SAIA INC 10-Q

Item 1. Financial Statements Saia, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited) March 31, 2022 December 31, 2021 Assets (in thousands, except share and per share data) Current Assets: Cash and cash equivalents $ 141,325 $ 106,588 Accounts receivable, net 322,343 276,755 Prepaid expenses and other 46,998 32,912 Total current assets 510,666 416,255 Property and Equipment, at cost 2,162,492 2,144,528 Less: accumulated depreciation 890,927 864,074 Net property and equipment 1,271,565 1,280,454 Operating Lease Right-of-Use Assets 103,892 107,781 Goodwill and Identifiable Intangibles, net 18,866 19,157 Other Noncurrent Assets 27,360 21,603 Total assets $ 1,932,349 $ 1,845,250 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable $ 130,163 $ 114,010 Wages, vacation and employees’ benefits 62,125 73,109 Claims and insurance accruals 44,853 54,717 Other current liabilities 61,618 38,551 Current portion of long-term debt 18,373 19,396 Current portion of operating lease liability 21,989 21,565 Total current liabilities 339,121 321,348 Other Liabilities: Long-term debt, less current portion 26,506 31,008 Operating lease liability, less current portion 84,062 88,409 Deferred income taxes 122,106 124,137 Claims, insurance and other 69,064 60,015 Total other liabilities 301,738 303,569 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, 26,408,402 and 26,336,589 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively 26 26 Additional paid-in-capital 267,745 274,633 Deferred compensation trust, 80,174 and 94,627 shares of common stock at cost at March 31, 2022 and December 31, 2021, respectively ( 5,480 ) ( 4,101 ) Retained earnings 1,029,199 949,775 Total stockholders’ equity 1,291,490 1,220,333 Total liabilities and stockholders’ equity $ 1,932,349 $ 1,845,250 See accompanying notes to condensed consolidated financial statements. 3 Saia, Inc. and Subsidiaries Condensed Consolidated Statements of Operations For the quarters ended March 31, 2022 and 2021 (unaudited) First Quarter 2022 2021 (in thousands, except per share data) Operating Revenue $ 661,216 $ 484,074 Operating Expenses: Salaries, wages and employees' benefits 289,463 244,437 Purchased transportation 78,248 45,031 Fuel, operating expenses and supplies 122,771 84,901 Operating taxes and licenses 16,573 14,338 Claims and insurance 10,736 11,480 Depreciation and amortization 39,952 35,372 Loss (gain) from property disposals, net 24 ( 199 ) Total operating expenses 557,767 435,360 Operating Income 103,449 48,714 Nonoperating Expenses (Income): Interest expense 692 852 Other, net 235 ( 131 ) Nonoperating expenses, net 927 721 Income Before Income Taxes 102,522 47,993 Income Tax Provision 23,098 10,702 Net Income $ 79,424 $ 37,291 Weighted average common shares outstanding – basic 26,391 26,285 Weighted average common shares outstanding – diluted 26,670 26,671 Basic Earnings Per Share $ 3.01 $ 1.42 Diluted Earnings Per Share $ 2.98 $ 1.40 See accompanying notes to condensed consolidated financial statements. 4 Saia, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Equity For the quarters ended March 31, 2022 and 2021 (unaudited) Common Shares Common Stock Additional Paid-in Capital Deferred Compensation Trust Retained Earnings Total (in thousands, except share data) Balance at December 31, 2021 26,336,589 $ 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 10,992 — 907 — — 907 Shares issued for long-term incentive awards, net of shares withheld for taxes 60,821 — ( 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 26,408,402 $ 26 $ 267,745 $ ( 5,480 ) $ 1,029,199 $ 1,291,490 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 See accompanying notes to condensed consolidated financial statements. 5 Saia, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2022 and 2021 (unaudited) First Quarter 2022 2021 (in thousands) Operating Activities: Net income $ 79,424 $ 37,291 Noncash items included in net income: Depreciation and amortization 39,952 35,372 Deferred income taxes ( 2,030 ) 1,327 Other, net 181 2,365 Changes in operating assets and liabilities, net ( 21,566 ) ( 15,384 ) Net cash provided by operating activities 95,961 60,971 Investing Activities: Acquisition of property and equipment ( 46,259 ) ( 25,568 ) Proceeds from disposal of property and equipment 883 180 Net cash used in investing activities ( 45,376 ) ( 25,388 ) Financing Activities: Repayments of revolving credit agreement — ( 7,713 ) Borrowings of revolving credit agreement — 7,713 Proceeds from stock option exercises 907 3,678 Shares withheld for taxes ( 11,230 ) ( 6,350 ) Repayment of finance leases ( 5,525 ) ( 4,959 ) Net cash used in financing activities ( 15,848 ) ( 7,631 ) Net Increase in Cash and Cash Equivalents 34,737 27,952 Cash and Cash Equivalents, beginning of period 106,588 25,308 Cash and Cash Equivalents, end of period $ 141,325 $ 53,260 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, 2021. Operating results for the quarter ended March 31, 2022 are not necessarily indicative of the results of operations that may be expected for the year ended December 31, 2022. 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 45 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 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. 7 Remaining performance obligations represent the transac tion price allocated to future periods for freight services started but not compl eted at the reporting date. These amounts include 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 ” ) Topic 606 , Revenue from Contracts with Customers, as it relates 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 could 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 were 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 was extended for one additional year to March 1, 2022. The Company recognized the remaining $ 0.3 million of the return premium as a reduction in insurance premium expense in the first quarter of 2022 . Effective March 1, 2022, the Company extended the policy term for one additional year to March 1, 2023. 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 $ 17.5 million over the four-year policy period ending March 1, 2023. Based on claims occurring since March 1, 2019, no such additional premium was accrued at March 31, 2022. Commencing on August 30, 2023, 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 $ 17.5 million , based on the amount of claims paid and the insurer would be released from all liability under the policy ending March 1, 2023. 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 five years ended March 1, 2023. Effective March 1, 2022 , the Company entered into an additional automobile liability insurance policy with a three-year term that is applicable when an occurrence exceeds $ 10 million. Thereafter, the policy provides insurance coverage for a single loss of an additional $ 5.0 million, an aggregate loss limit of $ 10.0 million for each policy year, and a $ 20.0 million aggregate loss limit for the three-year term ending March 1, 2025. Under the policy, the Company may elect to commute the policy for the three year term if losses incurred are less than $ 1.4 million and the Company does not elect to renew the policy. In the event the Company elects to commute the policy for such period, it will be entitled to a return of a portion of the premium paid, up to $ 1.1 million, based on the amount of claims paid and the insurer will be released from all liability in connection with such period. As a result, if the Company elects to commute the policy as to such period, the Company will be self-insured for the $ 10 million to $ 15 million loss layer per occurrence for the three years ended March 1, 2025. The decision whether to commute the policy can not be made before June 1, 2024 and must be made prior to December 1, 2025, unless the insurer agrees to extend such date. Additionally, the Company is required to pay an additional premium of up to $ 7.5 million if losses paid by the insurer are greater than $ 1.4 million over the three-year policy period ending March 1, 2025. Based on claims occurring since March 1, 2022, no such additional premium was accrued at March 31, 2022 . 8 (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): First Quarter 2022 2021 Numerator: Net income $ 79,424 $ 37,291 Denominator: Denominator for basic earnings per share–weighted average common shares 26,391 26,285 Dilutive effect of share-based awards 279 386 Denominator for diluted earnings per share–adjusted weighted average common shares 26,670 26,671 Basic Earnings Per Share $ 3.01 $ 1.42 Diluted Earnings Per Share $ 2.98 $ 1.40 For the quarter ended March 31, 2022, options and restricted stock for 15,808 shares of common stock were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive. For the quarter ended March 31, 2021 options and restricted stock for 20,164 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 March 31, 2022. 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 March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021 was $ 44.8 million and $ 50.8 million, respectively, based upon level two in the fair value hierarchy. The carrying value of the debt was $ 44.9 million and $ 50.4 million at March 31, 2022 and December 31, 2021, respectively. (5) Debt and Financing Arrangements At March 31, 2022 and December 31, 2021, debt consisted of the following (in thousands): March 31, 2022 December 31, 2021 Credit Agreement with Banks, described below $ — $ — Finance Leases, described below 44,879 50,404 Total debt 44,879 50,404 Less: current portion of long-term debt 18,373 19,396 Long-term debt, less current portion $ 26,506 $ 31,008 9 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 T he Company is a party to a Sixth Amended and Restated Credit Agreement with its banking group (the Amended Credit Agreement), which provides up to a $ 300 million revolving line of credit through 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 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 March 31, 2022, the Company had no outstanding borrowings and outstanding letters of credit of $ 32.0 million under the Amended Credit Agreement. At December 31, 2021, the Company had no outstanding borrowings and outstanding letters of credit of $ 29.3 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 $ 44.9 million and $ 50.4 million as of March 31, 2022 and December 31, 2021, respectively. Amortization of assets held under the finance leases is included in depreciation and amortization expense. A s of March 31, 2022 and December 31, 2021 , approximately $ 78.4 million and $ 85.1 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 March 31, 2022 and December 31, 2021 were 3.6 percent and 3.6 percent, respectively. 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 2022 $ 14,997 2023 15,409 2024 10,606 2025 5,453 2026 919 Thereafter — Total 47,384 Less: Amounts Representing Interest on Finance Leases 2,505 Total $ 44,879 10 ( 6) COVID-19 The Company continues to monitor the progression of the COVID-19 pandemic, further government response, and development of treatments and vaccines and their potential effect on our short-term and long-term financial results and liquidity. These events could have an impact in future periods on certain estimates used in the preparation of our 2022 financial results. Local, state and national governments have designated transportation as an essential service. The Company has made a variety of efforts to ensure the ongoing availability of Saia’s transportation services, while instituting actions and policies to help keep employees and customers safe. The Company has considered the impact of COVID-19 on its estimates and assumptions and determined that there were no material adverse impacts on the Company’s financial position. Given the uncertainty surrounding the duration of the pandemic, it is possible that these assumptions and estimates may materially change in the future. 11