SAIA INC 10-Q

Item 1. Financial Statements Saia, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited) September 30, 2020 December 31, 2019 Assets (in thousands, except share and per share data) Current Assets: Cash and cash equivalents $ 25,469 $ 248 Accounts receivable, net 226,677 196,119 Income tax receivable — 8,288 Prepaid expenses and other 27,971 27,724 Total current assets 280,117 232,379 Property and Equipment, at cost 1,903,383 1,739,222 Less: accumulated depreciation 762,264 686,623 Net property and equipment 1,141,119 1,052,599 Operating Lease Right-of-Use Assets 117,487 103,890 Goodwill and Identifiable Intangibles, net 20,611 21,484 Other Noncurrent Assets 6,346 5,341 Total assets $ 1,565,680 $ 1,415,693 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable $ 97,060 $ 83,621 Wages, vacation and employees’ benefits 54,947 49,668 Claims and insurance accruals 43,517 36,888 Other current liabilities 39,731 32,644 Current portion of long-term debt 20,735 19,405 Current portion of operating lease liability 19,701 19,020 Total current liabilities 275,691 241,246 Other Liabilities: Long-term debt, less current portion 100,186 117,025 Operating lease liability, less current portion 99,474 86,239 Deferred income taxes 122,162 111,555 Claims, insurance and other 49,701 44,402 Total other liabilities 371,523 359,221 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, 26,156,220 and 25,936,532 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 26 26 Additional paid-in-capital 267,075 260,871 Deferred compensation trust, 154,157 and 143,987 shares of common stock at cost at September 30, 2020 and December 31, 2019, respectively ( 4,939 ) ( 3,871 ) Retained earnings 656,304 558,200 Total stockholders’ equity 918,466 815,226 Total liabilities and stockholders’ equity $ 1,565,680 $ 1,415,693 See accompanying notes to condensed consolidated financial statements. 3 Saia, Inc. and Subsidiaries Condensed Consolidated Statements of Operations For the quarters and nine months ended September 30, 2020 and 2019 (unaudited) Third Quarter Nine Months 2020 2019 2020 2019 (in thousands, except per share data) Operating Revenue $ 481,374 $ 468,891 $ 1,345,884 $ 1,343,670 Operating Expenses: Salaries, wages and employees' benefits 252,092 250,162 715,014 708,203 Purchased transportation 40,053 35,843 96,518 98,415 Fuel, operating expenses and supplies 74,106 84,259 222,907 253,130 Operating taxes and licenses 14,061 13,634 42,200 40,365 Claims and insurance 11,938 7,850 40,652 30,536 Depreciation and amortization 34,224 31,333 100,478 87,258 Loss (gain) from property disposals, net ( 316 ) 451 ( 1,558 ) 607 Total operating expenses 426,158 423,532 1,216,211 1,218,514 Operating Income 55,216 45,359 129,673 125,156 Nonoperating Expenses (Income): Interest expense 1,174 1,868 4,170 5,154 Other, net ( 391 ) ( 20 ) ( 595 ) ( 494 ) Nonoperating expenses, net 783 1,848 3,575 4,660 Income Before Income Taxes 54,433 43,511 126,098 120,496 Income Tax Provision 12,894 10,543 27,994 28,196 Net Income $ 41,539 $ 32,968 $ 98,104 $ 92,300 Weighted average common shares outstanding – basic 26,150 25,978 26,118 25,936 Weighted average common shares outstanding – diluted 26,615 26,460 26,569 26,413 Basic Earnings Per Share $ 1.59 $ 1.27 $ 3.76 $ 3.56 Diluted Earnings Per Share $ 1.56 $ 1.25 $ 3.69 $ 3.49 See accompanying notes to condensed consolidated financial statements. 4 Saia, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Equity For the quarters and nine months ended September 30, 2020 and 2019 (unaudited) Common Shares Common Stock Additional Paid-in Capital Deferred Compensation Trust Retained Earnings Total (in thousands, except per share data) BALANCE at December 31, 2019 25,936,532 $ 26 $ 260,871 $ ( 3,871 ) $ 558,200 $ 815,226 Stock compensation, including options and long-term incentives — — 1,317 — — 1,317 Director deferred share activity — — — — — — Exercise of stock options less shares withheld for taxes 69,640 — 2,137 — — 2,137 Shares issued for long-term incentive awards, net of shares withheld for taxes 57,176 — ( 3,404 ) — — ( 3,404 ) Purchase of shares by Deferred Compensation Trust — — 1,146 ( 1,146 ) — — Sale of shares by Deferred Compensation Trust — — ( 59 ) 59 — — Net income — — — — 28,111 28,111 BALANCE at March 31, 2020 26,063,348 $ 26 $ 262,008 $ ( 4,958 ) $ 586,311 $ 843,387 Stock compensation, including options and long-term incentives — — 1,640 — — 1,640 Director deferred share activity 71,681 — 1,230 — — 1,230 Exercise of stock options less shares withheld for taxes 12,800 — 454 — — 454 Shares issued for long-term incentive awards, net of shares withheld for taxes 1,002 — ( 75 ) — — ( 75 ) Purchase of shares by Deferred Compensation Trust — — 128 ( 128 ) — — Sale of shares by Deferred Compensation Trust — — ( 121 ) 121 — — Net income — — — — 28,454 28,454 BALANCE at June 30, 2020 26,148,831 $ 26 $ 265,264 $ ( 4,965 ) $ 614,765 $ 875,090 Stock compensation, including options and long-term incentives — — 1,670 — — 1,670 Exercise of stock options less shares withheld for taxes 6,190 — 287 — — 287 Shares issued for long-term incentive awards, net of shares withheld for taxes 1,199 — ( 120 ) — — ( 120 ) Purchase of shares by Deferred Compensation Trust — — — — — — Sale of shares by Deferred Compensation Trust — — ( 26 ) 26 — — Net income — — — — 41,539 41,539 BALANCE at September 30, 2020 26,156,220 $ 26 $ 267,075 $ ( 4,939 ) $ 656,304 $ 918,466 See accompanying notes to condensed consolidated financial statements. 5 Saia, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Equity For the quarters and nine months ended September 30, 2020 and 2019 (unaudited) Common Shares Common Stock Additional Paid-in Capital Deferred Compensation Trust Retained Earnings Total (in thousands, except per share data) BALANCE at December 31, 2018 25,693,651 $ 26 $ 254,738 $ ( 3,381 ) $ 444,481 $ 695,864 Stock compensation, including options and long-term incentives — — 998 — — 998 Director deferred share activity 45,075 — — — — — Exercise of stock options less shares withheld for taxes 68,169 — 1,798 — — 1,798 Shares issued for long-term incentive awards, net of shares withheld for taxes 83,281 — ( 3,268 ) — — ( 3,268 ) Purchase of shares by Deferred Compensation Trust — — 309 ( 458 ) — ( 149 ) Sale of shares by Deferred Compensation Trust — — — 148 — 148 Net income — — — — 22,259 22,259 BALANCE at March 31, 2019 25,890,176 $ 26 $ 254,575 $ ( 3,691 ) $ 466,740 $ 717,650 Stock compensation, including options and long-term incentives — — 1,342 — — 1,342 Director deferred share activity 4,155 — 1,117 — — 1,117 Exercise of stock options less shares withheld for taxes 10,832 — 356 — — 356 Shares issued for long-term incentive awards, net of shares withheld for taxes 501 — ( 36 ) — — ( 36 ) Purchase of shares by Deferred Compensation Trust — — 229 ( 229 ) — — Sale of shares by Deferred Compensation Trust — — — — — — Net income — — — — 37,073 37,073 BALANCE at June 30, 2019 25,905,664 $ 26 $ 257,583 $ ( 3,920 ) $ 503,813 $ 757,502 Stock compensation, including options and long-term incentives — — 1,295 — — 1,295 Exercise of stock options less shares withheld for taxes 28,170 — 773 — — 773 Shares issued for long-term incentive awards, net of shares withheld for taxes 2,178 — ( 167 ) — — ( 167 ) Purchase of shares by Deferred Compensation Trust — — — — — — Sale of shares by Deferred Compensation Trust — — ( 96 ) 96 — — Net income — — — — 32,968 32,968 BALANCE at September 30, 2019 25,936,012 $ 26 $ 259,388 $ ( 3,824 ) $ 536,781 $ 792,371 See accompanying notes to condensed consolidated financial statements. 6 Saia, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2020 and 2019 (unaudited) Nine Months 2020 2019 (in thousands) Operating Activities: Net income $ 98,104 $ 92,300 Noncash items included in net income: Depreciation and amortization 100,478 87,258 Deferred income taxes 10,607 — Other, net 10,907 29,437 Changes in operating assets and liabilities, net 18,865 ( 1,697 ) Net cash provided by operating activities 238,961 207,298 Investing Activities: Acquisition of property and equipment ( 205,307 ) ( 245,203 ) Proceeds from disposal of property and equipment 7,797 678 Net cash used in investing activities ( 197,510 ) ( 244,525 ) Financing Activities: Repayment of revolving credit agreement ( 303,108 ) ( 220,985 ) Borrowing of revolving credit agreement 302,179 270,990 Proceeds from stock option exercises 2,878 2,927 Shares withheld for taxes ( 3,599 ) ( 3,471 ) Debt issuance costs — ( 649 ) Repayment of finance leases ( 14,580 ) ( 13,764 ) Net cash provided by (used in) financing activities ( 16,230 ) 35,048 Net Increase (Decrease) in Cash and Cash Equivalents 25,221 ( 2,179 ) Cash and cash equivalents, beginning of period 248 2,194 Cash and cash equivalents, end of period $ 25,469 $ 15 Non Cash Investing Activities Equipment financed with finance leases $ — $ 6,165 See accompanying notes to condensed consolidated financial statements. 7 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, 2019. Operating results for the quarter and nine months ended September 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ended December 31, 2020. Business The Company provides regional and interregional less-than-truckload (LTL) services through a single integrated organization. While more than 97 percent of its revenue has been derived from transporting LTL shipments across 44 states, the Company also offers customers a wide range of other value-added services, including non-asset truckload, expedited and logistics services across North America. The Company’s customer base is diversified across numerous industries. Revenue Recognition The 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 either a transportation services agreement or a publicly disclosed tariff rate. Once a BOL is received, 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. A customer may submit many BOLs for transportation services at various times throughout a service agreement term but each shipment represents a distinct service that is a separately identified performance obligation. The average transit time to complete a shipment is from 1 to 5 days . Billing for transportation services normally occurs after completion of the service and payment is generally due within 30 days after the invoice date. The Company recognizes revenue related to the Company’s LTL, non-asset truckload and expedited services over the transit time of the shipment as it moves from origin to destination. Revenue for services started but not completed at the reporting date is recognized on actual transit status in each reporting period. Key estimates included in the recognition and measurement of revenue and related accounts receivable are as follows: • Revenue associated with shipments in transit is recognized ratably over transit time; and • Adjustments to revenue for billing adjustments and collectability. The portion of the gross 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 revenues. Revenue from logistics services is recognized as the services are provided. 8 Remaining performance obligations represent the transaction price allocated to future reporting periods for freight services started but not completed at the reporting date. This includes the unearned portion of billed and unbilled amounts for freight shipments in transit that the Company expects to recognize as revenue in the period subsequent to the reporting date, which is on average less than one week. The Company has elected to apply the optional exemption in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606 as it pertains to additional quantitative disclosures pertaining to remaining performance obligations. Claims and Insurance Accruals Effective March 1, 2018 , the Company entered into a new bodily injury and property damage liability policy with a three-year term. Generally, the Company is responsible for the risk retention amount per occurrence of $ 2.0 million under the new policy. Thereafter, the policy provides insurance coverage for a single loss of $ 8.0 million, an aggregate loss limit of $ 24.0 million for each policy year, and a $ 48.0 million aggregate loss limit for the 36-month term ended March 1, 2021. Under the policy the Company may elect to commute the policy with respect to the first 12 months of the policy term and concurrently extend the policy for an additional one-year period if paid losses in the first 12 months of the policy are less than $ 5.2 million. In August 2019, the Company elected to commute the policy for such period. As a result, the Company received a return of $ 5.2 million of the premium paid (the maximum return premium available), based on the amount of claims paid and the insurer was released from all liability in connection with claims occurring in such 12-month period. The Company is now self-insured for the first $10 million per occurrence with respect to such 12-month period and the policy has been extended for one additional year to March 1, 2022. As a result of the return premium and policy extension, the Company recognized a $ 0.5 million reduction in insurance premium expense in the third quarter of 2020. The Company will continue to recognize the remainder of the return premium as a reduction in insurance premium expense ratably over the remainder of the policy period now ending March 1, 2022. In addition, commencing on August 30, 2022, the Company may elect to commute the policy with respect to the insurer’s entire liability under the policy in which case the Company would be entitled to a return of a portion of the premium paid, up to $ 15.6 million, based on the amount of claims paid and the insurer would be released from all liability under the policy ending March 1, 2022. As a result, if the Company elects to commute the policy as to the entire policy term, the Company would be self-insured for $ 10 million per occurrence for such period. Additionally, the Company may be required to pay an additional premium of up to $ 11.0 million if losses paid by the insurer are greater than $ 15.6 million over the three-year policy period ending March 1, 2022. Based on claims experience since inception of the policy, no such additional premium was accrued at September 30, 2020. Accounting Pronouncements Adopted in 2020 In 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” Under this ASU an entity is required to utilize an “expected credit loss model” on certain financial instruments, including trade and financing receivables. This model requires consideration of a broader range of reasonable and supportable information and requires an entity to estimate expected credit losses over the lifetime of the asset. This standard became effective for interim and annual reporting periods beginning after December 15, 2019. The Company adopted the standard effective January 1, 2020 and upon adoption this standard did not have a material impact on its consolidated financial statements or related disclosures. 9 (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 2020 2019 2020 2019 Numerator: Net income $ 41,539 $ 32,968 $ 98,104 $ 92,300 Denominator: Denominator for basic earnings per share–weighted average common shares 26,150 25,978 26,118 25,936 Effect of dilutive stock options 109 125 96 120 Effect of other common stock equivalents 356 357 355 357 Denominator for diluted earnings per share–adjusted weighted average common shares 26,615 26,460 26,569 26,413 Basic Earnings Per Share $ 1.59 $ 1.27 $ 3.76 $ 3.56 Diluted Earnings Per Share $ 1.56 $ 1.25 $ 3.69 $ 3.49 For the quarter ended September 30, 2020, there were no anti-dilutive options or restricted stock. For the nine months ended September 30, 2020, options and restricted stock for 53,025 shares of common stock were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive. For the quarter and nine months ended September 30, 2019, options and restricted stock for 103,290 shares of common stock 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, 2020. 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, 2020 and December 31, 2019, 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, 2020 and December 31, 2019 was $ 121.1 million and $ 136.5 million, respectively, based upon levels one and two in the fair value hierarchy. The carrying value of the debt was $ 120.9 million and $ 136.4 million at September 30, 2020 and December 31, 2019, respectively. 10 (5) Debt and Financing Arrangements At September 30, 2020 and December 31, 2019, debt consisted of the following (in thousands): September 30, 2020 December 31, 2019 Credit Agreement with Banks, described below $ 45,000 $ 45,929 Finance Leases, described below 75,921 90,501 Total debt 120,921 136,430 Less: current portion of long-term debt 20,735 19,405 Long-term debt, less current portion $ 100,186 $ 117,025 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 party to a revolving credit agreement with a group of banks to fund capital investments, letters of credit and working capital needs. Credit Agreement On February 5, 2019, the Company entered into the Sixth Amended and Restated Credit Agreement with its banking group (as amended, the Amended Credit Agreement). The amendment increased the amount of the revolver from $ 250 million to $ 300 million and extended the term until February 2024 . The Amended Credit Agreement also has an accordion feature that allows for an additional $ 100 million availability, subject to certain conditions and availability of lender commitments. The amendment reduced the interest rate pricing. The Amended Credit Agreement provides for a LIBOR rate margin range from 100 basis points to 200 basis points, base rate margins from minus 50 basis points to plus 50 basis points, an unused portion fee from 17.5 basis points to 30 basis points and letter of credit fees from 100 basis points to 200 basis points, in each case based on the Company’s leverage ratio. Under the Amended Credit Agreement, the Company must maintain a minimum debt service coverage ratio set at 1.25 to 1.00 and a maximum leverage ratio set at 3.25 to 1.00. The Amended Credit Agreement provides for a pledge by the Company of certain land and structures, accounts receivable and other assets to secure indebtedness under this agreement. The Amended Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants and provisions relating to events of default. Under the Amended 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, 2020, the Company had borrowings of $ 45.0 million and outstanding letters of credit of $ 28.0 million under the Amended Credit Agreement. At December 31, 2019, the Company had borrowings of $ 45.9 million and outstanding letters of credit of $ 26.1 million under the Amended Credit Agreement. The available portion of the Amended 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 $ 75.9 million and $ 90.5 million as of September 30, 2020 and December 31, 2019, respectively. Amortization of assets held under the finance leases is included in depreciation and amortization expense. A s of September 30, 2020 and December 31, 2019 , approximately $ 102.9 million and $ 111.5 million of finance leased assets, net of depreciation, were included in Property and Equipment, respectively. The weighted average interest rates for the finance leases at September 30, 2020 and December 31, 2019 were 3.5 percent and 3.4 percent, respectively. 11 Principal Maturities of Long-Term Debt The principal maturities of long-term debt, including interest on finance leases, for the next five years (in thousands) are as follows: Amount 2020 $ 5,557 2021 22,755 2022 21,020 2023 15,441 2024 55,677 Thereafter 6,265 Total 126,715 Less: Amounts Representing Interest on Finance Leases 5,794 Total $ 120,921 ( 6) COVID-19 In March 2020, the World Health Organization categorized Coronavirus Disease 2019 (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The Company is considered an essential and critical business by the U.S. Department of Homeland Security’s Cyber and Infrastructure Security Agency ( CISA ) and will continue to operate under state of emergency and shelter in place orders issued in various jurisdictions across the country. T he Company has instituted multiple actions and policies to help safeguard employees and customers from COVID-19. The Company has been in regular communication with all levels of employees in an effort to insure that there are policies, resources, and infrastructure in place to protect employees and continue the Company’s important role in supporting the nation’s supply chain. The Company’s consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities. The Company has considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the Company’s third quarter 2020 financial position. It is possible that these assumptions and estimates may materially change prior to December 31, 2020. On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. The Company does not believe it will be able to take advantage of the provisions of the CARES Act. 12