SAIA, INC. This Management's Discussion and Analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and our 2022 audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year endedDecember 31, 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 (theSEC ) 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, 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;
•
operation within a highly competitive industry and the adverse impact from downward pricing pressures, including in connection with fuel surcharges, and other factors;
•
industry-wide external factors largely out of our control;
•
cost and availability of qualified drivers, dock workers, mechanics and other employees, purchased transportation and fuel;
•
inflationary increases in operating expenses and corresponding reductions of profitability;
•
cost and availability of diesel fuel and fuel surcharges;
•
cost and availability of insurance coverage and claims expenses and other expense volatility, including for personal injury, cargo loss and damage, workers' compensation, employment and group health plan claims;
•
failure to successfully execute the strategy to expand our service geography;
•
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;
•
failure to keep pace with technological developments;
•
labor relations, including the adverse impact should a portion of our workforce become unionized;
•
cost, availability and resale value of real property and revenue equipment;
•
supply chain disruption and delays on new equipment delivery;
•
capacity and highway infrastructure constraints;
•
risks arising from international business operations and relationships;
•
seasonal factors, harsh weather and disasters caused by climate change;
•
economic declines in the geographic regions or industries in which our customers operate;
•
the creditworthiness of our customers and their ability to pay for services;
•
our need for capital and uncertainty of the credit markets;
•
the possibility of defaults under our debt agreements, including violation of financial covenants;
•
inaccuracies and changes to estimates and assumptions used in preparing our financial statements;
•
failure to operate and grow acquired businesses in a manner that support the value allocated to acquired businesses;
•
dependence on key employees;
•
employee turnover from changes to compensation and benefits or market factors;
•
increased costs of healthcare benefits;
•
damage to our reputation from adverse publicity, including from the use of or impact from social media;
•
failure to make future acquisitions or to achieve acquisition synergies;
10
--------------------------------------------------------------------------------•
the effect of litigation and class action lawsuits arising from the operation of our business, including the possibility of claims or judgments in excess of our insurance coverages or that result in increases in the cost of insurance coverage or that preclude us from obtaining adequate insurance coverage in the future;
•
the potential of higher corporate taxes and new regulations, including with respect to climate change, employment and labor law, healthcare and securities regulation;
•
the effect of governmental regulations, including hours of service and licensing compliance for drivers, engine emissions, the Compliance, Safety, Accountability (CSA) initiative, regulations of theFood and Drug Administration and Homeland Security, and healthcare and environmental regulations;
•
unforeseen costs from new and existing data privacy laws;
•
changes in accounting and financial standards or practices;
•
widespread outbreak of an illness or any other communicable disease, including the COVID-19 pandemic;
•
the conflict between
•
relations between
•
increasing investor and customer sensitivity to social and sustainability issues, including climate change;
•
provisions in our governing documents and
•
issuances of equity that would dilute stock ownership;
•
weakness, disruption or loss of confidence in financial or credit markets; and
•
other financial, operational and legal risks and uncertainties detailed from
time to time in the Company's
These factors and risks are described in Part I, Item 1A. "Risk Factors" of the Company's Annual Report on Form 10-K for the year endedDecember 31, 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, 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 pursue geographic and terminal expansion to promote profitable growth and improve our 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 and asset 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 as the Company works toward improving customer experience, operational efficiencies and company image.
First Quarter Overview
The Company's operating revenue decreased by 0.1 percent in the first quarter of 2023 compared to the same period in 2022. The decrease resulted primarily from decreases in shipments and tonnage, partially offset by increased revenue per shipment. Consolidated operating income was$99.1 million for the first quarter of 2023 compared to$103.4 million for the first quarter of 2022. In the first quarter of 2023, LTL shipments were down 7.1 percent and LTL tonnage was down 5.5 percent compared to the prior year quarter. Diluted earnings per share were$2.85 in the first quarter of 2023 compared to diluted earnings per share of$2.98 in the prior year quarter. The operating ratio (operating expenses divided by operating revenue) was 85.0 percent in the first quarter of 2023 compared to 84.4 percent in the first quarter of 2022. 11 -------------------------------------------------------------------------------- The Company generated$119.3 million in net cash provided by operating activities in the first three months of 2023 compared with$96.0 million in the same period last year. The increase is primarily due to a change in working capital compared to the same period last year. The Company's net cash used in investing activities was$128.1 million during the first three months of 2023 compared to$45.4 million in the first three months of 2022, primarily as a result of increased capital expenditures related to real estate and revenue equipment acquisitions in the first three months of 2023. The Company's 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. The Company had no outstanding borrowings under its revolving credit agreement, total outstanding letters of credit of$33.0 million and a cash and cash equivalents balance of$166.4 million atMarch 31, 2023 . The Company also had$26.5 million in obligations under finance leases atMarch 31, 2023 . AtMarch 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 revolving credit agreement atMarch 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 ofSaia, Inc. and its wholly-owned subsidiaries (together, the Company orSaia ).Saia is a transportation company headquartered inJohns Creek ,Georgia that provides national less-than-truckload (LTL) services through a single integrated organization. While more than 97 percent of revenue is historically 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 acrossNorth America . Our business is highly correlated to non-service sectors of the general economy. Our business also is impacted by a number of other factors as discussed under "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 March 31, 2023 and 2022 (unaudited) Percent Variance '23 v. 2023 2022 '22 (in thousands,
except ratios, workdays, revenue per
hundredweight, revenue per shipment and length of haul)
Operating Revenue $ 660,535 $ 661,216 (0.1 ) %
Operating Expenses:
Salaries, wages and employees' benefits 298,956 289,463 3.3
Purchased transportation 46,727 78,248 (40.3 )
Fuel and other operating expenses 172,829 150,104 15.1
Depreciation and amortization 42,880 39,952 7.3
Operating Income 99,143 103,449 (4.2 )
Operating Ratio 85.0 % 84.4 %
Nonoperating Expense 45 927 (95.1 )
Working Capital (as of March 31, 2023 and 2022) 242,983 171,545
Cash Flows provided by Operating Activities (year to 119,270
95,961
date)
Net Acquisitions of Property and Equipment (year to 128,055
45,376
date)
Saia Motor Freight Operating Statistics: Workdays 6464 LTL Tonnage 1,311 1,387(5.5 ) LTL Shipments 1,822 1,962(7.1 ) LTL Revenue per hundredweight$ 24.63 $ 23.29 5.8 LTL Revenue per shipment$ 354.37 $ 329.30 7.6 LTL Pounds per shipment 1,439 1,4141.8 LTL Length of haul 892 915 (2.5 )
Quarter ended
Revenue and volume
Consolidated revenue for the quarter endedMarch 31, 2023 decreased 0.1 percent to$660.5 million primarily as a result of decreases in shipments and tonnage, partially offset by increased revenue per shipment. For the first quarter of 2023,Saia 's LTL tonnage was down 5.5 percent to 1.3 million tons, and LTL shipments decreased 7.1 percent to 1.8 million shipments. Revenue 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 the 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. For customers subject to a general rate increase,Saia implemented 6.5 and 7.5 percent general rate increases onJanuary 30, 2023 andJanuary 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 revenue recognized from the Company's fuel surcharge program, which is designed to reduce exposure to fluctuations in diesel fuel prices by adjusting 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 theUnited States Energy Information Administration ) and is typically reset weekly. Fuel surcharges 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. Fuel surcharge revenue as a percentage of operating revenue increased to 17.8 percent for the quarter endedMarch 31, 2023 compared to 16.8 percent for the quarter endedMarch 31, 2022 , as a result of pricing structures, changes in mix and increases in the average cost of diesel fuel for the quarter compared to the prior year. 13 --------------------------------------------------------------------------------
Operating expenses and margin
Consolidated operating income was$99.1 million in the first quarter of 2023 compared to$103.4 million in the prior year quarter. Overall, the decrease in consolidated operating income was the result of slightly decreased revenue and increases in operating expenses, partially offset by a decrease in purchased transportation expense during the first quarter of 2023. The first quarter of 2023 operating ratio (operating expenses divided by operating revenue) was 85.0 percent compared to 84.4 percent for the same period in 2022. Salaries, wages and employees' benefits increased$9.5 million in the first quarter of 2023 compared to the first quarter of 2022. 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, inJuly 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 a decrease in purchase transportation miles compared to the same period in the 2022, in addition to a decrease in cost per mile for purchased transportation. Fuel, operating expenses and supplies increased by$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 first quarter of 2023 compared to the same period in 2022 primarily due to ongoing investments in revenue equipment, real estate and technology. Other
Interest expense in the first quarter of 2023 was lower than the same period in 2022 as the Company continued to pay down finance lease obligations.
The effective tax rate was 23.2 percent and 22.5 percent for the quarters endedMarch 31, 2023 and 2022, respectively. The increase in the first quarter effective tax rate in 2023 is primarily a result of stock compensation activity and limitations on related deductions. Net income was$76.1 million , or$2.85 per diluted share, in the first quarter of 2023 compared to net income of$79.4 million , or$2.98 per diluted share, in the first quarter of 2022. 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. Our outlook for 2023 is dependent on a number of external factors, including strength of 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 improve and enhance customer service in an effort to support our ongoing pricing and business mix optimization, while seeking to control costs and improve productivity. Planned revenue initiatives include building density in our current geography, targeted marketing initiatives to grow revenue in more profitable areas, further expanding our geographic and terminal network, as well as pricing and yield management. OnJanuary 30, 2023 andJanuary 24, 2022 Saia implemented 6.5 and 7.5 percent general rate increases, respectively, for customers comprising approximately 20 to 25 percent ofSaia 's operating revenue. The success of these revenue initiatives is impacted by what proves to be the underlying economic trends, competitor initiatives and other factors discussed under "Cautionary Note Regarding Forward-Looking Statements" and Part II, Item 1A. "Risk Factors." If we build market share, including through our geographic and terminal expansion, we expect there to be numerous operating leverage cost benefits. Conversely, should the economy continue to soften, we plan to match resources and capacity to shifting volume levels to lessen unfavorable operating leverage. The success of cost improvement initiatives is impacted by a number of factors, including the cost and availability of drivers, dock workers and personnel, and purchased transportation, diesel fuel and insurance costs and inflation. See "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 financial condition, results of operations, cash flows and prospects.
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.
Working capital/capital expenditures
14
--------------------------------------------------------------------------------
Working capital at
Current assets atMarch 31, 2023 increased by$2.8 million as compared toMarch 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 atMarch 31, 2023 compared toMarch 31, 2022 largely due to a decrease in accounts payable and other current liabilities. Cash flows provided by operating activities were$119.3 million for the three months endedMarch 31, 2023 versus$96.0 million for the three months endedMarch 31, 2022 . The increase is primarily due to a change in working capital compared to the prior year. For the three months endedMarch 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 revenue equipment acquisitions as the Company continues to expand its footprint and add density in markets. For the three months endedMarch 31, 2023 , net cash used in financing activities was$12.2 million compared to$15.8 million during the same 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 Company has historically generated cash flows from operations to fund a large portion of its capital expenditure requirements. 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 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 ofMarch 31, 2023 . Credit Agreement Prior toFebruary 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 throughFebruary 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. OnFebruary 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 untilFebruary 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 atMarch 31, 2023 . AtMarch 31, 2023 andDecember 31, 2022 , the Company had no outstanding borrowings and outstanding letters of credit of$31.2 million , respectively, under these credit agreements. AtMarch 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, working capital and letter 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$31.0 million as ofMarch 31, 2023 andDecember 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 atMarch 31, 2023 andDecember 31, 2022 were 3.8 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 atMarch 31, 2023 totaled$138.2 million , including operating leases with original maturities of less than one year, which are not recorded in our consolidated balance sheet in accordance withU.S. generally accepted accounting principles. Contractual obligations in the form of finance leases were$27.7 million atMarch 31, 2023 , which includes both principal and interest amounts. For the remainder of 2023,$1.4 million of interest payments are anticipated based on borrowings and commitments outstanding atMarch 31, 2023 . See Note 5 to the accompanying unaudited condensed consolidated financial statements in this Current Report on Form 10-Q. Purchase obligations atMarch 31, 2023 were$246.0 million , including commitments of$244.6 million for capital expenditures. As ofMarch 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 ofMarch 31, 2023 the Company had total outstanding letters of credit of$33.0 million and$55.8 million in surety bonds. Additionally atMarch 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 ofMarch 31, 2023 . AtMarch 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 endedDecember 31, 2022 . The reader should refer to our 2022 Annual Report on Form 10-K for a full disclosure of all critical accounting policies and estimates of amounts recorded in certain assets, liabilities, revenue and expenses.
© Edgar Online, source
