Saia Inc: Form 10-Q for the period ended Jun 30, 2024

This Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and our 2023 audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Those consolidated financial statements include additional information about our significant accounting policies, practices and the transactions that underlie our financial results.

Cautionary Note Regarding Forward-Looking Statements

The Securities and Exchange Commission (the SEC) encourages companies to disclose forward-looking information so that investors can better understand the future prospects of a company and make informed investment decisions. This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations,” contains these types of statements, which are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “may,” “plan,” “predict,” “believe,” “should,” “potential” and similar words or expressions are intended to identify forward-looking statements. Investors should not place undue reliance on forward-looking statements, and the Company undertakes no obligation to publicly update or revise any forward-looking statements, except as otherwise required by applicable law. All forward-looking statements reflect the present expectation of future events of our management as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors, risks, uncertainties and assumptions that could cause actual results to differ materially from those described in any forward-looking statements. These factors, risks, uncertainties and assumptions include, but are not limited to, the following:

• general economic conditions including downturns or inflationary periods in the business cycle;
• operation within a highly competitive industry and the adverse impact from downward pricing pressures, including in connection with fuel surcharges, and other factors;
• industry-wide external factors largely out of our control;
• cost and availability of qualified drivers, dock workers, mechanics and other employees, purchased transportation and fuel;
• inflationary increases in operating expenses and corresponding reductions of profitability;
• cost and availability of diesel fuel and fuel surcharges;
• cost and availability of insurance coverage and claims expenses and other expense volatility, including for personal injury, cargo loss and damage, workers’ compensation, employment and group health plan claims;
• failure to successfully execute the strategy to expand our service geography;
• unexpected liabilities resulting from the acquisition of real estate assets;
• costs and liabilities from the disruption in or failure of our technology or equipment essential to our operations, including as a result of cyber incidents, security breaches, malware or ransomware attacks;
• failure to keep pace with technological developments;
• liabilities and costs arising from the use of artificial intelligence;
• labor relations, including the adverse impact should a portion of our workforce become unionized;
• cost, availability and resale value of real property and revenue equipment;
• supply chain disruption and delays on new equipment delivery;
• capacity and highway infrastructure constraints;
• risks arising from international business operations and relationships;
• seasonal factors, harsh weather and disasters caused by climate change;
• economic declines in the geographic regions or industries in which our customers operate;
• the creditworthiness of our customers and their ability to pay for services;
• our need for capital and uncertainty of the credit markets;
• the possibility of defaults under our debt agreements, including violation of financial covenants;
• inaccuracies and changes to estimates and assumptions used in preparing our financial statements;
• failure to operate and grow acquired businesses in a manner that support the value allocated to acquired businesses;
• dependence on key employees;
• employee turnover from changes to compensation and benefits or market factors;
• increased costs of healthcare benefits;
• damage to our reputation from adverse publicity, including from the use of or impact from social media;
• failure to make future acquisitions or to achieve acquisition synergies;
• the effect of litigation and class action lawsuits arising from the operation of our business, including the possibility of claims or judgments in excess of our insurance coverages or that result in increases in the cost of insurance coverage or that preclude us from obtaining adequate insurance coverage in the future;
• the potential of higher corporate taxes and new regulations, including with respect to climate change, employment and labor law, healthcare and securities regulation;
• the effect of governmental regulations, including hours of service and licensing compliance for drivers, engine emissions, the Compliance, Safety, Accountability (CSA) initiative, regulations of the Food and Drug Administration and Homeland Security, and healthcare and environmental regulations;
• unforeseen costs from new and existing data privacy laws;
• costs from new and existing laws regarding how to classify workers;
• changes in accounting and financial standards or practices;
• widespread outbreak of an illness or any other communicable disease;
• international conflicts and geopolitical instability;
• increasing investor and customer sensitivity to social and sustainability issues, including climate change;
• provisions in our governing documents and Delaware law that may have anti-takeover effects;
• issuances of equity that would dilute stock ownership;
• weakness, disruption or loss of confidence in financial or credit markets; and
• other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s SEC filings.

These factors and risks are described in Part I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as updated by Part II, Item 1A. of this Quarterly Report on Form 10-Q.

As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this Form 10-Q. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by applicable law.

Executive Overview

The Company’s business is highly correlated to non-service sectors of the general economy. The Company’s strategy is to improve profitability by increasing yield, while also increasing volumes. Components of this strategy include building density in existing geographies and pursuing geographic and terminal expansion in an effort to promote profitable growth and improve our customer value proposition over time. The Company’s business is labor intensive, capital intensive and service sensitive. The Company looks for opportunities to improve safety, cost effectiveness and asset utilization (primarily tractors and trailers). Pricing initiatives have had a positive impact on yield and profitability. The Company continues to execute targeted sales and marketing programs along with initiatives to align costs with volumes and improve customer satisfaction. Technology continues to be an important investment as we work towards improving customer experience, operational efficiencies and Company image.

Second Quarter Overview

The Company’s operating revenue increased by 18.5 percent in the second quarter of 2024 compared to the same period in 2023. The increase resulted primarily from increases in shipments and tonnage partially as a result of the redistribution of freight due to a competitor bankruptcy. In the second quarter of 2024, LTL shipments were up 18.1 percent and LTL tonnage was up 9.7 percent compared to the prior year quarter. Additionally, increases in revenue were driven by improved revenue per hundredweight due to pricing and changes in business mix.

Consolidated operating income was $137.6 million for the second quarter of 2024 compared to $120.3 million for the second quarter of 2023. Diluted earnings per share were $3.83 in the second quarter of 2024 compared to diluted earnings per share of $3.42 in the prior year quarter. The operating ratio (operating expenses divided by operating revenue) was 83.3 percent in the second quarter of 2024 compared to 82.7 percent in the second quarter of 2023. The Company generated $237.2 million in net cash provided by operating activities in the first six months of 2024 compared with $291.4 million in the same period last year. The Company opened six new terminals and relocated an additional two terminals during the second quarter of 2024.

General

The following Management’s Discussion and Analysis describes the principal factors affecting the results of operations, financial condition, liquidity and capital resources, as well as the critical accounting policies and estimates of Saia, Inc. and its wholly-owned subsidiaries (together, the Company or Saia).

Saia is a transportation company headquartered in Johns Creek, Georgia that provides national less-than-truckload (LTL) services through a single integrated organization. While more than 97 percent of revenue is historically derived from transporting LTL shipments across 46 states, the Company also offers customers a wide range of other value-added services, including non-asset truckload, expedited transportation and logistics services across North America.

Our business is highly correlated to non-service sectors of the general economy. Our business also is impacted by a number of other factors as discussed under “Cautionary Note Regarding Forward Looking Statements” and Part II, Item 1A. “Risk Factors.” The key factors that affect our operating results are the volumes of shipments transported through our network, as measured by our average daily shipments and tonnage; the prices we obtain for our services, as measured by revenue per hundredweight (a measure of yield) and revenue per shipment; our ability to manage our cost structure for capital expenditures and operating expenses such as salaries, wages and benefits; purchased transportation; claims and insurance expense; fuel and maintenance; and our ability to match operating costs to shifting volume levels.

Results of Operations

Saia, Inc. and Subsidiaries

Selected Results of Operations and Operating Statistics

For the quarters ended June 30, 2024 and 2023

(unaudited)

(in thousands, except ratios, workdays, revenue per hundredweight, revenue per shipment, pounds per shipment and length of haul)

13

Quarter and six months ended June 30, 2024 compared to quarter and six months ended June 30, 2023

Revenue and volume

Consolidated revenue for the quarter ended June 30, 2024 increased 18.5 percent to $823.2 million primarily as a result of increases in shipments and tonnage partially as a result of the redistribution of freight due to a competitor bankruptcy. For the second quarter of 2024, Saia’s LTL tonnage was up 9.7 percent to 1.6 million tons, and LTL shipments increased 18.1 percent to 2.3 million shipments. LTL revenue per hundredweight, excluding fuel surcharge, increased 8.7 percent to $21.69 per hundredweight for the second quarter of 2024 as a result of changes in business mix and pricing actions. For the second quarter of 2024, approximately 75 percent of the Company’s operating revenue was subject to specific customer price negotiations that occur throughout the year. The remaining 25 percent of operating revenue was subject to a general rate increase. For customers subject to a general rate increase, Saia implemented 7.5 and 6.5 percent general rate increases on December 4, 2023 and January 30, 2023, respectively. Competitive factors, customer turnover and mix changes impact the extent to which customer rate increases are retained over time.

Operating revenue includes revenue recognized from the Company’s fuel surcharge program, which is designed to reduce exposure to fluctuations in diesel fuel prices by adjusting total freight charges to account for changes in the price of diesel fuel. The Company’s fuel surcharge is generally based on the average national price for diesel fuel (as published by the United States Energy Information Administration) and is typically reset weekly. Fuel surcharges are widely accepted in the industry and are a significant component of revenue and pricing. Fuel surcharges are an integral part of customer contract negotiations, but represent only one portion of overall customer price negotiations, as customers may negotiate increases in base rates instead of increases in fuel surcharges or vice versa. Fuel surcharge revenue as a percentage of operating revenue decreased to 15.4 percent for the quarter ended June 30, 2024 compared to 15.9 percent for the quarter ended June 30, 2023, as a result of decreases in the average cost of diesel fuel and changes in customer mix.

For the six months ended June 30, 2024, operating revenues were $1.6 billion, up 16.4 percent from operating revenues for the six months ended June 30, 2023 primarily as a result of increases in shipments and tonnage partially as a result of the redistribution of freight due to a competitor bankruptcy. Fuel surcharge revenue as a percentage of operating revenue decreased to 15.5 percent for the six months ended June 30, 2024 compared to 16.8 percent for the six months ended June 30, 2023, as a result of decreases in the average cost of diesel fuel and changes in customer mix.

Operating expenses and margin

Consolidated operating income was $137.6 million in the second quarter of 2024 compared to $120.3 million in the prior year quarter. Overall, the increase in consolidated operating income was the result of increased volumes partially offset by increased operating expenses during the second quarter of 2024, primarily driven by the expanded footprint of opening eight new terminals and nine relocations during the past twelve months. The second quarter of 2024 operating ratio (operating expenses divided by operating revenue) was 83.3 percent compared to 82.7 percent for the same period in 2023.

Salaries, wages and employees’ benefits increased $60.4 million in the second quarter of 2024 compared to the second quarter of 2023. This change was primarily driven by increases in headcount, employee hours worked and training hours in response to overall increased volumes and expanded footprint, and by a Company-wide wage increase in July 2023 of approximately 4.1 percent. In addition, workers’ compensation expense increased by approximately $2.5 million related to new claims, unfavorable development on existing claims and increased headcount. Purchased transportation increased $11.3 million in the second quarter of 2024 compared to the second quarter of 2023 primarily due to increases in both non-asset truckload volume and LTL purchased transportation miles. Fuel, operating expenses and supplies increased by $27.4 million compared to the second quarter of 2023 largely due to increased facility costs, administrative costs and fuel costs due to increased volumes and the expanded footprint. Claims and insurance expense in the second quarter of 2024 was $1.9 million higher than the second quarter of 2023 primarily due to increased claim activity and development of open cases. Depreciation and amortization expense increased $7.9 million in the second quarter of 2024 compared to the same period in 2023 primarily due to ongoing investments in revenue equipment, real estate and technology partially offset by an approximate $2.0 million decrease in depreciation expense due to the change in estimated remaining useful life of certain trailers and dollies during the second quarter of 2024. Refer to Note 1 to the accompanying unaudited condensed consolidated financial statements in this Current Report on Form 10-Q.

For the six months ended June 30, 2024, consolidated operating income was $255.5 million, up 16.5 percent compared to $219.4 million for the six months ended June 30, 2023. This increase in consolidated operating income was the result of increased volumes partially offset by increased operating expenses during the during the first six months of 2024.

Salaries, wages and benefits increased $103.1 million during the first six months of 2024 compared to the same period last year. This change was primarily driven by increased volumes and expanded footprint, and by a Company-wide wage increase in July 2023 of approximately 4.1 percent. In addition, other employee related costs increased, including increased training hours and unfavorable development of workers’ compensation claims. Purchased transportation increased $17.1 million for the first six months of 2024 compared to the same period in the prior year primarily due to increases in both non-asset truckload volume and LTL purchased transportation miles. Fuel, operating expenses and supplies increased $42.1 million during the first six months of 2024 compared to the same period last year largely due to increased facility costs, administrative costs and fuel costs due to increased volumes and expanded footprint. During the first six months of 2024, claims and insurance expense was $5.3 million higher than the same period last year primarily due to increased claim activity and development of open claims. Depreciation and amortization expense increased $13.8 million during the first six months of 2024 compared to the same period in 2023 primarily due to ongoing investments in revenue equipment and network expansion.

Other

Interest expense for the quarter and six months ended June 30, 2024 was higher than the same period in 2023 due to interest expense related to borrowings under the credit arrangements.

Interest income for the quarter and six months ended June 30, 2024 was lower than the same period in 2023 due to decreased deposit balances during the period.

The effective tax rate was 24.4 percent and 24.7 percent for the quarters ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, the effective tax rate was 24.1 and 24.0 percent, respectively.

Net income was $102.5 million, or $3.83 per diluted share, in the second quarter of 2024 compared to net income of $91.3 million, or $3.42 per diluted share, in the second quarter of 2023. Net income was $193.2 million, or $7.21 per diluted share, for the first six months of 2024 compared to net income of $167.4 million, or $6.27 per diluted share, for the first six months of 2023.

Outlook

Our business remains highly correlated to non-service sectors of the general economy and competitive pricing pressures, as well as the success of Company-specific improvement initiatives. Our outlook is dependent on a number of external factors, including strength of the economy, inflation, labor availability, diesel fuel prices and supply chain constraints. The potential impact of these factors on our operations, financial performance and financial condition, as well as the impact on our ability to successfully execute our business strategies and initiatives, remains uncertain and difficult to predict. We are continuing initiatives to improve and enhance customer service in an effort to support our ongoing pricing and business mix optimization, while seeking to control costs and improve productivity. Planned revenue initiatives include building density in our current geography, targeted marketing initiatives to grow revenue in more profitable areas, further expanding our geographic and terminal network, as well as pricing and yield management. On December 4, 2023 and January 30, 2023 Saia implemented 7.5 and 6.5 percent general rate increases, respectively, for customers comprising approximately 25 percent of Saia’s operating revenue. The extent of success of these revenue initiatives is impacted by what proves to be the underlying economic trends, competitor initiatives and other factors discussed under “Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A. “Risk Factors.”

With our objective of building market share, including through our geographic and terminal expansion, we expect there to be numerous operating leverage cost benefits. Conversely, should the economy soften, we plan to match resources and capacity to shifting volume levels to lessen unfavorable operating leverage. The success of cost improvement initiatives is impacted by a number of factors, including the cost and availability of drivers, dock workers and personnel, and purchased transportation, diesel fuel and insurance costs and inflation.

Effective July 2024, the Company implemented a market competitive salary and wage increase for all employees. The increase is expected to be approximately 4.1 percent, and the Company anticipates the impact will be partially offset by productivity and efficiency gains.

See “Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A. “Risk Factors” for a more complete discussion of potential risks and uncertainties that could materially adversely affect our financial condition, results of operations, cash flows and prospects.

Financial Condition, Liquidity and Capital Resources

The Company’s liquidity needs arise primarily from capital investment in new equipment, land and structures, information technology and letters of credit required under insurance programs, as well as funding working capital requirements.

Working capital/capital expenditures

Working capital at June 30, 2024 was $118.2 million, a decrease from $311.6 million at June 30, 2023.

Current assets at June 30, 2024 decreased by $132.8 million as compared to June 30, 2023, driven by a decrease in cash and cash equivalents of $223.8 million to fund the Yellow Corporation real estate acquisitions, partially offset by an increase in accounts receivable of $76.3 million. Current liabilities increased by $60.5 million at June 30, 2024 compared to June 30, 2023 largely due to an increase in accounts payable and other current liabilities.

A summary of our cash activity is presented below:

(in thousands)

Cash flows provided by operating activities were $237.2 million for the six months ended June 30, 2024 versus $291.4 million for the six months ended June 30, 2023. The decrease is primarily due to an increase in accounts receivable and changes in other assets and liabilities, partially offset by additional net income. For the six months ended June 30, 2024, net cash used in investing activities was $676.3 million compared to $226.5 million in the same period last year, a $449.8 million increase. This increase resulted from the acquisition of terminals from Yellow Corporation in January 2024 in addition to increased revenue equipment purchases to support higher volumes. For the six months ended June 30, 2024, net cash provided by financing activities was $154.0 million compared to $17.3 million net cash used in financing activities during the same period last year, as a result of borrowings to help fund capital expenditures during the first six months of 2024.

The Company has historically generated cash flows from operations to fund a large portion of its capital expenditure requirements. The timing of capital expenditures can largely be managed around the seasonal working capital requirements of the Company. The Company believes it has adequate sources of capital to meet short-term liquidity needs through its cash on hand, operating cash flows and availability under its credit arrangements, discussed below. Future operating cash flows are primarily dependent upon the Company’s profitability and its ability to manage its working capital requirements, primarily accounts receivable, accounts payable and wage and benefit accruals.

The Company currently anticipates that net capital expenditures in 2024 will be in excess of $1 billion, subject to ongoing evaluation of market conditions. Anticipated capital expenditures for the remainder of the year include normal replacement cycles of revenue equipment, investments in technology and revenue equipment and real estate investments to support our growth initiatives, including the plan to open 12 to 15 additional terminals in the third and fourth quarters. Net capital expenditures were $681.3 million in the first six months of 2024 and include $235.7 million for the acquisition of 17 Yellow Corporation freight terminals. Additionally, $7.9 million was used to fund the acquisition of Yellow Corporation's interest in leases for 11 freight terminals and the payment of cure costs. Approximately $152.8 million of the 2024 remaining capital budget was committed as of June 30, 2024.

Credit Arrangements

Revolving Credit Facility

The Company is a party to an unsecured credit agreement with its banking group (the Revolving Credit Facility), which provides up to a $300 million revolving line of credit through February 2028. The Revolving Credit Facility contains an accordion feature that allows the Company to increase the size of the facility by up to $150 million, subject to certain conditions and availability of lender commitments. Borrowings under the Revolving Credit Facility bear interest at the Company’s election at a variable rate equal to (a) one, three or six month term SOFR (the forward-looking secured overnight financing rate) plus 0.10%, or (b) an alternate base rate, in each case plus an applicable margin. The applicable margin is between 1.00% and 1.75% per annum for term SOFR loans and between 0.00% and 0.75% per annum for alternate base rate loans, in each case based on the Company’s leverage ratio, as defined in the agreement. The Company also accrues fees based on the daily unused portion of the Revolving Credit Facility, which is between 0.0125% and 0.025% based on the Company’s consolidated net lease adjusted leverage ratio. Under the Revolving Credit Facility, the Company is subject to a maximum consolidated net lease adjusted leverage ratio of less than 3.50 to 1.00 with the potential to be temporarily increased in the event the Company makes an acquisition that meets certain criteria. The Revolving Credit Facility contains certain customary representations and warranties, affirmative and negative covenants and provisions relating to events of default. Under the Revolving Credit Facility, if an event of default occurs, the banks will be entitled to take various actions, including the acceleration of amounts due. The Company was in compliance with its debt covenants at June 30, 2024.

At June 30, 2024 the Company had outstanding borrowings of $67.0 million and outstanding letters of credit $32.2 million under this Revolving Credit Facility. As of December 31, 2023, the Company had no outstanding borrowings and outstanding letters of credit of $32.1 million under this Revolving Credit Facility. At June 30, 2024, the Company had $200.8 million in availability under the Revolving Credit Facility.

Private Shelf Agreement

On November 9, 2023, the Company entered into a $350 million uncommitted Private Shelf Agreement (the Shelf Agreement), by and among the Company, PGIM, Inc. (Prudential), and certain affiliates and managed accounts of Prudential (the Note Purchasers) which allows the Company, from time to time, to offer for sale to Prudential and its affiliates, in one or a series of transactions, senior notes of the Company, through November 9, 2026.

Pursuant to the Shelf Agreement, on May 1, 2024, the Company issued senior promissory notes (the Initial Notes) in an aggregate principal amount of $100 million to the Note Purchasers. The Initial Notes bear interest at 6.09% per annum and mature five years after the date on which the Initial Notes were issued, on May 1, 2029, unless repaid earlier by the Company. The Initial Notes are senior unsecured obligations and rank pari passu with borrowings under the Revolving Credit Facility or other senior promissory notes issued pursuant to the Shelf Agreement.

Additional notes issued under the Shelf Agreement, if any, would bear interest at a rate per annum, and would have such other terms, as would be set forth in a confirmation of acceptance executed by the parties prior to the closing of the applicable sale transaction.

The Shelf Agreement requires that the Company maintain a consolidated net lease adjusted leverage ratio of less than 3.50 to 1.00, with limited exceptions. The Shelf Agreement also contains certain customary representations and warranties, affirmative and negative covenants and provisions related to events of default. Upon the occurrence and continuance of an event of default, the holders of notes issued under the Shelf Agreement may require immediate payment of all amounts owing under such notes. The Company was in compliance with its debt covenants at June 30, 2024.

At June 30, 2024 and December 31, 2023, the Company had outstanding borrowings under this Shelf Agreement of $100.0 million and $0, respectively.

Finance Leases

The Company is obligated under finance leases with seven-year original terms covering certain revenue equipment. Total liabilities recognized under the finance leases were $9.7 million and $16.5 million as of June 30, 2024 and December 31, 2023, respectively. Amortization of assets held under the finance leases is included in depreciation and amortization expense. The weighted average interest rates for the finance leases at June 30, 2024 and December 31, 2023 were 4.1 percent and 4.0 percent, respectively.

Contractual Obligations

Contractual obligations for the Company are comprised of lease agreements, purchase obligations and long-term debt obligations. Contractual obligations for operating leases at June 30, 2024 totaled $147.6 million, including operating leases with original maturities of less than one year, which are not recorded in our consolidated balance sheet in accordance with U.S. generally accepted accounting principles. Contractual obligations in the form of finance leases were $10.0 million at June 30, 2024, which includes both principal and interest amounts. For the remainder of 2024, $7.0 million of interest payments are anticipated based on borrowings and commitments outstanding at June 30, 2024. See Note 5 to the accompanying unaudited condensed consolidated financial statements in this Current Report on Form 10-Q. Purchase obligations at June 30, 2024 were $153.0 million, including commitments of $152.8 million for capital expenditures. As of June 30, 2024, the Revolving Credit Facility had $67.0 million outstanding principal balance and the Shelf Agreement had $100.0 million outstanding principal balance.

Other commercial commitments of the Company typically include letters of credit and surety bonds required for collateral towards insurance agreements. As of June 30, 2024 the Company had total outstanding letters of credit of $32.2 million and $59.6 million in surety bonds.

The Company has accrued approximately $4.4 million for uncertain tax positions and $0.5 million for interest and penalties related to the uncertain tax positions as of June 30, 2024. At June 30, 2024, the Company has accrued $86.9 million for claims and insurance liabilities.

Critical Accounting Policies and Estimates

There have been no significant changes to the application of the critical accounting policies and estimates contained in our Annual Report on Form 10-K for the year ended December 31, 2023. The reader should refer to our 2023 Annual Report on Form 10-K for a full disclosure of all critical accounting policies and estimates of amounts recorded in certain assets, liabilities, revenue and expenses.

The Company is exposed to a variety of market risks including the effects of interest rates and diesel fuel prices. To help mitigate our risk to rising diesel fuel prices, the Company has an established fuel surcharge program. The detail of the Company’s debt structure is more fully described in Note 5 “Debt and Financing Arrangements” of the accompanying unaudited condensed consolidated financial statements in this Form 10-Q.

The following table provides information about the Company’s third-party financial instruments as of June 30, 2024. The table presents annual principal cash flows (in millions) and related weighted average interest rates by contractual maturity dates. The fair value of fixed rate debt is based on current market interest rates for similar types of financial instruments, reflective of level two inputs. The carrying amount of the Company’s variable rate debt approximates fair value as interest rates approximate the current rates available to the Company.

Quarterly Controls Evaluation and Related CEO and CFO Certifications

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company conducted an evaluation of the effectiveness of the design and operation of its “disclosure controls and procedures” (Disclosure Controls). The Disclosure Controls evaluation was performed under the supervision and with the participation of management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO).

Based upon the controls evaluation, the Company’s CEO and CFO have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s Disclosure Controls are effective to ensure that information the Company is required to disclose in reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

During the period covered by this Quarterly Report on Form 10-Q, there were no changes in internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q are certifications of the CEO and the CFO, which are required in accordance with Rule 13a-14 of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications.

Definition of Disclosure Controls

Disclosure Controls are controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported timely. Disclosure Controls are also designed to ensure that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. The Company’s Disclosure Controls include components of its internal control over financial reporting which consists of control processes designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles.

Limitations on the Effectiveness of Controls

The Company’s management, including the CEO and CFO, does not expect that its Disclosure Controls or its internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings — For a description of legal proceedings, see Note 3 “Commitments and Contingencies” of the accompanying unaudited condensed consolidated financial statements.

Item 1A. Risk Factors — In addition to the other information included in this report and in our other reports and statements that we file with the SEC, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial condition and/or operating results. The risks discussed in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

There have been no material changes to the risk factors identified in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10‑K for the year ended December 31, 2023.