| — |
|
|
| (11,230 | ) |
Purchase of shares by Deferred Compensation Trust |
|
| — |
|
|
| — |
|
|
| 2,445 |
|
|
| (2,445 | ) |
|
| — |
|
|
| — |
|
Sale of shares by Deferred Compensation Trust |
|
| — |
|
|
| — |
|
|
| (1,066 | ) |
|
| 1,066 |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 79,424 |
|
|
| 79,424 |
|
Balance at March 31, 2022 |
|
| 26,408 |
|
| $ | 26 |
|
| $ | 267,745 |
|
| $ | (5,480 | ) |
| $ | 1,029,199 |
|
| $ | 1,291,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
Saia, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2023 and 2022
(unaudited)
|
| First Quarter |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (in thousands) |
| |||||
Operating Activities: |
|
|
|
|
|
| ||
Net income |
| $ | 76,097 |
|
| $ | 79,424 |
|
Noncash items included in net income: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 42,880 |
|
|
| 39,952 |
|
Deferred income taxes |
|
| 5,738 |
|
|
| (2,030 | ) |
Other, net |
|
| 2,968 |
|
|
| 181 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| (5,276 | ) |
|
| (46,831 | ) |
Accounts payable |
|
| 7,008 |
|
|
| 28,118 |
|
Change in other assets, liabilities, net |
|
| (10,145 | ) |
|
| (2,853 | ) |
Net cash provided by operating activities |
|
| 119,270 |
|
|
| 95,961 |
|
Investing Activities: |
|
|
|
|
|
| ||
Acquisition of property and equipment |
|
| (128,415 | ) |
|
| (46,259 | ) |
Proceeds from disposal of property and equipment |
|
| 360 |
|
|
| 883 |
|
Net cash used in investing activities |
|
| (128,055 | ) |
|
| (45,376 | ) |
Financing Activities: |
|
|
|
|
|
| ||
Proceeds from stock option exercises |
|
| 2,204 |
|
|
| 907 |
|
Shares withheld for taxes |
|
| (8,927 | ) |
|
| (11,230 | ) |
Repayment of finance leases |
|
| (4,504 | ) |
|
| (5,525 | ) |
Other financing activity |
|
| (953 | ) |
|
| — |
|
Net cash used in financing activities |
|
| (12,180 | ) |
|
| (15,848 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| (20,965 | ) |
|
| 34,737 |
|
Cash and Cash Equivalents, beginning of period |
|
| 187,390 |
|
|
| 106,588 |
|
Cash and Cash Equivalents, end of period |
| $ | 166,425 |
|
| $ | 141,325 |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
6
Saia, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Saia, Inc. and its wholly-owned subsidiaries (together, the Company or Saia). All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.
The condensed consolidated financial statements have been prepared by the Company without audit by the independent registered public accounting firm. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, stockholders’ equity and cash flows for the interim periods included herein have been made. These interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information, the instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted from these statements. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2022. Operating results for the quarter and nine months ended September 30, 2017March 31, 2023 are not necessarily indicative of the results of operations that may be expected for the year ended December 31, 2017.2023.
Business
Business
The Company provides regional and interregionalnational less-than-truckload (LTL) services across 38 states through a single integrated organization. While more than 9997 percent of its revenue historically has been derived from transporting LTL shipments across 45 states, the Company also offers customers a wide range of other value-added services, including non-asset truckload, expedited transportation and logistics services throughoutacross North America. The Company’s customer base is diversified across numerous industries.
Revenue Recognition
Accounting Pronouncements AdoptedThe Company’s revenues are derived primarily from the transportation of freight as it satisfies performance obligations that arise from contracts with its customers. The Company’s performance obligations arise when it receives a bill of lading (BOL) to transport a customer's commodities at negotiated prices contained in 2017either a transportation services agreement or a publicly disclosed tariff rate. Once a BOL is received and accepted, a legally-enforceable contract is formed whereby the parties are committed to perform and the rights of the parties, shipping terms and conditions, and payment terms have been identified. Each shipment represents a distinct service that is a separately identified performance obligation.
In March 2016,The typical transit time to complete a shipment is from one to five days. Billing for transportation services normally occurs after completion of the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting.service and payment is generally due within 30 days after the invoice date. The Company adopted this new standard effective January 1, 2017. As a result of adoption, $1.3 million of excess tax benefitsrecognizes revenue related to share-based payments was recordedthe Company’s LTL, non-asset truckload and expedited transportation services over the transit time of the shipment as an offsetit moves from origin to income tax expensedestination based on the transit status at the end of each reporting period.
Key estimates included in the first nine monthsrecognition and measurement of 2017,revenue and related accounts receivable are as opposedfollows:
The portion of the windfall tax benefit was removed fromgross invoice related to interline transportation services that involve the services of another party, such as another LTL service provider, is not recorded in the Company’s diluted shares calculation. revenues. Revenue from logistics services is recognized as the services are provided.
7
Claims and Insurance Accruals
The Company classifiedmaintains a significant amount of insurance coverage with third-party insurance carriers that provides various levels of protection for covered risk exposure, including in the $1.3 millionareas of excess tax benefitsworkers’ compensation, bodily injury and property damage, casualty, cargo loss and damage and group health, with coverage limits, retention amounts and deductible amounts that vary based on policy periods and claim type. Claims and insurance accruals related to share-based payments as operating activities, insteadworkers’ compensation, bodily injury and property damage, casualty, cargo loss and damage and group health are established by management based on estimates of financing activities, on the Condensed Consolidated Statement of Cash Flows for the first nine months of 2017. The Company elected to continue to use an estimated forfeiture rate for recording stock compensation expense and to withhold taxes at the minimum statutory rates. The Company classified $1.2 million in shares withheld for taxes as financing activities for the first nine months of 2017. Additionally,losses that the Company reclassified $0.7 million in shares withheld for taxes from operating activities to financing activities for the first nine months of 2016. The Company had no other items requiring retrospective treatment under the pronouncement.
Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services. The ASU will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles when it becomes effective. In July 2015, the FASB updated ASU No. 2014-09 to defer the effective date by one year. The new standard is effective for the Companyultimately incur on January 1, 2018, at which point the Company plans to adopt this standard. The standard permits the use of either the retrospective or cumulative effect transition method. Under the new standard, accessorial fees, such after hours pickup or delivery,reported claims and on claims that are directly related to freight revenue will continue to be non-distinct services and, thus, be recognized in the same manner as the freight transportation services provided. The Company will change its presentation of its non-asset truckload business from net revenue to gross revenue, and the revenue will be recognized on a percentage-of-completion basis going forward as opposed to upon commencement of the services under the current policy. While the Company has completed its evaluation of its revenue streams and contracts subject to the standard and will adopt the new standard retrospectively, the Company hashave been incurred but not yet quantified the impact of the standard.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), a leasing standard for both lessees and lessors. Under its core principle, a lessee will recognize lease assets and liabilitiesreported. Accruals are calculated on the balance sheet for all arrangements with terms longer than 12 months. Lessor accounting remains largely consistent with existing U.S. generally accepted accounting principles. The new standard
is effective for the Companyreported claims based on January 1, 2019. Early adoption is permitted. The standard requires the use of a modified retrospective transition method. The Company is evaluating the effect that ASU No. 2016-02 will have on its consolidated financial statements and related disclosures. While the Company has not completed itsan evaluation of the effectnature and severity of the standardclaim, historical loss experience and on its ongoing financial reporting, it believeslegal, economic and other factors. Actuarial analysis is also used in calculating the most significant changes relate to the recognition of lease assetsaccruals for workers’ compensation and liabilities on its consolidated balance sheet.bodily injury and property damage claims.
(2) Computation of Earnings Per Share
The calculation of basic earnings per common share and diluted earnings per common share was as follows (in thousands, except per share amounts):
|
| Third Quarter |
|
| Nine Months |
|
| First Quarter |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2022 |
| ||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Net income |
| $ | 14,407 |
|
| $ | 13,826 |
|
| $ | 43,397 |
|
| $ | 37,676 |
|
| $ | 76,097 |
|
| $ | 79,424 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Denominator for basic earnings per share–weighted average common shares |
|
| 25,527 |
|
|
| 25,038 |
|
|
| 25,494 |
|
|
| 25,022 |
|
|
| 26,600 |
|
|
| 26,391 |
|
Effect of dilutive stock options |
|
| 152 |
|
|
| 52 |
|
|
| 124 |
|
|
| 46 |
| ||||||||
Effect of other common stock equivalents |
|
| 434 |
|
|
| 568 |
|
|
| 432 |
|
|
| 557 |
| ||||||||
Dilutive effect of share-based awards |
|
| 102 |
|
|
| 279 |
| ||||||||||||||||
Denominator for diluted earnings per share–adjusted weighted average common shares |
|
| 26,113 |
|
|
| 25,658 |
|
|
| 26,050 |
|
|
| 25,625 |
|
|
| 26,702 |
|
|
| 26,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Basic Earnings Per Share |
| $ | 0.56 |
|
| $ | 0.55 |
|
| $ | 1.70 |
|
| $ | 1.51 |
|
| $ | 2.86 |
| $ | 3.01 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Diluted Earnings Per Share |
| $ | 0.55 |
|
| $ | 0.54 |
|
| $ | 1.67 |
|
| $ | 1.47 |
|
| $ | 2.85 |
| $ | 2.98 |
|
For the quarterquarters ended March 31, 2023 and nine months ended September 30, 2017,2022, options and restricted stock for 63,104 shares of common stock were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive. For the quarter29,120 and nine months ended September 30, 2016, options and restricted stock for 402,770 and 516,31215,808 shares of common stock, respectively, were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive.
(3) Commitments and Contingencies
The Company pays its pro rata share of the cost of letters of credit outstanding for certain workers’ compensation claims incurred prior to March 1, 2000 that Saia’s former parent maintains for insurance programs. The Company’s pro rata share of these outstanding letters of credit was $1.8 million at September 30, 2017.
The Company is subject to legal proceedings that arise in the ordinary course of its business. Management believes that adequate provisions for the resolution of all contingencies, claims and pending litigation have been made for probable and estimable losses and that the ultimate outcome of these actions will not have a material adverse effect on its financial condition but could have a material adverse effect on the results of operations in a given quarter or annual period.
(4) Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximated fair value as of September 30, 2017March 31, 2023 and December 31, 2016,2022, because of the relatively short maturity of these instruments. Based on the borrowing rates currently available to the Company for debt with similar terms and remaining maturities, the estimated fair value of total debt at September 30, 2017March 31, 2023 and December 31, 20162022 was $126.9$26.7 million and $77.6$31.2 million, respectively, based upon levels one andlevel two inputs in the fair value hierarchy. The carrying value of the debt was $127.2$26.5 million and $73.8$31.0 million at September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively.
(5) Debt and Financing Arrangements
At September 30, 2017March 31, 2023 and December 31, 2016,2022, debt consisted of the following (in thousands):
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
Credit Agreement with Banks, described below |
| $ | 34,499 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Senior Notes under a Master Shelf Agreement, described below |
|
| 3,571 |
|
|
| 7,143 |
| ||||||||
Capital Leases, described below |
|
| 89,163 |
|
|
| 66,661 |
| ||||||||
Finance Leases, described below |
|
| 26,504 |
|
|
| 31,008 |
| ||||||||
Total debt |
|
| 127,233 |
|
|
| 73,804 |
|
|
| 26,504 |
|
|
| 31,008 |
|
Less: current portion of long-term debt |
|
| 17,072 |
|
|
| 16,762 |
|
|
| 14,452 |
|
|
| 14,519 |
|
Long-term debt, less current portion |
| $ | 110,161 |
|
| $ | 57,042 |
|
| $ | 12,052 |
|
| $ | 16,489 |
|
8
The Company’s liquidity needs arise primarily from capital investment in new equipment, land and structures, information technology and letters of credit required under insurance programs, as well as funding working capital requirements.
On March 6, 2015,Credit Agreement
Prior to February 3, 2023, the Company entered into the Fifthwas a party to a Sixth Amended and Restated Credit Agreement with itsa banking group (as amended, the Restated(the Amended Credit Agreement), that provided up to a $300 million revolving line of credit through February 2024. The amendment increased the amount of the revolver from $200 million to $250 million and extended the term until March 2020. The amendment also reduced the interest rate pricing grid and eliminated both the borrowing base and the minimum tangible net worth covenant. On the same date, the Company also entered into the Second Amended and Restated Master Shelf Agreement with its long term note holders (as amended, the Restated Master Shelf Agreement) that made changes to this agreement to conform with certain changes in the Restated Credit Agreement.
Restated Credit Agreement
The Restated Credit Agreement is a revolving credit facility for up to $250 million expiring in March 2020. The Restated Credit Agreement also hashad an accordion feature that allowsallowed for an additional $75$100 million availability, subject to certain conditions and availability of lender approval. The Restated Credit Agreement provides for a LIBOR rate margin range from 112.5 basis points to 225 basis points, base rate margins from minus 12.5 basis points to plus 50 basis points, an unused portion fee from 20 basis points to 30 basis points and letter of credit fees from 112.5 basis points to 225 basis points, in each case based on the Company’s leverage ratio.
commitments. Under the RestatedAmended Credit Agreement, the Company mustwas required to maintain certain financial covenants including a minimum fixed chargedebt service coverage ratio set at 1.25 to 1.00 and a maximum leverage ratio among others.set at 3.25 to 1.00. The RestatedAmended Credit Agreement also providesprovided for a pledge by the Company of certain land and structures, certain tractors, trailersaccounts receivable and other personal propertyassets to secure indebtedness under this agreement. The Amended Credit Agreement contained certain customary representations and accounts receivable, as definedwarranties, affirmative and negative covenants and provisions relating to events of default.
On February 3, 2023, the Company entered into a new unsecured credit agreement with a banking group (the 2023 Credit Agreement) and terminated the Amended Credit Agreement. The 2023 Credit Agreement maintains the amount of the previous line of credit of $300 million and extends the term until February 2028. The 2023 Credit Agreement contains an accordion feature that allows the Company to increase the size of the facility by up to $150 million, subject to certain conditions and availability of lender commitments, for a total borrowing capacity of up to $450 million. Under the 2023 Credit Agreement, the Company is subject to a maximum consolidated net lease adjusted leverage ratio of less than 3.50 to 1.00 with the potential to be temporarily increased in the Restatedevent the Company makes an acquisition that meets certain criteria. The 2023 Credit Agreement.Agreement contains certain customary representations and warranties, affirmative and negative covenants and provisions relating to events of default. Under the 2023 Credit Agreement, if an event of default occurs, the banks will be entitled to take various actions, including the acceleration of amounts due.
At September 30, 2017,March 31, 2023 and December 31, 2022, the Company had borrowings of $34.5 million and outstanding letters of credit of $33.9 million under the Restated Credit Agreement. At December 31, 2016, the Company had no outstanding borrowings and outstanding letters of credit of $39.4$31.2 million and $31.2 million, respectively, under the Restated Credit Agreement.these credit agreements. The available portion of the Restated2023 Credit Agreement may be used for general corporate purposes, including future capital expenditures, working capital and letter of credit requirements, as needed.
Restated Master Shelf AgreementFinance Leases
In 2002, the Company issued $100 million in Senior Notes under a $125 million (amended to $150 million in April 2005) Master Shelf Agreement with Prudential Investment Management, Inc. and certain of its affiliates. The Company issued an additional $25 million in Senior Notes on November 30, 2007 and $25 million in Senior Notes on January 31, 2008 under the same Master Shelf Agreement.
The November 2007 issuance of $25 million Senior Notes has a fixed interest rate of 6.14 percent. The January 2008 issuance of $25 million Senior Notes has a fixed interest rate of 6.17 percent. Payments due for both $25 million issuances were interest only until June 30, 2011 and at that time semi-annual principal payments began with the final payments due January 1, 2018. Under the terms of the Senior Notes, the Company must maintain certain financial covenants including a minimum fixed charge coverage ratio and a maximum leverage ratio, among others. The Senior Notes also provide for a pledge by the Company of certain land and structures, certain tractors, trailers and other personal property and accounts receivable, as defined in the Senior Notes. At September 30, 2017 and December 31, 2016, the Company had $3.6 million and $7.1 million, respectively, in Senior Notes outstanding.
Capital Leases
The Company is obligated under capitalfinance leases with seven yearseven-year original terms covering revenue equipment totaling $89.2equipment. Total liabilities recognized under finance leases were $26.5 million and $66.7$31.0 million as of September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively. Amortization of assets held under the capitalfinance leases is included in depreciation and amortization expense. As of March 31, 2023 and December 31, 2022, approximately $55.6 million and $60.5 million of finance leased assets, net of depreciation, were included in Property and Equipment, respectively. The weighted average interest raterates for the capitalfinance leases at September 30, 2017March 31, 2023 and December 31, 2016 is 3.042022 were 3.8 percent and 2.823.7 percent, respectively.
Principal Maturities of Long-Term Debt
The principal maturities of long-term debt, instrumentsincluding interest on finance leases, for the next five years (in thousands) are as follows (in thousands):follows:
|
| Amount |
| |
2017 |
| $ | 7,578 |
|
2018 |
|
| 16,029 |
|
2019 |
|
| 16,029 |
|
2020 |
|
| 50,529 |
|
2021 |
|
| 16,607 |
|
Thereafter |
|
| 29,270 |
|
Total |
|
| 136,042 |
|
Less: Amounts Representing Interest on Capital Leases |
|
| 8,809 |
|
Total |
| $ | 127,233 |
|
|
| Amount |
| |
2023 |
| $ | 10,629 |
|
2024 |
|
| 10,604 |
|
2025 |
|
| 5,453 |
|
2026 |
|
| 995 |
|
2027 |
|
| — |
|
Thereafter |
|
| — |
|
Total |
|
| 27,681 |
|
Less: Amounts Representing Interest on Finance Leases |
|
| 1,177 |
|
Total |
| $ | 26,504 |
|
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and our 20162022 audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2022. Those consolidated financial statements include additional information about our significant accounting policies, practices and the transactions that underlie our financial results.
Cautionary Note Regarding Forward-Looking Statements
The Securities and Exchange Commission (the SEC) encourages companies to disclose forward-looking information so that investors can better understand the future prospects of a company and make informed investment decisions. This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations,” contains these types of statements, which are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “may,” “plan,” “predict,” “believe,” “should” and similar words or expressions are intended to identify forward-looking statements. Investors should not place undue reliance on forward-looking statements, and the Company undertakes no obligation to publicly update or revise any forward-looking statements.statements, except as otherwise required by applicable law. All forward-looking statements reflect the present expectation of future events of our management as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors, risks, uncertainties and assumptions that could cause actual results to differ materially from those described in any forward-looking statements. These factors, risks, uncertainties and assumptions include, but are not limited to, the following:
general economic conditions including downturns or inflationary periods in the business cycle;
effectiveness of Company-specific performance improvement initiatives,operation within a highly competitive industry and the adverse impact from downward pricing pressures, including management of the cost structure to match shifts in customer volume levels;
the creditworthinessindustry-wide external factors largely out of our customerscontrol;
failure to achieve acquisition synergies;
costs and liabilities from the disruption in or failure of our technology or equipment essential to our operations, including as a result of cyber incidents, security breaches, malware or ransomware attacks;
supply chain disruption and delays on new equipment delivery;
competitive initiativesthe creditworthiness of our customers and pricing pressures, including in connection with fuel surcharge;
loss of significant customers;
the Company’sour need for capital and uncertainty of the credit markets;
the possibility of defaults under the Company’sour debt agreements, (includingincluding violation of financial covenants);
possible issuanceinaccuracies and changes to estimates and assumptions used in preparing our financial statements;
integration risks;
10
costthe potential of higher corporate taxes and availabilitynew regulations, including with respect to climate change, employment and labor law, healthcare and securities regulation;
governmental regulations, including but not limited to Hourshours of Service,service and licensing compliance for drivers, engine emissions, the Compliance, Safety, Accountability (CSA) initiative, compliance with legislation requiring companies to evaluate their internal control over financial reporting,regulations of the Food and Drug Administration and Homeland Security, and healthcare and environmental regulations and the FDA;
unforeseen costs from new and existing data privacy laws;
dependence on key employees;
inclement weather;
labor relations,an illness or any other communicable disease, including the adverse impact should a portionCOVID-19 pandemic;
terrorism risks;
self-insurance claims and other expense volatility;
cost and availability of insurance coverage;
increased costs of healthcare benefits and administration, including as a result of healthcare legislation;
cyber security risk;
failure to successfully execute the strategy to expand the Company’s service geography into the Northeastern United States; and
other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s SEC filings.
These factors and risks are described in Part II,I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2022, as updated by Part II, Item 1A. of this Quarterly Report on Form 10-Q.
As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this Form 10-Q. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.otherwise, except as otherwise required by applicable law.
Executive Overview
The Company’s business is highly correlated to non-service sectors of the general economy. The Company’s strategy is to improve profitability by increasing yield while also increasing volumes to build density in existing geography and to expandpursue geographic and terminal expansion to promote profitable growth and improve our service geography into the Northeastern United States.customer value proposition over time. The Company’s business is labor intensive, capital intensive and service sensitive. The Company looks for opportunities to improve safety, cost effectiveness safety and asset utilization.utilization (primarily tractors and trailers). Pricing initiatives have had a positive impact on yield and profitability. The Company continues to execute targeted sales and marketing programs along with initiatives to align costs with volumes and improve customer satisfaction. Technology continues to be an important investment that is facilitatingas the Company works toward improving customer experience, operational efficiencies and customer service.company image.
First Quarter Overview
The Company’s operating revenue increaseddecreased by 10.60.1 percent in the thirdfirst quarter of 20172023 compared to the same period in 2016.2022. The increasedecrease resulted primarily from increaseddecreases in shipments tonnage, fuel surcharges and pricing actions, including a 4.9 percent general rate increase taken July 17, 2017,tonnage, partially offset by the timing of the 4th of July holiday, impacts of named hurricanes Harvey and Irma and one less workday in the quarter. Expansion into the Northeastern United States and the new Canadian marketing partnership during the second quarter of 2017 were contributing factors in the increased shipments and tonnage.revenue per shipment.
Consolidated operating income was $24.6$99.1 million for the thirdfirst quarter of 20172023 compared to $22.6$103.4 million for the thirdfirst quarter of 2016.2022. In the thirdfirst quarter of 2017,2023, LTL shipments and tonnage per workday were up 3.1down 7.1 percent and 3.6LTL tonnage was down 5.5 percent respectively, versuscompared to the prior year quarter. Diluted earnings per share were $0.55$2.85 in the thirdfirst quarter of 2017,2023 compared to diluted earnings per share of $0.54$2.98 in the prior year quarter. The operating ratio (operating expenses divided by operating revenue) was 93.085.0 percent in the thirdfirst quarter of 20172023 compared to 92.884.4 percent in the thirdfirst quarter of 2016.2022.
11
The Company had $127.7generated $119.3 million in net cash provided by operating activities in the first ninethree months of 20172023 compared with $118.3$96.0 million in the same period last year. The increase is primarily due to increasesa change in operating income and depreciation and amortization expense and a $1.3 million excess tax benefit from share-based payments forworking capital compared to the nine months ended September 30, 2017 as a result of the adoption of the Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2016-09.same period last year. The Company hadCompany’s net cash used in investing activities of $152.6was $128.1 million during the first ninethree months of 20172023 compared to $107.8$45.4 million in the first ninethree months of 2016,2022, primarily as a result of higherincreased capital expenditures forrelated to real estate and revenue equipment and real estateacquisitions in the first ninethree months of 2017.2023. The Company’s net cash provided by financing activities was $23.4 million in the first nine months of 2017 compared to $9.8 million net cash used in financing activities was $12.2 million in the first three months of 2023 compared to $15.8 million during the same period last year, primarily due to increased borrowing to fund capital expenditures.year. The Company had $34.5 million inno outstanding borrowings under its revolving credit agreement, total outstanding letters of credit of $35.7$33.0 million and a cash and cash equivalents balance of $0.1$166.4 million at September 30, 2017.March 31, 2023. The Company also had $3.6 million outstanding in Senior Notes and $89.2$26.5 million in obligations under capitalfinance leases at September 30, 2017.March 31, 2023. At March 31, 2023, the Company had $268.8 million in availability under the revolving credit facility. The revolving credit facility also has an accordion feature that allows for an additional $150 million availability, subject to certain conditions and availability of lender commitments. The Company was in compliance with the debt covenants under its debt agreementsrevolving credit agreement at September 30, 2017.March 31, 2023.
General
The following Management’s Discussion and Analysis describes the principal factors affecting the results of operations, liquidity and capital resources, as well as the critical accounting policies and estimates of Saia, Inc. and its wholly-owned subsidiaries (together, the Company or Saia).
Saia is a transportation company headquartered in Johns Creek, Georgia that provides regional and interregionalnational less-than-truckload (LTL) services across 38 states through a single integrated organization. While more than 9997 percent of its revenue is historically has
been derived from transporting LTL shipments across 45 states, the Company also offers customers a wide range of other value-added services, including non-asset truckload, expedited transportation and logistics services throughoutacross North America.
Our business is highly correlated to non-service sectors of the general economy. ItOur business also is impacted by a number of other factors as discussed under “Forward“Cautionary Note Regarding Forward Looking Statements” and Part II, Item 1A. “Risk Factors.” The key factors that affect our operating results are the volumes of shipments transported through our network, as measured by our average daily shipments and tonnage; the prices we obtain for our services, as measured by revenue per hundredweight (a measure of yield) and revenue per shipment; our ability to manage our cost structure for capital expenditures and operating expenses such as salaries, wages and benefits; purchased transportation; claims and insurance expense; fuel and maintenance; and our ability to match operating costs to shifting volume levels.
12
Results of Operations
Saia, Inc. and Subsidiaries
Selected Results of Operations and Operating Statistics
For the quarters ended September 30, 2017March 31, 2023 and 20162022
(unaudited)
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Operating Revenue |
| $ | 350,062 |
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| $ | 316,442 |
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| 10.6 |
| % |
| $ | 660,535 |
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| $ | 661,216 |
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| (0.1 | ) | % |
Operating Expenses: |
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Salaries, wages and employees’ benefits |
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| 194,920 |
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| 178,687 |
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| 9.1 |
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| 298,956 |
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| 289,463 |
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| 3.3 |
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Purchased transportation |
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| 23,074 |
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| 15,657 |
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| 47.4 |
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| 46,727 |
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| 78,248 |
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| (40.3 | ) |
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Fuel and other operating expenses |
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| 172,829 |
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| 150,104 |
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| 15.1 |
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Depreciation and amortization |
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| 22,338 |
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| 19,927 |
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| 12.1 |
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| 42,880 |
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| 39,952 |
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| 7.3 |
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Fuel and other operating expenses |
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| 85,128 |
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| 79,527 |
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| 7.0 |
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Operating Income |
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| 24,602 |
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| 22,644 |
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| 8.6 |
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| 99,143 |
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| 103,449 |
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| (4.2 | ) |
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Operating Ratio |
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| 93.0 | % |
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| 92.8 | % |
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| (0.2 | ) |
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| 85.0 | % |
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| 84.4 | % |
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Nonoperating Expense |
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| 1,182 |
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| 1,079 |
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| 9.5 |
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| 45 |
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| 927 |
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Working Capital (as of September 30, 2017 and 2016) |
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| 17,100 |
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| 13,001 |
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Cash Flows provided by Operations (year to date)(1) |
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| 127,737 |
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| 118,309 |
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Working Capital (as of March 31, 2023 and 2022) |
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| 242,983 |
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| 171,545 |
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Cash Flows provided by Operating Activities (year to date) |
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| 119,270 |
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| 95,961 |
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Net Acquisitions of Property and Equipment (year to date) |
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| 152,586 |
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| 107,825 |
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| 128,055 |
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| 45,376 |
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Saia Motor Freight Operating Statistics: |
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Workdays |
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| 64 |
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| 64 |
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LTL Tonnage |
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| 931 |
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| 913 |
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| 2.0 |
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| 1,311 |
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| 1,387 |
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| (5.5 | ) |
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LTL Shipments |
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| 1,662 |
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| 1,638 |
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| 1.5 |
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| 1,822 |
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| 1,962 |
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| (7.1 | ) |
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LTL Revenue per hundredweight |
| $ | 17.36 |
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| $ | 16.08 |
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| 8.0 |
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| $ | 24.63 |
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| $ | 23.29 |
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| 5.8 |
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LTL Revenue per shipment |
| $ | 354.37 |
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| $ | 329.30 |
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| 7.6 |
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LTL Pounds per shipment |
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| 1,439 |
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| 1,414 |
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| 1.8 |
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LTL Length of haul |
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| 892 |
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| 915 |
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| (2.5 | ) |
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Quarter and nine months ended September 30, 2017March 31, 2023 compared to Quarter and nine monthsquarter ended September 30, 2016March 31, 2022
Revenue and volume
Consolidated revenue for the quarter ended September 30, 2017 increased 10.6March 31, 2023 decreased 0.1 percent to $350.1$660.5 million primarily as a result of increaseddecreases in shipments and tonnage, shipments, fuel surcharges and pricing actions, partially offset by increased revenue per shipment. For the timing of the 4th of July holiday, impacts of hurricanes and one less workday in the quarter. Expansion into the Northeastern United States and the new Canadian marketing partnership during the secondfirst quarter of 2017 were contributing factors in the increased shipments and tonnage in the third quarter of 2017. Saia’s LTL revenue per hundredweight (a measure of yield) increased 8.0 percent to $17.36 per hundredweight for the third quarter of 2017 as a result of increased rates and fuel surcharges. For the third quarter of 2017,2023, Saia’s LTL tonnage increased 3.6was down 5.5 percent per workday to 0.91.3 million tons, and LTL shipments increased 3.1decreased 7.1 percent per workday to 1.71.8 million shipments. ApproximatelyRevenue per shipment increased 7.6 percent to $354.37 per shipment for the first quarter of 2023 as a result of changes in business mix and pricing actions. In spite of overall volume declines, our service initiatives, including our network expansion, continue to allow us to support our improved pricing. For the first quarter of 2023, approximately 75 to 80 percent of Saia’sthe Company’s operating revenue was subject to specific customer price negotiations that occur throughout the year. The remaining 20 to 25 percent of operating revenue was subject to a general rate increase which is based on market conditions.increase. For these customers subject to a general rate increase, on July 17, 2017 and October 3, 2016, Saia implemented a 4.96.5 and 7.5 percent general rate increase.increases on January 30, 2023 and January 24, 2022, respectively. Competitive factors, customer turnover and mix changes impact the extent to which customer rate increases are retained over time.
Operating revenue includes fuel surcharge revenue recognized from the Company’s fuel surcharge program. That program, which is designed to reduce the Company’s exposure to fluctuations in diesel fuel prices by adjusting total freight charges to account for changes in the price of diesel fuel.
The Company’s fuel surcharge is generally based on the average national price for diesel fuel (as published by the United States Energy Information Administration) and is typically reset weekly. Fuel surcharges have remained in effect for several years, are widely accepted in the industry and are a significant component of revenue and pricing. Fuel surcharges are an integral part of customer contract negotiations, but represent only one portion of overall customer price negotiations as customers may negotiate increase in base rates instead of increases in fuel surcharges or vice versa. Saia revised its fuel surcharge program effective January 18, 2016 to better align with its competitors.negotiations. Fuel surcharge revenue increased to 11.3 percentas a percentage of operating revenue for the quarter ended September 30, 2017 comparedincreased to 10.217.8 percent for the quarter ended September 30, 2016,March 31, 2023 compared to 16.8 percent for the quarter ended March 31, 2022, as a result of pricing structures, changes in mix and increases in the average cost of fuel.
For the nine months ended September 30, 2017, operating revenues were $1,025.3 million, up 11.7 percent from $918.3 milliondiesel fuel for the nine months ended September 30, 2016, primarily due to increased tonnage, shipments, fuel surcharges and pricing actions, partially offset by one less workday in the period. Fuel surcharge revenue increased to 11.2 percent of operating revenue for the nine months ended September 30, 2017quarter compared to 9.5 percent for the nine months ended September 30, 2016, as a result of increased fuel prices.prior year.
13
Operating expenses and margin
Consolidated operating income was $24.6$99.1 million in the thirdfirst quarter of 20172023 compared to $22.6$103.4 million in the prior year quarter. Overall, the operations were favorably impacteddecrease in consolidated operating income was the thirdresult of slightly decreased revenue and increases in operating expenses, partially offset by a decrease in purchased transportation expense during the first quarter of 2017 by higher tonnage, shipments, fuel surcharge and yield, which were offset by salary and wage increases, higher fuel and purchase transportation costs, increased depreciation expense and costs associated with expansion into the Northeastern United States.2023. The thirdfirst quarter of 20172023 operating ratio (operating expenses divided by operating revenue) was 93.085.0 percent compared to 92.884.4 percent for the same period in 2016.2022.
Salaries, wages and employees’ benefits increased $16.2$9.5 million in the thirdfirst quarter of 20172023 compared to the thirdfirst quarter of 2016 largely2022. This change was primarily driven by increased headcount required to support ongoing network expansion efforts, offset by a decrease in variable labor costs and a decrease in incentive compensation. In addition, in July 2022 the Company implemented a salary and wage increase of approximately 4.3 percent. Purchased transportation decreased $31.5 million in the first quarter of 2023 compared to the first quarter of 2022 primarily due to higher wages associated with increased headcounta decrease in purchase transportation miles compared to the same period in the third quarter of 2017,2022, in addition to a wage increasedecrease in July 2017 and higher healthcare benefit costs.cost per mile for purchased transportation. Fuel, operating expenses and supplies increased $7.3by $18.9 million compared to the first quarter of 2022 largely due to increased vehicle maintenance costs, investments in information technology network support and an increase in facility costs due to the opening of 13 new facilities since the first quarter of 2022. Claims and insurance expense in the first quarter of 2023 was $3.3 million higher than the first quarter of 2022 primarily due to higher claims activity. Depreciation and amortization expense increased $2.9 million in the thirdfirst quarter of 2017 compared to the prior year quarter largely due to higher fuel costs, increases in other operating expenses and supplies, including increased expenses related to the expansion in the Northeastern United States, partially offset by improved fuel efficiency. During the third quarter of 2017, claims and insurance expense was $1.5 million lower than the previous year quarter primarily due to decreased accident frequency and severity along with decreased cargo claims. The Company can experience volatility in accident expense as a result of its self-insurance structure and $2.0 million retention limits per occurrence. Purchased transportation increased $7.4 million in the third quarter of 2017 compared to the third quarter of 2016 primarily due to an increase in utilization of purchased transportation carriers to maintain service requirements while supporting increased shipments, tonnage and length of haul in the third quarter of 2017.
For the nine months ended September 30, 2017, consolidated operating income was $71.8 million, up 16.0 percent compared to $61.9 million for the nine months ended September 30, 2016.
Salaries, wages and benefits increased $47.3 million during the first nine months of 20172023 compared to the same period last year largelyin 2022 primarily due to increased wages associated with increased headcountongoing investments in revenue equipment, real estate and technology.
Other
Interest expense in the first nine monthsquarter of 2017 and a wage increase in July 2017 and higher healthcare benefit costs. Fuel, operating expenses and supplies increased $24.4 million during the first nine months of 2017 compared to the same period last year largely due to higher fuel costs, increases in other operating expenses and supplies, including increased expenses related to the expansion in the Northeastern United States, partially offset by improved fuel efficiency and lower maintenance costs resulting from a newer fleet and increased internal maintenance asset utilization. During the first nine months of 2017, claims and insurance expense2023 was $0.9 million lower than the same period last year primarily duein 2022 as the Company continued to decreased development on older claims and decreased cargo claims. Purchased transportation increased $17.8 million compared to the first nine months of 2016 primarily due to an increase in utilization of purchased transportation carriers to maintain service requirements while supporting increased shipments, tonnage and length of haul in the first nine months of 2017.pay down finance lease obligations.
Other
Substantially all non-operating expenses represent interest expense. Interest expense in the third quarter of 2017 was $0.1 million higher than the third quarter of 2016 due to increased average borrowings in the third quarter of 2017. Interest expense in the first nine months of 2017 was $0.4 million higher than the first nine months of 2016 due to increased average borrowings in the first nine months of 2017.
The effective tax rate was 38.523.2 percent and 35.922.5 percent for the quarters ended September 30, 2017March 31, 2023 and 2016,2022, respectively. The increase in the thirdfirst quarter effective tax rate in 20172023 is primarily a result of legislation surrounding alternative fuel tax credits that impacted the third quarter of 2016 but not the third quarter of 2017. For the nine months ended September 30, 2017, the effective tax rate was 36.2 percent compared to 35.8 percent for the nine months ended September 30, 2016. The increase in the nine month tax rate in 2017 is primarily a result of legislation surrounding alternative fuel tax credits that impacted the first nine months of 2016 but not the first nine months of 2017, partially offset by excess tax benefits from stock compensation activity recognized as a result of the Company’s adoption of ASU 2016-09 effective January 1, 2017.and limitations on related deductions.
Net income was $14.4$76.1 million, or $0.55$2.85 per diluted share, in the thirdfirst quarter of 20172023 compared to net income of $13.8$79.4 million, or $0.54$2.98 per diluted share, in the thirdfirst quarter of 2016. Net income was $43.4 million, or $1.67 per diluted share, for the first nine months of 2017 compared to net income of $37.7 million, or $1.47 per diluted share, for the first nine months of 2016.2022.
Working capital/capital expendituresOutlook
Working capital at September 30, 2017 was $17.1 million, which increased from working capital at September 30, 2016 of $13.0 million.
Current assets at September 30, 2017 increased by $34.2 million as compared to September 30, 2016 and includes an increase in accounts receivable of $28.7 million along with an increase in prepaid expenses and other. Current liabilities increased by $30.1 million at September 30, 2017 compared to September 30, 2016 largely due to increases in accounts payable, accrued wages, vacation and employee benefits and claims and insurance accruals. Cash flows provided by operating activities were $127.7 million for the nine months ended September 30, 2017 versus $118.3 million for the nine months ended September 30, 2016. For the nine months ended September 30, 2017, net cash used in investing activities was $152.6 million versus $107.8 million in the same period last year, a $44.8 million increase. This increase resulted primarily from higher capital expenditures for revenue equipment and real estate. For the nine months ended September 30, 2017, net cash provided by financing activities was $23.4 million compared to $9.8 million net cash used in financing activities during the same period last year, as a result of increased borrowing to fund capital expenditures.
Outlook
Our business remains highly correlated to non-service sectors of the general economy and competitive pricing pressures, as well as the success of Company-specific improvement initiatives. There remains uncertainty as to theOur outlook for 2023 is dependent on a number of external factors, including strength of economic conditions.the economy, inflation, labor availability, diesel fuel prices and supply chain constraints. The potential impact of these factors on our operations, financial performance and financial condition, as well as the impact on our ability to successfully execute our business strategies and initiatives, remains uncertain and difficult to predict. We are continuing initiatives to increase yield, reduceimprove and enhance customer service in an effort to support our ongoing pricing and business mix optimization, while seeking to control costs and improve productivity. We focus on providing top quality servicePlanned revenue initiatives include building density in our current geography, targeted marketing initiatives to grow revenue in more profitable areas, further expanding our geographic and improving safety performance.terminal network, as well as pricing and yield management. On July 17, 2017,January 30, 2023 and January 24, 2022 Saia implemented a 4.96.5 and 7.5 percent general rate increaseincreases, respectively, for customers comprising approximately 20 to 25 percent of Saia’s operating revenue. The extent of the success of these revenue initiatives is impacted by what proves to be the underlying economic trends, competitor initiatives and other factors discussed under “Forward-Looking“Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A. “Risk Factors.”
Effective July 1, 2017, the Company implemented a market competitive salary and wage increase for all of its employees. The cost of the compensation increase is expected to be approximately $16 million annually, and the Company anticipates the impact will be partially offset by continued productivity and efficiency gains.
If the Company buildswe build market share, including through our geographic and terminal expansion, into the Northeastern United States,we expect there areto be numerous operating leverage cost benefits. Conversely, should the economy continue to soften, from present levels, the Company planswe plan to match resources and capacity to shifting volume levels to lessen unfavorable operating leverage. The success of cost improvement initiatives is also impacted by a number of factors, including the cost and availability of drivers, dock workers and personnel, and purchased transportation, diesel fuel and insurance claims, regulatory changes, successful expansion of our service geography into the Northeastern United Statescosts and other factors discussed under “Forward-Looking Statements” and Part II, Item 1A. “Risk Factors.”inflation.
See “Forward-Looking“Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A. “Risk Factors” for a more complete discussion of potential risks and uncertainties that could materially adversely affect our future performance.financial condition, results of operations, cash flows and prospects.
Accounting Pronouncements Adopted in 2017
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The Company adopted this new standard effective January 1, 2017. As a result of adoption, $1.3 million of excess tax benefits related to share-based payments was recorded as an offset to income tax expense in the first nine months of 2017, as opposed to additional paid-in capital, and the windfall tax benefit was removed from the Company’s diluted shares calculation. The Company classified the $1.3 million of excess tax benefits related to share-based payments as operating activities, instead of financing activities, on the Condensed Consolidated Statements of Cash Flows for the first nine months of 2017. The Company elected to continue to use an estimated forfeiture rate for recording stock compensation expense and to withhold taxes at the minimum statutory rates. The Company
classified $1.2 million in shares withheld for taxes as financing activities for the first nine months of 2017. Additionally, the Company reclassified $0.7 million in shares withheld for taxes from operating activities to financing activities for the first nine months of 2016. The Company had no other items requiring retrospective treatment under the pronouncement.
Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services. The ASU will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles when it becomes effective. In July 2015, the FASB updated ASU No. 2014-09 to defer the effective date by one year. The new standard is effective for the Company on January 1, 2018, at which point the Company plans to adopt this standard. The standard permits the use of either the retrospective or cumulative effect transition method. Under the new standard, accessorial fees, such after hours pickup or delivery, that are directly related to freight revenue will continue to be non-distinct services and, thus, be recognized in the same manner as the freight transportation services provided. The Company will change its presentation of its non-asset truckload business from net revenue to gross revenue, and the revenue will be recognized on a percentage-of-completion basis going forward as opposed to upon commencement of the services under the current policy. While the Company has completed its evaluation of its revenue streams and contracts subject to the standard and will adopt the new standard restrospectively, the Company has not yet quantified the impact of the standard.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), a leasing standard for both lessees and lessors. Under its core principle, a lessee will recognize lease assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. Lessor accounting remains largely consistent with existing U.S. generally accepted accounting principles. The new standard is effective for the Company on January 1, 2019. Early adoption is permitted. The standard requires the use of a modified retrospective transition method. The Company is evaluating the effect that ASU No. 2016-02 will have on its consolidated financial statements and related disclosures. While the Company has not completed its evaluation of the effect of the standard on its ongoing financial reporting, it believes the most significant changes relate to the recognition of lease assets and liabilities on its consolidated balance sheet.
Financial Condition, Liquidity and Capital Resources
The Company’s liquidity needs arise primarily from capital investment in new equipment, land and structures, information technology and letters of credit required under insurance programs, as well as funding working capital requirements.
The Company is partyWorking capital/capital expenditures
14
Working capital at March 31, 2023 was $243.0 million, an increase from $171.5 million at March 31, 2022.
Current assets at March 31, 2023 increased by $2.8 million as compared to March 31, 2022, driven by an increase in cash and cash equivalents of $25.1 million and an increase in income tax receivables of $6.4 million, partially offset by a decrease in accounts receivable of $27.4 million. Current liabilities decreased by $68.6 million at March 31, 2023 compared to March 31, 2022 largely due to a revolving credit agreement (the Restated Credit Agreement) withdecrease in accounts payable and other current liabilities.
Cash flows provided by operating activities were $119.3 million for the three months ended March 31, 2023 versus $96.0 million for the three months ended March 31, 2022. The increase is primarily due to a group of banks to fund capital investments, letters of credit andchange in working capital needs. The Company is also a partycompared to a long-term note agreement (the Restated Master Shelf Agreement). The Company has pledged certain landthe prior year. For the three months ended March 31, 2023, net cash used in investing activities was $128.1 million compared to $45.4 million in the same period last year, an $82.7 million increase. This increase resulted from increased capital expenditures related to real estate and structures, tractors, trailers and other personal property and accounts receivable to secure indebtedness under both agreements.
Restated Credit Agreement
The Restated Credit Agreement is a revolving credit facility for up to $250 million expiring in March 2020. The Restated Credit Agreement also has an accordion feature that allows for an additional $75 million availability, subject to lender approval. The Restated Credit Agreement provides for a LIBOR rate margin range from 112.5 basis points to 225 basis points, base rate margins from minus 12.5 basis points to plus 50 basis points, an unused portion fee from 20 basis points to 30 basis points and letter of credit fees from 112.5 basis points to 225 basis points, in each case based on the Company’s leverage ratio.
Under the Restated Credit Agreement,revenue equipment acquisitions as the Company must maintain certain financial covenants including a minimum fixed charge coverage ratiocontinues to expand its footprint and a maximum leverage ratio, among others. The Restated Credit Agreement also provides for a pledge byadd density in markets. For the Company of certain land and structures, certain tractors, trailers and other personal property and accounts receivable, as definedthree months ended March 31, 2023, net cash used in the Restated Credit Agreement.
At September 30, 2017, the Company had borrowings of $34.5financing activities was $12.2 million and outstanding letters of credit of $33.9compared to $15.8 million under the Restated Credit Agreement. At December 31, 2016, the Company had no outstanding borrowings and outstanding letters of credit of $39.4 million under the Restated Credit Agreement. The available portion of the Restated Credit Agreement may be used for general corporate purposes, including capital expenditures, working capital and letter of credit requirements as needed.
Restated Master Shelf Agreement
In 2002, the Company issued $100 million in Senior Notes under a $125 million (amended to $150 million in April 2005) Master Shelf Agreement with Prudential Investment Management, Inc. and certain of its affiliates. The Company issued an additional $25
million in Senior Notes on November 30, 2007 and $25 million in Senior Notes on January 31, 2008 underduring the same Master Shelf Agreement.period last year, as a result of less equity based compensation shares withheld for taxes during the first three months of 2023 compared to the same period in 2022 in addition to higher proceeds from stock option exercises during 2023.
The November 2007 issuance of $25 million Senior Notes has a fixed interest rate of 6.14 percent. The January 2008 issuance of $25 million Senior Notes has a fixed interest rate of 6.17 percent. Payments due for both $25 million issuances were interest only until June 30, 2011 and at that time semi-annual principal payments began with the final payments due January 1, 2018. Under the terms of the Senior Notes, the Company must maintain certain financial covenants including a minimum fixed charge coverage ratio and a maximum leverage ratio, among others. The Senior Notes also provide for a pledge by the Company of certain land and structures, certain tractors, trailers and other personal property and accounts receivable, as defined in the Senior Notes. At September 30, 2017 and December 31, 2016, the Company had $3.6 million and $7.1 million, respectively, in Senior Notes outstanding.
Capital Leases
The Company is obligated under capital leases with seven year terms covering revenue equipment totaling $89.2 million and $66.7 million as of September 30, 2017 and December 31, 2016, respectively. Amortization of assets held under the capital leases is included in depreciation and amortization expense. The weighted average interest rates for the capital leases at September 30, 2017 and December 31, 2016 are 3.04 percent and 2.82 percent, respectively.
Other
The Company has historically generated cash flows from operations to fund a large portion of its capital expenditure requirements. Cash flows from operating activities were $146.4 million, as adjusted for the adoption of ASU No. 2016-09, for the year ended December 31, 2016, while net cash used in investing activities was $117.7 million. Cash flows provided by operating activities were $127.7 million for the nine months ended September 30, 2017, $9.4 million higher than the first nine months of the prior year. The increase is due to increases in operating income and depreciation and amortization expense and a $1.3 million excess tax benefit from share-based payments for the nine months ended September 30, 2017 as a result of the adoption of the Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2016-09. The timing of capital expenditures can largely be managed around the seasonal working capital requirements of the Company. The Company believes it has adequate sources of capital to meet short-term liquidity needs through its cash on hand, operating cash flows and availability under the Restated Credit Agreement. At September 30, 2017, the Company had $181.6 million in availability under the Restated Credit Agreement, subject to the Company’s satisfaction of existing debt covenants.its credit agreement, discussed below. Future operating cash flows are primarily dependent upon the Company’s profitability and its ability to manage its working capital requirements, primarily accounts receivable, accounts payable and wage and benefit accruals.
The Company currently expects that net capital expenditures in 2023 will be in excess of $400 million, subject to ongoing evaluation of market conditions. Projected 2023 capital expenditures include normal replacement cycles of revenue equipment and investments in technology. In addition, the Company plans to add revenue equipment and real estate investments to support our growth initiatives. Net capital expenditures were $128.1 million in the first three months of 2023. Approximately $244.6 million of the 2023 remaining capital budget was committed as of March 31, 2023.
Credit Agreement
Prior to February 3, 2023, the Company was party to a Sixth Amended and Restated Credit Agreement (the Amended Credit Agreement) with a banking group that provided up to a $300 million revolving line of credit through February 2024. The Amended Credit Agreement also had an accordion feature that allowed for an additional $100 million availability, subject to certain conditions and availability of lender commitments. The Amended Credit Agreement provided for a pledge by the Company of certain land and structures, accounts receivable and other assets to secure indebtedness under the Amended Credit Agreement.
On February 3, 2023, the Company entered into a new unsecured credit agreement with a banking group (the 2023 Credit Agreement) and terminated the Amended Credit Agreement. The 2023 Credit Agreement maintains the amount of the previous line of credit of $300 million and extends the term until February 2028. The 2023 Credit Agreement contains an accordion feature that allows the Company to increase the size of the facility by up to $150 million, subject to certain conditions and availability of lender commitments, for a total borrowing capacity of up to $450 million. Under the 2023 Credit Agreement, the Company is subject to a maximum consolidated net lease adjusted leverage ratio of less than 3.50 to 1.00 with the potential to be temporarily increased in the event the Company makes an acquisition that meets certain criteria. The 2023 Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants and provisions relating to events of default. Under the 2023 Credit Agreement, if an event of default occurs, the banks will be entitled to take various actions, including the acceleration of amounts due. The Company was in compliance with its debt covenants at September 30, 2017.March 31, 2023.
NetAt March 31, 2023 and December 31, 2022, the Company had no outstanding borrowings and outstanding letters of credit of $31.2 million, respectively, under these credit agreements. At March 31, 2023, the Company had $268.8 million in availability under the 2023 Credit Agreement. The available portion of the 2023 Credit Agreement may be used for general corporate purposes, including capital expenditures, pertain primarily to investments in tractorsworking capital and trailersletter of credit requirements, as needed.
Finance Leases
The Company is obligated under finance leases with seven-year original terms covering revenue equipment. Total liabilities recognized under finance leases were $26.5 million and other revenue equipment, information technology, land and structures. Projected net capital expenditures for 2017 are approximately $230$31.0 million inclusive of equipment acquired using capital leases. This represents an approximately $78 million increase from 2016 net capital expenditures of $152 million for property and equipment, inclusive of equipment acquired using capital leases. Projected 2017 capital expenditures include a normal annual level of revenue equipment replacement and continued investment in technology for our current operations, in addition to investments in land and structures, revenue equipment and technology to facilitate our geographic expansion into the Northeastern United States. Approximately $18.3 million of the 2017 remaining capital budget was committed as of September 30, 2017. Net capital expendituresMarch 31, 2023 and December 31, 2022, respectively. Amortization of assets held under the finance leases is included in depreciation and amortization expense. The weighted average interest rates for the finance leases at March 31, 2023 and December 31, 2022 were $183.93.8 percent and 3.7 percent, respectively.
15
Contractual Obligations
Contractual obligations for the Company are comprised of lease agreements, purchase obligations and long-term debt obligations related to any outstanding balance under the Company’s revolving line of credit. Contractual obligations for operating leases at March 31, 2023 totaled $138.2 million, including operating leases with original maturities of less than one year, which are not recorded in the first nine months of 2017, inclusive of equipment acquired using capital leases.
Inour consolidated balance sheet in accordance with U.S. generally accepted accounting principles, our operatingprinciples. Contractual obligations in the form of finance leases are not recorded in our condensed consolidated balance sheet; however,were $27.7 million at March 31, 2023, which includes both principal and interest amounts. For the future minimum leaseremainder of 2023, $1.4 million of interest payments are included inanticipated based on borrowings and commitments outstanding at March 31, 2023. See Note 5 to the “Contractual Obligations” table below. See the notes to our auditedaccompanying unaudited condensed consolidated financial statements includedin this Current Report on Form 10-Q. Purchase obligations at March 31, 2023 were $246.0 million, including commitments of $244.6 million for capital expenditures. As of March 31, 2023, the revolving line of credit had no outstanding principal balance.
Other commercial commitments of the Company typically include letters of credit and surety bonds required for collateral towards insurance agreements and amounts outstanding under the revolving line of credit. As of March 31, 2023 the Company had total outstanding letters of credit of $33.0 million and $55.8 million in surety bonds. Additionally at March 31, 2023, the Company had $268.8 million available under its revolving credit facility, subject to existing debt covenants.
The Company has accrued approximately $4.1 million for uncertain tax positions and $0.4 million for interest and penalties related to the uncertain tax positions as of March 31, 2023. At March 31, 2023, the Company has accrued $93.5 million for claims and insurance liabilities.
Critical Accounting Policies and Estimates
There have been no significant changes to the application of the critical accounting policies and estimates contained in our Annual Report on Form 10-K for the year ended December 31, 2016 for additional information. In addition to the principal amounts disclosed in the tables below, the Company has interest obligations of approximately $1.2 million for the remainder of 2017 and decreasing for each year thereafter based on borrowings and commitments outstanding at September 30, 2017.
2022. The following tables set forth a summary of our contractual cash obligations and other commercial commitments as of September 30, 2017 (in millions):
|
| Payments due by year |
| |||||||||||||||||||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| Thereafter |
|
| Total |
| |||||||
Contractual cash obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line of credit (1) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 34.5 |
|
| $ | — |
|
| $ | — |
|
| $ | 34.5 |
|
Long-term debt (1) |
|
| 3.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.6 |
|
Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Leases (1) |
|
| 4.0 |
|
|
| 16.0 |
|
|
| 16.0 |
|
|
| 16.0 |
|
|
| 16.6 |
|
|
| 29.4 |
|
|
| 98.0 |
|
Operating leases |
|
| 4.6 |
|
|
| 17.6 |
|
|
| 14.8 |
|
|
| 11.6 |
|
|
| 9.4 |
|
|
| 33.2 |
|
|
| 91.2 |
|
Purchase obligations (2) |
|
| 19.1 |
|
|
| 9.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28.9 |
|
Total contractual obligations |
| $ | 31.3 |
|
| $ | 43.4 |
|
| $ | 30.8 |
|
| $ | 62.1 |
|
| $ | 26.0 |
|
| $ | 62.6 |
|
| $ | 256.2 |
|
|
|
|
|
|
| Amount of commitment expiration by year |
| |||||||||||||||||||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| Thereafter |
|
| Total |
| |||||||
Other commercial commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available line of credit (1) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 181.6 |
|
| $ | — |
|
| $ | — |
|
| $ | 181.6 |
|
Letters of credit |
|
| — |
|
|
| 35.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 35.7 |
|
Surety bonds |
|
| 0.4 |
|
|
| 37.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37.5 |
|
Total commercial commitments |
| $ | 0.4 |
|
| $ | 72.8 |
|
| $ | — |
|
| $ | 181.6 |
|
| $ | — |
|
| $ | — |
|
| $ | 254.8 |
|
|
|
The Company has accrued approximately $1.0 million for uncertain tax positions and $0.1 million for interest and penalties related to the uncertain tax positions as of September 30, 2017. The Company cannot reasonably estimate the timing of cash settlement with respective taxing authorities beyond one year and accordingly has not included the amounts within the above contractual cash obligations and other commercial commitment tables.
At September 30, 2017, the Company has $73.5 million in claims, insurance and other liabilities. The Company cannot reasonably estimate the timing of cash settlement with respective adverse parties beyond one year and accordingly has not included the amounts within the above contractual cash obligations and other commercial commitment tables.
Critical Accounting Policies and Estimates
The Company makes estimates and assumptions in preparing the condensed consolidated financial statements that affect reported amounts and disclosures therein. In the opinion of management, the accounting policies that generally have the most significant impact on the financial position and results of operations of the Company include:
Claims and Insurance Accruals. The Company has self-insured retention limits generally ranging from $250,000 to $2 million per claim for medical, workers’ compensation, auto liability, casualty and cargo claims. The liabilities associated with the risk retained by the Company are estimated in part based on historical experience, third-party actuarial analysis with respect to workers’ compensation claims, demographics, nature and severity, past experience and other assumptions. The liabilities for self-funded retention are included in claims and insurance reserves based on claims incurred with liabilities for unsettled claims and claims incurred but not yet reported being actuarially determined with respect to workers’ compensation claims and with respect to all other liabilities, estimated based on management’s evaluation of the nature and severity of individual claims and historical experience. However, these estimated accruals could be significantly affected if the actual costs of the Company differ from these assumptions. A significant number of these claims typically take several years to develop and even longer to ultimately settle. These estimates tend to be reasonably accurate over time; however, assumptions regarding severity of claims, medical cost inflation, as well as specific case facts can create short-term volatility in estimates.
|
Depreciation and Capitalization of Assets. Under the Company’s accounting policy for property and equipment, management establishes appropriate depreciable lives and salvage values for the Company’s revenue equipment (tractors and trailers) based on their estimated useful lives and estimated fair values to be received when the equipment is sold or traded in. These estimates are routinely evaluated and updated when circumstances warrant. However, actual depreciation and salvage values could differ from these assumptions based on market conditions and other factors.
|
Accounting for Income Taxes. Significant management judgment is required to determine (i) the provision for income taxes, (ii) whether deferred income taxes will be realized in full or in part and (iii) the liability for unrecognized tax benefits related to uncertain tax positions. Income tax expense is equal to the current year’s liability for income taxes and a provision for deferred income taxes. Deferred tax assets and liabilities are recorded for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. When it is more likely that all or some portion of specific deferred income tax assets will not be realized, a valuation allowance must be established for the amount of deferred income tax assets that are determined not to be realizable. A valuation allowance for deferred income tax assets has not been deemed necessary duereader should refer to our profitable operations. Accordingly, if facts or financial circumstances change and consequently impact the likelihood of realizing the deferred income tax assets, we would need to apply management’s judgment to determine the amount of valuation allowance required in any given period.
These accounting policies and others are described in further detail in the notes to our audited consolidated financial statements included in the Company’s2022 Annual Report on Form 10-K for the year ended December 31, 2016.
The preparationa full disclosure of financial statements in accordance with U.S. generally accepted accounting principles requires management to adoptall critical accounting policies and make significant judgmentsestimates of amounts recorded in certain assets, liabilities, revenue and estimates to develop amounts reflected and disclosed in the consolidated financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the consolidated financial statements. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.expenses.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to a variety of market risks including the effects of interest rates and diesel fuel prices. The detail of the Company’s debt structure is more fully described in Note 5 “Debt and Financing Arrangements” of the notes to the consolidatedaccompanying unaudited condensed financial statements set forth in the Company’s Annual Report onthis Form 10-K for the year ended December 31, 2016.10-Q. To help mitigate our risk to rising diesel fuel prices, the Company has implemented aan established fuel surcharge program. This program is well established within the industry and customer acceptance of fuel surcharges remains high. Since the amount of fuel surcharge is based on average national fuel prices and is reset weekly, exposure of the Company to fuel price volatility is significantly reduced. However, the fuel surcharge may not fully offset fuel price fluctuations during periods of rapid increases or decreases in the price of fuel and is also subject to overall competitive pricing negotiations.
The following table provides information about the Company’s third-party financial instruments as of September 30, 2017.March 31, 2023. The table presents principal cash flows (in millions) and related weighted average interest rates by contractual maturity dates. The fair value of the variable and fixed rate debt (in millions) was estimated based upon levels one andlevel two inputs in the fair value hierarchy, respectively.hierarchy. The fair value of the Senior Notes is based on undiscounted cash flows at market interest rates for similar issuances of private debt. The fair value of capitalfinance leases is based on current market interest rates for similar types of financial instruments.
|
| Expected maturity date |
|
| 2017 |
|
| Expected maturity date |
|
| 2023 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| Thereafter |
|
| Total |
|
|
| Fair Value |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| Thereafter |
|
| Total |
|
| Fair Value |
| |||||||||||||||||
Fixed rate debt |
| $ | 6.9 |
|
| $ | 13.6 |
|
| $ | 14.0 |
|
| $ | 14.4 |
|
| $ | 15.5 |
|
| $ | 28.3 |
|
| $ | 92.7 |
| $ | 92.4 |
|
| $ | 10.0 |
|
| $ | 10.2 |
|
| $ | 5.3 |
|
| $ | 1.0 |
|
| $ | - |
|
| $ | - |
|
| $ | 26.5 |
|
| $ | 26.7 |
| |||
Average interest rate |
|
| 3.2 | % |
|
| 3.0 | % |
|
| 3.0 | % |
|
| 3.0 | % |
|
| 3.0 | % |
|
| 3.0 | % |
|
|
|
|
|
|
|
| 3.6 | % |
|
| 3.9 | % |
|
| 4.2 | % |
|
| 3.5 | % |
|
| - |
|
|
| - |
|
|
| 3.8 | % |
|
|
| |||||
Variable rate debt |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 34.5 |
|
| $ | — |
|
| $ | — |
|
| $ | 34.5 |
| $ | 34.5 |
| |||||||||||||||||||||||||||||||||||
Average interest rate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.5 | % |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
Item 4. Controls and Procedures
Quarterly Controls Evaluation and Related CEO and CFO Certifications
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company conducted an evaluation of the effectiveness of the design and operation of its “disclosure controls and procedures” (Disclosure Controls). The Disclosure Controls evaluation was performed under the supervision and with the participation of management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO).
Based upon the controls evaluation, the Company’s CEO and CFO have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s Disclosure Controls are effective to ensure that information the Company is required to disclose in reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
During the period covered by this Quarterly Report on Form 10-Q, there were no changes in internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.
16
Attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q are certifications of the CEO and the CFO, which are required in accordance with Rule 13a-14 of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications.
Definition of Disclosure Controls
Disclosure Controls are controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported timely. Disclosure Controls are also designed to ensure that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. The Company’s Disclosure Controls include components of its internal control over financial reporting which consists of control processes designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles.
Limitations on the Effectiveness of Controls
The Company’s management, including the CEO and CFO, does not expect that its Disclosure Controls or its internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
17
PART II. OTHEROTHER INFORMATION
Item 1. Legal Proceedings — For a description of all material pending legal proceedings, see Note 3 “Commitments and Contingencies” of the accompanying unaudited condensed consolidated financial statements.
Item 1A. Risk Factors— Risk Factors are describedIn addition to the other information included in this report and in our other reports and statements that we file with the SEC, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” of the Company’s"Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 20162022, which could materially affect our business, financial condition and/or operating results. The risks discussed in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and thereuncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
There have been no material changes.changes to the risk factors identified in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds —
Issuer Purchases of Equity Securities |
| ||||||||||||||||||
Period |
| (a) Total Number of Shares (or Units) Purchased (1) |
|
|
| (b) Average Price Paid per Share (or Unit) |
|
|
| (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
|
|
| (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may Yet be Purchased under the Plans or Programs |
| ||||
July 1, 2017 through |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2017 |
|
| — |
| (2) |
| $ | — |
| (2) |
|
| — |
|
|
| $ | — |
|
August 1, 2017 through |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2017 |
|
| — |
| (3) |
| $ | — |
| (3) |
|
| — |
|
|
|
| — |
|
September 1, 2017 through |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
|
| — |
| (4) |
| $ | — |
| (4) |
|
| — |
|
|
|
| — |
|
Total |
|
| — |
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
Issuer Purchases of Equity Securities | |||||||||||
Period |
| (a) Total |
|
| (b) Average |
|
| (c) Total Number |
|
| (d) Maximum |
January 1, 2023 through |
|
|
|
|
|
|
|
|
|
|
|
January 31, 2023 |
| — | (2) |
| $— | (2) |
| — |
|
| $— |
February 1, 2023 through |
|
|
|
|
|
|
|
|
|
|
|
February 28, 2023 |
| 1,000 | (3) |
| $273.00 | (3) |
| — |
|
| — |
March 1, 2023 through |
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
| 720 | (4) |
| $279.56 | (4) |
| — |
|
| — |
Total |
| 1,720 |
|
|
|
|
| — |
|
|
|
(1) | Shares purchased by the Saia, Inc. Executive Capital Accumulation Plan were open market purchases. For more information on the Saia, Inc. Executive Capital Accumulation Plan, see the Registration Statement on Form S-8 (No. 333-155805) filed on December 1, 2008. | |
(2) | The Saia, Inc. Executive Capital Accumulation Plan sold 370 shares of Saia stock at an average price of $238.74 during the period of January 1, 2023 through January 31, 2023. | |
(3) | The Saia, Inc. Executive Capital Accumulation Plan sold 520 shares of Saia stock at an average price of $295.72 during the period of February 1, 2023 through February 28, 2023. | |
(4) | The Saia, Inc. Executive Capital Accumulation Plan had no sales of Saia stock during the period of | |
|
| |
|
|
18
Item 3. Defaults Upon Senior Securities—None
Item 4. Mine Safety Disclosures—None
Item 5. Other Information—None
Item 6. Exhibits
Exhibit | ||
Number | Description of Exhibit | |
3.1 | ||
3.2 | ||
| ||
3.4 | ||
3.5 | ||
| ||
31.1 | Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13a-15(e). | |
31.2 | Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-15(e). | |
32.1 | ||
32.2 | ||
101 | The following financial information from Saia, Inc.’s Quarterly Report on Form 10-Q for the quarter ended | |
104 | The cover page from Saia’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL (included as Exhibit 101). |
19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SAIA, INC. | |||
Date: |
| ||
| |||
Executive Vice President and Chief Financial Officer | |||
|
20
22