Saia Inc (SAIA) 2009 Q4 法說會逐字稿

Good morning, my name is Caitlin and I'll be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator Instructions). Thank you. Ms. Renee McKenzie, you may begin your conference.

Thank you Caitlin. Good morning. Welcome to Saia's first quarter and 2009 conference call. Hosting this morning's call are Rick O'Dell, Saia's President and Chief Executive Officer, and Jim Darby, our Vice President of Finance and Chief Financial Officer.

Before we begin, you should know that during this call we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all other statements that might be made in this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. We refer you to our press release and our most recent SEC filings for more information on the exact risk factors that could cause actual results to differ.

Now I would like to turn the call over to Rick O'Dell.

Good morning and thank you for joining us to discuss Saia's results. 2009 proved to be a more difficult year than any of us would have expected. While I'm not pleased with our absolute results, the company did produce noteworthy performances in a number of areas including service, market share gains and cost reduction. I remain confident that Saia, the country's fifth largest nonunion LTL carrier with a solid balance sheet, is well-positioned to thrive when the industry dynamics do improve.

For clarity all of our comments are based on results from continuing operations. Saia's fourth-quarter revenue was $202 million which was a decrease of 12% from prior year quarter. Our operating loss was $3.6 million with a loss per share of $0.31. A few additional fourth-quarter statistics would include our operating ratio was 101.8 compared to 97.7 last year excluding the non-cash impairment charge.

LTL tonnage per workday decreased 4.4%. LTL shipments were down 5.5%. LTL yield decreased 8.8% primarily due to the continued price competition and a reduced fuel surcharge.

Our results remain affected by one of the worst economic and shipping environments in decades. Despite the measure cost reductions that provided a partial offset, our margins were negatively impacted by lower volumes and a significant year-over-year decline in yield. It is noteworthy that we improved in all of our service and key cost metrics, city productivity, dock productivity, load average and office productivity over prior year in spite of a loss of density benefits caused by reduced bill count. We believe these cost improvements will be sustained when volumes recover, which provides an opportunity for solid margin contributions in the future.

I'm pleased with the continued commitment demonstrated by our employees as we are producing record productivity and our 97.4% on-time service for the quarter remains best in class. Saia has been named has been named the 2009 Silver Team Award recipient by Lowe's Companies. This is the 10th consecutive year Saia has been recognized by Lowe's.

For the full year of 2009 Saia's revenue from continuing operations was $849 million, which is a decrease of 18% from the prior year. Despite the difficult economic conditions overall, we did experience volume growth in our newer regions due to additional synergies to and from our expanded geography and our strong service offerings.

Our 2009 results include -- our losses per share were $0.67 compared to $1.48 including the impairment charge. Our LTL tonnage per workday decreased 5.6%. Our LTL yield decreased 11.8%, which again includes the impact of lower fuel surcharge as well as continued pricing pressure. And our operating ratio was 100.4 versus 97.5 in the prior year, excluding the impact of the impairment charge.

Again this year our balance sheet improved with a reduction in total debt of $46 million.

During 2009 we continued to focus on our strategy of building density, customer satisfaction, cost reduction supported by engineered process improvements and effective balance sheet management. While absolute profitability deteriorated due to the difficult environment, our underlying execution on all service and key cost metrics improved significantly.

A summary of the 2009 results include 97.2% on-time service performance; our load average improved over 1%. Our PND productivity was up slightly despite 4% less shipments and reduced bills per pickup. Our dock productivity was up 9%, our office productivity was up 29% and our total terminal cost per bill improved by 7%. Our salaried headcount was down also 10%.

We believe our demonstrated ability to execute on critical initiatives will allow us to continue to navigate through the challenging environment. Through 2009 we outlined several engineered cost initiatives with targeted savings designed to improve our operating performance and enhance service. These projects benefited Saia in 2009 and provided a partial offset to the very difficult volume and pricing environment.

For 2010 we've another set of engineered initiatives designed to support our service and cost reduction efforts, targeting approximately $6 million in annualized savings. A brief summary of these projects are continued use of field engineers to support terminal optimization, city driver routing and sequencing software to minimize drivetime and miles, automated time clocks and real-time productivity, dynamic load planning to optimize our line-haul with actual tonnage. We believe our capability to achieve cost reductions combined with our market share initiatives to increase density will enhance Saia's competitive positions and our margins in the future.

While the near-term economic environment remains challenging, I believe we're well-positioned to address the demand and potential opportunities of 2010.

Now, would like to have Jim Darby review our fourth-quarter results.

Thanks Rick and good morning everyone. As Rick mentioned, the fourth quarter 2009 loss per share was $0.31 compared to $2.09 per share last year. All comparisons to prior year fourth quarter are versus results from continuing operations for that period.

For the quarter, revenues were $202 million with an operating loss of $3.6 million. This compares to prior-year revenue of $231 million and a reported operating loss of $30.2 million, including a non-cash goodwill impairment charge of $35.5 million which had a negative impact on earnings per share of approximately $2.19 after taxes.

The LTL yield for the fourth quarter 2009 was significantly impacted by the continued overcapacity in the industry, resulting in extremely competitive pricing. Yield was also impacted by lower fuel surcharge.

We realized the current environment requires we continue to align cost, both fixed and variable, with reductions in volume. Over the course of the last year we have focused on the productivity initiatives that Rick covered and reduced both salaried and hourly headcount accordingly.

As we mentioned in our guidance in December, the fourth quarter results have been adversely impacted by higher healthcare and workers' compensation expense. The rising cost of healthcare increased expenses by $2.6 million versus the prior year quarter. Workers' compensation expense remained high, virtually matching the fourth quarter 2008 levels despite the 10% reduction in headcount from last year.

The fourth quarter of 2009 did benefit from an approximately $3.9 million reduction in expense related to the change in vacation policy, which was announced earlier in the year. For modeling purposes this will return to a more normal run rate in 2010.

For 2009 losses per share were $0.67 from continuing operations compared to $1.48 per share last year, which included the non-cash impairment charge. For the year, revenues were $849 million with an operating loss of $3.7 million.

Our effective tax rate was 41.5% for the quarter with the full-year 2009 at 42.2%. For 2010 we expect our effective tax rate to be approximately 38.5%.

At December 31, 2009 total debt was $90 million. Net of the company's $8.7 million cash balance, and net debt to capital was 28.6%. This compares to total debt of $136.4 million and net debt to capital of 37.3% at the December 31, 2008.

Our net capital expenditures for 2009 were $8 million. This compares to $26 million in the prior year. The company is planning net capital expenditures in 2010 in the range of $10 million. Planned 2010 expenditures are based on the uncertain economic environment, but will be adequate to support our long-term goals and ongoing investment in technology and engineered processes. The amount of capital expenditures for revenue equipment will be reevaluated when tonnage improves.

As we mentioned previously, we issued an additional 2.3 million shares of common stock which were sold to certain qualified institutional buyers in a private placement. The net proceeds of approximately $25.1 million were used to prepay our regularly scheduled 2010 principal and interest payment. Simultaneous with the offering, we amended our revolving credit agreement and senior notes agreement to provide additional covenant relief through the first quarter of 2011.

Also, a quick comment about discontinued operations. In the quarter we recorded gains of $1.2 million net of the tax effect, or $0.08 per share, as discontinued operations to adjust the liabilities from an indemnification obligation related to the 2006 sale of a former subsidiary. Now I would like to turn the call back to Rick.

Well, Saia brand continues to strengthen due to our comprehensive marketing, a broad footprint which is attractive to customers, and a relentless commitment to service. During the year we demonstrated our ability to execute prudent cost reduction initiatives supported by engineered process improvements and technology. We believe our ability to execute on critical initiatives will allow us to navigate through this prolonged challenging environment.

We feel that our strong brand and our continued commitment to service customers efficiently through this difficult period provides a solid foundation for long-term profitable growth and increase shareholder and customer value when the industry dynamics do improve. With these comments, we're now ready to answer your questions.

(Operator Instructions). Tom Albrecht.

I wanted to ask, it's come up in a lot of the conference calls and basically nobody really knows the answer to this. But what are your thoughts on the pricing environment perhaps stabilizing as we move through the next three, four or five months?

We know there's a little bit of a bid season. It's not as heavy as truckload. We know a couple of folks have backed off their predatory pricing. But a lot of the industry still has quite a bid of unused network capacity. What are you seeing now, and more importantly, what is your crystal ball? What is in your gut as you look out the next four or five months relative to pricing?

Well I guess yield stabilized in the fourth quarter at Saia. We've been taking a firmer stance on pricing, started in the second half of last year and we saw some results from that. Our January yield excluding fuel surcharge which we adjusted for mix is actually up slightly from where it was three months ago in October. This is the first time I can make a statement like that over the past 18 months.

We do believe we've lost some share due to our firmer stance, particularly early in the fourth quarter when one of our major competitors implemented some very aggressive pricing actions. And you saw that reflected in some of our tonnage numbers.

Our general rate increase will be effective on February 1. We expect the initial impact of that for us to be 4.8% on the GRI on approximately 30% of our business. So we did take some lane adjustments which are less than the average increase on our general rate increase.

I guess ultimately we'll see whether that -- how the rates hold. Like I said, we all know there's overcapacity in the industry. At the same time, we're all doing things to gain efficiency. But you run out of those after a while and we can't continue to see the rates go down with the industry margins operating where they are. So, clearly, we're taking a firmer stance on pricing.

Okay. And I'm not sure if I missed this or you just didn't give it. Did you give the monthly tonnage -- October, November, December and how is January progressing?

No, I didn't Tom, but I'll be glad to tell you what it is. As we went through the quarter, you can see overall the LTL tonnage is down 4.4% for the quarter. But as we went through the quarter it improved, actually.

It was down in October 7.3%. In November it was down 4.5% and in December it was down 0.8%. And so far in January the LTL tonnage is running up about 2% year-over-year.

And I know we've talked about this before Rick (multiple speakers) -- I think somebody needs to be on mute there. But I know we've talked about this before, but I have forgotten what your answer is. As you measure two things, one, available network capacity and available people capacity, what is your estimate of how much increase in business you can handle without further investment?

The network is probably 15 to 20. I guess the people (inaudible) anything there in the near-term you can step up your hours and there's some opportunities to outsource in certain areas. So you're probably in the 8% range, 8 to 10%.

And then lastly, as business is modestly improving, is it pretty much across the board? Or is it more retail consumer, more industrial, is there any pattern yet that has emerged?

Yes, I think is difficult to say. I think some of the big box retailers are starting to see things go slightly positive I guess on a sequential basis. But year-over-year is still looking particularly good at this point in time.

So, I haven't seen anyone who is overly encouraged from that perspective. And then the rest of our customer base, quite frankly, is such a broad diverse group that it's difficult to see I guess for us. The upper Midwest has probably shown the most favorable tonnage and shipment comparisons.

I think a lot of that is just because we were less mature up there and we continue to strengthen our brand and probably take share there more than in some other areas where we already had a stronger presence. And South Texas where we've always been strong in the oilfield business is down pretty significantly with the year-over-year decline in oil prices.

Okay. And Jim did you give length of haul?

I didn't Tom, but I can give you that as well too. The actual number for fourth quarter is 717. That is up 3.6% from a year ago. I would tell you over the course of the quarter it was about the same and it has pretty much flattened out during the fourth quarter. So we ended up fourth at 717.

And what was Q4 2008? In the transition I don't have all the numbers I used to.

Tom, in the essence of time, can we go ahead and move on and maybe we can come back and address that for you please.

Sure.

Ed Wolfe.

You gave the tonnage by month. Do you have that for yields by month?

No, I don't.

Okay, directionally, you said January it feels like the yield net of fuel and price is up more than it was in October. Is it year-over-year or how does that look?

The comment we made versus October it's adjusted for mix. It's actually up about 0.2 to 0.3%. So our yield is actually up in January over where it was three months ago on a sequential basis. Again, that same number kind of adjusted for mix.

I think the comment we made last quarter as we were running down, it is a theoretical model but I would call it 4 or 5% year over year. So while sequentially we saw call 0.2 to 0.3 points improvement, it has kind of stabilized and gotten better. It hasn't continued to go down but obviously the cumulative effect of what happened through the prior 9 to 12 months is significant.

Sure. But it is also significant seasonally that October should be better than January, and January is better than October.

I think it's right. It's a good early sign anyway.

So if you go into this and you think you're going to get 30%, could get 4.8. That would be 1.4 or 1.5. Obviously last year everybody asked for more than that and didn't get anything. Are you feeling pretty -- I mean, is it your intention that that 30% immediately you get the full 4.8 and we should start to see that improvement?

That's certainly the plan. I think there may be some tonnage loss if other people continue to be aggressive in the market place. But again our position is that rates clearly can't continue to go down and we need to make some headway to get them going in a different direction. That is not only with the general rate increase but it applies to contract renewals as well.

It makes sense. We've seen this on the ocean side where there's still extra capacity, but rates started to go up finally.

Can you take us through a little bit for 2010 interest expense and depreciation expense as you see it? There are some moving parts here.

I would say I expect it to model close to where we were for this past year. Our debt levels will be down but we have some amortization of some fees that we will expense over the course of the year. I would expect it to model close to what it did in 2009.

That's for interest expense?

That's for interest expense.

So around $12 million; it's around $12 million and fairly evenly?

Yes, I would say so. The interest portion will be down but the amortization and fees will be up a little bit.

Okay. So when we add it all up, give or take $3 million a quarter. And then on the depreciation side, directionally with not having spent much CapEx, does that start to come down?

It will be down a little bit, yes. And that is what we've seen as we've gone through this year and I think you can trend that on out.

Assuming you stick it to the current plan of give or take $10 million in CapEx this year, what is it that you're putting off? And when things do get better, where should we expect the need to spend and where does CapEx go to, say in 2011 in 2012? How do we think about that?

I think your replacement cycle is -- a normal replacement cycle would probably approximate depreciation, (multiple speakers) so it would be about $40 million. And then I think one issue you have is if you're growing your fleet, right, we buy that and put it in the line-haul operation. You end up with some incremental step down. So if you're growing more, maybe your replacement cycle can actually come down a little bit.

Okay. But just say there's not a lot of growth. You're going to go for growth through utilization of what you have. Would the modeling for 2011 be above $40 million if the world is normal because there is some makeup in addition? Or do you feel like you are within your normal cycle still?

It would step up a little bit as we would add in some more revenue equipment which we've backed off the last couple of years.

And just directionally, does that double the $40 million or is it (multiple speakers)?

No.

No.

What we tend to do is take some of the -- if you have done a deferral for a couple of years you take that and average it in over three years. So $40 million might be $50 million, but it's not going to be $80 million.

Last one and I will let someone else have it. Normally first quarter is a seasonally weaker quarter than fourth, but you have talked about your tonnage is better now. Pricing directly has come up a little bit. Is it possible your OR could actually be better in the first quarter than the fourth quarter?

Here's a way to kind of think about the quarter. Excluding last year, our first quarter OR is usually about one point worse, right? But if you go back to those quarters, when you look at it historically we usually had a wage increase in December which was about one operating point and that's not going to take place. So maybe it's flat.

And the other issue you have is we will have the reinstatement of our vacation accrual, which is about 1.5 points. So off of that, I guess you can assume we'll be aggressive with cost. And as you pointed out, maybe the biggest factor is whether the improvement in yields is sustainable in the market place and what impact that has on our volumes.

And how good February 1 can be for you with the GRI, I guess.

Right.

Thanks guys. I appreciate the time.

Art Hatfield, Morgan Keegan.

Just to kind of follow-up on what Ed was talking about as we go through 2010, and let's assume that maybe we're hitting somewhat of an inflection point here. Maybe things start to get a little bit better. What are some of the operating cost headwinds that you'll have, some of the things that your employees have given you or you've gotten from employees and wage concessions and other things that you'll want to give back to them at some point?

Clearly, we want to give those things back and we would like to achieve the results that allow us to fund that, and we certainly will work toward that in 2010 and beyond. And I guess the commitment we made to our employees is that we need to see a 95 operating ratio for a couple of quarters before we would be able to restore wages and benefits.

Can you do those things for me again real quick? Was it a 10% wage concession?

It was 10% for the leadership group and 5% for the employee group. And then there's a 401(k) match; that was 3%. Those are the major items.

The dollar amounts related to the wage concession. The 5% for the overall group, 10% for the leadership team is about $4.5 million a quarter. That's what it was through 2009. And the elimination of the match on the 401(k) was about $1.5 million a quarter.

Those are the only potential headwinds as you get to that 95 or better OR.

Again we have to achieve that and sustain it for a couple of quarters before we're going to just turn around and go the other direction.

Understood, but just want to make sure I understand what are the potential things out there as you get to that point.

I think the other comment is, based on how we're operating and what our outlook is, they may be phased back in. It doesn't mean if you get a 95 OR for two quarters and put all those costs back and it's over three operating points, takes you right back to 98. We don't want to do that until we see what our actual results are and how we're operating, right?

No, that's helpful. That's all I've got today.

David Ross.

Good morning everyone. Question on the insurance and claims line item; seemed to be finally a little bit better than expected. Can you talk a little bit about whether that is just your safety program paying off or whether you had any one time year-end adjustments there and what the sustainable level of that line might be?

The big pieces in there are the BIPD, bodily injury property damage, and we had a little bit favorable severity compared year-over-year in that area.

And frequency.

And frequency, apparently. The second piece is the cargo planes have been there that we've had very good success with what we call our DBE program, our deliveries before exceptions, where we've eliminated exceptions. And throughout our process and as that DBE ratio goes up, the cargo planes have come down and we benefited from that for the last couple of quarters. So those two things combined are what make that claims and insurance line go down.

So all else equal, there is nothing that should prevent you guys from having at least a $6 million run rate per quarter in that line? Obviously there is going to be fluctuations. (multiple speakers)

The fluctuations you could have with an accident, but otherwise I think that's pretty close.

I would say we're confident in our ability to maintain some of the progress we've made on the cargo side, because we made some significant process changes and again some material headway there. As Jim had commented, even if we do make continued progress on the frequency side of accidents, we do have some volatility with severity.

And while the quarter was much better, year-to-date we had a worse severity year than we did in the prior year even though our frequency was better.

Okay, that's helpful. Also given the reduced volumes, can you talk about any network changes you may have done? I noticed a number of terminals haven't changed too much. Are you switching anything around, how the pricing routed and I guess how flexible you've been through the downturn to try to manage that?

A little over a year ago I guess we took out some smaller terminals out and expanded the coverage from some surrounding areas. We feel like our terminal network certainly has value in the market place and we haven't made any material changes there.

Now from a routing standpoint, we're always looking for opportunities to make improvements in our line-haul network and our routing optimizations. That's an ongoing effort. And I think it's -- given that negative year-over-year tonnage status that we had, I think it's significant that we actually improved load average in spite of that.

So, I think what we tend to see is we made some good progress year-over-year, particularly in our break to break load average and capacity utilization there. As you lose some density from your surrounding regional terminals, it is more difficult to take out significant cost there with less schedules. You have to meet your service requirements.

I understand. Last question, with the employees in the press release you said you had 7200 there now. How many were there one year ago and the end of the fourth quarter 2008?

I don't have that exact number of front of me. We're down about 10% overall.

So about 8000?

I'll get back with you on that.

Jack Waldo.

I wanted to get back to the question on OR a little bit more and just kind of look at the model. One thing; could you just talk maybe a little bit about your insurance expense? It looked to be $2.7 million below (inaudible) been the average for the last couple of years. And when you talk about the sequential change in OR between the fourth quarter and the first quarter, is that the type of number we should assume?

The claim [on the] insurance line?

Yes, sir.

Right, that we covered. That's really made up of the BIPD in the cargo and we've achieved some very nice gains in our process to keep cargo planes down. The only thing that could make it fluctuate would be severity, movement in the BIPD portion of that. But that is pretty much the run rate.

Okay. Makes sense. And then did you say it was a $3.9 million benefit for the vacation accrual piece?

It was. In the fourth quarter, yes. And we expect going forward, as Rick pointed out, we expect it is probably an add-back of about $3 million a quarter going forward into 2010.

So just to summarize on the OR piece, you're optimistic that it can at least be where it was in the fourth quarter should these type of trends continue?

That's not really what we said. If you take where we were, right, and you add the 1.5 points for vacation that's going to in there, that really puts you -- let's say you are at 101.5; add 1.5 points you're at 103 range.

Anything from there is contingent on what happens from normal things?

I think that's right. I think that's fair.

Last question. Have you seen -- any freight diversions you might've gotten from a competitor in the fourth quarter, have you seen it going back at all?

No. Our numbers from a sequential basis actually improved. As we commented, it improved in January over where we were in December. So, we don't -- we have not seen that.

I think especially with large customers when they go make a change, they make routing changes in their system and a commitment to you over time, it's more difficult for them to go back. It's not that they wouldn't, but I don't think you are going to see an immediate change.

Understood. Thank you guys very much.

Jason Seidl.

I want to go back to, on the pricing side, but forget about sequentially or year-over-year. What does it need to go up to be at a compensatory level for you guys, what percent from here?

Compensatory level meaning (multiple speakers)

(multiple speakers) invest in your business at good returns.

To get back to good returns I think you are going to most likely see some combination of volume increases, which a portion of that clearly goes to the bottom line on an incremental basis. And then we need to see some true yield improvements. Every 1% pure yield improvement should be 1% on the operating ratio, right?

So technically if you look at us we're at 100 operating ratio for the last year. And if you add back the vacation which is nonrecurring, you're in the neighborhood of 101, 102. So you can just do the math and see what you need to get back to, to get some returns that are reasonable.

That's fair enough. Also on the GRIs, a lot of carriers have already implemented them in January. Can you walk us through the decision to implement it in February?

Yes, I think obviously while we saw some rate stability in the fourth quarter at Saia, we lost some market share with that. And we think some people were still being aggressive in the market place. Our decision was quite frankly to see what actions others took and make sure that our decision was well thought out, and we could go through a good implementation and make sure we give our customers appropriate notice and rationale for that, and not just turn around and toss in something because everyone else did.

I know last year everyone took January rate increases and they weren't sustained at all. So, I guess our decision was probably a little more conservative than what we've done in the past. But it certainly would appear to be -- appears to be prudent in this environment to kind of wait and see, and implement something that is sustainable is more important than the timing, particularly if you are talking about a couple of weeks.

That makes sense. That's good color. Listen, I appreciate the time as always.

Neil Deaton.

Just one quick question for you. I know you touched on the expected tax rate and some of those things. But as far as the share count in the first quarter, you've obviously added the 2.3 million shares from private placement. And you all had said it fluctuates some based on whether you're in a loss situation or profitable. Is $15.6 million a good number to use for the first quarter?

That's about right. You add on the $2.3 million on top of that and it will cause some dilution going forward. But that's about right.

Okay, I just wanted to verify that. Had you not done the offering it would have been probably 13.3 or so?

That's about right.

I just wanted to verify that.

You got it.

That's all I have. Everybody else covered everything. Thank you.

There are no further questions at this time.

Great. Thank you for your interest in Saia. We appreciate it.