SAIA INC 10-Q

Item 1. Financial Statements Saia, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited) September 30, 2021 December 31, 2020 Assets (in thousands, except share and per share data) Current Assets: Cash and cash equivalents $ 121,702 $ 25,308 Accounts receivable, net 295,862 216,899 Income tax receivable — 96 Prepaid expenses and other 33,045 29,393 Total current assets 450,609 271,696 Property and Equipment, at cost 2,048,419 1,901,244 Less: accumulated depreciation 846,195 765,217 Net property and equipment 1,202,224 1,136,027 Operating Lease Right-of-Use Assets 104,989 113,715 Goodwill and Identifiable Intangibles, net 19,448 20,321 Other Noncurrent Assets 11,989 7,015 Total assets $ 1,789,259 $ 1,548,774 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable $ 140,774 $ 89,381 Wages, vacation and employees’ benefits 77,538 55,392 Claims and insurance accruals 42,622 49,613 Other current liabilities 37,345 40,571 Current portion of long-term debt 20,245 20,588 Current portion of operating lease liability 20,097 20,209 Total current liabilities 338,621 275,754 Other Liabilities: Long-term debt, less current portion 34,926 50,388 Operating lease liability, less current portion 86,979 95,321 Deferred income taxes 124,903 119,818 Claims, insurance and other 59,104 46,205 Total other liabilities 305,912 311,732 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, 26,336,589 and 26,236,570 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively 26 26 Additional paid-in-capital 272,545 267,666 Deferred compensation trust, 95,438 and 91,888 shares of common stock at cost at September 30, 2021 and December 31, 2020, respectively ( 3,859 ) ( 2,944 ) Retained earnings 876,014 696,540 Total stockholders’ equity 1,144,726 961,288 Total liabilities and stockholders’ equity $ 1,789,259 $ 1,548,774 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, 2021 and 2020 (unaudited) Third Quarter Nine Months 2021 2020 2021 2020 (in thousands, except per share data) Operating Revenue $ 616,216 $ 481,374 $ 1,671,623 $ 1,345,884 Operating Expenses: Salaries, wages and employees' benefits 277,087 252,092 790,310 715,014 Purchased transportation 72,193 40,053 179,705 96,518 Fuel, operating expenses and supplies 98,834 74,106 274,399 222,907 Operating taxes and licenses 14,572 14,061 43,469 42,200 Claims and insurance 15,518 11,938 44,326 40,652 Depreciation and amortization 35,742 34,224 105,773 100,478 Gain from property disposals, net ( 3,847 ) ( 316 ) ( 4,115 ) ( 1,558 ) Total operating expenses 510,099 426,158 1,433,867 1,216,211 Operating Income 106,117 55,216 237,756 129,673 Nonoperating Expenses (Income): Interest expense 777 1,174 2,463 4,170 Other, net 14 ( 391 ) ( 547 ) ( 595 ) Nonoperating expenses, net 791 783 1,916 3,575 Income Before Income Taxes 105,326 54,433 235,840 126,098 Income Tax Provision 25,617 12,894 56,366 27,994 Net Income $ 79,709 $ 41,539 $ 179,474 $ 98,104 Weighted average common shares outstanding – basic 26,334 26,150 26,317 26,118 Weighted average common shares outstanding – diluted 26,713 26,615 26,699 26,569 Basic Earnings Per Share $ 3.03 $ 1.59 $ 6.82 $ 3.76 Diluted Earnings Per Share $ 2.98 $ 1.56 $ 6.72 $ 3.69 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, 2021 and 2020 (unaudited) Common Shares Common Stock Additional Paid-in Capital Deferred Compensation Trust Retained Earnings Total (in thousands, except share data) BALANCE at December 31, 2020 26,236,570 $ 26 $ 267,666 $ ( 2,944 ) $ 696,540 $ 961,288 Stock compensation, including options and long-term incentives — — 1,711 — — 1,711 Exercise of stock options less shares withheld for taxes 46,741 — 3,678 — — 3,678 Shares issued for long-term incentive awards, net of shares withheld for taxes 50,381 — ( 6,350 ) — — ( 6,350 ) Purchase of shares by Deferred Compensation Trust — — 742 ( 742 ) — — Sale of shares by Deferred Compensation Trust — — ( 17 ) 17 — — Net income — — — — 37,291 37,291 BALANCE at March 31, 2021 26,333,692 $ 26 $ 267,430 $ ( 3,669 ) $ 733,831 $ 997,618 Stock compensation, including options and long-term incentives — — 1,810 — — 1,810 Director deferred share activity 1,404 — 1,256 — — 1,256 Exercise of stock options less shares withheld for taxes — — — — — — Shares issued for long-term incentive awards, net of shares withheld for taxes — — — — — — Purchase of shares by Deferred Compensation Trust — — 112 ( 112 ) — — Sale of shares by Deferred Compensation Trust — — — — — — Net income — — — — 62,474 62,474 BALANCE at June 30, 2021 26,335,096 $ 26 $ 270,608 $ ( 3,781 ) $ 796,305 $ 1,063,158 Stock compensation, including options and long-term incentives — — 1,878 — — 1,878 Director deferred share activity 294 — 202 — — 202 Exercise of stock options less shares withheld for taxes — — — — — — Shares issued for long-term incentive awards, net of shares withheld for taxes 1,199 — ( 221 ) — — ( 221 ) Purchase of shares by Deferred Compensation Trust — — 98 ( 98 ) — — Sale of shares by Deferred Compensation Trust — — ( 20 ) 20 — — Net income — — — — 79,709 79,709 BALANCE at September 30, 2021 26,336,589 $ 26 $ 272,545 $ ( 3,859 ) $ 876,014 $ 1,144,726 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, 2021 and 2020 (unaudited) Common Shares Common Stock Additional Paid-in Capital Deferred Compensation Trust Retained Earnings Total (in thousands, except 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 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. 6 Saia, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021 and 2020 (unaudited) Nine Months 2021 2020 (in thousands) Operating Activities: Net income $ 179,474 $ 98,104 Noncash items included in net income: Depreciation and amortization 105,773 100,478 Deferred income taxes 5,086 10,607 Other, net 4,290 10,907 Changes in operating assets and liabilities, net ( 26,937 ) 18,865 Net cash provided by operating activities 267,686 238,961 Investing Activities: Acquisition of property and equipment ( 154,884 ) ( 205,307 ) Proceeds from disposal of property and equipment 6,460 7,797 Other ( 500 ) — Net cash used in investing activities ( 148,924 ) ( 197,510 ) Financing Activities: Repayments of revolving credit agreement ( 36,410 ) ( 303,108 ) Borrowings of revolving credit agreement 36,410 302,179 Proceeds from stock option exercises 3,678 2,878 Shares withheld for taxes ( 6,571 ) ( 3,599 ) Repayment of finance leases ( 15,805 ) ( 14,580 ) Net cash used in financing activities ( 18,698 ) ( 16,230 ) Net Increase in Cash, Cash Equivalents and Restricted Cash (1) 100,064 25,221 Cash, Cash Equivalents and Restricted Cash, beginning of period (1) 25,308 248 Cash, Cash Equivalents and Restricted Cash, end of period (1) $ 125,372 $ 25,469 (1) Cash, cash equivalents and restricted cash at the end of the period includes $ 3.7 million of restricted cash included in accounts receivable, net on the Condensed Consolidated Balance Sheet ending September 30, 2021. 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, 2020. Operating results for the quarter and nine months ended September 30, 2021 are not necessarily indicative of the results of operations that may be expected for the year ended December 31, 2021. Business The Company provides national 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 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. 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 typical transit time to complete a shipment is from one to five 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 based on transit status at the end of 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 generally 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 automobile liability insurance policy with a three-year term. Generally, the Company is responsible for the risk retention amount per occurrence of $ 2.0 million under the 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 originally 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 2021. 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. Additionally, the Company is 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 occurring since March 1, 2019, no such additional premium was accrued at September 30, 2021. 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 the four years ended March 1, 2022. Accounting Pronouncements Adopted in 2021 In 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, ” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This standard became effective for interim and annual reporting periods beginning after December 15, 2020. The Company adopted the standard effective January 1, 2021 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 2021 2020 2021 2020 Numerator: Net income $ 79,709 $ 41,539 $ 179,474 $ 98,104 Denominator: Denominator for basic earnings per share–weighted average common shares 26,334 26,150 26,317 26,118 Effect of dilutive stock options 109 109 113 96 Effect of other common stock equivalents 270 356 269 355 Denominator for diluted earnings per share–adjusted weighted average common shares 26,713 26,615 26,699 26,569 Basic Earnings Per Share $ 3.03 $ 1.59 $ 6.82 $ 3.76 Diluted Earnings Per Share $ 2.98 $ 1.56 $ 6.72 $ 3.69 For both the quarter and nine months ended September 30, 2021, options and restricted stock for 19,250 shares of common stock were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive. 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. (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, 2021. 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, 2021 and December 31, 2020, 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, 2021 and December 31, 2020 was $ 55.4 million and $ 71.2 million, respectively, based upon level two in the fair value hierarchy. The carrying value of the debt was $ 55.2 million and $ 71.0 million at September 30, 2021 and December 31, 2020, respectively. 10 (5) Debt and Financing Arrangements At September 30, 2021 and December 31, 2020, debt consisted of the following (in thousands): September 30, 2021 December 31, 2020 Credit Agreement with Banks, described below $ — $ — Finance Leases, described below 55,171 70,976 Total debt 55,171 70,976 Less: current portion of long-term debt 20,245 20,588 Long-term debt, less current portion $ 34,926 $ 50,388 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, 2021, the Company had no outstanding borrowings and outstanding letters of credit of $ 29.3 million under the Amended Credit Agreement. At December 31, 2020, the Company had no outstanding borrowings and outstanding letters of credit of $ 27.2 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 $ 55.2 million and $ 71.0 million as of September 30, 2021 and December 31, 2020, respectively. Amortization of assets held under the finance leases is included in depreciation and amortization expense. A s of September 30, 2021 and December 31, 2020 , approximately $ 91.0 million and $ 100.1 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, 2021 and December 31, 2020 were 3.5 percent and 3.5 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 2021 $ 5,240 2022 20,956 2023 15,409 2024 10,606 2025 5,453 Thereafter 924 Total 58,588 Less: Amounts Representing Interest on Finance Leases 3,417 Total $ 55,171 ( 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. Management has made a variety of efforts seeking to ensure the ongoing availability of Saia’s transportation services, while instituting actions and policies to help safeguard employees and customers from COVID-19, including limiting physical employee and customer contact, implementing enhanced cleaning and hygiene protocols at Saia’s facilities, and instituting telecommuting as appropriate. President Biden has issued a directive to OSHA to develop an Emergency Temporary Standard requiring all employers of 100 or more employees to ensure that their workforce is vaccinated or subject to weekly COVID-19 testing. This standard, or comparable state or local requirements, could adversely affect our ability to hire and retain employees which could lead to service disruptions and higher costs. Through the date of this filing, the Company has not experienced significant disruptions in the Company’s LTL network operations because of the COVID-19 pandemic. 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 2021 financial position. It is possible that these assumptions and estimates may materially change in the future. 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. On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law and provides further economic relief and stimulus to deal with the economic impact of the COVID-19 pandemic. The Company continues to monitor any effects that may result from these Acts and other similar legislation or actions in geographies in which our business operates; however, the Company does not believe it will be able to take advantage of the provisions of these Acts. 12