Saia Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 27, 2023

There are 15 speakers on the call.

Operator

Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2020 3 Saia Incorporated Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Speaker 1

I

Operator

would now like to turn the call over to Doug Cole, Executive Vice President and CFO. Please go ahead.

Speaker 2

Thanks. Good morning, everyone. Welcome to Saia's Q3 2023 conference call. Quarter. With me for today's call is Versailles' President and Chief Executive Officer, Fritz Holzgrefe.

Speaker 2

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 on this call Q3 2020 results that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially.

Speaker 3

We call. We refer you to

Speaker 2

our press release and our SEC filings for more information on the exact risk factors that could cause actual results to differ. I'll now turn the call over to Fritz for some opening comments. Good morning and

Speaker 3

thank you for joining us to discuss Saia's 3rd quarter results. Our 3rd quarter revenue of $775,000,000 shipments per workday increased by 12.2% compared to last year, obviously impacted in a positive way from the shuttering of operations The sudden elimination of industry capacity has presented challenges for customers and carriers alike, The transition to other providers seems to have gone relatively smoothly. At Saia, we monitor our critical service indicators daily. I was pleased to see that despite the influx of freight in a matter of days, we were able to sustain very high levels of service. And our view is critical to maintain high service levels as this time provided a unique opportunity to show customers our differentiated service in the midst of industry disruption.

Speaker 3

As we've been able to maintain high service levels, pricing has been positive and our yield or revenue per hundredweight, excluding fuel surcharge, increased by 8.4% compared to last year. The reported yield improved in part due to the 5% decline in average weight per shipment, but despite the lower weight, revenue per shipment excluding fuel surcharge still increased by 3%. The weeks months that have followed the major industry disruption has been marked by long I'll now turn the call over to Doug for more details from our Q3 results.

Speaker 2

Thanks, Fritz. 3rd quarter revenue increased by $45,600,000 to $775,100,000 as Fritz mentioned. Yield excluding fuel surcharge improved by 8.4%, while yield increased 3.1 percent including fuel surcharge. Revenue per shipment excluding fuel surcharge increased 3% to $290.79 compared to $282.41 in the Q3 of 2022. Fuel surcharge revenue decreased by 12.3% and was 16.9 percent of total revenue compared to 20.5% a year ago as national average diesel prices are lower than in 2022.

Speaker 2

Quarter. Salaries, wages and benefits increased 15.9%. This change was primarily driven by an increase in employee hours and an 8.9 percent increase in headcount in response to overall increased volumes during the quarter, combined with company wide wage increase and drive approximately 4.1%. Purchased transportation expense decreased by 10.2% compared to the Q3 last year, primarily due to a decrease in cost per mile, partially offset by an increase in LTL purchased transportation miles compared to that same period in 2022. Quarter at 11.7% in the Q3 of 2022.

Speaker 2

Fuel expense decreased by 9.1% in quarter in spite of company miles increasing 5.5% year over year. The decrease in fuel expense was primarily the result of national average diesel prices decrease by over 17% on a year over year basis. Claims and insurance expense increased by 12.7% year over year in the quarter and was 20.6 percent or $1,100,000 sequentially from the Q2 of 2023. The increase compared to the Q3 of 2022 is quarter, primarily due to increases in insurance premiums as well as accident related self insurance costs. Depreciation expense of $45,600,000 in the quarter was 12.1% higher year over year, primarily due to ongoing investments in revenue equipment and network expansion.

Speaker 2

So our total operating expenses increased by 7.6% in the quarter and with the year over year revenue increase of 6.2%, our operating ratio deteriorated to an 83.4% number compared to 82.4% a year ago. Our tax rate for the Q3 was 24.6 compared to 23.3 percent in the Q3 last year and our diluted earnings per share were flat at $3.67 compared to the Q3 a year ago. Quarter. I'll now turn the call back over to Fritz for some closing comments.

Speaker 3

Thanks, Doug. While the last few months of increased activity have been refreshing following a year of negative freight trends, I think it is important to highlight that the macro freight environment outlook remain uncertain. At Saito, we'll continue to put the customer first and seek to fulfill service commitments for both existing and new customers. Our first half operating results highlighted an important underlying business trend as our internal growth initiatives are proving successful. We look to continue to leverage those initiatives along with maintaining new business to grow and growing in the midst of this quarter's market disruption.

Speaker 3

It is important to note in the early days of the industry consolidation, customers often were looking for available capacity. Quarter. Longer term, we strongly believe that customers will gravitate to those partners that provide the best service and best support of their customers' value proposition. Maintaining those service levels requires continuous reinvestment in the business. As we have a long history of doing, we're going to make sure that freight rates are commensurate With the quality of service we provide, we will continue to be opportunistic as it relates to terminal expansion terminal acquisitions and we will continue down the path of expanding our network, not only to reach new customers in markets where we may not be currently be serving, but also to get closer to customers in existing markets.

Speaker 3

Our financial performance positions us to take advantage of investment opportunities. We continue to manage a pipeline for expansion and look to match those investments with the economic environment. In some cases, we may accelerate an opportunity prioritizing those that most immediately enhance our service proposition. 20 or so terminals opened in the last 3 years. History shows us that if we have a meaningful footprint in the market, we have a service offering that enables us to have an outsized share compared to our national average industry share.

Speaker 3

With this strategy being executed by the best team in the business, quarter. I remain excited about our ability to gain market share and do so with improving profitability over time. With that said, we're now ready to open the line for questions, operator.

Operator

Your first question comes from Chris Wetherbee with Citigroup. Please go ahead.

Speaker 1

Hey, thanks. Good morning, guys. Obviously, you took on a significant amount of volume sequentially and had to sort of respond to that with increased resources. Where do you think you are today in terms of resources relative to what maybe you see the opportunity over the course of the next couple of quarters, maybe kind of honing in specifically on the Q4, how does that impact the OR as you think about it sequentially? Yes.

Speaker 2

Good morning, Chris. Yes. Like you say, I mean sequentially, Q3 compared to Q2 shipments per day up low double digits, Quite a big step up. But I think we absorbed the change pretty well even in late July and got into a better place in August.

Speaker 3

So

Speaker 2

FTEs, I think, Q2 to Q3 basis quarter. We're up almost 9.5% compared to a headcount increase of about 7%. So you can see we were using a lot more hours to handle the business, to onboard and train new associates and all. But I mean, if I just look at our performance OR wise, as we move from July August September, it got quite a bit better. So I think we absorbed that initial, call it, 10%, 11% step up and then got into a better run rate.

Speaker 2

So, I expect kind of more normal seasonality now, Not only in the volume trends, but how we operate. And historically, Q3 to Q4 is about a 200 basis point degradation if we look back last 3 to 5 years and we've got less than a month under our belt. I hope we can do a little better of that, so A little bit better than that. So maybe it's a range of 150 to 200 basis points of degradation is what we might expect.

Speaker 1

Okay. That's helpful. Appreciate the color. And I guess just maybe a quick one on the price environment. Just want to get a sense of how you're thinking about that.

Speaker 1

Obviously, we can see some of the metrics in your results have shown that acceleration, I guess. Where do you think we are in this process of kind of moving through? Obviously, you put a GRI in relatively recently and that stepped up. So how do about sort of the pricing setup over the course of the next several quarters.

Speaker 3

Yes. I mean, Chris, as we look at managing the book of business, I mean, this is kind of in our playbook where we make the assessment. We understand the investments we have to make to support high levels of service. And then as the Contractual renewals come up. I would expect that we'll continue to work on making sure we're driving our pricing to market.

Speaker 3

And at this stage, I think there's continues to be runway for us in that regard. And I think that we have A product that we that our sales team can get out and help drive that, get us to closer to where market should be for the level of service that we're providing to customers. So I think it probably our GRI reflects that and I think you We'll see that across our book of business going forward.

Speaker 1

Appreciate the time. Thank you.

Operator

Thank you. Your next question comes from the line of Jack Atkins with Stephens. Please go ahead. Your next question comes from the line of Amit Mehrotra with Deutsche Bank. Please go ahead.

Speaker 4

Thanks, operator. Hi, guys. Hey, Doug, I wanted to just circle back on that OR commentary for the Q4 because I know you're comparing it to The last 3 to 5 years. I just don't know how relevant that period is given where you and the industry are today. And so if I were to just think about The amount of onboarding you did in the Q3, I guess, it takes 10 days to train somebody and you've got 63 days or whatever in the quarter.

Speaker 4

So there's a big productivity deficit, I would imagine. So as you kind of think about the relationship between PT and labor costs, I Why couldn't we see kind of much better than that 200 to 300 basis points sequential Because I think the wage increase went in early July. So long winded way of saying, is that just conservatism or just talk about the walk In terms of the productivity deficit you guys had in the Q3?

Speaker 2

I don't know. I mean, if I think of I mean, go back to my example in Q3, I mean, the OR in July, north of of 86, so I think kind of a monthly LR. And then for the quarter to end up where it did, I feel like we got back We're in a pretty good spot even though we're even today, I mean, hopefully at the near term peak, I think over time percentage probably Hopefully, it peaked in September. We see it down a little bit in October. That's good news.

Speaker 2

But I mean, we're still we're bringing on we're still renting a lot of quarter. We'll step up our equipment deliveries and buys next year and stuff to operate well at these higher levels. But We still got some costs that are related to this unusual event. So There's not in my view, I'm not building a lot of conservatism there. 150 basis points to 200 basis points is kind of a little bit more open range than guidance straight to the historical 200.

Speaker 2

Now I hope to do better than that, but I think we're still investing to maintain the high service level and the GRI It has been announced, it will go into effect beginning in December and that impacts 20%, 25% of the book of business. But again, it's a seasonally Slow month to be putting that in place. It's just necessary and you know from following us closely. I mean, we've absorbed all this volume. We've done a good job for our customer.

Speaker 2

I don't think you heard any anecdotes during the quarter of big service disruptions in our network or anything like that. So we spent money to provide good service and now it's just work. Right now it's just going through that grind we've been going through for a few years. We handle the business and we go say, hey, we've done a good job for you, but it looks like we're below market for the value we're adding and we need a rate increase. Yes.

Speaker 2

We don't mind running off a little volume if it doesn't work. So now it's just we've got the new volumes, a lot of it with existing customer. We met some new customers and now we've just got to work, right? We got to price it and play the long game here. But we're really pleased with how good service stayed throughout this.

Speaker 2

And we didn't really have many weeks we walked into where we weren't prepared, and that's just kudos to all the folks that made it happen on the field and our ops Thank you. And all the investments that we've made over there over the years to do a good job for people. Now we're going to go out and try to get paid for it.

Speaker 4

Okay. And then just as a follow-up, I obviously paid very close attention to the Mastio data. And if you look at the Mastio data carefully, it looks like You guys are even more of a value today in your eyes of the customers than you were last year and you were already pretty nice value last year. I just wonder if the pricing is keeping pace with the service sustainability and whether there's an opportunity more aggressive. I mean, I know you did a GRI of 7.5%, the highest GRI 2020.

Speaker 4

So, it's a little bit of a weird question, but I wonder if you could be even more aggressive given in the eyes of your customers, The survey tells you that you're even more

Speaker 3

of a value today than you were last year. Amit, we've as you might expect, have studied the MASTIO data as well. And one of the things that's particularly pleasing to us as we look across all the attributes, how many that we improved on year over year in terms of that customer experience. And that's really important, because that then gets to the place that says That level of service requires a high level of investment on our part and that's going to require that we continue to And at the same time, that requires investment from us and that's going to require that We make sure the pricing is in line with where it needs to be. So I look at that data and I'm pleased with the

Speaker 2

Thank you very much.

Operator

Thank you. Your next question comes from the line of Scott Group with Wolfe Research. Please go ahead.

Speaker 5

Hey, thanks. Good morning. Did you guys give the October tonnage and pricing renewals, if you can I don't think I heard those, if you can give those? And then Doug, can you just clarify your comment about like the July OR versus the Q3 OR, like is that somewhat seasonally normal where July is always the worst OR of the month OR of the quarter

Speaker 2

Sure. Good morning, Scott. So September, I don't think you have the September numbers yet. We haven't given those. So September shipments were up 16.3%.

Speaker 2

The tonnage was up 9.7%, with weight per shipment down 5.7%, all of those per workday numbers. October shipments per workday up 18.6% and tonnage is up 8.4% per workday here in October. So weight per shipment continuing to run lower down 8.6 20. So far in October. That's through the middle of this week.

Speaker 2

And in terms of the OR, I mean, look, July has got 20 days this year, we kind of figured we had a half a day in there too because of where the 4th July fell. Monday was kind of a hanging day. So Yes. I mean, that's a tough month with 19.5 workdays in it. But I'm just saying the magnitude of improvement in August of 400 basis points, really shows us well, more than that, 400 basis points, 500 basis points really shows us that we absorbed it We're pretty pleased with how we adapted to those volumes.

Speaker 2

And as we get folks settled in and can bring the PT or the overtime cost down more, that's an opportunity. Yes. Now as we run into these seasonally slower months the next few months, I mean, that's what you do, right? I mean, you manage down hours every day in every And get ready for it because seasonally that's what we're walking into next few months.

Speaker 5

And then people maybe people are disappointed near term OR fine. Fred, I want to just ask you, right, about like ultimately what the operating leverage and margin profile could look like A year from now, right? I think in the past you've talked about 100 to 200 basis points of margin improvement a year. I know it's early, but We're digesting some costs this year. I'm guessing we'll have opportunities to get more price next year.

Speaker 5

Like, is next year a year where it should be In that one to two point range, should it be better than that given what you know today? Just how should we think about ultimately where the operating leverage and margins can go?

Speaker 3

Well, I think the big thing to think about is that if you look at this over the longer term, I don't see an impediment Not driving this into the 70s OR, right? I mean, that's out there. That's available to us. We have condition to maintain very high levels of service. And if you do that, you've got an opportunity to continue to push our pricing to where it ought to be in the market.

Speaker 3

Now, the tough part about the question you asked, Scott, is that it's going to require next year, I would expect to have OR improvement over where we exit this year. And I think the ranges you talk about are they make some sense. Maybe it's 150 basis points to 200 basis points, that makes some sense. But I can't really opine yet on what the overall macro environment is going to look like next year. You hear things that are a little bit positive and constructive.

Speaker 3

I'd sure like to see that realized. But I think that What's most important on the things that Saia can control, and I think we have done a great job of handling our customers' business this quarter. And I think what that does is that positions us to continue to drive the results. And I think that that I think we ought to perform well next year in a good environment. And I think Most significantly, longer term, I don't see a limit to what we can do as an organization.

Speaker 3

So I'm excited about the prospects.

Speaker 5

2. So the answer, Fred said, hey, we've never had mid teens, high teens shipment growth before. Ultimately, this is going to be great. But That's a big number. It's going to take maybe a little bit longer to sort of fully digest and leverage.

Speaker 5

Is that sort of the idea? Yes.

Speaker 3

I mean, We've got it Scott, we've got it. We're going to build the and we talked about the 1,000 folks that we added on the team in the 3rd quarter. I mean, 40% of those were drivers. So what that is, is that's us building density in our internal resources that's Driving our line haul cost, leveraging our line haul network. As we get scale in the business, I think we're going to see the benefits of scale.

Speaker 3

But what's important while we're getting that figured out and getting that scale to the right level, we cannot Absolutely cannot come short on service with customers. So our focus is always going to be service first And then let's get everything let's build the cost structure around that and I think there's an opportunity for us to certainly leverage the business. That's the great value of what we can drive in the organization because we've proven that we can provide repeatable high levels of service.

Speaker 5

Makes sense. Thank you, guys. Appreciate the time.

Operator

Thank you. Your next question comes from the line of Jack Atkins with Stephens. Please go ahead.

Speaker 6

Okay, great. Good morning, guys, and thanks for taking my questions here. So maybe if I could just follow-up on that last line of questioning there for a moment. Fritz, I mean as the business grows and matures and as you add terminals and service centers across the network To gain density on the investments that you've been making, could you maybe update us on how your thoughts around the incremental margin profile of the business should look? I mean, I know right now, it's obviously, it's tougher in the short term given how dynamic the market is.

Speaker 6

But How are you thinking about incremental margins on your business over the longer term now?

Speaker 3

Yes. I think when you look back the last couple of years and we saw a more favorable environment as we grew adding facilities. I mean, you saw us getting sort of incremental sort of 25% to 30% in there. And I think as you go forward, As we get more normalized, we've brought all this new freight in our network, got it stabilized, continue to open I think you'll see us return our incremental margins to that level. Now, of course, If most of that comes in the revenue line in the form of pushing our pricing to more market levels, then maybe we push up that incremental margin profile.

Speaker 3

But as the company builds scale over time, I think that scale automatically means that those incrementals are going to get better. I feel really good about that. I think that's what's going to drive this DOR into the 70s. Frankly, it's because our ability to execute on that.

Speaker 6

Yes, absolutely right. And we've seen accelerating incrementals from some of your competitors as that's happened. So that makes a lot of sense. I guess maybe for my follow-up question, just kind of going back to October for a moment, there was further disruption from another competitor due to a cyber TAC. Did you guys see much of an have you seen much of an impact from that?

Speaker 6

I guess that would have been the first half of October. And I guess, how do you think about all things considered the amount of latent capacity you have in the network as it stands today?

Speaker 2

Yes. Good morning, Jack. Yes, we definitely saw an impact for a few days there. I mean normal seasonality for us, September to October is down about 2% and we're running better than that. We're down call it 1 So we definitely saw some effect from that disruption there and it feels like they got it resolved, but there were a few days there where it was We saw it flow through.

Speaker 2

So

Speaker 3

in terms of incremental capacity, we're probably Jack, it's going to be a pretty similar response that I've had in other quarters. It depends on the location, but I think we're sort of 15% to 20% incremental capacity. Replacement facility in that market in this quarter and that's a huge opportunity for us. So that helps the capacity numbers. I think we're in that range, but you know what, we can we also know how to flex if we have to.

Speaker 3

So, we can go beyond that if need be.

Speaker 6

Okay. Thanks again for the time guys.

Operator

Thank you. Your next question comes from the line of Ken Hoexter with Bank of America. Please go ahead.

Speaker 7

Great. Good morning. Great detail on the cost leverage. Just to follow-up on that last question there. Fritz, you got 15% to 20%, but you grew volumes 18% in October.

Speaker 7

So if it was 15% to 20% before or was it 20%, 25%, 30% before and now you're at 15%, 20%. I just want to understand just with the phenomenal thoughts and then just other data, maybe on time performance and claims ratio. Can you give us an update on those?

Speaker 3

Yes. So on the capacity sort of comment, I mean, one of the things that we know how to leverage, we know how to leverage the line haul network well and We judiciously have used purchase transportation and that we know how to manage that well, keep maintain service levels with that. So that's kind of our flex capacity. We've long done that, so we're pretty comfortable with it. With respect to the service levels, we measure service levels on a variety of different points whether it's pickup completion, on time delivery, it's claims and we're tracking at or above where we were prior to not only this disruption, but if you go back to even the most disrupted times.

Speaker 3

So, we're very pleased with where we are with that. That's an important measurement for our customers and as you know, we measure that every day.

Speaker 7

So, is there a number that you give in terms of on time performance and claims ratio?

Speaker 3

And the claims number is what 0.58 percent and on time we measure it we have our internal measurements and we're 98 On time outside for 98, 99 as we report customers and internally we measure our own metrics.

Speaker 7

Thoughts on the sustainability of those volume gains we've heard, some of the peers struggled. We saw one carrier give some back in October. Any thoughts on the movement back of some of these volumes or the sustainability continue to grow in the face of others struggling?

Speaker 3

Well, I think people that value service and on time and quality, they're going to gravitate to Saia. I think folks that maybe are looking for cheaper service, lower quality service, they're going to move on and we're okay with that. We're not in the game to see how much incremental volume can drive. We're looking at creating value not only for our customers but for our shareholders. So it's I'm not necessarily worried about seeing how fast we can grow.

Speaker 3

I'm just we're more worried about executing and making sure that we're in a position where we can get paid for

Speaker 7

Thank you. I appreciate the time. It's just obvious the concern here is phenomenal growth and the concern on how you get that cost leverage, but it sounds like just something that continues over time as you kind of work through A quick added cost and just get the benefit with the pricing over time. Appreciate the thoughts.

Speaker 3

Yes, absolutely.

Operator

Thank you. Your next question comes from the line of Allison Poliniak with Wells Fargo. Please go ahead.

Speaker 8

Hi, good morning. Just want to go back to your comment on the pinch I think you mentioned in terms of terminal investment, maybe some incremental acceleration into next year potentially. Is this influx of volumes sort of highlighting any potential holds or to your point pinch points that maybe we would see that in the first half of the year? Just any thoughts there.

Speaker 3

I think it was great to get the Salt Lake City facility open. That helped kind of our Western region, kind of the it's a big break operation for us. That's pretty exciting. We've got some projects coming online in the Q1 If we continue at these levels, we're going to get some benefits, primarily in the ones coming in the Q1 or ones that, Frankly, it's an incremental service opportunity for our customers. So I think that's exciting.

Speaker 3

And so I don't I think there's one call out per se that would say that it's a capacity play. Most of these that are online at this point are ones that are really related to Yes, getting closer to the customer. So those are great value.

Speaker 8

Got it. And then just in terms of some of the new Is there any way to understand sort of the mix between sort of new customers versus existing customers where you can sort of increase those density Aircale that you have with them, just any thoughts there.

Speaker 3

Yes. So a good portion of what we brought on actually was with Maybe there were shared where we had an account that we shared with the rest of the market. And as When player exits the market, we pick up incremental levels of business from a customer. Those that freight, So, you get some economies due to the pickup part, but at the LIBOR, you may actually go to different markets or have different profiles. And in those cases, that may not operate quite as efficiently or effectively.

Speaker 3

So it's very important that we then make sure we understand what the impact Some of this volume may not be something that makes a whole lot of sense for Saia. It may need to gravitate somewhere else in the market, whereas There could be a customer that we picked up a shared account or we picked up some additional business and they say, while the service level is really helping drive value in our organization. I need to do more business with Saia. And we just got to make sure we get the pricing right. And we get that right, and I think that's a winning proposition both for the customer and us, and that's business we keep over time.

Speaker 8

Great. Thank you.

Operator

Thank you. Your next question comes from the line of Bruce Chan with Stifel. Please go ahead.

Speaker 7

Thanks, operator, and good morning, gents. Just maybe want to get some clarification around the CapEx guidance. Doug, Maybe if you can give us a breakdown of what's maintenance and what's growth. And then when you think about the fleets, I know, Fritz, you talked about the opportunity to flex up on the line haul, but You need to maybe grow the tractor or trailing fleet as we move into next year as well.

Operator

Yes. I mean, it's a little early to give

Speaker 2

Some real clear CapEx guidance, but we're expecting a pretty big year next year on as you point out on the equipment side. Both in our network operations as well as city operations, we see a good benefit for If we're able to secure more equipment, put more trailers out there at customers in customers' yards, Our network fluidity requires more pups each and every year and especially after this volume step up. So You'll see a step up of investment for sure on the trailer side. Our Asia fleet on the tractor side is in pretty good shape. We'll have some growth equipment coming in.

Speaker 2

But I could see CapEx number next year certainly running in excess of $500,000,000 And again, we're still in the 20 24 planning stages right now. A lot of moving pieces as you're familiar with on the real estate front. So We'll give you some better guidance as we're able to put it together ourselves, but a big opportunity on the equipment side, I think, to be in a position to keep running the network effectively, take down some PT costs and then take share if we can put trailers in big customers' yards. We're renting a lot of equipment right now, so we want to pull that rental cost out and get our own equipment out there.

Speaker 7

Okay. I appreciate that. And maybe just for a follow-up here. Any broad commentary on end markets, whether it's industrial versus consumer, anything to call out there on general inventory levels and whether some of those mix changes may be affecting the weight per shipment.

Speaker 2

No. I mean, I think primarily what we've seen in the weight per shipment And some of that for us is obviously we've had some increases with retail customers and some of that's tending to be lighter weight. And like Fritz said, I mean, if you're going to the same location and getting extra shipments, that's great. You take out a piece of the cost component Even if the revenue per shipment is lower that math works, but there's instances where we're serving 1 DC for a big retailer and all of a sudden they need help In another DC, so it's not pickup economies. It's another pickup cost and the revenue per shipment on some of that retail stuff slider and that's the white slider and that's what's driving the revenue per shipment.

Speaker 7

That's great. Appreciate the color.

Operator

Your next question comes from the line of Jordan Alliger with Goldman Sachs. Please go ahead.

Speaker 9

Yes. Just a follow-up. I think you had talked earlier about the hiring process And as you sort of think ahead and the influx of business from the redistributed freight, how do you think about your headcount driver needs, etcetera, as you move ahead from here. Thanks.

Speaker 3

Yes. I mean, For us, as we build scale and density in this, certainly, we want to make sure we leverage our internal assets and capabilities. One of the exciting things that I think we have to offer is that it's a great place to work for somebody that's interested in career in transportation and logistics and professional truck driver and the business is growing healthy, A lot of opportunity. So I think that it's when you're recruiting drivers in this market, that's an effective place to be or a great place to be. And I think we've attracted that and we'll continue to focus on hiring because I think that it's we see runway to grow the business, we see runway to optimize the business Yes, as we continue to utilize more of our the scale that we developed in our line haul network, that gives us an opportunity to really support and build that driver force around that.

Speaker 3

And I think that it's something that it's a challenge, always is, but I think that's a competency we're developing around recruiting too.

Speaker 9

Got it. Thank you.

Operator

Your next question comes from the line of Eric Morgan with Barclays. Please go ahead.

Speaker 10

Hey, good morning. Thanks for taking my question. I just wanted to ask on the freight onboarding process this quarter. Your release mentioned your focus on ensuring the freight profile is appropriate and margins met expectations. So Just wanted to see if you could speak to that process a bit more.

Speaker 10

Obviously, you took on more freight than others, at least from the outside, it wasn't to profit bullet, the prior carrier. So just wondering if you could comment on some of the variables you look at with respect to margins, returns, density, things like that?

Speaker 3

Yes, sure. Our focus is really making sure we understand the freight characteristics that the freight that we pick up, make sure that it's understanding what its impact is on our network, where we're going to make those pickups and deliveries. And when you do that, all those things, You've got to make sure the pricing is right. So we pretty rigorously review that on an ongoing basis. And to the extent that there are situations where It's not priced appropriately, then we've got to go have the conversation with the customer or we've got to come through and provide the customer remind the customer the service they're getting and then being in a position that we can make the appropriate pricing adjustments.

Speaker 3

So, We started that as soon as we saw the changes in the marketplace. We've been kind of rigorously on that, shows up in our results. You saw the GRI that we've communicated earlier this week and those are all pointing We watch very closely what the feedback is both internally as we measure customer satisfaction on a daily basis and then we watch what third parties say about our what we're doing to satisfy the customer and we look at that and we say, Listen, the pricing has got to be right based on what we're providing to the customer. And that makes it critically important that we do not disrupt service.

Speaker 10

Appreciate that. And maybe just a quick follow-up on the end market question, specifically underlying demand. I know you mentioned you're expecting normal seasonality from here. Just wondering outside of the industry disruption, if you're seeing any kind of shifts on the horizon in terms of underlying demand conversations from customers.

Speaker 3

Thanks. Maybe there's a little bit of optimism out there, but I think it's Let's kind of get a few months under our belt before we think that we're steered through choppy waters. But I think that Into next year, maybe it's a little bit of more optimism, but we'll see. I mean, I'm kind of a worst sort of show me, okay, let's see the evidence of Things being better, in the meantime, let's focus on handling the freight for the customers. So when the business does and the market does return, which I think whenever that is, be it next We continue to grow that relationship.

Speaker 3

So today, I don't know that there is a big call out there, but it's we've continued to operate through this. Thank you.

Operator

Thank you. Your next question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead.

Speaker 11

Thanks. Good morning, guys. Apologies if I missed this earlier in the call, but did you say how much excess capacity you have right now in the network?

Speaker 3

Yes, we think it's about 15% to 20% across the whole network.

Speaker 11

Got it. So if you have 15% to 20% on the door side and obviously Like not much of anything on the kind of variable side kind of given what happened this quarter. I I was wondering what happens next year when volumes come back with the upcycle, right? I mean, how do we ensure that there is operating leverage and you guys can grow into that capacity? Is it just a case of really adding more resources now or kind of how do we think about operating leverage when the cycle turns up?

Speaker 3

Yes. I mean, what we look at right now, we've had a pretty big step up in shipment count. So we've immediately, as We saw that develop really ramped up our recruiting efforts and we added 1,000 employees as a result of that. And I think we'll judicious about that, but I think as we continue to scale, we will continue to add resources where it's And I think that's something that is we've been successful with. So I don't necessarily I think in the next year, I think we can continue to scale the business and look for opportunities as we build density, maybe we find that lower cost line haul option and that's usually internally resource line haul.

Speaker 3

So if we make that happen, I think we can continue to grow this and build density in the business.

Speaker 11

Very good. Thank you.

Operator

Thank you. Your next question comes from the line of Jason Seidl with TD Cowen. Please go ahead.

Speaker 12

Thank you, operator. Gentlemen, good morning. I wanted to shift the focus back to the additional employees hired. I think you commented that 40% out of the 1,000 were drivers. Did you guys experience a little bit of a productivity shift downward if a bunch of them were from yellow because you had to train them a little bit more in the quarter, just curious.

Speaker 3

Yes, anybody that we hire that comes to the Saia, we're going to focus on there's a principle that we have, which is we're going to put the customer first. So that's the first kind of screen that we think about. We're going to work in a collaborative environment. And then we have kind of how we operate and provide differentiated service. So that requires the appropriate level of training.

Speaker 3

And we do that with anybody that we bring through our recruiting process. The worst thing that we can do is that provide sort of uneven service to a customer. Customer can't they're counting on us to provide the appropriate training and the team that will provide the high level of service. So that's kind of how we think about

Speaker 12

it. And what percentage of the drivers did come from Yellow?

Speaker 3

Listen, what we focus on is we recruit everywhere and we take a whole range of candidates and we

Speaker 12

Fair enough. And as we look at your sort of legacy terminal network, not the expansion areas, are there any places you foresee that you might be more aggressive at trying to get at terminals to expand.

Speaker 3

The exciting thing when you're providing The service levels that we are we have an opportunity we think to grow in just about every market that we're in, in the country. I mean, we're thrilled with what we've done in Atlanta. We've opened 2 terminals here in the last few years and we've seen great success there. And they're 3 of our highest performing terminals in the company now in the Atlanta market. Historically, the one terminal we had, we struggled with.

Speaker 3

Maybe there's an opportunity for us to add a 4th year, because the customers are getting a good experience and you have the opportunity to grow that. So in that case, It's not a capacity issue. It's really about just reach to customer. So, I think that those opportunities are kind of around the country and It can be new markets we haven't been in long and it can be ones we've been in for a long time. I think there's that's what's exciting about where we are.

Speaker 3

You know Jason,

Speaker 2

and just to follow-up on that. I mean, I think if you were able to go forward and look back in a few years and say, where did all the growth come from. I still think our biggest opportunity is in markets that we already say we have a presence,

Speaker 3

But we

Speaker 2

don't have a representative footprint to provide the same level of coverage as some of our peers. When I think of some of our legacy markets, if I think Go down to our Gulf States roots and think about Louisiana and across through Texas.

Speaker 11

I

Speaker 2

mean, we have much higher market share there in terms of revenue share than we do in other parts of the country. So

Speaker 7

if I

Speaker 2

look at Texas, for example, we've got probably close to a couple dozen terminals down there. We've got a representative footprint that matches some of our national peers. We've got a double digit revenue share there and you compare that to our headline share in the industry and we're a 5% or 6% share of revenue. But in a market where we've got a similar footprint, our service allows us to go take share. So if we go do that in the Northeast, we've grown from 0 there to something like probably 3% to 3.5% share these days in a matter of a few years.

Speaker 2

But there's several regions in the country where We just need to be close to the customer. We say we cover the market, but if we had 2 or 3 more terminals, we can get share. So it's an exciting time and we look forward Getting a more representative footprint and taking that share.

Speaker 12

Well, Doug, in terms of taking more share, getting back to the hires that you had in the quarter, I mean, if 40% were drivers, that means 60% were potentially out there that could be salespeople. So did you have a lot of sales hire in the quarters that could sort of ramp up and sort of give you some of that density that you're looking for in some of those areas.

Speaker 3

We certainly added a complement of sales folks as well in the quarter. It's great to be in a position where you've got You can attract sales people because they got a great product to sell. So that's been good that built and we've been able to add sales people in Not only developing markets, but ones that we've been in for a while. So it's a good place to be.

Speaker 12

Appreciate the color guys and the time.

Speaker 2

Thanks, Jason. Thanks, Jason.

Operator

Thank you. Your next question comes from the line of Tom Wadewitz with UBS. Please go ahead.

Speaker 9

Yes, good morning. So I wanted to ask you a quick one on price and then I have a question on the terminals as well. How should we think about revenue per hundredweight ex fuel, pretty strong number 8.4% in the quarter. Is that something that can build further as you reprice more of the book? Or is that kind of a good run rate that we should look at going forward?

Speaker 2

Yes, I mean, the yield calc itself, like you know, is influenced a little bit by the weight per shipment decline we saw. But I think, I mean, our revenue per shipment growth was still positive at 3% ex fuel. With a 7.5% announced GRI and with growth in some of our national account customers That may not be operating as well with these new volumes, we're going to push for at least that. Our contractual renewals in the quarter were 5.6% And that stuff that was really started leading up to the disruption in the industry.

Speaker 12

So They

Speaker 2

don't really even reflect the tightness that's going on post that event. So I mean that rate was Higher as we exited Q3 than the headline 5.6%. So our recent renewals are running higher than that. And we continue to think there's an opportunity

Speaker 9

Yes. Okay.

Speaker 7

All right. And then

Speaker 9

I wanted to ask Kind of related to the growth in the terminal network, how we should think about your approach with the yellow terminals? I guess it's kind of twofold. One would be, how do you think we should measure success? So the results come out, you issue an 8 ks. If you get more terminals, is that a good thing?

Speaker 9

I would tend to think so. I don't know If it's like, hey, you get 5, that's kind of not as good, get 30 terminals, that's great. So I guess just kind of And then I guess related to that, it does seem like you have a real opportunity to pull forward some of that or build the pipeline in future growth. And I think the market's got a lot of confidence notwithstanding some noise today opportunity to add a lot more terminals as opposed to doing kind of year by year.

Speaker 3

Yes. So Tom, the way I would think about this is a little bit how we've been thinking about ongoing is that we are continuously looking at our pipeline of opportunities, which extends out for a couple of years. And we're very judicious about identifying locations where they need to be, what the profile of those facilities are, where are our customers and making sure the facilities that we had are there. I think if you look back at our track record, we know how to open things organically. We know how to build facilities and open them and do that in a pretty value adding way.

Speaker 3

As far as what is going on with in the yellow process, I mean, I think that Those are all facilities that are in some form are going to be available to the market, right? So We consider anything that's out there that those are facilities that we look at and our position in the market are ones that we take it And we have the opportunity to participate in those or as others maybe pursue opportunities and need to vacate a facility. Those are things that we do pretty successfully. So, this I don't have a measurement around how many we need to have at any given point in time. I have a measurement We think we probably need to get to 240 to 250 facilities to provide apples to apples coverage and service the best in class.

Speaker 3

And I think we've built to that point. We'll do it in a way that's judicious over time in which we are Not only creating value for our shareholders, but also for our customers. So it's still a multiyear process, however you think about it.

Speaker 9

Just one follow-up on that. Do you consider a bigger step up? Is that something that could make sense or you want to keep it more smooth?

Speaker 3

Yes. Well, it's all about what the opportunities are. So, if the macro environment is favorable, we've seen that we're pretty good at accelerating. If things are maybe a little bit softer, more tepid, we'll slow it down and be judicious about how we open it. I know there are Lots of outcomes that could come up in the real estate market, industrial real estate market in the next 6 months to a year.

Speaker 3

And so there Infinite number of variables there and we'll see how it plays out and what the opportunity looks like.

Speaker 9

Okay. Thanks.

Speaker 2

And you see that in this year's activity as well, right? We've opened 6 terminals year to date. We'll have a 7th one open next week. And we've got a couple more that we could probably push over the And they're kind of in our view new share opportunity markets and we could probably get them over the fence in December, but we'll push them out into Q1. We read the tea leaves and we see what we have going on in our business and then we kind of flow them in as we think we can do it most smoothly.

Speaker 2

So We should have a pretty exciting year next year in terms of openings.

Speaker 9

Okay, great. Yes, that makes sense. Thank

Operator

you. Your next question comes from the line of Stephanie Moore with Jefferies. Please go ahead.

Speaker 13

Hi, good morning.

Speaker 2

Good morning.

Speaker 3

Good morning.

Speaker 13

Good morning. I think pretty much every topic has been well addressed here. So I'm going to ask quarter. Kind of one bigger picture question here. Maybe with just the benefit of hindsight now, as you kind of navigated this major disruption for the industry.

Speaker 13

In terms of how everything has panned out over the last couple of months, maybe that's in terms of volume acceleration month over month, pricing, capacity additions, service performance, is there anything that has surprised

Speaker 3

One of the things about the LTL business that I would say is that there's never 2 days in a row that are the same. I think we all saw kind of the what was going to come potentially come in the early part of the year as read the news in the market The pace at which the competitor exited was probably It was a little bit maybe surprising, but what was exciting about it is having lived through the last few years with the pandemic and All the challenges that came along with that, our team was ready to go and we executed on taking care of the customers. So The pace probably surprised me and my kind of experience, but I was thrilled to see how we responded to it. We'll see how the opportunity unfolds over the next several months to a year.

Speaker 8

And just

Speaker 13

as a follow-up, the pace of meaning the amount of volumes initially is what you're saying?

Speaker 3

Yes. We went basically we went from Sort of slow growth, no growth, limited growth in total, then all of a sudden we have a 10%, 11%, 12% increase in shipments in a matter of days. And to watch our team respond to that was frankly was awesome. And so that was the exciting part.

Operator

Your final question comes from the line of Chris Kung with The Benchmark Company. Please go ahead.

Speaker 3

Hey, operator. I apologize.

Operator

Sorry, go ahead.

Speaker 2

No, it doesn't look like Chris is able to join. Is there anything else?

Speaker 14

Hey, Doug Fritz, it's Chris. Can you hear me?

Speaker 3

Yes. Got it, Chris.

Speaker 14

Thanks, guys. Sorry. Just bigger picture, with the shipments up and the costs up in the short term, just given the higher step up in volume, If you think longer term, once things sort of settle in and get to normal seasonality, do you think you could get to that 70 OR handle faster than you might have thought. I know you didn't give a time frame on it, but just curious, just given the higher volume and maybe the increased density.

Speaker 3

Yes. No, I think it's very much in play. And you're going to need a little bit of a favorable macro environment, but I think that the pace at which we can get there, right, is absolutely in play. I think that the ability to maintain this stepped up volume at a high level of service

Operator

Your next question comes from the line of Bascome Majors with Susquehanna. Please go ahead.

Speaker 3

Fritz, wanted to follow-up on Tom's question about the terminal option. But from an industry perspective, from For Saia, in the broader industry, in you guys' eyes, what is a good outcome for the LTE industry, LTL industry on where these terminals end up and How they're redeployed? What is a bad outcome? And how are you kind of operationally preparing for a lot of different ways this can go? As you've already noted a lot of different things can happen over the next 6 months with how this capacity is brought back into the market.

Speaker 3

Thank you. Yes. My guess is what will happen there Yes, it's a pretty big footprint and there will probably it will be dispersed to the market to other All LTL operators will probably have some potential opportunity either in the Kind of how that process plays out or the secondary part of that process as people maybe reposition their networks to match What's available and what the new facilities are. So, there's going to be some cases that some of those don't get returned to the LTL business because maybe it's the economics are make more sense for that to turn into a warehouse or industrial real estate property of some kind. So I think it remains to be seen what's going to happen to all of them.

Speaker 3

My guess is that even if the 1 player gets them all, but I think that I'm not sure how likely of an outcome that is, but if it is, what I think would happen then is even that Those players are a player that would still probably lead to facilities being shifted around and Some staying in service in the industry and others exiting. And I think what's important to note is that kind of ongoing even without This current situation, I mean these LTL assets are getting traded amongst competitors as it is now. We've facilities that we've opened this year. Certainly, we've opened new ones, but we've also purchased ones from folks that are repositioning their footprints in their network. So I think what's important is the ability to get those facilities and then replicate service.

Speaker 3

And I think as these facilities trade and move within the industry, I think you'll see that. So it will be kind of a probably a combination of all those So first would be whoever ends up, if there's a one bidder that gets it all and they probably reposition some of those in their own network, others maybe they sell and they get traded amongst other competitors and some will ultimately probably exit the market entirely. The exit of that capacity tightened the market from a pricing perspective overnight. Do you have concerns that the redeployment, even if gradual, can loosen it, even as the economy is hopefully getting better next year and the year after? No, I think the if I look at how the market has responded here in the last several years, I think that generally this is a high cost inflationary business that requires a lot of capital.

Speaker 3

And those As facilities get redeployed and some get expanded and as the macro economy grows, I think those things will all kind of match. I'm not really concerned about significant changes in increases in capacity. Frankly, if you watch what's happened over time, it continues to shrink.

Speaker 2

And remember, Bascome, the industry was only able to absorb the volumes so relatively smoothly Because as an industry, we've all seen shipments and tonnage negative for the better part of a year when this event occurred. So I mean, If you thought you had capacity the year before, you had more capacity after 12 or 15 months of down. So If your model says ISM is always going to be negative and near shoring benefits aren't going to be a tailwind, And that's one thing, but remember we've been in a freight slump here. So that's why we had capacity as a group to kind of fill in the holes for customers. But if you get back to a more normalized industrial environment, we get some growth going again, you get port activity going again, you get benefits in near shoring, Well, then that's another kind of mode around pricing.

Speaker 3

Thank you, Doug. Thank you, Fritz.

Speaker 2

Thanks, Budd.

Operator

Thank you. I will now turn the call over to Fritz Hulsgrieve for closing remarks. Please go ahead.

Speaker 3

Thank you for everyone that called in to hear the update on the exciting opportunities at Saia and our look for success in the coming quarters and look forward to giving everybody an update next quarter. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's call. Thank you all for joining and you may now disconnect your lines.

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Earnings Conference Call
Saia Q3 2023
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